S-1/A 1 zk1720025.htm S-1/A
As filed with the Securities and Exchange Commission on May 23, 2017
 
Registration No. 333-216287


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Amendment No. 3
to
FORM S-1

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
 
AIT Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
3841
 
47-3812456
(State or Other Jurisdiction of Incorporation
 
(Primary Standard Industrial Classification
 
(I.R.S. Employer Identification
or Organization)
 
Code Number)
 
Number)
 
2 Ilan Ramon, Science Park
Ness Ziona, 7403635 Israel
+972.8.684.3313
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
2 Ilan Ramon, Science Park
Ness Ziona, 7403635 Israel
+972.8.684.3313
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
Copies to :
Robert L. Grossman, Esq.
Drew M. Altman, Esq.
Greenberg Traurig, P.A.
333 Avenue of the Americas, Suite 4400
Miami, FL 33131
(305) 579-0500
(305) 579-0717 (facsimile)
 

Approximate date of commencement of proposed sale to the public:  From time to time after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   ☒
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
  Large accelerated filer
  Accelerated filer
  Non-accelerated filer (Do not check if a smaller reporting company)
☒   Smaller reporting company
  ☒   Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.          

 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class
of Securities to be Registered
 
Amount to be
 Registered (1)
   
Proposed
Maximum
Offering Price
Per
Share (2)
   
Proposed
Maximum
Aggregate
Offering
Price (2)
   
Amount of
 Registration
 Fee (2)(3)
 
Common Stock, par value $0.0001 per share
   
1,701,616
   
$
6.00
   
$
10,209,696
   
$
1,183.30
 
Common Stock, $0.0001 par value per share, issuable upon exercise of warrants to purchase shares of Common Stock
   
3,403,232
   
$
6.00
   
$
20,419,392
   
$
2,366.61
 
Total
   
5,104,848
           
$
30,629,088
   
$
3,549.91
 
 
(1)
Pursuant to Rule 416 of the Securities Act of 1933, as amended, this Registration Statement also registers such additional shares of Common Stock as may become issuable to prevent dilution as a result of stock splits, stock dividends or similar transactions.
 
(2)
Calculated pursuant to Rule 457(c) under the Securities Act; provided, that, because (i) there have been no publicly-reported transactions in the Registrant's common stock since September 2016, whether on OTC Pink or otherwise, (ii) the last such reported transaction was $0.30 per share (which was prior, and without giving effect, to the 1:100 reverse split effected in January 2017) and (iii) there is no active public trading market for the common stock, the price set forth in the Calculation of Registration Fee Table is the Registrant's good faith estimate of the price of its common stock, as most recently issued and sold by the Registrant and described in this Registration Statement.
 
(3)
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act.
 
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 

 
The information in this prospectus is not complete and may be changed.  The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated May 23, 2017
 
5,104,848 Shares
 


Common Stock
 
This prospectus relates to the resale by the selling stockholders named herein of up to an aggregate of 5,104,848 shares of common stock, par value $0.0001 per share, of AIT Therapeutics, Inc., which we refer to as Common Stock, consisting of 1,701,616 shares that are currently issued and outstanding and 3,403,232 shares that are issuable upon the exercise of warrants held by the selling stockholders.
 
As of the date of this prospectus, our Common Stock is subject to only limited quotation on the OTC Pink, and it is not otherwise regularly quoted on any other over-the-counter market. Until such time as our Common Stock is so quoted, the shares of Common Stock covered by this prospectus will be sold by the selling stockholders from time to time at a fixed price of $6.00 per share, representing the sales price of the units issued and sold in our most recent private placement that included Common Stock, effected on March 31, 2017. If and when our Common Stock is regularly quoted on an over-the-counter market or on a national securities exchange, the selling stockholders may sell their respective shares of Common Stock from time to time at prevailing market prices or in privately negotiated transactions.  For additional information on the possible methods of sale that may be used by the selling stockholders, please see “Plan of Distribution”, beginning on page 98
 
All of the shares of Common Stock are being sold by the selling stockholders named in this prospectus. We will not receive any of the proceeds from the sale of the shares of Common Stock being sold by the selling stockholders. We are bearing all of the expenses in connection with the registration of the shares of Common Stock, but all selling and other expenses incurred by the selling stockholders, including commissions and discounts, if any, attributable to the sale or disposition of the shares will be borne by them.
 
Our Common Stock is quoted on OTC Pink under the symbol “AITB”.
 
We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings.  See “Summary—Emerging Growth Company Status.”
 
An investment in our Common Stock involves substantial risks. See “Risk Factors” beginning on page 8 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus.  Any representation to the contrary is a criminal offense.
 
The date of this prospectus is                  , 2017.
 

 
TABLE OF CONTENTS
 
Prospectus
 

1

 
SUMMARY
 
This summary highlights information contained elsewhere in this prospectus.  This summary is not complete and does not contain all of the information that you should consider before deciding to invest in our Common Stock.  You should read this entire prospectus, including the section entitled “Risk Factors,” and our financial statements and the notes thereto contained herein before deciding to invest in our Common Stock.  Unless the context otherwise requires, the terms “we,” “us,” “our,” “AITT” or the “Company” refer to the business of AIT Therapeutics, Inc. and its consolidated subsidiaries.
 
Our Company
 
Overview
 
We are an emerging biopharmaceutical company that is developing a single proprietary formulation of 160 parts per million, or ppm of Nitric Oxide, chemically denoted as NO, and delivery system to treat certain respiratory infections for which we believe current treatments are of limited success. Our current product candidates may be marketed as a combination drug and associated medical device; in that case, any final product would be composed of two distinct components: our proprietary delivery system and a specific gaseous NO drug, each of which may be subject to separate premarket review by the FDA.
 
We believe our novel system is designed to successfully deliver a high dosage of NO to the lungs that has the potential to eliminate microbial infections, including bacteria, fungi and viruses. Current FDA approved 20 ppm NO vasodilation treatments are not intended to treat microbial infections and are approved for hypoxia but only in premature babies. NO is produced naturally by the body as an innate immunity mechanism. Clinical trials have demonstrated, however, that in order to combat severe infections, higher concentrations of an NO formulation are required. Based on our studies, we believe that 160 ppm is the minimum therapeutic dose to achieve the pulmonary antimicrobial effect of NO. To date, the FDA has not approved any NO formulation and delivery system for the delivery of 160 ppm antimicrobial dosage to the lungs.
 
Recent Developments
 
The Merger and Reverse Acquisition
 
On December 29, 2016, the Company (formerly known as KokiCare, Inc.) entered into an Agreement and Plan of Merger, which, as amended, we refer to as the Merger Agreement, together with Red Maple Ltd., a wholly owned subsidiary of KokiCare, Inc., referred to as Merger Sub, and Advanced Inhalation Therapies Ltd. which we refer to as AIT Ltd.  The Merger Agreement provided for (i) the merger of Merger Sub with and into AIT Ltd. pursuant to the laws of the State of Israel, referred to as the Israeli Merger, and (ii) the conversion of the ordinary shares and other outstanding securities of AIT Ltd. into the right to receive shares and other applicable securities of the Company, with AIT Ltd. surviving as a wholly owned subsidiary of the Company, which we refer to as the Merger.  The Israeli Merger became effective on December 29, 2016 and the Merger closed on January 13, 2017.
 
Prior to consummation of the Merger, effective as of January 9, 2017, the Company amended its Certificate of Incorporation, which we refer to as the Amended and Restated Certificate of Incorporation to (i) change its name from “KokiCare, Inc.” to “AIT Therapeutics, Inc.”, (ii) increase its capitalization to provide for the issuance of up to 100,000,000 shares of its Common Stock and up to 10,000,000 shares of preferred stock, par value $0.0001 per share; and (iii) effect a one-for-100 reverse stock split of the Common Stock.  On January 9, 2017, the Company’s Board of Directors declared a $2.50 per share cash dividend to its stockholders of record as of January 9, 2017, and the Company repurchased 90,000 shares of Common Stock (on a post-reverse stock split basis) at a price of $0.2667 per share from its principal stockholder, Jason Lane.
 
Immediately prior to the Merger, AIT Ltd. consummated a private placement, referred to as the Israeli Private Placement, pursuant to which it issued to investors, referred to as the Investors, an aggregate of 1,701,616 of its ordinary shares, together with warrants to purchase an aggregate of 3,403,232 ordinary shares for gross proceeds of approximately $10.2 million.  In connection with the Merger, we assumed AIT Ltd.’s obligations under the purchase agreements with respect to such private placement, including the registration rights contained therein, which we collectively refer to as the Assumed Purchase Agreements.
 
 
2

 
 
In connection with the closing of the Merger, all outstanding ordinary shares, warrants and options of AIT Ltd. were converted into shares of AITT Common Stock, warrants and stock options, respectively, at a ratio of 1:1. The warrants issued in exchange for the AIT Ltd. warrants issued in the Israeli private placement are referred to herein as the Warrants. The offer and sale of the shares of Common Stock and other securities issued to the prior shareholders of AIT Ltd. pursuant to the Merger were made in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Rule 506 of Regulation D promulgated thereunder.  Those persons who participated in the Israeli Private Placement are included as selling stockholders in this prospectus with respect to the shares of Common Stock and the shares of Common Stock underlying warrants acquired by them in exchange for their shares of AIT Ltd. and warrants to acquire shares of AIT Ltd., respectively, which such persons acquired in the Israeli Private Placement and were subsequently exchanged in the Merger.
 
The Merger is being accounted for as a reverse merger and recapitalization.  AIT Ltd. is the acquirer for financial reporting purposes, and AITT is the acquired company.  Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the Merger will be those of AIT Ltd. and will be recorded at the historical cost basis of AIT Ltd., and the consolidated financial statements after completion of the Merger will include the assets and liabilities of AITT and its consolidated subsidiaries, including AIT Ltd.
 
Pursuant to the Assumed Purchase Documents, we agreed to file with the Securities and Exchange Commission, which we refer to as the SEC, as soon as reasonably practicable, but in no event later than February 27, 2017, which we refer to as the Filing Deadline, a registration statement registering for resale all shares of Common Stock issued in connection with the Merger in respect of shares of AIT Ltd. issued in the Israeli Private Placement, and all shares of our Common Stock issuable upon the exercise of the Warrants.
 
We filed this registration statement on Form S-1 pursuant to our obligations under the Assumed Purchase Documents.
 
Recent Management and Board Changes
 
On April 25, 2017, Dr. Jerome B. Zeldis, one of our directors, resigned from the Board of Directors with immediate effect.  Dr. Zeldis resigned due to the time commitments required for his service on the boards of other public companies and not due to any disagreement with the Company.  Dr. Zeldis remains a member of our scientific advisory board.
 
Mr. Haim (Hai) Aviv joined the Company as Chief Financial Officer on February 28, 2016.  Mr. Aviv,  who is 35 years old, joined us from Babylon Ltd., a publicly-traded Israeli company listed on the Tel Aviv Stock Exchange, operating in the fields of Internet, risk capital investments and software, where he has served as Chief Financial Officer from 2013 to the present. From 2010 to 2013, Mr. Aviv served as Babylon’s corporate controller. Mr. Aviv is a certified public accountant and, from 2005 to 2010, served as manager at the Ernst & Young Accounting Firm, Kost Forer, Gabbay & Kasierer, working predominantly with the high-tech team.
 
In connection with Mr. Aviv’s appointment as CFO, Mr. Aviv entered into an employment agreement (the “Employment Agreement”) with the Company’s wholly owned subsidiary, AIT Ltd., providing for annual compensation in an amount equal to 420,000 New Israeli Shekels (NIS), or approximately $113,400, based on an exchange rate of $0.27 per NIS.  Severance and disability benefits are generally provided as required under Israeli law.  Additionally, Mr. Aviv is entitled to a grant of options to purchase 50,000 shares of the Company’s common stock, par value $0.0001, per share, subject to the Board’s adoption of an equity compensation plan and due authorization of such grant.  Under the Employment Agreement, Mr. Aviv has also agreed to customary non-disclosure and non-competition covenants, and either party may terminate the Employment Agreement upon 90-days prior written notice to the non-terminating party.
 
On February 12, 2017, Ms. Racheli Vizman, Chief Operating Officer of the Company, delivered notice of her resignation to the Company, effective as of March 20, 2017.  Ms. Vizman resigned to pursue new opportunities and not due to any disagreement with the Company.
 
March 2017 Private Placement
 
On March 31, 2017 we consummated a private placement on substantially identical terms to those on which AIT Ltd. effected the Israeli Private Placement, pursuant to which we issued and sold an aggregate of 110,494 units, each composed of one share of Common Stock and five-year warrants to purchase two shares of common stock at an exercise price of $6.90 per share.  We issued and sold the units to certain private investors at a purchase price of $6.00 per unit, for which we received approximately $663,000 of gross proceeds before deduction of fees and expenses.  We issued the foregoing securities in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.  We refer to the foregoing private placement as the March 2017 Private Placement.
 
 
 
3

 
 
Business Strategy
 
Our business strategy is to build a leading biopharmaceutical company intended to develop and commercialize patented and proprietary products for the treatment of respiratory infections and diseases. We intend to conduct clinical trials for our most advanced product candidates, NOxBR for the treatment of premature babies and infants suffering from bronchiolitis caused mainly by the respiratory syncytial virus (RSV) and NOxNTM for the treatment of cystic fibrosis (CF) patients suffering from lung infections caused by Non Tuberculosis Mycobacterial (NTM) Abscessus, a unique antibiotic resistant bacteria associated with CF. Subject to funding, the Company will explore treatment for chronic obstructive pulmonary disease (COPD) and CF itself. If these trials are successful, we plan to seek marketing approval for our products from the FDA and other worldwide regulatory bodies.
 
Business Overview
 
We believe our novel system is designed to successfully deliver a high dosage of NO to the lungs for the purposes of eliminating microbial infections, including those caused by bacteria, fungi and viruses. We believe current FDA approved 20 ppm. NO vasodilation treatments have limited success in treating microbial infections. NO is produced naturally by the body as an effective innate immunity mechanism. Clinical trials have demonstrated, however, that in order to combat severe infections, higher concentrations of an NO formulation are required. Based on our studies, we believe that 160 ppm is the minimum therapeutic dose to achieve the pulmonary antimicrobial effect of NO. To date, the FDA has not approved any NO formulation and delivery system for the delivery of a high antimicrobial dosage to the lungs.
 
A Phase 1 clinical trial to assess our treatment regimen and NO dose on health subjects has been completed. We have also recently completed two Phase 2 trials to treat severe bronchiolitis- and CF-related lung infections.  In addition, Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically, M. Abscessus).  These trials were conducted in Israel and Canada using delivery devices that are different from the one that we intend to clinically test and market in the United States. None of these clinical trials was done pursuant to an FDA Investigational New Drug, or IND, application.
 
Our general target indication for our product is lower respiratory tract infections (LRTI), including our first two targeted indications, premature babies and infants with bronchiolitis (mainly RSV) and NTM Abscessus in patients with CF.
 
The first indication is severe bronchiolitis in hospitalized premature babies or infants. Currently, there is no antiviral treatment for bronchiolitis. The treatment for severe bronchiolitis in infants is largely supportive care, and is based primarily on prolonged hospitalization during which the infant receives a constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes utilized until recovery, but we believe these treatments have not been proven successful.
 
Our second indication is NTM Abscessus among patients with CF. NTM Abscessus lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. There is an increasing rate of lung disease caused by NTM Abscessus. We intend to treat in our clinical studies only NTM Abscessus in patients with CF. If successful, we will consider approaching the general NTM market, which is much larger. CF is the most frequent lethal genetic disorder in the Caucasian population, affecting more than 8,000 persons in the United Kingdom and 30,000 in the United States. Early death is mainly from chronic lung disease caused by persistent lower airway infection and inflammation. Important airway pathogens include staphylococcus aureus and pseudomonas aeruginosa, but others, such as NTM, are playing an increasingly recognized role. A multicenter prospective study of CF patients in the United States found the prevalence of NTM in sputum to be 13%. Older age was the most significant predictor for a positive sputum culture. A multicenter CF study in France reported a prevalence of 6.6%, (Paul Seddon et al, 2009). NTM patients require prolonged treatment which varies among different types of species in the family of mycobacteria, severity of the disease and drug-susceptibility. As NTM Abscessus is usually antibiotic-resistant, treatment guidelines suggest a combination of two-to-three different antibiotics delivered continually over one-to-two years.
 
In contrast, we believe that our system is designed to eliminate bacteria, viruses, fungi and other microbes from the lungs and may work against antibiotic resistant bacteria. In addition, we believe our treatment reduces the mucus caused by lung infections and enhances vasodilation for improved blood flow.
 
 
4

 
 
 
From a regulatory perspective, we intend to submit INDs to the FDA to conduct two clinical trials in the United States, one for a Phase 3 clinical trial for hospitalized premature babies and infants suffering from bronchiolitis and another for a Phase 3 clinical trial involving a relatively small cohort of CF patients suffering from NTM Abscessus. We are uncertain at this time whether the FDA will treat our product as a drug or drug-device combination product, and, if the latter, whether the agency will require or permit two separate marketing applications--a New Drug Application, or NDA, for the drug (i.e., the gas) and a second premarket notification or possibly premarket approval, or PMA application for the device (i.e., our NOxSysBS proprietary delivery system). If the FDA treats our product as two distinct products--a drug and device--for regulatory purposes, it may also require that we submit an Investigational Device Exemption application, or IDE, before we are permitted to use the device in clinical trials.
 
We have a broad intellectual property portfolio directed to our product candidates and mode of delivery, monitoring parameters and methods of treating specific disease indications. Our intellectual property portfolio consists of seven issued patents and one patent application and their continuations and foreign counterparts, which we have obtained through a non-exclusive worldwide license from SensorMedics Corporation, a subsidiary of CareFusion, 17 issued patents which we recently acquired pursuant to the exercise of an option granted to us by Pulmonox Technologies Corporation, or Pulmonox, and 21 patent applications developed by us internally. Eight of the Pulmonox patents that we acquired are jointly owned by CareFusion and Pulmonox, five of which are covered by our non-exclusive license with CareFusion. Our royalty and other license obligations to CareFusion with respect to these five patents will remain in effect as long as our CareFusion license remains in effect.
 
Additionally, our product candidates may be able to benefit from prior studies, scientific publications and prior clearance of other NO products by the FDA.
 
Competition
 
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products. We are aware of several companies currently developing and selling NO therapies for various indications such as pulmonary hypertension. For example Ikaria, Inc. commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the United States, Canada, Australia, Mexico and Japan. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® (NOxBOX Ltd. was recently purchased by Praxair), and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations. Bellepheron Therapeutics is developing NO-based products for persistent arterial hypertension and pulmonary hypertension associated with chronic obstructive pulmonary disease. Geno LLC is developing NO-based products for the treatment of a variety of pulmonary and cardiac diseases such as acute vasoreactivity testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary fibrosis. In addition, other companies may be developing generic NO formulation delivery systems for various dosages. Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market an NO gas product for use in membrane diffusing capacity testing in pulmonary function laboratories in the United States. Novoteris, LLC previously received orphan drug designation from the FDA and EMA for the use of inhaled NO-based treatments in treating CF. Novoteris will be eligible for orphan drug exclusivity if the FDA approves its product first for the indication for which it received orphan drug designation, which would preclude the Company from obtaining orphan drug exclusivity for its comparable product should it be subsequently approved by the FDA. In January 2015, Ikaria entered into an agreement with Novoteris to collaborate on the development of an outpatient program for treating bacterial infections associated with CF. Recently, we have become aware that Ikaria and Novoteris are planning a Phase 2 clinical trial using a 160 ppm NO formulation to treat patients with CF.
 
Our competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical, manufacturing, marketing and human resources than we do and significantly greater experience and infrastructure in the research and clinical development of pharmaceutical products, obtaining FDA and other regulatory approvals of those products and commercializing those products around the world.
 
 
5

 
 
Corporate Information
 
We were incorporated in Delaware on April 28, 2015 under the name “KokiCare” and, prior to the Merger, operated as a healthcare software company.  Concurrent with the closing of the Merger, we abandoned our pre-Merger business plan in the healthcare software industry, and we are now solely pursuing our business in the biopharmaceutical industry, which we conduct, almost exclusively, through our wholly owned Israeli subsidiary, AIT Ltd.  AIT Ltd. was incorporated in Rehovot, Israel, under the laws of the State of Israel on May 1, 2011.
 
Our principal executive offices are located at 2 Ilan Ramon, Science Park, Ness Ziona, 7403635, Israel, and our telephone number is +972.8.684.3313.  Our website address is www.ait-pharm.com.  Our website and the information contained on our website, or linked through our website, are not part of this prospectus, and you should not rely on our website or such information in making a decision to invest in our Common Stock.
 
Emerging Growth Company Status
 
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act enacted on April 5, 2012, referred to as the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory "say-on-pay" and "say-when-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation.
 
Under the JOBS Act, we will remain an emerging growth company until the earliest of:
 
December 31, 2021;
 
the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
 
the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and
 
the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act (we would qualify as a large accelerated filer as of the first day of the first fiscal year after we (i) have more than $700 million in aggregate market value of outstanding common equity held by our non-affiliates as of the last day of our second fiscal quarter of our prior fiscal year and (ii) have been public for at least 12 months).
 
We have taken advantage of reduced disclosure requirements in this prospectus by providing reduced disclosure regarding executive compensation arrangements. We may choose to take advantage of some, but not all, of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than the information you might get from other public companies in which you hold stock.
 
The JOBS Act also provides that an emerging growth company may utilize the extended transition period provided for complying with new or revised accounting standards. We have irrevocably elected to take advantage of this extended transition period. Because we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with the effective dates of those accounting standards.
 
 
 
6

 
  
The Offering
Common Stock offered by the selling stockholders:
5,104,848 shares, consisting of 1,701,616 shares and 3,403,232 shares issuable upon the exercise of the Warrants.
Common Stock outstanding:
6,290,664 shares as of the date of this prospectus, excluding:
 
·          3,624,220 shares issuable upon the exercise of warrants; and
 
·          734,647 shares issuable upon the exercise of stock options.
Terms of Offering and Trading market:
Our Common Stock is currently subject to only limited quotation on OTC Pink under the symbol “AITB, and it is not otherwise regularly quoted on any other over-the-counter market. Until such time as our Common Stock is so quoted, the shares of Common Stock covered by this prospectus will be sold by the selling stockholders from time to time at a fixed price of $6.00 per share, representing the sales price of the units issued and sold in our most recent private placement that included Common Stock, effected on March 31, 2017. If and when our Common Stock is regularly quoted on an over-the-counter market or on a national securities exchange, the selling stockholders may sell their respective shares of Common Stock from time to time at prevailing market prices or in privately negotiated transactions.  For additional information on the possible methods of sale that may be used by the selling stockholders, please see “Plan of Distribution”, beginning on page 98
Use of proceeds:
The selling stockholders will receive the proceeds from the sale of shares of Common Stock offered hereby.  We will not receive any proceeds from the sale of the shares of Common Stock, but will pay the expenses (other than any underwriting discounts and broker’s commissions and similar expenses) of this offering.
Registration Delay Payments
We are filing the registration statement, of which this prospectus forms a part, in satisfaction of certain of our obligations under the Assumed Purchase Documents, which require that we file a registration statement with respect to the resale of the Common Stock registered hereunder and use our reasonable best efforts to cause that registration statement to be declared effective under the Securities Act as promptly as possible but in no event later than the earlier of (i) 90 days after the original date of filing and (ii) the fifth day following the date on which we are notified by the SEC that such registration statement will not be subject to further review.  We refer to this deadline as the Effectiveness Deadline.
 
If (i) the registration statement, of which this prospectus forms a part, is not declared effective by the SEC on or before the Effectiveness Deadline, (ii) subject to certain exceptions, the registration statement, of which this prospectus forms a part, once effective, cannot be used by the selling stockholders due to our failure to maintain the effectiveness of such registration statement or (iii) if we fail to file with the SEC required reports under Section 13 or 15(d) of the Exchange Act, such that any of the selling stockholders are unable to sell the Common Stock registered hereunder pursuant to Rule 144, then we would be required to pay to the selling stockholders, on a monthly basis, registration delay payments in an amount equal to 1.5% of the total purchase price paid by them for their respective securities, subject to a cap equal to 19.5% of the total purchase price.  This cap would not apply to a failure resulting from our not having used our reasonable best efforts to comply with our registration obligations under the Assumed Purchase Documents, which would result in 3.0% monthly fees.  Subject to the foregoing limitations, registration delay payments continue until all failures are cured.
Risk Factors:
We are subject to a number of risks that you should be aware of before you decide to purchase our Common Stock.  These risks are discussed in the section captioned “Risk Factors,” beginning on page 8 of this prospectus.
 
 
7

 
RISK FACTORS
 
An investment in our Common Stock involves a high degree of risk.  Before making an investment decision, you should carefully consider the following risk factors.  If any of these risks actually occur, our business, financial condition and results of operations could be materially harmed, and the trading price of our Common Stock could decline.
 
Risks Related to Our Financial Position and Capital Requirements
 
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.  We are a clinical-stage company with no approved products, and have generated no revenue to date and may never generate revenue or achieve profitability.
 
Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision.  These are not the only risks we face.  These risks include, among others, that:
 
·
we are a development-stage biopharmaceutical company and have a limited operating history on which to assess our business, have incurred significant losses since our inception, including a net loss of $3.7 million for year ended December 31, 2016, and an accumulated deficit of approximately $19.9 million as of March 31, 2017, and anticipate that we will continue to incur significant losses for the foreseeable future;
 
·
we are unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at all.  Even if we succeed in developing and commercializing our product candidates, we may never generate revenue to sustain profitability;
 
·
we have no source of revenue, and we expect that we will need to raise additional funding before we can expect to become profitable from sales of our products;
 
·
we are heavily dependent upon the success of our product candidates, which are in the early stages of clinical development, and we cannot provide any assurance that the FDA or other regulatory agencies will allow us to conduct further clinical trials;
 
·
we are in the process of developing our NOxSysBS proprietary delivery system, and unexpected delays will adversely impact the timing of our U.S.-based clinical trials;
 
·
we might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever;
 
·
our competitors may develop or commercialize products faster or more successfully than us;
 
·
because some of our the target patient populations of our product candidates are small, we must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth;
 
·
our reliance on third parties to help conduct our pre-clinical studies and clinical trials;
 
·
we do not have any products approved for sale by the FDA or any other regulatory agencies, and we cannot provide any assurance that any of our product candidates will receive regulatory approval;
 
·
if we are unable to obtain and maintain effective intellectual property rights for our technologies, product candidates or any future product candidates, we may not be able to compete effectively in our markets; and
 
·
our future success depends in part upon our ability to retain our executive and scientific teams, and to attract, retain and motivate other qualified personnel.
 
8

 
It is highly likely that we will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain, including due to the going concern opinion rendered by our independent accounting firm, and could dilute current stockholders’ ownership interests.
 
Our future capital requirements will depend on many factors, including the progress and results of our clinical trials, the timing and outcome of regulatory review of our product candidates, the number and development requirements of other product candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to reasonably estimate the amounts of additional capital outlays and operating expenditures that our business will require. It is likely that we will need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:
 
·
clinical trials for our product candidates;
 
·
researching and developing new products;
 
·
pursuing growth opportunities, including more rapid expansion;
 
·
acquiring complementary businesses or technologies;
 
·
making capital improvements to improve our infrastructure;
 
·
hiring qualified management and key employees;
 
·
responding to competitive pressures;
 
·
complying with regulatory requirements; and
 
·
maintaining compliance with applicable laws.
 
Any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership in us and could also result in a decrease in the market price of our Common Stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.
 
Furthermore, any debt or equity financing that we may need may not be available on terms favorable to us, or at all. We have recurring losses from operations and an accumulated deficit that has caused our independent registered public accounting firm to express in its report its doubt about our ability to continue as a going concern. Given our recurring losses and this “going concern” opinion, it may be difficult or costly for us to raise capital, as investors may require terms that are unfavorable to us in order to compensate them for the increased risk inherent in an investment in us.
 
Additionally, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
 
If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business, and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
 
9

 
 
Risks Related to the Discovery and Development of Our Product Candidates
 
We are heavily dependent on the success of our product candidates, which are in the early stages of clinical development.  We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
 
To date, we have invested substantially all of our efforts and financial resources to design and develop our product candidates, including conducting clinical studies and providing general and administrative support for these operations.  Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates.  We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
 
Each of our product candidates is in the early stages of development and will require additional clinical development (and in some cases additional preclinical development), management of nonclinical, clinical and manufacturing activities, regulatory approval, obtaining adequate manufacturing supply, building of a commercial organization and significant marketing efforts before we generate any revenue from product sales.  To date, we have conducted a Phase 2 clinical trial involving 43 patients with bronchiolitis (mainly caused by RSV) and a Phase 2 clinical trial in nine patients with CF.  In addition, Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically M. Abscessus).  All of these trials were conducted outside the United States and were not conducted pursuant to an FDA IND.  The results of these three trials showed improvements in various endpoints and clinical outcomes.  The trials were small, however, and it is likely that the FDA will view them as not statistically significant because of their size and scope.  In addition, the delivery systems were different from the one that we intend to test and market, subject to FDA approval, in the United States, further reducing the likelihood that FDA would view these test results as adequate or sufficient to support marketing applications.  We therefore intend to conduct larger clinical trials aiming for statistically and clinically significant favorable results, or we will not be able to obtain regulatory approval to market our product candidates.  It may be years before a pivotal study is initiated, if at all.  Before a clinical drug trial can be undertaken in the United States, the sponsor of the trial must submit an IDE application for a medical device or an IND for a drug, and the FDA must permit the trial to go forward.  We cannot assure that we will obtain such agency acquiescence in a timely manner, or at all. 
 
In addition, we cannot be sure that we will be successful in completing the development of our NOxSysBS proprietary delivery system to the satisfaction of the FDA, which could lead to material delays in our ability to commence U.S.-based clinical trials, if at all.  We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. It is also uncertain whether the FDA will treat the delivery system as a separate medical device requiring some form of premarket review and if so, whether the FDA will require a separate IDE, further complicating the regulatory process. 
 
We as a company have never submitted marketing applications for approval of our product candidates to the FDA or comparable foreign regulatory authorities; although in 2014 the FDA granted the Company orphan drug designation for the use of NO in the treatment of CF and in 2015, the EU also granted the Company orphan drug designation for the use of NO in the treatment of CF.  We cannot be certain that any of our product candidates will be successful in clinical studies or receive regulatory approval.  Further, our product candidates may not receive regulatory approval even if they are successful in clinical studies.  If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.  Even if we do receive FDA approval for our drug, the indications for which we are initially seeking approval are very narrow and this, as a result, may limit their commercial viability.
 
We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the EU and in additional foreign countries.  To obtain regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing and distribution of our product candidates.  Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions.  If we are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations would be negatively affected.
 
10

 
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable.  If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
 
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical studies and depends upon numerous factors.  In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application.  We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
 
The process required by the FDA before a new drug product may be marketed in the United States generally involves the following:
 
          completion of or reference to extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations;
 
          submission to the FDA of an IND application, which the FDA authorizes before   we may begin conducting human clinical trials, provided that the FDA does not object; the IND must be updated annually;
 
          performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug candidate for each proposed indication; and
 
          submission to the FDA of an NDA, after completion of all pivotal clinical trials.
 
An IND application is a request for authorization from the FDA to administer an investigational drug product to humans. We currently do not have any INDs in effect. 
 
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with current Good Clinical Practices, or cGCPs, which include the requirement that all research subjects provide their informed consent for participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s Institutional Review Board, or IRB, before the trials may be initiated, and the IRB must monitor the study until completed and re-assess and approve the study at least annually. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
 
Clinical trials are usually conducted in three phases. Phase 1 clinical trials are normally conducted in small groups of healthy volunteers to assess safety and find the potential dosing range. After a potentially safe dose has been established, the drug is administered to small populations of patients (Phase 2) to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess safety.  Phase 3 clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of the drug.
 
During the course of a clinical trial, we are required to inform the FDA and the IRB about adverse events associated with our candidate drug.  The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group reviews unblinded data from clinical trials and provides authorization for whether a trial may move forward at designated check points based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives or competitive climates.
 
11

 
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information is submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things.
 
Once the NDA submission has been accepted for filing, the FDA’s goal is to review applications within ten months of filing or 12 months of filing for a new molecular entity. However, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
 
If the FDA decides that our delivery system requires separate review as a device and clearance or approval, as the case may be, by the agency, then the process may require the following steps:
 
·
the FDA or comparable foreign regulatory authorities may disagree with the design or conduct of our clinical studies; 
 
· we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable; 
 
 
the FDA or comparable foreign regulatory authorities may determine that the population studied in the clinical trial program was not sufficiently broad or representative to assure safety in the full population for which we seek approval;
 
An IND application is a request for authorization from the FDA to administer an investigational drug product to humans. We currently do not have any INDs in effect.  An IDE serves the same function but for devices.  We currently do not have any IDEs in effect.
 
Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
 
·
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;
 
·
we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;
 
·
the FDA may determine that the population studied in the clinical program was not sufficiently broad or representative to assure safety in the full population for which we seek approval;
 
·
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical studies;
 
·
the data collected from clinical studies of our product candidates may not be sufficient to support the submission of an NDA in the United States or elsewhere;
 
·
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
 
·
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and
 
·
competitors may obtain orphan drug exclusivity for the CF indication before we do, thus potentially delaying our entry into certain markets for a number of years.
 
This lengthy approval process, as well as the unpredictability of the results of clinical studies, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects.
 
12

 
Clinical drug and medical device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.
 
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain.  Failure can occur at any time during the clinical study process.  The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stage clinical studies.  Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent advanced clinical studies.  There is a high failure rate for drugs and medical devices proceeding through clinical studies, and product candidates in later stages of clinical studies may fail to show the desired safety and efficacy traits despite having progressed satisfactorily through preclinical studies and initial clinical studies.  A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies.  Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses.  We do not know whether any Phase 2, Phase 3 or other clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates.  Nor do we know whether the FDA will permit us to proceed directly to Phase 3 clinical trials without performing Phase 1 or Phase 2 clinical trials in the United States using the same delivery system that we will seek approval by the agency.
 
We are working on NTM Abscessus in patients with CF, which is very rare. 
 
Our second indication is NTM Abscessus in patients with CF.  NTM Abscessus in patients with CF is a very rare disease and only a small number of people suffer from this disease.  As a result of these small numbers, we may not be able to complete the study related to NTM Abscessus in patients with CF or, even if approved, the drug for that indication may never be profitable.  In addition, there are many strains of NTM but our study is only on one of them, Abscessus.  Therefore, we may face a situation that this strain will disappear or there will no candidates with this strain, so the FDA may not grant us approval to treat other NTM strains without further validation and trials, or possibly ever, and/or the FDA may not allow us to work on NTM in patients who do not have CF.
 
We are working on bronchiolitis in infants that usually is caused by the RSV virus. RSV is a seasonal virus and the length of the disease and the severity of the disease might change every year.
 
RSV is a seasonal virus (only in the winter).  In our trial we are heavily dependent on the occurrence and the severity of this virus. RSV or the winter cannot be predicted. For example, if the winter is warm or short, or the RSV infection was not severe enough when we conducted our trial, or the length of stay in the hospital at the year that trial was conducted was different from previous seasons, then we might miss the season or the results can be significantly different between two seasons or between different countries or even between different sites.
 
We are heavily dependent on the Aeronox system to conduct our trial outside the United States, and we may be required to seek an alternative delivery system for our proprietary 160 ppm NO formulation if we were to conduct a clinical trial within the United States.
 
We are heavily dependent on the Aeronox system and the company that manufactures it, International Biomedical, located in Texas. If International Biomedical decides not to continue to support the Aeronox system (for example, selling parts and providing repair services for the device), then we might not be able to conduct our non-U.S. trial.  This system is not manufactured specifically for us, and we have no agreement with International Biomedical for the continued manufacture or support of this Aeronox system.  Additionally, the Aeronox system is not currently approved for use in the United States at the 160 ppm concentration required by our proprietary 160 ppm NO formulation, and we currently engage a third-party contractor to modify the Aeronox system in order for it to monitor our NO formulation at 160 ppm.  Unless the Aeronox system obtains such approval, of which we have no current expectation, we would be required to seek an alternative delivery system in order to conduct a clinical trial of our formulation within the United States.
 
Our delivery system may be classified as a Class III medical device by the FDA and require premarket approval (PMA) by the FDA, which is a rigorous, time-consuming and expensive process.
 
We believe that if our delivery system is classified as separate device requiring separate review by the FDA, it will be subject to the premarket notification process under section 510(k) of the Food, Drug, and Cosmetic Act.  However, the FDA may ultimately classify our delivery system as a Class III medical device, and require it to undergo the FDA’s PMA process.  The PMA process is an extremely rigorous, expensive and time-consuming process and requires the developer to independently demonstrate that a medical device is safe and effective.  This is done by submitting data regarding design, materials, bench and animal testing and human clinical data for the medical device.  The FDA will approve marketing of a Class III medical device if it determines there is reasonable assurance that the medical device is safe and effective.  This determination is based on benefit outweighing risk for the population intended to be treated with the device
 
 
13

.
 
We may find it difficult to enroll patients in our clinical studies.  Difficulty in enrolling patients could delay or prevent clinical studies of our product candidates.
 
Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success.  The timing of our clinical studies depends in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in our clinical studies if we encounter difficulties in enrollment.
 
Some of the conditions for which we plan to evaluate our current product candidates are for rare diseases.  For example, we estimate that 30,000 patients suffer from CF in the United States.  Accordingly, there is a limited patient pool from which to draw for clinical studies.  Further, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study.
 
Additionally, the process of finding patients may prove costly.  We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and benefits of the product candidate under study, particularly the toxicity of NO in certain doses, the availability and efficacy of competing therapies and clinical studies, the proximity and availability of clinical study sites for prospective patients and the patient referral practices of physicians.  If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products will be delayed.
 
If we experience delays in the completion or termination of any clinical study of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenue from any of these product candidates could be delayed or prevented.  In addition, any delays in completing our clinical studies will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue.  Any of these occurrences may harm our business, financial condition and prospects significantly.  In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory approval of our product candidates.
 
We may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
 
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans.  Clinical testing is expensive, time consuming and uncertain as to outcome.  We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all.  Our clinical studies involve infants, children, and adults and, before we are permitted to enroll them in clinical trials, we must demonstrate that although the research may pose a risk to the subjects, there is a prospect of direct benefit to each patient.  We must do so to the satisfaction of each research site’s IRB.  If we fail to adequately demonstrate this to the satisfaction of the relevant IRB, it will decline to approve the research, which could have significant adverse consequences for the Company.
 
A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful.  Events that may prevent successful or timely completion of clinical development include but are not limited to:
 
·
inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies;
 
·
delays in reaching a consensus with regulatory agencies on study design;
 
14

 
·
delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
 
·
delays in obtaining required IRB approval at each clinical study site;
 
·
imposition of a clinical hold by regulatory agencies, after review of an IND application, or equivalent application, or an inspection of our clinical study operations or study sites;
 
·
delays in recruiting suitable patients to participate in our clinical studies;
 
·
difficulty collaborating with patient groups and investigators;
 
·
failure by our CROs, other third parties or us to adhere to clinical study requirements;
 
·
failure to perform in accordance with the FDA’s GPC requirements, or applicable regulatory guidelines in other countries;
 
·
delays in having patients complete participation in a study or return for post-treatment follow-up;
 
·
patients dropping out of a study;
 
·
occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
 
·
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
 
·
the cost of clinical studies of our product candidates being greater than we anticipate;
 
·
clinical studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs; and
 
·
delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.
 
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue.  In addition, we may need to conduct additional studies to bridge our repurposed product candidates to generic products in the market.  We may also be required to conduct additional safety, efficacy and comparability studies before we will be allowed to start clinical studies with our repurposed drugs.  Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to obtain orphan drug exclusivity and successfully commercialize our product candidates and may harm our business and results of operations. 
 
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
 
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in a more restrictive marketing label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities.  There is currently limited data regarding possible side effects for an antimicrobial dosage of NO treatments, such as our product candidates.  Potential side effects of NO treatments may include high methemoglobin, nitrogen dioxide (NO2) toxicity, nose bleeding and low blood pressure.  Results of our studies may identify unacceptable severity and prevalence of these or other side effects.  In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. 
 
15

Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product liability claims.
 
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including but not limited to:
 
·
regulatory authorities may withdraw approvals of such product;
 
·
regulatory authorities may require additional warnings on the label;
 
·
as a condition of drug approval, we may be required to create a Risk Evaluation and Mitigation Strategy (REMS) plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use;
 
·
we could be sued and held liable for harm caused to patients; and
 
·
our reputation may suffer.
 
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
 
Prescription Drug User Fee Act may not be reauthorized, which could delay review of any NDA that we may file and that could cause adverse financial consequences for the Company.
 
Current NDAs are governed by the Prescription Drug User Fee Act, known as PDUFA.  Under PDUFA, those filing an NDA are required to pay a user fee; those fees are used by the FDA to hire additional reviewers so that applications can be more efficiently reviewed.  PDUFA also establishes a so-called PDUFA target action date, which is the target date on which the FDA is supposed to make a decision on whether to approve the application or send it back to the filer for additional information or studies.  The PDUFA date is a target date and is usually set at 10 months after the NDA is accepted for filing.  PDUFA is set to expire on September 30, 2017; we anticipate that it will be reauthorized.  However, there is a possibility that it will not be reauthorized.  Any failure or delay of Congress to reauthorize PDUFA could delay FDA review or approval of any pending NDA, which in turn could have a material adverse impact on our business, financial condition, results of operations, or prospects. 
 
Even if we obtain regulatory approval for our drug candidates, we will still face extensive, ongoing regulatory requirements and review, and our products may face future development and regulatory difficulties.
 
Even if we obtain regulatory approval for one or more of our drug candidates in the United States, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or to the conditions for approval, or impose ongoing requirements for potentially costly post-approval studies, including Phase 4 clinical trials or post-market surveillance. As a condition to granting marketing approval of a product, the FDA may require a company to conduct additional clinical trials. The results generated in these post-approval clinical trials could result in loss of marketing approval, changes in product labeling, or new or increased concerns about side effects or efficacy of a product. For example, the labeling for our drug candidates, if approved, may include restrictions on use or warnings. The Food and Drug Administration Amendments Act of 2007, or FDAAA, gives the FDA enhanced post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved REMS programs. If approved, our product candidates will also be subject to ongoing FDA requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping, and reporting of safety and other post-market information. The FDA’s exercise of its authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar authority and may impose comparable costs. Post-marketing studies, whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our drug candidates once approved, and potentially our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products. Accordingly, new data about our products could negatively affect demand because of real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal or recall. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, and practice management groups or organizations involved with various diseases to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.
 
 
16

 
The holder of an approved NDA or PMA or cleared 510(k) also is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the marketing application. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials. Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.

In addition, manufacturers of FDA regulated products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with the FDA’s cGMPs regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility, or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we conduct additional clinical trials, imposing new monitoring requirements, or requiring that we establish a REMS program for our approved drugs. Advertising and promotional materials must comply with FDA rules in addition to other potentially applicable federal and state laws. The distribution of product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act. Sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws. We would also be required under the Sunshine provision of the Affordable Care Act, or ACA, to report annually to the Centers for Medicare & Medicaid Services on payments that we make to physicians and teaching hospitals and ownerships interests in the company held by physicians. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Healthcare Act of 1992. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration and to low income patients of certain hospitals, additional laws and requirements apply. Our activities are also potentially subject to federal and state consumer protection and unfair competition laws. If we or our third-party collaborators fail to comply with applicable regulatory requirements, a regulatory agency may take any of the following actions:
 
·
conduct an investigation into our practices and any alleged violation of law;
 
·
issue warning letters or untitled letters asserting that we are in violation of the law;
 
·
seek an injunction or impose civil or criminal penalties or monetary fines;
 
·
suspend or withdraw regulatory approval;
 
·
require that we suspend or terminate any ongoing clinical trials;
 
·
refuse to approve pending applications or supplements to applications filed by us;
 
·
suspend or impose restrictions on operations, including costly new manufacturing requirements;
 
·
seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or
 
·
exclude us from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and refuse to allow us to enter into supply contracts, including government contracts.
 
The occurrence of any of the foregoing events or penalties may force us to expend significant amounts of time and money and may significantly inhibit our ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign jurisdictions.
 
17

We intend to seek Fast Track review by the FDA for our indication with respect to NTM Abscessus among patients with CF, but the agency may refuse to accord us accelerated review. 
 
We intend to seek Fast Track review by the FDA for our indication with respect to NTM Abscessus among patients with CF. The Federal Food, Drug, and Cosmetic Act, as amended, and FDA regulations provide certain mechanisms for the accelerated “Fast Track” approval of potential products intended to treat serious or life-threatening illnesses which have demonstrated the potential to address unmet medical needs. The procedures permit early consultation and commitment from the FDA regarding the preclinical and clinical studies necessary to gain marketing approval. Provisions of this regulatory framework also permit, in certain cases, NDAs to be approved on the basis of valid indirect measurements of benefit of product effectiveness, thus accelerating the normal approval process. Our drug candidates may qualify for this accelerated regulatory procedure. Even if the FDA agrees that these potential products qualify for accelerated approval procedures, the FDA may deny approval of our drugs or may require additional studies before approval. The FDA may also require us to perform post-approval, or Phase 4, studies as a condition of such early approval. In addition, the FDA may impose restrictions on distribution and/or promotion in connection with any accelerated approval, and may withdraw approval if post-approval studies do not confirm the intended clinical benefit or safety of the potential product. 
 
We intend to seek additional orphan drug designation for our candidate drugs, but the agency may refuse to grant our products that designation. 
 
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease, except in very limited circumstances, for seven years. These very limited circumstances are (i) an inability to supply the drug in sufficient quantities or (ii) a situation in which a new formulation of the drug has shown superior safety or efficacy. This exclusivity, however, also could block the approval of our product for seven years if a competitor obtains earlier approval of the same drug for the same indication.
 
Risks Related to our Reliance on Third Parties
 
We rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us.  If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
 
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs.  We rely on these parties for execution of our preclinical and clinical studies, and we directly control only certain aspects of their activities, although from a regulatory perspective we are responsible for their actions.  We are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.  We and our CROs and other vendors are required to comply with current Good Manufacturing Practice (cGMP), Good Clinical Practice (GCP), QSR and GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area (EEA), and comparable foreign regulatory authorities for all of our product candidates in clinical development.  Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors.  If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical studies 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 studies comply with GCP regulations.  In addition, our clinical studies must be conducted with products which are produced under cGMP regulations.  Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process, or have other adverse consequences.
 
 
18

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms.  In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs.  If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical studies may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.  CROs may also generate higher costs than anticipated.  As a consequence, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
 
Switching or adding additional CROs involves additional cost and requires management time and focus.  In addition, there is a natural transition period when a new CRO commences work.  As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines.  Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
 
We will rely on third parties to manufacture our NO formulation and delivery system.  Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.
 
We do not currently have the infrastructure or capability internally to manufacture the components of our NO formulation and delivery system, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale.  We plan to rely on third parties for such supplies.  There are a limited number of manufacturers who have the ability to produce our delivery system and our NO formulation, and there may be a need to identify alternate manufacturers to prevent a possible disruption of our clinical studies.  Any significant delay or discontinuity in the supply of these components could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates, which could harm our business and results of operations.
 
We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.  The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
 
All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation.  Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with cGMP.  In addition, manufacturers of medical devices are subject to QSR.  These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale.  Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing.  We, our collaborators or our contract manufacturers must supply all necessary documentation in support of any marketing application on a timely basis and must adhere to GLP, cGMP and QSR regulations enforced by the FDA and other regulatory agencies through their facilities inspection program.  Some of our contract manufacturers have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so.  The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products.  In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted.  We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements.  If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
 
19

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our collaborators and third-party contractors.  If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales, or the temporary or permanent closure of a facility.  Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
 
If we, our collaborators, or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authorities can impose regulatory sanctions including, among other things, refuse to approve a pending application for a new drug product, withdrawal of an approval, suspend production, suspend clinical studies, require a recall or suspension of production.  As a result, our business, financial condition and results of operations may be materially harmed.
 
Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA or Marketing Authorization Application amendment, or equivalent foreign regulatory filing, which could result in further delay.  The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production.  Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
 
These factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates.  Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue.
 
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
 
Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them.  We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information.  These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets.  Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements.  Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
 
Risks Related to Commercialization of Our Product Candidates
 
If the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
 
Our projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates.  These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect.  Further, new studies may change the estimated incidence or prevalence of these diseases.  The number of patients may turn out to be lower than expected.  The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible.  Additionally, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.
 
20

We intend to rely on third-party manufacturers to produce our product candidates, but we have not entered into binding agreements with any such manufacturers to support commercialization.
 
We have not yet secured manufacturing capabilities for commercial quantities of our product candidates.  We intend to rely on third-party manufacturers for commercialization.  We may be unable to negotiate binding agreements with the manufacturers to support our commercialization activities on commercially reasonable terms, or at all.  See Risk “Risk Related to our Reliance on Third Parties—We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.  The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.”
 
We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
 
The biotechnology and pharmaceutical industries are highly competitive.  There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products.  We are aware of several companies currently developing and selling NO therapies for various indications such as pulmonary hypertension.  For example Ikaria, Inc. commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the United States, Canada, Australia, Mexico and Japan.  The Linde Group has marketing rights to INOMAX® in Europe.  Air Liquide sells a similar product in Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery.  In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations.  Bellepheron Therapeutics is developing NO-based products for persistent arterial hypertension and pulmonary hypertension associated with chronic obstructive pulmonary disease.  Geno LLC is developing NO-based products for the treatment of a variety of pulmonary and cardiac diseases such as acute vasoreactivity testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary fibrosis.  In addition, other companies may be developing generic NO formulation delivery systems for various dosages.  Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market an NO gas product for use in membrane diffusing capacity testing in pulmonary function laboratories in the United States.  Novoteris, LLC previously received orphan drug designation from the FDA and EMA for the use of inhaled NO-based treatments in treating CF.  If the FDA approves Novoteris’ product candidate for the indication for which it received orphan drug designation, then Novoteris will be eligible for orphan drug exclusivity if its product receives approval first, which would preclude the Company from obtaining orphan drug exclusivity for its comparable product should it be subsequently approved by the FDA.  In January 2015, Ikaria entered into an agreement with Novoteris to collaborate on the development of an outpatient program for treating bacterial infections associated with CF.  Recently, we have become aware that Ikaria and Novoteris are planning a Phase 2 clinical trial using a 160 ppm NO formulation to treat patients with CF. 
 
In addition to NO treatments currently available or under development, we also face competition from non-NO-based drugs and therapies.  For example, the successful development of immunizations for bronchiolitis may render useless any product we develop for that indication.  Also, antibiotic treatments for infections associated with CF, and inhaled short-acting beta-2 agonist and oral corticosteroids for the treatment of asthma may be preferred over any product that we develop.  Even if we successfully develop our product candidates, and obtain approval for them, other treatments may be preferred and we may not be successful in commercializing our product candidates.
 
Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations.  Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.  As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well.  Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.  Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.  Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do.  Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
 
21

We currently have no marketing and sales organization.  If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.
 
Although our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience selling and marketing our product candidates and we currently have no marketing or sales organization.  To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others.  If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets, which will be expensive, difficult and time consuming.  Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products.
 
Further, given our lack of prior experience in marketing and selling biopharmaceutical products, our initial estimate of the size of the required sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our product candidates.  As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of our product candidates or we may incur excess costs as a result of hiring more sales representatives than necessary.  With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all.  If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business.  We may be competing with companies that currently have extensive and well-funded marketing and sales operations.  Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
 
The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
 
Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates will depend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe.  Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community.  The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
 
·
the safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;
 
·
the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
 
·
the clinical indications for which approval is granted;
 
·
relative convenience and ease of administration;
 
·
the cost of treatment, particularly in relation to competing treatments;
 
·
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
 
·
the strength of marketing and distribution support and timing of market introduction of competitive products;
 
·
publicity concerning our products or competing products and treatments; and
 
22

·
sufficient third-party insurance coverage and reimbursement.
 
Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be fully known until after it is launched.  Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful.  If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.
 
The insurance coverage and reimbursement status of newly-approved products is uncertain.  Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
 
The pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure.  Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability.  Accordingly, the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensive treatments such as ours, assuming approval.  Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government authorities, private health insurers and other third-party payors.  If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidates.  Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment.
 
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products.  In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare & Medicaid Services (CMS), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare.  Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree.  It is difficult to predict what CMS will decide with respect to reimbursement for products such as ours.
 
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidates.  In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems.  In general, the prices of medicines under such systems are substantially lower than in the United States.  Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits.  Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates.  Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
 
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates.  We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.  The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense.  As a result, increasingly high barriers are being erected to the entry of new products.
 
 
23

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
 
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs.  For example, in March 2010, the Patient Protection and ACA, as amended by the ACA was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry.  The Health Care Reform Law, among other things, addresses 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, increases 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, establishes annual fees and taxes on manufacturers of certain branded prescription drugs and promotes a new Medicare Part D coverage gap discount program.
 
Future legislation or regulations may adversely affect reimbursement from government programs.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. More recently, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve targeted deficit reductions, triggering the legislation’s automatic reduction of several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, increased the rebates that generic drug manufacturers are obligated to pay under the Medicaid program by applying an inflation-based rebate formula to generic drugs that previously only applied to brand name drugs. If we ever obtain regulatory approval and commercialization of any of our drug candidates, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.  On December 13, 2016, the President signed into law the 21st Century Cures Act, which, among other things, may increase the types of clinical trial designs that would be acceptable to support an NDA.  It is unclear, at this time, how these provisions will be implemented or whether they would have any effect on our company.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates may be.  In that regard, Congress has taken the first step in repealing the funding mechanism for certain aspects of the ACA.  If the ACA or parts of it are repealed, it is unclear what impact that would have on drug reimbursements or coverage and it is equally unclear what programs, if any, Congress and the Trump Administration might enact and sign into law to replace the repealed portions of the ACA.

24

We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.

We are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include the following:
 
·
the federal health care program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made under government health care programs such as the Medicare and Medicaid programs;
 
·
federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government health care programs that are false or fraudulent;
 
·
federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters; and
 
·
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers.
 
Further, the ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes. A person or entity can now be found guilty of fraud or false claims under the ACA without actual knowledge of the statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations, and financial condition.

The ACA also imposes new reporting requirements on device and pharmaceutical manufacturers to make annual public disclosures of payments to certain health care providers and physician ownership of their stock by health care providers. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value, or ownership or investment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and were required to report such data to CMS by March 31, 2014.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such as California, Massachusetts and Vermont mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation, and other remuneration to physicians.

The scope and enforcement of these laws is uncertain and subject to change in the current environment of health care reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.
 
Risks Related to Our Intellectual Property
 
If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
 
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and product candidates.  Our success depends in large part on our and our licensors’ ability to obtain and maintain intellectual property protection in the United States and in other countries with respect to our proprietary technology and products.
 
25

We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are important to our business.  This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.  We may also fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
 
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved.  The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries.  There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application.  Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated.  Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims.  Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
 
We have filed several patent applications directed to various aspects of our product candidates.  We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties.  Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop.  Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.  In addition, some or all of our patent applications may not result in issued patents.
 
If we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively and our business and results of operations would be harmed.
 
We have a non-exclusive license to certain patents owned by CareFusion that relate to methods and devices for delivering 80-400 PPM NO formulations to patients.  CareFusion may grant additional non-exclusive licenses to third parties.
 
Absent any agreement with CareFusion to the contrary, each of the joint owners may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owner.  While we are unaware of any other licenses issued by CareFusion to third parties granting rights in the patents CareFusion licensed to us, we cannot be sure other licenses have not already been granted, or will not be granted in the future, by CareFusion to third parties.
 
Any such licenses may enable third parties to develop and market products competitive with ours, provided that they do not infringe our other intellectual property rights.  The terms of our non-exclusive license with CareFusion leaves full control of any and all enforcement of the licensed patents with CareFusion.  If CareFusion elects to not enforce any or all of the licensed patents it could significantly undercut the value of any of our product candidates, which would materially adversely affect our revenue, financial condition and results of operations.
 
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidate.  Such litigation or licenses could be costly or not available on commercially reasonable terms.
 
Given the number of companies developing various types of NO devices, it is difficult to conclusively assess our freedom to operate without infringing on third party rights.  There are numerous companies that have pending patent applications and issued patents in the field of therapeutic NO delivery.  Our competitive position may suffer if patents issued to third parties or other third party intellectual property rights cover our products or elements thereof, or our manufacture or uses relevant to our development plans.  In such cases, we may not be in a position to develop or commercialize products or our product candidates unless we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms.  There may be pending patent applications of which we are not aware, that if they result in issued patents, could be alleged to be infringed by our product candidates.  If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our product candidates or seek a license from any patent holders.  No assurances can be given that a license will be available on commercially reasonable terms, if at all.
 
26

It is also possible that we have failed to identify relevant third party patents or applications.  For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue.  Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date.  Therefore, patent applications covering our product candidate or platform technology could have been filed by others without our knowledge.  Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our product candidate or the use of our product candidate.  Third party intellectual property right holders may also actively bring infringement claims against us.  We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims.  If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our product candidate.  If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our product candidate that is held to be infringing.  We might, if possible, also be forced to redesign our product candidate so that we no longer infringe the third party intellectual property rights.  Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
 
Patent terms are limited and we may not be able to effectively protect our products and business.
 
Patents have a limited lifespan.  In the United States, the natural expiration of a patent is generally 20 years after it is filed.  Although various extensions may be available, the life of a patent, and the protection it affords, is limited.
 
In addition, upon issuance in the United States, the patent term may be extended based on certain delays caused by the applicant(s) or the U.S. Patent and Trademark Office, or USPTO.  Even if we obtain effective patent rights for our product candidates, we may not have sufficient patent terms or regulatory exclusivity to protect our products, and our business and results of operations would be adversely affected.
 
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
 
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.  The laws of foreign countries may not protect our rights to the same extent as the laws of the United States.  Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all.  We therefore cannot be certain that we or our licensor were the first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions.  Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to invent the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent.  After March 15, 2013, under the Leahy-Smith America Invents Act (Leahy-Smith Act), enacted on September 16, 2011, the United States has moved to a first to file system.  The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation.  The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed.  In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
 
27

If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
 
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents.  However, trade secrets can be difficult to protect.  We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.  We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.  While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.  In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
 
All of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology enter into confidentiality agreements and we expect they will assign all rights in their inventions to us pursuant to the terms of such agreements; however, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.  Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business.  Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
 
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
 
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties.  There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including with respect to NO delivery systems and formulations, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices.  Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.  As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
 
Third parties may assert that we are employing their proprietary technology without authorization.  There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates.  We do not know whether there are any third-party patents that would impair our ability to commercialize these product candidates.  We also cannot be sure that we have identified each and every patent and pending patent application in the United States and abroad that is relevant or necessary to the commercialization of our product candidates.  Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe.  In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.  If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable.
 
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable.  In either case, such a license may not be available on commercially reasonable terms or at all.
 
28

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates.  Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.  In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
 
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
 
We currently own and have in-licensed rights to intellectual property through licenses from third parties and under patents that we own, to develop our product candidates.  Because our programs may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights.  In addition, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others.  We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates.  The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive.  These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
 
For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development underwritten agreements with these institutions.  Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration.  Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us.  If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.
 
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.  We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.  If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to abandon development of that program and our business and financial condition could suffer.
 
If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
 
We are currently a party to intellectual property license agreements that are important to our business, and we expect to enter into additional license agreements in the future.  Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us.  For example, our existing license agreement with CareFusion imposes the following milestones, which comport with the plans we discuss under “Business—Our Strategy”: completion of a Phase II study by September 2017; completion of a Phase III study by September 2018; FDA approval for a licensed product by September 2020; and the first sale of a licensed product by September 2021. We have completed the Phase II, double blind, randomized study conducted in Israel in infants with bronchiolitis discussed under “Business—Our Strategy”, and  we have commenced the Phase III study referenced under “Business—Our Strategy”. One of the challenges to complete the Phase III study by September 2018 includes the fact that RSV is a seasonal virus (occurring only in the winter).  In our Phase III trial we are heavily dependent on the occurrence and the severity of this virus. RSV or the winter cannot be predicted. For example, if the winter is warm or short, or the RSV infection is not severe enough when we conducted our trial, or the length of stay in the hospital during the year in which the trial is conducted were different from previous seasons, then we might miss the season or the results can be significantly different between two seasons or between different countries or even between different sites. If we fail to complete the Phase III study by September 2018 there is a risk that we will not be able to get FDA approval for a licensed product by September 2020.  If we fail to get FDA approval for a licensed product by September 2020 there is a risk that we may fail to achieve our goal of completing the first sale of a licensed product by September 2021.  If we fail to comply with our obligations under the CareFusion agreement or other agreements, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose our license or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license.
 
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues.  Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
 
·
the scope of rights granted under the license agreement and other interpretation-related issues;
 
·
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
 
29

·
the sublicensing of patent and other rights;
 
·
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
 
·
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and
 
·
the priority of invention of patented technology.
 
If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
 
We may be involved in lawsuits or post-grant proceedings to protect or enforce our patents or the patents of our licensor, which could be expensive, time consuming and unsuccessful.
 
Competitors may infringe the patents of our licensor.  If our licensing partner were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable.  In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace.  Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement.  Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution.  The outcome following legal assertions of invalidity and unenforceability is unpredictable.
 
Pending patent applications may be subject to third-party preissuance submission of prior art to the USPTO, and any patents issuing thereon may become involved in derivation, reexamination, inter partes review, post grant review, interference proceedings or other patent office proceedings in the United States challenging our patent rights.
 
Proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensor.  An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.  Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms.  Our defense of litigation or proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.  In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter into development partnerships that would help us bring our product candidates to market.
 
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.  There could also be public announcements of the results of hearings, motions or other interim proceedings or developments.  If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.
 
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
 
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.  Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties.  Litigation may be necessary to defend against these claims.  If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business.  Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
 
30

We may be subject to claims challenging the inventorship of our patents and other intellectual property.
 
We may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with respect to our patents or other intellectual property as an inventor or co-inventor.  For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates.  Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation.  If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property.  Such an outcome could have a material adverse effect on our business.  Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.  To the extent that our employees have not effectively waived the right to compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue may be successful.  As a result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability.
 
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
 
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.  Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity.  Therefore, obtaining and enforcing biotechnology patents is costly, time consuming and inherently uncertain.  In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation.  Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations.  In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.  Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
 
We may not be able to protect our intellectual property rights throughout the world.
 
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.  In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
 
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States.  These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
 
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.  The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally.  Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us.  We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.  Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
 
31

Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
 
We generally enter into non-competition agreements with our employees and certain key consultants.  These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time.  We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us.  For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property.  If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
 
Risks Relating to Our Business Operations
 
We manage our business through a small number of employees and key consultants.  We depend on them even more than similarly-situated companies.
 
We have a total of four full-time employees and a number of dedicated consultants, of whom work for us on a part-time basis.  In addition, any of our employees and consultants may leave our company at any time, subject to certain notice periods.  The loss of the services of any of our executive officers or any key employees or consultants would adversely affect our ability to execute our business plan and harm our operating results.
 
We do not currently carry “key person” insurance on the lives of members of management.
 
We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.
 
As our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional managerial, operational, sales, marketing, financial, legal and other resources.  The competition for qualified personnel in the pharmaceutical field is intense.  Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
 
Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.  We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.  Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates.  If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy.  Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.
 
If we fail to obtain or maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced.
 
In some cases, our business strategy focuses on the development of drugs that are eligible for FDA and European Union, or EU, orphan drug designation.  Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States.  In the EU, the EMA’s Committee for Orphan Medicinal Products (COMP), 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, 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.
 
32

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 receives 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 drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.  In the EU, 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 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. 
 
Because the extent and scope of patent protection for our products may in some cases be limited, orphan drug designation is especially important for our products for which orphan drug designation may be available.  For eligible drugs, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position.  If we do not obtain orphan drug exclusivity for our drug products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.
 
Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition.  Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.  Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
 
Novoteris previously received orphan drug designation from the FDA and EMA for the use of an inhaled NO formulation in treating CF.  This does not derogate from the orphan drug designations that we have received from both FDA and EMA for the same indications, as more than one sponsor may receive orphan drug designation of the same drug for the same rare disease or condition.  Currently, neither Novoteris nor any other company has orphan drug exclusivity for an NO-based treatment of CF.  In the event that Novoteris’ designated orphan drug product receives marketing approval from the FDA or the EMA before we do for the indication for which it received orphan drug designation, then it will  be eligible for orphan drug exclusivity and our ability to obtain product approval for treating CF or orphan drug exclusivity may be significantly impaired. We may not be successful in our efforts to identify, license or discover additional product candidates.
 
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our existing product candidates, the success of our business also depends upon our ability to identify, license or discover additional product candidates.  Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including but not limited to the following:
 
·
our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
 
·
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
 
·
our product candidates may not succeed in preclinical or clinical testing;
 
·
our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
 
33

·
competitors may develop alternatives that render our product candidates obsolete or less attractive;
 
·
product candidates we develop may be covered by third parties’ patents or other exclusive rights;
 
·
the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;
 
·
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
 
·
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
 
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license or discover additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.  Research programs to identify new product candidates require substantial technical, financial and human resources.  We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
 
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
 
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, such as the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC.  In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), was enacted.  There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and pay parity.  Recent legislation permits smaller “emerging growth companies” to implement many of these requirements over a longer period and up to five years from the pricing of this offering.  We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses.  Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.  Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.  Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.  For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.
 
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures.  In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report, commencing in our Current Report on Form 8-K, as filed with the SEC on January 20, 2017, on the effectiveness of our internal controls over financial reporting, if then required by Section 404 of the Sarbanes-Oxley Act.  Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.  Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts.  We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.  Moreover, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if we identify or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
 
New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC, would likely result in increased costs to us as we respond to their requirements.  Similarly, in the future, we may attempt to list our Common Stock on the NASDAQ Capital Market, the NYSE MKT or another national securities exchange, which would subject us to additional rules and regulations, as well as additional costs
 
34

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws.  If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
 
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may directly, or indirectly through our customers, subject us to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician sunshine laws and regulations.  These laws may impact, among other things, our proposed sales, marketing and education programs.  In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.  The laws that may affect our ability to operate include: 
 
·
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
 
·
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;
 
·
the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
 
·
HIPAA, as amended by the Health Information Technology and Clinical Health Act (HITECH), and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
 
·
the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and
 
·
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
 
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.  In addition, recent health care reform legislation has strengthened these laws.  For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes.  A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.  Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
 
35

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
 
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Israel.
 
Other than our headquarters and other operations which are located in Israel (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates.  We plan to maintain sales representatives and conduct physician and patient association outreach activities, as well as clinical trials, outside of the United States and Israel.  Doing business internationally involves a number of risks, including but not limited to:
 
·
multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;
 
·
failure by us to obtain regulatory approvals for the use of our products in various countries;
 
·
additional potentially relevant third-party patent rights;
 
·
complexities and difficulties in obtaining protection and enforcing our intellectual property;
 
·
difficulties in staffing and managing foreign operations;
 
·
complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
 
·
limits in our ability to penetrate international markets;
 
·
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
 
·
natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;
 
·
certain expenses including, among others, expenses for travel, translation and insurance; and
 
·
regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act (FCPA), its books and records provisions or its anti-bribery provisions.
 
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
 
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
 
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds.  We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.  In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal.  We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.  Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials.  In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations.  Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent.  We cannot predict the impact of such changes and cannot be certain of our future compliance.  We do not currently carry biological or hazardous waste insurance coverage.
 
36

The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.
 
Our business exposes us to an inherent risk of potential product liability or similar claims.  The medical device industry has historically been litigious, and we face financial exposure to product liability or similar claims if the use of any of our products were to cause or contribute to injury or death.  There is also the possibility that defects in the design or manufacture of any of our products might necessitate a product recall.  Although we plan to maintain product liability insurance, the coverage limits of these policies may not be adequate to cover future claims.  In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities.  A product liability claim, regardless of merit or ultimate outcome, or any product recall could result in substantial costs to us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention.  A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.
 
Our business and operations would suffer in the event of system failures.
 
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.  While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs.  For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data.  If any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or the further development of our product candidates could be delayed.
 
Risks Related to the Ownership of our Common Stock
 
There is not now, and there may never be, an active, liquid and orderly trading market for our Common Stock, which may make it difficult for you to sell your shares of our Common Stock.
 
There is not now, nor has there been since our inception, any trading activity in our Common Stock or a market for shares of our Common Stock, and an active trading market for our shares may never develop or be sustained. As a result, investors in our Common Stock must bear the economic risk of holding those shares for an indefinite period of time.
 
Our Common Stock is subject to only limited quotation on the OTC Pink, and it is not otherwise regularly quoted on any other over-the-counter market. Until such time as our Common Stock is so quoted, the shares of Common Stock covered by this prospectus will be sold by the selling stockholders from time to time at a fixed price of $6.00 per share, representing the sales price of the units issued and sold in our most recent private placement that included Common Stock, effected on March 31, 2017. If and when our Common Stock is regularly quoted on an over-the-counter market or on a national securities exchange, the selling stockholders may sell their respective shares of Common Stock from time to time at prevailing market prices or in privately negotiated transactions.
 
Although our Common Stock is quoted on the OTC, trading of our Common Stock is extremely limited and sporadic and at very low volumes. We do not now, and may not in the future, meet the initial listing standards of any national securities exchange. We presently anticipate that our Common Stock will continue to be quoted on OTC Pink or another over-the-counter quotation system in the foreseeable future. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our Common Stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, you may be unable to resell your shares of our Common Stock at or above the price for which you purchased them, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of Common Stock as consideration.
 
37

Our share price is volatile and may be influenced by numerous factors, some of which may be beyond our control.
 
The trading price of our Common Stock is likely to be highly volatile, and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.  In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:
 
·
the product candidates we seek to pursue, and our ability to obtain rights to develop, commercialize and market those product candidates;
 
·
our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
 
·
actual or anticipated adverse results or delays in our clinical trials;
 
·
our failure to commercialize our product candidates, if approved;
 
·
unanticipated serious safety concerns related to the use of any of our product candidates;
 
·
adverse regulatory decisions;
 
·
additions or departures of key scientific or management personnel;
 
·
changes in laws or regulations applicable to our product candidates, including without limitation clinical trial requirements for approvals;
 
·
disputes or other developments relating to patents and other proprietary rights and our ability to obtain patent protection for our product candidates;
 
·
our dependence on third parties, including CROs as well as our potential partners that provide us with companion diagnostic products; failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;
 
·
actual or anticipated variations in quarterly operating results;
 
·
failure to meet or exceed the estimates and projections of the investment community;
 
·
overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;
 
·
conditions or trends in the biotechnology and biopharmaceutical industries;
 
·
introduction of new products offered by us or our competitors;
 
·
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
 
·
our ability to maintain an adequate rate of growth and manage such growth; issuances of debt or equity securities;
 
·
sales of our Common Stock by us or our stockholders in the future, or the perception that such sales could occur;
 
·
trading volume of our Common Stock; ineffectiveness of our internal control over financial reporting or disclosure controls and procedures;
 
38

·
general political and economic conditions;
 
·
effects of natural or man- made catastrophic events; and
 
·
other events or factors, many of which are beyond our control.
 
In addition, the stock market in general, and the stocks of small-cap biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.  Broad market and industry factors may negatively affect the market price of our Common Stock, regardless of our actual operating performance.  The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our Common Stock.
 
Our Common Stock may be a “penny stock.”
 
Generally, a “penny stock” is an equity security that is not listed on a national securities exchange and has a market price of less than $5.00 per share, subject to specific exceptions.  Our Common Stock presently has, and since our inception has had, no trading activity to support a market price, but historical sales of our Common Stock have all been at a price per share less than $5.00.  As a result, our Common Stock may be considered to be a penny stock.  Regulations imposed by the SEC and other regulatory authorities requiring, among other things, that broker-dealers effecting transactions in a penny stock make certain disclosures to and obtain a written suitability statement from potential purchasers, could restrict the ability of broker-dealers to sell our Common Stock if it were to be considered a penny stock, which could affect the ability of our stockholders to sell their shares of our stock.  In addition, if our Common Stock continues to be quoted on the “OTC Pink Current Information” tier of OTC Markets, then our stockholders may find it difficult to obtain accurate quotations for our Common Stock, and may find few buyers to purchase our Common Stock and few market makers to support its price.
 
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
 
In addition to rules applicable to “penny stock,” the Financial Industry Regulatory Authority (FINRA) has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative low-priced securities will not be suitable for at least some customers.  These FINRA requirements make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for and price of our shares.
 
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
 
Any trading market for our Common Stock that may develop will depend in part on the research and reports that securities or industry analysts publish about us or our business.  Securities and industry analysts do not currently, and may never, publish research on us or our business.  If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively affected.  If securities or industry analysts initiate coverage, and one or more of those analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline.  If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
 
We may be exposed to additional risks as a result of “going public” by means of a reverse merger transaction.
 
We may be exposed to additional risks because the business of AIT Ltd. has become a public company through a “reverse merger” transaction.  There has been increased focus by government agencies on transactions such as the Merger in recent years, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result of the completion of that transaction.  Further, since we existed as a “shell company” under applicable rules of the SEC prior to the closing of the Merger on January 13, 2017, we are subject to certain restrictions and limitations for certain specified periods of time relating to potential future issuances of our securities and compliance with applicable SEC rules and regulations.  Additionally, our “going public” by means of a reverse merger transaction may make it more difficult for us to obtain coverage from securities analysts of major brokerage firms following the Merger because there may be little incentive to those brokerage firms to recommend the purchase of our Common Stock.  The occurrence of any such event could cause our business or stock price to suffer.
 
39

We will incur increased costs associated with, and our management will need to devote substantial time and effort to, compliance with public company reporting and other requirements.
 
As a public company, and particularly if and after we cease to be an “emerging growth company” or a “smaller reporting company,” we will incur significant legal, accounting and other expenses that AIT Ltd. did not incur as a private company.  In addition, the rules and regulations of the SEC and national securities exchanges impose numerous requirements on public companies, including requirements relating to our corporate governance practices, with which we will now need to comply.  Further, upon becoming subject to the Exchange Act, we will be required to, among other things, file annual, quarterly and current reports with respect to our business and operating results.  Our management and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations, and our efforts and initiatives to comply with those requirements could be expensive.
 
AIT Ltd. was not subject to requirements to establish, and did not establish, internal control over financial reporting and disclosure controls and procedures prior to the Merger.  Our management team and Board of Directors will need to devote significant efforts to maintaining adequate and effective disclosure controls and procedures and internal control over financial reporting in order to comply with applicable regulations, which may include hiring additional legal, financial reporting and other finance staff.  Additionally, any of our efforts to improve our internal controls and design, implement and maintain an adequate system of disclosure controls may not be successful and will require that we expend significant cash and other resources.
 
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.
 
We are an emerging growth company as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies, including, among other things:
 
exemption from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002;
 
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;
 
exemption from the requirements of holding non-binding stockholder votes on executive compensation arrangements; and
 
exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless the SEC otherwise determines, any future audit rules that may be adopted by the Public Company Accounting Oversight Board.
 
We will be an emerging growth company until the earliest of (i) December 31, 2021, (ii) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt and (iv) the date on which we are deemed to be a large accelerated filer under the federal securities laws. We will qualify as a large accelerated filer as of the first day of the first fiscal year after we (i) have more than $700 million in aggregate market value of outstanding common equity held by our non-affiliates as of the last day of our second fiscal quarter, (ii) have been public for at least 12 months and (iii) have filed at least one annual report pursuant to the Exchange Act.
 
We cannot predict if investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
 
40

We have elected under the JOBS Act to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.
 
Under the JOBS Act, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to take advantage of this extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with the effective dates of those accounting standards.
 
Shares of our Common Stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
 
Prior to the closing of the Merger, we were deemed a “shell company” under applicable SEC rules and regulations, because we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets.  Pursuant to Rule 144 (Rule 144), promulgated under the Securities Act, sales of the securities of a former shell company, such as us, under that rule are not permitted until at least 12 months have elapsed from the date on which the Current Report on Form 8-K, filed by us on January 20, 2017, reflecting our status as a non-shell company, was filed with the SEC.  As a result, most of our stockholders will be forced to hold their shares of our Common Stock for at least that 12-month period before they are eligible to sell those shares, and even after that 12-month period, sales may not be made under Rule 144 unless we and the selling stockholders are in compliance with other requirements of Rule 144.  Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend additional time and cash resources.  Additionally, our previous status as a shell company could also limit our use of our securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned).  The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time could cause the market price of our securities to decline.
 
If we issue additional shares of our capital stock in the future, our existing stockholders will be diluted.
 
Our Amended and Restated Certificate of Incorporation authorize the issuance of up to 100,000,000 shares of our Common Stock and up to 10,000,000 shares of preferred stock with the rights, preferences and privileges that our Board of Directors may determine from time to time. In addition to capital raising activities, which we expect to pursue in order to raise the funding we will need in order to continue our operations, other possible business and financial uses for our authorized capital stock include, without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares of our capital stock, issuing shares of our capital stock to partners or other collaborators in connection with strategic alliances, attracting and retaining employees by the issuance of additional securities under our equity compensation plans, or other transactions and corporate purposes that our Board of Directors deems are in the best interest of our company. Additionally, shares of our capital stock could be used for anti- takeover purposes or to delay or prevent changes in control or our management. Any future issuances of shares of our capital stock may not be made on favorable terms or at all, they may not enhance stockholder value, they may have rights, preferences and privileges that are superior to those of our Common Stock, and they may have an adverse effect on our business or the trading price of our Common Stock. The issuance of any additional shares of our Common Stock will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our Common Stock. Additionally, any such issuance will reduce the proportionate ownership and voting power of all of our current stockholders.
 
Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans or otherwise, could result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
 
We expect that significant additional capital will be needed in the future to continue our planned operations.  To raise capital, we may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time.  If we sell Common Stock, convertible securities or other equity securities in more than one transaction, investors in a prior transaction may be materially diluted by subsequent sales.  Additionally, any such sales may result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our Common Stock.
 
41

Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our Board of Directors or management and, therefore, depress the trading price of our Common Stock.
 
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may depress the market price of our Common Stock by acting to discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our Common Stock.  These provisions may also prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors or our management.  Our corporate governance documents include provisions:
 
·
providing that directors may be removed by stockholders with or without cause;
 
·
limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
 
·
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors;
 
·
authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Common Stock; and
 
·
limiting the liability of, and providing indemnification to, our directors and officers.
 
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain business combinations with us.  Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.
 
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock.  They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your Common Stock in an acquisition.
 
The elimination of personal liability against our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.
 
Our Amended and Restated Certificate of Incorporation and our Bylaws eliminate the personal liability of our directors and officers to us and our stockholders for damages for breach of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our Amended and Restated Certificate of Incorporation and our Bylaws and individual indemnification agreements we have entered with each of our directors and executive officers provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by the Delaware law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.
 
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
 
Other than the cash dividend paid in connection with the Merger, we have never declared or paid any dividends on our Common Stock and do not anticipate paying any dividends in the foreseeable future.  Any future payment of cash dividends in the future would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors and will be at the discretion of the our Board of Directors.  Our stockholders should not expect that we will ever pay cash or other dividends on our outstanding capital stock.
 
42

 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains “forward-looking statements”.  Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product offerings, business, financial condition, results of operations, strategies or prospects.  You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assumes,” “targets” and similar expressions and/or the use of future tense or conditional constructions (such as “will,” “may,” “could,” “should” and the like) and by the fact that these statements do not relate strictly to historical or current matters.   Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made.  Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements.  Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.  These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.  We undertake no obligation to update, and we do not have a policy of updating or revising, these forward-looking statements, except as required by applicable law.
 
Risks and uncertainties, the occurrence of which could adversely affect our business, include, without limitation, the following:
 
·
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.  We are a clinical-stage company with no approved products, and have generated no revenue to date and may never generate revenue or achieve profitability.
 
·
It is highly likely that we will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
 
·
We are heavily dependent on the success of our product candidates, which are in the early stages of clinical development.  We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.
 
·
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable.  If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
 
·
Clinical drug and medical device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.
 
·
We are working on NTM Abscessus in patients with CF, which is very rare.
 
·
We are working on bronchiolitis in infants that usually is caused by the RSV virus. RSV is a seasonal virus and the length of the disease and the severity of the disease might change every year.
 
·
We are heavily dependent on the Aeronox system to conduct our trial outside the United States.
 
·
Our delivery system may be classified as a Class III medical device by the FDA and require PMA by the FDA, which is a rigorous, time-consuming and expensive process.
 
·
We may find it difficult to enroll patients in our clinical studies.  Difficulty in enrolling patients could delay or prevent clinical studies of our product candidates.
 
·
We may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
 
·
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
 
43

·
Prescription Drug User Fee Act may not be reauthorized, which could delay review of any NDA that we may file and that could cause adverse financial consequences for the Company.
 
·
Even if we obtain regulatory approval for our drug candidates, we will still face extensive, ongoing regulatory requirements and review, and our products may face future development and regulatory difficulties.
 
·
We will be seeking Fast Track review by the FDA, but the agency may refuse to accord us accelerated review.
 
·
We intend to seek additional orphan drug designations for our candidate drugs, but the agencies may refuse to grant our products that designation.
 
·
We rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us.  If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
 
·
We will rely on third parties to manufacture our NO formulation and delivery system.  Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.
 
·
We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.  The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
 
·
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
 
·
If the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
 
·
We intend to rely on third-party manufacturers to produce our product candidates, but we have not entered into binding agreements with any such manufacturers to support commercialization.
 
·
We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
 
·
We currently have no marketing and sales organization.  If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.
 
·
The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
 
·
The insurance coverage and reimbursement status of newly-approved products is uncertain.  Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
 
·
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
 
·
Future legislation or regulations may adversely affect reimbursement from government programs.
 
·
We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
 
44

·
If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
 
·
We have a non-exclusive license to certain patents owned by CareFusion that relate to methods and devices for delivering 80-400 PPM NO formulations to patients.  CareFusion may grant additional non-exclusive licenses to third parties.
 
·
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidate.  Such litigation or licenses could be costly or not available on commercially reasonable terms.
 
·
Patent terms are limited and we may not be able to effectively protect our products and business.
 
·
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
 
·
If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.
 
·
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
 
·
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
 
·
If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
 
·
We may be involved in lawsuits or post-grant proceedings to protect or enforce our patents or the patents of our licensor, which could be expensive, time consuming and unsuccessful.
 
·
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
 
·
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
 
·
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
 
·
We may not be able to protect our intellectual property rights throughout the world.
 
·
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
 
·
We manage our business through a small number of employees and key consultants.  We depend on them even more than similarly-situated companies.
 
·
We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.
 
·
If we fail to obtain or maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced.
 
·
Novoteris previously received orphan drug designation from the FDA and EMA for the use of an inhaled NO formulation in treating CF. This does not derogate from the orphan drug designations that we have received from the FDA and EMA, as more than one sponsor may receive orphan drug designation of the same drug for the same rare disease or condition. Currently, neither Novoteris nor any other company has orphan drug exclusivity for an NO-based treatment of CF. In the event that Novoteris’ designated orphan product receives marketing approval from the FDA before we do for the indication for which it received orphan drug designation, it will be eligible for orphan drug exclusivity and our ability to obtain product approval for treating CF or orphan drug exclusivity may be significantly impaired. We may not be successful in our efforts to identify, license or discover additional product candidates.
 
45

·
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
 
·
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws.  If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
 
·
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Israel.
 
·
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
 
·
The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.
 
·
Our business and operations would suffer in the event of system failures.
 
·
There is not now, and there may never be, an active, liquid and orderly trading market for our Common Stock, which may make it difficult for you to sell your shares of our Common Stock.
 
·
Our share price is volatile and may be influenced by numerous factors, some of which may be beyond our control.
 
·
Our Common Stock may be a “penny stock.”
 
·
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
 
·
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
 
·
We may be exposed to additional risks as a result of “going public” by means of a reverse merger transaction.
 
·
We will incur increased costs associated with, and our management will need to devote substantial time and effort to, compliance with public company reporting and other requirements.
 
·
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock less attractive to investors.
 
·
We have elected under the JOBS Act to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.
 
·
Shares of our Common Stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
 
·
If we issue additional shares of our capital stock in the future, our existing stockholders will be diluted.
 
46

·
Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans or otherwise, could result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
 
·
Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our Board of Directors or management and, therefore, depress the trading price of our Common Stock.
 
·
The elimination of personal liability against our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.
 
·
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
 
47

 
USE OF PROCEEDS
 
The selling stockholders will receive the proceeds from the sale of shares of Common Stock offered hereby.  We will not receive any proceeds from the sale of the shares of Common Stock but will pay the expenses (other than any underwriting discounts and broker’s commissions and similar expenses) of this offering.
 
The selling stockholders hold warrants to purchase an aggregate of 3,403,232 shares of Common Stock at an exercise price of $6.90 per share.  The warrants are exercisable at any time prior to their expiration on January 13, 2022 by paying to us the exercise price in cash.  However, if at any time during the term of the warrants a registration statement covering the resale of the shares of Common Stock issuable upon exercise of the warrants is not currently effective and available for the resale of all of such shares, then the holders of the warrants may exercise all or any part of the warrant in a “cashless” or “net-issue” exercise, in which case we would receive no cash proceeds upon such exercise.
 
Assuming that the selling stockholders exercise all of their respective warrants in cash exercises, we would receive gross proceeds of approximately $23,482,300, which we presently intend to use to advance our product candidate through clinical trials targeted at our planned indications for CF and COPD.  We can provide no assurance that any of the selling stockholders will exercise any of the warrants, whether in cash or cashless exercises.
 
DETERMINATION OF OFFERING PRICE
 
As of the date of this prospectus, our Common Stock is subject to only limited quotation on the OTC Pink, and it is not otherwise regularly quoted on any other over-the-counter market. Until such time as our Common Stock is so quoted, the shares of Common Stock covered by this prospectus will be sold by the selling stockholders from time to time at a fixed price of $6.00 per share, representing the sales price of the units issued and sold in our most recent private placement that included Common Stock, effected on March 31, 2017. This price may not necessarily bear a relationship to our current book value, results of operations or financial condition.  If and when our Common Stock is regularly quoted on an over-the-counter market or on a national securities exchange, the selling stockholders may sell their respective shares of Common Stock from time to time at prevailing market prices or in privately negotiated transactions.  For additional information on the possible methods of sale that may be used by the selling stockholders, please see “Plan of Distribution”, beginning on page 98
 
COMMON STOCK PRICE RANGE AND DIVIDENDS
 
Our Common Stock is quoted on OTC Pink under the symbol “AITB.” All OTC Pink quotations reproduced herein reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
Our Common Stock has an extremely limited trading history, and historical trade information for our Common Stock is generally not available.  The last reported sales price for our Common Stock, as reported by OTC Pink, was $30.00 per share on September 27, 2016 (after giving effect to the 1-for-100 reverse split stock that became effective on January 9, 2017).

As of the close of business on February 23, 2017, there were approximately 71 holders of record of our Common Stock.
 
On January 9, 2017, AITT’s Board of Directors declared a $2.50 per share cash dividend to its stockholders of record as of January 9, 2017.  Other than the cash dividend paid in connection with the Merger, we have never declared or paid any dividends on our Common Stock and do not anticipate paying any dividends in the foreseeable future.
 
Equity Compensation Plan Information
 
Plan Category
Number of Securities to be issued
upon exercise of outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by security holders
3,941,807
6.8
308,812
Equity compensation plans not approved by security holders
-
-
-
Total
3,941,807
6.8
308,812
 
 
48

 
 
The 2013 Plan was administrated by the board of directors or by a compensation committee appointed and maintained by the board of directors of AIT Ltd. for such purpose, which shall determine, subject to applicable law, the grantees of awards and various terms of the grant.  The 2013 Plan provided for granting options to purchase our ordinary shares to directors, officers and employees, who are not holders of 10% or more of our total share capital and are not otherwise controlling shareholders, in compliance with Section 102 of the Israeli Income Tax Ordinance, 1961 (Ordinance), under the capital gains track, and for grants to non-employee Israeli service providers, consultants and shareholders who hold 10% or more of our total share capital or are otherwise controlling shareholders pursuant to section 3(i) of the Ordinance, as further detailed below.  For individual citizens or residents of the United States (U.S. Participant), such grants are either incentive stock options (ISOs) as defined in Section 422 of the Internal Revenue Code of 1986, as amended (Code), or non-statutory stock options (NSOs) pursuant to the Code.
 
Section 102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and are considered Israeli residents, to receive favorable tax treatment for compensation in the form of shares or options.  Our non-employee Israeli service providers, consultants and controlling shareholders, which includes any shareholder holding 10% or more of the Company’s ordinary shares on a fully diluted basis, may only be granted options under section 3(i) of the Ordinance, which does not provide for similar tax benefits.  Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantee and also includes an additional alternative for the issuance of options or shares directly to the grantee.  Section 102(b)(2) of the Ordinance, the most favorable tax treatment for the grantee, permits the issuance to a trustee under the “capital gains track.” However, under this track we are not allowed to deduct an expense with respect to the issuance of the options or shares.  In order to comply with the terms of the capital gains track, all options granted under the 2013 Plan pursuant and subject to the provisions of Section 102 of the Ordinance, as well as the ordinary shares issued upon exercise of these options and other shares received subsequently following any realization of rights with respect to such options, such as share dividends and share splits, must be granted to a trustee for the benefit of the relevant employee, director or officer and should be held by the trustee for at least two years after the date of the grant.
 
A U.S. Participant generally does not recognize taxable income upon the grant of a NSO if structured to be exempt from or comply with Section 409A of the Code.  Upon the exercise of a NSO, the U.S. Participant generally recognizes ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the ordinary shares acquired on the date of exercise over the exercise price thereof, and we (assuming we were subject to U.S. federal income tax on our net income) generally will be entitled to a deduction for such amount at that time.  If the U.S. Participant later sells ordinary shares acquired pursuant to the exercise of a NSO, the U.S. Participant (assuming the participant held his or her shares as capital assets within the meaning of Section 1221 of the Code, and we are not treated as a PFIC) generally recognizes a long-term or short-term capital gain or loss, depending on the period for which the ordinary shares were held.  A long-term capital gain is generally subject to more favorable tax treatment than ordinary income or a short-term capital gain.  The deductibility of capital losses is subject to certain limitations.
 
A U.S. Participant generally does not recognize taxable income upon the grant or, except for purposes of the U.S. alternative minimum tax (AMT), the exercise of an ISO.  For purposes of the AMT, which is payable to the extent it exceeds the U.S. Participant’s regular income tax, upon the exercise of an ISO, the excess of the fair market value of the ordinary shares subject to the ISO over the exercise price is a preference item for AMT purposes.  If the U.S. Participant disposes of the ordinary shares acquired pursuant to the exercise of an ISO more than two years after the date of grant and more than one year after the transfer of the ordinary shares to the U.S. Participant, the U.S. Participant (assuming the participant held his or her shares as capital assets within the meaning of Section 1221 of the Code, and we are not treated as a PFIC) generally recognizes a long-term capital gain or loss, and we will not be entitled to a deduction.  However, if the U.S. Participant disposes of such ordinary shares prior to the end of either of the required holding periods, the U.S. Participant generally will have ordinary compensation income equal to the excess (if any) of the fair market value of such shares on the date of exercise (or, if less, the amount realized on the disposition of such shares) over the exercise price paid for such shares, and we (assuming we were subject to U.S. federal income tax on our net income) generally will be entitled to deduct such amount.
 
49

Options that are not exercised within 10 years from the grant date shall expire, or in the event of ISOs, such options expire five years from the grant date in the case of an ISO held by an optionee who holds more than 10% of the total combined voting power of all classes of shares of the Company or of the shares of any subsidiary of the Company or any parent corporation of the Company; at that time, such options, or the unexercised part thereof, will be terminated and all interests and rights of the optionee thereunder shall automatically and conclusively expire.
 
In the event of termination of an optionee’s employment with the Company or any of its related entities, all unvested options granted to him shall expire.  Unless otherwise prescribed by the board of directors, in case of termination for reasons of disability or death, the options which are already vested and unexpired shall be exercisable within 12 months.  If an optionee’s employment or service is terminated for any other reason, the optionee may exercise his or her vested options within 90 days of the date of termination.  Any expired or unvested options shall return to the pool for issuance.
 
In the event of a merger or consolidation of our company subsequent to which we shall no longer exist as a legal entity, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then any unexercised options then outstanding shall be cancelled.  Notwithstanding the foregoing, and subject to Section 409A of the Code, our board of directors may resolve, that the vesting period defined in each optionee’s option agreement shall be accelerated so that any unvested option shall be immediately vested in full prior to the effective date of such transaction (or any other dates as shall be resolved by the board of directors).
 
50

 
CAPITALIZATION
 
The table below sets forth our cash and cash equivalents balances and our capitalization as of March 31, 2017.  You should read this table together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto.
 
   
March 31, 2017
 
Cash and cash equivalents
 
$
7,141,000
 
         
Total debt
 
$
6,526,000
 
Stockholders’ Deficit:
       
Common Stock
 
$
1,000
 
Treasury shares
 
$
(25,000
)
Additional Paid-In Capital
 
$
20,752,000
 
Deficit Accumulated during the Development Stage
 
$
(19,856,000
)
Total Stockholders’ (Deficit) equity
 
$
872,000
 
Total Capitalization
 
$
7,398,000
 
 
51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information contained in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
 
Introduction
 
We are an emerging biopharmaceutical company that is developing a single proprietary 160 ppm nitric NO formulation and delivery system to treat certain respiratory infections for which we believe current treatments have shown only limited success.  Our current product candidates may be marketed as a combination drug and associated medical device; in that case, any final product would be composed of two distinct components: our proprietary delivery system and a specific gaseous NO drug, each of which may be subject to separate premarket review by the FDA.
 
We believe our novel system is designed to  successfully deliver a high dosage of NO to the lungs that has the potential to eliminate microbial infections, including bacteria, fungi and viruses. We believe that current FDA approved 20 ppm NO vasodilation treatments do not work in treating microbial infections and are approved for hypoxia only in premature babies. NO is produced naturally by the body as an innate immunity mechanism. Clinical trials have demonstrated, however, that in order to combat severe infections, higher concentrations of an NO formulation are required. Based on our studies, we believe that 160 ppm is the minimum therapeutic dose to achieve the pulmonary antimicrobial effect of NO. To date, the FDA has not approved any NO formulation and delivery system for the delivery of 160 ppm antimicrobial dosage to the lungs.
 
To date, we have not generated revenue from the sale of any product, and we do not expect to generate revenue unless and until we obtain marketing approval of, and commercialize, our product candidates.  As of December 31, 2016, we had an accumulated deficit of $13.6 million. Our financing activities are described below under “Liquidity and Capital Resources.”
 
Financial Overview
 
Operating Expenses
 
Our current operating expenses consist of three components: research and development expenses; general and administrative expenses; and costs related to aborted IPO.
 
Research and Development Expenses
 
Our research and development expenses consist primarily of the cost of third party clinical consultants and expenses related to conducting clinical and preclinical trials, patents maintenance, salaries and related personnel expenses, share-based compensation expenses, travel expenses and other research and development expenses.
 
We expect that our research and development expenses will materially increase because of our current and planned clinical activity, including a Phase II clinical study for the treatment of NTM Abscessus in Israel, for which initial documentation has recently been filed, together with our ongoing Israeli-based Phase III clinical study for the treatment of infants with bronchiolitis.
 
General and Administrative Expenses
 
General and administrative expenses consist primarily of salaries, share-based compensation expense, professional service fees for accounting, legal, bookkeeping and facilities, travel expenses and other general and administrative expenses.
 
52

We expect our general and administrative expenses, such as accounting and legal fees, to increase now that we have become a U.S. public company, and we expect increases in the number of our executive, accounting and administrative personnel due to the anticipated growth of our company.
 
Costs related to aborted IPO
 
Costs related to aborted IPO consist of direct and incremental costs such as accounting, consulting, legal and printing fee that were incurred in connection with an IPO process pursuant to which we had planned to register and quote our Common Stock on the OTCQB, which we did not complete.
 
Financial Expense, net
 
Financial expense, net consists of imputed interest expenses in respect of convertible notes, loans from related parties and a line of credit, amortization of a beneficial conversion feature and amortization of debt issuance costs which the Company recorded for convertible notes which is being amortized over the term of the notes, bank fees and other transactional costs and foreign currency transaction adjustments. For more information refer to Note 12 to the consolidated financial statements as of December 31, 2016 contained herein.
 
Revaluation of Warrants to Purchase Series A Preferred Shares
 
Revaluation of warrants to purchase Series A Preferred shares expenses reflects the changes in the fair value of the warrants that were converted into Series A Preferred shares in 2015. All Series A Preferred shares were converted prior to the Merger and are no longer outstanding.
 
Taxes on Income
 
Taxes on income comprise taxes incurred as result of the implementation of the cost plus method between AIT Ltd. and its wholly-owned subsidiary, Advanced Inhalation Therapies (AIT) Inc, referred to as AIT Inc.  AIT Inc. provides certain services to AIT Ltd., for which AIT Ltd. remunerates AIT Inc. based on a cost plus methodology.  The Company applied the comparative profits method, or CPM, for transfer pricing purposes.  The CPM method compares the profit of the tested party to that of comparable companies that perform similar functions.
 
The markup on total costs, or “cost plus”, was selected as the profit level indicator, which reflects the remuneration by AIT Ltd. to AIT Inc. for services performed.  Cost plus is defined as the ratio of operating profit to total costs.
 
Critical Accounting Estimates and Policies
 
We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the years ended December 31, 2016 and 2015. We believe that the accounting policies below are critical in order to fully understand and evaluate our financial condition and results of operations.
 
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
 
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions.  Our management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made.  These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of expenses during the reporting period.  Actual results could differ from those estimates.
 
53

JOBS Act
 
On April 5, 2012, the U.S. Congress enacted the JOBS Act.  Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.  This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.  We are electing to delay such adoption of new or revised accounting standards.  As a result, our consolidated financial statements may not be comparable to companies that comply with the public company effective date.
 
Stock-based compensation and fair value of ordinary shares
 
We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, (“ASC 718”), which requires companies to estimate the fair values of equity-based payment awards on the date of grant using an option-pricing model.  The value of the stock options is recognized as an expense over the requisite service periods in our statement of comprehensive loss.  We recognize compensation expense for the value of our awards granted based on accelerated method over the requisite service period of each of the awards.
 
We primarily selected the Black-Scholes-Merton model, which is the most common model in use in evaluating stock options.  This model evaluates the options as if there is a single exercise point, and thus incorporates an expected option life (expected term).  The input factored in this model is constant for the entire expected life of the option.
 
According to ASC 718, due to insufficient or no historical data for the Company, the expected volatility determination was based on similar companies’ stock volatility.  The risk-free interest rate assumption is the implied yield currently available on United States treasury zero-coupon issues with a remaining term equal to the expected life term of the options.  We determined the expected life of the options based on the “simplified method”, representing the period of time that options granted are expected to be outstanding.  The expected dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend payouts.  The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.
 
As there has been no public market for the Company’s shares, the fair value of the options has been determined by the Company’s management, using the assistance of an independent valuation firm. For the years ended December 31, 2016 and 2015, the fair value of the ordinary shares was based on the application of the Option-Pricing Method (“OPM”). The first step in performing a valuation using OPM involves estimating the fair value of total shareholders’ equity (capital instruments). As part of our analysis, we used the hybrid model by combining the expected IPO and a Discounted Cash Flows (“DCF”) method, at the option valuation dates in order to evaluate the fair value of our total shareholders’ equity.
 
Under the option-pricing method, we estimated the fair value of the ordinary shares as the net value of a series of call options, representing the present value of the expected future returns to the ordinary shareholders.  Essentially, the rights of the ordinary shareholders are equivalent to a call option on any value of the Company above the respective preferred shareholders’ liquidation preferences, with adjustment to account for the rights retained by the preferred shareholders related to their share of any value above the values at which they would convert to ordinary shares.  Thus, the ordinary shares were valued by estimating the value of their share in each of these call option rights. We apply ASC 505-50, “Equity-Based Payments to Non-Employees” with respect to options and warrants issued to non-employees.
 
Beneficial conversion feature with respect to convertible notes
 
Because the Company needed to support and finance its ongoing operation, the Company entered into the convertible notes agreements based on a lower Company value (consistent with prior financing rounds) compared to the Company’s then-current value on the commitment date of the convertible notes.  The difference between the values is recognized as Beneficial Conversion Feature (“BCF”) pursuant to ASC 470, “Debt with Conversion and Other Options”.  The BCF is recognized and measured in the convertible notes at the commitment date by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital.  The discount resulting from the BCF is amortized over the life of the convertible notes through financial expenses unless mandatorily converted earlier.
 
54

 
During the year ended December 31, 2016 and the year ended December 31, 2015, AIT Ltd. recorded $1,034,000 and $759,000 of amortization expenses in respect to the beneficial conversion feature of the convertible notes, respectively.
 
Results of Operations
 
Comparison of the three months ended March 31, 2017 to the three months ended March 31, 2016
 
Revenue
 
We have not generated any revenues to date, including for the three month periods ended March 31, 2017 and 2016.
 
Research and Development Expenses
 
For the three month periods ended March 31, 2017 and 2016, we incurred Research and Development (“R&D”) expenses in the aggregate of $1,439 and $224 thousand, respectively. The increase is primarily due to  purchase of certain intellectual property in the amount of $500 thousand, expenses related to the issuance of warrants aggregating $480 thousand and an increase in costs related to clinical trials, subcontractors and other R&D consultants.
 
Our R&D expense is highly dependent on the execution of clinical trials and therefore is expected to fluctuate significantly from period to period.  We expect that our R&D expenses will materially increase because of our current and planned clinical activity, including a Phase II clinical study for the treatment of NTM Abscessus in Israel, for which initial documentation has recently been filed, together with our ongoing Israeli-based Phase III clinical study for the treatment of infants with bronchiolitis.
 
General and Administrative Expenses
 
General and administrative expenses consist primarily of payroll expenses, stock-based compensation expense, costs related to our recently-completed reverse merger, professional service fees for accounting, legal, facilities, travel expenses and other general and administrative expenses.
 
We expect our general and administrative expenses, such as accounting and legal fees, to increase now that we have become a U.S. public company, and we expect increases in the number of our executive, accounting and administrative personnel due to our anticipated growth.
 
For the three month periods ended March 31, 2017 and 2016, we incurred general and administrative expenses of $2,121 and $274 thousand, respectively. The increase of $1,847 thousand for the three month period ended March 31, 2017 as compared to the 2016 period resulted primarily from the increase of approximately $1.3 million in stock-based compensation mainly due to grants to board members and employees, payment of one-time bonus in amount of $150 thousand to one of our directors in connection with a recently-completed private placement,  and an increase in costs related to legal and accounting and issuance fees in connection with the reverse merger transaction and payroll expenses.
 
Financial Expenses, Net
 
Financial expense, net consists of imputed interest, expenses in respect of revaluation of warrants to purchase common stock, amortization of BCF in respect of convertible notes, issuance cost related to warrants to investors, foreign currency translation adjustments and others. For more information, refer to note 10 to the interim consolidated financial statements as of March 31, 2017 contained herein.
 
For the three month periods ended March 31, 2017 and 2016, we incurred financial expenses, net of $2,717 and $339 thousand, respectively. The increase of $2,378 thousand resulted primarily due to issuance and revaluation of warrants granted to investors in connection with our recently-completed private placement in amount of $1.1 million, an increase in amortization of BCF in respect to the conversation of the convertible notes in amount of $793 thousand and issuance costs related to warrants to investors in amount of $457 thousand.
 
55

Stock-based Compensation
 
Our stock-based compensation expenses with respect to employees are recorded according to accounting standards codification (“ASC”) 718, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options under our stock plans, based on estimated fair values.
 
ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that will ultimately vest is recognized as expense over the requisite service periods in our consolidated statement of operations.
 
We apply ASC 505-50, “Equity Based Payments to Non-Employees”, with respect to options issued to non-employees.
 
We estimate the fair value of stock options granted using the Black-Scholes-Merton option pricing model. For the three month periods ended March 31, 2017 and 2016, our stock-based compensation expenses were $1,877 and $188 thousand, respectively. Stock-based compensation expenses for the three months ended March 31, 2017 increased as compared to the 2016 period, primarily due to restricted shares and warrants issued in 2017 to certain directors and a service provider, aggregating $1,329 and $480 thousand, respectively.
 
Comparison of the year ended December 31, 2016 to the year ended December 31, 2015.
 
   
Year ended
 
 
December 31,
2016
   
December 31,
2015
 
Research and development expenses          
 
$
673,000
   
$
1,620,000
 
General and administrative expenses          
 
$
1,039,000
   
$
589,000
 
Costs related to aborted IPO          
 
$
621,000
     
 
Operating loss          
 
$
2,333,000
   
$
2,209,000
 
Financial expense, net          
 
$
1,360,000
   
$
994,000
 
Revaluation of warrants to purchase Series A Preferred Shares          
   
-
   
$
152,000
 
Loss before taxes on Income          
 
$
3,693,000
   
$
3,355,000
 
Taxes on income          
 
$
27,000
   
$
127,000
 
Net comprehensive loss          
 
$
3,720,000
   
$
3,482,000
 
 
Research and development expenses
 
The following table discloses the breakdown of research and development expenses for the last two fiscal years.
 
   
Year ended
 
 
December 31,
2016
   
December 31,
2015
 
Cost to third-party clinical consultants and expenses related to conducting clinical and preclinical trials
 
$
157,000
   
$
623,000
 
Salaries and related personnel          
 
$
198,000
   
$
266,000
 
Share-based compensation          
 
$
109,000
   
$
331,000
 
Patents          
 
$
130,000
   
$
64,000
 
Other          
 
$
79,000
   
$
336,000
 
Total          
 
$
673,000
   
$
1,620,000
 

56

 
Our research and development expenses for the year ended December 31, 2016, were $673,000, representing a decrease of $947,000, or 58%, compared to $1,620,000 for the year ended December 31, 2015. Approximately $466,000 of the decrease was attributable to a decrease of expenses related to the Company’s device development efforts, as well as the Company’s preparation for a pre-IND meeting with the FDA during the 2015 period, which required significant expenditures related to engaging a regulatory consulting firm, preparing the required medical report and preparing the pre-IND package to be submitted to the FDA.  The expenditures for device development efforts decreased given that we incurred the majority of expenses related to the first generation of our device in 2015. Approximately $290,000 of the decrease was attributable to a decrease of share-based compensation and salaries and related personnel expenses, reflecting a decrease in the number of employees engaged in research and development activities. The additional decrease reflected in other expenses of approximately $258,000 related to a decrease in consulting expenses. Approximately $66,000 of the increase in 2016 compared to 2015 related to patents maintenance.
 
Our research and development expense is highly dependent on the execution of clinical trials and therefore is expected to fluctuate highly from year to year.
 
General and administrative expenses
 
Our general and administrative expenses totaled $1,039,000 for the year ended December 31, 2016, an increase of $450,000 or 76%, compared to $589,000 for the year ended December 31, 2015. The increase resulted primarily from an increase in professional services of approximately $ 370,000, an increase in stock-based compensation of $136,000 and a decrease of $39,000 in salary and related expenses.
 
 Cost related to aborted IPO
 
In late 2015 and early 2016, AIT Ltd. initiated an IPO process.  As a result of a failure to complete the offering, the IPO was aborted and costs related to the aborted IPO in a total amount of $621,000 were recognized in the statement of comprehensive loss as a separate line item.
 
Operating loss
 
Our operating loss for the year ended December 31, 2016, was $2,333,000, as compared to an operating loss of $2,209,000 for the year ended December 31, 2015, an increase of $124,000, or 6%.
 
Financial expense, net
 
We recognized financial expense, net of $1,360,000 for the year ended December 31, 2016, an increase of $366,000 or 37%, compared to financial expense of $994,000 for the year ended December 31, 2015.  The increase resulted primarily from an increase in the amortization expenses of the beneficial conversion feature and debt issuance costs of the convertible notes amounting to $1,050,000 for the year ended December 31, 2016, as compared to $768,000 for the year ended December 31, 2015.  In addition, imputed interest expenses in respect of convertible notes, loans from related parties and a line of credit have been recognized in the total amount of $299,000 for the year ended December 31, 2016 compared to $216,000 for the year ended December 31, 2015.
 
57

Revaluation of warrants to purchase Series A Preferred Shares
 
The warrants to purchase Series A Preferred shares, which we classified as a non-current liability have been re-measured to fair value at each reporting date.
 
We did not recognize any expense related to adjustment of liability in respect of warrants issued for the year ended December 31, 2016, compared to expenses of $152,000 for the year ended December 31, 2015. The decrease in the adjustment derives from the exercise of warrants in August 2015.
 
Taxes on Income
 
Our taxes on income expenses totaled $27,000 for the year ended December 31, 2016 a decrease of $100,000 or 79%, compared to $127,000 for the year ended December 31, 2015. The decrease resulted primarily from a decrease in the cost plus method calculation between AIT Ltd. and its wholly-owned subsidiary Advanced Inhalation Therapies (AIT) Inc.
 
 Loss
 
As a result of the foregoing, our net comprehensive loss for the year ended December 31, 2016, was $3,720,000, as compared to $3,482,000 for the year ended December 31, 2015 an increase of $238,000 or 7%.
 
Liquidity and Capital Resources
 
Overview
 
Since our inception through March 31, 2017, we have funded our operations principally with $12,662,000 from the issuance of equity securities and $3,721,000 from loans from related parties and convertible promissory notes. As of March 31, 2017, we had $7,141 in cash and cash equivalents.
 
Cash Flows
 
Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
 
For the three months ended March 31, 2017 and 2016, net cash used in operations was $2,212 and $190 thousand, respectively. Cash was used primarily for inTracrease in expenses related to our reverse merger transaction, private placement, payroll, clinical trials conducted in Israel, expenses related to subcontractors and third parties.
 
For the three months ended March 31, 2017 net cash used in investing activities was $320 thousand. We neither used net cash in, nor received net cash from, investing activities for the three months ended March 31, 2016. The increase in cash used in investing activities for the three month period ended March 31, 2017 as compared to the 2016 period resulted primarily from purchasing of property and equipment and our acquisition of the company used to effect our reverse merger transaction, aggregating $25 and $295 thousand, respectively.
 
Net cash provided by financing activities for the three months ended March 31, 2017, and the three months ended March 31, 2016, was $9,666 and $91 thousand, respectively. The increase in cash provided by financing activities for the three month period ended March 31, 2017 as compared to the 2016 period resulted primarily from proceeds from issuance of units, consisting of common stock of warrants, net of issuance costs, which totaled $9,889 thousand.
 
Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
 
   
Year ended
 
 
December 31,
2016
   
December 31,
2015
 
Net cash provided by (used in):
           
Operating activities          
   
(692,000
)
   
(1,658,000
)
Investing activities          
   
14,000
     
(7,000
)
Financing activities          
   
556,000
     
1,633,000
 
Net decrease in cash and cash equivalents          
   
(122,000
)
   
(32,000
)
 
58

Operating Activities
 
Net cash used in operating activities of $692,000 for the year ended December 31, 2016 was primarily as a result of net loss of $3,720,000 . Stock-based compensation expenses amounted to $365,000 , amortization of beneficial conversion feature and debts issuance costs in the convertible notes amounted to $1,050,000  , imputed interest on convertible notes, loans from related parties and line of credit amounted to $299,000, waiver of salary by the Company's CEO amounted to $304,000, increase in trade payables and other accounts payable amounted to $695,000 and deferred IPO costs that were aborted amounted to $352,000.
 
Net cash used in operating activities of $1,658,000 during the year ended December 31, 2015 was primarily as a result of the net loss of $3,482,000. Stock-based compensation expenses amounted to $447,000 revaluation of warrants to purchase series A preferred shares amounted to $152,000, amortization of beneficial conversion feature and debts issuance costs in the convertible notes amounted to $768,000, imputed interest on convertible notes, loans from related parties and a line of credit amounted to $217,000 and increase in the trade payables and other accounts payable amounted to $176,000.
 
Investing Activities
 
Net cash provided by investing activities for the year ended December 31, 2016 of $14,000 reflected maturity of restricted bank deposits and the sale of property and equipment. Net cash used in investing activities for the year ended December 31, 2015 of $7,000 reflected the purchase of property and equipment.
 
Financing Activities
 
Net cash provided by financing activities during the year ended December 31, 2016, and the year ended December 31, 2015, was $556,000 and $163,000, respectively.
 
Net cash provided by financing activities for the year ended December 31, 2016, consisted of approximately $184,000 of proceeds from the issuance of convertible loans, $340,000 of proceeds from loans from related parties and $36,000 of net proceeds from a line of credit from a commercial bank. Net cash provided by financing activities for the year ended December 31, 2015, consisted of approximately $540,000 of net proceeds from the exercise of warrants to purchase Series A Preferred shares, $1,239,000 of net proceeds from the issuance of convertible loans and $146,000 of cash that was paid in connection with IPO costs that were deferred.
 
Sources of Liquidity and Current Outlook
 
We have incurred losses and generated negative cash flows from operations since inception. To date, we have not generated any revenue from the sale of products, and we do not expect to generate revenues from sale of our products in the next several years.  We have financed our operations to date primarily through proceeds from sales of our equity and equity-linked securities, including pursuant to the Israeli Private Placement and the March 2017 Private Placement. Currently, our only source of liquidity is our current cash on hand.  We do not currently have any commitments for future external funding.
 
We will require significant additional financing in the future to fund our operations if and when we obtain regulatory approval and commercialize our products.  Our future capital requirements will depend on many factors, including:
 
·
the progress and costs of our preclinical studies, clinical trials and other research and development activities;
 
·
the scope, prioritization and number of our clinical trials and other research and development programs;
 
·
the costs and timing of obtaining regulatory approval for our product candidates;
 
·
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
 
·
the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical quantities of our product candidates;
 
·
the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;
 
·
the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our product candidates;
 
·
the magnitude of our general and administrative expenses; and
 
59

·
any cost that we may incur under current and future in-and out-licensing arrangements relating to our product candidates.
 
Potential sources of liquidity may include our issuance of equity or debt securities or our obtaining a credit facility from one or more financial institutions or otherwise. The sale of equity or convertible debt securities may result in dilution to our existing stockholders, and the incurrence of indebtedness would result in increased fixed obligations and could also subject us to covenants that restrict our operations. Additional equity or debt financing may not be available on acceptable terms, or at all.  If adequate funds are not available, we  may be required to delay, reduce the scope of or eliminate all or a portion of our operations.
 
Off-Balance Sheet Arrangements
 
We currently do not have any off-balance sheet arrangements.
 
Quantitative and Qualitative Disclosure about Market Risk
 
We are exposed to market risks in the ordinary course of our business.  Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.  Our market risk exposure is primarily a result of foreign currency exchange rates.
 
60

Foreign Currency Exchange Risk
 
Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. Certain of our expenses are denominated in New Israeli Shekels (“NIS”). Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Approximately 6% of our expenses are denominated in NIS. Changes of 5% and 10% in the USD/NIS exchange rate will increase/decrease our operation expenses by 0.3% and 0.6%, respectively. We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from significant changes in such fluctuations.
 
BUSINESS
 
Corporate Overview
 
We were incorporated in Delaware on April 28, 2015 under the name “KokiCare” and, prior to the Merger, operated as a healthcare software company. Concurrent with the closing of the Merger, we abandoned our pre-Merger business plan in the healthcare software industry, and we are now solely pursuing our business in the biopharmaceutical industry, which we conduct, almost exclusively, through our wholly owned Israeli subsidiary, AIT Ltd. AIT Ltd. was incorporated in Rehovot, Israel, under the laws of the State of Israel on May 1, 2011.
 
Business Overview
 
We are an emerging biopharmaceutical company that is developing a single proprietary 160 ppm NO formulation and delivery system to treat certain respiratory infections for which we believe current treatments have shown only limited success. Our current product candidates may be marketed as a combination drug and associated medical device; in that case, any final product would be composed of two distinct components: our proprietary delivery system and a specific gaseous NO drug, each of which may be subject to separate premarket reviews and approvals or clearance by the FDA.
 
We believe our novel system is designed to successfully deliver a high dosage of NO to the lungs that has the potential to eliminate microbial infections, including bacteria, fungi and viruses. We believe current FDA approved 20 ppm NO vasodilation treatments have limited success in treating microbial infections and are approved for hypoxia only in premature babies. NO is produced naturally by the body as an innate immunity mechanism. Clinical trials have demonstrated, however, that in order to combat severe infections, higher concentrations of an NO formulation are required. Based on our studies, we believe that 160 ppm is the minimum therapeutic dose to achieve the pulmonary antimicrobial effect of NO. To date, the FDA has not approved any NO formulation and delivery system for the delivery of 160 ppm antimicrobial dosage to the lungs.
 
To date, we have conducted a Phase 2 clinical trial involving 43 patients with bronchiolitis (mainly caused by RSV) and a Phase 2 clinical trial in patients with CF.  In addition, Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically, M. Abscessus). All of these trials were conducted outside the United States.
 
Our general target indication for our platform is LRTI, including our first two specific targets, premature babies and infants suffering from bronchiolitis (mainly RSV) and CF patients with NTM Abscessus. There are over 1.5 million hospitalizations related to LRTI annually in the United States, and LRTI is the third leading cause of death worldwide. Over 150 million new cases of bronchiolitis are reported worldwide each year. In the United States, there are approximately 150,000 annual bronchiolitis hospitalizations among children five years old or younger.
 
Our second indication is NTM Abscessus among patients with CF. NTM Abscessus lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. There is an increasing rate of lung disease caused by NTM, and this is an emerging public health concern worldwide. There are approximately 50,000 patients diagnosed with NTM in the United States, with an 8% increased prevalence each year.
 
Patients with NTM lung disease may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue. Patients with NTM lung disease frequently require lengthy and repeated hospital stays to manage their condition. There are no inhaled antibiotic treatments specifically indicated for the treatment of NTM lung disease in North America, Europe or Japan. Current guideline-based approaches to treat NTM lung disease involve multi-drug regimens that may cause severe side effects, and treatment can be as long as two years or more. The prevalence of human disease attributable to NTM has increased over the past two decades. In a decade-long study (1997-2007), researchers found that the prevalence of NTM in the United States is increasing at approximately 8% per year and that NTM patients on Medicare over the age of 65 are 40% more likely to die over the period of the study than those who did not have the disease (Adjemian et al., 2012). A 2015 publication from co-authors from several U.S. government departments stated that prior year statistics led to a projected 181,037 national annual cases in 2014 costing the U.S. healthcare system approximately $1.7 billion (Strollo et al., 2015).
 
61

 
We intend to treat in our clinical studies only NTM Abscessus in patients with CF. If successful, we will consider approaching the general NTM market. CF is the most frequent lethal genetic disorder of Caucasians, affecting more than 8,000 persons in the United Kingdom and 30,000 in the United States. Early death is mainly from chronic lung disease caused by persistent lower airway infection and inflammation. Important airway pathogens include staphylococcus aureus and pseudomonas aeruginosa, but others, such as NTM, are playing an increasingly recognized role. A multicenter prospective study of CF patients in the United States found the prevalence of NTM in sputum to be 13%. Older age was the most significant predictor for a positive sputum culture. A multicenter CF study in France reported a prevalence of 6.6%, (Paul Seddon et al, 2009).
 
Currently, there is no antiviral treatment for bronchiolitis. In addition, the treatment for acute RSV lung infections in infants is largely supportive care, and is based primarily on prolonged hospitalization during which the infant receives a constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes utilized until recovery, but we believe these treatments do not successfully eliminate microbes. NTM patients require prolonged treatment which varies, depending upon the types of species in the family of mycobacteria causing the disease, the severity of the disease and drug-susceptibility. As NTM is usually antibiotic-resistant, treatment guidelines suggest a combination of two-to-three different antibiotics delivered continually over one-to-two years.
 
In contrast, we believe that our product candidate can eliminate bacteria, viruses, fungi and other microbes from the lungs and may work against antibiotic resistant bacteria. In addition, our treatment is not based on antibiotic drug mechanisms of action, reduces the mucus caused by lung infections, and enhances vasodilation for improved blood flow.
 
To date, we have conducted a Phase 2 clinical trial involving 43 patients with bronchiolitis (mainly caused by RSV) and a Phase 2 clinical trial in patients with CF.  In addition, Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically, M. Abscessus). All of these trials were conducted outside the United States.  We have not yet submitted to the FDA any investigational NDAs or INDs for our products.
 
We have a broad intellectual property portfolio directed to our product candidates and mode of delivery, monitoring parameters and methods of treating specific disease indications. Our intellectual property portfolio consists of seven (7) issued patents and their continuations and foreign counterparts, which we have obtained through a non-exclusive worldwide license from SensorMedics Corporation, a subsidiary of CareFusion, seventeen (17) issued patents which we recently acquired pursuant to the exercise of an option granted to us by Pulmonox Technologies Corporation, or Pulmonox, and twenty-two (22) patent applications developed by us internally. Eight (8) of the Pulmonox patents that we acquired are jointly owned by CareFusion and Pulmonox, five (5) of which are covered by our non-exclusive license with CareFusion. Our royalty and other license obligations to CareFusion with respect to these five (5) patents will remain in effect as long as our CareFusion license remains in effect.
 
Background and Mechanism of Action
 
NO is recognized as a vital molecule involved in many physiological and pathological processes. NO is naturally produced by the body’s immune system to provide a first line of defense against invading pathogens. It is a powerful molecule with a short half-life of a few seconds in the blood, enabling it to be cleared rapidly from the body. NO has been shown to play a critical role in the function of several body systems. For example, as vasodilator of smooth muscles, NO enhances blood flow and circulation. In addition, NO is involved in regulation of a wound healing and immune responses to infection. The pharmacology, toxicity and other data for NO in humans is generally well known, and its use has been approved by the FDA in a number of therapeutic applications, mainly as a vasodilator.
 
NO has multiple immunoregulatory and antimicrobial functions that are likely to be of relevance to inhaled NO therapy.  In vitro studies suggest that NO possesses anti-microbial activity against common bacteria, gram positive and gram negative, as well as mycobacteria, fungi, yeast, parasites and helminthes.  It has the potential to eliminate multi-drug resistant strains of the above.  Anti-viral activity covers respiratory viruses such as influenza, corona viruses, RSV and others.  In healthy humans, NO has been shown to stimulate muccocilary clearance, and low levels of nasal NO correlate with impaired muccociliary function in the human upper airway.  Unlike other inhaled drugs, NO is also a smooth muscle relaxant and avoids the concomitant bronchial constriction often associated with inhaled antibiotics and muccolytics.  In addition to treating CF infections, this suggests that NO may be useful in directly treating the mucus caused by CF, which is the principal manifestation of the disease.
 
62

The precise effect of inhaled NO is dependent on concentration, oxidation state and type of pathogen.
 
Nitric Oxide and Infection
 
NO possesses broad-spectrum anti-microbial activity acting against bacteria, fungi and viruses.  NO is produced at high output as part of the innate immune response.  NO and its by-products (for example, Reactive Nitrogen Species, or RNS) are responsible for the process of killing microorganisms within white blood cells called macrophages and in organs such as the lungs and other mucolytic tissues.
 
More than a decade ago, several research groups showed that NO and RNS possess anti-viral activity and affect several viruses including coxsackievirus (CVB), RSV, influenza, severe acute respiratory syndrome (SARS), coronavirus, rhinovirus, herpes simplex virus (HSV), Epstein-Barr virus (EBV) and many others.  NO has also been shown to be useful in preventing bacterial growth on surfaces.
 
Continuous exposure to 160 ppm NO and above, especially in the lungs, may have side effects and cause damage to host cells. Intermittent exposure to NO in cycles retains NO anti-microbial activity both in vitro and in animal model of infection. Exposure of bacteria to concomitant 30-minute treatments with 160 ppm NO resulted in more than a significant reduction in bacterial load. A similar dose has been shown to reduce viruses (common influenza) by 30-100% in a canine kidney infection model. In vivo, in a pneumonia model in rats, inhaled 160 ppm NO, for 30 minutes, every 4 hours, resulted in significant reduction in bacteria counts in the lungs, without affecting the body’s defense mechanisms, and without any other adverse effect. In addition, we believe a daily dose of 160 ppm of NO can treat bovine respiratory disease (BRD) in cattle.
 
Importantly, several studies report synergy between NO and antibiotic drugs.  Adjunctive treatment combining NO together with inhaled tobramycin antibiotics or other anti-microbial agents has been shown to greatly enhance the efficacy of the antibiotics in dispersing P. aeruginosa biofilms and to increase their ability to elicit anti-microbial activity.  These studies suggest that adjuvant treatment combining NO with antibiotics might have a beneficial role by reducing bacterial infectivity, and therefore reduce the dependency on antibiotics.
 
AITT Technology
 
We have developed a novel and precise delivery system that we believe provides continuous monitoring and control of the gaseous content administered during intermittent NO inhalation treatments, as well as a precise and reliable monitoring system that is able to monitor patient status and alert medical staff to any adverse effects.
 
We believe our novel delivery system, known as NOxSysBS, is a sophisticated inhalation system designed to provide the patient with a gaseous high dosage blend of NO, oxygen and air. The gaseous blend is supplied to the patient via a face mask and is designed to minimize the time that NO is mixed with oxygen and air. The system continuously monitors inhaled NO concentration, NO2 concentration, methemoglobin and the fraction of inspired oxygen (FiO2), blood oxygen saturation and heart rate, all of which are important parameters. A dedicated screen allows for monitoring of the gas mixture and the patient’s vital signs. Further, and without diminishing from the novelty of the technology, our product candidate resembles other inhalation systems, making it user friendly, with operation and maintenance that we believe will be familiar to medical staff.  Our novel delivery system is currently in the prototype stage, and we expect that, when available for use, it will be superior to the Aeronox system that we have used in our clinical trials to date.
 
Our novel drug delivery technology is designed to specifically deliver an anti-microbial dosage of NO, and we believe that it has a number of advantages over other NO formulation delivery systems, such as:
 
·
Optimization to deliver a high 160 ppm, anti-microbial dosage of NO, whereas existing formulations of NO currently on the market consist of an NO concentration of approximately 20 ppm;
 
·
Equipped with a monitoring system that continuously monitors system parameters (e.g., NO, NO2 and FiO2 concentrations) as well as patient parameters (e.g. vital signs, MetHemoglobin and OxyHemoglobin percentages)
 
63

 
·
Provides constant flow of our NO formulation, thereby adequately covering the surface area of the lung to eliminate bacteria, viruses, fungi and other microbes;
 
·
Programmable and able to deliver different dosage regimens for a wide range of lung infections;
 
·
Systems will be designed to be convenient and portable; and
 
·
Will be administered non-invasively through a facial mask, which has the potential to address large, underserved chronic-care markets, such as CF.
 
We believe that our solution has the potential for a number of additional benefits and opportunities, as follows:
 
·
The antimicrobial and signaling properties of the NO molecule delivered to the lungs suggest the potential for application in a wide range of respiratory diseases.  In contrast to the often arduous and slow drug discovery process for small molecules, the use of NO in medicine is well known, and therefore the identification of NO product candidates has been, and we expect will continue to be, much simpler, quicker and less costly.
 
·
The FDA approved the use of an NO formulation as an inhaled drug for the treatment of pulmonary hypertension in newborns in 1999. More than a decade of clinical experience in the delivery, monitoring and understanding of NO in the clinical environment for vascular uses has been documented.
 
·
NO is naturally produced by the immune system and acts as a first line of defense against infectious diseases. We believe therapeutic use of NO for viral and bacterial co-infections would potentially improve the success of antimicrobial and anti-viral treatments by mimicking the body’s natural defense mechanism and thereby directly reduce viral infectivity, as well as antibiotic drug resistant bacteria.
 
Our Strategy
 
Our objective is to build a leading biopharmaceutical company that will develop and commercialize patented and proprietary products for the treatment of respiratory infections and diseases, for the treatment of bronchiolitis, NTM (initially NTM Abscessus in patients with CF), COPD and CF. If our clinical trials for our product candidates are successful, we will seek marketing approval from the FDA and other worldwide regulatory bodies.
 
Our completed clinical trials and plans for future clinical trials are as follows:
 
We licensed the Phase 1 study results from University of British Columbia Hospital (UBC).
 
Bronchiolitis. We recently completed a Phase 2, double blind, randomized study conducted in Israel in infants with bronchiolitis. We have commenced an Israeli-based Phase 3 clinical trial in the first quarter of 2017, and we intend to submit an IND to the FDA in 2018 and expect to commence a U.S.-based Phase 3 clinical trial in 2018.
 
NTM Abscessus in CF patients. Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically, M. Abscessus).  We expect to commence an Israeli-based Phase 2 clinical trial in 2017. In addition, we intend to submit an IND to the FDA in 2018 to commence a U.S.-based Phase 3 clinical trial in 2018. We expect that the Phase 2 and Phase 3 studies will be to assess the performance of our NO formulation treatment. The study’s endpoints are expected to include assessments of adverse events, CFU level, clinical improvement and lung function.
 
CF-Related Lung Infections. We recently completed a Phase 2 open label, multi-center study in Israel of CF patients who are over 10 years old.
 
64

Our Initial Disease Targets and Market Opportunity
 
Our initial targets are premature babies and infants suffering from bronchiolitis and CF patients infected by NTM Abscessus.
 
Bronchiolitis
 
According to the World Health Organization, bronchiolitis is the most common acute lower respiratory infection in infants, and is the leading cause of the hospitalization of infants during the first year of life. Bronchiolitis is an acute inflammatory injury of the bronchioles that is usually caused by viruses, most commonly by RSV. While bronchiolitis may affect persons of any age, severe symptoms are usually evident only in young infants. The initial symptoms of bronchiolitis are similar to that of a common cold, but the illness sometimes leads to fast and troubled breathing due to spread of the infection to the lower respiratory system. To date, the standard treatment has been supportive care consisting of assisted feeding and hydration, minimal handling, nasal suctioning and oxygen administration. In addition, better airway cleaning, which improves the respiratory function, has been achieved using nebulized hypertonic saline. We believe that many pharmacological therapies, ranging from bronchodilators to corticosteroids, have been found to offer either no or short-term benefits.
 
Bronchiolitis Market Data
 
Each year, according to the World Health Organization, 150 million new cases of bronchiolitis are reported worldwide in infants, and 2-3% of infants affected require hospitalization.  In the United States, there are approximately 150,000 annual bronchiolitis hospitalizations among children younger than five years,  of which 115,000 hospitalizations are among children younger than one year old.  These hospital visits resulted in total hospital charges of $1.7 billion in 2009 according to a study published in 2013.  For infants, bronchiolitis accounts for 20% of annual hospitalizations and 18% of emergency department visits.
 
According to the American Academy of Pediatrics, in 2009, almost 3,000 children in the United States with bronchiolitis needed mechanical ventilation, and the average length of hospital stay for previously healthy infants was 2.5 days.  The mortality in children less than one year of age was 0.25%.  In 2009, the total direct cost of bronchiolitis related hospitalization was $545 million.
Limitations of Current Treatment Options for Bronchiolitis
 
Clinical practice in the management of acute bronchiolitis varies widely even among medical centers in the same country, and there is much controversy, confusion and lack of evidence concerning the best treatment option.  Disease management mainly consists of supportive care by means of oxygen supplementation, but also includes inhalations of hypertonic saline or steroids with or without beta agonist drugs, anti-viral therapy and chest physiotherapy.
 
We believe that none of the specified treatments has been proven to have a positive outcome on the course of the disease or a reduction in the length of hospitalization. In addition, some treatment strategies have been subject to debate regarding whether they work . For example, the anti-viral drug, Ribavirin, a broad-spectrum antiviral agent approved for treatment of RSV infections, is controversial due to questions regarding its high cost and uncertain treatment effect.
 
NTM
 
NTM infection of the lungs is a chronic, as well as progressive lung condition. NTM exhibits across a variety of lung diseases such as bronchiectasis, COPD, Asthma, CF, HIV and Cancer. In certain severe NTM cases, life expectancy is under five years, for which we believe there are no successful treatments available.
 
NTM Market Data
 
There are an estimated 50,000-86,000 cases of NTM lung infections in the United States with an annual 8% increase.  More than 70% of NTM cases are underreported, and therefore the projected number of NTM cases could be as high as 181,000 in the United States alone.  With the rise of NTM infections, NTM is currently more prevalent than tuberculosis in the United States.  NTM mostly affects adults middle-aged to elderly, with increasing infection in patients aged 65 and over, a population that is expected to double by the year 2030.
 
NTM lung infections also pose a substantial financial burden on the U.S. healthcare system.  In 2010, the annual cost was over $800 million, and the same study estimated the cost for 2014 to be $1.7 billion in the United States.
 
65

Our initial indication is for the treatment of NTM Abscessus in patients with CF, which is a limited portion of the market discussed above.
 
There are no approved drugs in the United States and Europe to treat NTM infections.
 
Limitations of Current Treatment Options for NTM
 
For NTM patients, prolonged treatment is necessary and varies among different types of NTM species, severity of the disease and drug-susceptibility.  As NTM are usually antibiotic-resistant, treatment requires a combination of two to three different drugs.  Therefore, current treatment includes a mixture of IV antibiotics as well as steroids.
 
Our Clinical Results to Date
 
We have conducted several clinical trials to assess our 160 ppm NO inhalation-treatment in various indications. These trials include:
 
Phase I Clinical Results
 
A prospective, open label, controlled, single-center Phase I study was conducted on ten healthy adults between 20 and 62 years of age.  Subjects received our proprietary 160 ppm NO formulation for 30 minutes, five times a day, for five consecutive days by direct inhalation to the lungs via a prototype delivery system. The study was performed at the UBC in Canada, and was published in 2012 in the Journal of Cystic Fibrosis.
 
The primary objective of the study was to determine the effect of the inhaled NO formulation treatment, to determine the effect of the treatment based on pulmonary function test results, to determine the met hemoglobin (MetHb - a form of hemoglobin that cannot bind oxygen, a bi-product of NO and hemoglobin) level associated with the inhaled NO formulation treatment and to assess adverse events associated with the treatment. Secondary objectives of the study were to assess the changes in cytokine levels. NO and NO2 concentrations (a gaseous substance that is a bi-product of NO and O2, that can be toxic at high concentrations), inhaled fraction of inspired oxygen (FiO2), as well as. MetHb and oxygen saturation (SaO2) were continuously monitored, as elevation of MetHb or reduction in SaO2 levels may be harmful. Vital signs, lung function, blood chemistry (including nitrite/nitrates), hematology, prothrombin time, inflammatory cytokine/chemokines levels and endothelial activation (angiopoietin ratio) were also closely monitored.
 
All individuals tolerated the NO formulation treatment courses well.  No significant adverse events occurred.  The maximal amount of air one can forcefully exhale in one second, known as forced expiratory volume in one second (FEV1) and other lung function parameters, serum nitrites/nitrates, prothrombin, pro-inflammatory cytokine and chemokine levels did not differ between baseline and day five, while MetHb increased during the study period to a level of 0.9%, as expected.  These data suggest that inhalation of 160 ppm NO for 30 minutes, five times a day, for five consecutive days is well tolerated in healthy individuals.
 
CF Clinical Results
 
CF Compassionate Treatment
 
Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer from NTM infections (specifically M. Abscessus). The NO treatment regime, as well as the device for this treatment, were supplied by AIT Ltd. Patients received intermittent 30-minute treatments of 160 ppm NO, with two different regimes including hospitalization (5 times a day) and ambulatory treatment (2-3 inhalations a day).
 
Treatment was well tolerated with no evidence of any serious side effects.  We observed significant improvement in sputum production (up to 5-10 time more sputum), and subjective improvement in the well-being of both patients.
 
Significant reduction (improvement) in systemic inflammation (overall bodily inflammation) was observed in patient 1, as observed by reduction of CRP (C-reactive protein, a systemic inflammation marker that rises in response to inflammation) levels during treatment. In addition, patient 1 had a 2 log (100-fold) reduction in NTM Abscessus during treatment (an effect that was lost after the treatment regime changed to ambulatory). Patient 2 showed a significant increase in the 6-minute walk test and the sputum culture became negative, which is consistent with eradication of the NTM Abscessus.
 
 
66

Further information is needed, but we believe these results suggest that the treatment of NTM Abcsessus with high dose inhaled NO works.
 
CF Phase 2 Clinical Trial
 
We have completed a Phase 2 open label, multi-center study in nine CF patients (≥10 years old). Patients received intermittent (30 minutes, three times a day) inhalation of 160 ppm NO formulation, five days a week, over a two-week period. The study was performed in two centers, Soroka Medical Center and Schneider Children’s Medical Center of Israel.
 
The primary endpoints of the study were to determine the MetHb percentage, adverse events associated with inhaled NO and the percentage of subjects who prematurely discontinued the study due to adverse events/serious adverse events (AEs/SAEs) or or for any other reason.
 
Adverse events were reported by five (55.5%) subjects. There were no severe or serious AEs, no treatment withdrawals due to AEs, and no deaths. Adverse events considered by the Investigator as possibly or probably related to treatment were reported for two (22.2%) subjects. There were no AEs of MetHb elevation >5% or NO2 elevation >5 ppm (study safety threshold of MetHb and NO2, respectively).  In total, seven cases of haemoptysis were reported in two subjects and all events were mild in severity.
 
There were no subjects with MetHb >5% at any point during the study and there was no cumulative effect of MetHb exposure during the study.  The maximum MetHb level reported was 4.6%.
 
Several secondary efficacy analyses were conducted in this study, and though the study was not powered for efficacy, results show various positive effects of the treatment regime. Bacterial and fungal sputum load analysis results were highly variable, though marked reductions of MSSA, Achromabacter, P. aeruginosa, and Asperigillus were seen in several subjects. These results suggest non-specific targeting of bacteria and fungi that commonly manifest in CF patients. In subjects with systemic inflammation (CRP >5 mg/mL) at baseline, CRP levels decreased over the treatment period, showing the effect of NO in the reduction of systemic inflammation. There were no statistically significant or clinically relevant changes in FEV1 over time, and lung function indices also remained relatively constant throughout the study duration.
 
Bronchiolitis Clinical Results
 
We completed a double blind, randomized Phase 2 study for infants with bronchiolitis.  The study was performed at Soroka University Medical Center in Israel.  Forty-three infants between the ages of two to 12 months diagnosed with bronchiolitis were randomly assigned to either the treatment group or the control group.  The treatment group comprised 21 subjects who received intermittent (30 minutes, five times a day) inhalation of 160 ppm NO formulation, in addition to supportive O2 treatment for up to five days.  The control group, 22 subjects, received ongoing inhalation of the supportive O2 treatment.
 
Primary endpoints included determination of the MetHb levels, adverse events associated with the inhaled NO formulation and proportion of subjects who prematurely discontinued the study. Baseline clinical score, indicating disease severity at screening, was similar between treatment groups (~8).
 
Results were encouraging, with similar overall incidence of AEs between the treatment groups. Out of 43 patients, 39 (~90%) completed the study per protocol (PP), with similar percentages (90%) for both the control and the treatment groups, individually. Only one subject from the treatment group discontinued treatment due to an adverse event, namely - repeated MetHb levels above 5%. Adverse events were reported by 23 (53.5%) subjects overall, with ten (47.6%) subjects in the NO group reporting a total of 22 AEs, and 13 (59.1%) subjects in the control group reporting a total of 22 AEs. Serious adverse events were reported by four (19.0%) subjects in the NO group and four (18.2%) in the standard treatment group. There were no deaths during the study. There were no treatment-related SAEs in the NO treatment group.
 
In the NO group, six (28.6%) subjects had any MetHb measurement >5% during the study treatment period, and three of these subjects had more than one MetHb >5%.  The maximum MetHb level was 5.6% in one subject in the NO group.  There was no cumulative effect of MetHb exposure during the study.  It should be noted that MetHb levels in this study were defined to <5% as a safety measure, though previous findings have shown that higher levels (6.4%) are non-toxic in children.
 
 
67

 
Secondary and exploratory analyses were performed, and results show positive impact of the treatment regime. In a subgroup of subjects that stayed at the hospital at least 24 hours (LOS>24 hours), a statistically significant treatment benefit of NO versus standard treatment was demonstrated. Mean results for subjects with LOS > 24 hours show that LOS (Length of Stay) was shortened by approximately 34% in the NO group compared to the standard treatment group, with a one-day difference between the groups (PP, N=24). Time to normal oxygenation ((SaO2 of 92%) was shortened by approximately 44% (27.75 hours) in the NO group compared to the standard treatment group (PP, N=24). An 80% improvement in time to clinical score (indicating improvement in disease severity) and time to normal oxygenation (92%) was observed in favor of the NO group (PP, N=24).The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stage clinical studies.
 
Furthermore, the FDA or other regulatory agencies may not concur with our assessment of safety and efficacy. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent advanced clinical studies. We do not know whether any Phase 2, Phase 3 or other clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates. While we believe the results of our Phase 2 trials in bronchiolitis and CF demonstrated improvements in various endpoints and clinical outcomes, the trials were small, and it is likely that the FDA will view them as not statistically or clinically significant because of their size and scope. We must conduct larger clinical trials with statistically significant favorable results or we will not be able to obtain regulatory approval to market our product candidates.
 
Commercialization
 
We plan to seek regulatory approval for our current product candidates and, if approved, may be marketed as a combination drug and associated medical device; consequently, any final product may be composed of two distinct components:  our proprietary delivery system and a specific gaseous NO drug.
 
We anticipate that, if we reach the commercialization stage, we will sell our systems through third party distributors, utilizing their respective existing sales channels.  Because NO gas requires special handling, the unique drug component of any approved product will be distributed through a strategic partner, having a supply infrastructure for the distribution of medical gases.
 
Competition
 
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products. We are aware of several companies currently developing and selling NO therapies for various indications such as pulmonary hypertension. For example Ikaria, Inc. commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the United States, Canada, Australia, Mexico and Japan. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations. Bellepheron Therapeutics is developing NO-based products for persistent arterial hypertension and pulmonary hypertension associated with chronic obstructive pulmonary disease. Geno LLC is developing NO-based products for the treatment of a variety of pulmonary and cardiac diseases such as acute vasoreactivity testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary fibrosis. In addition, other companies may be developing generic NO formulation delivery systems for various dosages. Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market an NO gas product for use in membrane diffusing capacity testing in pulmonary function laboratories in the United States. Novoteris, LLC previously received orphan drug designation from the FDA and EMA for the use of inhaled NO-based treatments in treating CF. If the FDA approves Novoteris’ product candidate for the indication for which it received orphan drug designation, then Novoteris will be eligible for orphan drug exclusivity if its product receives approval first, which would preclude the Company from obtaining orphan drug exclusivity for its comparable product should it be subsequently approved by the FDA.  In January 2015, Ikaria entered into an agreement with Novoteris to collaborate on the development of an outpatient program for treating bacterial infections associated with CF. Recently, we have become aware that Ikaria and Novoteris are planning a Phase 2 clinical trial using a 160 ppm NO formulation to treat patients with CF.
 
68

Our competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical, manufacturing, marketing and human resources than we do and significantly greater experience and infrastructure in the research and clinical development of pharmaceutical products, obtaining FDA and other regulatory approvals of those products and commercializing those products around the world.
 
Manufacturing
 
We rely on third-party contract manufacturers for the supply of NO, and we will be reliant upon third-party contract manufacturers for our NOxSysBS delivery system at such time as it is ready for production. We purchase the material used in our clinical trial activities from various companies and suppliers.
 
Intellectual Property
 
The drug component of our technology is NO.  This molecule has been in the public domain for many years and cannot be the subject of any patent exclusivity rights, per se.  We do, however, have patent filings that relate to systems and devices configured for delivering NO to patients by inhalation.  We also have other patent filings which pertain to methods of exposing patients to inhalation of NO, and to utilizing these methods for treating subjects in need of NO inhalation.  In addition, we are in possession of trade secrets and know-how regarding the practice of these methods.
 
Our intellectual property portfolio consists of seven issued patents and one patent application, as well as their continuations and foreign counterparts, which we have obtained through a non-exclusive worldwide license from CareFusion, 17 issued patents that we recently acquired from Pulmonox and 21 patent applications developed internally, including PCT patent applications.
 
CareFusion Non-Exclusive License Agreement.  In October 2013, we entered into a non-exclusive worldwide license agreement with CareFusion, whereby we licensed seven issued U.S. patents, and one U.S. patent application, including corresponding foreign counterparts - including patents granted in Australia, Mexico and China.  Our intellectual property licensed from CareFusion, for which the earliest expiring patent term is 2019, covers devices and methods for delivering NO formulations to a patient at steady and alternating concentrations, including intermittent delivery of NO.  Our CareFusion license also covers patents relating to devices and methods for delivering alternating concentrations of NO topically, nasally and to an upper respiratory tract, for which the expiring patent terms range from 2020 to 2025.  The term of the agreement extends through the life of applicable patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of the agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that we do not meet certain milestones.  Pursuant to the agreement, we are required to pay CareFusion, in addition to a one-time up-front fee of $150,000 already paid, royalty payments of 5% of the net sales of a licensed product by the Company and an annual fee of $50,000, which is creditable against the royalty payments for the respective year.
 
Pulmonox Patents and Assets - Option to Acquire.  On August 31, 2015, we entered into an agreement with Pulmonox whereby we acquired for $25,000 the option, referred to as the Option, to purchase certain intellectual property assets, including Pulmonox’s rights in 17 issued U.S. patents which are directed to:
 
·
devices and methods for delivering NO formulations to a patient at steady and alternating concentrations (80-400 ppm), including intermittent delivery of NO;
 
·
a device and methods for treatment of surface infections; and
 
·
use of NO as a mucolytic agent and for treatment and disinfection of biofilms.
 
On January 24, 2017, we exercised the Option and, for a purchase price of $500,000, acquired Pulmonox’s rights in the patents described above.  Upon exercise of the Option, we became obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which we receive regulatory approval for the commercial sale of our first product candidate.
 
69

Of the 17 Pulmonox patents, eight U.S. patents are jointly owned by CareFusion and Pulmonox.  Pursuant to an agreement with CareFusion, we currently have a non-exclusive world-wide license to five of the eight U.S. patents and their corresponding foreign counterparts jointly owned by CareFusion and Pulmonox, including patents granted in China and Canada, and pending applications in China and Europe.  Following the exercise of the option, six patents directed to devices and methods for delivering NO formulations to a patient; one patent directed to systems and methods for using NO to reduce pathogens in blood; one patent directed to use of NO as a mucolytic agent; and one patent directed to methods of using NO for treatment and disinfection of biofilms will be solely owned by us.  In addition, four patents directed to devices and methods for delivering NO formulations to a patient at steady and alternating concentrations (80-400 ppm), including intermittent delivery of NO; and four patents directed to a device and methods for treatment of surface infections will be jointly owned by CareFusion and us.
 
Patent Applications.  We have filed 21 patent applications, including one in Canada, eight in the United States, one in Israel, five in Europe, three PCT patent applications and three provisional patent applications in the United States.
 
A PCT patent application is a filing under the Patent Cooperation Treaty to which the United States and a number of other countries are a party.  It provides a unified procedure for filing a single patent application to protect inventions in those countries.  A search with respect to the application is conducted by the International Searching Authority, accompanied by a written opinion regarding the patentability of the invention.  A PCT application does not itself result in the grant of a patent, and the grant of patent is a prerogative of each national or regional authority where the PCT application is filed during national phase filings.
 
Government Regulations
 
United States Regulation. In the United States, the FDA regulates drug and medical device products under the Federal Food, Drug, and Cosmetic Act (FFDCA), and its implementing regulations. Our products may be regulated by the FDA as a “combination product” comprised of both a drug product (NO formulation) and a medical device. If marketed individually, each component would be subject to different regulatory pathways and reviewed by different centers within the FDA. A combination product, however, is assigned to a center that will have primary jurisdiction over its pre-market review and regulation based on a determination of its primary mode of action, which is the single mode of action that provides the most important therapeutic action. For many drug/delivery device combination treatments, FDA typically requires a single marketing application submitted to the center selected to have primary jurisdiction, although the agency has the discretion to require separate applications to more than one center. If multiple applications are submitted, each may be evaluated by a different center. In the case of our products, we believe the primary mode of action is attributable to NO, the drug component of the product. This means that the FDA’s Center for Drug Evaluation and Research would have primary jurisdiction over the pre-market development and review of these potential products.
 
Among other things, we will have to demonstrate compliance with both current good manufacturing practices, or cGMP, to ensure that the drug possesses adequate strength, quality, identity and purity and applicable Quality System Regulations (QSRs), to ensure that the device is in compliance with applicable performance standards. Although cGMP and QSR overlap in many respects, each is tailored to the particular characteristics of the types of products to which they apply, such that compliance with both cGMP and QSR may present unique problems and manufacturing challenges.
 
Approval of Drug Products. The process required by the FDA before drug product candidates may be marketed in the United States generally involves the following:
 
completion of extensive preclinical laboratory tests;
 
completion of preclinical animal studies, all performed in accordance with the FDA's GLP regulations and the United States Department of Agriculture's Animal Welfare Act and implementing regulations;
 
submission to the FDA of an IND, which must become effective before human clinical trials may begin in the United States;
 
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication;
 
70

performance of additional studies, such as pharmacokinetics, to support the desired product label;
 
submission to the FDA of an NDA after completion of all necessary clinical trials;
 
a determination by the FDA that the NDA is sufficiently complete to be accepted for review;
 
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the product is produced and tested to assess compliance with current cGMP requirements; and
 
FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.

The development and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product will be granted on a timely basis, if at all.

The results of preclinical studies (which include laboratory evaluation as well as GLP studies to evaluate toxicity in animals), together with related manufacturing information and analytical data and a proposed clinical trial, are submitted as part of an IND to the FDA. The FDA must evaluate whether there is an adequate basis for testing the drug in the proposed clinical study. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. IND submissions may fail to result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an IRB must review and approve any clinical trial before it commences at a study site, and an IRB must monitor the study until it is completed. The FDA, an IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Clinical testing must satisfy extensive current cGCP requirements, which establish standards for conducting, recording data from, and reporting the results of, clinical trials. These requirements are intended to ensure that the data and reported results are credible and accurate, and that the rights, safety and well-being of study participants are protected. Requirements similar to those for a U.S. IND are also in place in the European Economic Area (EEA) and other jurisdictions in which we may conduct clinical trials.

Clinical Trials. For purposes of NDA submission and approval, clinical trials are typically conducted in the following sequential phases, which may overlap. Success in early-stage clinical trials does not ensure success in later-stage clinical trials. Additionally, data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or prevent regulatory approval.

Phase 1 Clinical Trials. Studies are initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption, distribution, metabolism and excretion, typically in healthy humans, but in some cases in patients with the targeted disease or condition.

Phase 2 Clinical Trials. Studies are generally conducted in a limited patient population to identify possible AEs and safety risks, explore the initial efficacy of the product for specific targeted indications and to determine dose range or pharmacodynamics. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

Phase 3 Clinical Trials. These are commonly referred to as pivotal studies. When Phase 2 evaluations demonstrate that a dose range of the product is effective and has an acceptable safety profile, Phase 3 clinical trials are undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population, often at multiple, geographically dispersed clinical trial centers.

Because NO is the active ingredient in an already-approved drug, its safety under certain conditions of use has been previously established. We believe that nonclinical testing already conducted with NO may support the safety of our product, and permit us to advance quickly with our clinical studies in anticipation of a 505(b)(2) NDA.
 
New Drug Applications. The results of preclinical studies and clinical trials are submitted to the FDA as part of an NDA. NDAs also must contain extensive chemistry, manufacturing and control information. An NDA must be accompanied by a significant user fee, typically over a million dollars, which may be waived in certain limited circumstances. When an NDA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed. Once the submission has been accepted for filing, the FDA’s goal is to review applications within 10 months of filing or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months from filing. However, the review process is often significantly extended by the FDA requests for additional information or clarification. As part of the review process, the FDA may refer the application to an advisory committee composed of independent experts for review, evaluation and a recommendation as to whether the application should be approved. Although the FDA is not bound by the recommendation of an advisory committee, the agency usually has followed these recommendations.
 
71

The FDA may determine that a Risk Evaluation and Mitigation Strategy (REMS) is necessary for approval to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug, depending on what the FDA considers necessary for the safe use of the drug. Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at our request or by the agency's initiative.

After completing its evaluation of the NDA and the manufacturing facilities, the FDA either approves the NDA or issues a complete response letter. A complete response letter communicates the FDA's decision not to approve the NDA and generally outlines the deficiencies in the submission. The FDA may require substantial additional testing or information to address the deficiencies and reconsider the application. Even if this additional information and data are submitted, the FDA may decide that the NDA still does not meet the standards for approval. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue a letter approving the NDA. The FDA's goal is to review these resubmissions in two or six months, depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for a specific indication. The FDA may impose substantial post-approval commitments as a condition of NDA approval, including the completion within a specified time period of additional clinical studies (often referred to as Phase 4 or post-marketing clinical studies), additional preclinical testing or surveillance to monitor the drug's safety or efficacy. The FDA may approve the drug for more limited indications than requested or impose labeling or distribution restrictions that can materially affect the potential marketing and profitability of the drug. Once granted, a product approval may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Post-approval modifications to the drug product, such as changes in indications, labeling or manufacturing processes or facilitates, may require a sponsor to conduct additional preclinical studies or clinical trials and submit a new or supplemental NDA requiring FDA approval.

A 505(b)(2) NDA typically is submitted for a product that is similar, but (unlike a generic equivalent) not identical, to an already approved product. A 505(b)(2) NDA relies to some degree on the FDA's previous finding of safety and effectiveness for the reference product, but usually also contains new, product-specific data that address safety or effectiveness issues raised by the differences between the proposed product and the reference product. A 505(b)(2) NDA rarely leads to a finding of therapeutic equivalence, and therefore usually cannot be dispensed as a substitute for a prescription for the reference product.

A 505(b)(2) NDA applicant is required to make one of the following certifications to the FDA with regard to each patent listed for the reference product in the Orange Book (an FDA resource listing approved drug products with therapeutic equivalence evaluations): (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. If the listed patent concerns a method of using the approved product, the 505(b)(2) NDA applicant has another option: the applicant may "carve out," or seek to delete from its product labeling, the patent-protected use and make a statement to that effect to the FDA. A certification that a reference product patent is invalid or will not be infringed by the proposed 505(b)(2) NDA product is commonly called a "Paragraph IV certification," after the section of the FFDCA that provides for it. If the 505(b)(2) NDA applicant does not challenge the listed patents (or with regard to a method of use patent, does not "carve out" the protected indication), the application cannot be approved until all the listed patents claiming the reference product have expired.

72

A 505(b)(2) NDA applicant making a Paragraph IV certification must send notice of the Paragraph IV certification to the sponsor of the reference product NDA and the patent holder within 20 days of the application having been accepted for filing by the FDA. The reference product sponsor or patent holder may then initiate a lawsuit claiming patent infringement by the 505(b)(2) NDA product. If a suit is filed within 45 days after receipt of the Paragraph IV notice, and the subject patent was listed in the Orange Book before the 505(b)(2) NDA was submitted, the FDA may not grant final approval of the NDA or 505(b)(2) NDA until the earlier of 30 months from receipt of notice of the Paragraph IV certification, a settlement of the lawsuit that states the patent is invalid or not infringed or a decision in the case that the patent is invalid or not infringed (including a substantial determination that there is no cause of action for patent infringement or invalidity).

The Hatch-Waxman Act also provides periods of regulatory exclusivity that affect the timing of submission and approval of 505(b)(2) NDAs. If the reference product is a new chemical entity (NCE) (which generally means the active moiety was not previously approved in another product), a 505(b)(2) NDA cannot be submitted until five years after the reference product's approval, unless the application contains a Paragraph  IV certification, in which case the application may be submitted four years after the reference product's approval, but may not receive final approval until seven and a half years after the reference product's approval. If the reference product is not an NCE but approval of the product required submission of new clinical data (for example, to demonstrate the safety and effectiveness of a new indication, dosage form or route of administration), there is no restriction on when an NDA or 505(b)(2) NDA referencing the product may be submitted, but if the proposed product shares the characteristic(s) that necessitated the submission of clinical data by the reference product sponsor, the application cannot receive final approval until three years after the reference product's approval.
 
Orphan Drug Designation and Exclusivity. Under the Orphan Drug Act, the FDA may grant orphan drug designation to products that are intended to treat rare diseases or conditions (i.e., those affecting fewer than 200,000 patients in the United States). Although orphan drug designation does not convey any advantage in the regulatory review and approval process, it can provide certain tax benefits and access to grants. Additionally, FDA user fees, which can be substantial, are waived for products that obtain orphan drug designation. Further, if a product with orphan drug designation subsequently receives FDA approval for the designated disease or condition, the product is entitled to orphan product exclusivity, which (with certain limited exceptions) blocks for seven years FDA approval of another product with the same active ingredient for the same indication.
 
Approval or Clearance of Medical Devices. To varying degrees, each of the regulatory agencies having oversight over medical devices, including the FDA and comparable foreign regulators, has laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices. In the United States, medical device products are subject to regulation that is intended to ensure that the device is either safe and effective or is substantially equivalent to a previously marketed device. Medical devices are classified into one of three classes based on the level of control necessary to assure the safety and effectiveness of the device. The three classes and the requirements that apply to them are: (i) Class I General Controls, with exemptions and without exemptions, (ii) Class II General Controls and Special Controls, with exemptions and without exemptions and (iii) Class III General Controls and Premarket Marketing authorization. The class to which a device is assigned determines the process that applies for gaining marketing authorization. Most Class I devices are exempt from Premarket Notification 510(k); most Class II devices require Premarket Notification clearance under section 510(k) of the Food, Drug, and Cosmetic Act; and most Class III devices require Premarket Approval.
A brief summary overview of the three classifications is set forth below.

Exempt Class I Medical Device: Prior to marketing an exempt Class I medical device, the manufacturer must register its establishment, list the generic category or classification name of the medical device being marketed and pay a registration fee.

510(k) Clearance Process: A Class II medical device normally requires FDA clearance in the United States pursuant to the 510(k) clearance process. The 510(k) clearance process is available to medical device developers that can demonstrate that their device is substantially equivalent to a legally marketed medical device. In this process, the developer would be required to submit data that supports the equivalence claim and wait for an order from the FDA finding substantial equivalence to another legally marketed medical device before distributing the device for commercial sale. Modifications to cleared medical devices can be made without using the 510(k) process if the changes do not significantly affect safety or effectiveness.

73

Premarket Approval: A more rigorous and time-consuming process applicable to Class III medical devices, known as pre-market approval, or PMA, which would require the developer to independently demonstrate that a medical device is safe and effective. This is done by submitting data regarding design, materials, bench and animal testing and human clinical data for the medical device. The FDA will authorize commercial release of a Class III medical device if it determines there is reasonable assurance that the medical device is safe and effective. This determination is based on benefit outweighing risk for the population intended to be treated with the device. This process is much more detailed, time-consuming and expensive than the 510(k) clearance process.

The basic design of our delivery system will be similar to those functions used in current predicate devices. However, our therapy requires the administration of a higher concentration of NO than is currently approved by the FDA. Therefore, the FDA could reject a Class II-510(k) and declare it not substantially equivalent to a legally marketed device, and set it on the regulatory path of Class III-PMA.

Pediatric Exclusivity. The FFDCA provides for six months of additional exclusivity and patent protection if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for these data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA's request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover the drug are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve a 505(b)(2) NDA application owing to regulatory exclusivity or listed patents.

Continuing Regulation of Approved or Cleared Drugs and Medical Devices. Products manufactured or distributed pursuant to FDA approval or clearance are subject to continuing regulation by the FDA, including requirements for ongoing recordkeeping, annual product quality review, annual reporting, post-market surveillance requirements, post-market study commitments, drug adverse experience reporting in a timely fashion, maintenance of pharmacovigilance program to proactively monitor for adverse events and medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury or  has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur.

Good Manufacturing Practices and Quality System Regulation. Companies engaged in the manufacture of finished drug products, medical devices or their components are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements. Drugs and medical devices must comply with cGMP and QSR requirements. These requirements impose certain procedural and documentation requirements upon us and our third-party manufacturers related to the methods used in and the facilities and controls used for designing, manufacturing, packaging, labeling, storing, drugs and medical devices. Following these inspections, the FDA may assert noncompliance with cGMP or QSR requirements on a Form 483, which is a report of observations from an inspection, or by way of "untitled letters" or "warning letters" that could cause us or any third-party manufacturers to modify certain activities. A Form 483 notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA investigators believe may have violated cGMP, QSR or other FDA requirements. We cannot be certain that we or our present or any future third-party manufacturers or suppliers will be able to comply with cGMP, QSR or other FDA regulatory requirements to the agency's satisfaction. Failure to comply with these obligations may lead to possible legal or regulatory enforcement action by the FDA, such as suspension of manufacturing, operating restrictions, seizure or recall of product, injunctive action, withdrawal of approval or clearance, import detention, refusal or delay in approving or clearing new products or supplemental applications, fines, civil penalties and criminal prosecution.

Advertising and Promotion. The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of drugs and medical devices, including standards and regulations for direct-to-consumer advertising, communications about unapproved uses, industry- sponsored scientific and educational activities and promotional activities involving the internet. Drugs and devices may be marketed only for the approved or cleared indications and in accordance with the provisions of the approved or cleared label.

74

Healthcare providers are permitted to prescribe approved drugs for "off-label" uses—that is, uses not approved by the FDA and therefore not described in the product's labeling. These off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers' communications regarding off-label use.  Thus, we  may  market  our products, if approved by the FDA, only for their approved indications, but under certain conditions may engage in non-promotional, balanced communication regarding off-label uses. Failure to comply with applicable FDA requirements and restrictions in this area may subject us to adverse publicity and a variety of sanctions, which could harm our business and financial condition.

Anti-Kickback, False Claims Act and Other Laws. In addition to the FDA's ongoing post-approval regulation of drugs, devices and combination products discussed above, several other types of laws and regulations, subject to differing enforcement regimes, govern advertising and promotion. In recent years, promotional activities regarding FDA-regulated products have come under intense scrutiny and have been the subject of enforcement action brought by the Department of Justice and the Office of Inspector General of the Department of Health and Human Services, as well as state authorities and even private individuals.

A development affecting the healthcare industry is the increased use of the federal civil False Claims Act to impose liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. In addition, many states have enacted false claim laws similar to the federal False Claims Act. If certain conditions are met, the False Claims Act allows a private individual (typically a "whistleblower") to bring a civil action on behalf of the federal government and to share in any monetary recovery. Engaging in impermissible promotion of our products for off-label uses can subject us to false claims litigation under federal and state statutes, which can lead to civil money penalties, restitution, criminal fines and imprisonment and  exclusion  from  participation  in  Medicare, Medicaid and other federal and state health care programs In recent years, the number of suits brought by private individuals against pharmaceutical and device companies for off-label promotion has increased dramatically.

The federal Anti-Kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers, purchasers and formulary managers on the other.  Violations  are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Any sales or marketing practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny under the Anti-Kickback statute. Many states have likewise adopted state anti-kickback statutes and enforcement has been significant.

A host of other laws and regulations govern the advertising and promotion of drugs and devices. The federal Sunshine Law, which is part of the Health Care Reform Law, each enacted in March 2010, imposes federal "sunshine" provisions, requiring annual reporting of various types of payments to physicians and teaching hospitals. Centers for Medicare & Medicaid Services (CMS) published the first set of data about these financial relationships on its website on September 30, 2014. Inaccurate or incomplete reports may be subject to enforcement. Like the federal Sunshine Law, several states have existing laws that require manufacturers to report transfers of value to select healthcare providers licensed within the state. Additionally, other laws such as the federal Lanham Act and similar state laws allow competitors and others to initiate litigation relating to advertising claims. Additionally, the FCPA and local laws of other countries potentially implicate the sale and marketing of drugs and devices internationally. This complex patchwork of laws can change rapidly with relatively short notice.

Environmental Laws. Elements of our potential products may be classified as hazardous materials, subject to regulation by the Department of Transportation, the International Air Transportation Association, the International Maritime Organization, the Environmental Protection Agency and the Occupational Safety and Health Administration, which may impose various requirements pertaining to the way we manufacture, transport, store, handle and dispose of our products.

European Regulation. In order for our products to be marketed and sold in the EEA, we must obtain the required regulatory approvals and comply with the extensive regulations regarding safety, manufacturing processes and quality requirements of the respective countries. These regulations, including the requirements for approvals to market, and the various regulatory frameworks may differ. In addition, there may be foreign regulatory barriers other than approval or clearance.

 
75

Medicinal Product Approval. In the EEA, we expect our products to be regulated as a combination drug-delivery device product falling within the scope of Directive 2001/83/EC, commonly known as the Community Code on medicinal products. Under this Directive, we are required to obtain a marketing authorization for our products before they are placed on the market. Medicinal products must be authorized in one of two ways, either through the decentralized procedure or mutual recognition procedure by the competent authorities of the EEA Member States, or through the centralized procedure by the European Commission following a positive opinion by the EMA. The authorization process is essentially the same irrespective of which route is used, and requires us to demonstrate the quality, safety and efficacy of the NO delivered to the patient by our product. We are also required to demonstrate that the drug delivery component of our products complies with the relevant Essential Requirements contained in Annex I to the Medical Devices Directive.

Innovative medicinal products are authorized in the EEA on the basis of a full marketing authorization application that must contain the results of pharmaceutical tests, pre-clinical tests and clinical trials conducted with the medicinal product for which marketing authorization is sought, and demonstrating the product's quality, safety and efficacy. Once approved, an innovative medicinal product is entitled to eight  years  of  data exclusivity. During this period, no application for approval of a generic version of the innovative product relying on data contained in the marketing authorization dossier for the innovative product may be submitted. Innovative medicinal products are also entitled to ten years of market exclusivity. During this 10-year period, no generic medicinal product can be placed on the EU market. The 10-year period of market exclusivity can be extended to a maximum of 11 years if, during the first eight years of those ten years, the holder of the marketing authorization for the innovative product obtains an authorization for one or more new therapeutic indications that are held to bring a significant clinical benefit in comparison with existing therapies.

After expiration of the data exclusivity period, an application for marketing authorization for a generic version of an approved innovative medicinal product may be submitted. Such an application does not contain data demonstrating the proposed product's quality, safety and efficacy, but instead relies on the data in the dossier for the related innovative product, and a demonstration that the two products are the same and bioequivalent. If approved, the generic product may not be placed on the market until expiration of the 10-year marketing exclusivity period for the innovative medicinal product.

A marketing application for a product that, although similar to an approved medicinal product does not qualify as a generic, may also seek to rely to some degree on the data in the dossier for the approved product. As with a generic product, the application may not be submitted until expiration of the data exclusivity period, and the product, if approved, may not be placed on the market until expiration of the market exclusivity period. Such an application must also contain data specific to the proposed product, however. The extent to which such a "hybrid" application requires new data is determined on a case-by-case basis by the competent authorities, based on the differences between the innovative medicinal product and the medicinal product subject to the hybrid application for marketing authorization. The purpose of the pre-clinical tests and clinical trials is to generate additional data that complement the data relating to the innovative medicinal product and to demonstrate the quality, safety and efficacy of the medicinal product for which authorization is sought.

Because an NO formulation is already authorized in the EEA for treating pulmonary hypertension, we expect to be able to seek marketing authorization for our products under the "hybrid" approach described in the previous paragraph. We anticipate that the hybrid application for marketing authorization will require the successful completion of limited studies confirming the quality, safety and efficacy of the NO formulation delivered using our proprietary delivery technology.

Continuing Regulation. As in the United States, marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and/or the competent authorities of the EEA Member States. This oversight applies both before and after grant of manufacturing and marketing authorizations. It includes control of compliance with EU GMP rules and pharmacovigilance rules.

In the EEA, the advertising and promotion of our products will also be subject to EEA Member States' laws concerning promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices, as well as other EEA Member State legislation that may apply to the advertising and promotion of medicinal products. These laws require  that  promotional  materials  and advertising in relation to medicinal products comply with the product's Summary of Product Characteristics (SmPC), as approved by the competent authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off-label promotion, which is prohibited. The applicable laws at the EU level and in the individual EEA Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the EEA could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on our promotional activities with health care professionals.

76

Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians' codes of professional conduct in the individual EEA Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of the EEA Members states, including the UK Bribery Act 2010. Payments made to physicians in certain EEA Member States must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician's employer, his/her competent professional organization and/or the competent authorities of the individual EEA Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the EEA Member States.

Pricing and Reimbursement. Each EEA Member State is free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement levels of medicinal products for human use. An EEA Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, including volume-based arrangements and reference pricing mechanisms.

Health technology assessment (HTA) of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some EEA Member States, particularly the United Kingdom, France, Germany and Sweden. The HTA process in each EEA Member State is governed by the national laws of the country. HTA is the procedure according to which an assessment is conducted of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost and cost-effectiveness of individual medicinal products, as well as their potential implications for the healthcare system. Those elements of medicinal products are compared with other treatment options available on the market. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EEA Member States. The extents to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product vary between EEA Member States.

Data Privacy Regulation. The collection and use of personal health data in the EEA is governed by the provisions of the Data Protection Directive. This Directive imposes a number of requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict rules on the transfer of personal data out of the EEA to the United States. Failure to comply with the requirements of the Data Protection Directive and the related national data protection laws of the EEA Member States may result in fines.

Orphan Designation and Exclusivity. In the European Union, the Committee for Medicinal Products for Human Use grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union Community and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, 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 medicinal product.

77

In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following medicinal 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.

Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
 
Exceptional Circumstances/Conditional Approval. Orphan medicinal product or products for unmet medical needs may be eligible for EU approval under exceptional circumstances or with conditional approval. Approval under exceptional circumstances is applicable to orphan products and is used when an applicant is unable to provide comprehensive data on the efficacy and safety under normal conditions of use because the indication for which the product is intended is encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, when the present state of scientific knowledge does not allow comprehensive information to be provided, or when it is medically unethical to collect such information. Conditional marketing authorization is applicable to orphan medicinal products, medicinal products for seriously debilitating or life- threatening diseases or medicinal products to be used in emergency situations in response to recognized public threats. Conditional marketing authorization can be granted on the basis of less complete data than is normally required in order to meet unmet medical needs and in the interest of public health, provided the risk-benefit balance is positive, it is likely that the applicant will be able to provide the comprehensive clinical data, and unmet medical needs will be fulfilled.

Other Regulations. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

Regulation in Israel. In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and general manager of the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations require authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health's overseeing ethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in the course of the clinical testing. Since we perform a portion of the clinical studies on certain of our therapeutic candidates in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.

 
78

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth information with respect to the beneficial ownership of our Common Stock of May 18, 2017 by each person known by us to beneficially own more than 5.0% of any class of our voting securities together with:
 
·
each of our directors;
 
·
each of our named executive officers; and
 
·
all of our directors and executive officers as a group.
 
The percentages of Common Stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Except as indicated in the footnotes to this table, each beneficial owner named in the table below has sole voting and sole investment power with respect to all shares beneficially owned. Percentage computations are based on 6,290,664 shares of our Common Stock outstanding as of May 18, 2017.
 
Under the terms of the Warrants, no holder may exercise a Warrant to the extent such exercise would cause such holder, together with its affiliates and any other persons acting as a group with such holder or any of its affiliates, to have acquired a number of shares of Common Stock which would exceed 4.99% (subject to  increase 9.985% on 61 days’ notice and otherwise in accordance with the Warrants) of our then outstanding Common Stock, excluding for purposes of such determination shares of Common Stock issuable upon exercise of Warrants that have not been exercised.  We refer to the foregoing limitation as the “Ownership Cap”.  The share numbers in the table below do not reflect the Ownership Cap, but the figures contained in the “Percentage of Outstanding Shares” column reflect the Ownership Cap.
 
Name and Address of
Beneficial Owner(1)
 
Number of Shares
     
Percentage of
 Outstanding Shares(2)
 
5% Owners
             
Deerfield Special Situations Fund, L.P.          
   
1,250,001
 
(3) 
   
6.6
%
Mor Research Applications          
   
358,433
 
(4) 
   
5.7
%
Executive Officers and Directors
                 
Ron Bentsur          
   
556,391
 
(5) 
   
8.8
%
Amir Avniel          
   
526,272
 
(6) 
   
8.3
%
Yossef Av-Gay          
   
367,135
 
(7) 
   
5.8
%
David Grossman          
   
9,823
 
(8) 
   
*
 
Ari Raved          
   
744,842
 
(9) 
   
11.6
%
Steven A. Lisi          
   
489,287
 
(10) 
   
7.7
%
Hai Aviv          
   
       
 
Executive Officers and Directors as a Group (Seven persons)
   
2,693,750
       
42.2
%
 
________________________
 
*
Less than one percent (1.0%).
 
 (1)
The address of these persons, unless otherwise noted, is c/o AIT Therapeutics, Inc., 2 Ilan Ramon, Science Park, Ness Ziona, 7403635, Israel.
 
 (2)
Shares of Common Stock beneficially owned and the respective percentages of beneficial ownership of Common Stock includes for each person or entity shares issuable on the exercise of all options and warrants and the conversion of other convertible securities beneficially owned by such person or entity that are currently exercisable or will become exercisable or convertible within 60 days following April 27, 2017. Such shares, however, are not included for the purpose of computing the percentage ownership of any other person.
 
 (3)
Includes 833,334 shares of Common Stock issuable upon exercise of Warrants without giving effect to the Ownership Cap. Deerfield Mgmt., L.P. is the general partner of Deerfield Special Situations Fund, L.P.  Deerfield Management Company, L.P. is the investment manager of Deerfield Special Situations Fund, L.P.  Mr. James E. Flynn is the sole member of the general partner of each of Deerfield Mgmt., L.P. and Deerfield Management Company, L.P.  Deerfield Mgmt., L.P., Deerfield Management Company, L.P. and James E. Flynn may be deemed to beneficially own the securities held by Deerfield Special Situations Fund, L.P. The business address of Deerfield Special Situations Fund, L.P. is c/o Deerfield Management Company, L.P., 780 Third Avenue, 37th Floor, New York, NY 10017.
 
79

(4)
Includes 16,666 shares of common stock issuable upon exercise of Warrants.
 
(5)
Includes 50,000 shares of common stock issuable upon exercise of Warrants.
 
(6)
Includes 43,334 shares of common stock issuable upon exercise of Warrants. Also includes 32,666 shares of common stock held by Dandelion Investments Ltd., over which Mr. Avniel has sole voting and dispositive power.
 
(7)
Includes 3,332 shares of common stock issuable upon exercise of Warrants.
 
(8)
Includes 8,157  shares of common stock issuable upon exercise of Warrants.
 
(9)
Includes 116,666 shares of common stock issuable upon exercise of Warrants.
 
(10)
Includes 83,334 shares of common stock issuable upon exercise of Warrants.
 
 
80

 
SELLING STOCKHOLDERS
 
The following table sets forth the name of each selling stockholder and the number of shares of Common Stock that each selling stockholder may offer pursuant to this prospectus.  The shares of Common Stock offered by the selling stockholders hereunder were acquired by the selling stockholders in the Merger on January 13, 2017.  The shares of Common Stock offered by the selling stockholders hereunder consist of 1,701,616 currently outstanding shares of Common Stock and 3,403,232 shares of Common Stock issuable upon the exercise of Warrants.  Except as otherwise indicated, we believe that each of the selling stockholders listed below has sole voting and investment power with respect to such shares, subject to community property laws, where applicable.  Unless otherwise noted, the address of each stockholder is c/o AIT Therapeutics, Inc., 2 Ilan Ramon, Science Park, Ness Ziona, 7403635, Israel.
 
Except as noted in the table below or elsewhere in this prospectus, none of the selling stockholders has had a material relationship with us other than as a stockholder at any time within the past three years or has ever been one of our or our affiliates’ officers or directors. Each of the selling stockholders has acquired its shares of our Common Stock to be resold hereunder in the ordinary course of business and, at the time of acquisition, none of the selling stockholders was a party to any agreement or understanding, directly or indirectly, with any person to distribute the shares of our Common Stock to be resold by such selling stockholder under this registration statement.
 
Because a selling stockholder may sell all, some or none of the shares of Common Stock it holds, and because the offering contemplated by this prospectus is not underwritten, no estimate can be given as to the number of shares of Common Stock that will be held by a selling stockholder upon termination of the offering.  The information set forth in the following table regarding the beneficial ownership after resale of shares is based upon the hypothetical assumption that the selling stockholders will sell all of the shares of Common Stock owned by it and covered by this prospectus.
 
In accordance with the rules and regulations of the SEC, in computing the number of shares of Common Stock (as applicable) beneficially owned by a person and the percentage ownership of that person, shares issuable through the exercise of any option, warrant or right, through conversion of any security held by that person that are currently exercisable or that are exercisable within 60 days are included.  These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person.
 
The share numbers in the second column of the table below do not reflect the Ownership Cap.  See “Security Ownership of Certain Beneficial Owners and Management” above.
 
81

 
   
Shares Owned
Prior to the Offering
   
Number of
Shares Offered
   
Shares Owned
After the Offering
 
Name
 
Number
   
Shares
   
Number
   
Percent(1)
 
Ali Ardakani (2)          
   
52,984
     
12,498
     
40,486
     
*
 
Allianz Biotechnologie (3)          
   
500,001
     
500,001
     
0
     
*
 
Altshuler Shaham Ltd. (4)          
   
124,998
     
124,998
     
0
     
*
 
Amir Avniel (5)          
   
526,272
     
65,001
     
461,271
     
7.4
%
ANR Investment Company (6)          
   
32,230
     
8,313
     
23,917
     
*
 
Ari Raved (7)          
   
744,842
     
174,999
     
569,843
     
9.1
%
B.F.Y Invest (8)          
   
12,498
     
12,498
     
0
     
*
 
BTG Investments LLC (9)          
   
50,001
     
50,001
     
0
     
*
 
David Grossman (10)          
   
9,823
     
4,998
     
4,825
     
*
 
DBM Investing House (11)          
   
24,900
     
24,900
     
0
     
*
 
Deerfield Special Situations Fund, L.P. (12)
   
1,250,001
     
1,250,001
     
0
     
*
 
Dov Shafir (13)          
   
64,498
     
16,665
     
47,833
     
*
 
Ein Tal (14)          
   
32,248
     
8,331
     
23,917
     
*
 
Empery Asset Master, Ltd. (15)          
   
109,206
     
109,206
     
0
     
*
 
Empery Tax Efficient, LP (16)
   
54,559
     
54,558
     
0
     
*
 
Empery Tax Efficient II, LP (17)          
   
86,238
     
86,238
     
0
     
*
 
Enrique Derzavich (18)          
   
345,106
     
99,999
     
245,107
     
3.9
%
First Fire Global Opportunities Fund LLC (19)
   
50,001
     
50,001
     
0
     
*
 
HFR HE Sphera Global Healthcare Master Trust (20)
   
16,998
     
16,998
     
0
     
*
 
HMLK (21)          
   
64,477
     
16,644
     
47,833
     
*
 
Hudson Bay Master Fund Ltd. (22)
   
125,001
     
125,001
     
0
     
*
 
Intracoastal Capital LLC (23)          
   
24,999
     
24,999
     
0
     
*
 
Kingdon Associates (24)          
   
177,906
     
177,906
     
0
     
*
 
Kingdon Family Partnership, L.P. (25)
   
40,830
     
40,830
     
0
     
*
 
Kingsbrook Opportunities Master Fund LP (26)
   
24,999
     
24,999
     
0
     
*
 
M. Kingdon Offshore Master Fund L.P. (27)
   
281,265
     
281,265
     
0
     
*
 
MOR-Research applications (28)
   
358,433
     
24,999
     
333,434
     
5.4
 
Orcom Strategies Ltd. (29)          
   
24,999
     
24,999
     
0
     
*
 
Pulmonox Technologies Corporation (30)
   
748,574
     
570,003
     
178,571
     
2.7
%
Ron Bentsur (31)          
   
556,391
     
75,000
     
481,391
     
7.7
%
Ronen Kantor (32)          
   
116,390
     
15,000
     
101,390
     
1.6
%
Ruth Gorenstein (33)          
   
125,304
     
20,001
     
105,303
     
1.7
%
Sagit Shiran (34)          
   
267,138
     
99,999
     
167,139
     
2.7
%
Shay Teitelbaum (35)          
   
267,138
     
99,999
     
167,139
     
2.7
%
Sphera Global Healthcare Master Fund (36)
   
483,000
     
483,000
     
0
     
*
 
Steven Lisi (37)          
   
489,287
     
125,001
     
364,286
     
5.8
%
Traistman Radzievsky Fundansia Ltd. (38)
   
200,001
     
200,001
     
0
     
*
 
G.N.E. BIOtechnologies Ltd. (39)
   
4,998
     
4,998
     
0
     
*
 
 
——————————
 
*
Less than one percent.
 
(1)
Based on 6,290,664 shares issued and outstanding as of May 18, 2017.
 
(2)
Includes 46,851 shares of common stock issuable upon exercise of Warrants.
 
(3)
Includes 333,334 shares of common stock issuable upon exercise of Warrants.
 
 
82

 
(4)
Includes 83,332 shares of common stock issuable upon exercise of Warrants.
 
 
(5)
Includes 43,334 shares of common stock issuable upon exercise of Warrants.
 
(6)
Includes 5,542 shares of common stock issuable upon exercise of Warrants.
 
(7)
Includes 116,666 shares of common stock issuable upon exercise of Warrants.
 
(8)
Includes 8,333 shares of common stock issuable upon exercise of Warrants, of which 3,332 Warrants are held by G.N.E. BIOtechnologies Ltd. (“GNE”).  Also includes 1,666 shares of common stock held by GNE.  Yossef Av-Gay has sole voting and dispositive power over the securities held by GNE.
 
(9)
Includes 33,334 shares of common stock issuable upon exercise of Warrants.  Each of Byron Roth and Gordon Roth has voting and dispositive power with respect to the securities owned by BTG Investments LLC. BTG Investments LLC, an affiliate of a broker-dealer, acquired such securities in the ordinary course of business, and at the time of the acquisition, had no agreements or understandings, directly or indirectly, with any person to distribute the securities. Roth Capital Partners, LLC, of which Byron Roth and Gordon Roth are both partners, acted as placement agent in connection with the Israeli Private Placement that closed on January 13, 2017. Shares of the common stock held by BTG Investments LLC were acquired in the Israeli Private Placement.
 
(10)
Includes 8,157 shares of common stock issuable upon exercise of Warrants.
 
(11)
Includes 16,600 shares of common stock issuable upon exercise of Warrants.
 
(12)
Includes 833,334 shares of common stock issuable upon exercise of Warrants without giving effect to the Ownership Cap.  Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P.  Deerfield Management   Company, L.P. is the investment manager of Deerfield Special Situations Fund, L.P.  Mr. James E. Flynn is the sole member of the general partner of each of Deerfield Mgmt, L.P. and Deerfield Management Company, L.P.  Deerfield Mgmt, L.P., Deerfield Management Company, L.P. and James E. Flynn may be deemed to beneficially own the securities held by Deerfield Special Situations Fund, L.P.  Deerfield Special Situation Fund, L.P. and the other persons named in this footnote (12) disclaim beneficial ownership of the shares underlying the Warrants as a result of the Ownership Cap.
 
(13)
Includes 11,110 shares of common stock issuable upon exercise of Warrants.
 
(14)
Includes 5,554 shares of common stock issuable upon exercise of Warrants.
 
(15)
Includes 72,804 shares of common stock issuable upon exercise of Warrants. Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
 
(16)
Includes 36,372 shares of common stock issuable upon exercise of Warrants.  Empery Asset Management LP, the authorized agent of Empery Tax Efficient, LP (“ETE”), has discretionary authority to vote and dispose of the shares held by ETE and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by ETE. ETE, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
 
(17)
Includes 57,492 shares of common stock issuable upon exercise of Warrants.  Empery Asset Management LP, the authorized agent of Empery Tax Efficient II, LP (“ETE II”), has discretionary authority to vote and dispose of the shares held by ETE II and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by ETE II. ETE II, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares.
 
(18)
Includes 66,666 shares of common stock issuable upon exercise of Warrants.
 
83

(19)
Includes 33,334 shares of common stock issuable upon exercise of Warrants.
 
(20)
Includes 11,332 shares of common stock issuable upon exercise of Warrants.
 
(21)
Includes 11,906 shares of common stock issuable upon exercise of Warrants.
 
(22)
Includes 83,334 shares of common stock issuable upon exercise of Warrants.  Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities.
 
(23)
Includes 16,666 shares of common stock issuable upon exercise of Warrants.  Mitchell P. Kopin (“Mr. Kopin”) and Daniel B. Asher (“Mr. Asher”), each of whom are managers of Intracoastal Capital LLC (“Intracoastal”), have shared voting control and investment discretion over the securities reported herein that are held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of the securities reported herein that are held by Intracoastal. Mr. Asher, who is a manager of Intracoastal, is also a control person of a broker-dealer. As a result of such common control, Intracoastal may be deemed to be an affiliate of a broker-dealer. Intracoastal acquired the ordinary shares being registered hereunder in the ordinary course of business, and at the time of the acquisition of the ordinary shares and warrants described herein, Intracoastal did not have any arrangements or understandings with any person to distribute such securities.
 
(24)
Includes 118,604 shares of common stock issuable upon exercise of Warrants.
 
(25)
Includes 27,220 shares of common stock issuable upon exercise of Warrants.
 
(26)
Includes 16,666 shares of common stock issuable upon exercise of Warrants.  Kingsbrook Partners LP (“Kingsbrook Partners”) is the investment manager of Kingsbrook Opportunities Master Fund LP (“Kingsbrook Opportunities”) and consequently has voting control and investment discretion over securities held by Kingsbrook Opportunities. Kingsbrook Opportunities GP LLC (“Opportunities GP”) is the general partner of Kingsbrook Opportunities and may be considered the beneficial owner of any securities deemed to be beneficially owned by Kingsbrook Opportunities. KB GP LLC (“GP LLC”) is the general partner of Kingsbrook Partners and may be considered the beneficial owner of any securities deemed to be beneficially owned by Kingsbrook Partners. Ari J. Storch, Adam J. Chill and Scott M. Wallace are the sole managing members of Opportunities GP and GP LLC and as a result may be considered beneficial owners of any securities deemed beneficially owned by Opportunities GP and GP LLC. Each of Kingsbrook Partners, Opportunities GP, GP LLC and Messrs. Storch, Chill and Wallace disclaim beneficial ownership of these securities.
 
(27)
Includes 187,510 shares of common stock issuable upon exercise of Warrants.
 
(28)
Includes 16,666 shares of common stock issuable upon exercise of Warrants.
 
(29)
Includes 16,666 shares of common stock issuable upon exercise of Warrants.
 
(30)
Includes 558,572 shares of common stock issuable upon exercise of Warrants.
 
(31)
Includes 50,000 shares of common stock issuable upon exercise of Warrants.
 
(32)
Includes 10,000 shares of common stock issuable upon exercise of Warrants.
 
(33)
Includes 13,334 shares of common stock issuable upon exercise of Warrants.
 
(34)
Includes 66,666 shares of common stock issuable upon exercise of Warrants.
 
(35)
Includes 66,666 shares of common stock issuable upon exercise of Warrants.
 
(36)
Includes 322,000 shares of common stock issuable upon exercise of Warrants.
 
(37)
Includes 83,334 shares of common stock issuable upon exercise of Warrants.
 
(38)
Includes 133,334 shares of common stock issuable upon exercise of Warrants.
 
(39)
Includes 3,332 shares of common stock issuable upon exercise of Warrants.  Yossef Av-Gay has sole voting and dispositive power over the securities held by G.N.E. BIOtechnologies Ltd.
84

 
MANAGEMENT
 
Directors and Executive Officers
 
The table below sets forth the name, age and position of each of our directors and executive officers and certain other non-executive officer members of our scientific and drug development team in each case as of the date of this prospectus. Each of the directors and executive officers listed below joined AITT upon the closing of the Merger on January 13, 2017, other than Mr. Aviv, who joined the Company as Chief Financial Officer on February 28, 2017.
 
Name
 
Age
 
Position
Steven A. Lisi          
 
46
 
Chairman of the Board of Directors
Amir Avniel          
 
43
 
President and Chief Executive Officer and Director
Hai Aviv          
 
35
 
Chief Financial Officer
Ron Bentsur          
 
50
 
Director
David Grossman          
 
42
 
Director
Ari Raved          
 
62
 
Director
Yossef Av-Gay          
 
55
 
Director
 
Steven A. Lisi, Chairman of the Board
 
Steven Lisi has served on our Board since January 13, 2017, and has served on the Board of AIT Ltd., our wholly-owned subsidiary, since June, 2016. Mr. Lisi was previously Senior Vice President of Business and Corporate Development at Flamel Technologies (FLML), where he was instrumental in restructuring the company and transforming it from $100,000,000 in enterprise value to $1billion in three years. Mr. Lisi raised $121 million in equity, led the sale of Flamel’s contract manufacturing facility, rationalized the product pipeline, refocused the business development effort, transformed the investor base and established Flamel’s presence in Ireland. Prior to his position with Flamel, Mr. Lisi spent 18 years investing in healthcare companies on a global basis at Mehta and Isaly (now OrbiMed), SAC Capital (portfolio manager), Millennium Partners (portfolio manager), Panacea Asset Management (co-owner) and Deerfield Management (Partner). Mr. Lisi serves on the Board of Mico Innovations, a next generation coronary and neurovascular stent company and on the Board of Incysus Ltd, a transformational cell therapy company targeting solid tumors. Mr. Lisi received his Masters in International Business from Pepperdine University.
 
Ron Bentsur, Director
 
Ron Bentsur joined AIT Ltd. in August 2015 and serves as a director. Mr. Bentsur has served as Chief Executive Officer and Director of UroGen Pharma, Ltd. since August 2015. From 2009 through April 2015, Mr. Bentsur served as Chief Executive Officer and Director of Keryx Biopharmaceuticals, Inc. Mr. Bentsur’s tenure as CEO of Keryx Biopharmaceuticals culminated in the September 2014 FDA approval of AuryxiaTM (ferric citrate) and its December 2014 U.S. launch. Prior to joining Keryx Biopharmaceuticals, Inc., from 2006 to 2009, Mr. Bentsur served as Chief Executive Officer of XTL Biopharmaceuticals, Ltd. Prior to that, Mr. Bentsur served as Vice President Finance and Chief Financial Officer of Keryx Biopharmaceuticals, Inc., as Director of Technology Investment Banking at Leumi Underwriters, where he was responsible for all technology and biotechnology private placement and advisory transactions, and as a New York City-based investment banker, primarily at ING Barings Furman Selz. Mr. Bentsur holds a B.A. in Economics and Business Administration with distinction from the Hebrew University of Jerusalem and an M.B.A., magna cum laude, from New York University’s Stern Graduate School of Business. Mr. Bentsur also serves as Director of Stemline Therapeutics, Inc.
 
Amir Avniel, Chief Executive Officer and Director
 
Amir Avniel has served on AIT Ltd.’s Board since 2011 and became AIT Ltd.’s Chief Executive Officer in August 2014.  He has served on our Board and became our Chief Executive Officer on January 13, 2017.  He has more than ten years of management experience in the biotechnology industry. From 2013 through 2014, Mr. Avniel served as Strategy and Business Development of A.B. Seeds, a wholly owned subsidiary of Monsanto Company. Mr. Avniel served as the Chief Executive Officer of Rosetta Green Ltd. from 2010 through 2013 and led Rosetta Green in its acquisition by Monsanto. He also served as the president and the Chief Executive Officer of Rosetta Genomics from 2006 to 2009, and Mr. Avniel is a named inventor in over 20 patent applications. He studied computer science at the Academic College of Tel Aviv - Jaffa Israel and earned a Bachelor’s degree in Social Sciences and Humanities - from Open University in Israel. Prior to his academic studies, he served as an officer in the Israel Defense Force, where he was awarded four commendations for excellence.
 
85

Ari Raved, Director
 
Mr. Ari Raved served as a Senior Vice President of IDB Development Corporation Limited., a subsidiary of IDB Holding Corp. Ltd. from 2004 to 2014. Mr. Raved served as the Vice President of IDB Development Corporation. He served as the Chairman of Bartan Holdings and Investments Ltd. from 2006 to 2014. He serves as a Director of Modiin Energy Limited Partnership. Mr. Raved has been a Director of the Company. since 2012. He served as a Director of Property & Building Corp. Ltd., from May 15, 2012 to December 14, 2015. He served as a Director of Gav-Yam Land Corporation Ltd. He served as a Director of Modiin Energy - LP.from 2006 until 2014 he was the Chairman of the Board at Bartan Holdings and Investments Ltd.  Mr. Raved holds a Degree in Social Sciences and Masters of Arts in Labor Studies from Tel Aviv University.
 
David Grossman, Director
 
David Grossman has served on AIT Ltd’s board since February 2016 and our Board since January 13, 2017. Mr. Grossman serves on Ltd’s audit committee and compensation committees and we intend to have him serve in the same capacities with us once we form those Board committees. Since 2016, Mr. Grossman has served as Chairman of the Board and Chief Executive Officer at D-Pharm Ltd. (TASE: DPRM). Since 2015, Mr. Grossman has served on the board of Amnis Therapeutics Ltd. (TASE: AMNS) (formerly ITGI Medical Ltd.) and since 2014 is an External Director at Cellect Biotechnology Ltd. (NASDAQ, TASE: APOP). From 2014 to 2016, Mr. Grossman served as the Chairman of Algomizer Ltd. (TASE: ALMO). Mr. Grossman previously served as Chief Executive Officer at XTL Biopharmaceuticals Ltd. (NASDAQ: XTLB, TASE: XTL), from 2009 until 2014 and was also a member of the board from 2009 until 2013. He served as a Vice President of Eurocom Investments LP, a private equity fund, from 2006 to 2009. Also during that time, Mr. Grossman served as Vice President of Sahar Investments Ltd, (TASE: ENLT; formerly SAIN) which focused on investments in the life sciences arena. Prior to that, Mr. Grossman was a Senior Analyst at Israel Health Care Ventures (IHCV), an Israeli healthcare venture capital fund. Mr. Grossman has previously served on a number of boards of public companies including Proteologics Ltd. (TASE: PRTL) and InterCure Ltd. (TASE: INCR) from 2012 to 2013, Rosetta Green Ltd. (TASE: RSTG) from 2011 to 2014, Bio Light Israeli Life Science Investments Ltd. (TASE: BOLT) from 2009 to 2011, and Gilat Satcom Ltd. (AIM: GLT) from 2007 to 2008. Mr. Grossman received a BA in Business Administration with a focus on information technology, from the Interdisciplinary Center Herzliya.
 
86

 
Yossef Av-Gay, Director
 
Professor Yossef Av-Gay, PhD, co-founded AIT Ltd. in 2011 and became a director of AIT Ltd. at that time. Prof. Av-Gay became AIT Ltd’s Chief Scientific Officer in 2012, and was AIT Ltd’s Chairman from January 2014 until July 2015. He has been a professor of microbiology at the UBC, Faculty of Medicine and the Division of Infectious Diseases since 1997. He is engaged in basic research in microbial genetics and biochemistry of microorganisms, and his research focuses on translational research of bacterial pathogens aiming at antimicrobial drug development. He is a consultant to several pharmaceutical and biotechnology companies, and is a member of the scientific review panels of the Canadian Institute of Health Research (since 2010), the French Agence Nationale de la Rechereche (since 2008), Innovative Medicine Innovations, the U.S. National Institutes of Health (since 2010), the European Commission FP6, FP7 (since 2002) and Horizon 2020 (since 2014). Dr. Av-Gay received a B.Sc. in biology, a M.Sc. in microbiology and a Ph.D. in molecular microbiology from Tel Aviv University.
 
Hai Aviv, Chief Financial Officer
 
Mr. Aviv joined the Company from Babylon Ltd., a publicly-traded Israeli company listed on the Tel Aviv Stock Exchange and operating in the fields of internet, risk capital investments and software, where he was most recently the Chief Financial Officer. In his role he was actively involved in mergers, acquisitions, and investments. From 2010 to 2013, Mr. Aviv was Babylon’s Corporate Controller. From 2005 to 2010, he was a manager at the Ernst & Young Accounting Firm of Kost Forer, Gabbay & Kasierer, in Tel Aviv, working predominantly with the high-tech team. Mr. Aviv is a Certified Public Accountant, and holds a Bachelor of Arts degree in Business and Accounting, and an MBT in Business and Taxation from The College of Management, Israel.
 
87

Term of Office of Directors
 
Our directors are elected at each annual meeting of stockholders for a term of one year.  Each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal.
 
Family Relationships
 
There are no family relationships among any of our current or former directors or executive officers.
 
Involvement in Certain Legal Proceedings
 
None of our directors, executive officers, significant employees, promoters or control persons has been involved in any legal proceeding in the past ten years that would require disclosure under Item 401(f) of Regulation S-K promulgated under the Securities Act.
 
Committees of the Board of Directors
 
Our Board of Directors has not established a separate standing audit committee within the meaning of Section 3(a)(58)(A) of the Exchange Act or separate standing nominating or compensation committees, or committees performing similar functions, nor has it adopted charters for any such committee.  Due to the present and prior size of our Board of Directors, our Board of Directors believes that it is not necessary to have separate standing audit, nominating or compensation committees at this time because the functions of each such committee are adequately performed by our full Board of Directors.  However, we anticipate that our Board of Directors will form separate standing audit, nominating and compensation committees, with the audit committee including an audit committee financial expert and the audit and compensation committees consisting solely of independent directors, if and when our Board of Directors determines that the establishment of such committees is advisable as we seek to further develop our business and operations and potentially expand the size of our Board of Directors.
 
Nominations to the Board of Directors
 
Director candidates are considered based upon various criteria, including without limitation their broad- based business and professional skills and experiences, knowledge of the industry in which we operate and ability to add perspectives relating to that industry, expertise in the precision medicine biotechnology field, concern for the long- term interests of our stockholders, diversity, and personal integrity and judgment.  Our Board of Directors has a critical role in guiding our strategic direction and overseeing the management of our business, and accordingly, we seek to attract and retain highly qualified directors who have sufficient time to engage in the activities of our Board of Directors and to understand and enhance