0001144204-19-006010.txt : 20190211 0001144204-19-006010.hdr.sgml : 20190211 20190211095244 ACCESSION NUMBER: 0001144204-19-006010 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 20190211 DATE AS OF CHANGE: 20190211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Anchiano Therapeutics Ltd. CENTRAL INDEX KEY: 0001534248 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: L3 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-229155 FILM NUMBER: 19582568 BUSINESS ADDRESS: STREET 1: 1/3 HIGH-TECH VILLAGE STREET 2: GIVAT RAM, P.0. BOX 39264 CITY: JERUSALEM STATE: L3 ZIP: 9139102 BUSINESS PHONE: 972-2-5486555 MAIL ADDRESS: STREET 1: 1/3 HIGH-TECH VILLAGE STREET 2: GIVAT RAM, P.0. BOX 39264 CITY: JERUSALEM STATE: L3 ZIP: 9139102 FORMER COMPANY: FORMER CONFORMED NAME: BioCancell Ltd. DATE OF NAME CHANGE: 20111104 F-1/A 1 tv512791-f1a.htm AMENDMENT NO. 4 TO FORM F-1 tv512791-f1a - block - 14.4102105s
As filed with the Securities and Exchange Commission on February 11, 2019.
Registration No. 333-229155​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4 to
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Anchiano Therapeutics Ltd.
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant’s Name to English)
State of Israel
2834
Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer Identification No.)
Anchiano Therapeutics Ltd.
1/3 High-Tech Village, Givat Ram, P.O. Box 39264
Jerusalem, 9139102 Israel
+972 (2) 548-6555
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Anchiano Therapeutics, Inc.
One Kendall Square, Building 600, Suite 6-106
Cambridge, MA 02139
+1 (857) 259-4622
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Anna T. Pinedo
Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020-1001
Tel: (212) 506-2500
Aaron M. Lampert
Goldfarb Seligman & Co.
98 Yigal Alon Street
Tel Aviv 6789141, Israel
Tel: +972 (3) 608-9999
Ivan K. Blumenthal
Cliff M. Silverman
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Chrysler Center, 666 Third Avenue
New York, NY 10017
Tel: (212) 935-3000
Oded Har-Even
Shy S. Baranov
Zysman, Aharoni, Gayer & Co.
41-45 Rothschild Boulevard
Tel Aviv 6578401, Israel
Tel: +972 (3) 795-5555
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. ☐
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. ☐
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. ☐
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. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Proposed maximum aggregate
offering price(1)(2)(3)
Amount of
registration fee(4)
Ordinary shares, no par value, as represented by American Depositary Shares
$ 40,213,200 $ 4,873.84
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Includes shares granted pursuant to the underwriters’ over-allotment option.
(3)
American Depositary Shares, or ADSs, issuable upon deposit of ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-229522). Each ADS represents five (5) ordinary shares.
(4)
Previously paid.
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 contained in this preliminary 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 preliminary 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.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2019
PRELIMINARY PROSPECTUS
2,400,000 American Depositary Shares
[MISSING IMAGE: lg_anchiano.jpg]
Anchiano Therapeutics Ltd.
Representing 12,000,000 Ordinary Shares
This is the initial public offering of American Depositary Shares, or ADSs. We are offering 2,400,000 ADSs, and each ADS represents five of our ordinary shares, no par value. The ADSs will be evidenced by American Depositary Receipts, or ADRs.
Our ordinary shares are listed on the Tel Aviv Stock Exchange Ltd., or the TASE, under the symbol “ANCN.” On January 28, 2019, the last reported sale price of our ordinary shares on the TASE was NIS 10.72, or $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00). Based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019, we have assumed an initial public offering price of  $14.55 per ADS. The actual initial public offering price will be determined between us and the underwriters at the time of pricing, and may be at a discount to the current market price of our ordinary shares on the TASE. Therefore, the assumed initial public offering price used throughout this prospectus may not be indicative of the actual initial public offering price.
The ADSs have been approved for listing on the Nasdaq Capital Market, or the Nasdaq, under the symbol “ANCN.”
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, are eligible for reduced public company reporting requirements.
Investing in the ADSs involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of information that should be considered in connection with an investment in the ADSs.
Per ADS
Total
Initial public offering price
$    
$    
Underwriting discounts and commissions(1)
$    
$    
Proceeds to us (before expenses)
$    
$    
(1)
See “Underwriting” for a description of the compensation payable to the underwriters.
Neither the Securities and Exchange Commission, or the SEC, 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.
We have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase up to 360,000 additional ADSs solely to cover over-allotments, if any, at the initial public offering price, less underwriting discounts and commissions.
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price. Such indications of interest are not binding agreements to purchase, and these shareholders and/or their affiliates may determine to purchase fewer ADSs than they indicate interest in purchasing, or none at all. In addition, the underwriters could determine to sell fewer ADSs to these shareholders and/or their affiliates than they have indicated an interest in purchasing, or none at all. The underwriting discount for the ADSs sold to such shareholders in this offering will be the same as the underwriting discount for ADSs sold to the public.
The underwriters expect to deliver the ADSs on or about            , 2019.
Oppenheimer & Co.
Ladenburg Thalmann
LifeSci Capital LLC​
Prospectus dated            , 2019.

Table of Contents
Page
1
14
39
40
41
42
43
44
46
48
50
60
90
102
Page
104
106
112
119
121
129
135
135
136
137
138
F-1
Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus, any amendment 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 the ADSs, 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 the ADSs 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 ADSs in any circumstances under which the offer or solicitation is unlawful.
Until and including            , 2019, 25 days after the date of this prospectus, all dealers that buy, sell or trade the ADSs, 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.
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. Potential market size information included in this prospectus is based on market data, including independent research that we commissioned in 2017 from The Nemetz Group LLC, a third-party advisory firm focused on the life sciences industry. The data involves a number of assumptions, estimates and limitations, and we have not independently verified the accuracy or completeness of such data. Accordingly, you are cautioned not to place undue reliance on such data.
i

Prospectus Summary
This summary does not contain all of the information you should consider before investing in the ADSs. 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 unaudited condensed consolidated interim financial statements and consolidated financial statements and the related notes included at the end of this prospectus, before making an investment in the ADSs. All references to “Anchiano Therapeutics,” “we,” “us,” “our,” the “Company” and similar designations refer to Anchiano Therapeutics Ltd., together with its consolidated subsidiaries. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel, and the terms “dollar” or “$” refer to U.S. dollars, the lawful currency of the United States. Unless otherwise indicated, U.S. dollar translations of NIS amounts presented in this prospectus are translated using the rate of NIS to $1.00, based on the exchange rates reported by the Bank of Israel on January 28, 2019. We report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. None of the financial statements presented in this prospectus were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
Overview
We are a clinical-stage biotechnology company committed to engineering a targeted gene therapy to improve the standard treatment for early-stage bladder cancer, which is one of the most prevalent forms of cancer. We have discovered and are developing a biologic agent called inodiftagene vixteplasmid, or inodiftagene, that we believe can deliver a new treatment to patients who have options that are limited in efficacy and problematic in toxicity. Bladder cancer is a disease that typically causes symptoms early in its course and consequently presents the patient and the treating physician with an opportunity to gain control of the malignancy. However, the limitations of existing therapies, developed in the 1970s, often result in a prolonged series of unsuccessful treatments that can end in the radical removal of the bladder.
Our lead product candidate, inodiftagene, is a recombinant DNA construct that will be administered to patients whose therapy for early stage bladder cancer has failed: this is gene therapy for bladder cancer. Preclinical studies and clinical trials completed so far have demonstrated that our product candidate can deliver a lethal gene specifically to bladder cancer cells in a patient’s bladder. Based on our Phase 1 and Phase 2 clinical trial results, we believe our product candidate, inodiftagene, has the potential to improve patient outcomes substantially by delaying or in some cases eliminating disease progression, and consequently may significantly improve patients’ quality of life. Although there can be no assurance, based on our interactions with the U.S. Food and Drug Administration, or FDA, and other international regulators, we also believe the clinical trial program we have accomplished to date provides a foundation for the regulatory pathway to approval for commercialization and wide distribution of our product candidate. The patient population that is the subject of our development program exhibits a significant unmet need for more effective and safe treatments. Our proposed clinical development plan includes two pivotal clinical studies designed to address related but distinct indications that together may provide access to a large share of this affected population. This differentiates us from competitive approaches.
Bladder cancer affects a large population in the United States as well as worldwide. In 2018, it was expected that approximately 81,000 new cases of bladder cancer would be diagnosed in the United States. Nearly 141,000 new cases in the European Union are expected to be diagnosed in 2020. Of these cases, approximately 75% will be non-muscle invasive bladder cancer, or NMIBC. This is the earliest stage in bladder cancer classification. Bladder cancer usually causes symptoms as soon as it develops. Its diagnosis leads to a cycle of cystoscopic evaluation, surgical resection, and medical therapy, that is repeated as treatments fail successively and additional treatments are attempted. The standard medical treatment is Bacillus Calmette-Guerin, or BCG, which is live tuberculosis bacteria administered into the bladder. Most treatments with BCG ultimately fail. The effect of this is tumor recurrence. As a consequence of the prolonged natural history of early presentation and repeated treatment failures, it was estimated that in the United States in 2015, the latest year good estimates were available, about 710,000 patients were living with bladder cancer. Moreover, it is the most costly cancer to treat in the United States, with annual costs that have been estimated at over $4 billion in 2010, and costs of care for an individual nearing $200,000. Despite the need for new approaches to therapy for this disease, no drug has been approved by the FDA for the
1

treatment of NMIBC since 1998. Patients with bladder cancer whose therapies have failed make up a large population that is in desperate need of new therapies.
Our lead product candidate, inodiftagene, is a biological agent designed and formulated to deliver a toxic gene to bladder cells in a manner that results in the gene’s being active only in the bladder tumor with consequent killing of only the malignant cells. The engineered gene has been compounded with an agent that enhances and optimizes the efficiency of its delivery to tissue. In experiments, we have demonstrated the uptake of inodiftagene by 85% of target cells after a single exposure.
We have tested inodiftagene in six clinical trials, three of which involved NMIBC patients, and we have observed substantial anti-tumor activity. The data from the three NMIBC Phase 1/2 and Phase 2 trials demonstrate that inodiftagene causes complete responses in 33% of bladder cancer patients with unresected measurable tumors; that one-year and two-year recurrence-free survivals are 46% and 33%, respectively; and that we can administer inodiftagene with BCG, the standard of care for NMIBC, with recurrence-free outcomes of 95% and 78% at three and six months, respectively.
We believe that these studies strongly support the potential for inodiftagene to provide new therapies for NMIBC patients. There are two distinct populations of unmet need in the field of NMIBC treatment: those patients for whom two treatments with standard BCG have failed (who are termed BCG-unresponsive), and those for whom one BCG treatment has failed. Accordingly, we are conducting two pivotal clinical trials in NMIBC patients: a single-arm study of inodiftagene in patients with BCG-unresponsive disease, and a randomized trial in patients whose disease has recurred after a single course of standard BCG therapy. Both of these studies have been reviewed by the FDA and other international regulatory bodies. The FDA has granted our program Fast Track designation for regulatory review. Additionally, the Phase 3 study has been granted a special protocol assessment, or SPA, by the FDA. This is a competitive area for drug development, and other companies are seeking to bring treatments for NMIBC to regulatory submission and to market. Although there are several planned and ongoing trials by our competitors that address the BCG-unresponsive patient population, in our view, our clinical development program in patients whose disease recurs after a first course of BCG treatment differentiates us from our competitors. Based on market data, including a commissioned independent research study, we believe the potential market for inodiftagene, should it achieve regulatory approval for both indications in the United States, the European Union and Japan, is over $1.5 billion.
We believe that the inodiftagene development program in early-stage bladder cancer may potentially allow us to meet the regulatory requirements for the development of a new therapy for this malignancy.
2

Our Pipeline
The following table summarizes the clinical development program of our product candidate, inodiftagene:
PRODUCT
CANDIDATE
TRIAL
RESULTS
INDICATION
Phase 1
Phase 2
Phase 3
NMIBC
Inodiftagene
Phase 1/2 No DLT, no MTD; 22% CR, 22% PR
Phase 2 33% CR; 1-yr RFS 46%
Pivotal Phase 2 Codex Clinical Trial
Initiation 4Q2018
Inodiftagene with BCG
Phase 2 Feasible; 3 month RFS 95%; 6 month RFS 78%
Pivotal Phase 3 Leo Clinical Trial
Planned for 2019
Pancreatic cancer
Inodiftagene Phase 1/2 2 PR in inodiftagene alone patients
Inodiftagene with gemcitabine
Phase 2
1 PR; median PFS 7.6-9.3 months
Ovarian cancer Inodiftagene Phase 2
1 CR of malignant ascites in compassionate use
CR: complete response; DLT: dose-limiting toxicity; MTD: maximum tolerated dose; PFS: progression-free survival; PR: partial response; RFS: recurrence-free survival
The emphasis of our development program is on NMIBC, and at this time, we do not plan additional studies in pancreatic or ovarian cancer. The six completed trials detailed above were conducted in leading academic medical centers in Israel, and the two pivotal studies, the Codex Clinical Trial and Leo Clinical Trial, will be conducted in the United States and internationally.
The Problem: Lack of Effective Medical Therapies for Recurrent NMIBC Patients
Of the approximately 81,000 new cases of bladder cancer expected to be diagnosed in the United States in 2018, approximately 75% will be NMIBC. Bladder cancer is more common in men than in women, and in the United States, it is the fourth most common cancer diagnosed in men. When incidence in the European Union and Japan is also considered, the combined worldwide population affected by bladder cancer encompasses an estimated 260,000 new cases per year. The disease tends to progress from its early stages to local recurrence, metastasis, and ultimately potentially death. The general goal of therapy is to detect and treat the disease in its early stages so as to prevent such progression. NMIBC is a cancer that is situated superficially in the lining of the bladder. Typically NMIBC is detected early in its course, when tumors are small, and because it is superficial, the most frequent first symptom is blood in the patient’s urine. Evaluation by the physician involves visual examination of the inner surface of the bladder using a cystoscope, and diagnosis entails urine cytology, biopsy and pathological examination. The urologist surgically removes the evident tumors that are resectable. If the tumor characteristics lead it to be classified as of intermediate or high-risk for recurrence and progression, additional medical therapies are introduced through a catheter into the bladder. We estimate that, in the United States, the European Union, and Japan, annually there are over 285,000 cases of NMIBC that are eligible for medical therapy.
   Unmet Need in NMIBC
The FDA-approved standard of medical care for intermediate and high-risk NMIBC is BCG, which is a strain of live tuberculosis that has been attenuated or weakened in the laboratory. It is given over a one to three year course of treatment. Although initial results with BCG are good, side effects can be substantial, including, on rare occasions, the contraction by the patient of actual tuberculosis. Eventual relapse rates from the first course of BCG therapy are estimated by experts in the field to be 50% by four years and as high as 70% by ten years. After a failed first treatment, urologic practice guidelines recommend that a
3

second course of BCG be attempted. When used a second time, the efficacy of BCG falls. The relapse rate after a second course of BCG is estimated to be approximately 65% at two years. Most patients therefore experience a failure of BCG treatment. We believe there are two populations of unmet need in NMIBC treatment: (1) patients who have experienced recurrence following two courses of BCG, and (2) patients who have experienced recurrence following one course of BCG.
For the patient who has been treated with two courses of BCG and has then experienced recurrence, there are no other medical therapies that are recommended as the standard of care. Chemotherapy, immunotherapy and experimental treatments have been tested in these patients, but these are not approved. Patients whose NMIBC has failed to respond after two treatments with BCG are considered to have what is formally termed BCG-unresponsive NMIBC. Lacking a standard, FDA-approved medical treatment, treatment guidelines recommend that these patients undergo radical cystectomy, or bladder removal. Thus, the first major unmet need in the NMIBC population is for new therapies for patients whose two courses of BCG treatment have been unsuccessful, who need a third line of therapy, and who face the debility and compromised quality of life that accompany the removal of the bladder. Our first planned registrational clinical trial, the Codex Clinical Trial, will be a Phase 2 study of inodiftagene therapy for patients with BCG-unresponsive NMIBC. This trial is designed to support FDA approval for the indication of BCG-unresponsive NMIBC.
The second unmet need in the treatment of NMIBC is for patients earlier in their journey of treatment, whose first course of BCG therapy has failed. These patients are at very high risk for the subsequent failure of a second BCG treatment, and for becoming BCG-unresponsive. There is an opportunity to treat patients after their first treatment, in the second line, so as to prevent or delay ultimate recurrence and progression. Patients whose treatment has failed a single course of BCG comprise a larger population than those whose BCG treatment has failed twice. Our second planned clinical trial, the Leo Clinical Trial, is a randomized Phase 3 study in patients whose first treatment with BCG has resulted in recurrence. It is a trial of inodiftagene combined with BCG. This study has been granted an SPA by the FDA, an endorsement, but not a guarantee, that the trial’s design and endpoint will support approval in this population if its results are favorable. We believe that our clinical development plan and pivotal clinical trial in patients whose first course of BCG has failed sets us apart as uniquely addressing this aspect of the unmet need of NMIBC therapy.
The FDA and leading urological societies have worked together to formulate an approach to developing new agents for BCG-unresponsive disease, and this approach has been published in several forums, including the FDA’s Guidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer (2018). We have developed inodiftagene in close collaboration with leading urologists and experts in the field of bladder cancer, and consequently our clinical research program adheres to the FDA recommendations for the development of new agents to treat BCG-unresponsive NMIBC.
Our Solution
Inodiftagene, formerly known as BC-819, is a biological agent designed and formulated to introduce a toxic gene into cells. It is only activated in malignant cells, and when turned on in those cells, is lethal to them. It is a specifically targeted therapy. It is conceived to optimize efficacy and minimize side effects by focusing its cytotoxic effects in cancer cells only. Inodiftagene’s central technological feature is its incorporation of a portion of a gene from normal human cells known as H19, which is normally turned off in all adult tissues. Importantly, H19 is turned on in cancer cells: in bladder cancer, in pancreatic and ovarian cancer, in leukemias, and in a spectrum of other malignancies. Since inodiftagene is turned on in cancer cells, but not in normal tissues, it can also be exploited to direct other genes to be turned on specifically in cancer cells.
Inodiftagene is an engineered DNA plasmid that links the genetic controls from H19 to a gene from the Diphtheria bacteria called Toxin A, or DTA. The H19 controls serve as a switch to turn DTA on or off. When inodiftagene enters a normal cell, carrying into the cell the engineered H19-DTA gene, the H19 controls are quiescent, and DTA is off. However, when inodiftagene enters a cancer cell where H19 is turned on, the H19 controls activate the DTA gene. The result is the production by the cell of a protein that inhibits the cancer cell’s ability to make other proteins, killing the cell. The clinical result is that inodiftagene is toxic to cancer cells, but not to normal cells.
4

Inodiftagene has been extensively characterized in the laboratory. It has been combined with an agent that enhances its ability to enter target cells, and is efficiently taken into the cells. Thus, over 85% of cells exposed to its DNA internalize it. We can demonstrate that the gene is turned on in cancer cells, that the DTA protein is made appropriately, and that the DTA kills recipient cells. We have shown in extensive experiments that inodiftagene causes growth inhibition or regression of several different cancer types, including bladder cancer, in tissue cultures and in animal model systems. We believe the experimental data on inodiftagene strongly support its clinical utilization.
Clinical Data and Our Development Plan
To date, we have conducted six clinical trials of inodiftagene therapy for cancer. As noted, three of these trials were conducted in ovarian cancer and pancreatic cancer, for which we do not plan to perform additional studies at this time. However, the results of the studies in these cancers are important in that they validate the inodiftagene mechanism of action in cancer. The other three clinical trials were conducted in NMIBC. Our present focus is on this disease, and our planned pivotal clinical trial program comprises two clinical trials designed to achieve regulatory approvals in NMIBC.
   Inodiftagene Clinical Trials
Inodiftagene was initially studied as a compassionate use therapy in several clinical settings, including in bladder cancer and ovarian cancer. The first patient with ovarian carcinoma who was studied had stage IIIC metastatic disease that had become refractory to platinum-containing chemotherapy and involved her abdominal cavity, resulting in the accumulation of malignant fluid called ascites. The patient received ten injections of inodiftagene into her malignant ascites at weekly or bi-weekly intervals. After ten treatments, she experienced complete resolution of her malignant ascites, a finding confirmed by ultrasound.
Inodiftagene was also tested in locally advanced and unresectable pancreatic cancer patients. Nine patients with advanced pancreatic cancer underwent intra-tumoral injection of inodiftagene. A partial response of greater than 30% tumor shrinkage was demonstrated in three patients, one of whom received chemotherapy in conjunction with inodiftagene, and two of whom received inodiftagene alone. A second clinical trial was conducted to test the administration of inodiftagene in combination with gemcitabine chemotherapy in 12 patients with advanced unresectable pancreatic cancer. Median progression-free survival, or PFS (the length of time during and after treatment that a patient lives with the disease, but it does not get worse), in these patients was 9.3 and 7.6 months in two groups, with one patient experiencing a partial response and eight patients experiencing stable disease. As is the case for inodiftagene in ovarian cancer, administration of inodiftagene as monotherapy in advanced pancreatic cancer indicates potent anti-cancer activity.
We have studied inodiftagene in three clinical trials in patients who have NMIBC. For several reasons, NMIBC is an ideal cancer to study clinically with this agent. First, bladder cancer is known to exhibit expression of the H19 gene, which is required for the activation of inodiftagene. Second, experimental work in the laboratory in tissue culture experiments and in animal models shows that inodiftagene has the potent ability to prevent bladder cancer growth. Finally, the ability to instill inodiftagene in a solution into the bladder of the NMIBC patient, much as BCG or chemotherapy is administered, provides the opportunity to expose the cancer to a quantity of inodiftagene that will be lethal to the cancer, in a closed space, over a prolonged period.
The first clinical trial of inodiftagene in NMIBC patients was a Phase 1/2 study. This trial involved patients who had been treated with BCG and whose therapy had failed. A total of 18 patients were enrolled, and they were treated with increasing doses of inodiftagene in a dose-escalation trial design. Each patient underwent surgery prior to treatment, as is standard, but one tumor was left in place, called a marker lesion, so that the effect of inodiftagene therapy could be assessed directly. The results of the trial demonstrated that inodiftagene could be tolerated, and that no toxicity was identified that would limit the dosing of the agent at the doses tested. Importantly, four patients, or 22%, had a complete disappearance of their marker tumor, and an additional four patients had a partial shrinkage of their marker tumor. This study revealed substantial anti-tumor activity in NMIBC patients whose BCG therapy had failed.
5

The second clinical trial was a Phase 2 study, testing the dose of inodiftagene that had been identified in the preceding Phase 1/2 clinical trial. A total of 47 patients were enrolled into the trial; all had recurrent NMIBC for which prior intravesical therapy had proven ineffective. As was the case in the Phase 1 study, surgery was performed and a marker lesion was left in place. In this study, 33% of evaluable patients had a complete response to inodiftagene therapy, resulting in complete disappearance of the marker tumor and the absence of new cancer. Long-term follow-up demonstrates that 46% of patients remain free of recurrence at one year, and 33% at two years.
We also have studied the administration of inodiftagene in combination with BCG. The third NMIBC trial enrolled 38 patients who were candidates for BCG therapy. Patients were treated with inodiftagene and BCG together in a six-week or 12-week course of induction therapy. At three months, 95% of patients were recurrence-free, and at six months, 78% were recurrence-free. At 24 months, 54% of patients remained recurrence-free, and 76% free of disease progression. We believe this data is consistent with the potential for inodiftagene to improve the results of therapy with BCG, compared with therapy with BCG by itself.
Pathway for Regulatory Approval
There are two clinical scenarios in which the unmet need for new NMIBC treatments is well-defined. First, patients need new agents in the third-line, BCG-unresponsive situation. Second, patients need new drugs in the second-line, failed BCG situation. The treatment algorithm for patients with NMIBC using BCG is shown below.
[MISSING IMAGE: tv503153_img1.jpg]
We have identified two unmet needs, and we address both in our planned product development. Our program has been designed with significant input from thought-leading urologic oncology experts, and in close compliance with regulatory guidance.
Our first study is the Codex Clinical Trial. The Codex Clinical Trial is enrolling patients whose disease has become BCG-unresponsive, and who are in need of third line therapy. These patients will have NMIBC that has recurred twice after standard BCG therapy, and whose standard option is radical bladder resection. The trial will enroll approximately 140 patients in about 50 leading urology centers in the United States, and its primary endpoint will be the complete response rate of the subset of patients who have NMIBC of the carcinoma-in-situ subtype, and its first secondary endpoint will be the proportion of patients who are free of recurrence one year after therapy. Initial data from the study is expected by mid-2019. The trial is designed to gain approval for the indication of the treatment of BCG-unresponsive NMIBC.
Our second study is the Leo Clinical Trial. The Leo Clinical Trial is designed for patients in the second line of therapy, whose disease has failed treatment with a first course of BCG, and who are eligible to receive a second course. Approximately 500 patients will be enrolled in the United States and Europe. The study will randomly assign their therapy to either standard BCG or inodiftagene plus standard BCG, with the primary endpoint being a comparison of the median time to recurrence in the two groups. This study is designed to gain approval for the indication of the treatment of patients whose first course of BCG has failed, and the study has been granted an SPA by the FDA in support of this objective. We anticipate this trial will begin in 2019.
Our Competitive Strengths
Inodiftagene is a targeted therapy. Our product candidate is designed so that its lethal payload is activated specifically in cancer cells. This has two effects. The first is that the anti-tumor effect is concentrated in the cancer. The second is that the cytotoxic effect is limited to the cancer.
6

Our clinical data strongly support the activity of inodiftagene against cancer. We have completed six clinical trials in patients with cancer: three in NMIBC patients and three in patients with ovarian or pancreatic cancer. We have demonstrated complete responses in unresected bladder cancer, as well as robust evidence of single-agent activity against the difficult-to-treat malignancies of pancreatic and ovarian cancer. The body of clinical data validates the anti-tumor mechanism of action of inodiftagene in multiple tumor types, especially in bladder cancer.
Our Growth Strategy
The key elements of our growth strategy are as follows:

Execute the clinical development program of inodiftagene through regulatory approval.   Our first and highest priority is to execute the clinical development program of inodiftagene. We believe that there is a linear path to approval for our agent in two related, but separate, indications. We also believe that our preliminary clinical data in bladder cancer, in addition to evidence of activity in other solid tumors, strongly support our program design. The FDA has provided positive input on our pivotal single arm Codex Clinical Trial, which is underway, and has granted us an SPA endorsing the randomized Leo Clinical Trial. Regulatory agencies in the European Union and Canada have also reviewed our pivotal program with positive feedback (inodiftagene has not yet been approved in any marketing territory). We expect to gain interim data from the Codex Clinical Trial by mid-2019, and to initiate the Leo Clinical Trial in 2019 as well.

Develop the capability to commercialize inodiftagene.   We believe that our competitive position in the NMIBC field is strong as a result of our addressing the unmet need of second line patients. We will do this with our randomized and SPA-endorsed Leo Clinical Trial. As the trials near completion, we plan to recruit a commercial team to exploit this advantage. The leadership team has experience and success in taking a company through the transition from a development focus to commercial capability.

Expand the potential indications of inodiftagene.   We intend to expand the clinical development program of inodiftagene to explore additional indications in bladder cancer, alone and in combination with BCG and additional novel agents. These are likely to include immunotherapeutic approaches, especially checkpoint inhibitors, as inodiftagene introduces a novel foreign diphtheria antigen against which we are all immunized, into cancer cells. Although our primary focus is the treatment of NMIBC, we also intend to explore other solid tumor indications, including ovarian cancer with malignant ascites, in which inodiftagene has already been demonstrated to be capable of inducing complete response.

Expand our pipeline of oncology therapeutic candidates.   We intend to designate new product candidates in our research and development laboratories. We have engineered second-generation versions of inodiftagene, and have demonstrated activity of these molecules in several experimental settings. The second generation molecules have strong intellectual property protection. In addition, we will seek to identify appropriate candidates for licensing.

Develop strategic partnerships.   We believe that the commercial potential of inodiftagene renders it an attractive asset for a strategic partnership. We intend to pursue partnership opportunities primarily for ex-U.S. commercialization. We will consider regional partnerships as well, especially in Japan and China. The leadership team has experience in gaining regulatory approval in Japan, and in developing business relationships in Japan, elsewhere in Asia and worldwide.

Grow our company into a fully capable biopharmaceutical entity.   Our vision is to build on the initial success of inodiftagene to expand our capabilities to encompass all facets of oncology drug development, approval, and commercialization. Our focus will remain the bringing of novel genetic and targeted therapies to lessen the burden of disease affecting those stricken with cancer.
7

Risk Factors
Investing in the ADSs involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 14 before making a decision to invest in the ADSs. The following is a summary of some of the principal risks we face:

The approach that we have adopted to discover and develop products is new and may never lead to marketable products;

We do not have a history of commercial sales and do not anticipate earning operating income over the coming years;

Our business depends on the success of our lead product candidate, inodiftagene, the development of which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales;

Scientific or technological difficulties may impede our research and development activities;

We will require substantial additional funds to complete our research and development activities;

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product;

Any product that we may develop will be required to undergo a time-consuming, costly and burdensome pre-market approval process, and we may be unable to obtain regulatory approval for any of our products;

The pharmaceutical and biotechnology market is highly competitive; and

Patents that we have licensed exclusively from Yissum Research Development Company of the Hebrew University of Jerusalem, or Yissum, will expire, and if we cannot obtain extended marketing exclusivity, we may face increased competition from third parties.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and are relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, among other things:

We are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;

We are permitted to provide less extensive disclosure about our executive compensation arrangements; and

We are not required to give our shareholders non-binding advisory votes on executive compensation or golden parachute arrangements.
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of  (1) the last day of the fiscal year in which we have more than $1.07 billion in total annual gross revenues, (2) the date on which we have issued more than $1.0 billion of non-convertible debt securities over a three-year period, (3) December 31, 2024 and (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these reduced burdens.
8

Implications of Being a Foreign Private Issuer
Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information or current reports on Form 8-K relating to the occurrence of specified significant events.
We intend to take advantage of these exemptions for as long as we qualify as a foreign private issuer.
Corporate Information
We were incorporated on September 22, 2011 under the laws of the State of Israel for the purpose of a reincorporation merger, or Reincorporation, which merged BioCancell Therapeutics Inc., or BTI, with and into a wholly-owned subsidiary of BioCancell Ltd., or BioCancell. BTI was incorporated in the United States under the laws of the State of Delaware on July 26, 2004, and commenced operations on October 1, 2004. The Reincorporation was consummated on August 14, 2012, and BTI survived as a wholly-owned subsidiary of BioCancell until it was formally dissolved in the State of Delaware on December 28, 2012. Following the Reincorporation, BioCancell became a public company with its ordinary shares listed on the TASE. In August 2018, BioCancell changed its name to Anchiano Therapeutics Ltd. and its ordinary shares continue to be traded on the TASE under that name. Our principal executive offices are located at 1/3 High-Tech Village, Givat Ram, P.O. Box 392649, Jerusalem, 9139102 Israel and our telephone number is +972 (2) 548-6555. Our website address is http://www.anchiano.com. The information contained therein shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.
9

THE OFFERING
ADSs we are offering
2,400,000 ADSs (or 2,760,000 ADSs if the underwriters exercise their option to purchase additional ADSs in full), representing 12,000,000 ordinary shares.
Ordinary shares to be outstanding after this offering
32,856,918 ordinary shares, including ordinary shares represented by outstanding ADSs (or 34,656,918 ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).
The ADSs
Each ADS represents five of our ordinary shares, no par value. The depositary will hold the ordinary shares underlying the ADSs. You will have rights as provided in the deposit agreement by and among us, the depositary, and the owners and holders of ADSs issued thereunder.
If we declare dividends or make any distributions on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.
You may turn in the ADSs to the depositary for cancellation to receive ordinary shares. The depositary will charge you fees for any cancellation.
We may amend or terminate the deposit agreement without your consent. If you continue to hold the ADSs, you agree to be bound by the deposit agreement as amended.
To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.
Option to purchase additional ADSs 
We have granted the underwriters an option to purchase up to 360,000 additional ADSs from us within 30 days of the date of this prospectus.
Use of proceeds
We estimate that we will receive net proceeds from this offering of approximately $30.9 million, or approximately $35.7 million if the underwriters exercise their option to purchase additional ADSs in full, from the sale by us of 2,400,000 ADSs in this offering, based on an assumed initial public offering price of $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), after deducting underwriting discounts and commissions and estimated offering expenses. We expect to use the net proceeds from this offering to develop our therapeutic product candidate, inodiftagene, and for general corporate purposes, including working capital requirements. See “Use of Proceeds” for more information.
10

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 the ADSs.
Depositary
The Bank of New York Mellon
Nasdaq Capital Market symbol
“ANCN”
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price. Such indications of interest are not binding agreements to purchase, and these shareholders and/or their affiliates may determine to purchase fewer ADSs than they indicate interest in purchasing, or none at all. In addition, the underwriters could determine to sell fewer ADSs to these shareholders and/or their affiliates than they have indicated an interest in purchasing, or none at all. The underwriting discount for the ADSs sold to such shareholders in this offering will be the same as the underwriting discount for ADSs sold to the public.
The number of ordinary shares to be outstanding after this offering (1) is based on 15,575,682 ordinary shares outstanding as of January 1, 2019 and (2) includes the 5,281,236 ordinary shares to be issued when the price protection rights described in “Description of Share Capital” are triggered by this offering based on an assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share. The number of ordinary shares referred to above to be outstanding after this offering and, unless otherwise indicated, the other information in this prospectus excludes:

2,453,767 ordinary shares that were issuable upon exercise of incentive options that had been granted and remained outstanding as of January 1, 2019 at a weighted average exercise price of  $3.29 per share;

4,768,629 ordinary shares that were issuable upon exercise of warrants that had been granted and remained outstanding as of January 1, 2019 at an NIS-denominated weighted average exercise price of NIS 16.20 per share (approximately $4.32 per share as of January 1, 2019); and

582,518 ordinary shares reserved for future issuance under our equity incentive plans.
Unless otherwise indicated, all information in this prospectus:

assumes an initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00);

no exercise of the outstanding options and warrants described above; and

assumes no exercise by the underwriters of their over-allotment option to purchase up to 360,000 additional ADSs from us.
11

SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth our summary consolidated financial data. You should read the following summary consolidated financial data in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated interim financial statements and consolidated financial statements and related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected in the future. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB, which differ in certain significant respects from U.S. GAAP. We have prepared our unaudited condensed consolidated interim financial statements on the same basis as our audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Interim financial statements are not necessarily indicative of results that may be experienced for the full year or any future reporting period.
The summary consolidated statements of operations for each of the years in the two-year period ended December 31, 2017, and the summary consolidated statements of financial position data as of December 31, 2016 and 2017, are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The summary consolidated statements of operations for the nine months ended September 30, 2018 and 2017, and the summary consolidated statement of financial position data as of September 30, 2018 are derived from our unaudited condensed consolidated interim financial statements. Although our functional currency is the NIS, we report our financial results in U.S. dollars.
Nine Months Ended
September 30,
Year Ended
December 31,
2018
2017
2017
2016
(USD, in thousands, except per share data)
Consolidated Statements of Operations:
Operating expenses:
Research and development expenses
$ 5,722 $ 5,222 $ 6,229 $ 2,384
General and administrative expenses
4,346 2,288 3,163 2,258
Operating loss
$ 10,068 $ 7,510 $ 9,392 $ 4,642
Financing expense (income), net
941 138 91 (37)
Loss before taxes on income
$ 11,009 $ 7,648 $ 9,483 $ 4,605
Income tax
461 210 323 137
Net loss
$ 11,470 $ 7,858 $ 9,806 $ 4,742
Net loss per ordinary share, basic and diluted(1)
$ 0.98 $ 0.89 $ 1.09 $ 0.87
Number of shares used to compute basic and diluted loss per ordinary share (thousands of shares)
11,666 8,816 9,025 5,433
Pro forma as adjusted net loss per ordinary share(1)(2)
$ 0.74
Pro forma as adjusted number of shares used to
compute pro forma as adjusted net loss per ordinary
share (thousands of shares)(1)(2)
13,485
(1)
Basic net loss per ordinary share and diluted net loss per ordinary share are the same because outstanding options and derivative financial instruments would be anti-dilutive due to our net losses in these periods and/or, as out-of-money warrants, would likewise not add to the diluted net loss per ordinary share.
(2)
Pro forma as adjusted net loss per ordinary share gives effect to the issuance of 5,281,236 ordinary shares under the price protection rights from the Company’s June 2018 financing as if such issuance had occurred as of the closing of such financing, which was June 29, 2018, assuming an initial public offering price of  $14.55 per ADS (which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share). See “Description of Share Capital” for information regarding the price protection rights, which are likely to be triggered by this offering. The numerator in the pro forma as adjusted net loss per ordinary share calculation has been adjusted to reverse the losses resulting from the fair value movements on the share price protection rights derivative during the period from the closing of the June 2018 financing (when the 5,281,236 ordinary shares were assumed to have been issued) of June 29, 2018 through September 30, 2018.
12

As of September 30, 2018
Actual
Pro
forma(1)(2)
Pro forma
as adjusted(3)
(USD, in thousands)
Consolidated Statements of Financial Position Data:
Cash and cash equivalents
$ 10,912 $ 41,786 $ 41,786
Working capital(4)
3,961 34,835 41,840
Total assets
15,203 46,077 46,077
Total liabilities
14,970 14,970 7,965
Total shareholders’ equity
233 31,107 38,112
(1)
The pro forma consolidated statements of financial position data gives effect to the issuance and sale of 2,400,000 ADSs by us in this offering at an assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(2)
Each $1.00 increase (decrease) in the assumed initial public offering price of  $14.55 per ADS would increase (decrease) our pro forma cash and cash equivalents, working capital, total assets and total shareholders’ equity by $2.2 million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each 100,000 ADS increase (decrease) in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our pro forma cash and cash equivalents, working capital, total assets and total shareholders’ equity by $1.4 million, assuming no change in the assumed public offering price per ADS.
(3)
The pro forma as adjusted consolidated statements of financial position data gives effect to the issuance of 5,281,236 ordinary shares upon the triggering of the price protection rights by this offering, assuming an initial public offering price of  $14.55 per ADS (which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share). See “Description of Share Capital” for additional information on these price protection rights.
(4)
We define working capital as current assets minus current liabilities. See our consolidated financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
13

Risk Factors
An investment in the ADSs 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 the ADSs. 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 the ADSs would likely decline and you might lose all or part of your investment.
Risks Relating to our Business
We depend completely on the success of inodiftagene, our lead product candidate, and if inodiftagene does not receive regulatory approval or is not successfully commercialized, our business will be harmed.
We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to inodiftagene, which is currently our only product candidate in active clinical development. Accordingly, our business depends completely on the successful development, regulatory approval and commercialization of inodiftagene. We cannot be certain that inodiftagene will receive regulatory approval or be successfully commercialized even if we receive regulatory approval for any indication, due in part because inodiftagene remains in early stages of clinical development, and it may be years before we are in a position to seek regulatory approval for inodiftagene in any indication. Moreover, we may not be successful in our efforts to expand the approval, if any, of inodiftagene for other indications. If we were required to discontinue development of inodiftagene for any indication or if inodiftagene does not receive regulatory approval or fails to achieve significant market acceptance, we would be delayed by many years in our ability to achieve profitability, if ever. In addition, our ability to develop additional product candidates in our pipeline could be significantly hindered. We may also need to discontinue our operations as currently contemplated unless we identify other product candidates, advance them through preclinical and clinical development and apply for regulatory approvals, which could be time-consuming and costly, and may adversely affect our business, prospects, financial condition and results of operations.
Further development of inodiftagene will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales.
We do not have any products that have gained regulatory approval. Our business and future success depend on our ability to obtain regulatory approval of, and then successfully commercialize, our lead product candidate, inodiftagene. We are preparing for Phase 2 and Phase 3 trials. Our ability to develop, obtain regulatory approval for, and successfully commercialize inodiftagene effectively will depend on several factors, including the following:

successful completion of our clinical trials, which will depend substantially upon the satisfactory performance of third-party contractors;

successful achievement of the objectives of planned clinical trial(s), including the demonstration of a non-recurrence benefit and a favorable risk-benefit outcome;

receipt of marketing approvals for inodiftagene from the FDA, and similar regulatory authorities outside the United States;

establishing commercial manufacturing and supply arrangements;

acceptance of the product by patients, the medical community and third-party payors;

establishing market share while competing with other therapies;

successfully executing our pricing and reimbursement strategy;
14


a continued acceptable safety and adverse event profile of the product following regulatory approval; and

qualifying for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims covering the product.
Inodiftagene will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. If we are unable to develop or receive marketing approval for inodiftagene in a timely manner or at all, we could experience significant delays or an inability to commercialize the product, which would materially and adversely affect our business, financial condition and results of operations.
We do not have a history of commercial sales and do not anticipate earning operating income over the coming years, and our failure to receive marketing approval for any of our product candidates or our failure to otherwise achieve and sustain profitability would negatively impact our ability to continue our business operations.
Our predecessor entity, BTI, was formed on July 26, 2004, and since then we have been a development-stage company in the early stage of drug development. We have not yet received marketing approval for our product candidate and, as a result, have not recorded any sales. We expect that we will operate at a loss over the coming years, as we do not expect to generate any revenue from operations in the near term. We may not be able to develop, or receive marketing approval for, drugs from our research and development efforts. In addition, even if we obtain all necessary approvals to market any of our products, there is no certainty that there will be sufficient demand to justify the production and marketing of any such product. The market for any drug based on recombinant DNA plasmids may be small or may not develop, and the creation and growth of a market for any such drug depends on a number of factors including the availability of adequate reimbursement by patients’ third-party insurers for drugs that utilize recombinant DNA plasmids, and marketing efforts and publicity regarding any drug that we may develop utilizing recombinant DNA plasmids.
If our products utilizing recombinant DNA plasmids do not gain wide market acceptance, we may not be able to achieve our anticipated growth, revenues or profitability and we may not be able to continue our business operations.
We will require substantial additional funds to complete our research and development activities and, if additional funds are not available, we may need to significantly scale back or cease our operations.
A significant portion of our research and development activities has been financed by the issuance of equity securities. There is no certainty that we will be able to obtain additional sources of funding for our research and development activities. A lack of adequate funding may cause a cessation of all or part of our research and development activities and business operations.
We will require substantial funds to discover, develop, protect and conduct research and development for our plasmid-based prospective therapies, including clinical trials of any of our products, and to manufacture and market any such product that may be approved for commercial sale. From inception, we have raised approximately $85.7 million. However, these funds may prove to be insufficient for these activities. Our financing needs may change substantially because of the results of our research and development, competition, clinical trials and costs arising from additional regulatory approvals. We may not succeed in raising additional funds if needed. The timing of our need for additional funds will depend on a number of factors, which factors are difficult to predict or may be outside of our control, including:

the resources, time and costs required to initiate and complete our research and development and to initiate and complete pre-clinical and clinical studies and to obtain regulatory approvals for our products;

progress in our research and development programs;
15


the timing, receipt and amount of milestone, royalty and other payments from future collaborators, if any; and

costs necessary to protect our intellectual property.
If our estimates and predictions relating to any of these factors are incorrect, we may need to modify our operating plan. Additional funds may not be available to us when needed on acceptable terms, or at all.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through equity offerings, debt financings, government contracts, government and/or other third-party grants or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We will require substantial funding in addition to the net proceeds of this offering to fund our commercialization efforts and fund our operating expenses and other activities. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of the ADSs. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our clinical research or development programs, which would adversely impact our potential revenues, results of operations and financial condition.
There is substantial doubt as to whether we can continue as a going concern.
Our consolidated financial statements as of September 30, 2018 contain an explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any measurement or presentation adjustment for assets or liabilities that might result if we would be unable to continue as a going concern. We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our net loss, accumulated during the development stage through September 30, 2018, totaled approximately $74.3 million, and we expect to continue to incur substantial losses in future periods while we continue to test and prepare our product candidate for the market.
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidate
Any product that we may develop will be required to undergo a time-consuming, costly and burdensome pre-market approval process, and we may be unable to obtain regulatory approval for our product candidate.
Any product that we develop will be subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous pre-clinical testing and clinical trials and extensive regulatory approval processes are required to be successfully completed in the United States and in many foreign jurisdictions such as the European Union and Japan before a new therapeutic product may be offered and sold in any of these countries or regions. Satisfaction of these and other regulatory requirements is costly, time-consuming, uncertain and subject to unanticipated delays.
In the United States, the products that we intend to develop and market are regulated by the FDA under its drug development and review process. The time required to obtain FDA and other approvals for our products is unpredictable. Before such products can be marketed, we must obtain clearance from the FDA first through submission of an investigational new drug application, or IND, then through successful completion of human testing under three phases of clinical trials and finally through submission of a Biologics License Application, or BLA. Even after successful completion of clinical testing, there is a risk that the FDA may request further information from us, disagree with our findings or otherwise undertake a lengthy review of our BLA submission.
16

There can be no assurance that the FDA will grant a license for any BLA that we may submit. It is possible that none of the products that we develop will obtain the appropriate regulatory approvals necessary for us to commence the offer and sale of such products. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from a particular prospective product.
Because we intend to market any drug that we develop in jurisdictions in addition to the United States, such as the European Union and Japan, we will likely incur the same costs or more in satisfying foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing and commercialization of our products. Approval by the FDA by itself does not assure approval by regulatory authorities outside the United States. Each of these foreign regulatory approval processes includes all of the risks associated with the FDA approval process, as well as risks attributable to having to satisfy local regulations within each of these foreign jurisdictions. Our inability to obtain regulatory approval outside the United States may adversely compromise our business prospects.
If the clinical studies that we are required to conduct to gain regulatory approval are delayed or unsuccessful, we may not be able to market our product candidate.
We may experience delays in any phase of the development of our product candidate and its commercial launch, including during research and development and clinical trials. Implementing a clinical study is time-consuming and expensive, and the outcome of any clinical study is uncertain. The completion of any of these studies may be delayed or halted for numerous reasons, including, but not limited to, the following:

the FDA, institutional review boards, or IRBs, the European Union regulatory authorities (EMA and national authorities), the Israeli Ministry of Health, or other regulatory authorities do not approve a clinical study protocol or place a clinical study on hold;

patients do not enroll in a clinical study or results from patients are not received at the expected rate;

patients discontinue participation in a clinical study prior to the scheduled endpoint set forward in the clinical protocol at a higher than expected rate, especially if such discontinuations interfere with our ability to assess the efficacy of our product candidate;

patients experience adverse events from our product candidate;

patients die during a clinical study for a variety of reasons that may or may not be related to our product candidate, including the advanced stage of their disease and other medical problems;

third-party clinical investigators do not perform the clinical studies in accordance with the anticipated schedule or consistent with the clinical study protocol and good clinical practices or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;

third-party clinical investigators engage in activities that, even if not directly associated with our clinical studies, result in their debarment, loss of licensure, or other legal or regulatory sanction;

regulatory inspections of manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend the clinical studies;

changes in governmental regulations or administrative actions;

the interim results of the clinical study, if any, are inconclusive or negative; and

the study design, although approved and completed, is inadequate to demonstrate effectiveness and safety.
Our dependence upon clinical trials in developing our product candidate may impede us from reaching advanced stages of development, and might cause termination of all or part of our commercial operations. To date, the aforementioned situations regarding potential delays in research and development activities and clinical trials have yet to occur in a manner that adversely affects our research and development activities.
17

Clinical trials are expensive, time-consuming and difficult to design and implement.
Clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because our product candidate is based on new technologies, we expect that it will require extensive research and development and have substantial manufacturing and processing costs. In addition, costs to treat potential side effects that may result from our product candidate may be significant. Accordingly, our clinical trial costs could be significantly higher than for more conventional therapeutic technologies or drug products.
We have limited experience in conducting and managing clinical trials.
We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals for our product candidate. We may rely on third parties for clinical development activities and our reliance on third parties will reduce our control over these activities. Accordingly, third-party contractors may not complete activities on schedule, or may not conduct clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them, which may delay the affected trial.
We may experience difficulties in identifying and recruiting suitable patients for clinical studies, which may significantly compromise our ability to develop our product candidate.
We may experience difficulties in identifying and recruiting suitable patients for clinical studies because of the high demand for such patients’ involvement in current and future clinical trials for potential drugs or because the supply of suitable patients may be low because of strict inclusion criteria requirements. The realization of any of the foregoing risks may significantly compromise our ability to develop our product candidate, which would adversely impact our potential revenues, results of operations and financial condition.
If serious adverse or undesirable side effects are identified during the development of our product candidate, we may need to abandon or limit our development of our product candidate.
Our product candidate is in clinical development and its risk of failure is high. It is impossible to predict when or if our product candidate will prove effective or safe in humans or will receive regulatory approval. If our product candidate is associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our Phase 1/2 clinical pilot trial with 47 treated patients suffering from NMIBC who had failed previous treatment, three patients experienced serious adverse events while receiving treatment: one reported myocardial infection, one reported hematuria (blood in urine), and one reported urinary retention, urinary tract infection and transurethral prostatectomy (a type of resection of the prostate gland). Only the hematuria was considered by the investigator to be possibly related to inodiftagene. In the Phase 1 study of inodiftagene as a monotherapy in 18 patients with NMIBC, one serious adverse event considered possibly related to study treatment, urinary urgency requiring hospitalization, occurred. Serious adverse events not considered to be related to study treatment in that study included one patient who reported hematuria and one patient who reported a broken leg, who also had an infected surgical wound after elective surgery to remove the metal plate used to treat the broken leg. In the Phase 2 study of inodiftagene in combination with BCG with 38 patients suffering from NMIBC, one patient reported a serious adverse event of heart palpitations, which was considered by the investigator not to be related to either study treatment. The serious adverse events did not affect the validity of the study or result in a clinical hold being placed on the IND. In addition, such effects or characteristics could cause an IRB or regulatory authority to interrupt, delay or halt clinical trials of our product candidate, require us to conduct additional clinical trials or other tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities.
18

The commercial value of any clinical study that we may commence and conduct in the future will significantly depend upon our choice of medical indication and our selection of a patient population for our clinical study of an indication, and our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects.
If we successfully complete a clinical study, the commercial value of any such study will depend significantly upon our choice of indication and our selection of a patient population for that indication. Because our recombinant DNA plasmids are expected to be expressed in various types of cancer, our prototype molecules may have the ability to treat many different kinds of cancer. Thus, we may incorrectly assess the market opportunities of an indication or may incorrectly estimate or fail to appreciate fully the scientific and technological difficulties associated with treating an indication. Furthermore, the quality and robustness of the results and data of any clinical study that we may conduct in the future will depend upon our selection of a patient population for clinical testing. Our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects.
Our inability to address the chemistry, manufacturing and control concerns of regulatory bodies would significantly compromise our business prospects.
If we commence additional clinical studies for our product candidate, our ability to complete such clinical studies successfully and to apply for and obtain regulatory approval for marketing will depend upon our ability to develop an established manufacturing process assuring consistent production of a therapeutic product of a defined quality for all phases of clinical testing and for commercial production in accordance with current Good Manufacturing Practices, or cGMP. Our inability to satisfy the chemistry, manufacturing and control concerns of regulatory bodies, such as the FDA, would either prevent us from completing clinical studies or prevent us from obtaining regulatory approval for marketing, either of which would significantly compromise our business prospects.
If we, or if our service providers or any third-party manufacturers, fail to comply with regulatory requirements, we or they could be subject to enforcement actions, which could affect adversely our ability to market and sell our product candidate.
If we, or if our service providers or any third-party manufacturers, fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could adversely affect our ability to develop, market and sell our product candidate successfully and could harm our reputation and lead to reduced acceptance of our product candidate. These enforcement actions may include:

restrictions on, or prohibitions against, marketing our product candidate;

restrictions on importation of our product candidate;

suspension of review or refusal to approve new or pending applications;

suspension or withdrawal of product approvals;

product seizures;

injunctions; and

civil and criminal penalties and fines.
If we, or if our service providers or any third-party manufacturers, fail to comply with laws regulating the protection of the environment and health and human safety, we or they could be subject to enforcement actions and our business prospects could be adversely affected.
Our research and development activities, and the research and development activities of our service providers and third-party manufacturers, may involve the use of hazardous materials and chemicals or the maintenance of various flammable and toxic chemicals. If we, or they, fail to adequately handle and dispose of these materials, we may be held liable for resulting damages, which could be substantial. We also may be subject to numerous environmental, health and workplace safety laws and regulations, including those
19

governing laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. We may incur substantial costs to comply with these laws or regulations, and substantial fines or penalties if we violate any of them, which could significantly compromise our business prospects.
Risks Related to Competition and Commercialization of Our Product Candidate
The pharmaceutical and biotechnology market is highly competitive. If we are unable to compete effectively with existing products, new treatment methods and new technologies, we may be unable to commercialize any therapeutic products that we may develop in the future.
The biotechnology market is highly competitive, is subject to rapid technological change and is significantly affected by existing rival drugs and medical procedures, new product introductions and the market activities of other participants. Pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations may pursue the research and development of technologies, drugs or other therapeutic products for the treatment of some or all of the diseases that we are targeting, or that we expect to target, including NMIBC. We also may face competition from products that have already been approved and accepted by the medical community for the treatment of these same indications. We believe a number of products are currently under development, and may become commercially available in the future, for the treatment of some or all of the diseases that we are targeting or that we expect to target.
Our competitors may develop products more rapidly or more effectively than us. Many of our competitors have:

much greater experience and much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization process;

more extensive experience in pre-clinical testing, conducting clinical trials, obtaining and maintaining regulatory approvals and manufacturing and marketing therapeutic products;

products that have been approved or are in late stages of development;

established distribution networks;

collaborative arrangements in our target markets with leading companies and research institutions; and

entrenched and established relationships with healthcare providers and payors.
As a result of any of the foregoing factors, our competitors may develop or commercialize products with significant advantages over any therapeutic products that we may develop. If our competitors are more successful in commercializing their products than us, their success could adversely affect our competitive position and harm our business prospects.
We may be unsuccessful in utilizing expedited or other similar regulatory pathways for marketing approval of our product candidate in the United States and Europe.
For our current lead product candidate, we are currently pursuing regulatory pathways that would provide expedited marketing approval in the United States. Although we believe that we have developed our clinical trials based on a framework that would allow for expedited or other similar approval, the FDA may prohibit us from utilizing such regulatory approval pathways or require us to conduct additional, large clinical trials.
In our leading indication, bladder cancer, we face competition from the current standard of care. The current standard of care has severe side effects. However, our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products, treatments or procedures that improve the standard of care and have fewer or less severe side effects. If such products are approved, the demand for our product candidate may be significantly reduced.
20

Even if we receive regulatory approval to market our product candidate, the market may not be receptive to our product candidate upon its commercial introduction, which would prevent us from becoming profitable.
We may have difficulties convincing the medical community and third-party payors to accept and use any of our products that may be approved for commercialization in the future. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors and consumers, may not accept therapies utilizing recombinant DNA plasmids. Even if such therapies are accepted by these participants, the medical community may not consider effectiveness and safety alone as a sufficient basis for prescribing our product in lieu of other alternative treatment methods and medications that are available.
Any therapeutic products that we may develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby adversely affecting the profitability of our business.
The regulations that govern pricing for new medical products vary widely from country to country. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to pricing regulations in that country that delay the commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country. In addition, our ability to commercialize any approved products successfully will depend in part on the extent to which reimbursement for these products will be available from government health administration authorities, private health insurers and other organizations. Even if we succeed in bringing one or more therapeutic products to market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell them on a competitive basis. If the price we are able to charge for therapeutic products is inadequate in light of our development and other costs, our profitability could be adversely affected.
Risks Related to Our Dependence on Third Parties
We rely on a limited number of third parties for the supply of plasmids and other key raw materials required for our research and development activities. If we are unable to reach agreements with these third parties, or if we are unable to maintain our contractual relationships with these third parties, our research and development activities would be delayed.
We rely on third parties to provide materials required for our research and development activities. Obtaining these materials requires various approvals as well as reaching a purchase or commercial agreement on acceptable terms with the provider of the materials. We may not be able to reach agreements with a sufficient number of suppliers or do so on terms acceptable to us. If we are unable to reach acceptable agreements with a sufficient number of suppliers of materials, our research and development activities will be delayed and our ability to implement our business plan will be compromised.
The manufacture of recombinant DNA plasmids in particular is a complicated and expensive process, which requires months of advance planning. We rely on a limited number of manufacturers for our supply. If we are unable to acquire the necessary amount of plasmids to complete our clinical trials, our progress could be delayed substantially.
We have no manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our product candidate.
We have no manufacturing experience. In order to develop our product candidate, apply for regulatory approvals and commercialize our product candidate, we will need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities. Manufacturing of our product must comply with the current cGMP requirements set forth in the FDA’s Code of Federal Regulations. The manufacturing process for our product candidate is an element of the FDA approval process and we will need to contract with manufacturers who can satisfy the FDA requirements on an ongoing basis before we seek to obtain FDA approval. In addition, if we receive the necessary regulatory approval for our product candidate, we also expect to rely on third parties, including our collaborators, to manufacture our therapeutic products in quantities sufficient for clinical trials and commercial marketing. We may experience difficulty in obtaining
21

adequate and timely manufacturing capacity for clinical trials and our commercial needs. If we are unable to obtain or maintain contract manufacturing for our product candidate, or are unable to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our product candidate.
Risks Related to Our Operations
If we are unable to retain qualified employees, our ability to implement our business plan may be adversely affected.
The loss of the service of employees, such as Dr. Frank Haluska, our Chief Executive Officer, Jonathan Burgin, our Chief Financial and Operating Officer, Dr. David Kerstein, our Chief Medical Officer, Dr. Ron Knickerbocker, our Senior Vice President of Clinical Development and Data Sciences, Sean Daly, our Vice President of Clinical Operations, or Dr. Michal Gilon Ohev-Zion, our Vice President of Research and Development, would likely delay our achievement of product development and our other business objectives. Although we have employment agreements with our key employees, some of these employment agreements provide for at-will employment, which means that the employee could terminate their employment with us at any time and, for certain employees, without notice. We do not carry key man life insurance on any of our executive officers.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
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.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our potential competitors. Some of these employees may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
22

We are exposed to a risk of substantial loss due to claims that may be filed against us in the future because our insurance policies may not fully cover the risk of loss associated with our operations.
We are exposed to the risk of having claims seeking monetary damages being filed against us for loss or harm suffered by participants of our clinical studies or for loss or harm suffered by users of any drug that may receive approval for commercialization in the future. In either event, the FDA or the regulatory authorities of other countries or regions may commence investigations of the safety and effectiveness of any such clinical trial or commercialized drug, the manufacturing processes and facilities or marketing programs utilized in respect of any such trial or drug, and may result in mandatory or voluntary recalls of any commercialized drug or other significant enforcement action such as limiting the indications for which any such drug may be used, or suspension or withdrawal of approval for any such drug. Investigations by the FDA or any other regulatory authority in other countries or regions also could delay or prevent the completion of any of our other clinical development programs. In the event that we are required to pay damages for any such claim, we may be forced to seek bankruptcy or to liquidate because our asset and revenue base may be insufficient to satisfy the payment of damages and any insurance that we have obtained or may obtain for product or clinical trial liability may not provide sufficient coverage against potential liabilities. Our current clinical trials insurance policy provides coverage in the amount of up to $10 million in the aggregate.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contract research organizations, or CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product could be delayed.
Risks Related to Government Regulation
We may be subject to U.S. federal and state and also foreign healthcare fraud and abuse laws and regulations and other regulatory reforms, and a finding of our failure to comply with such laws, regulations and reforms could have a material adverse effect on our business.
Our operations may be directly or indirectly affected by various broad U.S. federal and state healthcare fraud and abuse laws. These include the U.S. federal anti-kickback statute, which prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of an item or service, for which payment may be made under U.S. federal healthcare programs, such as the Medicare and Medicaid programs. The U.S. federal anti-kickback statute is very broad in scope, and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. In addition, many states have adopted laws similar to the U.S. federal anti-kickback statute, and some of these laws are broader than that statute in that their prohibitions are not limited to items or services paid for by a U.S. federal healthcare program but, instead, apply regardless of the source of payment. Violations of these laws could result in fines, imprisonment or exclusion from government-sponsored programs.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation of any product for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations
23

that may constrain the business or financial arrangements and relationships through which we market, sell and distribute products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

the federal healthcare anti-kickback statute, as mentioned above, prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;

the federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

the federal transparency requirements under the Health Care Reform Law will require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and

analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
24

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Risks Related to Our Intellectual Property and Potential Litigation
Patents that we have licensed exclusively from Yissum will expire, and if we cannot obtain extended marketing exclusivity, whether through the use of additional patents or government exclusivity regulations, we may face increased competition from third parties who will be able to use the patents that we have used in our research and development activities.
Significant patents underlying our lead product candidate, inodiftagene, included in the exclusive license that Yissum granted to us began expiring in 2017, after which time, any one or more of our competitors could develop generic alternatives to our prospective drugs, to the extent that these are not subject to additional protections, such as exclusivity of biological drugs in the United States and elsewhere, and patent restoration.
We are required, and may be required in the future, to license patent rights from third-party owners in order to develop our products. If we cannot obtain such licenses, or if such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.
We currently license patents in conducting our research and development activities, and may be required to obtain additional licenses in the future if we believe it is necessary or useful for our business and our research and development efforts to use third-party intellectual property or if our efforts would infringe upon the intellectual property rights of third parties.
Should we succeed in obtaining any such license, our business prospects will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property. Our licensors may terminate our license, may not successfully prosecute or may fail to maintain their patent applications that we have licensed, may determine not to pursue litigation against other persons that are infringing these patents or may pursue such litigation less aggressively than we would. Without protection for the intellectual property that we have licensed and that we may license in the future, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive position and harm our business prospects.
If we fail to comply with our obligations under our license with Yissum or other licenses or related agreements to which we are currently a party or may be in the future, we could lose license rights that may be necessary for developing our plasmid-based therapeutic products.
The exclusive license granted to us by Yissum and any license that we may enter into in the future in connection with our efforts to develop drugs utilizing recombinant DNA plasmids may impose various
25

development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. Our obligations under any of these license agreements could include, without limitation:

royalty payments;

annual maintenance fees;

providing progress reports;

maintaining insurance coverage;

paying fees related to prosecution, maintenance and enforcement of patent rights;

minimum annual payments; and

undertaking diligent efforts to develop and to introduce therapeutic products into the commercial market as soon as practicable.
If we were to breach any of our material obligations as described above, the licensor may have the right to terminate the license which could result in our being unable to develop, manufacture and sell products that are covered by the licensed technology or a competitor gaining access to the licensed technology. Under the terms of the exclusive license granted to us by Yissum, Yissum has the right to terminate the license if we become bankrupt or insolvent, or if our business is placed in the hands of a receiver, assignee or trustee. In addition, Yissum has the right to terminate the license for any material breach of the license by us if we fail to remedy such material breach within ninety days of Yissum’s notice of our material breach, provided that the material breach is curable within 90 days. If the material breach cannot be remedied within 90 days, Yissum may not terminate the license if we take reasonable commercial action to cure such breach as promptly as practicable. The Israeli Contract Law (Remedies for Breach of Contract) 1970, defines the term “material breach” as a breach, with regards to which, it may be assumed that a reasonable person would not have entered into the specific agreement had that person foreseen the breach and the outcome thereof, or a breach which is specifically defined as material in the agreement. Acts that may constitute a material breach of the license agreement by us may include, for example: the granting of sublicenses not in compliance with the provisions of the license agreement, a breach of our obligations to pay royalties and provide the necessary reports with respect thereto, a breach of our obligations not to disclose or misuse certain confidential information of Yissum, and a breach of our obligations to develop and commercialize the licensed technology (including our obligation to fund certain research and development activities) and to conduct patent prosecution and maintenance, as further described below.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We currently rely, and intend to rely in the future, on trade secrets, know-how and technology that are not protected by patents to maintain our competitive position. In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive position and harm our business prospects.
If we are unable to obtain and enforce patent protection for our inventions, our ability to develop and commercialize our product will be harmed.
Our success depends, to a considerable extent, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the United States and other countries, so that we may prevent others from unlawfully using our inventions and proprietary information. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the
26

U.S. Patent and Trademark Office, or the PTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly and may change. There also is no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed with respect to any patents issued to us or to others. Additionally, the mere issuance of a patent does not guarantee that it is valid or enforceable against third parties.
We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
A third party may sue us for infringing its patent rights or may claim that we have improperly obtained or used its confidential or proprietary information. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third-party proprietary rights. In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, our licensors may have rights to file and prosecute such claims and we are reliant on them. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be significant, and the litigation would divert our management’s efforts. From a financial perspective, there is a risk that we would not be able to sustain the costs of any such litigation and would be forced to seek bankruptcy or to liquidate because of our limited asset and revenue base.
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 may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
A significant portion of our intellectual property has been developed by our employees in the course of their employment with us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from 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 (which have been upheld by the Israeli Supreme Court on appeal) 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. However, a recent decision by the Committee held that such right can be waived by the employee. The Committee further held that an explicit reference to the waived right is not necessary in every circumstance in order for the employee’s waiver of such right to be valid. Such waiver can be formalized in writing or orally or be implied by the actions of the parties in accordance with the rules of interpretation of Israeli contract law. We generally enter into assignment-of-invention agreements with our
27

employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

Others may be able to make products that are similar to ours, but that are not covered by the claims of the patents that we own or have exclusively licensed.

We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.

We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.

Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.

It is possible that our pending patent applications will not lead to issued patents.

Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

We may not develop additional proprietary technologies that are patentable.

The patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
Risks Related to Our Operations in Israel
If there are significant shifts in the political, economic and military conditions in Israel, it could have a material adverse effect on our operations.
Our corporate headquarters and research and development facilities are located in Israel. In addition, certain of our employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilities from Hezbollah in Lebanon and between Israel and Hamas in the Gaza Strip, which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In addition, Israel faces threats from the civil war in Syria and from Iran. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any armed conflict involving Israel could adversely affect our operations and results of operations, and any losses or damages incurred by us as the result of such a conflict could have a material adverse effect on our business.
28

Furthermore, our operations could be disrupted by the obligations of our personnel to perform military service. Some of our employees based in Israel may be called upon to perform military reserve duty and, in emergency circumstances, may be called to immediate and unlimited active duty. Our operations could be disrupted by the absence of a significant number of employees due to military service, which could materially adversely affect our business and results of operations.
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 whether as a result of hostilities in the region or otherwise.
Because a substantial portion of our revenues is expected to be generated in currencies other than our functional currency, we will be exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition.
In the future, we expect that a substantial portion of our revenues will be generated in currencies other than our functional currency. We currently maintain our financial records in NIS, which is our functional currency, and report our financial results in U.S. dollars. As a result, our revenues for financial statement purposes might be affected by fluctuations in the exchange rates of currencies in the countries in which our products may be sold.
Any Israeli government funding that we receive for research and development expenditures limit or prohibit our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.
We have received royalty-bearing funding from the Israeli government through the Israel Innovation Authority (formerly the Office of the Chief Scientist of the Ministry of Economy), or the IIA, for a significant portion of our research and development expenditures. Israeli law requires that products developed with government funding be manufactured in Israel, unless the IIA approves otherwise. Such approval, if given, is generally conditioned on an increase in the maximum amount of royalties to be paid to the IIA, with the exact ceiling dependent on the extent of the manufacturing to be conducted outside of Israel. Although products based on IIA-funded technologies and know-how may be sold freely, the transfer of or grant of any right (including liens) in the underlying IIA-funded technologies and know-how is restricted. Any such transfer is subject to the approval of the IIA and if the transfer is made outside of Israel, then it is generally conditioned on payment of a redemption fee, which may be substantial.
If we fail to comply with the restrictions and conditions imposed in connection with IIA funding, we may be subject to the sanctions that are set forth under Israeli law, including the possible refund of any payments previously received together with interest and penalties, and in certain circumstances we may also be subject to criminal charges. The difficulties and cost of obtaining the approval of the IIA for the transfer of manufacturing rights, technology or know-how outside of Israel could prevent us from entering into strategic alliances or other transactions that provide for such a transfer, which in turn could adversely affect our business, results of operations and financial condition.
Currency exchange controls may restrict our ability to utilize our cash flows.
We expect to receive proceeds from sales of any product we may develop, and also to pay a portion of our operational costs and expenses, in U.S. dollars, Euros and other foreign currencies. However, we may be subject to existing or future rules and regulations on currency conversion. In 1998, the Israeli currency control regulations were liberalized significantly, and there are currently no currency controls in place. Legislation remains in effect, however, pursuant to which such currency controls could be imposed in Israel by administrative action at any time. We cannot assure that such controls will not be reinstated, or if reinstated, that they would not have an adverse effect on our operations.
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. Some of our executive officers and directors reside in Israel and most of our assets are located 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
29

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 affect service of process on these persons in the United States or to assert U.S. securities laws 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.
Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S. corporations. In particular, each of our shareholders has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations toward us and other shareholders and to refrain from abusing its power in, among other things, voting at shareholder meetings on certain matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of an office holder has a duty to act in fairness toward us. Israeli law does not clearly define the substance of these duties, but these provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli corporate and tax law may deter acquisition transactions.
The provisions of Israeli corporate law governing mergers, tender offers and other acquisition transactions differ in significant respects from analogous provisions of U.S. federal and state law, and may make such transactions difficult to effect. The need for IIA approval and the potential redemption fee payable if an acquiror wishes to transfer IIA-funded technologies and know-how outside of Israel may deter certain potential acquirors. Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us, to our Israeli shareholders or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting 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 various conditions, such as a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
Risks Related to the ADSs and the Offering
The ADSs have no prior trading history in the United States, and an active market may not develop, which may limit the ability of our investors to sell the ADSs in the United States.
There is no public market for the ADSs or our ordinary shares in the United States. Even though the ADSs have been approved for listing on the Nasdaq, an active trading market for the ADSs may never develop or may not be sustained if one develops. If an active market for the ADSs does not develop, it may be difficult for you to sell your ADSs.
30

You will experience immediate and substantial dilution in the net tangible book value of the ADSs you purchase in this offering.
The initial public offering price of the ADSs will substantially exceed the net tangible book value per share of our ordinary shares immediately after this offering. Therefore, based on an assumed initial public offering price of  $14.55 per ADS (based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00)) and assuming the price protection rights underlying the ordinary shares issued in the June 2018 fundraising are triggered, if you purchase the ADSs in this offering, you would suffer, as of January 28, 2019, immediate dilution of  $8.75 per ADS, or $8.35 if the underwriters exercise their option to purchase additional ADSs, in net tangible book value after giving effect to the sale of 2,400,000 ADSs in this offering at an assumed initial public offering price of  $14.55 per ADS 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.”
In addition, if outstanding options and warrants to purchase our ordinary shares are exercised in the future, you will experience additional dilution.
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price. Such indications of interest are not binding agreements to purchase, and these shareholders and/or their affiliates may determine to purchase fewer ADSs than they indicate interest in purchasing, or none at all. In addition, the underwriters could determine to sell fewer ADSs to these shareholders and/or their affiliates than they have indicated an interest in purchasing, or none at all. The underwriting discount for the ADSs sold to such shareholders in this offering will be the same as the underwriting discount for ADSs sold to the public. The foregoing discussion does not reflect any purchases by these shareholders. See “Dilution.”
The available public float for the ADSs may be reduced as a result of certain selling restrictions.
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price. The purchase of ADSs in this offering by such shareholders will reduce the available public float for the ADSs because a substantial majority of such shareholders will be restricted from selling the ADSs, as principal shareholders, by restrictions under applicable securities laws. In addition, if the price protection rights underlying the ordinary shares from the June 2018 fundraising are triggered by this offering, it will result in the issuance of additional ordinary shares, which will be restricted under Rule 144. Assuming our principal shareholders purchase the ADSs they indicated an interest in purchasing in this offering and the triggering of the price protection rights resulting in the issuance of ordinary shares restricted under Rule 144, in addition to securities held by those that have separately agreed to be restricted from selling the securities by entering into a lock-up agreement with our underwriters, after this offering approximately 61% of our outstanding voting securities will be collectively beneficially owned by shareholders who are restricted from selling such securities. As a result, the liquidity of the ADSs may be reduced relative to the liquidity of the ADSs if such shareholders were not subject to such selling restrictions.
Our shares will be listed for trading on more than one stock exchange, and this may result in price variations.
Our ordinary shares are currently traded on the TASE and following the offering, the ADSs, representing our ordinary shares, will be listed for trading on the Nasdaq. This may result in price variations. The ADSs and ordinary shares will be traded on these markets in different currencies, U.S. dollars on the Nasdaq and New Israeli Shekels on the TASE. These markets have different opening times and close on different days. Different trading times and differences in exchange rates, among other factors, may result in our shares being traded at a price differential on these two markets. In addition, market influences in one market may influence the price at which our shares are traded on the other. Following the completion of this offering, we intend to delist our ordinary shares from the TASE. Under applicable Israeli law, the delisting of our ordinary shares from trading on the TASE is expected to become effective three months after we request delisting. Until such delisting takes effect, our ordinary shares will continue to trade on the TASE while the ADSs will trade on the Nasdaq.
31

The ADS price may be volatile, and you may lose all or part of your investment.
The initial public offering price for the ADSs 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 the ADSs following this offering and the price of the ADSs may decline. In addition, the market price of the ADSs 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 ADSs, ordinary shares or other securities in the future;

the delisting of our ordinary shares from the TASE subsequent to this offering;

market conditions in our industry;

changes in personnel;

the trading volume of the ADSs;

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 the ADSs, 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.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline.
The trading market for the ADSs will rely in part on the research and reports that equity research analysts publish about us and our business. The price of the ADSs could decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
As a foreign private issuer whose ADSs are listed on the Nasdaq, we intend to follow certain home country corporate governance practices instead of certain Nasdaq requirements.
As a foreign private issuer whose ADSs will be listed on the Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the rules of the Nasdaq. As permitted under the Israeli Companies Law 1999, or Companies Law, pursuant to our articles of association to be effective upon closing of this offering, the quorum for an ordinary meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a voting instrument, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, a minimum of one shareholder) instead of 3313% of our issued share capital as required under the Nasdaq corporate governance rules. We also intend to adopt and 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. We intend to follow Israeli corporate governance practices instead of the 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 the Nasdaq requirements to obtain shareholder approval for
32

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 the 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 may provide less protection than is accorded to investors of domestic issuers. See “Management — Corporate Governance Practices.”
As a foreign private issuer, we will not be subject to U.S. proxy rules and will be exempt from certain Exchange Act reports.
We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. As a foreign private issuer, we will be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, although under regulations promulgated under the Companies Law, as an Israeli public company listed on the Nasdaq, we will be required to disclose the compensation of our five most highly compensated officers on an individual basis, this disclosure will not be as extensive as that required of U.S. domestic reporting companies. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC, as frequently or as promptly as U.S. domestic reporting companies whose securities are registered under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies.
If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer.
We would lose our foreign private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directors or executive officers are U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. We cannot assure you that at June 30, 2019, the next determination date of our foreign private issuer status, we will qualify as a foreign private issuer. If we cease to qualify as a foreign private issuer at this determination date, we will be required to begin reporting as a domestic issuer on January 1, 2020. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer, and we will be required to present our financial statements in accordance with U.S. GAAP instead of in accordance with IFRS as we currently do. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain Nasdaq corporate governance requirements that are available to foreign private issuers.
We have broad discretion as to the use of the net proceeds from this offering and may not use such proceeds effectively.
We currently intend to use the net proceeds from this offering to develop our therapeutic and diagnostic products, namely inodiftagene, 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.
33

The market price of the ADSs could be negatively affected by future sales of the ADSs.
Immediately after this offering, there will be 32,856,918 ordinary shares, including 2,400,000 ADSs representing 12,000,000 ordinary shares outstanding. Sales by us or our shareholders of a substantial number of our ordinary shares or ADSs in the public markets following this offering, or the perception that these sales might occur, could cause the market price of the ADSs 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 ADSs sold in this offering will be freely transferable, except for any ADSs held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or Rule 144.
Following the closing of this offering, 13,681,794 ordinary shares (which takes into effect ordinary shares issued if the price protection rights are triggered by this offering (see “Description of Share Capital”)) 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, ADSs 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 ADSs, or cause a registration statement covering any ADSs to be filed, without the prior written consent of Oppenheimer & Co., which may, in its 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.
Upon the filing of the registration statements and following the expiration of the lock-up restrictions described above, the number of ordinary shares or ADSs 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 and ADSs to appreciate unless there is a corresponding increase in demand for our ordinary shares and ADSs. This increase in available shares could result in the value of your investment in the ADSs decreasing.
In addition, a sale by us of additional ordinary shares, ADSs 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 or ADSs might impede our ability to raise capital through the issuance of additional ordinary shares, ADSs or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares or ADSs.
We do not intend to pay dividends in the foreseeable future.
We do not anticipate paying any cash dividends on the ADSs. 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.
You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, or the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the
34

depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could augur less favorable results to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one that is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may augur different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.
Holders of ADSs must act through the depositary to exercise their rights as our shareholders.
Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 14 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to
35

extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.
We will incur significant additional increased costs as a result of the listing of the ADSs for trading on the Nasdaq and thereby becoming a public company in the United States as well as in Israel, and our management will be required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements.
Upon the successful completion of this offering and the listing of the ADSs on the Nasdaq, we will become a publicly traded company in the United States. As a public company in the United States, we will incur significant additional accounting, legal and other expenses that we did not incur before the offering. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC and the Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs, to introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Furthermore, if we cease to qualify as a foreign private issuer, we would incur significant additional legal, accounting and other expenses in order to comply fully with the reporting requirements of the Exchange Act and Nasdaq applicable to U.S. domestic issuers. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and the Nasdaq, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules 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, if any, or as executive officers.
Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC.
Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. We believe that we were a PFIC in 2017 and 2018 and, based on estimates of our gross income and gross assets, our intended use of the proceeds of this offering, and the nature of our business, we believe that we will be classified as a PFIC for the taxable year ending December 31, 2019. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized as a PFIC for the 2019 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in future years will depend on our income, assets and activities in those years. In any taxable year in which we are characterized as a PFIC for U.S. federal income tax
36

purposes, a U.S. Holder, as defined in “Taxation and Government Programs — U.S. Federal Income Tax Consequences,” that owns ADSs could face adverse U.S. federal income tax consequences, including having gains realized on the sale of the ADSs classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on the ADSs by individuals who are U.S. Holders, and having interest charges apply to distributions by us and the proceeds of ADS sales. Certain elections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of the ADSs. If we are a PFIC in any year, U.S. Holders may be subject to additional Internal Revenue Service, or IRS, filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. See “Taxation and Government Programs —  U.S. Federal Income Tax Consequences.”
We may be treated as a U.S. corporation for U.S. federal income tax purposes.
For U.S. federal income tax purposes, a corporation generally is considered tax resident in the place of its incorporation. We are incorporated under the laws of the State of Israel and, therefore, we should be a non-U.S. corporation under this general rule. However, Section 7874 of the Internal Revenue Code of 1986, as amended, or the Code, contains rules that may result in a foreign corporation being treated as a U.S. corporation for U.S. federal income tax purposes. The application of these rules is complex and there is little guidance regarding certain aspects of their application.
Under Section 7874 of the Code, a corporation created or organized outside the United States will be treated as a U.S. corporation for U.S. federal tax purposes when (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by a U.S. corporation, (ii) the former shareholders of the acquired U.S. corporation hold at least 80% of the vote or value of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation, and (iii) the foreign corporation’s “expanded affiliated group” does not have “substantial business activities” in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities. For this purpose, “expanded affiliated group” generally means the foreign corporation and all subsidiaries in which the foreign corporation, directly or indirectly, owns more than 50% of the stock by vote and value, and “substantial business activities” generally means at least 25% of employees (by number and compensation), assets and gross income of our expanded affiliated group are based, located and derived, respectively, in the country of incorporation.
We do not believe that we should be treated as a U.S. corporation as a result of the Reincorporation under Section 7874 of the Code because we believe that we have substantial business activities in Israel. However, the IRS may disagree with our conclusion on this point. In addition, there could be legislative proposals to expand the scope of U.S. corporate tax residence and there could be changes to Section 7874 of the Code or the Treasury Regulations promulgated thereunder that could result in us being treated as a U.S. corporation.
If it were determined that we should be treated as a U.S. corporation for U.S. federal income tax purposes, we could be liable for substantial additional U.S. federal income tax on our taxable income since the Reincorporation. In addition, payments of dividends to non-U.S. holders may be subject to U.S. withholding tax.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the ADSs.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to
37

achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.
As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make the ADSs less attractive to investors.
For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies, including:

an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act; and

an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements.
We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of  $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, (iii) December 31, 2024 or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act.
We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile.
38

Cautionary 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:

We do not have a history of commercial sales and do not anticipate earning operating income over the coming years;

Our business depends on the success of our lead product candidate, inodiftagene, the development of which will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales;

Scientific or technological difficulties may impede our research and development activities;

We will require substantial additional funds to complete our research and development activities;

Raising additional capital may dilute holdings of our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or products;

Any product that we may develop will be required to undergo a time-consuming, costly and burdensome pre-market approval process, and we may be unable to obtain regulatory approval for any of our products;

The pharmaceutical and biotechnology market is highly competitive; and

Patents that we have licensed exclusively from Yissum will expire, and if we cannot obtain extended marketing exclusivity, we may face increased competition from third parties.
The preceding list is not intended to be an exhaustive list. Forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results to differ materially from the results expressed or implied by the forward-looking statements. In particular, you should consider the rules provided under “Risk Factors” in this prospectus.
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 the ADSs. 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.
39

Price Range of Our Ordinary Shares
Prior to this offering, there has been no public market for the ADSs. We cannot assure you that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market subsequent to this offering at or above this initial public offering price. Each ADS will represent five ordinary shares. The ADSs have been approved for listing on the Nasdaq Capital Market under the symbol “ANCN.”
Our ordinary shares have been trading on the TASE since August 14, 2012. Our ordinary shares traded under the symbol “BICL” until August 2018 when the symbol was changed to “ANCN.” No trading market currently exists for our ordinary shares in the United States. The average daily trading volume of our ordinary shares on the TASE is 3,634.
Following the completion of this offering, we intend to delist our ordinary shares from the TASE; however, the delisting process is expected to be completed in a few months.
Trading History of our Ordinary Shares
The following table sets forth, for the annual, quarterly and monthly periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE in NIS and U.S. dollars. On January 28, 2019, the last reported sale price of our shares on the TASE was NIS 10.72 per share ($2.91 per share).
NIS
U.S. dollar ($)
Price Per
Ordinary Share
Price Per
Ordinary Share
High
Low
High
Low
Annual
2019 (through January 28, 2019)
11.31 9.32 3.09 2.52
2018 17.10 9.36 4.93 2.50
2017
16.82 7.75 4.83 2.19
2016
9.40 6.66 2.44 1.71
2015
13.23 8.18 3.36 2.15
2014
28.65 10.32 8.23 2.61
Quarterly
First Quarter 2019 (through January 28, 2019)
11.31 9.32 3.09 2.52
Fourth Quarter 2018
11.76 9.36 3.25 2.50
Third Quarter 2018
15.57 11.13 4.28 3.09
Second Quarter 2018
13.64 11.50 3.78 3.20
First Quarter 2018
17.10 12.14 4.93 3.45
Fourth Quarter 2017
16.82 8.50 4.83 2.41
Third Quarter 2017
9.55 7.95 2.67 2.26
Second Quarter 2017
13.53 7.75 3.73 2.19
First Quarter 2017
14.20 8.40 3.93 2.19
Most Recent Six Months
January 2019 (through January 28, 2019)
11.31 9.32 3.09 2.52
December 2018
11.49 9.36 3.08 2.50
November 2018
11.48 10.41 3.09 2.80
October 2018
11.76 10.75 3.25 2.89
September 2018
13.06 11.13 3.60 3.09
August 2018
15.37 12.87 4.14 3.55
July 2018
15.57 13.24 4.28 3.62
As of the date of this prospectus, there is one shareholder of record of our ordinary shares. The number of record holders is not representative of the number of beneficial holders of our ordinary shares, as all shares we have issued are currently recorded in the name of our Israeli share registrar, Mizrahi-Tefahot Nominees Co. Ltd. As of the date of this prospectus, there were no record holders of our ordinary shares in the United States.
40

Exchange Rates
Since inception, our functional and presentation currency was the NIS. We recently adopted the U.S. dollar as our presentation currency and have presented all of our financial information in U.S. dollars. No representation is made that NIS amounts referred to in this prospectus could have been or could be converted into dollars at any particular rate, the rates stated below or at all.
Fluctuations in the exchange rates between the NIS and the dollar will affect the dollar amounts received by owners of our ordinary shares on payment of dividends, if any, paid in NIS.
The following table sets forth information regarding the exchange rates of NIS per dollars as reported by the Bank of Israel for the periods indicated. Average rates are calculated by using the average of the exchange rates on the last day of each month as reported by the Bank of Israel for the periods presented.
NIS per dollar
High
Low
Average
Period End
Year Ended December 31,
2019 (through January 28, 2019)
3.746 3.657 3.691 3.680
2018
3.781 3.388 3.597 3.748
2017
3.860 3.467 3.600 3.467
2016
3.983 3.746 3.841 3.845
2015
4.053 3.761 3.884 3.902
2014
3.994 3.402 3.577 3.889
NIS per dollar
High
Low
Month
January 2019 (through January 28, 2019)
3.746 3.657
December 2018
3.781 3.718
November 2018
3.743 3.668
October 2018
3.721 3.620
September 2018
3.627 3.564
August 2018
3.710 3.604
July 2018
3.667 3.618
On January 28, 2019, the representative rate was $1.00 to NIS 3.680, as reported by the Bank of Israel.
41

Use of Proceeds
We estimate that our net proceeds from this offering will be approximately $30.9 million, or approximately $35.7 million if the underwriters exercise in full their option to purchase additional ADSs, based on an assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), 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 would increase (decrease) the net proceeds we receive from this offering by $2.2 million, assuming that the number of ADSs 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. We may also increase or decrease the number of ADSs we are offering. Each 100,000 ADS increase (decrease) in the number of ADSs we are offering would increase (decrease) the net proceeds to us from this offering by approximately $1.4 million, assuming no change in the assumed initial public offering price per ADS.
The primary purposes of this offering are to raise additional capital to further the development of our pipeline projects, general research and development and for general corporate purposes, as well as to create a U.S. public market for the ADSs, to allow potential future access to the U.S. public markets should we need more capital in the future and to increase the profile and prestige of our company with existing and possible strategic partners.
We expect the net proceeds from this offering to meet our capital requirements for at least the next 1.5 years. Specifically, we intend to use approximately 75% of the net proceeds from this offering to advance our Phase 2 program for our lead product candidate, inodiftagene.
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 closing 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 of our clinical studies and changes we may make to our clinical development plan. 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 investment-grade instruments and/or to hold such proceeds as cash or interest-bearing deposits in the currencies in which we expect to make payment.
42

Dividend Policy
We have never declared or paid any cash dividends on our 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. If we decide to pay any cash dividend, the depositary has agreed to pay the ADS holders the dividends it receives, after deducting fees and expenses. See “Description of American Depositary Shares — Dividends and Other Distributions.”
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. In the event that we do not meet such earnings criteria, we may seek the approval of the court in order to distribute a dividend. As of September 30, 2018, we did not have distributable earnings pursuant to the Companies Law. Our articles of association provide that dividend distributions may be determined by our board of directors, without the need for shareholder approval.
Payment of dividends may be subject to Israeli withholding taxes. See “Taxation and Government Programs — Israeli Tax Considerations and Government Programs.”
43

Capitalization
The following table sets forth our total capitalization, together with our cash and cash equivalents, as of September 30, 2018, as follows:

on an actual basis;

on a pro forma basis to reflect the issuance and sale of ADSs in this offering at an assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), after deducting underwriting discounts and commissions and the estimated offering expenses payable by us; and

on a pro forma as adjusted basis to take into account the effect of the issuance of 5,281,236 ordinary shares upon the triggering of the price protection rights underlying certain of our ordinary shares by this offering, assuming an initial public offering price of  $14.55 per ADS (which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of   $2.91 per ordinary share). See “Description of Share Capital” for additional information.
The pro forma and pro forma as adjusted columns are illustrative only. Our cash and cash equivalents and capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at the pricing of this offering. You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus, as well as the sections of this prospectus titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of September 30, 2018
Actual
Pro Forma(1)
Pro Forma
As Adjusted
(USD, in thousands, except share data)
Cash and cash equivalents
$ 10,912 $ 41,786 $ 41,786
Shareholders’ equity:
Ordinary shares, no par value: 100,000,000 shares authorized, 15,575,682 shares issued and outstanding (actual); 27,575,682 shares issued and outstanding (pro forma); 32,856,918 shares issued and outstanding (pro forma as adjusted)
Additional paid-in capital
70,469 101,343 116,711
Accumulated losses
(74,346) (74,346) (82,709)
Share premium and other reserves
4,110 4,110 4,110
Total shareholders’ equity
$ 233 $ 31,107 $ 38,112
(1)
A $1.00 increase (decrease) in the assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), would increase (decrease) the pro forma amount of each of cash and cash equivalents, additional paid-in capital and total shareholders’ equity by approximately $2.2 million, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ADSs we are offering. Each 100,000 ADS increase (decrease) in the number of ADSs we are offering would increase (decrease) our pro forma cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by approximately $1.4 million, assuming no change in the assumed initial public offering price per ADS, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The outstanding share information in the table above excludes:

2,167,476 ordinary shares that were issuable upon exercise of options that had been granted and remained outstanding as of September 30, 2018 at a weighted average exercise price of  $3.44 per share;
44


4,768,629 ordinary shares that were issuable upon exercise of warrants that had been granted and remained outstanding as of September 30, 2018 at a weighted average exercise price of NIS 16.20 per share (approximately $4.47 per share as of September 30, 2018); and

875,091 ordinary shares reserved for future issuance under our equity incentive plans.
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price.
45

Dilution
If you invest in the ADSs in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per ADS and the pro forma net tangible book value per ADS after this offering. Dilution results from the fact that the attributed initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares. Our consolidated net tangible book value as of September 30, 2018 was approximately $0.2 million, or $0.015 per ordinary share or $0.075 per ADS (using the ratio of five ordinary shares to one ADS), as of such date.
Consolidated net tangible book value per ordinary share or ADS was calculated by:

subtracting our consolidated liabilities from our consolidated tangible assets; and

dividing the difference by the number of ordinary shares or ADSs outstanding, as applicable.
After giving effect to adjustments relating to this offering, our consolidated pro forma net tangible book value on September 30, 2018 would have been approximately $38.1 million, equivalent to $1.16 per ordinary share or $5.80 per ADS. The adjustments made to determine our consolidated pro forma 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 ADSs offered in this prospectus, assuming an initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00) and assuming the price protection rights underlying the ordinary shares issued in the June 2018 fundraising are triggered.
The following table illustrates the immediate increase in our consolidated net tangible book value of  $5.72 per ADS and the immediate pro forma dilution to new investors:
Assumed initial public offering price per ADS $ 14.55
Consolidated net tangible book value per ADS as of September 30, 2018
$ 0.075
Increase in consolidated net tangible book value per ADS attributable to this offering
$ 5.72
Pro forma as adjusted net tangible book value per ADS after this offering $ 5.80
Dilution per ADS to new investors $ 8.75
Percentage of dilution per ADS to new investors 60%
A $1.00 increase (decrease) in the assumed initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), would increase (decrease) the consolidated net tangible book value attributable to this offering by $0.48 per ADS, the consolidated net tangible book value after giving effect to this offering by $6.20 per ADS and the dilution per ADS to new investors in this offering by $0.52 assuming that the number of ADSs offered remains the same, the price protection rights underlying the ordinary shares and outstanding warrants issued in the June 2018 fundraising are triggered and after deducting underwriting discounts and commissions and estimated offering expenses. We may also increase or decrease the number of ADSs we are offering. Each increase (decrease) of 100,000 in the number of ADSs we are offering would increase (decrease) our pro forma net tangible book value by $0.12 per ADS and would decrease (increase) dilution to investors in this offering by $0.12 per ADS, assuming no change in the assumed initial public offering price per ADS, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters’ over-allotment option to purchase additional ADSs from us is exercised in full, and assuming an initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share (based on the exchange
46

rate reported by the Bank of Israel on that date, which was NIS 3.680 = $1.00), the consolidated net tangible book value attributable to this offering would be $6.13 per ADS, the consolidated net tangible book value after giving effect to this offering would be $6.20 per ADS and the dilution per ADS to new investors in this offering would be $8.35, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The table below summarizes, on a pro forma as adjusted basis as of September 30, 2018, the differences for our existing shareholders and new investors purchasing ADSs in this offering the total consideration paid to us and the average per ADS price paid in this offering in the purchase of the ADSs from us, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The table below includes 5,281,236 ordinary shares issued to existing shareholders as a result of the price protection rights described in “Description of Share Capital” being triggered by this offering, assuming an initial public offering price of  $14.55 per ADS, which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share. The total number of ADSs does not include ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.
ADSs purchased
Total consideration
Average
price per
ADS
Number
%
Amount
%
Existing shareholders (treating the ordinary shares held by existing shareholders as ADSs)
4,171,383 63% $ 85,688,000 71% $ 20.54
New investors
2,400,000 37% 34,920,000 29% $ 14.55
Total
6,571,383 100% $ 120,608,000 100%
    ​
If the underwriters exercise their option to purchase additional ADSs in full, the total consideration paid by new investors would be approximately $40.2 million.
Certain of our existing shareholders and/or certain of their affiliates have indicated an interest in purchasing up to an aggregate of  $17.5 million of the ADSs in this offering at the initial public offering price. Such indications of interest are not binding agreements to purchase, and these shareholders and/or their affiliates may determine to purchase fewer ADSs than they indicate interest in purchasing, or none at all. In addition, the underwriters could determine to sell fewer ADSs to these shareholders and/or their affiliates than they have indicated an interest in purchasing, or none at all. The underwriting discount for the ADSs sold to such shareholders in this offering will be the same as the underwriting discount for ADSs sold to the public. The foregoing discussion and tables do not reflect any purchases by these shareholders.
The above tables and discussions are based on our ordinary shares outstanding as of September 30, 2018, which gives effect to the pro forma transactions described above and excludes:

2,167,476 ordinary shares that were issuable upon exercise of options that had been granted and remained outstanding as of September 30, 2018 at a weighted average exercise price of  $3.44 per share;

4,768,629 ordinary shares that were issuable upon exercise of warrants that had been granted and remained outstanding as of September 30, 2018 at a weighted average exercise price of NIS 16.20 per share (approximately $4.47 per share as of September 30, 2018); and

875,091 ordinary shares reserved for future issuance under our equity incentive plans.
The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.
47

Selected Consolidated Financial Data
The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated interim financial statements and consolidated financial statements and related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected in the future. Our financial statements have been prepared in accordance with IFRS as issued by the IASB. We have prepared our unaudited condensed consolidated interim financial statements on the same basis as our audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Interim financial statements are not necessarily indicative of results that may be experienced for the full year or any future reporting period.
The selected consolidated statements of operations data for each of the years in the two-year period ended December 31, 2017, and the consolidated statements of financial position data as of December 31, 2017 and 2016, are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated statements of operations for the nine months ended September 30, 2018 and 2017, and the consolidated statement of financial position data as of September 30, 2018 are derived from our unaudited condensed consolidated interim financial statements. Although our functional currency is the NIS, we report our financial results in U.S. dollars.
Nine Months Ended
September 30,
Year Ended
December 31,
2018
2017
2017
2016
(USD, in thousands, except per share data)
Consolidated Statements of Operations:
Operating expenses:
Research and development expenses
$ 5,722 $ 5,222 $ 6,229 $ 2,384
General and administrative expenses
4,346 2,288 3,163 2,258
Operating loss
$ 10,068 $ 7,510 $ 9,392 $ 4,642
Financing expense (income), net
941 138 91 (37)
Loss before taxes on income
$ 11,009 $ 7,648 $ 9,483 $ 4,605
Income tax
461 210 323 137
Net loss
$ 11,470 $ 7,858 $ 9,806 $ 4,742
Net loss per ordinary share, basic and diluted(1)
$ 0.98 $ 0.89 $ 1.09 $ 0.87
Number of shares used to compute basic and diluted loss
per ordinary share (thousands of shares)
11,666 8,816 9,025 5,433
Pro forma as adjusted net loss per ordinary
share(1)(2)
$ 0.74
Pro forma as adjusted number of shares used to
compute pro forma as adjusted net loss per ordinary
share (thousands of shares)(1)(2)
13,485
(1)
Basic net loss per ordinary share and diluted net loss per ordinary share are the same because outstanding options and derivative financial instruments would be anti-dilutive due to our net losses in these periods and/or, as out-of-money warrants, would likewise not add to the diluted net loss per ordinary share.
(2)
Pro forma as adjusted net loss per ordinary share gives effect to the issuance of 5,281,236 ordinary shares under the price protection rights from the Company’s June 2018 financing as if such issuance had occurred as of the closing of such financing, which was June 29, 2018, assuming an initial public offering price of  $14.55 per ADS (which is based on the last reported sale price of our ordinary shares on the TASE on January 28, 2019 of  $2.91 per ordinary share). See “Description of Share Capital” for information regarding the price protection rights, which are likely to be triggered by this offering. The numerator in the pro forma as adjusted net loss per ordinary share calculation has been adjusted to reverse the losses resulting from the fair value movements on the share price protection rights derivative during the period from the closing of the June 2018 financing (when the 5,281,236 ordinary shares were assumed to have been issued) of June 29, 2018 through September 30, 2018.
48

As of
September 30,
As of
December 31,
2018
2017
2016
2015
(USD, in thousands)
Consolidated Statements of Financial Position Data:
Cash and cash equivalents
$ 10,912 $ 1,454 $ 4,564 $ 2,203
Working capital
3,961 (842) 3,073 1,993
Total assets
15,203 2,087 5,655 3,506
Total liabilities
14,970 2,696 2,359 1,367
Total shareholders’ equity (deficiency)
233 (609) 3,296 2,139
49

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated 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 “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapies to treat cancer-related diseases. Our most advanced product candidate, inodiftagene, is under development as a treatment for non-muscle invasive bladder cancer, or NMIBC.
Recent Developments
In June 2018, certain institutional and other accredited investors purchased an aggregate of 5,960,787 ordinary shares at a per share purchase price of approximately $3.842 per share, for aggregate proceeds of approximately $22.9 million. The investors also received warrants to purchase 4,768,629 additional ordinary shares at an exercise price of  $4.47 per share based on the exchange rate as of September 30, 2018, as well as price protections and certain other rights. See “Capitalization” and “Certain Relationships and Related Party Transactions” for additional details. We are using the proceeds from this financing primarily to further our clinical development of inodiftagene as well as for general corporate purposes.
The consideration was allocated to two derivative financial instruments: financial instrument —  warrants; and financial instrument — price protection mechanism for securities, or collectively, the Derivative Financial Instruments. These instruments constitute Level 3 derivative financial instruments and were measured at fair value on the date of the transaction using the Probability-Weighted Expected Return Method. The main assumptions underlying their valuation are a share price of NIS 13.20 (approximately $3.62 at the time of allocation), expected volatility of 52%, cost of capital of 14%, a risk-free interest rate range of 0.21% to 1.58% and no dividend payments during the valuation period.
As of September 30, 2018, the fair value of the Derivative Financial Instruments (warrants and price protection mechanism) was approximately $5.0 million and $7.0 million, respectively. Changes in fair value are recognized in the statement of operations as financing expense (income). The main assumptions underlying the valuation as of September 30, 2018, were a share price of NIS 11.13 (approximately $3.07), expected volatility of 49%, cost of capital of 14%, a risk-free interest rate range of 0.23% to 1.68% and no dividend payments during the valuation period.
In December 2018, we initiated our Codex Clinical Trial.
Components of Our Results of Operations
We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our net loss, accumulated during the development stage through September 30, 2018 and December 31, 2017, totaled approximately $74.3 million and $62.9 million, respectively, and we expect to continue to incur substantial losses in future periods while we continue to develop inodiftagene and other potential product candidates. Our ability to continue as a going concern is dependent on various factors, and there is no assurance that we will be successful in our efforts to maintain a sufficient cash balance, or report profitable operations in the future, any of which could impact our ability to continue as a going concern. Any such inability to continue as a going concern may result in our shareholders losing their entire investment.
50

   Revenue
To date, we have not generated any revenue. We do not expect to receive any revenue from our product candidate unless and until we obtain regulatory approval and commercialize our product candidate or enter into agreements with third parties to commercialize them. There can be no assurance that we will receive such regulatory approvals, and if our product candidate is approved, that we will be successful in commercializing them.
   Operating expenses
Our operating expenses consist of two components: research and development expenses and general and administrative expenses. We anticipate that the costs for developing our product candidate will increase as we progress into registrational trials of our product candidate, inodiftagene.
   Research and development expenses
Research and development activities are our primary focus. Products in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase as we prepare for, and commence, registrational clinical trials of inodiftagene. A key activity in progressing inodiftagene toward registrational trials is the development of large-scale manufacturing processes that are tailored specifically to our product candidate. In order to confirm the suitability of a new manufacturing facility and/or process, numerous experiments are needed. Moreover, the regulatory requirements in preparation for manufacturing a drug to be used in a registrational trial or for commercial use involve validation activities and extensive updates to our regulatory files, all of which are lengthy and costly activities. For these reasons, the development of manufacturing processes currently represents the largest portion of our research and development expenses.
Research and development expenses include the following:

employee-related expenses, such as salaries and share-based compensation;

expenses of developing manufacturing processes;

expenses relating to outsourced and contracted services, such as external laboratories and consulting and advisory services;

costs associated with pre-clinical activities;

patent application and maintenance expenses;

expenses incurred in operating our laboratories and small-scale equipment; and

clinical development expenses, which include:

supply, development and manufacturing costs relating to clinical trial materials;

employee-related expenses, including salaries and share-based compensation and other expenses; and

costs associated with clinical activities and regulatory compliance.
We have received grants from the IIA in the framework of research and development programs for inodiftagene. These grants are subject to repayment through future royalty payments on any products resulting from these research and development programs. We must pay royalties of 3.0% to 5.0% on the revenues derived from sales of products developed in whole or in part using these IIA grants. The maximum aggregate royalties paid generally cannot exceed 100% of the grants we have received, plus annual interest generally equal to the 12-month LIBOR applicable to U.S. dollar deposits, as published on the first business day of each calendar year. However, the transfer of production out of Israel, in whole or in part, could increase the royalty payment up to 200% of the total liability. The total amount of grants we have received from the IIA, including accrued LIBOR interest, as of September 30, 2018 and December 31, 2017, is approximately $4.0 million. We have not paid any royalties to the IIA. For more information, see “Business — Government Regulation — Regulations in Israel.”
51

We recognize research and development expenses as we incur them. We do not account separately for research and development costs by product. An intangible asset arising from the development of our product candidate is recognized if certain capitalization conditions are met. As of September 30, 2018, we did not have any capitalized development costs.
   General and administrative expenses
General and administrative expenses consist primarily of salaries, including share-based compensation and related personnel expenses, professional service fees for accounting, legal and bookkeeping, facilities, maintenance and insurance, board of directors’ fees and business development expenses.
Share-based compensation is based on the fair value of the options granted, as measured by the Black-Scholes option pricing model, with expected volatility determined based on the historical volatility of our share price, duration to maturity equal to the expected life of the options, and the risk-free interest rate determined based on the yield to maturity of government bonds (U.S. Treasury securities and bonds for options with U.S. dollar-denominated exercise prices, and Israeli bonds for options with NIS-denominated exercise prices).
We anticipate that our general and administrative expenses will increase following the completion of this offering principally associated with the costs of being a public company in the United States, including increased legal, consulting and tax-related service fees associated with maintaining compliance with SEC and Nasdaq requirements, accounting and audit fees, investor relation expenses, director fees and director and officer insurance premiums.
   Financing expense (income), net
Financing expense (income), net consists of interest earned on our cash, cash equivalents and short-term bank deposits, bank fees and costs and interest expenses. In addition, we record expense or income resulting from fluctuations of currencies we hold, primarily U.S. dollars and Euros, against the NIS (our functional currency). A portion of our assets are held in foreign currency and a portion of our liabilities is denominated in these currencies.
We issued derivative financial instruments in the second quarter of 2018, the issuance costs of which were included as a financing expense. As the derivative financial instruments are measured at fair value at the end of every reporting period (fluctuating mainly due to changes in share price and its expected volatility, and assessments of the probabilities of future events), and the differences in fair value are recognized in our statement of operations as financing expense (income), we expect financing expense (income), net to continue to fluctuate.
   Income taxes
The standard corporate tax rate in Israel was 24% for the 2017 tax year, and is 23% for the 2018 tax year and thereafter. The annual tax rate for 2017 applicable to our U.S. subsidiary is up to 40%. On December 22, 2017, the U.S. Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law, inter alia, by lowering the U.S. federal corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. Therefore, the aggregate annual federal and state tax rate applicable for our U.S. subsidiary in 2018 is up to 32%.
We have not generated taxable income since inception, and have operating tax loss carryforwards resulting from the liquidation of BioCancell Therapeutics Inc., following our reorganization as an Israeli corporation. As of September 30, 2018, our operating tax loss carryforwards were approximately $5.0 million and capital loss carryforwards were approximately $12.7 million. Our operating tax loss carryforwards as of December 31, 2017 were approximately $3.7 million and capital loss carryforwards were approximately $13.3 million.
Our wholly-owned Israeli subsidiary, Anchiano Therapeutics Israel Ltd., had operating tax loss carryforwards of approximately $55.0 million as of September 30, 2018 and capital loss carryforwards of approximately $1.5 million. It had operating tax loss carryforwards of approximately $50.5 million as of December 31, 2017 and capital loss carryforwards of approximately $1.4 million.
52

We anticipate that we will be able to carry forward these tax losses indefinitely. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carryforward tax losses.
We recognize deferred tax assets on losses for tax purposes carried forward to subsequent years if utilization of the related tax benefit against a future taxable income is expected. We have not created deferred taxes on our tax loss carryforward since their utilization is not expected in the foreseeable future.
Our wholly-owned U.S. subsidiary, Anchiano Therapeutics, Inc., provides us with general and clinical trial management services. For these services, the subsidiary is compensated on a cost-plus basis, and records income taxes accordingly.
Functional and Presentation Currency
The NIS is the currency that represents the principal economic environment in which we operate and thus is our functional currency. However, for financial reporting purposes, our financial statements, which are prepared using the functional currency, have been translated into a different presentation currency, the U.S. dollar. As we intend to raise funds and list our shares on Nasdaq, we believe presentation in U.S. dollars will facilitate U.S. investors’ understanding of our financial statements. Our assets and liabilities are translated at the exchange rates at the balance sheet date; our income and expenses are translated at average exchange rates and shareholders’ equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included in foreign exchange translation adjustment to other comprehensive loss, a component of shareholders’ equity.
Results of Operations
Below is a summary of our results of operations for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Years Ended
December 31,
2018
2017
2018
2017
2017
2016
(USD, in thousands)
Operating expenses:
Research and development
expenses
$ 1,372 $ 1,125 $ 5,722 $ 5,222 $ 6,229 $ 2,384
General and administrative expenses
1,133 777 4,346 2,288 3,163 2,258
Operating loss
$ 2,505 $ 1,902 $ 10,068 $ 7,510 $ 9,392 $ 4,642
Financing income
(12) (36) (12) (38) (1) (44)
Financing expense
72 2 953 176 92 7
Financing expense (income), net
60 (34) 941 138 91 (37)
Loss before taxes on income
$ 2,565 $ 1,868 $ 11,009 $ 7,648 $ 9,483 $ 4,605
Income tax
68 57 461 210 323 137
Net loss
$ 2,633 $ 1,925 $ 11,470 $ 7,858 $ 9,806 $ 4,742
   Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017
   Research and development expenses
Research and development expenses increased by approximately $0.2 million, or 22%, to approximately $1.4 million for the three months ended September 30, 2018, compared to approximately $1.1 million for the three months ended September 30, 2017. This increase was mainly due to an increase in clinical trial initiation expenses and an increase in manpower.
53

   General and administrative expenses
General and administrative expenses increased by approximately $0.4 million, or 46%, to approximately $1.1 million for the three months ended September 30, 2018, compared to approximately $0.8 million for the three months ended September 30, 2017. This increase was mainly due to an option grant to our Chief Executive Officer and increases in payroll provisions, professional and consulting expenses and rent expenses.
   Financing expense (income), net
Financing expense (income), net was approximately $60 thousand for the three months ended September 30, 2018, compared to approximately ($34) thousand for the three months ended September 30, 2017, a change of  $94 thousand, or 276%. This change was due to changes in derivative financial instrument fair values and exchange rate fluctuations.
   Income tax
Income tax increased by approximately $11 thousand, or 19%, to approximately $68 thousand for the three months ended September 30, 2018, compared to approximately $57 thousand for the three months ended September 30, 2017. This increase was primarily due to an increase in activity in our U.S. subsidiary and in share-based compensation, which may be deductible for tax purposes in the future.
   Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
   Research and development expenses
Research and development expenses increased by approximately $0.5 million, or 10%, to approximately $5.7 million for the nine months ended September 30, 2018, compared to approximately $5.2 million for the nine months ended September 30, 2017. This increase was mainly due to increased clinical trial initiation expenses and manpower expenses, offset by decreased production expenses.
   General and administrative expenses
General and administrative expenses increased by approximately $2.1 million, or 90%, to approximately $4.3 million for the nine months ended September 30, 2018, compared to approximately $2.3 million for the nine months ended September 30, 2017. This increase was mainly due to an option grant to our Chief Executive Officer, and increases in payroll, professional and consulting expenses and issuance costs.
   Financing expense (income), net
Financing expense (income), net increased by approximately $0.8 million, or 582%, to approximately $0.9 million for the nine months ended September 30, 2018, compared to approximately $0.1 million for the nine months ended September 30, 2017. This increase was caused by issuance costs related to the derivative financial instruments issued in the second quarter of 2018, changes in fair value of derivative financial instruments, interest accrued on bridge loans, and exchange rate fluctuations.
   Income tax
Income tax increased by approximately $0.3 million, or 120%, to approximately $0.5 million for the nine months ended September 30, 2018, compared to approximately $0.2 million for the nine months ended September 30, 2017. This increase was primarily due to an increase in activity in our U.S. subsidiary and in share-based compensation, which may be deductible for tax purposes in the future.
   Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
   Research and development expenses
Research and development expenses increased by approximately $3.8 million, or 161%, to approximately $6.2 million for the year ended December 31, 2017, compared to approximately $2.4 million for the year ended December 31, 2016. The increase resulted mainly from an increase in production expenses, expenses related to the development of our production processes, purchases of additional materials and expenses related to the preparation for our clinical trials.
54

   General and administrative expenses
General and administrative expenses increased by approximately $0.9 million, or 40%, to approximately $3.2 million for the year ended December 31, 2017, compared to approximately $2.3 million for the year ended December 31, 2016. The increase was mainly due to our engaging our current Chief Executive Officer and establishing an office in the United States during 2016, as well as increased investor relations and business development expenses.
   Financing expense (income), net
Financing expense (income), net decreased by approximately $0.1 million, or 346%, to an expense of approximately $91 thousand for the year ended December 31, 2017, compared to income of approximately ($37) thousand for the year ended December 31, 2016. The decrease resulted primarily from foreign currency fluctuations against our functional currency.
   Income tax
Income tax increased by approximately $0.2 million, or 136%, to approximately $0.3 million for the year ended December 31, 2017, compared to approximately $0.1 million for the year ended December 31, 2016, due to an increase in activity in our U.S. subsidiary and to share-based compensation, which is deductible for tax purposes at a different point in time.
Selected Quarterly Results of Operations
The following table sets forth our unaudited consolidated quarterly results of operation for the periods indicated. You should read the following table in conjunction with our audited consolidated financial statements. We have prepared the unaudited consolidated quarterly financial information on the same basis as our consolidated financial statements. The unaudited consolidated quarterly financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair representation of our operating results for the quarters presented.
For the three months ended
September 30,
2018
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
(USD, in thousands)
Operating expenses:
Research and development expenses
1,372 1,875 2,475 1,007 1,125 2,873 1,224
General and administrative expenses
1,133 2,287 926 875 777 734 777
Operating loss
2,505 4,162 3,401 1,882 1,902 3,607 2,001
Financing expense (income), net
60 806 75 (47) (34) (22) 194
Loss before taxes on income
2,565 4,968 3,476 1,835 1,868 3,585 2,195
Income tax
68 330 63 113 57 96 57
Net loss
2,633 5,298 3,539 1,948 1,925 3,681 2,252
Our quarterly research and development expenses fluctuate in accordance with the scope of preparations in each quarter for our upcoming registrational clinical trials, primarily consisting of inodiftagene manufacturing activity. We expect research and development expenses to continue to increase as we commence our upcoming registrational trials.
Changes to our general and administrative expenses are mainly caused by the recognition of share-based compensation expenses, notably with regard to an options grant during the second quarter of 2018, of which half of the expense was recognized in that quarter, and increased leasing expenses. We expect our general and administrative expenses to continue to increase beyond the average over the last seven quarters, primarily due to expenses associated with being a Nasdaq-traded company, recognition of share-based compensation expenses and leasing expenses.
Changes to our income tax expenses result from an increase in activity in our U.S. subsidiary and from share-based compensation, which is deductible for tax purposes at a different point in time. We expect income tax expenses to continue to increase beyond the average over the last six quarters, primarily due to continued increase in activity in our U.S. subsidiary.
55

Changes to financing expense (income), net are caused by exchange rate fluctuations within each quarter, bank fees and interest from deposits. In the second quarter of 2018, financing expense (income), net also reflects issuance costs relating to derivative financial instruments issued that quarter. As the derivative financial instruments are measured at fair value at the end of every reporting period and the difference in fair value will be recognized in our statement of operations as financing expense (income), net, we expect financing expense (income), net to continue to fluctuate.
Liquidity and Capital Resources
We are a clinical-stage company and have not generated revenue since our formation. We have incurred operating losses for each year since our inception in 2004. To achieve operating profit, we must successfully identify, develop and market products, alone or together with others. Our principal activities since inception have been research and product development and capital-raising in order to support our research and development activities. We have financed our operations from inception primarily through various private placement transactions, public offerings of our ordinary shares in Israel, grants from the IIA and option exercises.
As we are in the clinical stage and our planned activities depend on future events, including our ability to raise additional funds through offerings, our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We expect net proceeds from this offering will provide us with enough capital to fund our planned Phase 2 and Phase 3 clinical trials for inodiftagene.
In the near term, we expect to continue to incur significant and increasing operating losses as a result of the research and development expenses as we further the development of inodiftagene. We do not anticipate generating operating income until our product candidate is successfully commercialized given that we will incur significant costs associated with clinical trials and there is no assurance that we will obtain marketing approval for our product candidate and that, if such approval is obtained, our product candidate will achieve market acceptance.
   Cash flows
The table below shows a summary of our cash flow activities for the periods indicated:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Year Ended
December 31,
2018
2017
2018
2017
2017
2016
(USD, in thousands)
Net cash used in operating activities
$ (6,627) $ (1,383) $ (11,223) $ (6,626) $ (8,515) $ (3,732)
Net cash provided by (used in) investing activities
(154) (24) (312) (26) (34) 78
Net cash provided by (used in) financing activities
(1,739) (297) 21,162 5,235 5,242 6,063
Net increase (decrease) in cash and cash equivalents
$ (8,520) $ (1,704) $ 9,627 $ (1,417) $ (3,307) $ 2,409
   Operating activities
Net cash used in operating activities increased by approximately $5.2 million, or 379%, to approximately $6.6 million for the three months ended September 30, 2018 compared to approximately $1.4 million for the three months ended September 30, 2017, due mainly to payment of accrued payables in previous quarters for production process development, purchase of materials, preparation for clinical trials and investor relations expenses.
Net cash used in operating activities increased by approximately $4.6 million, or 69%, to approximately $11.2 million for the nine months ended September 30, 2018 compared to approximately $6.6 million for the nine months ended September 30, 2017. This increase is mainly due to an increase in payables related to production process development, purchase of materials, preparation for clinical trials and investor relations expenses.
56

Net cash used in operating activities increased by approximately $4.8 million, or 128%, to approximately $8.5 million for the year ended December 31, 2017 compared to approximately $3.7 million for the year ended December 31, 2016, due mainly to an increase in manufacturing process development expenses, drug production, purchase of materials, preparation for clinical trials, investor relations expenses and payroll expenses.
   Investing activities
Net cash used in investing activities increased by $0.1 million, or 542%, to approximately $0.2 million for the three months ended September 30, 2018 compared to $24 thousand for the three months ended September 30, 2017. Net cash used in investing activities increased by $0.3 million, or 1,100%, to approximately $0.3 million for the nine months ended September 30, 2018 compared to $26 thousand for the nine months ended September 30, 2017. These increases were due to equipment purchases for our laboratory and an investment in a secured deposit in 2018.
Net cash used in investing activities was approximately $34 thousand for the year ended December 31, 2017. This cash was invested in equipment purchases for our laboratory.
Net cash provided by investing activities was approximately $78 thousand for the year ended December 31, 2016. This cash was provided by withdrawal of short-term bank deposits.
   Financing activities
Net cash used in financing activities increased by $1.4 million, or 486%, to approximately $1.7 million for the three months ended September 30, 2018 compared to $0.3 million for the three months ended September 30, 2017. This increase was due to payment for issuance costs from a private offering of our ordinary shares and for deferred issuance expenses from previous fundraisings.
Net cash provided by financing activities increased by $16.0 million, or 304%, to approximately $21.2 million for the nine months ended September 30, 2018 compared to $5.2 million for the nine months ended September 30, 2017. This increase was due to a private investment that was consummated in the second quarter of 2018. See “Certain Relationships and Related Party Transactions” for additional details.
Net cash provided by financing activities was approximately $5.2 million for the year ended December 31, 2017, from a public offering of our ordinary shares, and approximately $6.1 million for the year ended December 31, 2016, due to a private offering of our ordinary shares.
Contractual Obligations
The following table summarizes our significant contractual obligations* at September 30, 2018:
Payment due by period
Total
Less than
1 year
1 – 3 years
3 – 5 years
More than
5 years
(USD, in thousands)
Operating lease obligations
1,700 490 840 370
Other long-term clinical liabilities**
11,820 4,027 6,850 943
*
Not including prospective repayments to the IIA of grants, valued at approximately $4.0 million as of September 30, 2018, which we do not record as liabilities, due to the uncertainty regarding whether we will be required to repay them.
**
An agreement with Syneos Health, or Syneos, to act as our clinical research organization (CRO) and to manage our Codex Clinical Trial. The scope of the agreement (direct and indirect expenses) is $12.5 million. In accordance with the terms of the agreement, we paid Syneos an advance of  $1 million, to be offset against expenses during the course of the trial. This agreement is governed by a Master Services Agreement with INC Research, LLC (now Syneos) dated October 25, 2017.
Other substantial liabilities are as follows:

Manufacturing expenses payable to Boehringer-Ingelheim, or BI, with whom we have contracted to supply us with inodiftagene drug substance for registrational clinical trials. For more information, see “Business — Manufacturing.”
57

Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities as to which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that would expose us to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Related Parties
For a description of our related party transactions, see “Certain Relationships and Related Party Transactions.”
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.
   Foreign currency exchange risk
Our market risk exposure is primarily a result of foreign currency exchange rates. We are exposed to currency exchange risk mainly from manufacturing and clinical development expenses that are denominated in Euros or U.S. dollars. Our functional currency at present is the NIS. Fluctuations in exchange rates between the NIS and other currencies, especially the Euro and U.S. dollar, may affect our results. We take action to reduce such currency exchange risks by retaining liquid resources in currencies compatible with our future needs and in the future, we may take additional measures to decrease the risk of financial exposure from fluctuations in exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
The following table presents information about the representative exchange rate of the U.S. dollar and the Euro against the NIS, as published by the Bank of Israel, as of September 30, 2018 and 2017, and December 31, 2017 and 2016:
As of September 30,
As of December 31,
2018
2017
2017
2016
(NIS value)
(NIS value)
1 U.S. dollar
3.627 3.529 3.467 3.845
1 Euro
4.216 4.157 4.153 4.044
   Equity price risk
As we have not invested in securities riskier than high-quality liquid debt and monetary instruments as an alternative to short-term bank deposits, we do not believe that changes in equity prices pose a material risk to our holdings. However, decreases in the market price of our ordinary shares or ADSs could make it more difficult for us to raise additional funds in the future or require us to raise funds at terms unfavorable to us.
   Inflation risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations in the last two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations.
Critical Accounting Policies and Estimates
We describe our significant accounting policies and estimates in Note 3 to our annual consolidated financial statements contained elsewhere in this prospectus. We believe that these accounting policies and estimates 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 IFRS as issued by the IASB.
58

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. On a periodic basis, we evaluate our estimates, including those related to share-based compensation and derivatives. We base our estimates on historical experience, authoritative pronouncements and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at the end of each reporting period. Changes in the fair value of derivative financial instruments are recognized in the statement of operations within financing income or expenses. The fair value of derivatives is measured using the Probability-Weighted Expected Return Method. Measurement inputs include share price on the measurement date, cost of capital, expected volatility, expected dividends and the risk-free interest rate.
Derivative financial instruments issued by us include warrants and price protection mechanisms for securities.
The grant date fair value of share-based payment awards granted to employees is recognized as salary expense with a corresponding increase in equity over the period that the employees become eligible for the awards. The fair value of share-based compensation is measured using the Black-Scholes option pricing model. Measurement inputs include share price on the measurement date, the exercise price of the option, expected volatility, expected life of the option, expected dividends and the risk-free interest rate.
Recently Adopted Accounting Pronouncements
See Note 3 to our annual consolidated financial statements included elsewhere in this prospectus regarding the impact of the IFRS standards as issued by the IASB that we will adopt from the financial year beginning January 1, 2019 in our consolidated financial statements.
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. Given that we currently report and expect to continue to report our financial results under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on other exemptions, including without limitation, (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 PCAOB 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 for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company.” We would cease to be an emerging growth company upon the earliest to occur of  (1) the last day of the fiscal year in which we have more than $1.07 billion in annual gross revenues, (2) the date on which we have issued more than $1.0 billion of non-convertible debt securities over a three-year period, (3) December 31, 2024 and (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. As a result of these elections, 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.
59

Business
Overview
We are a clinical-stage biotechnology company committed to engineering a targeted gene therapy to improve the standard of care for early-stage bladder cancer. We have discovered and are developing a biologic agent, inodiftagene, that we believe can deliver a new treatment to patients who have options that are limited in effectiveness and problematic in toxicity. Bladder cancer is a disease that typically causes symptoms early in its course and consequently presents the patient and the treating physician with an opportunity to gain control of the malignancy. However, the limitations of existing therapies, developed in the 1970s, often result in a prolonged series of unsuccessful treatments that can end in the radical removal of the bladder.
Our lead product candidate, inodiftagene, is a recombinant DNA construct that will be administered to patients whose therapy for early stage bladder cancer has failed: this is gene therapy for bladder cancer. Preclinical studies and clinical trials completed so far have demonstrated that our product candidate can deliver a lethal gene specifically to bladder cancer cells in a patient’s bladder. We have conducted clinical trials of inodiftagene in several malignancies, including bladder cancer, pancreatic cancer, and ovarian cancer, and observed anti-cancer activity in all of them. Based on our Phase 1 and Phase 2 clinical trial results, we believe its most promising application is in the therapy of NMIBC in which it has the potential to improve patient outcomes substantially by delaying or in some cases eliminating disease progression, and consequently may significantly bettering patient quality of life. Although there can be no assurance, we also believe that the regulatory pathway to approval for commercialization and wide distribution of our product candidate in NMIBC, based on our interactions with the FDA and other international regulators, is an extension of the clinical trial program we have undertaken to date, and that the patient population for which our clinical development program is designed exhibits a significant unmet need for novel therapeutic approaches. Our proposed clinical development plan includes two pivotal clinical studies, either of which we believe may support FDA regulatory approval, and which together will provide access to a large share of this affected population and differentiate us from competitive approaches.
Inodiftagene is a biological agent designed and formulated to deliver a toxic gene to bladder cells in a manner that results in the gene being active only in the bladder tumor with consequent killing of the malignant cells. The engineered gene has been compounded with an agent that enhances and optimizes the efficiency of its delivery to tissue. In experiments we can demonstrate uptake of inodiftagene by 85% of target cells after a single exposure.
We have tested inodiftagene in six clinical trials, three of which involved NMIBC patients, and we have observed substantial anti-tumor activity. The data from the three NMIBC trials demonstrate in Phase 1/2 and Phase 2 studies that: (i) inodiftagene causes complete responses in 33% of bladder cancer patients with unresected measurable tumors; (ii) one-year and two-year recurrence-free survival rates were 46% and 33%, respectively; and (iii) we can administer inodiftagene with BCG, the standard of care for NMIBC, with recurrence-free outcomes of 95% and 78% at three and six months, respectively.
We believe that these studies support the potential for inodiftagene to provide new therapies for NMIBC patients. NMIBC affects a large population in the United States as well as worldwide. In 2018, it was expected that approximately 81,000 new cases of bladder cancer would be diagnosed in the United States. Nearly 141,000 new cases in the European Union are expected to be diagnosed in 2020. 75% of these cases will be NMIBC, the earliest stage in bladder cancer classification. The diagnosis of primary bladder cancer leads to a cycle of cystoscopic evaluation, surgical resection, and medical therapy, that is repeated as treatments fail successively and additional treatments are attempted. The standard medical treatment for NMIBC, BCG, is live tuberculosis bacteria that has been attenuated, or weakened in the laboratory, administered into the bladder. Most treatments with BCG ultimately fail and result in tumor recurrence. Because of this prolonged natural history of early presentation and repeated treatment failures, it was estimated that in the United States in 2015, the latest year good estimates were available, about 710,000 patients will be living with bladder cancer. Moreover, it is the most costly cancer to treat in the United States, with annual costs that were estimated at over $4 billion in 2010, and costs of care for an individual
60

nearing $200,000. Despite the need for new approaches to treat this disease, no drug has been approved by the FDA for the treatment of NMIBC since 1998. Patients with bladder cancer whose therapy has failed make up a large population of patients desperately in need of new therapies.
There are two distinct populations of unmet need in the field of NMIBC treatment: (1) those patients for whom two treatments with standard BCG have failed, who are termed BCG-unresponsive, and (2) those for whom one BCG treatment has failed. Accordingly we are planning two pivotal clinical trials in NMIBC patients: (i) a single-arm Phase 2 study of inodiftagene in patients with BCG-unresponsive disease, or the Codex Clinical Trial, and (ii) a randomized trial in patients whose disease has recurred after a single course of standard BCG therapy, or the Leo Clinical Trial. Both of these studies have been reviewed by the FDA and other international regulatory bodies. The FDA has granted our program Fast Track designation for regulatory review. Additionally, the Phase 3 Leo Clinical Trial has been granted a SPA by the FDA as well. While there are several planned and ongoing trials that address the BCG-unresponsive patient population, in our view our clinical development program in patients whose disease recurs after a first course of BCG sets us apart and differentiates us from competitors. Based on market data, including a commissioned independent research study, we believe the potential market for inodiftagene, should it achieve regulatory approval for both indications in the United States, the European Union and Japan, is over $1.5 billion.
We believe that the inodiftagene development program in early-stage bladder cancer may potentially allow us to meet the regulatory requirements for the development of a new therapy for this malignancy.
Our Product Pipeline
We have studied our product candidate inodiftagene, in patients with pancreatic cancer, ovarian cancer, and NMIBC, and we have studied it as a single agent or in combination with BCG. The following table summarizes the clinical development program of inodiftagene:
PRODUCT
CANDIDATE
TRIAL
RESULTS
INDICATION
Phase 1
Phase 2
Phase 3
NMIBC
Inodiftagene
Phase 1/2 No DLT, no MTD; 22% CR, 22% PR
Phase 2 33% CR; 1-yr RFS 46%
Pivotal Phase 2 Codex Clinical Trial
Initiation 4Q2018
Inodiftagene with BCG
Phase 2 Feasible; 3 month RFS 95%; 6 month RFS 78%
Pivotal Phase 3 Leo Clinical Trial
Planned for 2019
Pancreatic cancer
Inodiftagene Phase 1/2 2 PR in inodiftagene alone patients
Inodiftagene with gemcitabine
Phase 2
1 PR; median PFS 7.6-9.3 months
Ovarian cancer Inodiftagene Phase 2
1 CR of malignant ascites in compassionate use
CR: complete response; DLT: dose-limiting toxicity; MTD: maximum tolerated dose; PFS: progression-free survival; PR: partial response; RFS: recurrence-free survival
The emphasis of our development program is on NMIBC, and at this time, we do not plan additional studies in pancreatic or ovarian cancer. The six completed trials detailed above were conducted in leading academic medical centers in Israel, and the two pivotal studies, the Codex Clinical Trial and Leo Clinical Trial, will be conducted in the United States and internationally.
61

The clinical trial results we have obtained demonstrate that inodiftagene has anti-cancer activity in bladder cancer, pancreatic cancer and ovarian cancer, all difficult-to-treat malignancies. Inodiftagene is well-tolerated, and side effects have been largely mild to moderate, and in bladder cancer patients involved primarily the lower urinary tract. The data suggests that the most promising application of inodiftagene is in the therapy of early-stage bladder cancer. Thus we have focused the development of inodiftagene in NMIBC.
Non-muscle Invasive Bladder Cancer: The Problem
Bladder cancer affects a very large population of patients in the United States and worldwide. It is the fourth most common cancer in men in the United States, being more common in men than in women, and is the fifth most common cancer in Europe overall. When incidence in the European Union and Japan is also considered, the combined global market encompasses an estimated 260,000 new cases per year. Despite being a common malignancy, it has not been the focus of new drug development. The last drug approved by the FDA for NMIBC was registered in 1998. New therapies are needed.
[MISSING IMAGE: tv503153_img2.jpg]
Source: ACS Facts and Figures 2018.
NMIBC is a cancer that is situated superficially in the lining of the bladder. Typically NMIBC is detected early in its course, when tumors are small, and because it is superficial, the most frequent first symptom of bladder cancer is blood in the patient’s urine. Evaluation by the physician involves visual examination of the inner surface of the bladder using a cystoscope, and diagnosis entails urine cytology, biopsy and pathological examination. Tumors are classified according to the depth they penetrate into the bladder, as illustrated below. The NMIBC subset of tumors is shown below, lettered in green.
[MISSING IMAGE: tv503153_img3.jpg]
Non-muscle invasive tumors that involve only the inner surface of the bladder can be flat (Tis, also known as carcinoma-in-situ, or CIS) or raised (Ta). A raised tumor can also begin to invade the next layer of the bladder (classed as a T1 lesion) and still be classified as NMIBC. Once tumors invade the inner or outer muscle layers, they are called muscle invasive bladder cancer, or MIBC. Approximately 75% of bladder cancer cases are initially NMIBC.
The urologist surgically removes the evident tumors that are resectable using the cystoscope by trans-urethral resection, or TUR. Then, if the tumor characteristics lead it to be classified as intermediate or high risk for recurrence and progression, additional medical therapies are introduced through a catheter into the bladder.
62

The FDA-approved standard therapeutic agent for intermediate and high-risk NMIBC is BCG, administered into the bladder after TUR over a one- to three-year course of treatment. Although initial results with BCG are good, side effects can be substantial, including urinary symptoms, bleeding from the bladder, bladder inflammation, fever, and in rare instances, contraction by the patient of tuberculosis, sepsis and death. The eventual relapse rates from the first course of therapy are estimated by experts in the field to be 50% by four years and as high as 70% by ten years. After a failed first treatment, urologic practice guidelines recommend that a second course of BCG be attempted. When used a second time, the efficacy of BCG falls. The relapse rate after a second course of BCG was approximately 75% at one year in a recent randomized study. Most patients, therefore, experience a failure of BCG treatment.
As a result of the way BCG is used, there are two populations of unmet need in NMIBC treatment: (1) patients who have experienced recurrence following two courses of BCG, and (2) patients who have experienced recurrence following one course of BCG. This is illustrated below:
[MISSING IMAGE: tv503153_img4.jpg]
The first unmet need in the treatment of the NMIBC is for patients who have been treated with two courses of BCG and then experienced recurrence. In this situation, there are no other medical therapies that are recommended as standard of care. Chemotherapy, immunotherapy and experimental treatments have been tested in these patients, but these are not approved. Patients whose NMIBC has failed to respond after two treatments with BCG are considered to have what is formally termed BCG-unresponsive NMIBC. Lacking a standard, FDA-approved therapeutic agent, treatment guidelines recommend that these patients undergo radical cystectomy, or bladder removal. Thus the first major unmet need in the NMIBC population is for new therapies for patients whose two courses of BCG treatment have been unsuccessful, who therefore need a third line of therapy, and who face the debility and compromised quality of life that accompany the removal of the bladder.
The second unmet need in the treatment of the NMIBC is for patients earlier in their course of treatment, those whose first course of BCG therapy has failed. These patients are at very high risk for the subsequent failure of a second BCG treatment, and for becoming BCG-unresponsive. There is an opportunity to treat patients after their first treatment, in the second line, so as to prevent or delay ultimate recurrence and progression. The population of patients whose single course of BCG has failed comprises a larger population than those patients whose BCG therapies have failed twice.
The FDA and leading urological societies have worked together to formulate an approach to developing new therapeutic agents for BCG-unresponsive disease. This approach has been published in several forums, including the FDA’s Guidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer (2018). Our pivotal clinical program has been developed in conjunction with key opinion leaders in the field of urological cancer, and in close consultation with the FDA, and is consistent with the published guidance. We believe our program is consistent with the FDA-delineated path to the regulatory approval of inodiftagene in both of these areas of unmet need.
63

Our Competitive Strengths
Inodiftagene is a recombinant DNA plasmid-based agent designed and formulated to introduce a toxic gene into cells that is only activated in malignant cells, and when turned on in those cells, is lethal to them. It is a specifically targeted therapy. It is conceived to optimize efficacy and minimize side effects by focusing its cytotoxic effects in cancer cells only. Specifically, we believe our competitive strengths to be the following:

Inodiftagene is a targeted therapy.   Our product candidate is designed so that its lethal payload is activated specifically in cancer cells. This has two effects. The first effect is that the anti-tumor effect is concentrated in the cancer. Inodiftagene delivers a potent toxin when it is internalized by cells. The toxin is not produced where it is not needed, in normal tissues in the bladder or elsewhere in the body. The second effect is that the cytotoxic effect is limited to the cancer. Normal bladder cells do not produce the toxin, and suffer no damage as a result of therapy. Data from our clinical trials are consistent with this proposed mechanism of action of inodiftagene. Side effects are typically mild to moderate, and comprise mainly bladder symptoms, because this is the only place where the toxin is produced.

Our clinical data strongly support the activity of inodiftagene against cancer.   We have completed six clinical trials in patients with cancer: three in NMIBC patients and three in patients with ovarian or pancreatic cancer. We have demonstrated complete responses in unresected bladder cancer, as well as robust evidence of single-agent activity against the difficult-to-treat malignancies of pancreatic and ovarian cancer. The body of clinical data validates the anti-tumor mechanism of action of inodiftagene in multiple tumors types, and especially in bladder cancer.

Our development plan addresses two unmet NMIBC needs.   We have expanded our development program so that we can investigate inodiftagene in two clinical settings concurrently. The BCG-unresponsive, third-line clinical setting is the subject of our first trial, the Codex Clinical Trial. This setting is attractive for drug development because it supports a single-arm clinical trial of modest size. The FDA has provided clear guidance for the development of new agents in BCG-unresponsive patients, and our clinical trial has been designed in accordance with FDA input. However, we have taken our agent a step further, studying its activity and safety when administered in combination with BCG. This second-line population is a larger patient population, and the unmet need here is no less substantial than in third-line patients. We plan to undertake a clinical trial in the second-line setting, the Leo Clinical Trial. The demonstration of the feasibility of administering inodiftagene in conjunction with BCG lays the foundation for clinical trials in the large population of newly diagnosed, first-line NMIBC patients who are candidates for standard BCG treatment.

We have positive FDA input on our pivotal development program.   The FDA has stated that the single-arm Codex Clinical Trial may support approval in the BCG-unresponsive patient population. The FDA has granted us an SPA for the conduct of the Leo Clinical Trial. We believe this demonstrates that the eligible patent population, design, methods, and endpoints of the trial are all in keeping with the requirements for approval in patients whose first treatment with BCG has failed and who can be treated with BCG in combination with inodiftagene. Of note, the SPA does not guarantee that our trial results will be adequate to support approval. Both studies have also been reviewed and are supported by regulatory agencies in Canada and Europe.

We have experienced accomplished leadership with a history of successful drug development and U.S. and international approvals.   Our leadership team has worked together in the past and has successfully developed two drugs for FDA and international approval. Our SVP and head of clinical development, and the VP and head of clinical operations formerly worked as members of our Chief Executive Officer’s clinical development team at ARIAD Pharmaceuticals, Inc., where they developed for regulatory approval ponatinib (Iclusig) for leukemia, and brigatinib (Alunbrig) for non-small cell lung cancer, both now owned and commercialized by Takeda Pharmaceutical Company Ltd. They conducted Phase 1, Phase 2 and Phase 3 trials in the United States and internationally, and pivotal Phase 2 and Phase 3 studies. They designed and prepared clinical trials, worked with the FDA and other regulatory agencies, and conducted the studies in the United States, Europe, Japan and China. They gathered and analyzed data, and prepared and submitted regulatory submissions for approval.
64

Our Solution: Gene Therapy for NMIBC with Inodiftagene
The biologically active ingredient of inodiftagene is a recombinant DNA plasmid that directs the expression of a potent toxin specifically in malignant cells but not in normal tissue. It has been designed to enable the delivery of a gene for a lethal bacterial toxin from diphtheria so that the toxin is specifically expressed and activated only in bladder cancer. This focuses the anti-cancer activity of the gene to only the cancer cells, and limits the side effects of the gene mainly to the malignant tissue and the bladder. We do this by exploiting the established biology of the H19 gene, which is turned off in most normal adult cells, but turned on at high levels primarily in malignant cells.
The H19 gene has a restricted pattern of expression rendering it potentially useful for the targeted delivery of therapies to cancer. H19 is an example of a class of molecules called long non-coding RNAs that serve as regulatory elements in normal cells. It is also considered an oncofetal RNA gene and is highly expressed in the placenta during pregnancy, but not normally expressed in adult tissues. However, its expression is turned on in malignancy, in human bladder cancers, as well as in many other tumors, including ovarian cancer, pancreatic cancer, lung cancer, breast cancer, colon cancer, melanoma, brain cancer, leukemia, and others. H19 is a gene of fundamental importance to cancer cells. The abnormal upregulation of H19 expression in malignancy is due to alterations in availability and activity of factors in the cell that turn genes on and off, and the regulatory controls of the H19 gene that respond to these factors, the molecular switches, as it were, have been well characterized. These regulatory switches can be used to control whether a gene is turned on or off in a manner that prevents the gene from being on in normal tissues and that turns it on in malignant cells that express H19.
Diphtheria toxin is a potent cellular toxin and is a favorable choice for anti-cancer targeting. Its biology and mechanisms of action are well understood. It is a toxin that potently and completely inhibits the ability of targeted cells to make normal proteins, thereby killing them. Single copies of this toxin are lethal to a cell. Moreover, the inhibitory activity of the toxin is encompassed entirely in the A chain of the molecule (DTA) while the B chain is necessary for cellular entry. The introduction and expression of the gene encoding DTA, as occurs with inodiftagene, is lethal to the target cell, but because it cannot transfer to neighboring tissue, not to surrounding cells.
The structure of inodiftagene is illustrated below. The H19 regulatory sequences, which control the turning on of DTA expression, are represented in blue in the illustration below. They have been isolated and engineered using recombinant DNA techniques so that they are juxtaposed to the gene for DTA. The DTA gene is represented in green on the right in the illustration.
[MISSING IMAGE: tv503153_img5.jpg]
When inodiftagene enters a tumor containing H19 expressing cells, the engineered gene becomes active, producing the lethal diphtheria toxin. Following administration into the bladder, cellular toxicity due to DTA expression is bladder cancer-specific. H19 is expressed in adults mostly in malignant tissue. Plasmid taken up in normal cells remains unexpressed. In addition, due to the absence of the B chain subunit, if toxin is released from dying cells it is not taken up by other normal cells. As a result, inodiftagene is a specifically targeted therapy for bladder cancer.
Inodiftagene DNA is combined with polylethyleneimine, or PEI. PEI facilitates the entry of inodiftagene into rapidly dividing cells and improves efficiency of transmission. Experiments in the laboratory demonstrate that inodiftagene complexed with PEI is efficiently taken into more than 85% of cells following a single exposure.
65

Our Pre-clinical Data with Inodiftagene
Laboratory studies have also confirmed that protein synthesis is inhibited in tumor cells treated with inodiftagene, and that inodiftagene attenuates the proliferation of cancer cells in vitro.
In animal models, inodiftagene is active against bladder cancer. Experiments show that DTA is produced in bladder tumors after treatment in the organ. In a rat tumor model, it was shown that bladder tumors growing in the bladder could be effectively treated with two administrations of inodiftagene. In vitro studies with this cell line confirmed that the mechanism of action is via the dose-dependent expression of DTA driven by the H19 regulatory sequences.
Additional studies were performed in a model of bladder carcinogenesis due to the ingestion of nitrosamine by rats. In this experimental model, rats reproducibly develop visible bladder tumors after approximately 20 weeks of nitrosamine dietary supplementation. Administration of inodiftagene is effective in reducing mean tumor dimensions and weight and leads to complete eradication of tumors in some animals. This is illustrated below, in which the animal in the left panel received control (placebo) therapy (see the tumors in the green circles), and the animal in the right panel was treated with inodiftagene. These data formed the basis for the initial clinical development of inodiftagene in patients with bladder cancer.
[MISSING IMAGE: tv503153_img6.jpg]
Clinical studies have demonstrated that inodiftagene DNA is detectable after administration in patients’ bladder tumors and for more than 48 hours after a single two-hour exposure in patients’ urine.
IND-Enabling Studies
IND-enabling studies for inodiftagene included four repeated-dose non-clinical toxicology experiments conducted in accordance with Good Laboratory Practice (GLP) Regulations in mice and rats.
In these studies, intraperitoneal (IP), intravesical, or intravenous (IV) administration of either inodiftagene (plasmid + PEI) or plasmid alone was employed to evaluate the toxicity. Inodiftagene (alone and in combination with PEI) was well tolerated and no mortality occurred in any of the test article-treated animals. In the two studies supporting the bladder cancer indication (inodiftagene administered in complex with PEI via IP or intravesical administration) the “no observed adverse event level” (NOAEL) of inodiftagene plasmid was determined to be >10 mg/kg in both mice and rats. Biodistribution and pharmacokinetics were evaluated as part of the GLP toxicology studies of inodiftagene via intravesical administration. Biodistribution of inodiftagene was primarily limited to the bladder and kidneys.
Chemistry, manufacturing and controls studies are ongoing.
Inodiftagene Clinical Trial Experience
Our development of inodiftagene will focus on its utilization in NMIBC. However, we have also studied inodiftagene in other cancers in the clinic, testing it in patients with ovarian cancer and with pancreatic cancer. In both of these clinical settings, inodiftagene has demonstrated evidence of anti-cancer activity, supporting its mechanism of action against cancer. Clinical trials to date have been carried out in leading academic medical centers in Israel.
66

   Studies in ovarian cancer and pancreatic cancer
Our initial experience with ovarian cancer involved a patient diagnosed with ovarian cancer that was metastatic to the abdominal cavity and refractory to treatment, resulting in the accumulation of malignant ascites, or fluid. An ultrasound of her abdomen, showing ascites outlined in red, is shown in the first ultrasound below. Cells from her ascites were isolated and were shown to express H19, and thus she was deemed a candidate for compassionate use treatment with inodiftagene. Inodiftagene was instilled into her abdomen weekly for seven treatments, and then every two weeks for treatments eight through ten. Her initial treatment was associated with nausea, fever, and vomiting, but these symptoms resolved after the third instillation. The fluid decreased after treatment, and resolved completely after treatment ten. This is shown in the second ultrasound below, revealing no residual fluid. Although inodiftagene clearly has activity in this clinical circumstance, it is probable that the large volume of ascites present in most patients suffering from this stage of ovarian cancer precludes achieving effective concentrations of inodiftagene in ovarian cancer cells.
[MISSING IMAGE: tv503153_img7.jpg]
We also have tested the drug in patients with pancreatic cancer. We conducted a Phase 1/2 dose-escalation study in patients with unresectable pancreatic cancer. The study enrolled nine patients with pancreatic cancer that had been deemed unresectable. Patients were administered escalating doses of inodiftagene either via computed-tomography (CT) guided injection, or via endoscopic ultrasound injection. Patients were assessed for response and for possible resection after injection. Nine patients completed screening and received treatment. Again the drug injection was well tolerated, and adverse events were mostly mild to moderate, with four adverse events being considered possibly related to the study drug. No serious adverse events occurred in patients treated with inodiftagene. Anti-tumor activity was evident: two of the nine patients, or approximately 22%, demonstrated partial responses following treatment with no other interventions.
We conducted a second study of inodiftagene in patients with advanced localized pancreatic cancer eligible for chemotherapy treatment. In this study, patients were administered standard gemcitabine chemotherapy, and in conjunction received intratumoral injections of inodiftagene. Twelve patients were enrolled. The primary endpoint of the study was PFS, and median PFS was 9.3 months in patients who received 8 milligrams (mg) of inodiftagene, and 7.6 months in patients who received 12 mg of inodiftagene. One of 12 patients demonstrated a partial response, and eight patients had stable disease. In these patients receiving concurrent gemcitabine chemotherapy, Grade 3 (Severe) adverse events were reported in most patients, most attributable to the chemotherapy. Ten patients (83%) reported serious adverse events following treatment in the study, none were considered by the investigator to be related to inodiftagene, and one patient reported a serious adverse event considered to be related to gemcitabine.
67

Response rates for standard gemcitabine chemotherapy in unresectable pancreatic cancer are typically less than 10%, and PFS is typically in the range of four to six months. Again, activity is present in this difficult-to-treat malignancy. However, it is likely that delivery of inodiftagene uniformly to cells in a large pancreatic tumor will be suboptimal due to the constraints of having to inject the gene into only a subset of tumor cells at any single injection site.
Studies in refractory ovarian cancer and unresectable pancreatic cancer both demonstrated activity of inodiftagene against the malignancy. These data strongly validate the mechanism of directing toxic therapy to tumors using H19.
   Studies in NMIBC
NMIBC offers several advantages as a therapeutic target. First, for optimal activity, inodiftagene therapy requires contact with tumors so that the malignant cells internalize the gene. This is difficult to achieve in ovarian cancer with ascites, given the large volume of fluid in the abdomen, or in pancreatic cancer, given the requirement for the injection of inodiftagene into only the part of the tumor that is accessible radiologically. In bladder cancer, inodiftagene can be instilled into the bladder, allowing it to coat the entire lining of the bladder where the tumor resides. Second, the standard of care in bladder cancer is to resect all papillary tumors of grade Ta or T1. The goal of therapy for these tumors is thus not to eradicate established large tumors, but to prevent the emergence of microscopic tumor recurrences; the macroscopic tumor has been removed. Inodiftagene will optimally have access to these microscopic recurrences when it is administered intravesically into the bladder. Third, CIS tumors, which are typically identified but not resected, are flat lesions, only a few cells thick. This tumor geometry is optimal for contact with the DNA of inodiftagene, allowing the gene to access the malignant cells. Finally, the large patient population of NMIBC, coupled with the lack of available new and effective therapeutic agents, creates a substantial unmet need, and an opportunity for the novel approach of inodiftagene. For these reasons, NMIBC is an optimal target for inodiftagene therapy.
We carried out three clinical trials in NMIBC: a Phase 1/2 study and a Phase 2 study of inodiftagene monotherapy, and a Phase 2 study of inodiftagene administered in combination with BCG.
The two monotherapy studies included a unique feature that allowed for assessment of the responses of unresected papillary (Ta and T1) tumors: assessment of marker lesions. The standard approach to treating these tumors is to resect them via TUR so that no residual tumor is left behind. However, following TUR the ability of an investigational agent to cause tumor shrinkage cannot be evaluated directly. The FDA, in its Guidance for Industry on BCG-unresponsive Nonmuscle Invasive Bladder Cancer (2018), recommends that studies should be conducted in which marker lesions are left in place after TUR to assess antitumor activity. This approach was utilized in both the monotherapy studies.
   Phase 1/2 study
The initial Phase 1/2 study of inodiftagene was a dose-escalation study that enrolled patients with recurrent low-grade NMIBC. A total of 18 patients were treated with escalating doses. The mean age of patients was 71 years. Patients had a mean of five prior occurrences (range: one to 15 occurrences). Ten out of the 18 patients, or approximately 56%, had two or fewer recurrences in the past two years. 17 of the 18 patients, or approximately 94%, had received prior BCG, and several patients had also received various chemotherapeutic agents. This was a population of patients with multiple recurrent NMIBC refractory to prior BCG.
At entry in this study, patients underwent resection of all disease except one marker lesion 0.5 to 1.0 centimeter, or cm, in size. Patients were then treated with intravesical inodiftagene. The response of the marker lesion was assessed at 12 weeks, and residual tumor was removed at that time.
68

[MISSING IMAGE: tv503153_img8.jpg]
The primary efficacy assessment was overall response rate (complete and partial) as directly visualized by cystoscopy at week 12. In four of the 18 patients, or approximately 22%, complete responses were observed. A cystoscopic photograph of a lesion demonstrating complete tumor disappearance is shown above. In an additional four of the 18 patients, or approximately 22%, partial responses (>50% shrinkage) were observed. Total responses were observed in eight out of the 18 patients, or approximately 44%. H19 expression was detected in all patients at baseline. 12 of the 18 patients, or approximately 66.7%, were recurrence-free at three months, and approximately 44.4% and 33.3% were recurrence-free at 12 months and 24 months, respectively.
In the initial Phase 1/2 study, inodiftagene was well-tolerated. No dose-limiting toxicities were observed or reported, and no deaths occurred during the study or during the follow-up period. The most frequently reported adverse events considered to be at least possibly related to inodiftagene for any dose cohort were mild to moderate in severity and were most commonly renal and urinary disorders. Mild bladder discomfort and painful urination, or dysuria, were reported in 11.1% and 16.7% of patients, respectively. Moderate dysuria and urination urgency were reported in 5.6% and 16.7% of the patients, respectively. Severe urination urgency was reported by one patient (5.6%) after the fourth intravesical treatment. In total, approximately 44% of patients had a urinary tract infection during the study, of which 17% were considered related to other investigational procedures such as the video-cystoscopy, catheterization, or surgical resection. Mild diarrhea, hypertension, and asthenia (physical weakness) were reported in 11.1%, 16.7 %, and 11.1% of patients, respectively. Laboratory adverse events considered possibly related to treatment included: increased blood creatinine (22.1%); leucopenia, or reduced white blood cells (11.1%); and increased alkaline phosphates, anemia, and leukocytes in the urine (5.6% each). One serious adverse event considered possibly related to study treatment, urinary urgency requiring hospitalization, occurred in the study.
   Phase 2 study
Following the Phase 1/2 study, a Phase 2 study of inodiftagene was completed in patients with superficial bladder cancer of intermediate risk. The primary endpoint in this study was to determine tumor recurrence in resected patients. A secondary endpoint was response rate of marker lesions. Patients with histologically confirmed superficial bladder cancer with recurrent stage Ta (any grade) or T1 (low-grade) NMIBC were eligible to enter the study. Patients with CIS lesions were excluded. All patients had tumors that were H19 positive. Patients must have failed at least one prior conventional therapy including either BCG or chemotherapy and, as in the Phase 1 study, have one tumor ≤1.0 cm in diameter to serve as a “marker” tumor after removal of all other tumors.
69

A total of 47 patients were treated in this study. Approximately 81%, or 38 patients, had received prior BCG therapy, and more than half of the patients received other therapies as well. 45% of the patients had received two or more prior treatments. Eight patients were not evaluable due to protocol violations and early withdrawal.
At the time of primary assessment, 13 patients, or approximately 33% of the per-protocol treatment population, had complete disappearance of the marker lesion, and no new lesions were reported. 26 patients, or approximately 55%, in the intent-to-treat population and 64% of patients in the per-protocol population had no new lesions at three months (the primary endpoint). Median time to recurrence for both the ITT and per-protocol populations was approximately 11.3 months. As shown in the figure below, approximately 46% and 36% of patients were free of recurrence at 12 and 18 months, respectively, and 33% remained recurrence-free at 24 months. Treatment was very well tolerated. No patients discontinued because of treatment-related adverse events.
[MISSING IMAGE: tv503153_chrt-line1.jpg]
The most commonly reported adverse events, similar to those experienced in the Phase 1/2 study, were renal and urinary disorders (29.8%), including urinary frequency (14.9%), painful urination (10.6%), urination urgency (6.4%), and urinary retention (6.4%), as well as urinary tract infections (10.6%). Other adverse events included increased blood potassium (10.6%) and lack of energy, chills, fever and nausea (6.4% each). Serious adverse events included urinary retention and a urinary tract infection in a patient who required TUR of the prostate; a myocardial infarction (heart attack), which was not considered to be related to the administration of inodiftagene; and hematuria (blood in urine) (2.1% each). Only the event of hematuria was considered by the treating investigator to be possibly related to the study treatment, though also probably related to study procedure.
We also tested inodiftagene in combination with BCG. We carried out a Phase 2 study in 38 patients eligible for BCG treatment. Three different combination schedules were evaluated with a primary objective of evaluating the safety of the combination. The administration of inodiftagene in combination with BCG was feasible and well tolerated, with three severe adverse events reported, none of which were considered related to inodiftagene.
Tumor recurrence rate and progressive disease rate were not statistically significantly different among the three regimens. The overall recurrence-free survival rate was 54%, and the progression-free survival (PFS) rate was 76%. At 18 months, the median time to recurrence and its confidence limits could not be calculated according to Kaplan-Meier survival analysis because a large percentage of patients had no recurrence. The overall recurrence-free survival and progression-free survival are illustrated in the table below. The three- and six-month RFS of the combination was 95% and 78%, respectively. These results compare favorably with the historical experience of BCG alone, which report three-month RFS of 51% to 85%.
70

[MISSING IMAGE: tv503153_img9.jpg]
Administration of inodiftagene and BCG was well tolerated. Overall, 25 of the 38 patients, or approximately 65.8%, experienced adverse events during the study. The incidence of adverse events was similar among the treatment groups and most adverse events were mild. These included urinary tract infection (29%), dysuria (21%) and hematuria (13%). One patient (3%) had a serious event which occurred on the study after initiation of treatment. That patient had heart palpitations that were not considered related to either inodiftagene or BCG nor related to study procedures. Overall, 26% of patients experienced an adverse event related to BCG, while 11% of patients experienced an adverse event related to inodiftagene, which we believe suggests a relative advantage in safety profile of inodiftagene compared to the standard therapy of BCG.
   Summary of results in NMIBC clinical trials
We conducted three clinical trials in patients with NMIBC and observed the following significant findings:

Complete responses of unresected tumors occurred in all three studies. The complete response rates in unresected papillary marker lesions in the Phase 1/2 and Phase 2 trials were 22% and 33%, respectively. Although CIS patients were uncommon in our trials, six out of seven patients, or approximately 86%, exhibited a complete response.

Recurrence-free survival, or RFS, in the two monotherapy studies was consistent. In both studies the RFS at 24 months was approximately 33%.

Inodiftagene can be given together with BCG. The combination Phase 2 study demonstrated that co-administration is feasible, and three-month RFS was 95%.

Inodiftagene is well tolerated when given intravesically. Most adverse events are mild or moderate and involve the lower urinary tract. Systemic adverse events are uncommon.
Although there can be no assurance, taken together and based on our discussions with regulators, we believe positive results in the pivotal clinical trials will likely support a path to FDA and wider regulatory approval for inodiftagene.
Regulatory Pathway
Because of the significant unmet need of patients with NMIBC whose therapy with BCG has failed, the FDA and the American Urological Association, or the AUA, have worked together to devise guidelines for developing new agents for NMIBC. We have closely followed this guidance. Furthermore, we believe that the clear prescriptions provided by the FDA in this arena create a fertile landscape for the development of new agents in general, and inodiftagene in particular.
Most BCG therapy for patients with NMIBC ultimately fails. A subgroup of patients whose BCG treatment fails repeatedly are defined in the literature and by the FDA as “BCG-unresponsive.” BCG-unresponsive patients are those patients with either persistent or recurrent high-grade NMIBC tumors who have been adequately treated, typically twice, with BCG. Apart from BCG therapy, no other standard-of-care medical treatments exist, and the currently recommended therapy for BCG-unresponsive
71

NMIBC is cystectomy, either partial or radical. However, because of concomitant conditions, many patients are not candidates for major surgery such as cystectomy. These patients must currently rely on options with minimal effectiveness in this situation (such as instillations of chemotherapeutic agents or repeat TURs).
The FDA and the AUA together convened a workshop to address the development of new therapies for patients with NMIBC in 2014. The workshop participants addressed the BCG-unresponsive patient population. They agreed that there was no consensus standard-of-care approach for these patients apart from cystectomy and that no therapy could be agreed upon to serve as a control for randomized clinical studies in this setting. Lacking the ability for investigators to conduct randomized controlled clinical trials, the participants recommended that single-arm Phase 2 studies could support regulatory approval for these patients. Moreover, for patients with CIS lesions, guidance on the desired endpoint was provided as well. It was recommended that a study achieving at least a 30% recurrence-free survival at 18 to 24 months, with a sample size with statistical confidence that excluded a lower boundary of 20%, would be appropriate.
A more detailed FDA draft guidance document was published in November 2016 and finalized in February 2018, entitled BCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment: Guidance for Industry, which re-states and extends the recommendations of the FDA/AUA workshop. The FDA recommends that early-stage development of agents for NMIBC should involve demonstration of activity against extant disease, for example, in marker lesion studies. The guidance defines BCG-unresponsive patients. Furthermore, the guidance states that for patients with unresponsive NMIBC for whom no standard therapy apart from radical cystectomy exists, a single-arm study design is appropriate, and the complete response rate and duration of complete response are relevant efficacy endpoints in patients with CIS. The final guidance further emphasized the study of CIS patients in single-arm trials and provides more detailed definitions of BCG-unresponsive disease and adequate BCG therapy. The definition provided for the BCG-unresponsive population was clarified, with the FDA recommending that the definition of treatment failure apply to patients who had failed one induction and one maintenance course of BCG at a minimum. In addition, it specified that a single-arm trial in the BCG-unresponsive patient population should employ a primary endpoint of complete response in CIS patients.
Finally, the FDA has recommended that a development program that assesses response rate in a single arm trial design may require a confirmatory trial after approval. They commented that a randomized trial in a different population, and a design that tests BCG plus/minus the investigational drug, might be appropriate.
These recommendations have provided, in essence, a road map to drug development and approval in this setting. We have followed this road map. We have employed marker lesions trial designs to demonstrate a complete response rate over 30%. We have also demonstrated RFS of over 30% at 24 months in our two monotherapy trials. Additionally, we have tested inodiftagene in combination with BCG as the foundation for a trial that could be confirmatory. We believe these initial clinical data are suggestive of antitumor activity that could attain FDA approval for BCG-unresponsive disease.
Our Clinical Trial Program
Our pivotal clinical trial program was developed with input from the FDA and from regulatory agencies in Canada, the United Kingdom, France, Spain and Germany.
We submitted our IND application for inodiftagene in 2008. In 2015, the FDA granted Fast Track designation to inodiftagene. We undertook discussion with the FDA regarding our Phase 2 path to development at an “End of Phase 2” meeting in 2014. We also discussed our Phase 3 study of inodiftagene in combination with BCG with the FDA in 2014, and were granted an SPA at that time. In 2016, we discussed our program with Health Canada. We also met with the AEMPS (Spanish Agency of Medicines) in 2015, the Paul Ehrlich Institute in Germany in 2014, the MHRA (Medicines and Healthcare Regulatory Agency) in the United Kingdom in 2017, and the ANSM (French Medicines Regulatory Agency) in 2018. All of these discussions have resulted in concurrence with our proposed development plans.
The feedback from the regulatory agencies on our proposed registrational program in NMIBC has been positive. The Phase 2 Codex Clinical Trial in BCG-unresponsive patients was reviewed by the FDA. In 2014, the FDA indicated that the single-arm trial might provide evidence of effectiveness to support a marketing application. In addition, the FDA’s guidance entitled BCG-Unresponsive Nonmuscle Invasive
72

Bladder Cancer: Developing Drugs and Biologics for Treatment Guidance for Industry (2018), states a single-arm clinical trial with complete response rate and duration of response as the primary endpoint can provide primary evidence of effectiveness to support a marketing application in BCG-unresponsive NMIBC. In September 2018, we updated the endpoint of the trial to reflect this FDA guidance, and the Codex Clinical Trial therefore embodies this design.
The granting of an SPA by the FDA is also important to the proposed clinical development program. While standard protocol review and acceptance by the FDA does not necessarily indicate concurrence by the FDA that the protocol will support a marketing application, an SPA agreement indicates concurrence by the FDA with the adequacy and acceptability of specific critical elements of overall protocol design for a study intended to support a future marketing application. In granting the SPA in October 2014, the FDA indicated that the Codex Clinical Trial is adequately designed to provide necessary data to support a license application submission. The SPA is not an endorsement of protocol details, does not affect approval, and does not guarantee that our trial results will lead to approval.
European regulators have been supportive of the study conduct as well. The Agencia Española de Medicamentos y Productos Sanitarios, or AEMPS, in Spain (in 2015), Health Canada (in 2016) and Meidicines and Healthcare Products Regulatory Agency, or MHRA, in the United Kingdom (in 2017) all concurred with the conduct of the trials. The Paul-Ehrlich-Institut, or EI, in Germany stated that depending on robustness of the studies, the combination of studies may form the basis for approval. Additionally, the Agence Nationale de Sécurité du Médicament et des Produits de Santé, or ANSM, in France (in 2018), stated in regard to the Phase 2 Codex Clinical Trial that the single-arm trial design can be considered to support an approval in the pursued indication, and that the same applies to the Phase 3 Leo Clinical Trial.
For both the Codex Clinical Trial and Leo Clinical Trial, approval will ultimately depend on the final results of the studies concerning the efficacy and safety of our product candidate.
Our clinical development program addresses two unmet needs of patients undergoing therapy with BCG for NMIBC. We are studying inodiftagene in the third line, BCG-unresponsive setting, with our Phase 2 Codex Clinical Trial. We are also studying inodiftagene in second line utilization, with our Phase 3 Leo Clinical Trial. These two studies provide pathways to regulatory approval in two discrete indications. The two trials are summarized below.
[MISSING IMAGE: tv503153_img10.jpg]
The Codex Clinical Trial is a single-arm Phase 2 study designed in compliance with the FDA Guidance for Industry. It is a single-arm, open label study. The trial is illustrated below. Patients will be enrolled with BCG-unresponsive disease as defined by the FDA guidance. They will have received prior adequate BCG therapy, also defined in accordance with FDA specifications. Patients will undergo resection of all papillary tumors by TUR, and then receive inodiftagene administered intravesically. The agent will be given once weekly for ten weeks, followed by administration every three weeks for up to two years. The primary endpoint of the trial is complete response in CIS as assessed at 12 weeks and up to 48 weeks, supported by durability of response. Assessments will be performed by cystoscopy every 12 weeks. The trial is enrolling approximately 140 patients.
73

[MISSING IMAGE: tv503153_chrt-org1.jpg]
An interim analysis for futility is planned after the first 35 patients, all of whom will have CIS. At least ten complete responses must be observed to move forward with the trial.
The trial was initiated in December 2018. Open label data is expected to be available in the first half of 2019, and the full interim analysis is expected to be complete approximately in the third quarter of 2019.
The Codex Clinical Trial is designed to gain approval for the indication of patients with high-grade, BCG-unresponsive NMIBC, those with third line disease.
The Leo Clinical Trial is our second pivotal clinical trial, designed for registration in second line patients. It is an open-label randomized controlled clinical trial. It is illustrated below. Patients will be enrolled with intermediate- or high-grade NMIBC that is persistent or recurrent following a single course of BCG. This is a second line patient population. Subjects will be randomly assigned treatment with the standard regimen of BCG, which is the standard of care for their condition, or a regimen of inodiftagene plus BCG. In the latter treatment, they will receive a standard administration of BCG. They will concurrently receive inodiftagene administered once weekly for ten weeks, then every three weeks. The treatment will last up to three years. The primary endpoint will be median time to high-grade recurrence, and the trial is designed to demonstrate an improvement in median time to high-grade recurrence with the combination of inodiftagene and BCG as compared with BCG alone. Assessments will be performed by cystoscopy every 12 weeks. The trial will enroll approximately 495 patients, or 297 patients per arm.
[MISSING IMAGE: tv503153_chrt-org2.jpg]
The trial is expected to begin enrolling patients in 2019. We anticipate enrollment to last approximately 18 months, and to conclude in 2021.
   Pivotal developmental program summary
The Codex Clinical Trial and Leo Clinical Trial are designed together to meet the FDA’s published guidance regarding development of novel therapies for NMIBC. The Codex Clinical Trial is directed at the BCG-unresponsive, third line indication. As the FDA has stipulated that a single-arm trial design is appropriate, and has also provided guidance about the requisite response rate that will support approval, this trial is an uncontrolled Phase 2 for approval, and will enroll 140 patients. The results from this trial might ultimately support either full or accelerated approval. We believe that in either instance, our having
74

available an ongoing confirmatory trial will improve the likelihood of approval. Thus we will also conduct the Phase 3 Leo Clinical Trial. The Leo Clinical Trial will thus serve two regulatory aims, providing data for a discrete indication in patients whose first course of BCG has failed, and also confirming the activity of inodiftagene in support of our Phase 2 data from the Codex Clinical Trial.
Our Growth Strategy
The key elements of our growth strategy are as follows:

Execute the clinical development program of inodiftagene through regulatory approval.   Our first and highest priority is to execute the clinical development program of inodiftagene. We believe that there is a linear path to approval for our agent in two related but separate indications. We also believe that our preliminary clinical data in bladder cancer, in addition to evidence of activity in other solid tumors, support our program design. The FDA has provided positive input on our pivotal single-arm Codex Clinical Trial, which is under way, and has granted us an SPA endorsing the randomized Leo Clinical Trial. Regulatory agencies in the European Union and Canada have also reviewed our pivotal program with positive feedback (inodiftagene has not yet been approved in any marketing territory). We expect to gain interim data from the Codex Clinical Trial by mid-2019, and to initiate the Leo Clinical Trial in 2019.

Develop the capability to commercialize inodiftagene in the United States.   We believe that our competitive position in the NMIBC fields is strong as a result of our robust clinical data and our addressing the unmet need of second line patients with the unique randomized and SPA-endorsed Leo Clinical Trial. Based on market data, including third-party research that we commissioned, we believe the potential market for inodiftagene in the United States, the European Union and Japan in both third- and second-line patients exceeds $1.5 billion. As the trials near completion, we plan to recruit a commercial team to exploit this advantage, our goal being to commercialize inodiftagene in the United States. At this time, we do not have commercial capability. However, we believe that realizing the full commercial potential of inodiftagene in both third- and second-line patients will require us to develop such a capacity. We will likely concentrate our commercial efforts in the United States, and intend to begin laying the foundation for U.S. commercialization approximately two years before approval and launch. Concomitantly, we will seek non-U.S. commercial partners. The leadership team has experience and success in taking a company through the transition from a research focus to commercial capability, and we believe that the team can translate this to our Company.

Develop strategic partnerships around inodiftagene development and commercialization.   The commercial potential of inodiftagene renders it an attractive asset for a strategic partnership. We intend to pursue partnership opportunities primarily for non-U.S. commercialization. We intend to consider regional partnerships as well, especially in Japan and China. Our leadership team has experience in gaining regulatory approval in Japan, and in developing business relationships in Japan, elsewhere in Asia and worldwide.

Expand the potential indications of inodiftagene.   We intend to expand the clinical development program of inodiftagene to explore additional indications in bladder cancer, alone and in combination with BCG and additional novel agents. The most important of these is the use of inodiftagene in the treatment of newly diagnosed NMIBC patients, or first line patients. We intend to extend success in our Leo Clinical Trial in the second-line patient population to a similar trial design in newly diagnosed patients. Additional approaches are likely to include approaches to immunotherapy, especially using checkpoint inhibitors, as inodiftagene introduces a novel foreign diphtheria antigen, against which we are all immunized, into cancer cells. We also intend to explore other solid tumor indications, including ovarian cancer with malignant ascites, in which inodiftagene has already been demonstrated to be capable of inducing complete response.

Expand the pipeline of oncology therapeutic candidates.   We intend to designate new product candidates in our research and development laboratories. We have engineered second-generation versions of inodiftagene, and have demonstrated activity of these molecules in several experimental settings. The second generation molecules have strong intellectual property protection. In addition, we
75

will seek to identify appropriate candidates for in-licensing. The present clinical development team has experience with a variety of approaches to oncology therapy, including having successfully developed targeted therapies and immune-oncology treatments.

Grow our company into a fully capable biopharmaceutical company.   Our vision is to build on the initial success of inodiftagene and to expand our capabilities to encompass all facets of oncology drug development, approval, and commercialization. Our focus will remain developing novel genetic and targeted therapies to lessen the burden of disease affecting those stricken with cancer.
Manufacturing
We do not own or operate manufacturing facilities for the production of our product candidate, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We rely on third-party contract manufacturers for all of our required raw materials and finished products for our preclinical research and clinical trials. We do not have any current contractual relationships for the manufacture of commercial supply of our product candidate. However, our current contract manufacturing partners have the ability to manufacture commercial quantities of our product candidate, and have expressed their interest in doing so.
We intend to enter into agreements with third-party contract manufacturers for the commercial production of inodiftagene.
Development and commercial quantities of any products that we develop need to be manufactured in facilities utilizing processes that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage our manufacturing contractors. The manufacturers with whom we have contracted have advised us that they are compliant with cGMP. We and our contract manufacturers are subject to extensive governmental regulation, and must ensure that all of the processes, methods and equipment are compliant with cGMP for drugs on an ongoing basis, in accordance with the requirements relevant for the clinical development phase.
Intellectual Property
Our intellectual property and proprietary technology are crucial to the development, manufacture, and sale of our therapeutic products. We seek to protect our intellectual property, core technologies and other know-how through a combination of patents, trade secrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants, scientific advisors, contractors and commercial partners. Additionally, we rely on our research and development program, clinical trials and know-how to advance our products.
   Patents
Our patent portfolio includes a total of 56 granted patents (including allowed patents), as well as 21 pending national phase applications. We also have 22 patents that have expired.
Patents on the original active formulation of our lead product candidate, inodiftagene, expired during 2017 and 2018. New patent applications have been filed for new formulations that may comprise the active ingredient in inodiftagene, but may alternatively comprise other active materials. A formulation pursued in a priority application filed in 2015, which was followed by an international application that claims priority therefrom under the Patent Cooperation Treaty, or PCT, is based on a new complex, among others, of inodiftagene. This new complex was developed to improve the previous generation of inodiftagene that we had been using. The previous generation drug was administrated after mixing it with Polyethylenimine (PEI) at the patient’s bedside. The procedure demanded strict training and was very sensitive stability-wise. Our new ready to use complex of inodiftagene will make the administration process less complex and improve the stability of the drug. In 2017, the application entered the national phase. Approval of this patent in the selected jurisdictions would ensure product exclusivity until 2036.
Pursuant to a license agreement with Yissum, described below, we have an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 gene. All of our patents and patent applications were licensed to us from Yissum and are subject to the Yissum license agreement.
76

Our patent portfolio includes a total of 56 granted patents in five patent families (including divisional and continuing application patents), as well as 21 pending national phase applications, as follows:
Product under development
Inodiftagene (new formulation complex) — The patents covering the original inodiftagene formulation have expired. Prior to their expiration, we filed a priority application in 2015, which was followed by an international application under the PCT disclosing a new complex, among others, for inodiftagene. The new complex was developed to improve the original formulation of inodiftagene, which was administered after mixing it with Polyethylenimine (PEI) at the patient’s bedside, in order to prevent destabilization. This procedure demanded strict personnel training. The new formulation is distributed ready to use, which simplifies the administration process and improves the stability of the drug. In 2017, the application entered the national phase. It was filed in Australia, Brazil, Canada, China, Hong Kong, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Philippines, Russia, Singapore, South Korea, Thailand, United States, Vietnam and the European Patent Office, or EPO. Following EPO approval, the patent would be granted in each individual EU member state to which we would apply, which would ensure product exclusivity until 2036.
Additional technologies
BC-821 — Composition of matter and/or method claims patents have been granted in Australia, Austria, Belgium, China, Cyprus, France, Germany, Greece, India, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Monaco, Netherlands, Russia, Slovenia, South Korea, Spain, Sweden, Switzerland, United Kingdom and the United States, and are pending in Brazil and Canada.
Cancer-Specific TNF-α and DTA mutual expression vector — Composition of matter and/or method claims patents were granted in France, Germany, Israel, Switzerland, United Kingdom and the United States.
H19 targeted siRNA for cancer — Composition of matter and/or method claims patents were granted in Australia, Canada, China, France, Germany, India, Ireland, Israel, Italy, Japan, Spain, Switzerland, United Kingdom and the United States.
H19 targeted siRNA for rheumatoid arthritis — Use patents were granted in Canada, France, Germany, Ireland, Israel, Switzerland, United Kingdom, and the United States.
The expected expiration dates for our various patents may also be subject to extensions or adjustments of term available under applicable law that provide for longer periods of protection.
While our policy is to obtain patents by application, license or otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property rights of third parties, technologies related to our business have been rapidly developing in recent years. Additionally, patent applications that we may file or license from third parties may not result in the issuance of patents, and our current or future issued patents may be challenged, invalidated or circumvented. Therefore, we cannot predict the extent of claims that may be allowed or enforced against our patents, nor be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may have to engage in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable. Moreover, because of the extensive time required for clinical development and regulatory review of products we may develop, it is possible that the patent or patents on which we rely to protect such products could expire or be close to expiration by the commencement of commercialization, thereby reducing the value of such patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited scope of certain of our intellectual property, could have a material adverse effect on us. See “Risk Factors — Risks Related to Our Intellectual Property and Potential Litigation.”
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to
77

protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, such agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors or others.
   Exclusive license agreement with Yissum
Yissum has granted us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. Our latest patent applications were filed in 2016, and their approval would ensure product exclusivity for all our programs will range from 2026 to 2036.
On November 14, 2005, we entered into a license agreement with Yissum, which was subsequently amended several times, most recently in November 2013. Yissum has granted us an exclusive, worldwide license for the development, use, manufacture and commercialization of products arising out of patents owned by, and patent applications filed by, Yissum in connection with the H19 and IGF2-P4 genes. Yissum retains right, title and interest in the products, technologies or other inventions arising out of our research and development of these patents and patent applications, except for intellectual property developed with funding from the Israel Innovation Authority, or IIA, which will be owned by us and transferred to Yissum only upon our dissolution or upon a decision by the IIA that it no longer requires us to own the intellectual property developed with its funding. We have the right to grant sub-licenses to third parties in accordance with the terms set forth in the Yissum license agreement.
We have agreed to pay Yissum 4% of all “net sales” as royalties and 10% of the income that we receive from granting sub-licenses to third parties. We will pay half of these royalties on sales in countries in which no patent has been granted and a third party is selling identical products.
We are required to indemnify Yissum, the Hebrew University of Jerusalem, their employees, directors, officers, representatives and any other persons acting on their behalf under the license against any liability, including without limitation product liability, damages, losses or expenses, including reasonable legal fees and litigation expenses arising out of our actions or omissions in performing the Yissum license, including the use, development and manufacturing of patents arising out of it and the granting of sub-licenses thereunder, provided that any such loss was not caused by the intentional misconduct or gross negligence of the indemnitees.
We have the right to terminate the Yissum license upon three months’ prior written notice provided that we have paid all amounts owing to Yissum under the license. Yissum has the right to terminate the license in the event that we become bankrupt, liquidated or insolvent, or if our business is placed in the hands of a receiver, liquidator, or trustee. In addition, Yissum has the right to terminate the license for any material breach of it by us in the event that we fail to remedy such material breach within ninety days of Yissum’s notice of our material breach, provided that the material breach is curable within 90 days. In the event that the material breach cannot be remedied within ninety days, Yissum may not terminate the license if we take reasonable commercial action to cure such breach as promptly as practicable. The termination of the license also entails termination of all licenses granted thereunder. Any termination of the license shall not terminate any of our obligations, including our obligation to pay royalties that matured prior to the effective date of termination.
Marketing, Sales and Distribution
Given our stage of development, we do not have any internal sales, marketing or distribution infrastructure or capabilities. In the event we receive regulatory approval for our product candidate, we intend, where appropriate, to pursue commercialization relationships, including strategic alliances and licensing, with pharmaceutical companies and other strategic partners, which are equipped to market and/or sell our product candidate, if any, through their well-developed sales, marketing and distribution organizations in
78

order to gain access to global markets. In addition, we may out-license some or all of our worldwide patent rights to more than one party to achieve the fullest development, marketing and distribution of any products we develop. Over the longer term, we may consider ultimately building an internal marketing, sales and commercial infrastructure.
Competition
The pharmaceutical industry is characterized by rapidly evolving biotechnology and intense competition, which we expect will continue. Many companies are engaged in research and development of products that are similar to ours. In the event that one or more of our competitor’s programs are successful, the market for some of our drug products could be reduced or eliminated. Any product for which we obtain FDA approval must also compete for market acceptance and market share.
We are aware of several products in the development pipeline targeted for NMIBC patients who have failed BCG treatment. Companies including Merck Sharp & Dohme Corp., Sesen Bio Inc., Telesta Therapeutics Inc., Heat Biologics, Inc., Viralytics Limited, AADi, LLC, UroGen Pharma Ltd., Halozyme Therapeutics, Inc., Astellas Pharma Inc., Cold Genesys, Inc., Altor BioScience Corporation, FKD Therapies Oy, Nippon Kayaku Co., Ltd., Spectrum Pharmaceuticals, Inc., Taris Biomedical LLC and Handok Inc. are conducting or have recently conducted clinical trials for products for the treatment of NMIBC. In addition, we are aware of several pharmaceutical companies developing drugs for muscle-invasive bladder cancer. We do not know whether these potential competitors are developing, or plan to develop, treatments or other indications that we are pursuing.
In addition, we face competition from existing standards of treatment for bladder cancer. If we are not able to demonstrate that our products are at least as safe and effective as such courses of treatment, medical professionals may not adopt our products to replace or supplement the existing standard of care.
The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Our potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition, and more experience and expertise in obtaining marketing approvals from the FDA and foreign regulatory authorities. These companies may develop new drugs to treat the indications that we target, or seek to have existing drugs approved for use for the treatment of the indications that we target.
These potential competitors may therefore introduce competing products without our prior knowledge and without our ability to take preemptive measures in anticipation of their commercial launch. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in this industry. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective, easier to administer or less costly than our products.
Government Regulation
As a clinical-stage company, we are subject to extensive regulation by the various national health regulatory authorities, such as the FDA, Health Canada and other national, state and provincial regulatory agencies.
U.S. Food and Drug Administration.   The research, development, and marketing authorization of drugs and other pharmaceutical products in the United States is subject to the Federal Food, Drug, and Cosmetic Act, or FFDCA, which empowers the FDA to require extensive non-clinical and clinical toxicity testing before a new drug or biologic is deemed safe and effective and receives marketing authorization. Biologic products, including cellular products, gene therapy products, and vaccines, are generally licensed under section 351 of the U.S. Public Health Service Act, or PHSA. Prior to commercialization, section 351 of the PHSA requires biologic manufacturers to submit a biologic license application to the FDA for review and approval. Under section 351 of the PHSA, all FFDCA provisions applicable to drug products also apply to biologic products, with the exception of the requirement to submit a new drug application, or NDA. Following initial laboratory and animal testing that show that investigational use in humans is reasonably
79

safe, biological products (like other drugs), can be studied in clinical trials in humans under an IND in accordance with the regulations at 21 CFR 312. If the data generated by the studies demonstrate that the product is safe and effective for its intended use, the data are submitted as part of the BLA.
As indicated above, the FDA regulates gene therapy products as biologics and assigns primary review authority for such products to the Center for Biologics Evaluation and Research, or CBER. The FDA defines human gene therapy products as all products that mediate their effects by transcription or translation of transferred genetic material, or by specifically altering host (human) genetic sequences. Based on this definition, we believe our product candidate, inodiftagene, is a gene therapy product and will require us to obtain a biologic license through the BLA process prior to commercialization.
In order to satisfy FDA data requirements, an extensive battery of preclinical experiments to assess the safety of such new drugs are conducted, followed by two or three phases of clinical trials before they are considered for widespread human use. We seek to complete our pivotal clinical trials program successfully and to be in a position to manufacture and market our prospective pharmaceutical products. The marketing authorization of our products would be conditional upon obtaining the approval of health authorities in each country in which they would be marketed, including, but not limited to, the FDA and the European Medicines Agency, or EMA. FDA regulations govern the following activities that we may perform, or that have been performed on our behalf, to ensure that 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 1, 2 and 3;

recordkeeping and retention;

pre-marketing review through submission of a BLA;

drug manufacturing, testing and labeling, which must comply with cGMP regulations;

drug marketing, sales and distribution; and

post-marketing study commitments (Phase 4), post-marketing pharmacovigilance surveillance, complaint handling, reporting of deaths or serious injuries, product sample retention, manufacturing deviation reporting 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 a BLA;

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 appropriate pre-clinical data has been generated to demonstrate that the drug is reasonably safe for initial testing 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 controls, pharmacologic mechanisms of action of the drug and toxicological effects of the
80

drug in animals and in vitro. Within 30 days of the IND 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 the FDA does not take any action, the filer may proceed with clinical trials on the 31st day.
Clinical trials.   Clinical trials represent the pre-market testing ground for unapproved drugs, generally taking several years to complete. Before testing can begin, an IRB must have been reviewed and approved for 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 generally consist of Phase 1, Phase 2, and Phase 3 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 are critical factors in the approval or disapproval of a new drug.
Special Protocol Assessment.    The SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial design and data analysis plans, within 45 days of receipt of the request.
The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the drug with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances:

public health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun;

a sponsor fails to follow a protocol that was agreed upon with the FDA; or

the relevant data, assumptions or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts.
A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. We have obtained an SPA with the FDA for our Phase 3 trial of inodiftagene in patients who failed BCG but are eligible for further BCG therapy. Agreement by the FDA to an SPA does not guarantee that the results of a study conducted in accordance with the agreement will be successful.
BLA review.    A BLA, requesting approval to market the drug for one or more indications, may be submitted to the FDA once sufficient data has been gathered through pre-clinical and clinical testing. A BLA includes all animal and human testing data and analyses of the data, as well as information about how the drug behaves in the human body and how it is manufactured. The BLA is reviewed by an interdisciplinary team of FDA physicians, chemists, statisticians, microbiologists, pharmacologists and other experts, who evaluate whether the studies submitted show that the drug is safe and effective for its proposed use. The FDA reviewers may request further information, consult with outside experts or disagree with the filer’s findings or interpretation of the data. Each reviewer prepares a written evaluation, and the reviewing team discusses the evaluations. The FDA may assemble an external Oncology Drug Advisory Committee, or ODAC, to review and provide an opinion on whether the product under review has an acceptable safety and efficacy profile. ODAC’s opinions are not binding on the FDA, but often have significant influence on the final FDA decision. Accelerated approval may be given to some new drugs for serious and life-threatening illnesses that lack satisfactory treatments. At the end of its review, the FDA may approve the new drug to be marketed or provide a “complete response” letter, in which case the filer may meet with FDA officials to discuss and correct deficiencies.
81

Expedited review and approval.   We have requested and received Fast Track Designation for the development of inodiftagene to treat bladder cancer. NDAs and BLAs receive either standard or priority review. A drug representing a significant improvement in the treatment, prevention or diagnosis of a disease may receive priority review. The FDA has various specific programs, including Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review, each of which is intended to expedite the process for reviewing drugs, and in certain cases involving Accelerated Review, permit approval of a drug on the basis of a surrogate endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened.
Fast Track designation facilitates the development and expedites the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Although this designation does not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases, subpopulations, and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and/or effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.
Pervasive and continuing regulation in the United States.   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 cGMP regulations require manufacturers, including third-party manufacturers, to follow stringent requirements for the methods, facilities and controls used in manufacturing, processing, testing and packing of a drug product;

Labeling regulations and the FDA prohibitions against the promotion of drug 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 the drug for an indication other than approved in the BLA;

Adverse drug experience regulations, which require companies 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 4 trials, when necessary, to protect the public health or to provide additional safety and effectiveness data for the drug; and

The FDA’s recall authority, whereby it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing laws and regulations.
After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration, dosage form, strength or bioavailability, will require a new clearance or approval, for which it may be possible to submit a supplemental BLA, referring to pre-clinical and certain clinical studies presented in the drug’s original BLA, accompanied by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional clinical studies may be required for proposed changes.
Fraud and abuse laws in the United States.   A variety of U.S. federal and state laws apply to the sale, marketing and promotion of drugs that are paid for, directly or indirectly, by U.S. federal or state healthcare programs such as Medicare and Medicaid. The restrictions imposed by these laws are in addition to those imposed by the FDA, the U.S. Federal Trade Commission and corresponding state agencies. Some of these laws significantly restrict or prohibit certain types of sales, marketing and promotional activities by drug manufacturers. Violation of these laws may result in significant criminal, civil and administrative penalties,
82

including imprisonment of individuals, fines and penalties and exclusion or debarment from United States federal and state healthcare and other programs. Many private health insurance companies also prohibit payment to entities that have been sanctioned, excluded or debarred by U.S. federal agencies.
Anti-kickback statutes in the United States.   The U.S. federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of a good or service, for which payment may be made in whole or in part under a United States federal healthcare program such as the Medicare and Medicaid programs. The definition of  “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare programs. In addition, some kickback allegations have been claimed to violate the U.S. False Claims Act (as discussed below).
The federal anti-kickback statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services, or OIG, has issued a series of regulations, known as “safe harbors.” These safe harbors set forth provisions which, if met in form and substance, will assure healthcare providers and other parties that they will not be prosecuted under the federal anti-kickback statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG or the United States Department of Justice.
Many states have adopted laws similar to the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services, among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful inducements to potential or existing physician customers in an attempt to procure their business.
U.S. False Claims Act.    The U.S. False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment by a federal healthcare program or knowingly making, or causing to be made, a false statement or record in order to have a false claim paid or avoiding, decreasing or concealing an obligation to pay money to the federal government. The federal government’s interpretation of the scope of the law has in recent years grown increasingly broad. Most states also have statutes or regulations similar to the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Several drug manufacturers have been prosecuted under the false claims laws for allegedly providing free drugs to physician customers with the expectation that the physician customers would bill federal programs for the product. In addition, several recent cases against drug manufacturers have alleged that the manufacturers improperly promoted their products for “off-label” use, outside of the scope of the FDA-approved labeling.
U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA).   HIPAA created a new federal healthcare fraud statute that prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. Among other things, HIPAA also imposes new criminal penalties for knowingly and willfully falsifying, concealing or covering up a material
83

fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services, along with theft or embezzlement in connection with a healthcare benefits program and willful obstruction of a criminal investigation involving a federal healthcare offense.
U.S. Affordable Care Act Section 6002 (the Sunshine Act).   Enacted in 2010 under the Affordable Care Act of 2010, Public Law No. 111-148, or ACA, the Sunshine Act is a national disclosure program that promotes transparency by publishing data on the financial relationships between the healthcare industry (applicable manufacturers) and healthcare providers (physicians and teaching hospitals) on a publicly accessible website. The Sunshine Act requires that certain manufacturers of drugs, devices, biologicals, or medical supplies report payments or other transfers of value made to physicians and teaching hospitals as well as certain ownership or investment interests held by physicians or their immediate family members to the Centers for Medicare & Medicaid Services (CMS). A violation of this act may result in fines and/or civil liabilities. Any payment or transfer of value that is currently prohibited under the anti-kickback statute, the U.S. False Claims Act, or other health care fraud and abuse laws may still be subject to fines, sanctions, or lawsuit.
Non-U.S. regulation.   Marketing authorization requests outside of the United States are subject to regulatory approval of the respective authorities in the country in which we would like to market. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved prior to its marketing application approval. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices might not be approved for such product. In Europe, authorization can be obtained through one of the following pathways: (i) the “centralized” procedure, described in greater detail below, with applications made directly to the EMA leading to the grant of a European marketing authorization by the European Commission, (ii) the “decentralized procedure,” whereby companies may apply for simultaneous authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country, or do not fall within the mandatory scope of the centralized procedure, (iii) the “mutual recognition” procedure, in which applications are made to one or more member states, leading to national marketing authorizations mutually recognized by other member states, or (iv) a “national authorization” application made to a single EU member state. Based on the nature of our products, the marketing authorization will be through the centralized procedure.
The EMA is responsible for the centralized procedure, which results in a single marketing authorization that is valid across the European Union. Applications through the centralized procedure are submitted directly to the EMA. The procedure consists of three milestones:
(i)
Evaluation by a scientific committee for up to seven months, at the end of which the committee adopts an opinion on whether the drug should be approved for marketing. During this period, the EMA may send questions to the company, at which time the aforementioned review clock stops until answers are provided.
(ii)
Formal decision by the EMA’s Committee for Medicinal Products for Human Use, which is transmitted to the European Commission, which issues a formal decision on the authorization of the product.
(iii)
Marketing authorization: Once a European Community marketing authorization has been granted, the marketing-authorization holder can begin to make the medicine available to patients and healthcare professionals in all EU countries.
Even after a company receives marketing authorization, EU law regulates the distribution, classification for supply, labeling and packaging, and advertising of medicinal products for human use. The European Union also regulates the manufacture of medicinal products, requiring cGMP, set forth in the EU Guidelines to Good Manufacturing Practice — Medicinal Products for Human and Veterinary Use.
84

EU pharmacovigilance directives and regulations require a company to establish post-market surveillance systems that include individual adverse reaction case reports, periodic safety update reports, and company-sponsored post-authorization safety studies. If a medicinal product’s overall risk and benefit profile is found to have changed significantly for any reason, it may be required to be varied, withdrawn, or have its use suspended.
Regulations in Israel.   Our clinical operations in Israel also are subject to approval by Israel’s Ministry of Health, as well as the Helsinki Committee of each medical institution in which a clinical study is conducted. All phases of clinical studies conducted in Israel must be conducted in accordance with the Public Health Regulations (Medical Studies Involving Human Subjects, 1980), including amendments and addenda thereto, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of Health, or the Guidelines, and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. The regulations and the Guidelines stipulate that a medical study on humans will only be approved after the Helsinki Committee (IRB) at the hospital intending to perform the study has approved the medical study and notified the relevant hospital director in writing. In addition, certain clinical studies require the approval of the Ministry of Health. The Helsinki Committee will not approve the performance of the medical study unless it is satisfied that it has advantages to the study participants and society at large that justify the risk and inconvenience for the participants and that the medical and scientific information justifies the performance of the requested medical study. The relevant hospital director, and the Ministry of Health, if applicable, also must be satisfied that the study is not contrary to the Helsinki Declaration or to other regulations. The Ministry of Health also licenses and regulates the marketing of pharmaceuticals in Israel, requiring the relevant pharmaceutical to meet internationally recognized cGMP standards. A mutual recognition agreement, known as the Conformity Assessment and Acceptance of Industrial Products Agreement, or ACAA, covering inter alia medicinal products for human use, has been signed and became effective in 2013 between Israel and the European Community.
Under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 and related regulations, or the Research Law, recipients of grants from the IIA, or Recipient Companies, are subject to certain obligations under the Research Law. The pertinent obligations currently are as follows: (i) the Recipient Company, is obligated to pay the IIA royalties from the revenues generated from the sale of products (and related services) or services developed (in all or in part) according to, or as a result of, a research and development program funded by the IIA (at rates which are determined under the Research Law, up to the aggregate amount of the total grants received by the IIA, plus annual interest (as determined in the Research Law)); (ii) products developed as a result of IIA-funded research and development must, as a general matter, be manufactured in Israel. The Recipient Company is prohibited from manufacturing products developed using these IIA grants outside of Israel without receiving the prior approval of the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate). If the Recipient Company receives approval to manufacture the products developed with government grants outside of Israel, it may be required to pay an increased total amount of royalties to the IIA, up to 300% of the grant amounts plus interest, depending on the manufacturing volume that is performed outside of Israel, as well as at a possibly increased royalty rate. A Recipient Company also has the option of declaring in its IIA grant application its intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval for manufacture abroad and increased royalty amounts. Even where approval has been granted to manufacture outside Israel within the framework of approval of a research and development plan and in the case of the transfer of manufacturing at a rate that does not require the approval of the research committee (i.e., at a rate of up to 10%), a company is obligated to pay increased royalties to the State of Israel, at the rates set forth in the Research Law, with regard to the transfer of manufacturing outside of Israel; (iii) under the Research Law, the Recipient Company is prohibited from transferring IIA-financed technologies and related intellectual property rights outside of Israel except under limited circumstances, and only with the approval of the Research Committee of the IIA and subject to certain payment to the IIA calculated according to formulae provided under the Research Law (as further detailed below); and (iv) any change of control in the Recipient Company and any change of ownership of the Recipient Company’s ordinary shares that would make a non-Israeli citizen or resident an “interested party,” as defined in the Research Law, requires a prior written notice to the IIA.
85

The restrictions under the Research Law will continue to apply even after we repay the full amount of royalties payable pursuant to the grants.
We may not receive the required approvals for any proposed transfer. If we do receive the approvals, we may be required to pay the IIA a portion of the consideration that we receive upon any sale of such technology to a non-Israeli entity. The scope of the support received, the royalties that we have already paid to the IIA, the amount of time that has elapsed between the date on which the know-how was transferred and the date on which the IIA grants were received and the sale price and the form of transaction will be taken into account in order to calculate the amount of the payment to the IIA (as further detailed below). No assurances can be made that approval of any such transfer, if requested, will be granted.
In general, the Research Committee may approve transfer of know-how created in whole or in part in connection with IIA-funded projects to third parties outside of Israel, in limited circumstances as follows:

The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Research Law that is based, in general, on the ratio between the aggregate IIA grants to the company’s aggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration. In addition, if the purchaser of the know-how gives the selling Israeli company the right to exploit the know-how by way of an exclusive, irrevocable and unlimited license, the Research Committee may approve such transfer in special cases without requiring a redemption fee payment.

The transfer of such know-how to a party outside Israel, where the transferring company ceases to exist as an Israeli entity, is subject to a redemption fee formula that is based, in general, on the ratio between aggregate IIA grants received by the company and the company’s aggregate research and development expenses, multiplied by the transaction consideration.

The redemption fee paid to the IIA under the aforementioned formulae is capped and distinguishes between two scenarios: (i) in the event that the company sells its IIA-funded know-how, in whole or in part, or is sold as part of a merger and acquisition transaction, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the aforementioned formulae shall be no more than six times the amount received (plus annual interest) for the applicable know-how bein