UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report: Not applicable

For the transition period from ____ to _____

Commission file number 001-35948

Kamada Ltd.

(Exact name of registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

State of Israel

(Jurisdiction of incorporation or organization)

2 Holzman St.

Science ParkP.O Box 4081 Rehovot 7670402

 Israel (Address of principal executive offices)

Amir London, Chief Executive Officer 2 Holzman St., Science Park

 Rehovot 7670402, Israel+972 8 9406472(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class	Name of Each Exchange on which Registered
Ordinary Shares, par value NIS 1.00 each	The Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act. None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2018, the Registrant had 40,295,078 Ordinary Shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes   ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes   ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes   ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards^† provided pursuant to Section 13(a) of the Exchange Act.  ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐    Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes   ☒ No

TABLE OF CONTENTS

PART I
Item 1. Identity of Directors, Senior Management and Advisers	4
Item 2. Offer Statistics and Expected Timetable	4
Item 3. Key Information	4
Item 4. Information on the Company	44
Item 4A. Unresolved Staff Comments	78
Item 5. Operating and Financial Review and Prospects	79
Item 6. Directors, Senior Management and Employees	98
Item 7. Major Shareholders and Related Party Transactions	120
Item 8. Financial Information	124
Item 9. The Offer and Listing	124
Item 10. Additional Information	125
Item 11. Quantitative and Qualitative Disclosures About Market Risk	141
Item 12. Description of Securities Other Than Equity Securities	141
Item 13. Defaults, Dividend Arrearages and Delinquencies	142
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	142
Item 15. Controls and Procedures	142
Item 16A. Audit Committee Financial Expert	143
Item 16B. Code of Ethics	143
Item 16C. Principal Accountant Fees and Services	144
Item 16D. Exemptions from the Listing Standards for Audit Committees	144
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers	144
Item 16F. Change in Registrant's Certifying Accountant	144
Item 16G. Corporate Governance	144
Item 16H. Mine Safety Disclosure	145
Item 17. Financial Statements	146
Item 18. Financial Statements	146
Item 19. Exhibits	146

In this Annual Report on Form 20-F (this “Annual Report”), unless the context indicates otherwise, references to “NIS” are to the legal currency of Israel, “U.S. dollars,” “$” or “dollars” are to United States dollars, and the terms “we,” “us,” the “Company,” “our company,” “our,” and “Kamada” refer to Kamada Ltd., along with its consolidated subsidiaries.

This Annual Report contains forward-looking statements that relate to future events or our future financial performance, which express the current beliefs and expectations of our management in light of the information currently available to it. Such statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual future results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include all statements that are not historical facts and can be identified by words such as, but without limitation, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “likely,” “may,” “will,” “would,” or “could,” or other words, expressions or phrases of similar substance or the negative thereof. We have based these forward-looking statements largely on our management’s current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

· our focus in the Alpha-1 Antitrypsin (“AAT”) deficiency (“AATD”) field and on becoming the innovator in this field by developing different therapeutic approaches to AATD independently and through collaborations with strategic partners;

· our expectation that our revenues will grow by approximately 9% to 14% in 2019 compared to our revenues for 2018 and that we will achieve our revenue goal of $125-130 million in 2019;

· our expectation that we will continue to generate gross, operating and net profits as well as positive cash flows during 2019 and beyond;

· our belief that our relationships with our strategic partners will lead to increased revenues and other benefits in the future and that such relationships, including with Takeda Pharmaceutical Company Limited (“Takeda”), which acquired Shire plc (“Shire”), and Kedrion S.p.A (“Kedrion”) will continue without disruption;

· our expectation that the minimum aggregate revenue for our AAT intravenous product, Glassia (“Glassia”), for the years 2019 to 2020  under our agreement with Takeda will reach approximately $120 million and may be expanded to $150 million during that period;

· our expectation that our revenues in our Proprietary Products segment will increase until the end of 2020 (following which Takeda will have no obligation to purchase a minimum amount of Glassia from us), that Takeda will begin selling Glassia produced in its own manufacturing facility as early as 2021 and pay us royalties on those sales, and that Takeda will have a production facility approved by the U.S. Food and Drug Administration (the “FDA”) by 2021;

· our expectation that as Takeda transitions to producing Glassia in its own facilities, we will incur a substantial reduction in revenues (as well as costs of goods sold), driven by the reduction in Glassia manufacturing, and our intent to partially offset such decrease in revenues by income from royalty payments from Takeda on their sales of Glassia and continued increased sales of Glassia in rest of the world countries through local distributors, increased sales of KEDRAB in the United States and sales of KamRAB and our Anti D IgG product in international markets as well as continued sales of our other proprietary products;

· our ability to continue marketing our anti-rabies immunoglobulin product for prophylaxis treatment of rabies disease in the United States in 2019 in collaboration with  Kedrion (under the trademark “KEDRAB” in the U.S.) and our expectations regarding future sales of the product in the U.S. and in other territories (under the trademark “KamRAB”);

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· our belief that receiving FDA approval for marketing of our anti-rabies immunoglobulin (under the trademark “KEDRAB” in the U.S.) will assist us in our efforts to register the product in additional countries where it is not currently registered, and our belief that this would lead to additional sales worldwide;

· our belief that we will be able to continue to meet our customers demand for AAT, anti-rabies immunoglobulin and other proprietary products;

· our belief that U.S.-based and other healthcare providers would seek to continue to diversify their source of anti-rabies immunoglobulin, using our product;

· our ability to procure adequate quantities of plasma and fraction IV from our suppliers, which are acceptable for use in our manufacturing processes;

· our ability to maintain compliance with government regulations and licenses;

· our ability to identify growth opportunities for existing products and our ability to identify and develop new product candidates;

· our belief that the market opportunity for AAT products will continue to grow;

· the beneficial characteristics of Inhaled AAT for AATD, which we believe may result in our increased profitability pending future marketing approval of the product in target key countries;

· our expectations that our discussions with the FDA regarding the clinical and regulatory pathway for registration in the United States of Inhaled AAT for AATD, will materialize by mid-2019. Pending such agreed pathway we plan on filling for an  FDA approval for our Investigational New Drug (“IND”) application, which will enable us to initiate a pivotal study for registration thereafter. We intend to use the data from this study, if successful, to resubmit a Marketing Authorization Application (“MAA”) in the European Union with the European Medicines Agency (the “EMA”) and submit a Biologics License Application (“BLA”) with the FDA;

· our ability to successfully attract partners in the development program for Inhaled AAT for AATD and maintain such partnerships, if we decide to pursue such direction, as well as the impact on our business resulting from such partnerships, or from a failure to form such partnerships or fully realize the benefits of such partnerships;

· our belief that Inhaled AAT for AATD will increase patient convenience and reduce the need for patients to use intravenous infusions of AAT products, thereby decreasing the need for clinic visits or nurse home visits and reducing medical costs;

· our belief that Inhaled AAT for AATD will enable us to treat significantly more patients from the same amount of plasma and production capacity and therefore increase our profitability;

· the various uses of AAT products to potentially be effective against various diseases, including Graft versus Host Disease (“GvHD”), type-1 diabetes (“T1D”) and prevention of lung transplantation rejection and organ preservation, and our ability to generate the needed data to potentially attract strategic partner(s) to collaborate in the further development of these indications;

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· our expectation that we will report top-line results from the Phase II clinical study of our intravenous AAT product to prevent lung transplantation rejection by the end of 2019;

· our expectation that we will report interim results from the Phase II clinical study of our intravenous AAT product for GvHD by the end of 2019;

· the timing of, and our ability to, obtain and/or maintain regulatory approvals for our products and new product candidates, the rate and degree of market acceptance, and the clinical utility of our products;

· the potential market opportunities for our products and product candidates;

· our plan to develop a recombinant AAT product and its future utilization as a replacement of the plasma derived AAT;

· our expectations regarding the potential actions or inactions of existing and potential competitors of our products;

· legislation or regulation in countries where we sell our products that affect product pricing, reimbursement, access or distribution channels;

· the impact of geographic and product mix on our total revenues and gross profit;

· our ability to obtain and maintain protection for the intellectual property relating to or incorporated into our technology and products;

· the impact of our research and development expenses on our financial results as we continue developing product candidates;

· our expectations regarding our ability to utilize Israeli tax incentives against future income; and

· our expectations regarding taxation, including that we will not be classified as a passive foreign investment company for the taxable year ended December 31, 2018.

All forward-looking statements involve risks, assumptions and uncertainties. You should not rely upon forward-looking statements as predictors of future events. The occurrence of the events described, and the achievement of the expected results, depend on many events and factors, some or all of which may not be predictable or within our control. Actual results may differ materially from expected results. See the sections “Item 3. Key Information — D. Risk Factors” and “Item 5. Operating and Financial Review and Prospectus,” as well as elsewhere in this Annual Report, for a more complete discussion of these risks, assumptions and uncertainties and for other risks, assumptions and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

All of the forward-looking statements we have included in this Annual Report are based on information available to us as of the date of this Annual Report and speak only as of the date hereof. We undertake no obligation, and specifically decline any obligation, to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur.

The audited consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 included in this Annual Report have been prepared in accordance with the international financial reporting standards (“IFRS”) as issued by the international accounting standards board (“IASB”). None of the financial information in this Annual Report has been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Unless otherwise noted, NIS amounts presented in this Annual Report are translated at the rate of $1.00 = NIS 3.748, the exchange rate published by the Bank of Israel as of December 31, 2018.

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PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The following table summarizes our consolidated financial data. We have derived the summary consolidated statements of operations data for the years ended December 31, 2018, 2017 and 2016 and the consolidated balance sheets data as of December 31, 2018 and 2017 from our audited consolidated financial statements included elsewhere in this Annual Report. We have derived the summary consolidated statements of operations data for the years ended December 31, 2015 and 2014 and the summary consolidated balance sheet data as of December 31, 2016, 2015 and 2014 from our audited consolidated financial statements not included in this Annual Report.

We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those summary consolidated statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our interim results are not necessarily indicative of the results that should be expected for the full year.

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The summary of our consolidated financial data set forth below should be read together with our consolidated financial statements and the related notes, as well as the section entitled “Item 5. Operating and Financial Review and Prospects,” included elsewhere in this Annual Report.

	Year Ended December 31,
	2018			2017			2016			2015			2014
	(U.S Dollars in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues from Proprietary Products	$	90,784		$	79,559		$	55,958		$	42,952		$	44,389
Revenues from Distribution		23,685			23,266			21,536			26,954			26,676
Total revenues		114,469			102,825			77,494			69,906			71,065
Cost of revenues from Proprietary Products		52,796			51,335			37,723			30,901			32,617
Cost of revenues from Distribution		20,201			19,402			18,411			23,640			23,406
Total cost of revenues		72,997			70,737			56,134			54,541			56,023
Gross profit		41,472			32,088			21,360			15,365			15,042
Research and development expenses		9,747			11,973			16,245			16,530			16,030
Selling and marketing expenses		3,630			4,398			3,243			3,652			2,898
General and administrative expenses		8,525			8,273			7,353			6,607			7,593
Other expense		311			-			-			-			-
Operating income (loss)		19,259			7,444			(5,481	)		(11,424	)		(11,479	)
Financial income		820			500			469			463			404
Income (expense) in respect of currency exchange and translation differences and derivatives instruments, net		602			(612	)		127			625			-
Financial expense		(340	)		(162	)		(126	)		(934	)		(2,086	)
Income (loss) before taxes on income		20,341			7,170			(5,011	)		(11,270	)		(13,161	)
Taxes on income		(1,955	)		269			1,722			-			52
Net income (loss)		22,296			6,901			(6,733	)	$	(11,270	)	$	(13,213	)
Income (loss) attributable to equity holders		22,296			6,901			(6,733	)	$	(11,270	)	$	(13,213	)
Income (loss) per share attributable to equity holders:
Basic	$	0.55		$	0.18		$	(0.18	)	$	(0.31	)	$	(0.37	)
Diluted	$	0.55		$	0.18		$	(0.18	)	$	(0.31	)	$	(0.37	)
Weighted-average number of ordinary shares used to compute income (loss) per share attributable to equity holders:
Basic		40,275,374			37,970,697			36,418,833			36,245,813			35,971,335
Diluted		40,445,417			38,045,097			36,418,833			36,245,813			35,971,335
Consolidated Statements of Cash Flows:
Cash flows from operating activities	$	10,546		$	3,608		$	1,897		$	(13,979	)	$	(9,918	)
Cash flows from investing activities		(5,176	)		(15,608	)		1,637			11,253			(26,819	)
Cash flows from financing activities		(587	)		15,320			1,490			(6,355	)		(7,640	)
Consolidated Balance Sheet Data:
Cash, cash equivalents, restricted cash and short-term investments	$	50,592		$	43,019		$	28,632		$	28,306		$	51,896
Trade receivables		27,674			30,662			19,788			23,071			17,514
Working capital (1)		87,321			67,486			49,871			57,655			66,206
Total assets		138,116			122,110			99,696			101,992			119,140
Total liabilities		25,740			32,618			32,953			29,485			38,723
Total shareholders’ equity		112,376			89,492			66,743			72,507			80,417
Other Data:
Adjusted net income (loss)(2)(3)	$	23,244		$	7,384		$	(5,663	)	$	(9,363	)	$	(9,462	)
Adjusted EBITDA(2)	$	23,910		$	11,450		$	(909	)	$	(6,290	)	$	(4,940	)

____________

(1) Working capital is defined as total current assets minus total current liabilities.

(2) We present adjusted net income (loss) and adjusted EBITDA because we use these non-IFRS financial measures to assess our operational performance, for financial and operational decision-making, and as a means to evaluate period-to-period comparisons on a consistent basis. Management believes these non-IFRS financial measures are useful to investors because: (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making; and (2) they exclude the impact of non-cash items that are not directly attributable to our core operating performance and that may obscure trends in the core operating performance of the business.

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Non-IFRS financial measures have limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, our IFRS results. We expect to continue reporting non-IFRS financial measures, adjusting for the items described below, and we expect to continue to incur expenses similar to certain of the non-cash, non-IFRS adjustments described below. Accordingly, unless otherwise stated, the exclusion of these and other similar items in the presentation of non-IFRS financial measures should not be construed as an inference that these items are unusual, infrequent or non-recurring. Adjusted net income (loss) and adjusted EBITDA are not recognized terms under IFRS and do not purport to be an alternative to IFRS net income (loss) as an indicator of operating performance or any other IFRS measure. Moreover, because not all companies use identical measures and calculations, the presentation of adjusted net income (loss) or adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

Adjusted net income (loss) is defined as net income (loss), plus non-cash share-based compensation expenses. Our management believes that excluding non-cash charges related to share-based compensation provides useful information to investors because of its non-cash nature, varying available valuation methodologies among companies and the subjectivity of the assumptions and the variety of award types that a company can use under the relevant accounting guidance, which may obscure trends in our core operating performance.

(3) Adjusted EBITDA is defined as net income (loss), plus income tax expense, plus financial expense, net, plus depreciation and amortization expense, plus non-cash share-based compensation expenses, plus or minus income or expense in respect of exchange and translation differences and derivatives instruments not designated as hedging. Management believes that adjusted EBITDA provides useful information to investors for the same reasons discussed above for adjusted net income (loss).

The following tables set forth adjusted net income (loss) and adjusted EBITDA and also reconcile these figures to the IFRS measure net income (loss):

	Year Ended December 31,
	2018		2017		2016			2015			2014
	(U.S Dollars in thousands)
Net income (loss)	$	22,296	$	6,901	$	(6,733	)	$	(11,270	)	$	(13,213	)
Non-cash share-based compensation expenses		948		483		1,071			1,907			3,751
Adjusted net income (loss)	$	23,244	$	7,384	$	(5,663	)	$	(9,363	)	$	(9,462	)

	Year Ended December 31,
	2018			2017			2016			2015			2014
	(U.S Dollars in thousands)
Net income (loss)	$	22,296		$	6,901		$	(6,733	)	$	(11,270	)	$	(13,213	)
Income tax expense		(1,955	)		269			1,722			-			52
Financial expense, net		(480	)		(338	)		(343	)		471			1,682
Depreciation and amortizationexpense		3,703			3,523			3,501			3,227			2,788
Non-cash share-based compensation expenses		948			483			1,071			1,907			3,751
Income (expense) in respect of translation differences and derivatives instruments, net		(602	)		612			(127	)		(625	)		-
Adjusted EBITDA	$	23,910		$	11,450		$	(909	)	$	(6,290	)	$	(4,940	)

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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D. Risk Factors

You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report, including the consolidated financial statements and the related notes included elsewhere in this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.

Risks Related to Our Proprietary Products Segment

Our business is currently highly concentrated on our flagship product, Glassia, and our largest geographic region, the United States. Any adverse market event with respect to such product or the United States would have a material adverse effect on our business.

We rely heavily upon the sales of our AAT intravenous product, Glassia. Revenue from our intravenous AAT products for the treatment of AATD comprised approximately 60%, 64% and 56% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. If Glassia were to lose significant sales, or were to be substantially or completely displaced in the market, we would lose a significant and material source of our total revenues. Similarly, if Glassia were to become the subject of litigation and/or an adverse governmental ruling requiring us to cease the manufacturing, export or sales of Glassia, our business would be adversely affected.

In addition, we have a partnership arrangement with Takeda, pursuant to which Takeda is the sole distributor of Glassia in the United States, Canada, Australia and New Zealand. The partnership agreement was originally executed in 2010 with Baxter International Inc. (“Baxter”).  During 2015, Baxter assigned all its rights under the partnership agreement to Baxalta US Inc. (“Baxalta”), an independent public company which spun-off from Baxter. In 2016, Shire completed its acquisition of Baxalta, and as a result, all of Baxalta’s rights under the partnership agreement were assigned to Shire. In January 2019, Takeda completed its acquisition of Shire. Revenue derived from our partnership with Takeda, which consists of sales of Glassia, milestone revenue and technology transfer services accounted for approximately 56%, 59% and 52% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively. Additionally, we depend upon Takeda for the supply of fraction IV plasma for our production of Glassia to be sold in the United States. If our relationship with Takeda were to deteriorate, our business would be adversely affected.  See “—In our Proprietary Products segment, we currently rely on Takeda, which accounts for a significant portion of our total sales, and any disruption to our relationships with Takeda would have an adverse effect on our results of operations and profitability.”

We also rely heavily on sales in the United States, which comprised approximately 66%, 59% and  52% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. If our U.S. sales were significantly impacted by material changes to government or private payor reimbursement, other regulatory developments, competition or other factors, then our business would be adversely affected.

In our Proprietary Products segment, we currently rely on Takeda, which accounts for a significant portion of our total sales, and any disruption to our relationships with Takeda would have an adverse effect on our results of operations and profitability.

Pursuant to our partnership arrangement with Takeda, Takeda is the sole distributor of Glassia in the United States, Canada, Australia and New Zealand. Sales to Takeda accounted for approximately 56%, 59% and 52% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively. We also depend upon Takeda for the supply of fraction IV plasma for our production of Glassia to be sold in the United States. See “—We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly."

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If we fail to maintain our relationship with Takeda, we could face significant costs in finding a replacement distributor for the markets Takeda serves for Glassia and a replacement supplier of fraction IV plasma for Glassia. Delays in establishing a relationship with a new distributor and supplier could lead to a decrease in our sales and a deterioration in our market share compared to one or more of our competitors. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.

Currently, revenue derived from our relationship with Takeda consists of sales of Glassia. Pursuant to the Exclusive Manufacturing, Supply and Distribution Agreement, as amended, after 2020, Takeda has no obligation to purchase a minimum amount of Glassia. Additionally, we estimate that Takeda will begin selling Glassia produced in its own manufacturing facility as early as 2021, and pay us royalties. As Takeda transitions to producing Glassia in its own facilities, we will incur substantial reduction in revenues (as well as costs of goods sold), driven by the reduction in Glassia manufacturing. While we will receive royalty payments from Takeda based on its Glassia sales until 2040, and we may be able to partially offset the decrease in revenues by expanding sales of other products and in other territories, our revenues will decrease and our operating results may be materially and adversely impacted if we are unable to reduce fixed costs relating to our manufacturing facility in line with any reduction in demand.

In our Proprietary Products segment, we rely on Kedrion for the sales of our KEDRAB product in the United States, and any disruption to our relationships with Kedrion would have an adverse effect on our future results of operations and profitability.

Pursuant to the strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KEDRAB, Kedrion is the sole distributor of KEDRAB in the United States. Sales to Kedrion accounted for approximately 10% of our total revenues in the years ended December 31, 2018. As the sales of KEDRAB in the United States become material, we will become dependent on Kedrion for its marketing and sales of KEDRAB in the United States.

We also depend upon a subsidiary of Kedrion for the supply of the hyper-immune plasma which is used for the production of KEDRAB to be sold in the United States. See “—We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”

If we fail to maintain our relationship with Kedrion, we could face significant costs in finding a replacement distributor for the sales of KEDRAB in the United States and a replacement supplier of the hyper-immune plasma which is used for the production of KEDRAB. Delays in establishing a relationship with a new distributor and supplier could lead to a decrease in our sales and a deterioration in our market share compared to one or more of our competitors. Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.

Our Proprietary Products segment operates in a highly competitive market.

We compete with well-established drug companies, including two to four large competitors for each of our products in the Proprietary Products segment. These large competitors include CSL Behring Ltd. (“CSL”), Takeda, and Grifols S.A. (“Grifols”), which acquired a competitor, Talecris Biotherapeutics, Inc. (“Talecris”), in 2011, and Kedrion. We compete against these companies for, among other things, licenses, expertise, clinical trial patients and investigators, consultants and third-party strategic partners. We also compete with these companies for market share for certain products in the Proprietary Products segment. Our large competitors have advantages in the market because of their size, financial resources, markets and the duration of their activities and experience in the relevant market, especially in the United States and countries of the European Union. As a result, they may be able to devote more funds to research and development and new production technologies, as well as to the promotion of their products and business. These competitors may also be able to sustain for longer periods a deliberate substantial reduction in the price of their products or services. Some of them also have an additional advantage regarding the availability of raw materials, as they own companies that collect plasma and/or plants which fractionate plasma.

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Our products generally do not benefit from patent protection and compete against similar products produced by other providers. Additionally, the development by a competitor of a similar or superior product or increased pricing competition may result in a reduction in our net sales or a decrease in our profit margins. For example, we believe that our two main competitors in the AAT market are Grifols and CSL. We estimate that Grifols’ AAT by infusion product for the treatment of AATD, Prolastin A1PI, accounts for at least 50% market share in the United States and more than 70% of sales in the worldwide market for the treatment of AATD, which also includes sales of Prolastin in different European countries. Apart from its sales through Talecris’ historical business, Grifols is also a local producer of the product in the Spanish market and operates in Brazil. CSL’s intravenous AAT product is mainly sold in the United States. In 2015, CSL’s intravenous AAT product was granted centralized marketing authorization in Europe and CSL launched the product in a few European countries during 2016. There is another, smaller local producer in the French market, LFB S.A. In addition, we estimate that each of Grifols and CSL owns approximately 150 operating plasma collection centers located across the United States.

Similarly, if a new AAT formulation or a new route of administration with a significantly improved characteristics is adopted (including, for example, aerosol inhalation), the market share of our current AAT product, Glassia, could be negatively impacted. While we are in the process of developing Inhaled AAT for AATD, our competitors may also be attempting to develop similar products or products that could be substitutions for AAT products, such as gene therapy. For example, Grifols has completed a limited clinical trial for the development of an inhaled formulation of AAT for the indication of cystic fibrosis. While we believe that these products are in the early stages of development, they may eventually be successfully developed and launched. Furthermore, even if we are able to commercialize Inhaled AAT for AATD prior to the development of comparable products by our competitors, sales of Inhaled AAT for AATD, subject to approval of such product by the applicable regulatory authorities, could adversely impact our revenue and growth of sales of Glassia or Glassia-related royalties

In addition, our plasma-derived protein therapeutics face, or may face in the future, competition from existing non-plasma products and other courses of treatments. New treatments, such as gene therapy, small molecules, monoclonal or recombinant products, may also be developed for indications for which our products are now used. We do not currently sell any propriety recombinant products. We have begun developing recombinant version of AAT, but we cannot be certain that such product will ever be approved or commercialized. See “Item 4. Information on the Company — Our Product Pipeline and Development Program — Recombinant AAT.”  The main advantage of recombinant AAT is its potentially wider availability, and ease of large scale manufacturing. As a result, our product offerings may remain plasma-derived, even if our competitors offer competing recombinant or other non-plasma products or treatments.

Our products involve biological intermediates that are susceptible to contamination, which could adversely affect our operating results.

Plasma and its derivatives, such as fraction IV, are raw materials that are susceptible to damage and contamination and may contain microorganisms that cause diseases in humans, commonly known as human pathogens, any of which would render such materials unsuitable as raw material for further manufacturing. Almost immediately after collection from a donor, plasma and plasma derivatives must be stored and transported at temperatures that are at least -20 degrees Celsius (-4 degrees Fahrenheit). Improper storage or transportation of plasma or plasma derivatives by us or third-party suppliers may require us to destroy some of our raw material. In addition, plasma and plasma derivatives are also suitable for use only for certain periods of time once removed from storage. If unsuitable plasma or plasma derivatives are not identified and discarded prior to release to our manufacturing processes, it may be necessary to discard intermediate or finished products made from such plasma or plasma derivatives, or to recall any finished product released to the market, resulting in a charge to cost of goods sold and harm to our brand and reputation. Furthermore, if we distribute plasma-derived protein therapeutics that are produced from unsuitable plasma because we have not detected contaminants or impurities, we could be subject to product liability claims and our reputation would be adversely affected.

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Despite overlapping safeguards, including the screening of donors and other steps to remove or inactivate viruses and other infectious disease-causing agents, the risk of transmissible disease through plasma-derived protein therapeutics cannot be entirely eliminated. If a new infectious disease was to emerge in the human population, the regulatory and public health authorities could impose precautions to limit the transmission of the disease that would impair our ability to manufacture our products. Such precautionary measures could be taken before there is conclusive medical or scientific evidence that a disease poses a risk for plasma-derived protein therapeutics. In recent years, new testing and viral inactivation methods have been developed that more effectively detect and inactivate infectious viruses in collected plasma. There can be no assurance, however, that such new testing and inactivation methods will adequately screen for, and inactivate, infectious agents in the plasma or plasma derivatives used in the production of our plasma-derived protein therapeutics. Additionally, this could trigger the need for changes in our existing inactivation and production methods, including the administration of new detection tests, which could result in delays in production until the new methods are in place, as well as increased costs that may not be readily passed on to our customers.

Plasma and plasma derivatives can also become contaminated through the manufacturing process itself, such as through our failure to identify and purify contaminants through our manufacturing process or failure to maintain a high level of sterility within our manufacturing facilities.

Once we have manufactured our plasma-derived protein therapeutics, they must be handled carefully and kept at appropriate temperatures. Our failure, or the failure of third parties that supply, ship, store or distribute our products, to properly care for our plasma-derived products, may result in the requirement that such products be destroyed.

While we expect to write off small amounts of work-in-process inventories in the ordinary course of business because of the complex nature of plasma and plasma derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events may lead to write-offs and other costs materially in excess of our expectations. We have, in the past, experienced situations that have caused us to write off the value of our products. Such write-offs and other costs could materially adversely affect our operating results. Furthermore, contamination of our plasma-derived protein therapeutics could cause consumers or other third parties with whom we conduct business to lose confidence in the reliability of our manufacturing procedures, which could materially adversely affect our sales and operating results.

Our ability to continue manufacturing and distributing our plasma-derived protein therapeutics depends on our continued adherence to current Good Manufacturing Practice regulations.

The manufacturing processes for our products are governed by detailed written procedures and regulations that set forth current Good Manufacturing Practice standards (“cGMP”) requirements for blood products, including plasma and plasma derivative products. Failure to adhere to established procedures or regulations, or to meet a specification set forth in cGMP requirements, could require that a product or material be rejected and destroyed. There are relatively few opportunities for us to rework, reprocess or salvage nonconforming materials or products. Any failure in cGMP inspection will affect marketing in other territories, including the U.S. and Israel.

Our adherence to cGMP regulations and the effectiveness of our quality control systems are periodically assessed through inspections of our manufacturing facility in Beit Kama, Israel by the FDA, the Israeli Ministry of Health (“IMOH”) and regulatory authorities of other countries. Such inspections could result in deficiency citations, which would require us to take action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If serious deficiencies are noted or if we are unable to prevent recurrences, we may have to recall products or suspend operations until appropriate measures can be implemented. The FDA could also stop the import of products into the United States if there are potential deficiencies. Such deficiencies may also affect our ability to obtain government contracts in the future.  We are required to report certain deviations from procedures to the FDA. Even if we determine that the deviations were not material, the FDA could require us to take certain measures to address the deviations. Since cGMP reflects ever-evolving standards, we regularly need to update our manufacturing processes and procedures to comply with cGMP. These changes may cause us to incur additional costs and may adversely impact our profitability. For example, more sensitive testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing of a product or launch of a new product.

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The biologic properties of plasma and plasma derivatives are variable, which may adversely impact our levels of product yield from our plasma or plasma derivative supply.

Due to the nature of plasma, there will be variations in the biologic properties of the plasma or plasma derivatives we purchase that may result in fluctuations in the obtainable yield of desired fractions, even if cGMP is followed. Lower yields may limit production of our plasma-derived protein therapeutics because of capacity constraints. If these batches of plasma with lower yields impact production for extended periods, we may not be able to fulfill orders on a timely basis and the total capacity of product that we are able to market could decline and our cost of goods sold could increase, thus reducing our profitability.

Usage of our products may lead to serious and unexpected side effects, which could materially adversely affect our business and may, among other factors, lead to our products being recalled and our reputation being harmed, resulting in an adverse effect on our operating results.

The use of our plasma-derived protein therapeutics may produce undesirable side effects or adverse reactions or events. For the most part, these side effects are known, are expected to occur at some frequency and are described in the products’ labeling. Known side effects of a number of our plasma-derived protein therapeutics include headache, nausea and additional common protein infusion related events, such as flu-like symptoms, dizziness and hypertension. The occurrence of known side effects on a large scale could adversely affect our reputation and public image, and hence also our operating results.

In addition, the use of our plasma-derived protein therapeutics may be associated with serious and unexpected side effects, or with less serious reactions at a greater than expected frequency. This may be especially true when our products are used in critically ill patient populations. When these unexpected events are reported to us, we typically make a thorough investigation to determine causality and implications for product safety. These events must also be specifically reported to the applicable regulatory authorities, and in some cases, also to the public by media channels. If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with one of our products, we would be obligated to withdraw the impacted lot or lots of that product or, in certain cases, to withdraw the product entirely. Furthermore, it is possible that an unexpected side effect caused by a product could be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation.

We are subject to a number of existing laws and regulations in multiple jurisdictions, non-compliance with which could adversely affect our business, financial condition and results of operations, and we are susceptible to a changing regulatory environment, which could increase our compliance costs or reduce profit margins.

Any new product must undergo lengthy and rigorous testing and other extensive, costly and time-consuming procedures mandated by the FDA and similar authorities in other jurisdictions, including the EMA and the regulatory authorities in Israel. Our facilities must be approved and licensed prior to production and remain subject to inspection from time to time thereafter. Failure to comply with the requirements of the FDA or similar authorities in other jurisdictions, including a failed inspection or a failure in our reporting system for adverse effects of our products experienced by the users of our products, or any other non-compliance, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, import or export restrictions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses. Furthermore, we may experience delays or additional costs in obtaining new approvals or licenses, or extensions of existing approvals and licenses, from a regulatory authority due to reasons that are beyond our control such as changes in regulations or a shutdown of the U.S. federal government, including the FDA, or similar governing bodies or authorities in other jurisdictions.  In addition, we rely to a large extent on Takeda for purposes of most of our regulatory compliance for Glassia and product development and approvals in the United States relating to Glassia. Any failure by Takeda to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect us. If our relationship with Takeda terminated for any reason, we may be unable to maintain regulatory compliance on a cost-effective basis, if at all. Any of these actions could cause direct liabilities, a loss in our ability to market Glassia, or a loss of customer confidence in us or Glassia, which could materially adversely affect our sales, future revenues, reputation, and results of operations. Similarly, we rely on other third-party vendors, for example, in the production, handling, and distributions of Glassia. If any of these companies incur enforcement action from regulatory authorities due to noncompliance, this could negatively affect product sales, our reputation and results of operations. In addition, we rely on other distributors of our products, such as Kedrion in the United States, for purposes of our regulatory compliance for the products they distribute in the territories in which they operate. Any failure by such distributors to properly advise us regarding, or properly perform tasks related to, regulatory compliance requirements, could adversely affect us.

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Any changes in our production processes for our products must be approved by the FDA and/or similar authorities in other jurisdictions. Failure to comply with any requirements as to production process changes dictated by the FDA or similar authorities in other jurisdictions could also result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses.

In addition, changes in the regulation of our activities, such as increased regulation affecting safety requirements or new regulations such as limitations on the prices charged to customers in the United States, Israel or other jurisdictions in which we operate, could materially adversely affect our business. In addition, the requirements of different jurisdictions in which we operate may become less uniform, creating a greater administrative burden and generating additional compliance costs, which would have a material adverse effect on our profit margins.

We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.

Our products that generate the majority of our revenues depend on our access to U.S. or European source plasma or its derivative, fraction IV. Our plasma and fraction IV are purchased from third-party licensed suppliers, which are also responsible for the fractionation process, pursuant to multiple purchase agreements. We have entered into a number of plasma supply agreements with various third parties in the United States and Europe, some of which are also strategic partners in the distribution of our proprietary products. These agreements contain various termination provisions, including upon a material breach of either party, force majeure and, with respect to supply agreements with strategic partners, the failure or delay on the part of either party to obtain the applicable regulatory approvals or the termination of the principal strategic relationship. If we are unable to obtain adequate quantities of source plasma or fraction IV plasma approved by the FDA, the EMA or the regulatory authorities in Israel from these providers, we may be unable to find an alternative cost-effective source.

In order for plasma and fraction IV plasma to be used in the manufacturing of our plasma-derived protein therapeutics, the individual centers at which the plasma is collected must be licensed and approved by the relevant regulatory authorities, such as the FDA or the EMA. When a new plasma collection center is opened, and on an ongoing basis after its licensure, it must be inspected by the FDA, the EMA or the regulatory authorities in Israel for compliance with cGMP and other regulatory requirements. An unsatisfactory inspection could prevent a new center from being licensed or lead to the suspension or revocation of an existing license. If we or relevant regulatory authorities determine that a plasma collection center did not comply with cGMP in collecting plasma, we may be unable to use and may ultimately destroy plasma collected from that center, which may impact on our ability to timely meet our manufacturing and supply obligations. Additionally, if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials and final products could be impacted, such as through product destruction or rework. Consequently, we could experience significant inventory impairment provisions and write-offs, which could adversely affect our business and financial results.

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In addition, the plasma supplier’s fractionation process must also meet standards of the FDA, the EMA or the regulatory authorities in Israel. If a plasma supplier is unable to meet such standards, we will not be able to use the plasma derivatives provided by such supplier, which may impact on our ability to timely meet our manufacturing and supply obligations.

If we were unable to obtain adequate quantities of source plasma or plasma derivatives approved by the FDA, the EMA or the regulatory authorities in Israel, we would be limited in our ability to maintain or increase current manufacturing levels of our plasma derivative products, as well as in our ability to conduct the research required to maintain our product pipeline. As a result, we could experience a substantial decrease in total revenues or profit margins, a potential breach of distribution agreements, a loss of customers, a negative effect on our reputation as a reliable supplier of plasma derivative products or a substantial delay in our production and strategic growth plans.

The ability to increase plasma collections may be limited, our supply of plasma and plasma derivatives could be disrupted or the cost of plasma and plasma derivatives could increase substantially, as a result of numerous factors, including a reduction in the donor pool, increased regulatory requirements, decreased number of plasma supply sources due to consolidation and new indications for plasma-derived protein therapeutics, which could increase demand for plasma and plasma derivatives and lead to shortages.

We are also dependent on a number of suppliers who supply specialty ancillary products used in the production process, such as specific gels and filters. Each of these specialty ancillary products is provided by a single, exclusive supplier. If these suppliers were unable to provide us with these specialty ancillary products, if our relationships with these suppliers deteriorate, or these suppliers’ operations are negatively affected by regulatory enforcement due to noncompliance, the manufacture and distribution of our products would be materially adversely affected, which would adversely affect our sales and results of operations. See “—If we experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.”

In addition, regulatory requirements, including cGMP regulations, continually evolve. Failure of our plasma suppliers to adjust their operations to conform to new standards as established and interpreted by applicable regulatory authorities would create a compliance risk that could impair our ability to sustain normal operations.

In addition, if the purchase prices of the source plasma or plasma derivatives that we use to manufacture our proprietary products were to raise significantly, we may not be able to pass along these increased plasma and plasma-derivative prices to our customers. Prices in many of our principal markets are subject to local regulation and certain pharmaceutical products, such as plasma-derived protein therapeutics, are subject to price controls.  Any inability to pass costs on to our customers due to these factors or others would reduce our profit margins. In addition, most of our competitors have the ability to produce their own source plasma or plasma derivatives, and therefore their products' prices would not be impacted by such prices raise, and as a result any pricing changes by us in order to pass higher costs on to our customers could render our products noncompetitive in certain territories.

We have been required to conduct post-approval clinical trials of Glassia and KedARAB as a condition to continuing marketing such products in the United States, and we may be required to conduct post-approval clinical trials as a condition to licensing or distributing other products.

When a new product is approved, the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase IV clinical trials. For example, the FDA has required that we conduct Phase IV clinical trials of Glassia, which began in 2015, and for KEDRAB, which began in 2017. Such Phase IV clinical trials are aimed at collecting additional safety data, such as the immune response in the body of a human or animal, commonly referred to as immunogenicity, viral transmission, levels of the protein in the lung, or epithelial lining fluid, and certain efficacy endpoints requested by the FDA. If the results of such trials are unfavorable and demonstrate a previously undetected risk or provide new information that puts patients at risk, or if we fail to complete such trials as instructed by the FDA, this could result in receiving a warning letter from the FDA and the loss of the approval to market the product in the United States and other countries, or the imposition of restrictions, such as additional labeling, with a resulting loss of sales. Other products we develop may face similar requirements, which would require additional resources and which may not be successful. We may also receive approval, which is conditional on successful additional data or clinical development, and failure in such further development may require similar changes to our product label or result in revocation of our marketing authorization.

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The nature of producing plasma-derived protein therapeutics may prevent us from responding in a timely manner to market forces and effectively managing our production capacity.

The production of plasma-derived protein therapeutics is a lengthy and complex process. Our ability to match our production of plasma-derived protein therapeutics to market demand is imprecise and may result in a failure to meet the market demand for our plasma-derived protein therapeutics or potentially in an oversupply of inventory. Failure to meet market demand for our plasma-derived protein therapeutics may result in customers transitioning to available competitive products, resulting in a loss of segment share or distributor or customer confidence. In the event of an oversupply in the market, we may be forced to lower the prices we charge for some of our plasma-derived protein therapeutics, record asset impairment charges or take other action which may adversely affect our business, financial condition and results of operations.

Risks Related to Our Distribution Segment

Our Distribution segment is dependent on a few suppliers, and any disruption to our relationship with these suppliers, or their inability to supply us with the products we sell, in a timely manner, in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and results of operations.

Sales of products supplied by Bio Products Laboratories Ltd. ("BPL") and Biotest A.G., which are sold in our Distribution segment, together represented approximately 17% , 17% and 24% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. While we have distribution agreements with each of our suppliers, these agreements do not obligate these suppliers to provide us with minimum amounts of our Distribution segment products. Purchases of our Distribution segment products from our suppliers are typically on a purchase order basis. We work closely with our suppliers to develop annual forecasts, but these forecasts are not obligations or commitments. However, if we fail to submit purchase orders that meet our annual forecasts or if we fail to meet our minimum purchase obligations, we could lose exclusivity or, in certain cases, the distribution agreement could be terminated.

These suppliers may experience capacity constraints that result in their being unable to supply us with products in a timely manner, in adequate quantities and/or at a reasonable cost. Contributing factors to supplier capacity constraints include, among other things, industry or customer demands in excess of machine capacity, labor shortages and changes in raw material flows. These suppliers may also choose not to supply us with products at their discretion or raise prices to a level that would render our products noncompetitive. Any significant interruption in the supply of these products could result in us being unable to meet the demands of our customers, which would have a material adverse effect on our business, financial condition and results of operations as a result of being required to pay of fines or penalties, be subject to claims of reach of contract, loss of reputation or even termination of agreement.

Additionally, if our relationship with either deteriorated, our distribution sales could be adversely affected. If we fail to maintain our existing relationships with these suppliers, we could face significant costs in finding a replacement supplier, and delays in establishing a relationship with a new supplier could lead to a decrease in our sales and a deterioration in our market share compared to one or more of our competitors.

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Sales in our Distribution segment rely on our ability to win tender bids based on the price and availability of our products in annual public tender processes.

Sales in our Distribution segment rely on our ability to win tender bids during the annual tender process in Israel, as well as on sales made to sick funds, hospitals and to the IMOH. Our ability to win bids may be materially adversely affected by competitive conditions in such bid process. Our existing and new competitors may also have significantly greater financial resources than us, which they could use to promote their products and business. Greater financial resources would also enable our competitors to substantially reduce the price of their products or services. If our competitors are able to offer prices lower than us, our ability to win tender bids during the annual tender process will be materially affected, and could reduce our total revenues or decrease our profit margins.

Certain of our products in both segments have historically been subject to price fluctuations as a result of changes in the production capacity available in the industry, the availability and pricing of plasma, development of competing products and the availability of alternative therapies. Higher prices for plasma-derived protein therapeutics have traditionally spurred increases in plasma production and collection capacity, resulting over time in increased product supply and lower prices. As demand continues to grow, if plasma supply and manufacturing capacity do not commensurately expand, prices tend to increase. Additionally, consolidation in plasma companies has led to a decrease in the number of plasma suppliers in the world, as either manufacturers of plasma-based pharmaceuticals purchase plasma suppliers or plasma suppliers are shut down in response to the number of manufacturers of plasma-based pharmaceuticals decreasing, which may lead to increased prices. We may not be able to pass along these increased plasma and plasma-derivative prices to our customers, which would reduce our profit margins.

Sales of our Distribution segment products are made through public tenders of Israeli hospitals and health maintenance organizations on an annual basis or in the private market based on detailing activity made by our medical representatives. The prices we can offer, as well as the availability of products, are key factors in the tender process. If our suppliers in the Distribution segment cannot sell us products at a competitive price or cannot guarantee sufficient quantities of products, we may lose the tenders.

Risk Related to Development, Regulatory Approval and Commercialization of Product Candidates

There can be no assurance that our current ongoing discussions with the FDA regarding the continued development of our Inhaled AAT for AATD product candidate will materialize and result in FDA allowing our pivotal clinical study to proceed under an IND.

We completed a Phase II clinical trial of our Inhaled AAT for AATD in the United States, which met its primary endpoint. However, when we presented the data from the European Phase II/III study to the FDA in April 2016, the FDA expressed concerns and questions about that data, primarily related to the safety and efficacy of Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on that data. The FDA’s questions and concerns need to be resolved before the agency will allow us to proceed with additional clinical development of Inhaled AAT in the United States.  See also “—We may not be able to commercialize our product candidates in development for numerous reasons.” In order to address the FDA’s concerns and questions, in April 2017, we submitted to the agency the results of the U.S. Phase II data together with a proposed Phase III synopsis. The FDA then provided us with guidance for further development of the synopsis and requested that we submit a complete proposed study protocol for the next phase prior to enabling us to continue clinical development and initiate the Phase III study in the United States. In July 2017, we submitted a full study protocol, and in August 2017, in response to the study protocol and previous submission, the FDA issued a letter stating that it continues to have concerns and questions about the safety and efficacy of the Inhaled AAT for AATD. We provided the FDA with data and information related to their concerns and in April 2018, the FDA issued a response letter providing further guidance regarding the proposed pivotal Phase III protocol, as well as additional questions focused on the Inhaled AAT product characteristics. This correspondence indicated that, while several issues had been addressed, the FDA has continued concerns and questions related to the safety profile of Inhaled AAT for AATD. Following a thorough assessment of the FDA response, we provided the requested information and data and implemented the proposed changes in the study protocol during the second half of 2018. We will need to receive authorization from the FDA in order to proceed with the clinical development of Inhaled AAT in the United States, including our proposed Phase III clinical trial. However, the FDA may decide that the risk/benefit balance to patients based on the comprehensive data we have submitted does not ease the FDA’s concerns and accordingly, the FDA will not approve the IND for our planned Phase III study in the United States of our Inhaled AAT for AATD product candidate.

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We may not be able to commercialize our product candidates in development for numerous reasons.

Before obtaining regulatory approval for the sale of our product candidates, including Inhaled AAT for AATD, or for the marketing of existing products for new indications, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. We cannot predict how long the approval processes of the FDA, the EMA, the regulatory authorities in Israel or any other applicable regulatory authority or agency for any of our product candidates will take or whether any such approvals ultimately will be granted. The FDA, the EMA, the regulatory authorities in Israel and other regulatory agencies have substantial discretion in the relevant drug approval process over which they have authority, and positive results in preclinical testing or early phases of clinical studies offer no assurance of success in later phases of the approval process. The approval process varies from country to country and the requirements governing the conduct of clinical trials, product manufacturing, product licensing, pricing and reimbursement vary greatly from country to country.

Preclinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. For example, the Phase II/III clinical trial in Europe for Inhaled AAT for AATD did not meet its primary or secondary endpoints and we subsequently withdrew the MAA in Europe for our Inhaled AAT for AATD.

We have experienced other unforeseen events that have delayed our ability to receive regulatory approval for certain of our product candidates, and may in the future experience similar or other unforeseen events during, or as a result of, preclinical testing or the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including that:

· delays may occur in obtaining our clinical materials;

· our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or to abandon strategic projects;

· the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower or more difficult than we anticipate, or participants may withdraw from our clinical trials at higher rates than we anticipate;

· delays may occur in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review board approval;

· our strategic partners may not achieve their clinical development goals and/or comply with their relevant regulatory requirements;

· we may be forced to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks or if any participant experiences an unexpected serious adverse event;

· regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

· regulators may not authorize us to commence or conduct a clinical trial within a country or at a prospective trial site, or according to the clinical trial outline we propose;

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· undetected or concealed fraudulent activity by a clinical researcher, if discovered, could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive scientific review of one or more of our marketing applications by regulatory agencies, and result in the recall of any approved product distributed pursuant to data determined to be fraudulent;

· the cost of our clinical and preclinical trials may be greater than we anticipate;

· an audit of preclinical tests or clinical studies by the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities may reveal noncompliance with applicable regulations, which could lead to disqualification of the results of such studies and the need to perform additional tests and studies; and

· our product candidates may not achieve the desired clinical benefits, or may cause undesirable side effects, or the product candidates may have other unexpected characteristics.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if safety concerns arise, we may:

· be delayed in obtaining regulatory or marketing approval for our product candidates;

· be unable to obtain regulatory and marketing approval;

· decide to halt the clinical trial or other testing;

· be required to conduct additional trials under a conditional approval;

· be unable to obtain reimbursement for our products in all or some countries;

· only obtain approval for indications that are not as broad as we initially intend;

· have the product removed from the market after obtaining marketing approval from the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities; and

· be delayed in, or prevented from, the receipt of clinical milestone payments from our strategic partners.

Our product development costs will also increase if we experience delays in testing or approvals. There can be no assurance that any preclinical test or clinical trial will begin as planned, not need to be restructured or be completed on schedule, if at all. Because we generally apply for patent protection for our product candidates during the development stage, significant preclinical or clinical trial delays also could lead to a shorter patent protection period during which we may have the exclusive right to commercialize our product candidates, if approved, or could allow our competitors to bring products to market before we do, impairing our ability to commercialize our products or product candidates. For example, in the past, we have experienced delays in the commencement of clinical trials, such as a delay in patient enrollment for our clinical trials in Europe for Inhaled AAT for AATD and a delay in receiving approval for the commencement of Phase II trials in the United States for Inhaled AAT for AATD until further preclinical testing results were submitted. Furthermore, we will need to address the questions and concerns that the FDA expressed relating to the data from the European Phase II/III study, primarily related to the safety and efficacy and the risk/benefit balance to patients based on that data, before the FDA will allow us to proceed with additional clinical development of Inhaled AAT in the United States, including our planned Phase III pivotal study.

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Pre-clinical studies, including studies of our product candidates in animal models of disease, may not accurately predict the result of human clinical trials of those product candidates. In particular, new indications for our AAT products that are entering into Phase I and II clinical trials may be found not to be safe and/or efficacious when studied further in Phase III trials. To satisfy FDA or other applicable regulatory approval standards for the commercial sale of our product candidates, we must demonstrate in adequate and controlled clinical trials that our product candidates are safe and effective. Success in early clinical trials, including Phase II trials, does not ensure that later clinical trials will be successful. Initial results from Phase I and II clinical trials also may not be confirmed by later analysis or subsequent larger clinical trials. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

Even if preclinical and clinical trials are successful, we still may be unable to commercialize a product because of difficulties in obtaining regulatory approval for its production process or problems in scaling that process to commercial production. In addition, the regulatory requirements for product approval may not be explicit, may evolve over time and may diverge among jurisdictions and our third-party contractors, such as contract research organizations, may fail to comply with regulatory requirements or meet their contractual obligations to us.

Even if we are successful in our development and regulatory strategies, we cannot provide assurance that any products we may seek to develop or are currently developing, such as Inhaled AAT for AATD, will ever be successfully commercialized. We may not be able to successfully address patient needs, persuade physicians and payors of the benefit of our product, and lead to usage and reimbursement. If such products are not eventually commercialized, the significant expense and lack of associated revenue could materially adversely affect our business.

We may not be able to successfully build and implement a commercial organization or commercialization program, with or without collaborating partners.  The scale-up from research and development to commercialization requires significant time, resources, and expertise, which will rely, to a large extent, on third parties for assistance to help us in our efforts.  Such assistance includes, but is not limited to, persuading physicians and payors of the benefit of our product to lead to utilization and reimbursement, developing a healthcare compliance program, and complying with post-marketing regulatory requirements.

If we are unable to successfully introduce new products and indications or fail to keep pace with advances in technology, our business, financial condition and results of operations may be adversely affected.

We operate in highly innovative businesses. We currently rely on sales of Glassia for the treatment of AATD for a significant portion of our total revenues. However, our continued growth depends in large part on our ability to develop and obtain regulatory approvals of new products, new enhancements and/or new indications for our products and product candidates. Obtaining regulatory approval in any jurisdiction, including from the EMA or the FDA, involves significant uncertainty and may be time consuming and require significant expenditures. See “—Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.” We have experienced delays at various stages of obtaining regulatory approval in the past, and failure to obtain regulatory approval of the Inhaled AAT for AATD product or of any of our other product candidates or additional indications in a timely manner or at all would materially adversely impact our business prospects. For example, the Phase II/III clinical trial in Europe for Inhaled AAT for AATD did not meet its primary or other pre-defined endpoints and, following our discussions with the EMA in regards to the study results, in June 2017, we  withdrew the MAA in Europe for our Inhaled AAT for AATD. When we presented the data from the European Phase II/III study to the FDA, the agency expressed concerns and questions about that data, primarily related to the safety and efficacy of our Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on that data. The FDA’s questions and concerns will need to be resolved before the FDA will allow us to proceed with additional clinical development of Inhaled AAT in the United States, including our planned Phase III pivotal study. See also “—We may not be able to commercialize our product candidates in development for numerous reasons.”

The development of innovative products and technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness, involve significant technical and business risks. The success of new product offerings will depend on many factors, including our ability to properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely basis, demonstrate satisfactory clinical results, manufacture products in an economic and timely manner, engage qualified distributors for different territories and establish our sales force to sell our products, and differentiate our products from those of our competitors. If we cannot successfully introduce new products, adapt to changing technologies or anticipate changes in our current and potential customers’ requirements, our products may become obsolete and our business could suffer.

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Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.

We must invest increasingly significant resources to develop specialty products through our own efforts and through collaborations with third parties in the form of partnerships or otherwise. The development of specialty pharmaceutical products involves high-level processes and expertise and carries a significant risk of failure. For example, the average time from the pre-clinical phase to the commercial launch of a specialty pharmaceutical product can be 15 years or longer, and involves multiple stages: not only intensive preclinical and clinical testing, but also highly complex, lengthy and expensive regulatory approval processes, which can vary from country to country. The longer it takes to develop a pharmaceutical product, the longer it may take for us to recover our development costs and generate profits, and, depending on various factors, we may not be able to ever recover such costs or generate profits.

During each stage of development, we may encounter obstacles that delay the development process and increase expenses, leading to significant risks that we will not achieve our goals and may be forced to abandon a potential product in which we have invested substantial amounts of time and money. These obstacles may include the following: preclinical-study failures; difficulty in enrolling patients in clinical trials; delays in completing formulation and other work needed to support an application for approval; adverse reactions or other safety concerns arising during clinical testing; insufficient clinical trial data to support the safety or efficacy of a product candidate; other failures to obtain, or delays in obtaining, the required regulatory approvals for a product candidate or the facilities in which a product candidate is manufactured; regulatory restrictions which may delay or block market penetration and the failure to obtain sufficient intellectual property rights for our products.

Accordingly, there can be no assurance that the continued development of our IV AAT (Glassia) for the treatment of T1D, GvHD, lung transplantation rejection, organ preservation and recombinant AAT will be successful and will result in an FDA and/or EMA approvable indication.

Because of the amount of time and expense required to be invested in augmenting our pipeline of specialty and other products, including the unique know-how which may be required for such purpose, we may seek partnerships or joint ventures with third parties from time to time, and consequently face the risk that some or all of these third parties may fail to perform their obligations, or that the resulting arrangement may fail to produce the levels of success that we are relying on to meet our revenue and profit goals.

We rely on third parties to conduct our preclinical and clinical trials. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business because we may not obtain regulatory approval for, or commercialize, our product candidates in a timely manner or at all.

We rely upon third-party contractors, such as university researchers, physicians and contract research organizations (“CROs”), to conduct, monitor and manage data for our current and future preclinical and clinical programs. We expect to continue to rely on these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on such third-party contractors does not relieve us of our regulatory responsibilities. With respect to clinical trials, we and our CROs are required to comply with current Good Clinical Practices ("GCP"), which are regulations and guidelines enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements.

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These third-party contractors are not our employees, we cannot effectively control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs, and except for remedies available to us under our agreements with such third-party contractors, we may be unable to recover losses that result from any inadequate work on such programs. If such third-party contractors do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our development efforts and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of such third-party contractors in the future, our business may be adversely affected.

We may not obtain orphan drug status for our products, or we may lose orphan drug designations, which would have a material adverse effect on our business.

One of the incentives provided by an orphan drug designation is market exclusivity for seven years in the United States and ten years in the European Union for the first product in a class approved for the treatment of a rare disease. Although several of our products and product candidates, including Inhaled AAT for AATD, have been granted the designation of an orphan drug, we may not be the first product licensed for the treatment of particular rare diseases in the future or our approved indication may vary from that subject to the orphan designation. In such cases, then with limited exception, we would not be able to take advantage of market exclusivity and instead another sponsor would receive such exclusivity.

Additionally, although the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication, such exclusivity would not apply in the case that a subsequent sponsor could demonstrate clinical superiority or a market shortage occurs and would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug. In the event we are unable to fill demand for any orphan drug, it is possible that the FDA or the EMA may view such unmet demand as a market shortage, which could impact our market exclusivity.

The FDA and the EMA may also, in the future, revisit any orphan drug designation that they have respectively conferred upon a drug and retain the ability to withdraw the relevant designation at any time. Additionally, the U.S. Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of the market exclusivity of an orphan drug, and, thus, we cannot be sure that the benefits to us of the existing statute in the United States will remain in effect.

If we lose our orphan drug designations or fail to obtain such designations for our new products and product candidates, our ability to successfully market our products could be significantly affected, resulting in a material adverse effect on our business and results of operations.

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The commercial success of the products that we may develop, if any, will depend upon the degree of market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’ organizations and others in the medical community that any such product obtains.

Any products that we bring to the market may not gain market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’ organizations and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product revenue and we may not sustain profitability. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, some of which are beyond our control, including:

· the prevalence and severity of any side effects;

· the efficacy, potential advantages and timing of introduction to the market of alternative treatments;

· our ability to offer our product candidates for sale at competitive prices;

· relative convenience and ease of administration of our products;

· the willingness of physicians to prescribe our products;

· the willingness of patients to use our products;

· the strength of marketing and distribution support; and

· third-party coverage or reimbursement.

If we are not successful in achieving market acceptance for any new products that we have developed and that have been approved for commercial sale, we may be unable to recover the large investment we will have made and have committed ourselves to making in research and development efforts and our growth strategy will be adversely affected.

Each inhaled formulation of AAT, including Inhaled AAT for AATD, is being developed with a specific nebulizer produced by PARI, and the occurrence of an adverse market event or PARI’s non-compliance with its obligations would have a material adverse effect on the commercialization of any inhaled formulation of AAT.

We are dependent upon PARI GmbH ("PARI") for the commercialization of any inhaled formulation of AAT, including our second generation AATD product, Inhaled AAT for AATD. We have an agreement with PARI, pursuant to which it is required to obtain the appropriate clearance to market PARI’s proprietary eFlow® device, which is a device required for the administration of inhaled formulation of AAT, from the EMA and FDA for use with Inhaled AAT for AATD. See “Item 4. Information on the Company — Strategic Partnerships — PARI.” Failure of PARI to achieve these authorizations will have a material adverse effect on the commercialization of any inhaled formulation of AAT, including Inhaled AAT for AATD, which would harm our growth strategy.

Additionally, pursuant to the agreement, PARI is obligated to manufacture and supply all of the market demand for the eFlow device for use in conjunction with any inhaled formulation of AAT and we are required to purchase all of our volume requirements from PARI. Any event that permanently, or for an extended period, prevents PARI from supplying the required quantity of devices would have an adverse effect on the commercialization of any inhaled formulation of AAT, including Inhaled AAT for AATD.

Risks Related to Our Financial Position and Capital Resources

We have incurred significant losses since our inception and while we were profitable in the year ended December 31, 2018, we may incur losses in the future and thus may never achieve sustained profitability.

As of December 31, 2018, our cash and cash equivalents and short-term investments were $50.6 million. Since inception, we have incurred significant operating losses. Our net profit was $22.3 million and $6.9 million for the years ended December 31, 2018 and 2017, respectively, while for the year ended December 31, 2016 we incurred net losses of $6.7 million. As of December 31, 2018, we had an accumulated deficit of $83.0 million. There can be no assurance that we could continue to generate profitability in future years.

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Our business requires substantial capital, including potential investments in large capital projects, to operate and grow and to achieve our strategy of realizing increased operating leverage.

In order to obtain FDA, EMA and other regulatory approvals for product candidates and new indications for existing products, we may be required to enhance the facilities in which and processes by which we manufacture existing products, to develop new product delivery mechanisms for existing products, to develop innovative product additions and to conduct clinical trials. We face a number of obstacles that we will need to overcome in order to achieve our operating goals, including but not limited to the successful development of experimental products for use in clinical trials, the design of clinical study protocols acceptable to the FDA, the EMA and other regulatory authorities, the successful outcome of clinical trials, scaling our manufacturing processes to produce commercial quantities or successfully transition technology, obtaining FDA, EMA and other regulatory approvals of the resulting products or processes and successfully marketing an approved or new product with applicable new processes. To finance these various activities, we may need to incur future debt or issue additional equity. We may not be able to structure our debt obligations on favorable economic terms and any offering of additional equity would result in a dilution of the equity interests of our current shareholders. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.

In addition, any enhancements to our manufacturing facilities necessary to obtain FDA or EMA approval for product candidates or new indications for existing products could require large capital projects. We may also undertake such capital projects in order to maintain compliance with cGMP or expand capacity. Capital projects of this magnitude involve technology and project management risks. Technologies that have worked well in a laboratory or in a pilot plant may cost more or not perform as well, or at all, in full scale operations. Projects may run over budget or be delayed. We cannot be certain that any such project will be completed in a timely manner or that we will maintain our compliance with cGMP, and we may need to spend additional amounts to achieve compliance. Additionally, by the time multi-year projects are completed, market conditions may differ significantly from our initial assumptions regarding competitors, customer demand, alternative therapies, reimbursement and public policy, and as a result capital returns may not be realized. In addition, to fund large capital projects, we may similarly need to incur future debt or issue additional dilutive equity. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.

Our current working capital may not be sufficient to complete our research and development with respect to any or all of our pipeline products or to commercialize our products.

As of December 31, 2018, we had cash and short-term investments of approximately $50.6 million, compared to cash and short-term investments of approximately $43.0 million as of December 31, 2017.  Historically, we have funded our operations primarily through cash flow from operations (including sales of our proprietary products and distribution products), payments received in connection with strategic partnerships (including milestone payments from collaborating agreements), sales of ordinary shares (including our 2005 initial public offering and listing on the Tel Aviv Stock Exchange, our 2013 initial public offering in the United States and listing on Nasdaq and our 2017 underwritten public offering), and the issuance of convertible debentures, our ordinary shares and warrants to purchase our ordinary shares. We plan to fund our future operations through continued sale and distribution of our proprietary and distribution products, commercialization and or out-licensing of our pipeline product candidates, and raising additional capital through the sale of equity or debt. These amounts may not be sufficient to complete the research and development of all of our candidates, and there can be no assurances of the financial success of our commercialization activities or our ability to access the equity and debt capital markets on terms acceptable to us, if at all. To the extent we are unable to fund our research and development, our future product development activities could be materially adversely affected. 

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Raising additional capital would cause dilution to our existing shareholders, and raising debt or funds through collaborations or strategic alliances and licensing arrangements may restrict our operations or require us to relinquish rights.

We have filed a registration statement on Form F-3 with the U.S. Securities and Exchange Commission (“SEC”) utilizing a “shelf” registration process, and such shelf registration statement was declared effective on July 13, 2017. Under this shelf registration process, we may offer from time to time up to an aggregate of $100,000,000 of our ordinary shares in one or more offerings. Pursuant to such shelf registration statement, in August 2017, we issued an aggregate of 3,833,334 ordinary shares in an underwritten public offering (including the exercise of the over-allotment option). To the extent that we raise additional funds through the sale of equity or securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares or substantially similar securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us. The shelf registration statement will remain effective until July 2020.  If we do not file a new shelf registrationstatement prior to July 2020, the existing shelf registrationstatement will expire and we will not be able to publicly raise capital or issue debt until a new registration statement is filed and becomes effective. There can be no assurance that we will be eligible to file an automatically effective shelf registration statement at a future date when we may need to raise funds publicly.

Risks Related to Our Business and Industry

Product liability claims or product recalls involving our products, or products we distribute, could have a material adverse effect on our business.

Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution and sale of plasma-derived therapeutic protein products and other drug products. We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and an even greater risk when we commercially sell any products, including those manufactured by others that we distribute in Israel. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, or if the indemnities we have negotiated do not adequately cover losses, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

· decreased demand for our plasma-derived protein therapeutics and any product candidates that we may develop;

· injury to our reputation;

· difficulties in recruitment of new participants to our future clinical trials and withdrawal of current clinical trial participants;

· costs to defend the related litigation;

· substantial monetary awards to trial participants or patients;

· difficulties in finding distributors for our products;

· difficulties in entering into strategic partnerships with third parties;

· diversion of management’s attention;

· loss of revenue;

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· the inability to commercialize any products that we may develop; and

· higher insurance premiums.

Plasma is biological matter that is capable of transmitting viruses and pathogens, whether known or unknown. Therefore, plasma derivative products, if not properly tested, inactivated, processed, manufactured, stored and transported, could cause serious disease and possibly death to the patient. Further, even when such steps are properly effected, viral and other infections may escape detection using current testing methods and may not be susceptible to inactivation methods. Any transmission of disease through the use of one of our products or third-party products sold by us could result in claims against us by or on behalf of persons allegedly infected by such products.

In addition, we sell and distribute third-party products in Israel, and the laws of Israel could also expose us to product liability claims for those products. Furthermore, the presence of a defect (or a suspicion of a defect) in a product could require us to carry out a recall of such product. A product liability claim or a product recall could result in substantial financial losses, negative reputational repercussions, loss of business and an inability to retain customers. Although we maintain insurance for certain types of losses, claims made against our insurance policies could exceed our limits of coverage or be outside our scope of coverage. Additionally, as product liability insurance is expensive and can be difficult to obtain, a product liability claim could increase our required premiums or otherwise decrease our access to product liability insurance on acceptable terms. In turn, we may not be able to maintain insurance coverage at a reasonable cost and may not be able to obtain insurance coverage that will be adequate to satisfy liabilities that may arise.

Regulatory approval for our products is limited by the FDA and similar authorities in other jurisdictions to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely affect our business.

Any regulatory approval of our products is limited to those specific diseases and indications for which our products have been deemed safe and effective by the FDA or similar authorities in other jurisdictions. In addition to the regulatory approval required for new formulations, any new indication for an approved product also requires regulatory approval. Once we produce a plasma-derived protein therapeutic, we rely on physicians to prescribe and administer it as the product label directs and for the indications described on the labeling. To the extent any off-label (i.e., unapproved) uses and departures from the approved administration directions become pervasive and produce results such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition, off-label uses may cause a decline in our revenues or potential revenues, to the extent that there is a difference between the prices of our product for different indications.

Furthermore, while physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved by regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA or other regulators. Although regulatory authorities generally do not regulate the behavior of physicians, they do restrict communications by companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow FDA rules and guidelines relating to promotion and advertising can lead to other negative consequences that could hurt us, such as the suspension or withdrawal of an approved product from the market, enforcement letters, and corrective actions. Other regulatory authorities may impose separately penalties including, but not limited to, fines, disgorgement of money, operating restrictions, or criminal prosecution.

The loss of one or more of our key employees could harm our business.

We depend on the continued service and performance of our key employees, including Amir London, our Chief Executive Officer and our other senior management. We have entered into employment agreements with all of our senior management, including Mr. London, and other key employees. Either party, however, can terminate these agreements for any reason. The loss of key members of our executive management team could disrupt our operations or product development and have an adverse effect on our ability to grow our business.

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Our ability to attract, recruit, retain and develop qualified employees is critical to our success and growth.

We compete in a market that involves rapidly changing technological and regulatory developments that require a wide ranging set of expertise and intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number of our key personnel who have substantial experience with our operations, we must also develop and exercise our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive, and we may not succeed in recruiting additional experienced or professional personnel, retaining current personnel or effectively replacing current personnel who depart with qualified or effective successors. Many of the companies with which we compete for experienced personnel have greater resources than us.

Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. There can be no assurance that qualified employees will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with doing business globally.

Our operations are subject to risks inherent to conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. These risks include fluctuations in currency exchange rates, changes in exchange controls, loss of business in government and public tenders that are held annually in many cases, nationalization, expropriation and other governmental actions, availability of raw materials, changes in taxation, importation limitations, export control restrictions, changes in or violations of applicable laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010, pricing restrictions, economic and political instability, disputes between countries, diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including war, terrorism, riot, civil insurrection or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.

Laws and regulations governing the conduct of international operations may negatively impact our development, manufacture and sale of products outside of the United States and require us to develop and implement costly compliance programs.

We must comply with numerous laws and regulations in Israel and in each of the other jurisdictions in which we operate or plan to operate. The creation and implementation of any required compliance programs is costly, and the programs are often difficult to enforce, particularly where we must rely on third parties.

For example, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also requires companies whose securities are listed in the United States to comply with certain accounting provisions. For example, such companies must maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice, and the SEC is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA and similar laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Additionally, pharmaceutical products are usually marketed through government tenders, and the majority of pharmaceutical companies' clients are Health Maintenance Organizations (“HMOs”) which are foreign government officials under the FCPA.  Certain payments to hospitals in connection with clinical trials and other work, and certain payments to HMOs have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

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The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. Additionally, the SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

We are subject to foreign currency exchange risk.

We receive payment for our sales and make payments for resources in a number of different currencies. While our sales and expenses are primarily denominated in U.S. dollars, our financial results may be adversely affected by fluctuations in currency exchange rates as a portion of our sales and expenses are denominated in other currencies, including the NIS and the Euro. Market volatility and currency fluctuations may limit our ability to cost-effectively hedge against our foreign currency exposure and, in addition, our ability to hedge our exposure to currency fluctuations in certain emerging markets may be limited. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations and may involve costs and risks of their own, such as devotion of management time, external costs to implement the strategies and potential accounting implications. Foreign currency fluctuations, independent of the performance of our underlying business, could lead to materially adverse results or could lead to positive results that are not repeated in future periods.

Events in global credit markets may impact our ability to obtain financing or increase the cost of future financing, including interest rate fluctuations based on macroeconomic conditions that are beyond our control.

During periods of volatility and disruption in the U.S., European, or global credit markets, obtaining additional or replacement financing may be more difficult and the cost of issuing new debt could be higher than the costs we incur under our current debt. The higher cost of new debt may limit our ability to have cash on hand for working capital, capital expenditures and acquisitions on terms that are acceptable to us.

Developments in the economy may adversely impact our business.

Our operating and financial performance may be adversely affected by a variety of factors that influence the general economy in the United States, Europe and worldwide, including global and local economic slowdowns, challenges faced banks and the health of markets for the sovereign debt. Many of our largest markets, including the United States and Europe, previously experienced dramatic declines in the housing market, high levels of unemployment and underemployment, and reduced earnings, or, in some cases, losses, for businesses across many industries, with reduced investments in growth.

A recessionary economic environment may adversely affect demand for our plasma-derived protein therapeutics. As a result of job losses, patients in the U.S. may lose medical insurance and be unable to purchase needed medical products or may be unable to pay their share of deductibles or co-payments. Hospitals may steer patients adversely affected by the economy to less costly therapies, resulting in a reduction in demand, or demand may shift to public health hospitals, which purchase our products at a lower government price. A recessionary economic environment may also lead to price pressure for reimbursement of new drugs, which may adversely affect the demand for our future plasma-derived protein therapeutics.

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If our manufacturing facility in Beit Kama, Israel were to suffer a serious accident, contamination, force majeure event materially affecting our ability to operate and produce saleable plasma-derived protein therapeutics, all of our manufacturing capacity could be shut down for an extended period.

We rely on a single manufacturing facility in Beit Kama, which is located in southern Israel, approximately 20 miles from the Gaza Strip. All of our revenues in our Proprietary Products segment are derived from products manufactured at this facility and some of the products that are imported by us under our Distribution segment, are packed and stored in this manufacturing facility. If this facility were to suffer an accident or a force majeure event such as war, terrorist attack, earthquake, major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of our backup generators or similar event, or contamination, our revenues would be materially adversely affected. In this situation, our manufacturing capacity could be shut down for an extended period, we could experience a loss of raw materials, work in process or finished goods and imported products inventory and our ability to operate our business would be harmed. In addition, in any such event, the reconstruction of our manufacturing facility and storage facilities, and the regulatory approval of the new facilities could be time-consuming. During this period, we would be unable to manufacture our plasma-derived protein therapeutics.

Our insurance against property damage and business interruption insurance may be insufficient to mitigate the losses from any such accident or force majeure event. We may also be unable to recover the value of the lost plasma or work-in-process inventories, as well as the sales opportunities from the products we would be unable to produce or distribute, or the loss of customers during such period.

Failure to adequately or timely adapt our manufacturing capacity to match changes in demand for our manufactured products and/or continued manufacturing at or close to our plants maximum capacity may have a material adverse effect on our business.

As our product offerings in our Proprietary Products segment is predicted to increase until 2020, until such date we will be required to produce in higher volumes compare to previous years.  A failure to increase our manufacturing volume as needed or continued manufacturing at or close to our plants maximum capacity levels may lead to an inability to supply products, may have an adverse effect on our business and could cause substantial harm to our business reputation and result in breach of our sales agreements and the loss of future customers and orders.

After 2020, Takeda has no obligation to purchase a minimum amount of Glassia, and we estimate that Takeda will begin selling Glassia produced in its own manufacturing facility as early as 2021 and only paying us royalties. As Takeda transitions to producing Glassia in its own facilities, we will incur a substantial reduction in revenues (as well as costs of goods sold) driven by the reduction in Glassia manufacturing. Our revenues will decrease and our operating results may be materially and adversely impacted if we are unable to reduce fixed costs relating to our manufacturing facility in line with any reduction in demand.

If we experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.

For certain equipment and supplies, we depend on a limited number of companies that supply and maintain our equipment and provide supplies such as chromatography resins, filter media, glass bottles and stoppers used in the manufacture of our plasma-derived protein therapeutics. If our equipment were to malfunction, or if our suppliers stop manufacturing or supplying such machinery, equipment or any key component parts, the repair or replacement of the machinery may require substantial time and cost, and could disrupt our production and other operations. Alternative sources for key component parts or disposable goods may not be immediately available. In addition, any new equipment or change in supplied materials may require revalidation by us or review and approval by the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities, which may be time-consuming and require additional capital and other resources. We may not be able to find an adequate alternative supplier in a reasonable time period, or on commercially acceptable terms, if at all. As a result, shipments of affected products may be limited or delayed. Our inability to obtain our key source supplies for the manufacture of products may require us to delay shipments of products, harm customer relationships and force us to curtail operations.

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If our shipping or distribution channels were to become inaccessible due to an accident, act of terrorism, strike or any other force majeure event, our supply, production and distribution processes could be disrupted.

Our plasma raw materials must be transported at a temperature of -20 degrees Celsius (-4 degrees Fahrenheit) to ensure the preservation of their proteins. Not all shipping or distribution channels are equipped to transport plasma at these temperatures. If any of our shipping or distribution channels become inaccessible because of a serious accident, act of terrorism, strike or any other force majeure event, we may experience disruptions in our continued supply of plasma and other raw materials, delays in our production process or a reduction in our ability to distribute our plasma-derived protein therapeutics to our customers.

A breakdown in our information technology (IT) systems could result in a significant disruption to our business.

Our operations are highly dependent on our information technology (IT) systems. If we were to suffer a breakdown in our systems, storage, distribution or tracing, we could experience significant disruptions affecting all our areas of activity, including our manufacturing, research, accounting and billing processes and potentially cause disruptions to our manufacturing process for products currently in production. We may also suffer from partial loss of information and data due to such disruption.

Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability due to lost revenues resulting from the unauthorized use or theft of sensitive business information, remediation costs, and litigation risks including potential regulatory action by governmental authorities.  In addition, any such disruption, security breach or other incident could delay the further development of our future product candidates due to theft or corruption of our proprietary data or other loss of information.  Our business and operations could also be harmed by any reputational damage with customers, investors or third parties with whom we work, and our competitive position could be adversely impacted.

Uncertainty surrounding and future changes to healthcare law in the United States may adversely affect our business.

The healthcare regulatory environment in the U.S. is currently subject to significant uncertainty and the industry may in the future continue to experience fundamental change as a result of regulatory reform. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “healthcare reform law”), a sweeping measure intended to expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. The healthcare reform law, among other things: (i) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) established annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expands the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. On April 1, 2016, final regulations issued by the Centers for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program under the healthcare reform law became effective.  In addition, the new law established an abbreviated licensure pathway for products that are drugs made by a living organism or derived from a living organism, commonly referred to as biosimilars, to become FDA-approved biological products, with provisions covering exclusivity periods and a specific reimbursement methodology for biosimilars.

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However, some provisions of the healthcare reform law have yet to be fully implemented, and President Donald Trump has vowed to repeal the healthcare reform law. On January 20, 2017, President Trump signed an executive order stating that the administration intended to seek prompt repeal of the healthcare reform law, and, pending repeal, directed the U.S. Department of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal or regulatory burdens of the healthcare reform law. On October 12, 2017, President Trump signed another executive order directing certain federal agencies to propose regulations or guidelines to permit small businesses to form association health plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance mandated by the healthcare reform law. The U.S. Congress has also made several attempts to repeal or modify the healthcare reform law.  In addition, there is ongoing litigation regarding the implementation and constitutionality of the healthcare reform law.  While the law is still in effect pending the ultimate resolution of the litigation, the outcome of the litigation is unknown, and cannot be predicted. There is no guarantee whether the healthcare reform law will remain in effect or be repealed or replaced. In the coming years, additional changes could be made to U.S. governmental healthcare programs and U.S. healthcare laws that could significantly impact the success of our products. We cannot predict what other legislation relating to our business or to the health care industry may be enacted, or what effect such legislation may have on our business, prospects, operating results and financial condition.

In addition, federal, state and foreign governmental authorities are likely to continue efforts to control the price of drugs and reduce overall healthcare costs. These efforts could have an adverse impact on our ability to market products and generate revenues in the United States and foreign countries.

Certain of our business practices could become subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure to comply with applicable law or an adverse decision in lawsuits may result in adverse consequences to us.

The laws governing our conduct in the United States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the Federal Food, Drug and Cosmetic Act (the “FDCA”), the Federal False Claims Act (the “FCA”), the Public Health Service Act (the “PHS Act”), the Physician Payments Sunshine Act or a provision of the U.S. Social Security Act known as the “Anti-Kickback Law,” or any regulations promulgated under their authority may result in jail sentences, fines or exclusion from federal and state health care programs, as may be determined by the Department of Health and Human Services, the Department of Defense, other federal and state regulatory authorities and the federal and state courts. There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities or that our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws.

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For example, under the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, can result in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs, if those business arrangements are not appropriately structured; therefore, our arrangements with referral sources must be structured with care to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products for uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits and reported in accordance with the Physician Payments Sunshine Act to avoid any possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or as a reward for past prescribing. Significant enforcement activity has been the result of actions brought by relators, who file complaints in the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes and can be entitled to receive a significant portion (often as great as 30%) of total recoveries. Also, violations of the False Claims Act can result in treble damages, and each false claim submitted can be subject to a penalty of up to $22,363 per claim. Through the Physician Payments Sunshine Act, the healthcare reform law imposes reporting and disclosure requirements for pharmaceutical and medical device manufacturers with regard to a broad range of payments, ownership interests, and other transfers of value made to certain U.S. physicians and teaching hospitals. A number of states have similar laws in place and often require reporting for other categories of healthcare professionals, such as nurses. Additional and stricter prohibitions could be implemented by federal and state authorities. On the other hand, as President Trump has vowed to repeal the healthcare reform law, it is uncertain whether such data collection obligations would be repealed or replaced with new regulations. Where practices have been found to involve improper incentives to use products, government investigations and assessments of penalties against manufacturers have resulted in substantial damages and fines. Many manufacturers have been required to enter into consent decrees, corporate integrity agreements, or orders that prescribe allowable corporate conduct. Failure to satisfy requirements under the FDCA can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe allowable corporate conduct.

To market and sell our products outside the United States, we must obtain and maintain regulatory approvals and comply with regulatory requirements in such jurisdictions. The approval procedures vary among countries in complexity and timing. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all, and in such case, we would be precluded from commercializing products in those markets. In addition, some countries, particularly the countries of the European Union, regulate the pricing of prescription pharmaceuticals. In these countries, pricing discussions with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. Such trials may be time-consuming and expensive and may not show an advantage in cost-efficacy for our products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected. Also, under the FCPA, the United States has regulated conduct by U.S. businesses occurring outside of the United States, generally prohibiting remuneration to foreign officials for the purpose of obtaining or retaining business.

To enhance compliance with applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as the Department of Health and Human Services’ Office of Inspector General (“OIG”), have recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based pharmaceutical companies have such programs. We have not adopted U.S. healthcare compliance and ethics programs that generally incorporate the HHS OIG’s recommendations. Even if we do, having such a program can be no assurance that we will avoid any compliance issues.

We could be adversely affected if other government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements for reimbursement for the purchasers of our products.

Prices in many of our principal markets are subject to local regulation and certain pharmaceutical products, such as plasma-derived protein therapeutics, are subject to price controls. In the United States, where pricing levels for our products are substantially established by third-party payors, a reduction in the payors’ amount of reimbursement for a product may cause groups or individuals dispensing the product to discontinue administration of the product, to administer lower doses, to substitute lower cost products or to seek additional price-related concessions. These actions could have a negative effect on our financial results, particularly in cases where our products command a premium price in the marketplace or where changes in reimbursement rates induce a shift in the site of treatment. The existence of direct and indirect price controls and pressures over our products has affected, and may continue to materially adversely affect, our ability to maintain or increase gross margins.

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Also, the intended use of a drug product by a physician can affect pricing. Physicians frequently prescribe legally available therapies for uses that are not described in the product’s labeling and that differ from those tested in clinical studies and approved by the FDA or similar regulatory authorities in other countries. These off-label uses are common across medical specialties, and physicians may believe such off-label uses constitute the preferred treatment or treatment of last resort for many patients in varied circumstances. Reimbursement for such off-label uses is often not allowed by government payors. If reimbursement for off-label uses of products is not allowed by Medicare or other third-party payors, including those in the United States or the European Union, we could be adversely affected. For example, CMS could initiate an administrative procedure known as a National Coverage Determination (“NCD”), by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain.

Current and future accounting pronouncements and other financial reporting standards, especially but not only concerning revenue recognition, might negatively impact our financial results.

We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards (including the new IFRS 15 on revenue from contracts with customers that we adopted in 2018) and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, to alter our operational policies so that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes might have an adverse effect on our reputation, business, financial position, and profit, or cause an adverse deviation from our revenue and operating profit target.

We are subject to extensive environmental, health and safety, and other laws and regulations.

Our business involves the controlled use of hazardous materials, various biological compounds and chemicals. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents. We are subject to future audits by the Environmental Health Department of the Regional Health Bureau of the IMOH and the Ministry of Environmental Protection of Israel and may be required to perform certain actions from time to time in order to comply with these guidelines and their requirements. We do not expect the costs of complying with these guidelines to be material to our business. See “Item 4. Information on the Company — Environmental.”

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Under the Israeli Economic Competition Law, 5758-1988, as amended (the “Competition Law”), a company that supplies or acquires more than 50% of any product or service in Israel in a relevant market may be deemed to be a monopoly. In addition, any company that has “significant market power” (within the meaning of the Competition Law), even if it does not hold market share that is greater than 50%, shall be deemed to be a monopolist under the Competition Law. A monopolist is prohibited from participating in certain business practices, including unreasonably refusing to sell products or provide services over which a monopoly exists, charging unfair prices for such products or services, and abusing its position in the market in a manner that might reduce business competition or harm the public. In addition, the General Director of the Israeli Competition Authority may determine that a company is a monopoly and has the right to order such company to change its conduct in matters that may adversely affect business competition or the public, including by imposing restrictions on its conduct. Depending on the analysis and the definition of the relevant product markets in which we operate, we may be deemed to be a “monopoly” under the Competition Law with respect to certain of our products. Furthermore, following an amendment to the Competition Law that became effective in August 2015, which repealed the statutory exemption that existed under the Competition Law for restrictive arrangements that were mutually exclusive arrangements, we may face difficulties in certain cases negotiating new distribution agreements with foreign pharmaceutical manufacturers and may need to amend previously executed agreements or seek a specific exemption from the Israeli Competition Authority for such arrangements, and we may not be successful in negotiating such new agreements or amending such agreements or receiving such exemptions.

We have entered into a collective bargaining agreement with the employees’ committee and the Histadrut (General Federation of Labor in Israel), and we have incurred and could in the future incur labor costs or experience work stoppages or labor strikes as a result of any disputes in connection with such agreement.

In December 2013, we signed a collective bargaining agreement with the employees’ committee established by our employees at our Beit Kama production facility in Israel and the Histadrut (General Federation of Labor in Israel) (“Histadrut”), which expired in December 2017. In November 2018, we signed a new collective bargaining agreement with the employees’ committee and the Histadrut, which will expire in December 2021. We have experienced labor disputes and work stoppages in the past and in July 2018, during the course of our negotiations with the Histadrut and the employees’ committee on the extension of the initial collective bargaining agreement beyond the December 2017 expiration, the employee’s committee commenced a labor strike, which continued for approximately one month. As a result of the labor strike, in the year ended December 31, 2018, we had a $1.8 million write-off of indirect manufacturing costs and $0.8 million of process materials scraps.  Any future disputes with the committee and the Histadrut over the implementation or the interpretation or the renewal of the collective bargaining agreement may lead to additional labor costs and/or work stoppages, which could adversely affect our business operations, including through a loss of revenue and strained relationships with customers.

Tax legislation in the United States may impact our business.

On December 22, 2017, the U.S. President signed into law federal tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act provides for significant and wide-ranging changes to the U.S. Internal Revenue Code. The reforms are complex, and it will take some time to assess the implications thoroughly. While we are not currently a U.S. tax filer there can be no assurance that these tax reforms will not give rise to significant consequences, both immediately and going forward in terms of the our taxation expense. The Tax Cuts and Jobs Act could be subject to potential amendments and technical corrections, any of which could lessen or increase adverse impacts of the law.

Risks Related to Intellectual Property

Our success depends in part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property relating to or incorporated into our technology and products, including the patents protecting our manufacturing process.

Our success depends in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products, especially intellectual property related to our manufacturing processes. At present, we consider our patents relating to our manufacturing process to be material to the operation of our business as a whole.

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However, the patent landscape in the biotechnology and pharmaceutical fields is highly complicated and uncertain and involves complex legal, factual and scientific questions. Changes in either patent laws or in the interpretation of patent laws in the United States and other countries may diminish the value and strength of our intellectual property or narrow the scope of our patent protection. In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or products or enforce our patents due to lack of information about the exact use of our processes by third parties. Even if patents are issued to us or to our licensors, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to prevent competitors from using similar technology or marketing similar products, or limit the length of time our technologies and products have patent protection. Additionally, many of our patents relate to the processes we use to produce our products, not to the products themselves. In many cases, the plasma-derived products we produce or develop in the future will not, in and of themselves, be patentable. Since many of our patents relate to processes or uses thereof , if a competitor is able to utilize a process that does not rely on our protected intellectual property, that competitor could sell a plasma-derived product similar to one we have developed or sell it without infringing these patents.

Patent rights are territorial; thus, any patent protections we have will only be enforceable in those countries in which we have secured patents. In addition, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that do not recognize or provide enforcement mechanisms for our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications or which claims of granted patents, if any, will be deemed enforceable in a court of law.

Due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may sell or market, any patents that protect our therapeutic candidates or any product we may sell or market may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline in market share and profits.

In some cases we may rely on our licensors or partners to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in our therapeutic candidates and potential approved for marketing products. Any failure by our licensors or development or commercialization partners to properly conduct patent prosecution, maintenance, enforcement, or defense could materially harm our ability to obtain suitable patent protection covering our therapeutic candidates or products or ensure freedom to commercialize the products in view of third-party patent rights, thereby materially reducing our potential profits.

Our patents also may not afford us protection against competitors or other third parties with similar technology. Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after their filing, if at all, and because publications of discoveries in scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our or their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in such patent applications. As a result, the patents we own and license may be invalidated in the future, and the patent applications we own and license may not be granted. For example, if a third party has also filed a patent application covering an invention similar to one covered in one of our patent applications, we may be required to participate in an adversarial proceeding, known as an “interference proceeding,” declared by the U.S. Patent and Trademark Office (“USPTO”) or its foreign counterparts to determine priority of invention. In 2012, the Leahy-Smith America Invents Act (“AIA”) created a new legal proceeding, the inter partes review petition, that allows third parties to challenge the validity of patents before the Patent Trials and Appeals Board.

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The costs of these proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated patent position. In addition, if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing technology or marketing products covered by that patent. Additionally, patents and patent applications owned by third parties may prevent us from pursuing certain opportunities such as entering into specific markets or developing or commercializing certain products or reduce the cost effectiveness of the relevant business as a result of needing to make royalty payments or other business conciliations. Finally, we may choose to enter into markets where certain competitors have patents or patent protection over technology that may impede our ability to compete effectively.

Our patents expire at various dates between 2019 and 2029. However, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting advantages of the patent. Our pending and future patent applications may not lead to the issuance of patents or, if issued, the patents may not be issued in a form that will provide us with any competitive advantage. We also cannot guarantee that: any of our present or future patents or patent claims or other intellectual property rights will not lapse or be invalidated, circumvented, challenged or abandoned; our intellectual property rights will provide competitive advantages or prevent competitors from making or selling competing products; our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; any of our pending or future patent applications will be issued or have the coverage originally sought; our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments. In addition, our competitors or others may design around our patents or protected technologies. Effective protection of our intellectual property rights may also be unavailable, limited or not applied in some countries, and even if available, we may fail to pursue or obtain necessary intellectual property protection in such countries. In addition, the legal systems of certain countries do not favor the aggressive enforcement of patents and other intellectual property rights, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. In order to preserve and enforce our patent and other intellectual property rights, we may need to make claims, apply certain patent or other regulatory procedures or file lawsuits against third parties. Such proceedings could entail significant costs to us and divert our management’s attention from developing and commercializing our products. Lawsuits may ultimately be unsuccessful, and may also subject us to counterclaims and cause our intellectual property rights to be challenged, narrowed, invalidated or held to be unenforceable.

Additionally, unauthorized use of our intellectual property may have occurred or may occur in the future, including, for example, in the production of counterfeit versions of our products. Counterfeit products may use different and possibly contaminated sources of plasma and other raw materials, and the purification process involved in the manufacture of counterfeit products may raise additional safety concerns, over which we have no control. Although we have taken steps to minimize the risk of unauthorized uses of our intellectual property, including for the production of counterfeit products, any failure to identify unauthorized use of, and otherwise adequately protect, our intellectual property could adversely affect our business, including reducing the demand for our products. Additionally, any reported adverse events involving counterfeit products that purported to be our products could harm our reputation and the sale of our products in particular and consumer willingness to use plasma-derived therapeutics in general. Moreover, if we are required to commence litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time-consuming, force us to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn, result in lower revenue and higher expenses.

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In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.

We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services, material transfer agreements or employment agreements that contain non-disclosure and non-use provisions, as well as ownership provisions, with our employees, consultants, service providers, contractors, scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our third-party manufacturers, suppliers, other third parties which are granted with license to use our know-how and former employees and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, service providers, contractors, scientific advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets.

We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights. See-"Our business and operations would suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures."

Changes in either U.S. or foreign patent law or in the interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products.

Our success, like the success of many other biotechnology companies, is heavily dependent on intellectual property and on patents in particular. The procurement and enforcement of patents in the biotechnology industry is complex from a technological and legal standpoint, and the process is therefore costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the AIA was signed into law. The AIA included a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application with the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. As a result of this change of law, if we do not promptly file a patent application at the time of a new product’s invention, and if a third party subsequently invented and patented such product, we would lose our right to patent such invention.

The AIA also introduced new limitations on where a patentee may file a patent infringement suit and new opportunities for third parties to challenge any issued patent in the USPTO. Such changes apply to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in U.S. federal court, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the U.S. Congress, federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents and enforce our existing and future patents.

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If we are unable to protect our trademarks from infringement, our business prospects may be harmed.

We own trademarks that identify certain of our products, our business name and our logo, and have registered these trademarks in certain key markets. Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition, our enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate remedy. Even if trademarks are issued to us or to our licensors, they may be challenged, narrowed, cancelled, held to be unenforceable or circumvented.

We may be subject to claims that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties.

The conduct of our business, our products or product candidates may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights. For example, certain of our competitors and other third parties own patents and patent applications in areas relating to critical aspects of our business and technology, including the separation and purification of proteins, the composition of AAT and the use of AAT for different indications, and these competitors may in the future allege that we are infringing on their patent rights. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us or our strategic partners that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if such a claim were brought against us or our strategic partners, we or they could be forced to permanently or temporarily stop or delay manufacturing, exportation or sales of the product or product candidate that is the subject of the dispute or suit.

In addition, we are a party to certain license agreements that may impose various obligations upon us as a licensee, including the obligation to bear the cost of maintaining the patents subject to the license and to make milestone and royalty payments. If we fail to comply with these obligations, the licensor may terminate the license, in which event we might not be able to market any product that is covered by the licensed intellectual property.

If we are found to be infringing, misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in order to avoid or settle claims, we or our strategic partners may choose or be required to seek a license, execute cross-licenses or enter into a covenant not to sue agreement from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we or our strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened claims, we or our strategic partners are unable to enter into licenses on acceptable terms.

There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition, to the extent that we gain greater visibility and market exposure as a public company in the United States, we face a greater risk of being involved in such litigation. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, opposition, cancellation, re-examination and similar proceedings before the USPTO and its foreign counterparts and other regulatory authorities, regarding intellectual property rights with respect to our products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace or to conduct our business in accordance with our plans and budget, and patent litigation and other proceedings may also absorb significant management time.

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Some of our employees, consultants and service providers, were previously employed or hired at universities, medical institutes, or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. While we take steps to prevent them from using the proprietary information or know-how of others in their work for us, we may be subject to claims that we or they have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer or former ordering service or that they have breached certain non-compete obligations to their former employers. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.

Risks Related to Our Ordinary Shares

The requirements of being a public company in the United States, as well as in Israel, may strain our resources and distract our management, which could make it difficult to manage our business and could have a negative effect on our results of operations and financial condition.

As a public company whose shares are being traded in the United States, as well as in Israel, we are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory requirements is time consuming, and may result in increased costs to us and could have a negative effect on our business, results of operations and financial condition. As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”). These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports, and file or make public certain additional information, with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, as our business changes and if we expand either through acquisitions or by means of organic growth, our internal controls may become more complex and we will require significantly more resources to ensure our internal controls remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could adversely affect out operating results or cause us to fail to meet our reporting obligations. If we identify material weaknesses, the disclosure of that fact, even if quickly remediated, could reduce the market’s confidence in our financial statements and negatively affect our share price.

Additionally, as of December 31, 2018, we were no longer an “emerging growth company,” as defined in the JOBS Act, and are now required to comply with additional disclosure and reporting requirements, including, but not limited to, being required to comply with the auditor attestation requirements of Section 404 of SOX (and the rules and regulations of the SEC thereunder). These additional reporting requirements may increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to these public company requirements.

Our share price may be volatile.

The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some of which are beyond our control. These factors include:

· actual or anticipated fluctuations in our financial condition and operating results;

· overall conditions in the specialty pharmaceuticals market;

· loss of significant customers or changes to agreements with our strategic partners;

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· changes in laws or regulations applicable to our products;

· actual or anticipated changes in our growth rate relative to our competitors’;

· announcements of clinical trial results, technological innovations, significant acquisitions, strategic alliances, joint ventures or capital commitments by us or our competitors;

· changes in key personnel;

· fluctuations in the valuation of companies perceived by investors to be comparable to us;

· the issuance of new or updated research reports by securities analysts;

· disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property protection for our technologies;

· announcement of, or expectation of, additional financing efforts;

· sales of our ordinary shares by us or our shareholders, including pursuant to the registration statement on Form F-3 that we filed in November 2016;

· share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

· recalls and/or adverse events associated with our products;

· the expiration of contractual lock-up agreements with our executive officers and directors; and

· general political, economic and market conditions.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. Broad market and industry fluctuations, as well as general economic, political and market conditions, may negatively impact the market price of our ordinary shares.

In the past, companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation or derivative actions. We, as well as our directors and officers, may also be the target of these types of litigation and actions in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If equity research analysts issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. The price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Future sales of our ordinary shares in the public market could cause our share price to fall.

Sales by us or the shareholders of a substantial number of our ordinary shares in the public market, either on the Tel Aviv Stock Exchange (the “TASE”) or Nasdaq, or the perception that these sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. As of December 31, 2018, we had 40,295,078 ordinary shares outstanding.

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We have filed a registration statement on Form F-3 with the SEC utilizing a “shelf” registration process, and such shelf registration statement was declared effective on July 13, 2017. Under this shelf registration process, we may offer from time to time up to an aggregate of $100,000,000 of our ordinary shares in one or more offerings. In August 2017, pursuant to such shelf registration statement, we completed an underwritten public offering of an aggregate of 3,833,334 ordinary shares (including the exercise of the over-allotment option) for total gross proceeds of approximately $17.3 million. The shelf registration statement will remain effective until July 2020.

Furthermore, except for shares held by our affiliates as contemplated by Rule 144 under the U.S. Securities Act of 1933, as amended (the “Securities Act”), all of the ordinary shares that are outstanding as of December 31, 2018, as well as the 2,445,597 ordinary shares issuable upon exercise of outstanding options and the 139,706 restricted shares granted to certain managers , are freely tradable in the United States without restrictions or further registration under the Securities Act. Approximately 28% of our outstanding ordinary shares are beneficially owned by affiliates. These entities could resell the shares into the public markets in the United States in the future in accordance with the requirements of Rule 144, which include certain limitations on volume.

The significant share ownership positions of Leon Recanati, the current Chairman of our board of directors, and the Hahn family may limit our shareholders’ ability to influence corporate matters.

Leon Recanati, the Chairman of our board of directors, and the Hahn family (including Jonathan Hahn, a member of our board of directors), owned, directly and indirectly, 9.98% and 9.11% of our outstanding ordinary shares, respectively, as of December 31, 2018. Accordingly, if Leon Recanati and the Hahn family vote the shares that they own or control together, they will be able to significantly influence the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of our company. Their interests may not be consistent with those of our other shareholders. In addition, these parties’ significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our shares. On March 6, 2013, a shareholders agreement was entered into, effective March 4, 2013, pursuant to which Mr. Recanati and any company controlled by him (collectively, the “Recanati Group”), on the one hand, and Damar Chemicals Inc. (“Damar”), TUTEUR S.A.C.I.F.I.A (“Tuteur”) (companies controlled by the Hahn family) and their affiliates (collectively, the “Damar Group”), on the other hand, have each agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated by the other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of our outstanding share capital, and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but less than 5.0%) of our outstanding share capital. In addition, to the extent that after the designation of the foregoing director nominees there are additional director vacancies, each of the Recanati Group and Damar Group have agreed to vote the ordinary shares beneficially owned by them in favor of such additional director nominees designated by the party who beneficially owns the larger voting rights in our company. We are not party to such agreement or bound by its terms.

Our ordinary shares are traded on more than one market and this may result in price variations.

Our ordinary shares have been traded on the TASE since August 2005, and on Nasdaq since May 2013. Trading in our ordinary shares on these markets takes place in different currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (as a result of different time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price of our ordinary shares on Nasdaq, and a decrease in the price of our ordinary shares on Nasdaq could likewise cause a decrease in the trading price of our ordinary shares on the TASE.

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Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation”), and having interest charges apply to distributions by us and the proceeds of share sales. See “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation.”

We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

We are a foreign private issuer and, as a result, are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and/or less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we are still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

As we are a “foreign private issuer” and follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq corporate governance requirements, our shareholders may not have the same protections afforded to shareholders of domestic U.S. issuers that are subject to all SEC and Nasdaq corporate governance requirements.

As a foreign private issuer, we have the option to, and we do, follow Israeli corporate governance practices rather than certain corporate governance requirements of Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the home country practices we follow instead. We have relied on this “foreign private issuer exemption” with respect to all the items listed under the heading “Item 16G. Corporate Governance,” including with respect to shareholder approval requirements in respect of equity issuances and equity-based compensation plans, the requirement to have independent oversight on our director nominations process and to adopt a formal written charter or board resolution addressing the nominations process, the quorum requirement for meetings of our shareholders and the Nasdaq requirement to have a formal charter for the compensation committee. We may in the future elect to follow home country practices in Israel with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements. See “Item 16G. Corporate Governance.”

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We have never paid cash dividends on our ordinary shares and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in our ordinary shares will likely depend on whether the price of our ordinary shares increases, which may not occur.

We have never declared or paid any cash dividends on our ordinary shares and do not intend to pay any cash dividends. Any agreements that we may enter into in the future may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Risks Relating to Our Incorporation and Location in Israel

Conditions in Israel could adversely affect our business.

We are incorporated under Israeli law and our principal offices and manufacturing facilities are located in Israel. Accordingly, political, economic and military conditions in Israel directly affect our business. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority, there has been terrorist activity with varying levels of severity over the years. During July and August 2014, Israel engaged in an armed conflict with Hamas in the Gaza Strip, resulting in thousands of rockets being fired from the Gaza Strip and missile strikes against civilian targets in various parts of Israel, which disrupted most day-to-day civilian activity, particularly in southern Israel, the location of our manufacturing facility. In the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export our supplies and products, our ability to manufacture and deliver products to customers could be materially adversely affected. Additionally, the operations of our Israeli suppliers and contractors may be disrupted as a result of hostile action or hostilities, in which event our ability to deliver products to customers may be materially adversely affected.

Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit materially our ability to obtain raw materials from these countries or sell our products to companies in these countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our sales to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us.

Our operations may be disrupted by the obligations of personnel to perform military service.

As of December 31, 2018, we had 408 employees, all of whom were based in Israel. Certain of our employees may be called upon to perform up to 36 days (and in some cases more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45 or older) and, in emergency circumstances, could be called to active duty. In response to increased tension and hostilities, there have been since September 2000 occasional call-ups of military reservists, including in connection with the conflicts with Hamas in July and August 2014, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees related to their, or their spouse’s, military service or the absence for extended periods of one or more of our key employees for military service. Such disruption could materially adversely affect our business and results of operations. Additionally, the absence of a significant number of the employees of our Israeli suppliers and contractors related to military service or the absence for extended periods of one or more of their key employees for military service may disrupt their operations, in which event our ability to deliver products to customers may be materially adversely affected. The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

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The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs and taxes.

One of our Israeli facilities was granted “Approved Enterprise” status by the Investment Center of the Ministry of Economy and Industry (formerly named the Ministry of Industry, Trade and Labor) of the State of Israel (the “Investment Center”), under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), which made us eligible for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which will apply to the turnover resulting from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017.

Additionally, we have obtained a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,” as defined in the Investment Law, and is also eligible for tax benefits as a “Privileged Enterprise,” which will apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end of 2020 and 2023.

In order to remain eligible for the tax benefits of a Privileged Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and must also comply with the conditions set forth in the tax ruling. These conditions include, among other things, that the production, directly or through subcontractors, of all our products should be performed within certain regions of Israel. If we do not meet these requirements, the tax benefits would be reduced or canceled and we could be required to refund any tax benefits that we received in the past, in whole or in part, linked to the Israeli consumer price index, together with interest. Further, these tax benefits may be reduced or discontinued in the future. For example, while we do not expect that the transfer of manufacturing of Glassia to Takeda, or the grant to Takeda of the right to use our technology for such manufacturing, would result in the reduction or loss of these tax benefits, according to the tax ruling that we obtained, we may lose those benefits if it is determined that we do not comply with the conditions set forth in the tax ruling.  If these tax benefits are canceled, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies was 26.5% for 2014 and 2015, it decreased to 25% in 2016 and 24% in 2017, and further decreased to 23% in 2018 and thereafter. For more information about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations and Government Programs.”

In the future, we may not be eligible to receive additional tax benefits under the Investment Law if we increase certain of our activities outside of Israel. Additionally, in the event of a distribution of a dividend from the abovementioned tax exempt income, in addition to withholding tax at a rate of 20% (or a reduced rate under an applicable double tax treaty), we will be subject to tax on the otherwise exempt income (grossed-up to reflect the pre-tax income that we would have had to earn in order to distribute the dividend) at the corporate tax rate applicable to our Approved/Privileged Enterprise’s income, which would have been applied had we not enjoyed the exemption. Similarly, in the event of our liquidation or a share buyback, we will be subject to tax on the grossed up amount distributed or paid at the corporate tax rate which would have been applied to our Privileged Enterprise’s income had we not enjoyed the exemption. For more information about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations and Government Programs.”

It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.

We are incorporated in Israel. Most of our directors and executives officers and the Israeli experts named in this Annual Report reside outside the United States. The majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.

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Your rights and responsibilities as our shareholder are 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.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital, a merger of the company 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 who has the power to appoint or prevent the appointment of an office holder in the company or has other powers towards the company, has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See “Item 6. Directors, Senior Management and Employees — Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law — Duties of Shareholders.” There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.

Provisions of Israeli law and our articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.

Certain provisions of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a public company are purchased. Under our articles of association, a merger shall require the approval of two-thirds of the voting rights represented at a meeting of our shareholders and voting on the matter, in person or by proxy, and any amendment to such provision shall require the approval of 60% of the voting rights represented at a meeting of our shareholders and voting on the matter, in person or by proxy. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to certain mergers, while Israeli tax law permits tax deferral, the deferral is contingent oncertain restrictions on future transactions, including with respect to dispositions of shares received as consideration, for a period of two years from the date of the merger. See “Item 10. Additional Information — B. Memorandum and Articles of Association — Acquisitions Under Israeli Law.”

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Item 4. Information on the Company

Corporate Information

We were incorporated under the laws of the State of Israel on December 13, 1990 under the name Kamada Ltd. In August 2005, we successfully completed an initial public offering on the TASE. In June 2013, we successfully completed an initial public offering in the United States on Nasdaq. The address of our principal executive office is 2 Holzman St., Science Park, P.O. Box 4081, Rehovot 7670402, Israel, and our telephone number is +972 8 9406472. Our website address is www.kamada.com. The reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this Annual Report.

We have irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any United States federal or state court. The address of Puglisi & Associates is 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.

Capital Expenditures

For a discussion of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

Business Overview

We are a plasma-derived protein therapeutics company focused on orphan indications, with an existing marketed product portfolio and a late-stage product pipeline. Our proprietary products are produced using our advanced proprietary technologies and know-how for the separation and purification of proteins derived from human plasma. We develop and produce our plasma-derived protein therapeutics in our advanced cGMP compliant, FDA-approved production facility located in Beit Kama, Israel. We use our proprietary platform technology and know-how for the extraction and purification of proteins from human plasma to produce AAT in a high purity, liquid form, as well as other plasma-derived proteins. AAT is a protein derived from human plasma with known and newly discovered therapeutic roles given its immuno-modulatory, anti-inflammatory, tissue protective and antimicrobial properties.

During 2017, we established a Strategy Committee of the board of directors, which, with the assistance of an external consulting firm, performed a strategic review of our business. Based on that analysis, we decided to focus our resources in the AATD field, as we believe we have developed extensive commercial, scientific, manufacturing, clinical and regulatory experience (based on multiple clinical trials we performed in the United States and Europe) in that field. Accordingly, we aim to become the leading innovator in this field by developing different therapeutic approaches to AATD independently, or through collaborations with strategic partners. In addition, we focus on increasing sales and profitability through commercial growth of AAT and specific IgGs, focusing on key strategic markets. Lastly , we decided that the development of AAT for indications other than AATD, such as GvHD, Type 1 Diabetes (T1D),  lung transplantation rejection and/or the development of new immunoglobulins (IgG) will be performed through strategic collaborations. For that purpose, we are investing in the additional indications/and products, primarily to the point of developing sufficient data, to enable us to attract such strategic partners.

We operate in two segments: the Proprietary Products segment, in which we develop and manufacture  plasma-derived therapeutics and have a product line consisting of six pharmaceutical products that we market in more than 15 countries; and the Distribution segment, in which we leverage our expertise and presence in the Israeli market by distributing drugs manufactured by third-parties for use in Israel.

We derived approximately 66%, 59% and 52% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively, from sales in the United States, approximately 3%, 5% and 5% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively, from sales in Europe, approximately 3%, 5% and 4% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively, from sales in Asia (excluding Israel), approximately 3%, 5% and 5% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively, from sales in Latin America and approximately 25%,  26% and 33% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively, from sales in Israel.

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Our flagship product, Glassia, was the first liquid, ready-to-use, intravenous plasma-derived AAT product approved by the FDA (Glassia is also approved for self-administration). Glassia is an intravenous AAT product that is indicated for chronic augmentation and maintenance therapy in adults with emphysema due to AATD. AAT is a naturally occurring protein found in a derivative of plasma known as fraction IV. AAT regulates the activity of certain white blood cells known as neutrophils and reduces cell inflammation. Patients with genetic AATD suffer from a chronic inflammatory state, lung tissue damage and a decrease in lung function. We market Glassia through a strategic partnership with Takeda in the United States, under which the minimum aggregate revenue for Glassia for the years 2019 to 2020 is expected to reach approximately $120 million and may be expanded to $150 million during that period. Pursuant to the Exclusive Manufacturing, Supply and Distribution Agreement, as amended, after 2020, Takeda currently has no obligation to purchase a minimum amount of Glassia. We estimate that Takeda will begin selling Glassia produced in its own manufacturing facility as early as 2021, and pay us royalties based on their sales. As Takeda transitions to producing Glassia in its own facilities, we will incur a substantial reduction in revenues (as well as costs of goods sold) driven by the reduction in Glassia manufacturing, and our revenues and our operating results may be materially and adversely impacted if we are unable to reduce fixed costs relating to our manufacturing facility in line with any reduction in demand.Selling Glassia by Takeda, produced in its own manufacturing facility, may have a negative impact on our financial performance, as despite of the fact that we will be entitled to receive royalties from Takeda, our topline revenues will be substantial reduced. We also market Glassia in other counties through local distributors.

Our second leading product is KamRAB, a prophylactic treatment against rabies infection that is administered to patients after exposure to an animal suspected of being infected with rabies. KamRAB is a protein therapeutic derived from hyper-immune plasma, which is plasma that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KamRAB is administered by a one-time injection. In July 2011, we signed a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KamRAB, and in August 2017 we received FDA approval for anti-rabies immunoglobulin as a post-exposure prophylaxis against rabies infection. In April 2018, we launched KamRAB in the United States, under the trademark “KEDRAB.” In addition, in November 2017, we signed a supply agreement for marketing of KamRAB with an undisclosed international organization. The agreement extends through 2020 and it may generate total revenues through 2020 for our company in the total amount of approximately $13 million.

In addition to our commercial operation, we invest in research and development of new product candidates and new indication for existing products activities. Our lead product candidate is Inhaled AAT for AATD. We believe that this second generation AAT product is currently the only aerosolized AATD treatment in advanced stages of clinical development. We believe that Inhaled AAT for AATD will increase patient convenience and reduce the need for patients to use intravenous infusions of AAT products, thereby decreasing the need for clinic visits or nurse home visits and reducing medical costs. In addition, because Inhaled AAT for AATD would be delivered directly to the affected tissue through a nebulizer using a lower AAT dosage, we believe that this product, if approved, will enable us to treat significantly more patients from the same amount of plasma and production capacity and therefore increase our profitability.

We completed a pivotal Phase II/III clinical trial for Inhaled AAT for AATD in Europe and filed the Marketing Authorization Application (“MAA”) with the EMA in March 2016. The Phase II/III clinical trial in Europe, however, did not meet its primary or other pre-defined endpoints. Following our discussions with the EMA in regards to the study results, in July 2017, we withdrew the MMA in Europe for our Inhaled AAT for AATD, which relied on this single pivotal clinical trial.  Following extensive discussions with the EMA, we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval of the MAA, and that the supplementary data needed for approval required an additional clinical trial.

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In the United States, we completed a Phase II clinical trial of our Inhaled AAT for AATD, which met its primary endpoint. However, when we presented the data from the European Phase II/III study to the FDA in April 2016, the FDA expressed concerns and questions about that data, primarily related to the safety and efficacy of Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on that data. We understood that the FDA’s questions and concerns need to be resolved before the agency would allow us to proceed with additional clinical development of Inhaled AAT in the United States.  In order to address the FDA’s concerns and questions, in April 2017, we submitted to the agency the results of the U.S. Phase II data together with a proposed Phase III synopsis. The FDA then provided us in June 2017 with guidance for further development of the synopsis and requested that we submit a complete proposed study protocol for the next phase prior to enabling us to continue clinical development and initiate the Phase III study in the United States. In July 2017, we submitted a full study protocol, and in August 2017, in response to the study protocol and previous submission, the FDA issued a letter stating that it continues to have concerns and questions about the safety and efficacy of the Inhaled AAT. We have provided the FDA with data and information related to their concerns and in April 2018, the FDA issued a response letter providing further guidance regarding the proposed pivotal Phase III protocol, as well as additional questions focused on the Inhaled AAT product characteristics. This correspondence indicated that, while several issues had been addressed, the FDA has continued concerns and questions related to the safety profile of Inhaled AAT for AATD. Following a thorough assessment of the FDA response, we provided the requested information and data and implemented the proposed changes in the study protocol during the second half of 2018. We will need to receive authorization from the FDA in order to proceed with the clinical development of Inhaled AAT in the United States, including our proposed Phase III clinical trial.

In July 2018, we received positive scientific advice from the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA related to the development plan for our proposed pivotal Phase III study for our Inhaled AAT for AATD. We requested scientific advice (protocol assistance) from the CHMP following the results of the previous Phase II/III (EU) and Phase II (US) studies conducted by us with respect to a proposed subsequent Phase III study design. The CHMP notified us that it concurred with the overall design of the proposed study, including its objectives, patient population, proposed endpoints and their clinical importance, and the safety monitoring plan. The CHMP had some minor comments, which we intend to address in the final study protocol. Following, and subject to receiving IND approval for such trial from the FDA, we plan to initiate an additional pivotal Phase III clinical trial in the United States and Europe, and submit a BLA in the USA and resubmit the MAA in Europe after such clinical trial is successfully completed, with the data to be collected in such clinical trial. We may seek to attract partners in this development program. See “—Our Product Pipeline and Development Program—Inhaled Formulations of AAT—AATD” and “Risk Factors— Risk Related to Development, Regulatory Approval and Commercialization of Product Candidates.”

In the past, we have also completed Phase II clinical studies in Israel for additional novel indications, using formulations of AAT through Inhalation for cystic fibrosis in 2008 and bronchiectasis in 2009. At present, the development of cystic fibrosis and bronchiectasis products is suspended as we prioritize other products.

We also test our liquid, intravenous plasma-derived AAT product for other indications utilizing AATs known and newly-discovered therapeutic roles given its immunomodulatory, anti-inflammatory, tissue-protective and antimicrobial properties:

· Acute Graft versus Host Disease (aGvHD) - In November 2016, we initiated a Phase II/III clinical trial for the treatment of aGvHD in collaboration with Shire (now part of Takeda) in the United States.  In June 2017, Shire informed us of its decision not to continue with the study. As the result of this decision, the study was halted.  In January 2018, we announced a collaboration with a consortium of prominent hospitals led by Mount Sinai Hospital and initiated an investigator initiated Phase II clinical study to evaluate our AAT product for preemption of steroid refractory aGvHD (SR-aGvHD) utilizing a novel blood biomarker developed algorithm that may identify patients at high risk of developing SR-aGvHD and non-relapse mortality. .

· Lung Transplantation Rejection - We have also initiated a Phase II clinical study with our intravenous AAT product to prevent lung transplantation rejection, and in January 2018, we announced interim results from this study, which showed that our intravenous AAT demonstrated favorable safety and tolerability profile in 10 patients during first six months of treatment, consistent with previously observed results in other indications. In February 2019, we announced additional interim results from such study suggesting improvement in multiple key clinical outcomes. We also announced that top-line results are anticipated in the second half of 2019.

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· Type 1 Diabetes (T1D) - In November 2017, we reported the top-line results from the Phase II clinical study conducted in Israel for the indication of newly diagnosed T1D  patients.  While in the overall study population no significant treatment effect was observed, in the pre-determined subgroup of patients between the ages of 12 and 18 years old, a trend toward better efficacy was demonstrated in the high dose arm of AAT (120 mg/kg) represented in terms of beta-cell function preservation, lower average of total daily insulin usage and a better glycemic control measured by lower average HbA1c.  We are currently seeking a strategic partner for collaboration to further product development.

With respect to the development of our AAT product for T1D, GvHD and prevention of lung transplantation rejection, our continued investment would be limited primarily to the point where such further development could generate sufficient data to enable us to attract strategic partner(s) to collaborate in the further development of those programs.

Our Product Portfolio

Our products include plasma-derived protein therapeutics produced in our Proprietary Products segment or licensed products, majority of which are plasma-derived marketed and sold in our Distribution segment in Israel.

Proprietary Products Segment

Our products in the Proprietary Products segment consist of plasma-derived protein therapeutics derived from human serum, that are administered by injection or infusion. We also manufacture anti-snake venom  products from equine based serum.

We currently have products that target four product categories: respiratory, immunoglobulins, critical care and other. Our flagship product in the Proprietary Products segment is Glassia, sales of which, for the years ended December 31, 2018, 2017 and 2016, accounted for approximately 75%,  83% and 77% of our total revenues, in the Proprietary Products segment, respectively. Revenue from our intravenous AATD products comprised approximately 60%, 64% and 56% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. During 2018, we launched in the U.S. KEDRAB, our prophylactic treatment against rabies infection, sales of which, for the year ended December 31, 2018, accounted for approximately 13% and 10% of our revenues, in the Proprietary Products segment, and of our total revenues, respectively.  Sales of KamRAB and KamRho (D) for the years ended December 31, 2018, 2017 and 2016 accounted for the substantial balance of total revenues in the Proprietary Products segment.

Product	Indication	Active Ingredient	Geography
Respiratory
Glassia (or Ventia/Respikam in certain countries)	Intravenous AATD	Alpha-1 Antitrypsin (Human)	United States, Israel, Russia, Brazil, Argentina, Uruguay, South Africa, Colombia**
Immunoglobulins
KamRAB/KEDRAB	Prophylaxis of rabies disease	Anti-rabies immunoglobulin (Human)	United States, Israel, India, Thailand, El Salvador*,  South Africa, Bosnia, Afghanistan, Russia*, Mexico*, Georgia*, Ukraine**, Turkey, South Korea and Canada*
KamRho (D) IM	Prophylaxis of hemolytic disease of newborns	Rho(D) immunoglobulin (Human)	Israel, Brazil, India, Argentina, Paraguay, Chile*,  Russia, Nigeria, Sri Lanka*, Thailand** and the Palestinian Authority
KamRho (D) IV	Treatment of immune thermobocytopunic purpura	Rho(D) immunoglobulin (Human)	Israel, India*, Sri Lanka* and Argentina*
Snake bite antiserum	Treatment of snake bites by the Vipera palaestinae and the Echis coloratus	Anti-snake venom	Israel*
Other Products
Human transferrin (diagnostical grade)	Not for human use	Transferrin	United States, Israel, and France

___________

* We have regulatory approval, but did not market the product in this country in 2018.

**   Product was registered, but we have not yet started sales.

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Respiratory — Glassia

Glassia is an intravenous AAT product produced from fraction IV plasma that is indicated by the FDA for chronic augmentation and maintenance therapy in adults with emphysema due to congenital AATD. While Glassia does not cure AATD, it supplements the patient’s insufficient physiological levels of AAT and is administered as a chronic treatment. As such, the patient must take Glassia indefinitely over the course of his or her life in order to maintain the benefits provided by it.

In the United States and Europe, we believe that AATD is currently significantly under-diagnosed and under-treated, as we estimate that only approximately 8% and 2.5-3% of all potential cases of AATD are treated in the United States and Europe, respectively, with an aggregate of up to an estimated 180,000 to 190,000 patients suffering from AATD, of which less than 10% have been diagnosed. According to the Centers for Medicare and Medicaid Services published payment allowance limits for Medicare part B, the average sale price, as of January 2019, of 10 mg of Glassia is $4.696,  resulting in an annual cost of between $80,000 and $100,000 per AATD patient.  In the United States, in some of the European countries and in Israel, we believe that the majority of the cost of treatment is covered by medical insurance programs.

We estimate that the potential world market for AAT products is significantly larger than current consumption indicates. We believe that the primary reasons for this are the non-availability of AAT products in many countries, under diagnosis of patients suffering from AATD, expensive and protracted registration processes required to commence sales of AAT products in new markets and the absence of insurance reimbursement in various countries. As AATD can be diagnosed with a simple blood test, we expect diagnosis of AATD to continue to increase going forward as awareness of AAT increases. The rate of AATD treated patients has increased in recent years at an estimated annual rate of 6-8%.

Glassia was the first AAT product in the world  approved for use in a high purity liquid state, which is ready for infusion and does not require reconstitution and mixing before injection, as is required from most other competing products. Additionally, in June 2016, the FDA approved an expanded label of Glassia for self-infusion at home after appropriate training. Glassia has a number of advantages over other intravenous AAT products, including the reduction of the risk of contamination during the preparation and infection during the infusion, reduced potential for allergic reactions due to the absence of stabilizing agents, simple and easy use by the patient or nurse, and the possible reduction of the nurse’s time during home visits, in the clinic or in the hospital and the ability to self- infusion at home.

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Currently, Glassia has been approved in seven countries. It is sold in five of those countries and also is sold in one additional country, where it has not been approved, on a non-registered named-patient basis. The majority of sales of Glassia are in the United States, where Glassia was approved by the FDA in July 2010 and sales began in September 2010. As part of the approval, the FDA requested that we conduct post-approval Phase IV clinical trials, as is common in the pharmaceutical industry, aimed at collecting additional safety and efficacy data for Glassia. In 2010, we submitted our proposed Phase IV clinical trials to the FDA. Such Phase IV clinical trials began in 2015 and are still ongoing. Pursuant to our agreement with Takeda, the Phase IV clinical trials are financed and managed by Takeda, provided that if the cost of such Phase IV clinical trials exceeds a pre-defined amount, we will participate in financing such trial up to a certain amount by offsetting such amounts from future milestones, sales of Glassia or royalties from Takeda.

We market Glassia in the United States through our partnership with Takeda. We market Glassia in Israel by ourselves and in the other countries through our local distributors. Sales to Takeda accounted for approximately 56%, 59% and 52% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively. We plan to submit Glassia for marketing approval in additional countries. Revenues from our intravenous AATD products have grown from approximately $0.6 million in 2009 to $68.3 million in 2018, representing 61% compound annual growth rate.

Immunoglobulins

KamRAB

KamRAB is a prophylactic treatment against rabies infection that is administered to patients after exposure to an animal suspected of being infected with rabies. KamRAB is a protein therapeutic derived from hyper-immune plasma, which is plasma that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KamRAB is administered by a one-time injection, and the precise dosage is a function of the patient’s weight.

According to the World Health Organization, each year, more than 10 million people worldwide are exposed to potential rabies infection. We believe that there are market opportunities for KamRAB in developing countries, as well as in Canada and Australia. In many developing countries, patients do not receive treatment for suspected rabies due to the lack of availability of healthcare resources. In the United States, there are currently two registered anti-rabies immunoglobulin, with one of them controlling the market share and we believe that healthcare providers would seek to diversify their source of supply with our product as an additional FDA approved high-quality product.

We began selling KamRAB in certain countries in Asia and Latin America in 2003, and subsequently obtained regulatory approvals to market KamRAB in seven additional countries, We currently sell KamRAB in eleven countries, including certain countries where registration is not required.

In July 2011, we signed a strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KamRAB, pursuant to which Kedrion agreed to bear all the costs required for the Phase II/III clinical trials. See “— Strategic Partnerships — Kedrion.” . In August 2017, we received marketing approval for KamRAB in the United States (under the trademark “KEDRAB”) and in April 2018, KEDRAB was launched in the United States and initial shipments reached healthcare practitioners across the country.

We believe that receiving the FDA approval for marketing the product will assist us in our efforts to register KamRAB in additional countries where KamRAB is not currently registered, which we believe would lead to additional sales worldwide.

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In November 2017, we signed a supply agreement for sales of KamRAB outside of the United States with an undisclosed international organization. The agreement extends through 2020 and is expected to generate additional sales for KamRAB.

In November 2018, we received marketing approval for KamRAB in Canada and we expect to start selling the product in Canada as early as 2020 subject to winning supply tenders.

KamRho (D)

KamRho (D) is indicated for (i) the prevention of hemolytic disease of the newborn (“HDN”), which is a blood disease that occurs where the blood type of the mother is incompatible with the blood type of the fetus; and (ii) the treatment of immune thrombocytopenic purpura (“ITP”), which is thought to be an autoimmune blood disease in which the immune system destroys the blood’s platelets, which are necessary for normal blood clotting. KamRho (D) is produced from hyper-immune plasma and is administered through intra-muscular injection (KamRho (D) IM) or through intravenous infusion (KamRho (D) IV).

According to academic research, approximately 15% of Caucasian women are Rh-negative and, if left untreated, HDN would affect one percent of all newborns and would be responsible for the death of one baby out of every 2,200 births. In addition, academic research estimates that ITP affects approximately five out of every 100,000 children per year, and two of every 100,000 adults per year worldwide, although some will recover without treatment. We have completed the registration process for Kam Rho (D) in several countries and sell it in eight countries, including Israel, Latin America, Asia, Africa and Eastern Europe.

Snake Bite Antiserum

Our snake bite antiserum product is used for the treatment of humans that have been bitten by the most common Israeli viper (Vipera palaestinae) and by the Israeli Echis (Echis coloratus). The venom of these snakes is poisonous and causes, among other symptoms, severe immediate pain with rapid swelling. These snake bites can lead to death if left untreated. Our snake bite antiserum is produced from hyper-immune serum that has been derived from horses that were immunized against Israeli viper and Israeli Echis venom. This product is the only treatment on the market for Vipera palaestinae and Echis coloratus snake bites in Israel.

We developed the snake bite antiserum pursuant to an agreement with the Israeli Ministry of Health (IMOH) entered into in March 2009. We completed construction of the production facilities and laboratories for the product, and successfully passed the IMOH inspections. We began production in August 2011 and commenced sales to the IMOH in 2012. The agreement with the IMOH is automatically renewable for up to ten additional one-year periods until December 31, 2020, unless the IMOH has provided us with a prior notice of non-renewal of the agreement, prior any automatic renewal term.

Other Products

We also sell Transferrin, which is used as a cultural medium for diagnostic assays and cell cultures.

Distribution Segment

Our primary products in the Distribution segment include pharmaceuticals for critical use delivered by injection, infusion or inhalation. We leverage our expertise and presence in the plasma-derived protein therapeutics market to distribute products in Israel that we believe complement our products in the Proprietary Products segment. Currently the majority of the products in our Distribution segment are produced from plasma or plasma-derivatives, and are manufactured by European companies. IVIG is our primary product in the Distribution segment, comprising approximately 58%, 54% and 61% of total revenues in the Distribution segment for the years ended December 31, 2018, 2017 and 2016, respectively. Sales of IVIG accounted for approximately 12%, 12% and 17% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively.

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The following table sets forth our primary products in our Distribution segment.

Product	Indication	Active Ingredient
Respiratory
Bramitob	Management of chronic pulmonary infection due to pseudomonas aeruginosa in patients six years and older with cystic fibrosis	Tobramycin
FOSTER	Regular treatment of asthma where use of a combination product (inhaled corticosteroid and long-acting beta2-agonist) is appropriate	Beclomethasone dipropionate, Formoterol fumarate
PROVOCHOLINE	Diagnosis of bronchial airway hyperactivity in subjects who do not have clinically apparent asthma	METHACHOLINE CHLORIDE
Immunoglobulins
IVIG 5%	Treatment of various immunodeficiency-related conditions	Gamma globulins (IgG) (human)
Varitect	Preventive treatment after exposure to the virus that causes chicken pox and zoster herpes	Varicella zoster immunoglobulin (human)
Zutectra	Prevention of hepatitis B virus (HBV) re-infection in HBV-DNA negative patients 6 months after liver transplantation for hepatitis B induced liver failure	Human hepatitis B immunoglobulin
Hepatect CP	Prevent contraction of Hepatitis B by adults and children older than two years	Hepatitis B immunoglobulin (human)
Megalotect	Contains antibodies that neutralize cytomegalovirus viruses and prevent their spread in immunologically impaired patients	CMV immunoglobulin (human)
RUCONEST	Treatment of acute angioedema attacks in adults with hereditary angioedema (HAE) due to C1 esterase inhibitor deficiency	CONESTAT ALFA
Critical Care
Heparin sodium injection	Treatment of thrombo-embolic disorders such as deep vein thrombosis, acute arterial embolism or thrombosis, thrombophlebitis, pulmonary embolism, fat embolism. Prophylaxis of deep vein thrombosis and thromboembolic events	Heparin sodium
Albumin and Albumin 4%	Maintains a proper level in the patient’s blood plasma	Human serum Albumin
Coagulation Factors
Factor VIII	Treatment of Hemophilia Type A diseases	Coagulation Factor VIII (human)
Factor IX	Treatment of Hemophilia Type B disease	Coagulation Factor IX (human)
Vaccinations
IXIARO	Active immunization against Japanese encephalitis in adults, adolescents, children and infants aged 2 months and older	Japanese encephalitis purified inactivated vaccine

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Our Product Pipeline and Development Program

We are in various stages of pre-clinical and clinical development of new product candidates for our Proprietary Products segment. The following table sets forth our primary product pipeline in our Proprietary Products segment and each such product’s stage of development:

1. Orphan drug designation (US & EU);

2. Orphan drug designation (US only).

Inhaled Formulations of AAT

We are in the process of development of inhaled formulations of AAT administered through the use of a nebulizer. The nebulizer was developed by PARI for several indications in the respiratory field, including the treatment of AATD, cystic fibrosis and bronchiectasis.

AATD

We have been able to leverage our expertise gained from the production of Glassia to develop a stable, high purity Inhaled AAT for AATD, an inhaled AAT product candidate for the treatment of AATD. Existing treatment for AATD require weekly intravenous infusions of AAT therapeutics. We believe that Inhaled AAT for AATD will significantly improve the patient’s disease condition and the quality of life of the patients versus current invasive weekly treatment that requires uncomfortable infusion, consumption of time and administration by a medical professional. If approved, Inhaled AAT for AATD is estimated to be the first AAT product that is not required to be delivered intravenously but, instead is administered by a user-friendly, lightweight and silent nebulizer in up to two short daily sessions. We believe that Inhaled AAT for AATD will increase patient convenience and reduce or replace the need for patients to use intravenous infusions of AAT products, decreasing the need for clinic visits or nurse home visits and reducing medical costs. Because of the smaller amount of AAT product used in Inhaled AAT for AATD (since it is applied directly to the site of action rather than administered systematically) we believe that this product, if approved, will enable us to treat significantly more patients from the same amount of plasma and production capacity and therefore increase our profitability.

The current standard care for AATD in the United States and in certain European countries is intravenous infusion of an AAT therapeutic. We estimate that only 2% of the AAT dose reaches the lung when administered intravenously. We have conducted a U.S. phase II clinical study demonstrating that administration of inhaled formulations of AAT through inhalation results in greater dispersion of AAT to the target lung tissue including the lower lobes and lung periphery. Accordingly, we believe that an inhaled formulation of AAT would require a significantly lower therapeutic dose and would be more effective in reducing inflammation of the lung tissue and inhibiting the uncontrolled neutrophil elastase that causes the breakdown of the lung tissue and the emphysema. In addition, self-administration by inhalation is more convenient than intravenous infusion and would also reduce the burden on healthcare providers to administer treatments.

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Inhaled AAT for AATD has been designated as an orphan drug for the treatment of AATD in the United States and Europe.

A double blind placebo controlled and randomized Phase II/III pivotal trial, under EMA guidance, started in January 2010 and was completed at the end of 2013. A total of 168 patients participated in the trial in seven countries in Europe and Canada. Subjects in this trial were administered with a daily dose of Inhaled AAT for AATD or equivalent dose of placebo for 50 consecutive weeks. The primary endpoint for the trial was the time from randomization to the first event-based exacerbation with a severity of moderate or severe. Other endpoints, which were secondary and tertiary, included other exacerbation measures, lung function, CT scan and quality of life. The trial was 80% powered based on the number of exacerbation events collected in the study, in order to detect a difference between the two groups one year later. A 20% difference between the two groups was required to prove efficacy and is considered to be clinically meaningful and would allow the decision to prescribe treatment. An open label extension of an additional 50 weeks on active drug was offered to study participants in most sites once they completed the initial 50 week period.  Treatment in the open label extension of the trial was completed in November 2014.

Results from our double blind part of the trial indicated that the primary endpoint was not met, although a potentially encouraging signal was seen in lung function measurement. We reported in September 2014 the results of the study, stating that the primary endpoint of “time to the first moderate or severe exacerbation event” did not show a statistically significant difference between inhaled formulation of AAT and placebo in the Intent-to-Treat (“ITT”) population and that the study did not show statistically significant differences between inhaled formulation of AAT and placebo in the secondary exacerbation endpoints measured in the ITT population.

Despite not meeting the primary or secondary endpoints for the ITT population, lung function parameters, including Forced Expiratory Volume in One Second (“FEV1”) % of Slow Vital Capacity (“SVC”), FEV1 % predicted, FEV1 (liters) and Diffusing capacity (“DLCO”), which were collected to support safety endpoints, showed concordance of a potential treatment effect in the reduction of the inflammatory injury to the lung that is known to be associated with a reduced loss of respiratory function.

Our inhaled formulation of AAT therapy showed clinically relevant changes in various lung function measurements for the entire ITT population, a few of which were statistically significant. This suggests evidence of potential therapeutic activity resulting in a clinically relevant and meaningful effect.

Based on such results, we held pre-submission meetings with the European rapporteur and co-rapporteur in December 2014 with regard to filing MAA with the EMA for our Inhaled AAT for AATD. The co-rapporteurs advised that they would consider the entire study data once submitted, including post hoc analysis and will not reject the application simply because the primary endpoint of the study was not met. They agreed that the application fulfills the requirements relating to unmet medical need and benefit to public health and that it may meet the scope of approval if we convincingly prove the positive benefit-risk balance of the product, by the time of MAA filing. The co-rapporteurs have requested the addition of supplemental data analyses that may address the benefit-risk balance and support the already available safety and efficacy data.

We performed these post hoc analyses in accordance with guidance received following the meeting with the European rapporteur and co-rapporteur. Results of the post hoc analyses indicate that after one year of daily inhalation of our Inhaled AAT for AATD, clinically and statistically significant improvements were seen in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1 (L), FEV1% predicted and FEV1/SVC. These favorable results were even more evident when analyzing the overall treatment effect throughout the full year.

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For lung function, overall one year effect:

· FEV1 (L) rose significantly in AAT treated patients and decreased in placebo treated patients (+15ml for AAT vs. -27ml for placebo, a 42 ml difference, p=0.0268)

· There was a trend towards better FEV1% predicted (0.54% for AAT vs. -0.62% for placebo, a 1.16% difference, p=0.065)

· FEV1/SVC% rose significantly in AAT treated patients and decreased in placebo treated patients (0.62% for AAT vs. -0.87% for placebo, a 1.49% difference, p=0.0074)

For lung function change at week 50 vs. baseline:

· There was a trend towards reduced FEV1 (L)decline (-12ml for AAT vs. -62ml for placebo, a 50 ml difference, p=0.0956)

· There was a trend towards a reduced decline in FEV1% predicted (-0.1323% for AAT vs. -1.6205% for placebo, a 1.4882% difference, p=0.1032)

· FEV1/SVC% rose significantly in AAT treated patients and decreased in placebo treated patients (0.61% for AAT vs. -1.07% for placebo, a 1.68% difference, p=0.013)

Additional data collected throughout the trial for exacerbation symptom score and well-being score. The changes in symptoms of dyspnea and well-being are suggested as those that most influence the change in patients’ health, and quality of life status and determine the need for additional therapy. The results showed trends in favor of the AAT-treated group for both dyspnea and well-being but were not statistically significant. The improvement in dyspnea and well-being further correlates with the fact that patients inhaling AAT had better preserved airflow than patients inhaling placebo.

During March 2014, we initiated Phase II trials in the United States. The trial was completed in May 2016. This trial was intended to serve as a supplementary trial to the European Phase II/III trial and was designed to incorporate parameters required by the FDA. This Phase II, double-blind, placebo-controlled study explored the ELF and plasma concentration as well as safety of Inhaled AAT in AATD subjects. The subjects received one of two doses of Inhaled AAT or placebo. The study involved the inhalation of 80 mg or 160 mg of human AAT or placebo twice daily via the eFlow device for 12 weeks. Following the 12 week double blind period, the subjects were offered to participate in an additional 12 weeks open label period during which they receive only Inhaled AAT therapy.  In December 2015, we completed the enrollment of patients for the U.S. Phase II clinical trial, and in August 2016, we reported positive top-line results, according to which we met the primary endpoint.

AATD patients treated with our Inhaled AAT product in such U.S. Phase II clinical trial, demonstrated a significant increase in endothelial lining fluid (“ELF”) AAT antigenic level compared to the placebo group [median increase 4551 nM, p-value<0.0005 (80 mg/day, n=12), and 13454 nM, p-value<0.002 (160mg/day, n=12)]. These results are more than twice the increase of ELF antigenic AAT level (+2600 nM) observed in Kamada’s previously completed intravenous (“IV”) AAT pivotal study (60mg/kg/week). Antigenic AAT represents the total amount of AAT in the lung, both active and inactive. The study results also showed that our Inhaled AAT is the most efficient way of delivering therapeutic amounts of AAT to the primary sites of potential lung injury. In addition, ELF Anti-Neutrophil Elastase inhibitory (“ANEC”) level also increased significantly [median increase 2766 nM, p-value<0.0005 (80mg/day) and 3557 nM., p-value<0.004 (160 mg/day)]. The increase in ELF ANEC level was also more than twice that demonstrated in our previously completed IV AAT pivotal study. The ANEC level represents the active AAT that can counterbalance further damage by neutrophil elastase.

The updated data included in our poster presentation of May 2017 demonstrated that ELF-AAT, neutrophil elastase (NE)-AAT and ANEC complexes concentration significantly increased in subjects receiving the 80 mg and 160 mg doses, (median increase of 38.7 neutrophil migration (nM), p-value<0.0005 (80 mg/day, n=12), and median increase of 46.2 nM, p-value<0.002 (160 mg/day, n=10)). This is a specific measure of the anti-proteolytic effect in the ELF and represents the amount of NE that was broken down by AAT. The increase in levels of functional AAT was six times higher (160 mg per day) than is achievable with intravenous (IV) AAT. In addition, ELF NE decreased significantly. Also, the 80 mg data demonstrated a significant reduction in the percentage of neutrophils. Finally, aerosolized M-specific AAT was detected in the plasma of all subjects receiving Inhaled AAT, consistent with what was seen in the Phase II/III clinical trial of our Inhaled AAT conducted in the EU.

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We filed the MAA for our Inhaled AAT for AATD during the first quarter of 2016 and in June 2017 we withdrew the MAA, as following extensive discussions with the EMA, we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval of the MAA, and that the supplementary data needed for approval required an additional clinical trial. While the post-hoc data provided by us from the European clinical trial showed a statistically significant and clinically meaningful improvement in lung function, the EMA was of the opinion that an overall positive conclusion on the effect of Inhaled AAT for AATD could not be reached based on that post-hoc analysis, and that the treatment of AATD patients with our Inhaled AAT product should be further evaluated in the clinic in order to obtain comprehensive long-term efficacy and safety data. The EMA was of the opinion that the study failed to show beneficial effects in the population studied. In addition, there were concerns about the tolerability and safety profile of the AAT, mainly in patients with severe lung disease. In addition, the EMA raised concerns about the high rate of patients with antibodies (ADA) responding to AAT, which might reduce its effects or make patients more prone to allergic reactions, despite evidence that none of the patients with such ADA response had allergic reaction nor a lower level of AAT in the serum.

When we presented the data from the European Phase II/III study to the FDA, the agency expressed concerns and questions about that data, primarily related to the safety and efficacy of Inhaled AAT for the treatment of AATD and the risk/benefit balance to patients based on that data. The FDA’s questions and concerns will need to be resolved before the agency would allow us to proceed with additional clinical development of Inhaled AAT in the United States, including our planned Phase III pivotal study.  In order to address the agency’s concerns and questions, in April 2017, we submitted to the agency the results of the U.S. Phase II data together with a proposed Phase III synopsis. In July 2017, we submitted to the FDA for review a proposed pivotal Phase III protocol for our Inhaled AAT product. In August 2017, in response to the study protocol and previous submission, the FDA issued a letter to us stating that it continues to have concerns and questions about the safety and efficacy of the Inhaled AAT. We have provided the FDA with data and information related to their concerns and in April 2018, the FDA issued a response letter providing further guidance regarding the proposed pivotal Phase III protocol, as well as additional questions focused on the Inhaled AAT product characteristics. This correspondence indicated that, while several issues had been addressed, the FDA has continued concerns and questions related to the safety profile of Inhaled AAT for AATD. Following a thorough assessment of the FDA response, we provided the requested information and data and implemented the proposed changes in the study protocol during the second half of 2018.  We are currently in discussions with the FDA with respect to the pivotal Phase III study for Inhaled AAT for AATD, which is designed to address FDA concerns regarding the safety and efficacy. The proposed Phase III pivotal study is intended to treat AATD subjects with Inhaled AAT at a dose of 80 mg once daily for a period of two years, with a placebo arm at a 1:1 ratio. If FDA authorizes our IND, the study is planned to include approximately 220 patients, and is expected to measure lung function as a primary endpoint and lung density as a secondary endpoint.

In July 2018, we received positive scientific advice from the CHMP of the EMA related to the development plan for our proposed pivotal Phase III study for our inhaled AAT for AATD. We requested scientific advice (protocol assistance) from the CHMP following the results of the previous Phase II/III (EU) and Phase II (US) studies with respect to a proposed subsequent Phase III study design. The CHMP notified us that it concurred with the overall design of the proposed study, including its objectives, patient population, proposed endpoints and their clinical importance, and the safety monitoring plan. The CHMP had some minor comments, which we intend to address in the final study protocol.

Upon conclusion of these discussions and subject to filing for an FDA approval for our IND, we intend to initiate the new pivotal Phase III clinical trial in the United States and Europe. In addition, we are considering all strategic options for Inhaled AAT, including engagement with a marketing partner.

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AAT by Infusion for Treatment of Graft-Versus-Host Disease

GvHD is a common complication following an allogeneic tissue transplant. It is commonly associated with stem cell transplant, but the term also applies to other forms of tissue graft. Immune cells (white blood cells) in the tissue (the graft) recognize the recipient (the host) as “foreign”. The transplanted immune cells then attack the host's body cells.

GvHD occurs in 30-70% of patients who undergo a medical procedure of allogeneic hematopoietic stem cell transplantation (HSCT), usually as a treatment to leukemia or other blood cancer or blood conditions. HSCT is a stem cell transplantation that is usually derived from an external (allogeneic) bone marrow donor. One of the most common and dangerous complications of HSCT is GvHD. GvHD is expressed in damage to the recipients’ tissues including damage to the liver, gastrointestinal system, skin and mucosal tissues, and is a major cause of death in these patients.

Intravenously administered glucocorticoids, such as prednisone, are the standard treatment in acute GvHD and chronic GvHD. The use of these glucocorticoids is designed to suppress the T-cell-mediated immune onslaught on the host tissues; however, in high doses, this immune-suppression raises the risk of infections and cancer relapse. In addition, more than 50% of patients do not respond well to steroids and consequently have very low survival rates.

Preliminary human and animal studies indicate that AAT may reduce the severity of GvHD, which is one of the key, life threatening complications of allogeneic stem cell transplantation. GvHD could result in significant damage to the recipients’ tissues including damage to the liver, gastrointestinal tract, skin and mucosal membranes. The immuno-modulatory effect of AAT may attenuate inflammation by lowering levels of pro-inflammatory mediators such as cytokines, chemokines and proteases that are associated with this severe disease. GvHD is a disease of unmet medical need and both the disease and current therapy options carry considerable side effects. Given the favorable safety profile of our intravenous AAT product, we will continue to support the clinical development of this potential indication and for possible regulatory submission.

The European Commission, acting on the recommendation from the Committee for Orphan Medicinal Products of the EMA, has designated our proprietary human IV AAT as an orphan medicinal product to treat GvHD. We received Orphan Drug designation from the FDA for our AAT by IV to treat GvHD. The orphan designation allows the awarded pharmaceutical company to benefit from incentives offered by the European Union to develop the designated medicine for the rare indication.

In January 2018, we announced a collaboration with the Mount Sinai Acute GvHD International Consortium (“MAGIC”) for the conduct of a clinical trial assessing the safety and preliminary efficacy of our AAT product as preemptive therapy for patients at high-risk for the development of steroid-refractory acute GvHD (“SR-aGvHD”). The study will be conducted in five U.S. centers, all of which are members of MAGIC, which consists of 23 Bone Marrow Transplantation (“BMT”) centers in the United States, Europe and Asia, and conducts clinical trials to prevent and treat GvHD following BMT. This is an investigator-initiated study, co-funded by Mount Sinai and our company, and is sponsored by the Icahn School of Medicine at Mount Sinai (ISMMS). The study will be initiated in the first quarter of 2018. This study replaces the previously-planned Phase II/III clinical trial that was designed to evaluate IV AAT as a first-line treatment for aGvHD patients.

The open-label, single-arm study will include 30 high-risk patients who will be treated with our IV AAT for 8 weeks with a follow-up period of one year after undergoing BMT. The primary endpoint will measure the proportion of patients who develop SR-aGvHD by day 100 post-BMT. Other endpoints will include safety, severity of GvHD and mortality. Patient enrollment to the study has been initiated and is progressing well at five active sites. We anticipate the completion of enrollment followed by the availability of interim data from this study by the end of 2019.

The Principal Investigator of the study is John Levine, M.D., M.S., Professor of Pediatrics and Medicine, Hematology and Medical Oncology at the Tisch Cancer Institute at ISMMS and Co-Director of MAGIC. The laboratory aspects of the study will be led by James L.M. Ferrara, M.D., Professor of Pediatrics, Oncological Sciences and Medicine, Hematology and Medical Oncology at the Tisch Cancer Institute at ISMMS, and Co-Director of MAGIC.

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The study is based on an innovative approach of early intervention driven by biomarkers. Drs. Ferrara and Levine have developed an algorithm to diagnose patients at risk for non-relapse mortality on day seven following BMT. The MAGIC algorithm utilizes proprietary biomarkers for prediction of mortality risk. Non-relapse mortality is closely related to non-responsiveness to steroids, which are the current standard of care for aGvHD. Early intervention, based on risk prediction and prior to the development of the clinical symptoms of aGvHD, could prevent patients from further disease deterioration. To date, the MAGIC database includes data from over 2,500 BMT recipients. Pursuant to the agreement with ISMMS, we received the exclusive right to develop and commercialize AAT for GvHD using the MAGIC biomarkers.

Further development of this indication would be subject to the trial results, while considering prospective development partners.

AAT for Treatment of Lung Transplantation Rejection

Lung transplantation rejection occurs when the recipient’s immune system attacks the transplanted lung resulting in destruction of the transplanted lung tissue. Around 20% of lung transplant recipients will experience an episode of acute rejection within the first year and approximately 48% and 76% of the recipients will experience chronic rejection within five and 10 years respectively. Chronic rejection is also known as BOS (Bronchiolitis Obliterans Syndrome).

A lung transplant is considered only for people with severe, end-stage lung disease, when patients will most likely die without the surgery and no other options are available. The most common lung diseases for which people undergo lung transplant are Chronic Obstructive Pulmonary Disease, Idiopathic pulmonary fibrosis, cystic fibrosis and Idiopathic Pulmonary Arterial Hypertension.

To protect the new lung, patients are prescribed a variety of medications which suppress the body's natural immune response. These medications are called “immunosuppressants,” and they are intended to trick the immune system into believing that the new organ is not foreign, and therefore it is not attacked. After transplantation, the patient will have to take immunosuppressant medications for the rest of the patient's life.

In 2015, we entered into collaboration with Takeda on a Phase II clinical trial of our proprietary alpha-1 antitrypsin (“AAT”) treatment for the prevention of lung transplantation rejection that is currently performed in Israel. Under the agreement, Takeda and we collaborate in the development and funding of the study.

This Phase II study was initiated in April 2016. In January 2018, we reported the interim results for such Phase II study and in February 2019, we reported additional interim results from such study. Topline results are expected to be published in the second half of 2019. The study is a randomized, open-label, single-site study of 30 lung transplant recipients to evaluate the safety and efficacy of IV AAT on top of standard-of-care (SOC) versus SOC. The study is randomized 2:1 with 20 patients in the treatment group receiving IV AAT treatment every other day for 14 days, then once every two weeks until week eight, followed thereafter by monthly treatments. The ten patients in the control group will be treated with SOC, which includes systemic corticosteroids and immunosuppressants. Following one year of AAT treatment, there will be a one-year follow-up. The primary endpoints of the study include safety and tolerability, the incidence of acute lung transplantation rejection and changes in Forced Expiratory Volume (FEV1) from baseline and overall effect (a measure of Bronchiolitis Obliterans (chronic rejection)). Additional endpoints measured will include various inflammatory biomarkers and functional capacity.

The principal investigator in this study is Prof. Mordechai R. Kramer, M.D., Director of the Institute of Pulmonary Medicine, Rabin Medical Center - Beilinson Hospital. Prof. Kramer, a renowned expert in pulmonary care and a top specialist in his field, is a full Professor at Tel Aviv University, Sackler Faculty of Medicine. He completed several fellowships in the U.S. in pulmonary care and lung transplantation, and has published many articles in leading scientific publications.

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In May 2017, the last patient of the 30 patients to be recruited entered the study and began treatment. In January 2018, we reported interim results which summarize data from the first six months of treatment for the initial 16 patients in the study. Ten of these 16 patients were in the AAT+SOC group, and six were in the SOC arm. To date, six patients have died (four patients in the AAT+SOC arm, and two in the SOC group) from common transplant-related complications unrelated to treatment with IV AAT.

Out of the 10 total patients who lived throughout the six-month treatment period, four experienced acute rejection post transplantation, but survived and their situation improved and stabilized. Two of the patients who experienced the acute rejections were in the AAT+SOC arm, but their situation resolved without the need to change treatment; the other two patients were in the SOC group and their situation resolved, with one of them changing treatment. Moreover, pulmonary function, which is a key indicator of acute or chronic rejection, improved and was found to be stable in all 10 patients who are alive following six months of treatment.

Our AAT demonstrated a favorable safety and tolerability profile, consistent with the results observed in previous clinical studies in different indications. None of the adverse events (AEs) or serious adverse events (SAEs) observed to date were considered to be related to treatment with IV AAT.  During the six months of treatment, the six patients in the SOC group had a total of 28 AEs, while the 10 patients in the AAT+SOC arm had a total of 36 AEs. This represents a rate of 3.6 AEs and 2.5 AEs per 100 days of treatment in the SOC and AAT+SOC arms, respectively. Out of the 28 AEs in the SOC group, four were SAEs, while out of the 36 AEs in the AAT+SOC arm, three were SAEs. This represents a rate of 0.51 SAEs and 0.2 SAEs per 100 days of treatment in the SOC and AAT+SOC arms, respectively.

In May 2018, the last patient enrolled in the study completed one year of treatment and began the one-year follow-up period.  During this one-year treatment period, none of the adverse events (“AEs”) or serious adverse events (“SAEs”) observed were considered to be related to treatment with IV-AAT. Acute rejection rates and pulmonary infections were similar in both study groups; five events of acute rejection were observed in five AAT+SOC patients (26%) versus four events in three SOC patients (30%), and pulmonary infections were observed in 10 AAT+SOC patients (53%) versus five SOC patients (50%). Pulmonary function showed a trend towards improved FEV1% of predicted value in the AAT+SOC group at week 4 and week 48 post-transplantation compared to the SOC group (at week 4: 59.4 ± 3.8 for AAT+SOC versus 45.6 ± 3.3 for SOC; at week 48: 58.0 ± 13.0 for AAT+SOC versus 52.1 ± 3.9 for SOC). When compared to SOC, treatment with AAT+SOC demonstrated a trend towards a lower percentage of patients with Primary Graft Dysfunction (“PGD”) grade 3 on day 3 (15% of the patients with AAT+SOC versus 30% of the patients with SOC treatment), and a shorter mechanical ventilation time post-surgery (median of 1 day with AAT+SOC versus 4.5 days with SOC treatment). In addition, the AAT+SOC group demonstrated a trend towards improved Six Minute Walk Test (“6MWT”) results at the end of week 48 as compared to the SOC group (445±115 meters for AAT+SOC versus 371±144 meters for SOC). Throughout the one-year treatment period, 44 AEs were reported in the SOC group, while a total of 107 AEs were reported in the AAT+SOC group. This represents a rate of 1.5 and 1.8 AEs per 100 treatment days in the SOC and AAT+SOC groups, respectively. Out of the 44 AEs in the SOC group, 12 were serious adverse events (SAEs), while out of the 107 AEs in the AAT+SOC group, 31 were SAEs. This represents a rate of 0.4 and 0.5 SAEs per 100 treatment days in the SOC and AAT+SOC groups, respectively.  During the one-year treatment period of the study, five patients in the AAT+SOC group and two patients in the SOC group, died. During the follow-up period, to date, three additional patients from the AAT+SOC group have died. All deaths were considered as resulting from common transplant-related complications and unrelated to treatment with IV-AAT.

Top-line data from this study is expected by the end of 2019.

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AAT by Infusion for Treatment of Newly Diagnosed Type-1 Diabetes

Type 1 Diabetes is an autoimmune disease in which the pancreatic beta cells responsible for secretion of insulin are attacked and destroyed by the immune system. According to estimates by the U.S. Centers for Disease Control, more than 10 million people throughout the world suffer from Type-1 Diabetes with 100,000 new patients diagnosed annually. According to estimates by the American Association for Type-1 Diabetes, approximately three million people in the United States suffer from Type-1 Diabetes, with 30,000 new patients diagnosed annually.

Studies have demonstrated that even though the level of AAT protein in Type-1 Diabetes patients may be normal, the activity of the AAT protein in these patients is significantly lower than in healthy people. Because AAT has proven anti-inflammatory responses, we believe that treatment by AAT protein in the initial stages after diagnosis of Type-1 Diabetes may prevent or may delay the inflammation that is caused by the autoimmune destruction of the pancreatic cells. As a result, we believe that AAT therapeutics may slow the progression of the development of newly diagnosed Type-1 Diabetes and improve prognosis.

In November 2017, we reported topline results of a phase II clinical trial. We also presented this data at the 78th Scientific Sessions of the American Diabetes Association (“ADA”) held in Orlando, Florida in June 2018. The 70 patients enrolled in the study, ranging in age from 8 to 25 years old, and recruited within 100 days of diagnosis of T1D, were randomized to three treatment groups in a 1:1:1 ratio; placebo and two doses of AAT, 60 mg/kg or 120 mg/kg. The study’s duration was 56 weeks and included three treatment periods. During the first 12 weeks, a once-weekly treatment was given, followed by 8 weeks of treatment given every two weeks, then a follow-up period of 26 weeks, followed by a once-weekly treatment given for 6 weeks, and a final 4-week follow-up period. Study endpoints included beta cell function assessment as measured by change in C-peptide parameters, glycemic control represented by HbA1C levels and insulin daily dose. The key results for the 12- to 18-year-old patient subgroup treated included:

· Better preservation of beta-cell function, demonstrated as a smaller decline of the average (± SEM) Area Under the Curve (AUC) of stimulated (MMTT) C-peptide secretion over time (- 0.18 ± 0.15nmol/L for AAT 120 mg/kg, -0.47 ±0.13 nmol/L for 60 mg/kg, and -0.34 ±0.10 nmol/L for the placebo group; p =0.543), suggesting a slower decline in pancreatic function for the 120 mg/kg treatment arm. Similar differences were noted for Cmax (defined as maximum or peak serum concentration).

· Lower average HbA1c (AAT 120 mg/kg: 6.66±0.32%, AAT 60 mg/kg: 7.85±0.45%, placebo: 8.29±0.52%, p=0.052, in addition the p-value of the comparison between AAT 120 mg/kg and placebo was p=0.048) and a higher percentage of patients who achieved the clinically meaningful target of HbA1c ≤7% (AAT 120 mg/kg: 70%, AAT 60 mg/kg: 29%, placebo: 25%, p=0.073).

· In a post-hoc analysis of insulin daily dose intake a beneficial favorable effect trend was found in the AAT 120 mg/kg treatment group versus placebo, p=0.086.

We are currently seeking a strategic partner for collaboration to further product development.

Recombinant AAT

According to our strategic decision to focus on AATD, and in preparation for future anticipated increased demand for AAT potentially resulting from greater awareness of AAT deficiency, as well as potential additional indications for Alpha 1 Antitrypsin, which are currently in clinical development, we have initiated development activities in the recombinant human Alpha 1 Antitrypsin (“rhAAT”) field.

To ensure the success of this project, we have previously developed analytical methods (physicochemical, biochemical, in-vitro, and in-vivo) that will help identify and characterize functional rhAAT. In addition, we have established a significant understanding on several expression systems and finally selected Cellca (CDMO located in Germany, part of Sartorius Stedim BioTech Group) to pursue the cell line development of the rhAAT in Chinese Hamsters Ovaries (“CHO”) with high productivity and suitable product quality.

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Liquid AAT for Liver Preservation Prior to Transplantation

In September 2018, we reported on the extension of an ongoing investigator initiated, proof-of-concept study evaluating the potential benefit of AAT on liver preservation and transplant rejection prevention. We collaborate with Massachusetts General Hospital (MGH), which is conducting and funding the study that is led by James F. Markmann, M.D., Ph.D., Chief, Division of Transplant Surgery, MGH, who is the Claude E. Welch Professor of Surgery at Harvard Medical School. The purpose of the ongoing study is to assess the effect of AAT on liver graft quality and viability and to evaluate the liver graft for markers of Ischemia-Reperfusion Injury (IRI) and tissue damage. Organ preservation methods pre-transplant are continuously improving due to advanced technologies, such as ex-vivo perfusion systems. This study is evaluating the effect of AAT produced by us on a liver graft once administered into an ex-vivo perfusion system.

AAT has been found to have anti-inflammatory, tissue-protective, immune-modulatory, and anti-apoptotic properties. These characteristics may decrease inflammation by lowering levels of pro-inflammatory cytokines and proteases associated with organ injury during harvest and transplantation, the prevalent causes of organ transplant rejection.  In the first cohort of the study, organ viability parameters (e.g. liver function tests and hemodynamics, which represent risks for failure or dysfunction after transplantation), inflammatory pathway analysis and histology, were all measured and yielded positive trends.  The second cohort of the study will assess the effect of AAT with different dosing.

Strategic Partnerships

We currently have strategic partnerships with a number of different companies regarding the development and/or distribution of our products in both the Proprietary Products and Distribution segments. Certain of the strategic partnerships relating to our Proprietary Products segment are discussed below.

Takeda (Glassia)

We have a partnership arrangement with Takeda. The partnership agreement was originally executed on August 23, 2010 with Baxter. During 2015, Baxter assigned all its rights under the partnership agreement to Baxalta, an independent public company which spun-off from Baxter. In 2016, Shire completed the acquisition of Baxalta, and as a result, all of Baxalta’s rights under the partnership agreement were assigned to Shire. In January 2019, Takeda completed its acquisition of Shire.

The partnership arrangement with Takeda includes three main agreements: (1) a distribution agreement, pursuant to which Takeda is the sole distributor of Glassia in the United States, Canada, Australia and New Zealand; (2) a licensing agreement, which grants Takeda licenses to use our knowledge and patents to produce, develop and sell Glassia and other products administered by transfusion; and (3) an agreement for Takeda to supply us with fraction IV plasma, a plasma derivative, produced by Takeda, as discussed under “— Manufacturing and Supply — Raw Materials — Fraction IV plasma for Glassia.” As between us and Takeda, we retain all rights, including distribution rights, to any inhaled formulation of AAT in development, including Inhaled AAT for AATD. On October 5, 2016, we signed a fifth amendment to the distribution agreement with Takeda to extend the period of minimum purchases by Takeda of Glassia until the end of 2020 and increase the minimum purchases under the distribution agreement. Following the amendment, the minimum aggregate revenue for Glassia under such extended agreement for the years 2018 to 2020 is expected to reach approximately $177 million and may be expanded to $228 million during that period, excluding any potential royalty payments under the licensing agreement, which are not expected to begin prior to 2021.

Sales to Takeda accounted for approximately 56%, 59% and 52% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively.

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Distribution Agreement

Pursuant to the distribution agreement, we received an upfront and milestone payments of $25 million in total related to distribution rights. Additionally, Takeda is obligated to purchase a minimum amount of Glassia per year until the end of 2020. Pursuant to Takeda’s minimum purchase obligations, from 2017 until the end of 2020, we are entitled to receive minimum revenues of between $56.8 million and $63.1 million per year from Takeda. We expect that from 2021, Takeda will start marketing Glassia in the United States to be produced at its production facility and pay us royalties on those sales, in accordance with the terms of the technology license agreement. According to the terms of the distribution agreement, following its compliance with its purchasing obligations until the end of 2020, Takeda will have no further obligation to purchase a minimum amount of Glassia; however, Takeda’s failure to purchase a specified minimum amount of Glassia over a period of 24 consecutive months until the expiration of the agreement provides us with the right to terminate the agreement. Takeda is also obligated to fund required Phase IV clinical trials related to Glassia up to a specified amount. If the costs of such clinical trials are in excess of this amount, we have agreed to fund a portion of the costs. We do not expect that the cost of the trials will exceed the specified amount. In May 2016 and June 2017, we received milestone payments from Takeda as a result of Takeda achieving an undisclosed sales milestone for Glassia. We have committed to reimburse Takeda for its Glassia marketing efforts up to a limited amount during the years 2017-2020.

The distribution agreement expires in 2040. In addition to customary termination provisions, either party may terminate the agreement, subject to certain exceptions, in whole or solely with respect to one or more countries covered by the distribution agreement, if regulatory approval in one or more countries covered by the distribution agreement is withdrawn or rejected and not reversed. Takeda has the right to terminate the agreement, upon prior written notice and after a period of time, in the event that Glassia is determined to materially infringe upon a third party’s intellectual property rights. In addition to the minimum purchase termination right discussed above, we have the right to terminate the agreement upon prior written notice if Takeda infringes upon our intellectual property.

Following termination of the agreement, Takeda is obligated to cease marketing, promoting or otherwise using Glassia and, at our election, sell all remaining inventory of Glassia in the market or back to us at the relevant purchase price.

Technology License Agreement

The technology license agreement provides an exclusive license to Takeda, with the right to sub-license to certain manufacturing parties, of our intellectual property and know-how regarding the manufacture and additional development of Glassia for use in Takeda’s production and sale of Glassia in the United States, Canada, Australia and New Zealand. Takeda agreed to pay us royalties at the rates specified in the agreement, which are in the low double digits during the first 15 years of the agreement and decreasing to less than 10% for the remainder of the period, once it begins to sell Glassia of its own production. We do not expect that such production will begin prior to 2021. The technology license agreement sets forth a minimum amount of royalty payments of $5.0 million required to be made by Takeda per year beginning on the first year of commercial sales of Glassia produced by Takeda.

Pursuant to the technology license agreement, we are entitled to receive payments for the achievement of certain milestones for an aggregate of up to $20.0 million, of which we have already received $14.5 million. Of the milestone payments, $15.0 million are development-based milestones related to the transfer of technology to Takeda and $5.0 million are sales-based milestones.

The intellectual property rights for any improvements on the manufacturing process or formulations that we disclose to Takeda belong to the party that develops the improvements, with each party agreeing to cross-license the developed improvements to the other party. We retain an option to license any intellectual property developed by Takeda under the agreement that is not considered an improvement on the licensed technology. Additionally, Takeda owns any intellectual property it develops using the licensed technology for new indications for the intravenous AAT product, for which we retain an option to license at rates to be negotiated. Any technology related to new indications for the intravenous AAT product developed by us during the royalty payments period will be part of the licensed technology covered by the technology license agreement.

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The technology license agreement expires in 2040. Either party may terminate the agreement, in whole or solely with respect to one or more countries covered by the distribution agreement, pursuant to customary termination provisions. Takeda also has the right to terminate the agreement, upon prior written notice, in the event that: (i) our manufacturing process technology for Glassia is determined to materially infringe upon a third party’s intellectual property rights, and we have not obtained a license to such third party’s intellectual property or provided an alternative non-infringing manufacturing process; (ii) there are certain decreases in Glassia sales in the United States unless such decreases are due to transfers to Inhaled AAT for AATD; or (iii) the regulatory approval process in the United States has been withdrawn or rejected as a result of our inaction or lack of diligent effort, provided such withdrawal or rejection was not primarily caused by the breach by Takeda of its obligations. We have the right to terminate the agreement, upon prior written notice: (i) if Takeda contests or infringes upon our intellectual property; (ii) if regulatory approval in one or more countries covered by the technology license agreement is withdrawn or rejected and not reversed, provided it was not primarily caused by the breach by us of our obligations; (iii) in the event that Glassia produced by Takeda, other than as a result of our manufacturing process technology, is determined to materially infringe upon a third party’s intellectual property rights, provided that the termination right is limited only to the country in which such judgment is binding; or (iv) if the first sale of Glassia produced by Takeda did not occur by June 15, 2017 and Takeda has not used commercially reasonable efforts to sell by that date. Following any termination, other than expiration of the agreement, all licensed rights will revert to us. Upon expiration of the agreement, we are obligated to grant to Takeda a non-exclusive, perpetual, royalty free license.

Kedrion (KEDRAB)

On July 18, 2011, we signed an agreement with Kedrion, an international pharmaceutical company engaged in the manufacture of life saving drugs based on human plasma which complement our products, and which are marketed in Europe, the United States and approximately 40 other countries worldwide. The agreement provides for exclusive cooperation on completing the clinical development, and marketing and distribution of our anti-rabies pharmaceutical, KamRAB, in the United States under the name KEDRAB, if the product is approved. Pursuant to the agreement, Kedrion will bear all the costs of the Phase III clinical trials in the United States of our product for rabies. Costs related to any Phase IV clinical trials, if required, and the FDA Prescription Drug User fee that is required for all FDA new drug approvals, will be divided equally between us and Kedrion. An addendum to the agreement was executed dated as of October 15, 2016, with respect to the performance of a safety clinical trial for the treatment of pediatric patients which we intend to initiate in the United States. According to such addendum, Kedrion and we agreed to equally share the cost of such trial. A second addendum to the agreement was executed dated as of October 11, 2018, with respect to the purchases prices of KEDRAB under the agreement.

In 2014, the Phase III trial was completed and successfully met the trial’s primary endpoint of non-inferiority when measured against an IgG reference product, and in September 2016, the BLA was submitted to the FDA. In August 2017, we received FDA approval of anti-rabies immunoglobulin as a post-exposure prophylaxis against rabies infection. In April 2018, we launched KEDRAB in the United States, under the trademark “KEDRAB” See “Item 4. Information on the Company — immunoglobulins — KEDRAB”. Sales to Kedrion accounted for approximately 10% of our total revenues for the year ended December 31, 2018.

The agreement provides exclusive rights to Kedrion to market and sell KEDRAB in the United States. We retain intellectual property rights to KEDRAB. Kedrion is obligated to purchase a minimum amount of KEDRAB per year during the term of the agreement.

The term of the agreement is for six years following the receipt of FDA approval, subject to Kedrion’s option to extend the agreement by two years. In addition to customary termination provisions, either party can terminate the agreement for any reason prior to the commencement of clinical trials for FDA approval. Kedrion also has the right to terminate the agreement, upon prior written notice, (i) for any reason after receipt of FDA approval, (ii) in the event that the FDA Biologics License Application is suspended or revoked and cannot be reinstated within a certain period of time, or (iii) a major regulatory change occurs that materially and adversely increases the clinical trial costs. We have the right to terminate the agreement in the event that (i) a major regulatory change occurs that materially and adversely increases the manufacturing costs of KEDRAB, (ii) a major regulatory change occurs that poses considerable difficulties on submission of an application for FDA approval or (iii) clinical trials are not initiated within a certain time after either receipt by Kedrion of enough product or FDA approval to begin clinical trials.

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PARI

On November 16, 2006, we entered into a license agreement with PARI (the “Original PARI Agreement”) regarding the clinical development of an inhaled formulation of AAT, including Inhaled AAT for AATD, using PARI’s “eFlow” nebulizer. Under the Original PARI Agreement, we received an exclusive worldwide license, subject to certain preexisting rights, including the right to grant sub-licenses, to use the “eFlow” nebulizer, including the associated technology and intellectual property, for the clinical development, registration and commercialization of inhaled formulations of AAT to treat AATD and respiratory deterioration, and to commercialize the device for use with such inhaled formulations. The agreement also provided for PARI’s cooperation with us during the pre-clinical phase and Phase I clinical trials of inhaled formulations of AAT, where each of us was responsible for developing and adapting our own product and bore the costs involved.

Pursuant to the Original PARI Agreement, we agreed to pay PARI royalties from sales of inhaled formulations of AAT, after certain deductions, at the rates specified in the agreement. We have agreed to pay PARI tiered royalties ranging from the low single digits up to the high single digits based on the annual net sales of inhaled formulations of AAT for the applicable indications. The royalties will be paid for each country separately, until the later of (1) the expiration of the last of certain specified patents covering the “eFlow” nebulizer, or (2) 15 years following the first commercial sale of an inhaled formulation of AAT in that country (the “PARI royalties period”). During the PARI royalties period, PARI is obligated to pay us specified percentages of its annual sales of the “eFlow” nebulizer for use with inhaled formulations of AAT above a certain threshold defined in the agreement and after certain deductions. On February 21, 2008, we entered into an addendum to the Original PARI Agreement (together with the Original PARI Agreement, the “PARI Agreement”), which extended the exclusive global license granted to us to use the “eFlow” nebulizer, including the associated technology and intellectual property, for the clinical development, registration and commercialization of inhaled formulations of AAT for two additional indications of lung disease, namely cystic fibrosis and bronchiectasis. At present, the development of cystic fibrosis and bronchiectasis products is suspended as we prioritize other products. Pursuant to the addendum, each party will be responsible for developing and adapting its own product for the additional indications and will bear the costs involved. Additionally, we and PARI will supply, each at its own expense, inhaled formulations of AAT and the “eFlow” nebulizers, respectively, and in the quantities required for all phases of clinical studies worldwide. In addition, PARI will provide to us, at its expense, technical and regulatory support regarding the “eFlow” nebulizer. Sales of the inhaled formulation of AAT for the additional indications will be added to sales of the first two indications covered by the original agreement as the basis for calculating the royalties to be paid by us to PARI.

The PARI Agreement expires when the PARI royalties period ends. Either party can terminate the PARI Agreement upon customary termination provisions. Additionally, upon the occurrence of any one of the following events, PARI has the right to negotiate with us in good faith about whether to continue our collaboration: (i) PARI’s costs of the required clinical trials exceed a certain amount, unless we or a third party incurs such expenses on behalf of PARI; (ii) an inhaled formulation of AAT is not successfully registered with any regulatory authorities by 2016; (iii) there are no commercial sales of inhaled formulations of AAT within a certain period after successful registration with any regulatory authority; or (iv) we cease development of inhaled formulations of AAT for a certain period of time. If, within 180 days of PARI’s request to negotiate, we do not agree to continue the collaboration, PARI has the option either to render the license they grant to us non-exclusive or to terminate the agreement. We have the right to terminate the agreement, upon prior written notice, (i) in the event that the “eFlow” nebulizer is determined to infringe upon a third party’s intellectual property rights, (ii) an injunction barring the use of the “eFlow” nebulizer has been in place for a certain period of time, (iii) a clinical trial for inhaled formulations of AAT fails as a result of, after a cure period, the “eFlow” nebulizer not conforming to specifications or PARI’s inability to supply the “eFlow” nebulizer; or (iv) failure by PARI to register the “eFlow” nebulizer within a certain period of time after receiving Phase III results for Inhaled AAT for AATD.

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Following any termination, all licensed rights will revert to PARI, unless we terminate the agreement as a result of PARI’s bankruptcy, payment failure or material breach, in which case we retain the license rights to the “eFlow” nebulizer as long as we continue making royalty payments.

In addition, on February 21, 2008, we signed a commercialization and supply agreement with PARI that provides for the supply of the “eFlow” nebulizer and its spare parts to patients who are treated with the inhaled formulation of AAT, either through its own distributors, our distributors or independent distributors in countries where PARI does not have a distributor. The commercialization and supply agreement expires upon the earlier of (1) the end of four years from (x) the end of the last PARI royalties period, or (y) the termination of the PARI Agreement by one party due to the other party declaring bankruptcy, failing to make a payment after a 30-day cure period or breach of a material provision after a 30-day cure period, or (2) the termination of the PARI Agreement pursuant to its terms, other than for reasons as previously described, in which case the commercialization and supply agreement terminates simultaneously with the PARI Agreement provided that PARI ensures availability of the “eFlow” nebulizer and its associated spare parts and service to anyone being treated with the inhaled formulation of AAT at the time of such termination, for the warranty period of the device or for a longer period, if required by the applicable law or the relevant regulatory authority.

Manufacturing and Supply

We have a production plant located in Beit Kama, Israel. We operate the main production facility on a campaign-basis so that at any time the facility is assigned to produce only one product. The division of facility time among the various products is determined based on orders received, sales forecasts and development needs.  During 2014, we completed the build outof a new logistic facility in our plant in Beit Kama that supports our logistic needs. During each year we have routine maintenance shut downs of our plant, which may last up to a few weeks.

Our production plant successfully passed inspection by the FDA in 2010, and our plant and laboratories also successfully passed a quality assurance audit by Brazil, Kenya and Mexico Ministry of Health. In July 2011, a cGMP audit was conducted by the IMOH, following which the plant’s main production facility was reapproved, as well as the new facility to produce our snake bite antiserum product, which was planned and constructed between the years 2009 and 2011 with IMOH funding and began operating in August 2011. In each of July 2013, February 2016 and November 2018, the IMOH completed additional successful cGMP audits of our facility and concluded that we comply with cGMP requirements of the IMOH. In February 2017, the EMA completed a successful cGMP audit of our facility in connection with our Inhaled AAT Product with no critical observations, and in March 2017, the FDA completed a successful audit of our facility in connection with our products Glassia and KEDRAB with no critical observations. In July 2018, Health Canada (the department of the government of Canada with responsibility for national public health) completed a successful audit in connection with the KamRAB product, with no critical observations.

Any changes in our production processes for our products must be approved by the FDA and/or similar authorities in other jurisdictions. In 2014, as part of our on-going effort to increase efficiency and profitability, we received approval from the FDA to make changes to the production processes for Glassia, which scale-up the output of our manufacturing facility, and began to produce Glassia using the improved processes.

Raw Materials

The main raw materials in our Proprietary Products segment are plasma and fraction IV. We also use other raw materials, including both natural and synthetic materials. We purchase raw materials from suppliers who are regulated by the FDA, EMA and other regulatory authorities. Our suppliers are approved in their countries of origin and by the IMOH. The raw materials must comply with strict regulatory requirements. We require our raw materials suppliers to comply with the cGMP rules, and we audit our suppliers from time to time. We are dependent on the regular supply and availability of raw materials in our Proprietary Products segment.

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We maintain relationships with several suppliers in order to ensure availability and reduce reliance on specific suppliers. We are dependent, however, on a number of suppliers who supply specialty ancillary products prepared for the production process, such as specific gels and filters. See “Item 3. Key Information — D. Risk Factors — We would become supply-constrained and our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA, the EMA or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”

In the years ended December 31, 2018, 2017 and 2016, we incurred $25.5 million, $19.9 million and $18.4 million of expenses for the purchase of raw materials, respectively.

Fraction IV Plasma for Glassia

On August 23, 2010, in conjunction with the cooperation arrangement with Takeda, we signed an agreement with Takeda for the supply of fraction IV plasma for use in the production of Glassia to be sold in the United States. Under this agreement, Takeda also supplies us with fraction IV plasma to continue the development and trials of Glassia and for the production, sale and distribution of Glassia in jurisdictions other than those which are covered under the exclusive distribution agreement. Takeda receives no payment for the supply of fraction IV plasma to be used by us for the manufacture of Glassia to be sold to Takeda. If we require fraction IV for other purposes, we are entitled to purchase it from Takeda at a predetermined price. While we are dependent on Takeda for the supply of fraction IV plasma, Takeda is currently dependent on us to produce Glassia for sale in the United States, as it does not have its own FDA approved production facility for Glassia. We assume that Takeda will have an FDA approved production facility by 2021. The supply agreement terminates on August 23, 2040, subject to an option for earlier termination in the event of a material breach.

In December 2012, we signed an additional agreement with Takeda to supply additional fraction IV plasma manufactured in its Vienna plant to be used as the raw material in the production of our AAT product. Takeda is obligated to make available to us yearly minimum quantity of fraction IV plasma. The agreement remains in effect until December 31, 2021, subject to earlier termination in the case of a breach, and may be renewed for two consecutive two year periods upon mutual agreement of both parties. Either party may terminate the agreement for any reason with twelve months prior written notice to the other party, provided that as a condition to such termination by Takeda, Takeda is obligated to provide us, upon our request, with fraction IV plasma in the amount equivalent to the previous year’s total amount of fraction IV plasma sold to us in addition to the fraction IV plasma to be sold during the last year of the agreement.

We have an additional fraction IV plasma supplier, which supplies us with fraction IV plasma that is used for production of Glassia marketed in non-U.S. countries. We are in the process of entering into long-term supply agreements for fraction IV plasma with additional companies.

Hyper-immune Plasma

We have a number of suppliers in the United States for hyper-immune plasma with which we have long-term supply agreements. Hyper-immune plasma is used for the production of KamRAB and KamRho(D). In addition to long-term supply agreements, we work to secure availability of hyper-immune plasma on an annual basis by providing forecasts to our suppliers based on our customers’ actual and forecasted orders. We continue to seek to enter into long-term supply agreements for hyper-immune plasma with additional plasma-collection companies.

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Research and Development

Our research and development activity in the Proprietary Products segment includes conducting pre-clinical and clinical trials, development activities in the rhAAT field, advanced understanding of the mechanism of action of AAT, improving existing products and processes, development work at the request of regulatory authorities and strategic partners, as well as communication with regulatory authorities related to our commercial products as well as clinical programs. We incurred approximately $9.7 million, $12 million and $16.2 million research and development expenses in the years ended December 31, 2018, 2017 and 2016, respectively.

Marketing and Distribution

In the Proprietary Products segment, we receive orders for plasma-derived protein therapeutics and, other than for Glassia, requests for participation in tenders for the supply of plasma-derived protein therapeutics from potential distributors and from existing distributors. We sell Glassia to Takeda and to other distributors in additional Non-U.S. countries.

For our other products, we market, in most cases, by means of agreements with local distributors in each country through a tender process and the private market. The tender process is conducted on a regular basis by the distributors, sometimes on an annual basis. For existing customers, our existing relationship does not guarantee additional orders from the same customers in these tenders. The decisive parameter is generally the price proposed in the tender. The distributor purchases plasma-derived protein therapeutics from us and sells them to its customers (either directly or by means of sub-distributors). In most cases, we do not sign agreements with the end users, and as such, we do not fix the price to the end user or its terms of payment and are not exposed to credit risks of the end users. In the vast majority of cases, our agreements with the local distributors award the various distributors exclusivity in the distribution of our plasma-derived protein therapeutics in the relevant country. The distribution agreements are, in most cases, made for a specific initial period and are subsequently renewed for one-year periods, where the parties have the right to cancel or renew the agreements with prior notice of a number of months. In these markets, we do not actively participate in the marketing to the end users, except for supplying marketing assistance where the cost is negligible or participation in marketing costs as a part of incentives for distributors. In Israel, we market our plasma-derived protein therapeutics independently to the end user, healthcare providers and medical centers or through a partner company that specializes in the supply of equipment and pharmaceuticals to healthcare providers.

Most of our sales outside of Israel are made against open credit and some in documentary credit or advance payment. Most of our sales inside Israel are made against open credit or cash. The credit given to some of our customers abroad (except for sales in documentary credit or advanced payment) is mostly secured by means of a credit insurance policy.

In the Distribution segment, we market our products in Israel to health maintenance organizations and hospitals on our own or by our third party logistic associates. We sell our Distribution segment products through offers to participate in public tenders that occur on an annual basis or through direct orders. The public tender process involves health maintenance organizations and hospitals soliciting bids from several potential suppliers, including us, and selecting the winning bid based on several attributes, whereas the primarily attributes are, price and availability. The annual public tender process is also used by our existing customers to determine their suppliers. As a result, our existing relationships with customers in our Distribution segment do not guarantee additional orders from such customers year to year.

We have distribution agreements with each of our two largest suppliers in our Distribution segment to be their exclusive distributor in Israel for a number of their manufactured products; however, we purchase our Distribution segment products from our suppliers on a purchase order basis. We work closely with our suppliers to develop annual forecasts, but these forecasts do not obligate our suppliers to provide us with their products. Additionally, one of our suppliers has the right to convert the agreement into a non-exclusive agreement or terminate the agreement if we do not meet our annual forecasts.

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Customers

For the year ended December 31, 2018, sales to Takeda and Kedrion accounted for 56% and 10%, respectively, of our total revenues. For the year ended December 31, 2017, sales to Takeda and Kupat Holim Clalit, an Israeli healthcare provider, accounted for 59% and 9%, respectively, of our total revenues. For the year ended December 31, 2016, sales to Takeda and Kupat Holim Clalit accounted for 52% and 13%, respectively, of our total revenues.

Takeda and Kedrion are currently our major customers in the Proprietary Products segment. Our other customers in the Proprietary Products segment are our distributors in Argentina, Russia, Thailand, India and Brazil as well as healthcare providers and medical centers in Israel. In other geographies, most of the sales of our products are conducted through local distributors. These arrangements are further described above under “— Marketing and Distribution.”

Our primary customers in the Distribution segment are health maintenance organizations and hospitals in Israel, including Kupat Holim Clalit and Kupat Holim Maccabi.

Competition

The worldwide market for pharmaceuticals in general, and biopharmaceutical and plasma products in particular, has in recent years undergone a process of mergers and acquisitions among companies active in such markets. This trend has led to a reduction in the number of competitors in the market, but the strengthening of the remaining competitors, mainly for specific immunoglobulin products.

Proprietary Products Segment

We believe that there are two to four large competitors for each of our products in the Proprietary Products segment. These large competitors include CSL Behring Ltd., Grifols S.A., which acquired a previous competitor, Talecris Biotherapeutics, Inc. in 2011, and Kedrion (other than for KEDRAB). We have not seen significant changes in the activities of our competitors in recent years. Additionally, our strategic alliance with Takeda and Kedrion in the United States has strengthened our Glassia and KEDRAB competitive positioning in the market.

Our large competitors have advantages in the market because of their size, financial resources, markets and the duration of their activities and experience in the relevant market, especially in the United States and countries of the European Union. Some of them have an additional advantage regarding the availability of raw materials, as they fractionate plasma internally and own plasma collection centers and/or companies that collect or produce raw materials such as plasma.

The following describes details known to us about our most significant competitors for each of our main Proprietary Products segment products.

Glassia.  We believe that Glassia has two main competitors: Grifols and CSL. We estimate that Grifols’ AAT by infusion product for the treatment of AATD, Prolastin, accounts for at least 50% market share in the United States and more than 70% of sales worldwide, and until 2015 it was the only AAT product that was approved for sale in both – key European countries and the United States. In September 2017 Grifols announced that the FDA approved a liquid formulation of its AAT product. CSL’s AAT by IV product, Zemaira, is mainly sold in the United States, and during 2015 received centralized marketing authorization approval in the European Union. CSL launched the product in few selected EU markets during 2016 under the brand name Respreeza.  Apart from its sales of the past Talecris product, Grifols is also a local producer of an additional AAT product, Trypsone, which is marketed in Spain and in some Latin American countries, including Brazil. While Takeda is our strategic partner for sales of Glassia, it also serves existing patients in the United States with its own proprietary product, Aralast. As far as we know Takeda is proactively marketing Glassia in the United States, while maintaining existing patients on Aralast. In addition, we are aware of a smaller local producer of AAT in the French market, Laboratoire Français du Fractionnement et des Biotechnologies, S.A (“LFB”). We do not believe any new suppliers are expected to enter the United States market for AAT by infusion in the near future. As part of the approval of our competitors’ intravenous AAT products for the treatment of AATD, they (like us) were required by the FDA to conduct Phase IV clinical trials aimed to collect efficacy data. CSL has released results from its Phase IV trial. As far as we know those results were not accepted by the FDA as prove of required efficacy. To the best of our knowledge, to date, our other competitors have not completed their trials or their results have not been published.

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KamRAB/KEDRAB.  We believe that there are two main competitors for this anti-rabies product worldwide: Grifols, whose product we estimate comprises over 85% of the anti-rabies market in the United States, and CSL, which sells its anti-rabies product in Europe and elsewhere. Sanofi Pasteur, the vaccines division of Sanofi S.A., has a product registered for the United States market, but the product is primarily sold in Europe and not currently sold in significant quantities in the United States. There are a number of local producers in other countries that make similar anti-rabies products. Most of these products are based on equine serum, which we believe results in inferior products, as compared to products made from human plasma.

KamRho(D). While Kedrion is one of our strategic partners for KamRAB, it is also one of our competitors for KamRho(D). In addition to its sales in the United States, Kedrion also markets a competing product in Italy and has begun to expand into other markets. We believe there are three additional main suppliers of competitive products in this market: Aptevo, Grifols and CSL. There are also local producers in other countries that make similar products mostly intended for local markets.

Distribution Segment

We believe that there are a number of companies active in the Israeli market distributing the products of several manufacturers whose comparable products compete with our products in the Distribution segment. In the Plasma area, these manufacturers include Grifols, Takeda, CSL, Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company), while in other specialties we may be competing against products produced by some of largest pharmaceutical manufacturers in the world, such as, Novartis AG, AstraZeneca AB, Sanofi UK and GlaxoSmithKline. These competing manufacturers have advantages of size, financial resources, market share, broad product selection and extensive experience in the market, although we believe that we have greater expertise in the Israeli market. Each of these competitors sells its products through a local subsidiary or a  local representative in Israel.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we sell and are developing. Except for compassionate use or non-registered named-patient cases, any pharmaceutical candidate that we develop must be approved by the FDA before it may be legally marketed in the United States and by the appropriate regulatory agencies of other countries before it may be legally marketed in such other countries. In addition, any changes or modifications to a product that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or would constitute a major change in its intended use, may require the submission of a new application in the United States and/or in other countries for pre-market approval. The process of obtaining such approvals can be expensive, time consuming and uncertain.

U.S. Drug Development Process

In the United States, pharmaceutical products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. All of our products for human use and product candidates in the United States, including Glassia, are regulated by the FDA as biologics. Biologics require the submission of a BLA and approval or license by the FDA prior to being marketed in the United States. Manufacturers of biologics may also be subject to state regulation. Failure to comply with regulatory requirements, both before and after product approval, may subject us and/or our partners, contract manufacturers and suppliers to administrative or judicial sanctions, including FDA delay or refusal to approve applications, warning letters, product recalls, product seizures, import restrictions, total or partial suspension of production or distribution, fines and/or criminal prosecution.

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The steps required before a biologic drug may be approved for marketing for an indication in the United States generally include:

1. preclinical laboratory tests and animal tests;

2. submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials may commence;

3. adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;

4. submission to the FDA of a BLA or supplemental BLA;

5. FDA pre-approval inspection of product manufacturers; and

6. FDA review and approval of the BLA or supplemental BLA.

Preclinical studies include laboratory evaluation, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinical safety tests must be conducted in compliance with FDA regulations regarding good laboratory practices. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND which must become effective before human clinical trials may be commenced. The IND will automatically become effective 30 days after receipt by the FDA, unless the FDA before that time raises concerns about the drug candidate or the conduct of the trials as outlined in the IND. The IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials or that, once commenced, other concerns will not arise that could lead to a delay or a hold on the clinical trials.

Clinical trials involve the administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal investigators. Each clinical study at each clinical site must be reviewed and approved by an independent institutional review board, prior to the recruitment of subjects. Numerous requirements apply including, but not limited to, good clinical practice regulations, privacy regulations, and requirements related to the protection of human subjects, such as informed consent.

Clinical trials are typically conducted in three sequential phases, but the phases may overlap and different trials may be initiated with the same drug candidate within the same phase of development in similar or differing patient populations.

· Phase I studies may be conducted in a limited number of patients, but are usually conducted in healthy volunteer subjects. The drug is usually tested for safety and, as appropriate, for absorption, metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics.

· Phase II usually involves studies in a larger, but still limited, patient population to evaluate preliminarily the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible short-term adverse effects and safety risks.

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· Phase III trials are undertaken to further evaluate clinical efficacy of a specific endpoint and to test further for safety within an expanded patient population at geographically dispersed clinical study sites.

Phase I, Phase II or Phase III testing may not be completed successfully within any specific time period, if at all, with respect to any of our product candidates. Results from one trial are not necessarily predictive of results from later trials, the FDA may require additional testing or a larger pool of subjects beyond what we proposed as the clinical development process proceeds, thereby requiring more time and resources to complete the trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk, or may not allow the importation of the clinical trial materials if there is non-compliance with applicable laws.

The results of the preclinical studies and clinical trials, together with other detailed information, including information on the manufacture and composition of the product, are submitted to the FDA as part of a BLA requesting approval to market the product candidate for a proposed indication. Under the Prescription Drug User Fee Act, as amended, the fees payable to the FDA for reviewing a BLA, as well as annual fees for commercial manufacturing establishments and for approved products, can be substantial. The BLA review fee alone can exceed $2,400,000, subject to certain limited deferrals, waivers and reductions that may be available. Each BLA submitted to the FDA for approval is typically reviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If found complete, the FDA will “file” the BLA, thus triggering a full review of the application. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission. The FDA’s established goals are to review and act on 90% of priority BLA applications and priority original efficacy supplements within six months of the 60-day filing date and receipt date, respectively.  The FDA’s goals are to review and act on 90% of standard BLA applications and standard original efficacy supplements within 10 months of the 60-day filing date and receipt date, respectively. The FDA, however, may not be able to approve a drug within these established goals, and its review goals are subject to change from time to time. Further, the outcome of the review, even if generally favorable, may not be an actual approval but an “action letter” that describes additional work that must be done before the application can be approved. Before approving a BLA, the FDA may inspect the facilities at which the product is manufactured or facilities that are significantly involved in the product development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. The FDA may deny approval of a BLA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any application may include many delays or never be granted. If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, will require that warning statements be included in the product labeling, may impose additional warnings to be specifically highlighted in the labeling (e.g., a Black Box Warning), which can significantly affect promotion and sales of the product, may require that additional studies be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. To market a product for other uses, or to make certain manufacturing or other changes requires prior FDA review and approval of a BLA Supplement or new BLA. Further post-marketing testing and surveillance to monitor the safety or efficacy of a product is required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing. In addition, new government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.

As part of the Patient Protection and Affordable Care Act (the “healthcare reform law”), Public Law No. 111-148, under the subtitle of Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), a statutory pathway has been created for licensure, or approval, of biological products that are biosimilar to, and possibly interchangeable with, earlier biological products approved by the FDA for sale in the United States. Also under the BPCIA, innovator manufacturers of original reference biological products are granted 12 years of exclusive use before biosimilars can be approved for marketing in the United States. There have been proposals to shorten this period from 12 years to seven years. The objectives of the BPCI are conceptually similar to those of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the “Hatch-Waxman Act,” which established abbreviated pathways for the approval of drug products. A biosimilar is defined in the statute as a biological product that is highly similar to an already approved biological product, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar and the approved biological product in terms of the safety, purity, and potency. Under this approval pathway, biological products can be approved based on demonstrating they are biosimilar to, or interchangeable with, a biological product that is already approved by the FDA, which is called a reference product. If we obtain approval of a BLA, the approval of a biologic product biosimilar to one of our products could have a significant impact on our business. The biosimilar product may be significantly less costly to bring to market and may be priced significantly lower than our products.

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Both before and after the FDA approves a product, the manufacturer and the holder or holders of the BLA for the product are subject to comprehensive regulatory oversight. For example, quality control and manufacturing procedures must conform, on an ongoing basis, to cGMP requirements, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to spend time, money and effort to maintain cGMP compliance. In addition, a BLA holder must comply with post-marketing requirements, such as reporting of certain adverse events.  Such reports can present liability exposure, as well as increase regulatory scrutiny that could lead to additional inspections, labeling restrictions, or other corrective action to minimize further patient risk.

Special Development and Review Programs

Orphan Drug Designation

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States. In the United States, orphan drug designation must be requested before submitting a BLA or supplemental BLA.

In the European Union, the Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union community. Additionally, this designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.

We received an orphan drug designation in the United States and Europe for multiple indications. Inhaled AAT for AATD has received an orphan drug designation in the United States and Europe. The inhaled formulation of AAT for the treatment of cystic fibrosis has received an orphan drug designation in the United States and Europe. The inhaled formulation of AAT for the treatment of bronchiectasis has received an orphan drug designation in the United States. The additional indication for Glassia for the treatment of newly diagnosed cases of Type-1 Diabetes has received an orphan drug designation in the United States. In addition, the indication for AAT for the treatment of Graft versus Host Disease has received an orphan drug designation in the United States and Europe, and the indication for AAT for the treatment of Prophylactic Graft versus Host Disease has received an orphan drug designation in the United States.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product and its active ingredients receive the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. In addition, the FDA may rescind orphan drug designation and, even with designation, may decide not to grant orphan drug exclusivity even if a marketing application is approved.  Furthermore, the FDA may approve a competitor product intended for a non-orphan indication, and physicians may prescribe the drug product for off-label uses, which can undermine exclusivity and hurt orphan drug sales.

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In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity or a safer, more effective or otherwise clinically superior product is available.

In the European Union, an application for marketing authorization can be submitted after the application for orphan drug designation has been submitted, while the designation is still pending, but should be submitted prior to the designation application in order to obtain a fee reduction. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Post-Approval Requirements

Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA. Certain requirements include, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), and other promotional activities. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, warning letters from or other enforcement by the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label uses.

The manufacturing of our product candidates is required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. Our product candidates are either manufactured at our production plant in Beit Kama, Israel, or, for products where we have entered into a strategic partnership with a third party to cooperate on the development of a product candidate, at a third-party manufacturing facility. These regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are also required to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states. These entities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approved BLA, as well as lead to potential market disruptions. These restrictions may include suspension of a product until the FDA is assured that quality standards can be met, continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval, including possible user fees.

The FDA also may require a Boxed Warning (e.g., a specific warning in the label to address a specific risk, sometimes referred to as a “Black Box Warning”), which has marketing restrictions, and post-marketing testing, or Phase IV testing, as well as a Risk Evaluation and Minimization Strategy (REMS) plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.

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Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Federal Trade Commission, the U.S. Department of Justice and individual United States Attorney's offices within the Department of Justice, state attorneys general and state and local governments. To the extent applicable, we must comply with the fraud and abuse provisions of the Social Security Act, the federal False Claims Act, the privacy and security provisions of the Health Insurance Portability and Accountability Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended, as well as the “Anti-Kickback Law” provisions of the Social Security Act. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans Health Care Act (“VHCA”), drug companies are required to offer certain pharmaceutical products at a reduced price to a number of federal agencies, including the United States Department of Veterans Affairs and United States Department of Defense, the Public Health Service and certain private Public Health Service-designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Legislative changes have purported to require that discounted prices be offered for certain United States Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations. Furthermore, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. The failure to comply with laws governing international business practices may result in substantial penalties, including civil and criminal penalties.

In order to distribute products commercially, we must comply with federal and state laws and regulations that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors which ship products into the state even if such manufacturers or distributors have no place of business within the state. Federal and some state laws also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. Additionally, the federal Physician Payments Sunshine Act and implementing regulations promulgated pursuant to Section 6002 of the healthcare reform law requires the tracking and reporting of certain transfers of value made to U.S. physicians and/or certain teaching hospitals as well as ownership by a physician or a physician’s family member in a pharmaceutical manufacturer.  Finally, all of our activities are potentially subject to federal and state consumer protection and unfair competition laws. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, and federal authorities.

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Europe/Rest of World Government Regulation

In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.

Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical trial application (“CTA”) must be submitted to each member state’s national health authority and an independent ethics committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement of a clinical trial in the member state. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications either under a centralized, decentralized or national procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases, and optional for those products that are highly innovative or for which a centralized process is in the interest of patients. For our products and product candidates that have received or will receive orphan designation in the European Union, they will qualify for this centralized procedure, under which each product’s marketing authorization application will be submitted to the EMA. Under the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use (“CHMP”)). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease, such as heavy disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.

The decentralized procedure provides possibility for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

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Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of product candidates for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the coverage and reimbursement decisions made by payors. In the United States, third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Several significant laws have been enacted in the United States which affect the pharmaceutical industry and additional federal and state laws have been proposed in recent years.  For example, as a result of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), a Medicare prescription drug benefit (Medicare Part D) became effective at the beginning of 2006.  Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.  Medicare coverage and reimbursement for some of the costs of prescription drugs may increase demand for any products for which we receive FDA approval.  However, we would be required to sell products to Medicare beneficiaries through entities called “prescription drug plans,” which will likely seek to negotiate discounted prices for our products.

Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation and regulation could further limit payments for pharmaceuticals such as the product candidates that we are developing. In addition, court decisions have the potential to affect coverage and reimbursement for prescription drugs.  It is unclear whether future legislation, regulations or court decisions will affect the demand for our product candidates once commercialized.

As another example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 (collectively referred to as the “health care reform law”).  The health care reform law made significant changes to the United States healthcare system, such as imposing new requirements on health insurers, expanding the number of individuals covered by health insurance, modifying healthcare reimbursement and delivery systems, and establishing new requirements designed to prevent fraud and abuse.  In addition, provisions in the health care reform law promote the development of new payment and healthcare delivery systems, such as the Medicare Shared Savings Program, bundled payment initiatives and the Medicare pay for performance initiatives.

The health care reform law and the related regulations, guidance and court decisions have had, and will continue to have, a significant impact on the pharmaceutical industry.  In addition to the general reforms briefly described above, provisions of the health care reform law directly address drugs.  For example, the health care reform law:

· increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;

· requires Medicaid rebates for covered outpatient drugs to be extended to Medicaid managed care organizations;

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· requires manufacturers of drugs covered under Medicare Part D to participate in a coverage gap discount program, under which they must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible Medicare beneficiaries during their coverage gap period; and

· imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs.

On April 1, 2016, final regulations issued by the Centers for Medicare and Medicaid Services to implement the changes to the Medicaid Drug Rebate Program under the healthcare reform law became effective.

Some provisions of the healthcare reform law have yet to be fully implemented, and President Donald Trump has vowed to repeal the healthcare reform law. On January 20, 2017, President Donald Trump signed an executive order stating that the administration intended to seek prompt repeal of the healthcare reform law, and, pending repeal, directed by the U.S. Department of Health and Human Services and other executive departments and agencies to take all steps necessary to limit any fiscal or regulatory burdens of the healthcare reform law. On October 12, 2017, President Trump signed another Executive Order directing certain federal agencies to propose regulations or guidelines to permit small businesses to form association health plans, expand the availability of short-term, limited duration insurance, and expand the use of health reimbursement arrangements, which may circumvent some of the requirements for health insurance mandated by the healthcare reform law. The U.S. Congress has also made several attempts to repeal or modify the healthcare reform law. In addition, there is ongoing litigation regarding the implementation and constitutionality of the healthcare reform law.  While the law is still in effect pending the ultimate resolution of the litigation, the outcome of the litigation is unknown and cannot be predicted. It is uncertain whether new legislation will be enacted to replace the healthcare reform law and whether any such legislation would affect coverage and reimbursement for prescription drugs or otherwise include provisions intended to limit the growth of healthcare costs.

Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure of healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any drug candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Intellectual Property

Our success depends, at least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws, know-how, intellectual property licenses and other contractual rights (including confidentiality and invention assignment agreements) to protect our intellectual property rights.

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Patents

As of December 31, 2018, we owned for use within our field of business five families of patents or patent applications, which are registered or applied for in the United States and also in the European Union, Russia, Turkey, Israel, certain Latin American countries, Canada, Australia and other countries, seven PCT patent applications and four US provisional applications. At present, one patent protecting our manufacturing process is considered to be material to the operation of our business as a whole. Such patent has been issued in a variety of jurisdictions, including Australia, Austria, Belgium, Canada, Denmark, Estonia, Israel, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Slovenia, Poland, Spain, Portugal, Sweden, Switzerland, Turkey, the United Kingdom and the United States, and expires in 2024.

Our patents generally relate to the separation and purification of proteins and their respective pharmaceutical compositions. Our patents and patent applications further relate to the use of our products and their delivery methods.  Our patents and patent applications are expected to expire at various dates between 2019 and 2029. We also rely on trade secrets to protect certain aspects of our separation and purification technology.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of our patent applications or any patent applications that we license will result in the issuance of any patents and there is no guarantee that patent applications that were filed with the patent offices, which are still pending, will be eventually granted and will be registered. Additionally, our issued patents and those that may be issued in the future may be challenged, opposed, narrowed, circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products. We cannot be certain that we were the first to invent the inventions claimed in our owned patents or patent applications and/or the first to file said patent applications. In addition, our competitors or other third parties may independently develop similar technologies that don’t fall within the scope of the technology protected under our patents, or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against these competitors. Furthermore, because of the extensive time required for research and development, testing and regulatory review of a potential product until authorization for marketing, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

Trademarks

We rely on trade names, trademarks and service marks to protect our name brands. Our registered trademarks in several countries, such as United States and the European Union, Israel, and certain Latin American countries, include the trademarks GLASSIA, RESPIKAM, KAMRAB, KEDRAB, RESPIRA, KamRHO VENTIA, KAMADA and Rebinolin.

Trade Secrets and Confidential Information

We rely on, among other things, confidentiality and invention assignment agreements to protect our proprietary know-how and other intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. For example, we require our employees, consultants and service providers to execute confidentiality agreements in connection with their engagement with us. Under such agreement, they are required, during the term of the commercial relationship with us and thereafter, to disclose and assign to us inventions conceived in connection with their services to us. However, there can be no assurance that these agreements will be fulfilled or shall be enforceable, or that these agreements will provide us with adequate protection. See “Item 3. Key Information — D. Risk Factors — In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.”

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We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims that we infringe or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive summary of the risks related to our intellectual property, see “Item 3. Key Information — D. Risk Factors.”

Property

Our production plant was built on land that Kamada Assets (2001) Ltd. (“Kamada Assets”), our 74%-owned subsidiary, leases from the Israel Land Administration pursuant to a capitalized long-term lease. Kamada Assets subleases the property to us. The property covers an area of approximately 16,880 square meters. The initial sublease expires in 2058 and we have an option to extend the sublease for an additional term of 49 years. The production plant includes our manufacturing facility, manufacturing support systems, packaging, warehousing and logistics areas, laboratory facilities and an area for the manufacture of snake bite anti-serum, as well as office buildings.

Since January 2017, we have leased approximately 2,200 square meters of a building located in the Kiryat Weizmann Science Park in Rehovot, Israel, which replaced our former Ness Ziona premises. This property houses our head office, our research and development laboratory and additional departments such as our research and development, clinical, medical, regulatory and business development departments.

Environmental

We believe that our operations comply in material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our earnings or competitive position.

Organizational Structure

Our significant subsidiaries are set forth below. All subsidiaries are either 100 percent owned by us or controlled by us. All companies are incorporated and registered in the country in which they operate as listed below:

Legal Name	Jurisdiction
Kamada Biopharma Limited	England and Wales
Kamada Inc.	Delaware
Kamada Ireland Limited	Ireland
Kamada Assets Ltd.	Israel

Legal Proceedings

We are subject to various claims and legal actions during the ordinary course of our business. We believe that there are currently no claims or legal actions that would have a material adverse effect on our financial position, operations or potential performance.

Item 4A. Unresolved Staff Comments

Not applicable.

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Item 5. Operating and Financial Review and Prospects

The following discussion of our financial condition and results of operations should be read in conjunction with “Item 3. Key Information—A. Selected Financial Data” and our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report.

The audited consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 in this Annual Report have been prepared in accordance with IFRS as issued by the IASB. None of the financial information in this Annual Report has been prepared in accordance with U.S. GAAP.

Overview

We are a plasma-derived protein therapeutics company focused on orphan indications, with an existing marketed product portfolio and a late-stage product pipeline. We develop and produce specialty plasma-derived protein therapeutics and currently market these products through strategic partners in the United States and directly, through local distributors, in several emerging markets. We use our proprietary platform technology and know-how for the extraction and purification of proteins from human plasma to produce AAT in a high purity, liquid form, as well as other plasma-derived proteins. AAT is a protein derived from human plasma with known and newly discovered therapeutic roles given its immuno-modulatory, anti-inflammatory, tissue protective and antimicrobial properties. Our flagship product, Glassia, was the first liquid, ready-to-use, intravenous plasma-derived AAT product approved by the FDA (Glassia is also approved for self-administration). We market Glassia through a strategic partnership with Takeda in the United States. In addition to Glassia, we have a product line consisting of five other products which are marketed in more than 15 countries, including Israel, Russia, Brazil, India and other countries in Latin America and Asia. In August 2017, we received FDA approval for anti-rabies immunoglobulin as a post-exposure prophylaxis against rabies infection. In April 2018, we launched, together with Kedrion, KamRAB in the United States, under the trademark “KEDRAB.” In addition to our propriety products, we leverage our expertise and presence in the plasma-derived protein therapeutics market by distributing more than 20 complementary products in Israel that are manufactured by third parties.

Our lead product in development is Inhaled AAT for AATD, for which we completed a pivotal Phase II/III clinical trial in Europe and filed the MAA with the EMA in March 2016. The Phase II/III clinical trial in Europe, however, did not meet its primary or other pre-defined endpoints. Following our discussions with the EMA in regards to the study results, in July 2017, we withdrew the MAA in Europe for our Inhaled AAT for AATD, which relied on this single pivotal clinical trial. Following extensive discussions with the EMA, we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval of the MAA, and that the supplementary data needed for approval required an additional clinical trial. See “Item 4. Information on the Company—Our Product Pipeline and Development Program—Inhaled Formulations of AAT—AATD.” We have also completed a Phase II clinical trial with our Inhaled AAT for AATD in the United States. We are currently in continued discussions with the FDA with respect to a new pivotal Phase III study for Inhaled AAT designed to address both FDA and EMA concerns regarding the safety and efficacy. In July 2018, we received positive scientific advice from the CHMP of the EMA related to the development plan for our proposed pivotal Phase III study for our Inhaled AAT for AATD. The CHMP notified us that it concurred with the overall design of the proposed study, including its objectives, patient population, proposed endpoints and their clinical importance, and the safety monitoring plan. Upon conclusion of the current discussions with the FDA and subject to an approved IND, we intend to initiate the new pivotal Phase III clinical trial in the United States, and resubmit the MAA. However, it is not certain when we will initiate such Phase III clinical trial, as the FDA expressed concerns and questions regarding safety and efficacy, and we are currently in discussions with the FDA regarding the IND approval. See “Risk Factors— Risk Related to Development, Regulatory Approval and Commercialization of Product Candidates.”

Our Segments

We operate in two segments: the Proprietary Products segment, in which we develop and manufacture plasma-derived therapeutics and market them in more than 15 countries, and the Distribution segment, in which we distribute imported drugs in Israel, which are manufactured by third-parties, the majority of which are produced from plasma or its derivative products.

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Segment performance is evaluated based on revenues and gross profit (loss). Items that are not allocated to our segments consist mainly of research and development costs, sales and marketing expenses, general and administrative costs, financial expenses, net and tax  on income, each of which are managed on a group basis. For the year ended December 31, 2018, we derived $90.8 million of revenues from our Proprietary Products segment, or 79% of total revenues, and $23.7 million of revenues from our Distribution segment, or 21% of total revenues. For the year ended December 31, 2017, we derived $79.5 million of revenues from our Proprietary Products segment, or 77% of total revenues, and $ 23.3 million of revenues from our Distribution segment, or 23% of total revenues. For the year ended December 31, 2016, we derived $56.0 million of revenues from our Proprietary Products segment, or 72% of total revenues, and $21.5 million of revenues from our Distribution segment, or 28% of total revenues.

Factors Affecting Our Results of Operations

Demand for our Products

Over the past few years, we have seen an increase in demand for products in our Proprietary Products segment. Our Glassia supplies to Takeda significantly increased throughout the term of our strategic partnership, and based on our agreement with Takeda, we expect Glassia supplies to continue to increase through 2020. In addition, during 2018 we launched KEDRAB in the United States.  As a result, we expect that our revenues will grow in a range of approximately 9% to 14% in 2019, allowing us to achieve our revenue goal of $125 to $130 million by 2019 through increased sales of our existing products in the Proprietary Products segment, mainly driven from sales of Glassia and KEDRAB in the United States. As discussed below, after 2020, Takeda has no obligation to purchase a minimum amount of Glassia, and we expect that the resulting decrease in revenues will be partially offset by income from royalty payments from Takeda on sales of Glassia and continued increased sales of Glassia in rest of the world countries through local distributors and sales of KEDRAB in the United States and other countries.

The AAT augmentation market for AATD in the United States, which is the primary market for Glassia, has grown by more than 6-8% annually in the last few years, and we expect that the overall market for Glassia will continue to increase due to new patient identification. In the United States and Europe, we believe that AATD is currently significantly under-identified and under-treated, as we estimate that only approximately 6% and 2.5% of all potential cases of AATD are treated in the United States and Europe, respectively, with an aggregate of up to an estimated 180,000-190,000 patients suffering from AATD, of which less than 10% have been diagnosed. We expect that our market opportunity for our AAT products, including Glassia and Inhaled AAT for AATD (if approved), will continue to grow as awareness of AATD expands due to factors such as marketing activities, inexpensive and effective diagnosis tools, and improved training. In addition, various awareness and patient identification programs initiated by companies producing AATD treatments are expected to increase demand for Glassia and, once approved, Inhaled AAT for AATD.

Sales of our Distribution segment products are made through public tenders of Israeli hospitals and health maintenance organizations on an annual basis. The prices we can offer, as well as the availability of products, are key factors in meeting the local demand of the Israeli market. Our Distribution segment experienced a moderate growth in sales in 2018 compared to 2017, despite the growing competition. The Distribution segment may continue to grow if we will be able to increase our product portfolio or win more tenders.

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Strategic Partnerships

In July 2010, we received FDA approval for the marketing of Glassia in the United States. Following this approval, we entered into a 30 year strategic arrangement with Takeda (originally executed with Baxter, which subsequently assigned the agreement to Baxalta, which was subsequently acquired by Shire, which was recently acquired by Takeda), for the marketing and distribution of Glassia in the United States, Canada, Australia and New Zealand and for the licensing of our technology, granting Takeda rights to manufacture Glassia for sales in these territories. We began recognizing revenues from sales of Glassia in the United States under this strategic arrangement with Takeda in September 2010. From the inception of the strategic arrangement through December 31, 2018, we have received $39.5 million from Takeda for distribution rights, a portion of which has been accrued as deferred revenue, and for achieving milestones set forth in the distribution and licensing agreements. We have recognized cumulative revenues until December 31, 2018 from Takeda in the amount of $312 million. We currently generate revenues from sales of Glassia to Takeda, and incur cost of revenues to produce it. In accordance with the latest amendment to the manufacturing and distribution agreement, which became effective as of October 5, 2016, Takeda may begin producing Glassia in its own manufacturing facility as early as 2021, and only pay us royalties. As Takeda transitions to producing Glassia in its own facilities, we will incur a substantial reduction in revenues (as well as costs of goods sold), driven by the reduction in Glassia manufacturing. Such decrease in revenues is expected to be partially offset by income from royalty payments from Takeda on sales of Glassia in the United States and continued increased sales of Glassia in the rest of the world countries through local distributors and by income from sales of KEDRAB in the United States. See “Item 3. Key Information — D. Risk Factors — In our Proprietary Products segment, we currently rely on one of our strategic partners that accounts for a significant portion of our total sales and our distribution plan for our principal product candidate relies on another strategic partner, and any disruption to our relationships with these distributors would have an adverse effect on our results of operations and profitability.”

In addition, in July 2011, we signed a strategic agreement with Kedrion to cooperate in the clinical development and exclusive marketing and sales in the United States of KEDRAB, our hyper-immune anti-rabies prophlaxis treatment, which was launched in the United States in April 2018. We have recognized cumulative revenues until December 31, 2018 from Kedrion in the amount of approximately $12 million. Kedrion markets its products in Europe, the United States and in approximately 40 other countries worldwide.

Product Development Costs

Since our company was founded, we have focused on developing a broad portfolio of plasma-derived protein therapeutics for a variety of indications. The development of plasma-derived protein therapeutics is characterized by significant up-front product development costs, including, for example, costs for conducting pre-clinical and clinical trials to obtain regulatory approvals, regulatory expenses, costs for materials for development, external consulting and services fees and opportunity costs for reallocating our production facility to produce clinical trial materials and conforming our production processes for regulatory purposes. In order to reduce costs related to the development and regulatory approval of new protein therapeutics, in some cases we seek to share development costs with strategic partners, such as Takeda for post marketing required clinical trials for Glassia in the United States and Kedrion for the clinical trials for KEDRAB in the United States required for product approval and post marketing commitments. See “Item 4. Information on the Company — Strategic Partnerships — Takeda (Glassia)” and “Business — Strategic Partnerships — Kedrion (KEDRAB).”

Product development costs may fluctuate from period to period, as our product candidates pass through various stages of development. For example, for the years ended December 31, 2018 and 2017, we incurred moderate research and development expenses related to clinical trials related to Inhaled AAT for AATD in Europe and the United States, AAT for the treatment of newly diagnosed Type-1 diabetes and lung transplantation rejection and GvHD. We expect to continue to incur research and development expenses related to clinical trials, as well as other ongoing, planned or future clinical trials with regards to our product pipeline. See “Item 4. Information on the Company — Our Product Pipeline and Development Program.”

Product Competition

The worldwide market for pharmaceuticals in general and biopharmaceutical and plasma products in particular has undergone a process of mergers and acquisitions among companies active in such markets. This trend has led to a reduction in the number of competitors in the market, and the strengthening of the remaining competitors, mainly for specific immunoglobulin products.

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While there are additional producers of AAT products approved in the United States and Europe, including Takeda, we have not seen significant changes in these producers’ activities in the market. Additionally, our strategic alliance with Takeda has strengthened Glassia’s competitive positioning in the market. See “Item 3. Key Information — D. Risk Factors — In our Proprietary Products segment, we currently rely on one of our strategic partners that accounts for a significant portion of our total sales and our distribution plan for our principal product candidate relies on another strategic partner, and any disruption to our relationships with these distributors would have an adverse effect on our results of operations and profitability.”

Costs of Raw Materials

In our Proprietary Products segment, a significant portion of our manufacturing costs are for raw materials consisting of plasma or fraction IV of plasma. The consolidation among plasma companies has led to a decrease in the number of independent plasma collection centers in the world.

In order to ensure the availability of plasma and fraction IV, we have secured supply of plasma and fraction IV from multiple suppliers, including from Takeda for the manufacturing of Glassia and Kedrion for the manufacturing of KEDRAB.

In our Distribution segment, our costs are for the purchase of products for sale from our suppliers. Our annual purchases are forecasted each year with each supplier, but individual product purchases during the year are made on a purchase order basis. For these instances, we tend not to have minimum purchase obligations, and as such, are able to respond accordingly to pricing fluctuations that occur year to year. Historically, we have not seen significant price fluctuations from our two largest suppliers. Unless absent of material changes in the market, such as a significant increase in the price of plasma or plasma-derivatives shall occur, we do not expect a significant increase in the cost of purchasing products.

Key Components of Our Results of Operations

Revenues

In our Proprietary Products segment, we generate revenues from the sale of products to strategic partners and distributors, as well as from the licensing of our technology. We derived a significant portion of our total revenues from sales of Glassia to Takeda. Sales to Takeda accounted for approximately 55%, 59% and 52% of our total revenues in the years ended December 31, 2018, 2017 and 2016, respectively. Revenue from all sales of Glassia comprised approximately 60%, 64% and 56% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. We expect revenues attributable to the sale of Glassia to Takeda will grow in the next two years, in line with the expected Glassia orders by Takeda pursuant to the fifth amendment to the Manufacturing, Supply and Distribution Agreement, until Takeda begins production of Glassia, at which time our sales to Takeda will be reduced and be replaced by royalties from Takeda. Following the launch of KEDRAB in the United States in April 2018, sales of KEDRAB to Kedrion during the year ending December 31, 2018 accounted for approximately 10% of our total revenues.

Revenues from our Proprietary Products segments also include a recognized portion of prior upfront and milestone payments from strategic partners.

Revenues are presented net of  any discounts and/or marketing contribution payments extended to our partners and distributors.

In our Distribution segment, we generate revenues from the sale in Israel of imported products produced by third parties. During the three year period ended December 31, 2018, sales of IVIG decreased due to growing competition. Sales of IVIG accounted for approximately 12%, 12% and 17% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively.

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In the future, as we further commercialize our products, we expect to derive a greater percentage of our revenues from our Proprietary Products segment, mainly as a result of continued growth in sales of our existing products and the potential launch, if approved, of new AAT products and new indications for existing products currently in different development phases.

Cost of Revenues

Cost of revenues in our Proprietary Products segment includes expenses for the manufacturing of products such as raw materials, payroll, utilities, laboratory costs and depreciation. Cost of revenues also includes provisions for write-downs of inventories and inventory write offs. Costs of revenues in our Distribution segment consists of costs of products acquired, packaging and labeling for sales by us in Israel.

In addition to the successful strategic partnerships with Takeda and Kedrion and successful penetration to the U.S. market, we have focused during the years ended December 31, 2018, 2017 and 2016 on increasing our production outputs and improving profitability. In addition, implementing significant technology improvements and streamlining our manufacturing process resulted in significantly increased manufacturing capacity at our facility. The strategic partnership with Takeda enabled us to achieve economies of scale and lower our per-unit costs, and we believe that the increase in production capacity will lead to a further increase in profitability. We have been implementing production improvements for Glassia that we expect will lead to improved margins and higher productivity in anticipation of increased demand for our existing products as well as for additional applications for AAT. Any changes in our Glassia and KEDRAB production processes must be approved by all relevant regulatory bodies, including the FDA.

Gross Profit

Gross profit is the difference between total revenues and the cost of revenues. Gross profit is mainly affected by volume of sales and launching new products, cost of raw materials and plant maintenance and overhead. We have seen an increase in gross profitability in recent years as a result of the increase in our sales and the corresponding reduction in per unit costs attributable to greater production output.

Our gross margins are generally higher in our Proprietary Products segment (42%, 35% and 33% for the years ended December 31, 2018, 2017 and 2016, respectively) than in our Distribution segment (15%, 17%, 15% for the years ended December 31, 2018, 2017, and 2016, respectively).

We expect that our overall gross margins will increase to the extent that our sales from Proprietary Products segment increase as a percentage of our total sales, and we expect our gross margins in the Proprietary Products segment to increase further to the extent that our sales of Glassia (or other AAT products) and KEDRAB increase as these products have higher gross margins than our immunoglobulin proprietary products sold in Rest of the World (“ROW”) countries.

In our Distribution segment we will seek to increase our gross margins through the potential addition of new, more profitable products, to our portfolio, thereby improving product mix.

Research and Development Expenses

Research and development expenses are incurred for the development of new products and newly revised processes for existing products and includes expenses for pre-clinical and clinical trials, development activities in the different fields, the advanced understanding of the mechanism of action of our products,  improving existing products and processes, development work at the request of regulatory authorities and strategic partners, as well as communication with regulatory authorities related to our commercial products and clinical programs. In addition, such expenses include development materials, payroll for research and development personnel, including scientists and professionals for product registration and approval, external advisors and the allotted cost of our manufacturing facility for research and development purposes. While research and development expenses are unallocated on a segment basis, the activities generally relate to our existing or in development proprietary products.

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We expect our research and development expenses to increase in 2019 to reflect our plan to fund certain additional clinical trials for AAT for certain additional indications including Inhaled AAT for AATD, which is pending an FDA approval of our IND. However, actual spending could differ if our plans change or if we potentially reduce our anticipated funding on research for existing products or partner with other parties to fund development of current product candidates.

Selling and Marketing Expenses

Selling and marketing expenses principally consist of expenditures incurred for sales incentive, advertising, marketing or promotional activities, shipping and handling costs, product liability insurance and business development activities, as well as marketing authorization fees to regulatory agencies. Due to our strategic partnerships in our Proprietary Products segment, we expect these costs to remain at a similar level other than ongoing effort to increase sales of existing products.  However, we may incur higher expenses in the future, as we have not entered into strategic partnerships for all of our pipeline products, which we may decide to sell using our own, to be established, direct sales force. We market our products in our Distribution segment to health maintenance organizations and hospitals in Israel.

General and Administrative Expenses

General and administrative expenses consist of compensation for employees in executive and administrative functions (including payroll, bonus, equity compensation and other benefits), office expenses, professional consulting services, public company costs, legal and audit fees as well as employee welfare costs. We expect general and administrative expenses to remain stable.

Financial Income

Financial income is comprised of interest income on amounts invested in bank deposits and short-term investments and the portion of changes in fair value of financial instruments at fair value through other comprehensive income.

Income (expense) in respect of currency exchange differences and derivatives instruments

Income (expense) in respect of currency exchange differences and derivatives instruments are comprised of changes on balances in currencies other than our functional currency. Changes in the fair value of derivatives instruments not designated as hedging instruments are reported to profit or loss.

Financial Expenses

Financial expenses are comprised of bank charges, changes in the time value of provisions, the portion of changes in the fair value of financial assets or liabilities at fair value through other comprehensive income and interest and amortization of bank loans and capital leases.

Taxes on Income

We have not been required to pay income taxes since 1997 other than tax withheld in a foreign jurisdiction in 2012 and 2016 and a $1.3 million payment to the Israel Tax Authority in 2016 as a settlement agreement for the tax years 2004-2006. In 2018, we initially recognized deferred tax asset for a portion of our carryforward losses.

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One of our Israeli facilities has Approved Enterprise status granted by the Israel Investment Center under the Investment Law, which made us eligible for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a grant in the amount of 24% of our approved investments, in addition to certain tax benefits, which will apply to the turnover resulting from the operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated taxable income. The tax benefits under the Approved Enterprise status expired at the end of 2017. Additionally, we have obtained a tax ruling from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,” as defined in the Investment Law, and is also eligible for tax benefits as a Privileged Enterprise, which will apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under the Privileged Enterprise status are scheduled to expire at the end of 2020 and 2023. As of the date of this Annual Report, we have not utilized any tax benefits under the Investment Law, other than the receipt of grants attributable to our Approved Enterprise status.

We may be subject to withholding taxes for payments we receive from foreign countries. If certain conditions are met, these taxes may be credited against future tax liabilities under tax treaties and Israeli tax laws. However, due to our net operating loss carryforwards, it is uncertain whether we will be able to receive such credit and therefore, we may incur tax expenses.

As we further expand our sales into other countries, we could become subject to taxation based on such country’s statutory rates and our effective tax rate could fluctuate accordingly.

As of December 31, 2018, we have net operating loss carryforwards of approximately $65.2 million. The net operating loss carryforwards have no expiration date. Following the full utilization of our net operating loss carryforwards, we expect that our effective income tax rate in Israel will reflect the benefits discussed above.

Results of Operations

The following table sets forth certain statement of operations data:

	Year Ended December 31,
	2018			2017			2016
	(U.S. Dollars in thousands)
Revenues from Proprietary Products segment	$	90,784		$	79,559		$	55,958
Revenues from Distribution segment		23,685			23,266			21,536
Total revenues		114,469			102,825			77,494
Cost of revenues from Proprietary Products segment		52,796			51,335			37,723
Cost of revenues from Distribution segment		20,201			19,402			18,411
Total cost of revenues		72,997			70,737			56,134
Gross profit		41,472			32,088			21,360
Research and development expenses		9,747			11,973			16,245
Selling and marketing expenses		3,630			4,398			3,243
General and administrative expenses		8,525			8,273			7,353
Other expense		311			-			-
Operating income (loss)		19,259			7,444			(5,481	)
Financial income		820			500			469
Income (expense) in respect of currency exchange differences and derivatives instruments		602			(612	)		127
Financial expense		(340	)		(162	)		(126	)
Income (loss) before taxes on income		20,341			7,170			(5,011	)
Taxes on income		(1,955	)		269			1,722
Net income (loss)		22,296			6,901		$	(6,733	)

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Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Segment Results

	Change 2018 vs. 2017
	2018		2017		Amount			Percent
	(U.S. Dollars in thousands)
Revenues:
Proprietary Products	$	90,784	$	79,559	$	11,225			14	%
Distribution		23,685		23,266		419			2	%
Total	$	114,469	$	102,825	$	11,644			11	%
Cost of Revenues:
Proprietary Products	$	52,796	$	51,335	$	1,461			3	%
Distribution		20,201		19,402		799			4	%
Total	$	72,997	$	70,737	$	2,260			3	%
Gross Profit:
Proprietary Products	$	37,988	$	28,224	$	9,764			35	%
Distribution		3,484		3,864		(380	)		(10	)%
Total	$	41,472	$	32,088	$	9,384			29	%

Revenues

In the year ended December 31, 2018, we generated $114.5 million of total revenues, compared to $102.8 million in the year ended December 31, 2017, an increase of $11.7 million, or approximately 11%.  This increase was primarily due to a $11.2 million increase in our Proprietary Products segment revenues, mainly due to the launch of KEDRAB in United States during 2018, and a $0.5 million increase in our Distribution segment, mainly attributable to increased sales of new products and a different product mix.

Cost of Revenues

In the year ended December 31, 2018, we incurred $73.0 million of cost of revenues, compared to $70.7 million in the year ended December 31, 2017, an increase of $2.3 million, or approximately 3%.  The cost of revenues in our Proprietary Products segment increased by $1.5 million, primarily due to an increase in volume of sales. The cost of revenues in our Distribution segment increased by $0.8 million, primarily due to an increase in volume of sales.

Costs of revenues in the year ended December 31, 2018 included a $1.8 million write-off of indirect manufacturing costs and $0.8 million of process materials scraps as a result of a labor strike that caused lower than standard production level during the third quarter of 2018.

Gross profit

Gross profit in our Proprietary Products segment increased by $9.8 million in 2018, primarily due to the launch of KEDRAB in the United States in April 2018, improved manufacturing efficiencies and our ability to increase sale prices in ROW markets. Gross profit in our Distribution segment decreased by $0.4 million in 2018, primarily due to a different mix of sales with lower gross margin.  As a percentage of total revenues, gross margin increased to 36.2% for the year ended December 31, 2018 from 31.2% for the year ended December 31, 2017. Gross margin for the Proprietary Products segment, as a percentage of revenues from that segment, was 41.8% and 35.5% for the years ended December 31, 2018 and 2017, respectively. Gross margin for the Distribution segment, as a percentage of revenues from that segment, was 14.7% and 16.6% for the years ended December 31, 2018 and 2017, respectively. The increase in gross profit margin was primarily driven by an increase in the Proprietary Products segment revenues and high profitability of KEDRAB.

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Research and Development Expenses

In the year ended December 31, 2018, we incurred $9.7 million of research and development expenses, compared to $12 million in the year ended December 31, 2017, a decrease of $2.3 million, or approximately 19%. This decrease was primarily due to a $1.2 million decrease in clinical trial expenses, mainly attributed to a decrease in expenses in connection with the Inhaled AAT clinical trial and its relevant consultants as a result of its deferral to 2019, partially offset by an increase in labor costs. Research and development expenses accounted for approximately 8.5% and 11.6% of total revenues for the years ended December 31, 2018 and 2017, respectively.

Set forth below are the research and development expenses associated with our major development programs in the years ended December 31, 2018 and 2017:

	Year ended December 31,
	2018		2017
	(U.S. Dollars in thousands)
Inhaled AAT	$	356	$	949
AAT for newly diagnosed Type-1 Diabetes		48		475
AAT IV for lung transplantation rejection		194		586
AAT IV for treatment of GvHD		356		148
Anti Rabies		208		340
Recombinant		223		102
Unallocated salary		5,823		6,413
Unallocated facility cost allocated to research and development		1,990		2,325
Unallocated other expenses		549		635
Total research and development expenses	$	9,747	$	11,973

Research and development expenses for Inhaled AAT for AATD decreased by $0.6 million in 2018 due to continued discussions with the FDA regarding its concerns that delayed the execution of the planned clinical trial. Research and development expenses for Type-1 Diabetes decreased by $0.4 in 2018 due to the completion of the clinical trial in 2017. Research and development expenses for Anti Rabies decreased by $0.1 million in 2018 due to low requirement rate for the FDA's post marketing commitment for pediatric study.  Research and development expenses for GvHD increased by $0.2 million due to the initiation of a proof-of-concept trial for the treatment of acute GvHD. Research and development expenses for recombinant human Alpha 1 Antitrypsin increased by $0.1 million in 2018 due to a development plan initiated in 2018. Unallocated expenses are expenses that are not managed by project and are allocated between various tasks that are not always related to a major project. In the years ended December 31, 2018 and 2017, we incurred $5.8 million and $6.4 million, respectively, of unallocated salary expenses which represent all research and development salary expenses, $2.0 million and $2.3 million, respectively, of facility costs allocated to improvements in processes and $0.5 million and $0.6 million, respectively, of unallocated other expenses.

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Our current intentions as to the short-term development timeline for our major development programs are described in “Business — Our Product Pipeline and Development Program,” and we also have long-term development goals. However, we cannot determine with full certainty the duration and completion costs of the current or future clinical trials of our major development programs or if, when, or to what extent we will generate revenues from the commercialization and sale of any product candidates. We or our strategic partners may never succeed in achieving marketing approval for any product candidates. The duration, costs and timing of clinical trials and our major development programs will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation and whether our current or future strategic partners are committed to and make progress in programs licensed to them, if any. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. See “Item 3. Key Information — D. Risk Factors — Risk Related to Development, Regulatory Approval and Commercialization of Product Candidates.”

We will determine which programs to pursue and how much to fund each program in response to the scientific, pre-clinical and clinical outcome and results of each product candidate, as well as an assessment of each product candidate's commercial potential. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements.

Selling and Marketing Expenses

In the year ended December 31, 2018, we incurred $3.6 million of selling and marketing expenses, compared to $4.4 million in the year ended December 31, 2017, a decrease of $0.8 million, or approximately 17%. This decrease was primarily due to a $0.7 million decrease in regulatory fees and decrease of $0.2 million of marketing support to distributors. Selling and marketing expenses accounted for approximately 3.2% and 4.3% of total revenues for the years ended December 31, 2018 and 2017, respectively.

General and Administrative Expenses

In the year ended December 31, 2018, we incurred $8.5 million of general and administrative expenses, compared to $8.3 million in the year ended December 31, 2017, a moderate increase of $0.2 million, or approximately 3%. This increase was primarily due to an increase of $0.2 million in payments to external consultants and share-based payments expense. General and administrative expenses accounted for approximately 7.4% and 8.0% of total revenues for the years ended December 31, 2018 and 2017, respectively.

Other expenses

In the year ended December 31, 2018, we incurred $0.3 million of other expenses, primarily due to an ongoing technology transfer project preformed with an external service provider that is planned to be completed during 2020.

Financial Income

In the years ended December 31, 2018 and December 31, 2017, we generated $0.8 million and $0.5 million of financial income, respectively, from our short term investment portfolio and bank deposits.

Expense in respect of currency exchange differences and derivatives instruments

In the year ended December 31, 2018, we generated $0.6 million of income in respect of currency exchange differences on balances in other currencies versus the U.S. dollar and derivatives impact compared to expense of $0.6 million in the year ended December 31, 2017.

Financial Expenses

In the year ended December 31, 2018, we incurred $0.3 million of financial expenses, compared to $0.2 million in the year ended December 31, 2017.

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Taxes on Income

In the year ended December 31, 2018, we recognized a deferred tax asset representing a portion of carryforward losses that we estimate that we will realize in the coming years, resulting in tax income of $2.0 million for such period.  In the year the ended December 31, 2017, we had $0.3 million taxes on income mainly due to surplus expenses.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Segment Results

	Change 2017 vs. 2016
	2017		2016		Amount		Percent
	(U.S. Dollars in thousands)
Revenues:
Proprietary Products	$	79,559	$	55,958	$	23,601		42.2	%
Distribution		23,266		21,536		1,730		8	%
Total	$	102,825	$	77,494	$	25,331		32.7	%
Cost of Revenues:
Proprietary Products	$	51,335	$	37,723	$	13,612		36	%
Distribution		19,402		18,411		991		5.4	%
Total	$	70,737	$	56,134	$	14,603		26	%
Gross Profit:
Proprietary Products	$	28,224	$	18,235	$	9,989		54.8	%
Distribution		3,864		3,125		739		23.7	%
Total	$	32,088	$	21,360	$	10,728		50.2	%

Revenues

In the year ended December 31, 2017, we generated $102.8 million of total revenues, compared to$77.5 million in the year ended December 31, 2016, an increase of $25.3 million, or approximately 33%.  This increase was primarily due to a 23.6 million increase in our Proprietary Products segment revenues, mainly due to an increase in sales of Glassia in United States, and a $1.7 million increase in our Distribution segment, mainly attributable to increased sales of new products and a different mix of sales.

Cost of Revenues

In the year ended December 31, 2017, we incurred $70.7 million of cost of revenues, compared to $56.1 million in the year ended December 31, 2016, an increase of $14.6 million, or approximately 26%.The cost of revenues in our Proprietary Products segment increased by $13.6 million mainly due to an increase in volume of sales. The cost of revenues in our Distribution segment increased by $1 million, primarily due to an increase in volume of sales.

Gross profit in our Proprietary Products segment increased by $10 million in 2017, primarily due to an increase in sales of Glassia in United States. Gross profit in our Distribution segment increased by $0.7 million in 2017, primarily due to different mix of sales with higher gross margin.  As a percentage of total revenues, gross margin increased to 31.2% for the year ended December 31, 2017 from 27.6% for the year ended December 31, 2016. Gross margin for the Proprietary Products segment, as a percentage of revenues from that segment, was 35.5% and 32.6% for the years ended December 31, 2017 and 2016, respectively. Gross margin for the Distribution segment, as a percentage of revenues from that segment, was 16.6% and 14.5% for the years ended December 31, 2017 and 2016. The increase in gross profit margin was primarily driven by an increase in the Proprietary Products segment revenues.

89

Research and Development Expenses

In the year ended December 31, 2017, we incurred $12 million of research and development expenses, compared to $16.2 million in the year ended December 31, 2016, a decrease of $4.2 million, or approximately 26%. This decrease was primarily due to a $4.5 million decrease in clinical trial expenses, mainly attributed to a decrease in expenses in connection with Inhaled AAT, Type-1 Diabetes and Anti Rabies clinical trials as a result of their deferral to 2018, partially offset by an increase in labor costs. Research and development expenses accounted for approximately 11.6% and 21.0% of total revenues for the years ended December 31, 2017 and 2016, respectively.

Set forth below are the research and development expenses associated with our major development programs in the years ended December 31, 2017 and 2016:

	Year ended December 31,
	2017		2016
	(U.S. Dollars in thousands)
Inhaled AAT	$	949	$	2,695
AAT for newly diagnosed Type-1 Diabetes		475		2,320
AAT IV for lung transplantation rejection and for GvHD		734		194