424B4 1 f424b40820_painreform.htm PROSPECTUS

PROSPECTUS

 

Filed Pursuant to Rule 424(b)(4)

Registration No. 333-239576

PainReform Ltd.

2,500,000 Units Each Consisting of
One Ordinary Share and
One Warrant to Purchase One Ordinary Share

This is our initial public offering. There is currently no public market for our securities. We are offering 2,500,000 units (the “Units”) at an initial offering price of $8.00 per Unit. Each Unit consists of one of our ordinary shares, NIS 0.03 par value per share (each an “Ordinary share”) and one warrant to purchase one Ordinary share (the “Warrants”). The Warrants included in the Units are exercisable immediately and have an exercise price of $8.80 per share.

Our Ordinary shares have been approved for listing on the Nasdaq Capital Market under the symbol “PRFX”. The Warrants will not be listed for trading and will expire five years from the date of issuance. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. Purchasers will receive only Ordinary shares and Warrants. The Ordinary shares and Warrants may be transferred separately, immediately upon issuance. The offering also includes the Ordinary shares issuable from time to time upon exercise of the Warrants.

We are an emerging growth company, as defined in the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, have elected to comply with certain reduced public company reporting requirements.

Investing in the securities offered in this prospectus involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus to read about factors you should consider before purchasing any of our Ordinary shares.

 

Per Unit

 

Total

Initial public offering price(1)

 

$

8.00

 

$

20,000,000.00

Underwriting discounts and commissions(2)

 

$

0.56

 

$

1,400,000.00

Net Proceeds to us (before expenses)

 

$

7.44

 

$

18,600,000.00

____________

(1)      The public offering price is $7.99 per Ordinary share and $0.01 per Warrant.

(2)      Please refer to the section entitled “Underwriting” beginning on page 115 of this prospectus for additional information regarding underwriting compensation.

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

We have granted the underwriters an option to purchase up to 375,000 additional Ordinary shares and/or up to 375,000 additional Warrants from us at the public offering price, less the underwriting discount, within 45 days from the date of this prospectus solely to cover over-allotments.

The underwriters expect to deliver the Units against payment on or about September 3, 2020.

Maxim Group LLC

 

Joseph Gunnar & Co., LLC

Joint Book-Runner

 

Joint Book- Runner

The date of this prospectus is September 1, 2020.

 

TABLE OF CONTENTS

 

Page

PROSPECTUS SUMMARY

 

1

RISK FACTORS

 

10

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

37

USE OF PROCEEDS

 

38

DIVIDEND POLICY

 

39

CAPITALIZATION

 

40

DILUTION

 

42

SELECTED FINANCIAL DATA

 

44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

45

BUSINESS

 

53

MANAGEMENT

 

69

PRINCIPAL SHAREHOLDERS

 

88

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

90

DESCRIPTION OF SECURITIES

 

92

SHARES ELIGIBLE FOR FUTURE SALE

 

100

MATERIAL TAX CONSIDERATIONS

 

103

UNDERWRITING

 

115

EXPENSES RELATED TO THIS OFFERING

 

121

LEGAL MATTERS

 

121

ENFORCEABILITY OF CIVIL LIABILITIES

 

122

EXPERTS

 

123

WHERE YOU CAN FIND MORE INFORMATION

 

123

INDEX TO FINANCIAL STATEMENTS

 

F-1

You should rely only on the information contained in this prospectus and any related free-writing prospectus that we authorize to be distributed to you. Neither we nor the underwriters have authorized any person to provide you with information different from that contained in this prospectus, any amendment or supplement to this prospectus or any related free-writing prospectus that we authorize to be distributed to you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you.

We and the underwriters are offering to sell the Units and seeking offers to purchase our securities only in jurisdictions where such offers and sales are permitted. This prospectus is not an offer to sell, nor is it seeking an offer to buy, the Units, Ordinary shares or Warrants in any state or jurisdiction where such offer or sale is not permitted.

For investors outside the U.S. we have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the Units and the distribution of this prospectus outside the U.S.

The information in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares offered hereby. Our business, financial condition, results of operations, and prospects may have changed since that date. Neither the delivery of this prospectus nor the sale of the Units means that information contained in this prospectus is correct after the date of this prospectus.

Market data and certain industry data and forecasts used throughout this prospectus were obtained from sources we believe to be reliable, including market research databases, publicly available information, reports of governmental agencies, and industry publications and surveys. We have relied on certain data from third party sources, including industry forecasts and market research, which we believe to be reliable based on our

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management’s knowledge of the industry. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and elsewhere in this prospectus.

Our financial statements are prepared and presented in accordance with accounting principles generally accepted in the U.S., or GAAP. Our historical results do not necessarily indicate our expected results for any future periods.

Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Unless the context otherwise requires, references in this prospectus to the “Company,” “PainReform,” “we,” “us,” “our” and other similar designations refer to PainReform Ltd.

PAINREFORM® and our other registered or common law trademarks, trade names or service marks appearing in this prospectus are owned by us. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights of the applicable licensor to these trademarks and trade names. Unless otherwise stated in this prospectus, we do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Unless derived from our financial statements or otherwise noted, the terms “shekels,” “Israeli shekels” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, and the terms “dollar,” “U.S. dollar,” “US$,” “USD,” and “$” refer to U.S. dollars, the lawful currency of the U.S. All references to “shares” in this prospectus refer to the Ordinary shares of PainReform Ltd., par value NIS 0.03 per share. All references to “Companies Law” refer to the Israeli Companies Law, 5759-1999, as amended.

On July 6, 2020, our shareholder meeting approved a three (3) share for one (1) share reverse split of our Ordinary shares effective as of that date. All share and per share amounts in this prospectus reflect this reverse stock split.

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PROSPECTUS SUMMARY

This is only a summary of the prospectus and does not contain or summarize all of the information contained in this prospectus which is material and/or which may be important to you. Before making an investment in our ordinary shares, you should read this entire prospectus, including the sections of this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

Overview

We are a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. Our proprietary extended release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates. Our strategy is to incorporate generic drugs with our proprietary extended release drug-delivery system in order to create extended release drug products and to take advantage of the 505(b)(2) regulatory pathway created by the U.S. Food and Drug Administration (“FDA”). The 505(b)(2) new drug application (“NDA”) process, provides for FDA approval of a new drug based in part on data that was developed by others, including published literature references and data previously reviewed by the FDA in its approval of a separate application. Using this pathway can significantly reduce the future time and costs associated with clinical development. PRF-110, our first product, is based on the local anesthetic ropivacaine, targeting the post-operative pain relief market. PRF-110 is an oil-based, viscous, clear solution that is deposited directly into the surgical wound bed prior to closure to provide localized and extended post-operative analgesia.

In a small 15 patient Phase 2 proof-of-concept clinical study in herniorrhaphy (hernia repair), PRF-110 provided substantial pain reduction for up to 72 hours post-operatively. A comparison of these results to historical data for ropivacaine alone suggests a substantial advantage to using PRF-110 over the local anesthetic, ropivacaine, alone. As indicated in the FDA approved drug description for ropivacaine, such drug provides pain relief for only 2 to 6 hours. The surgeons that participated in the PRF-110 Phase 2 trial reported that it was easily integrated into the procedure and non-disruptive of existing surgical techniques. Ropivacaine, the active drug used in PRF-110, is a safe and well characterized local anesthetic and the other components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA, mitigating many potential safety issues that are common in drug development. In a phase 1 safety study conducted in Israel, healthy volunteers were treated with subcutaneous PRF-110. In that study no serious adverse events were noted and PRF-110 showed a prolonged pain reduction when the subjects were tested for their responses to mild or moderate pain stimuli.

Our Strengths

We believe our competitive strengths include the following:

•        We have a highly experienced leadership team;

•        PRF-110 is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates;

•        Our ability to take advantage of the 505(b)(2) regulatory pathway to incorporate generic drugs with our proprietary extended release drug-delivery system in order to create extended release drug products; and

•        Our history of developing PRF-110 in a cost-effective manner.

Our Strategy

Our first priority is to continue the drive toward commercialization of PRF-110. Upon completion of this offering, we plan to expeditiously begin our Phase 3 clinical trials as we move toward an NDA and PRF-110 approval. We believe that we are well positioned to accomplish this because:

•        We have amassed an extensive toxicology portfolio for PRF-110, demonstrating that there were no PRF-110-related serious adverse events in either healthy subjects or in surgical patients;

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•        Based on extensive toxicology and pharmacokinetic studies, as well as positive Phase 2 results, the FDA has granted our company an IND (Investigational New Drug) for PRF-110 and approved the initiation of Phase 3 trials for the treatment of post-operative pain;

•        Unlike many drug trials that take months to years to complete and which are complex and whose endpoints are difficult to interpret, the planned trials are expected to last for a brief number of days with a one-month follow-up period, with primary endpoints based on measurement on the familiar scale of 1 (no pain) to 10 (worst imaginable pain);

•        Upon completion of the Phase 3 studies, if successful, we plan to apply for a New Drug Approval for the management of post-operative pain; and

•        If and when approved for commercial sale, we intend to capitalize on the opportunity and carry out post-approval trials in a number of additional surgical indications including: breast augmentation/reduction, bariatric procedures, hysterectomy, cholecystectomy as well as orthopedic procedures including joint replacements and open fracture repair. We intend to capitalize on these opportunities to become the leader in opiate-free, long-acting local and regional analgesia.

Following the establishment of PRF-110 in the post-operative pain market, we plan to build on our platform technology to broaden our product base. Our extended release drug-delivery system is a non-aqueous, viscous formulation that can be used for the delivery of many drugs that are currently difficult to administer for long-term, continuous dosing without an iv access, including antibiotics and chemotherapeutics. We intend to develop a pipeline of drugs than can be delivered once, using our platform technology, and thereafter be bio-available for extended release. In addition, if successful, we plan to expand by developing, acquiring or in-licensing products, or technologies that we believe will be a strategic fit with our focus on the surgical and hospital marketplace.

Once approved, we plan to launch PRF-110 either by ourselves or with a strategic partner that is experienced in marketing products in surgical environments. These environments include:

•        Hospitals

•        Free-standing surgical centers

•        Surgical offices

Our Industry

The pharmaceutical industry is extremely competitive. PRF-110, if approved, will compete in a highly competitive market. Our competitors in this market may succeed in developing products that could render PRF-110 and future product candidates obsolete or non-competitive. Many of our potential competitors have significantly more financial, technical and other resources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience in effecting strategic combinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing products. We cannot give any assurances that we can compete effectively with these other biotechnology and pharmaceutical companies.

If we are able to successfully develop PRF-110 for postoperative pain management, we will compete with EXPAREL® (bupivacaine liposome injectable suspension, marketed by Pacira Pharmaceuticals, Inc.), MARCAINE (bupivacaine, marketed by Hospira, Inc.) and generic forms of bupivacaine; NAROPIN (ropivacaine, marketed by Fresenius Kabi USA, LLC) and generic forms of ropivacaine;) and potentially other products in development.

Our Initial Product

PRF-110 is a viscous clear oil-based solution that is instilled (deposited) directly into the surgical wound to provide localized and extended post-operative analgesia. Its physical characteristics and composition are key to it being well-tolerated and its ease of use:

•        PRF-110 is highly viscous and thus stays in place when placed into a surgical wound bed.

•        PRF-110 remains within the surgical site when the skin is closed, without being toxic or proinflammatory.

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•        PRF-110 is easy to administer and its use is consistent with current surgical practice.

•        PRF-110 is highly uniform and resistant to degradation in the wound, resulting is sustained/extended release of the analgesic.

•        Ropivacaine, the active drug used in PRF-110, is a safe and well characterized local anesthetic.

•        The components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded as Safe) by the FDA.

We sponsored a Phase 2 proof-of-concept study designed to assess the safety and efficacy of PRF-110 in hernia repair surgeries. The study was performed at the Sourasky Medical Center, the Galilee Medical Center and the Assaf Harofeh Medical Center, all located in Israel. The primary objective of the study was to evaluate the safety and tolerability of PRF 110 following hernia repair surgery performed by abdominal incision. The secondary objective was to evaluate pain intensity and the use of rescue pain medications following hernia surgery and application of PRF 110 at the incision site. While this study was not powered to determine statistical significance, a comparison of these results to placebo historical data evidenced lower average pain scores for up to 72 hours in comparison to the use of ropivacaine alone, which provided pain relief for only 2- to 6 hours. In this study with 15 subjects, PRF-110 provided pain reduction for up to 72 hours post-operatively. Prior to undertaking the Phase 2 study PRF-110 was, at the request of the FDA, rigorously tested in preclinical models of wound healing in which it was shown to have no effect on the strength of the healed skin, no effect on bones and no effect on the integrity of sutures and surgical mesh. Based on extensive toxicology and pharmacokinetic measures, as well as positive Phase 2 results, the FDA has granted our company an IND (Investigational New Drug) for PRF-110 and approved the initiation of Phase 3 trials for the treatment of post-operative pain. If PRF-110 approval for hernia repair and bunionectomy is obtained, we expect that these indications will be the focus of our initial commercialization efforts.

If, and when, approved for commercial sale, and upon becoming revenue-positive, we intend to quickly capitalize on the opportunity and carry out post-approval Phase 4 clinical trials in a number of additional surgical indications, including breast augmentation/reduction, bariatric procedures, hysterectomy and cholecystectomy, as well as orthopedic procedures including joint replacements and open fracture repair.

Our extended release drug-delivery system is a non-aqueous, viscous formulation that we believe can be used for the delivery of many drugs to treat a variety of indications that are currently difficult to administer for long-term, continuous dosing without a permanent or semi-permanent iv access. This is based on the physical – chemical characteristics of our drug delivery system that make it adaptable for the delivery of different classes and types of injectable drugs. Included in these potential applications are antibiotics to treat infections in difficult to reach tissues, such as bone or poorly vascularized limbs, and chemotherapeutics that currently require repeated administration to treat a variety of cancers. We intend to develop a pipeline of drugs than can be delivered once, using our platform technology, and thereafter be bio-available for extended release. A decision will be made as to specific indications when funds become available. The cost of each of such studies will be dependent upon a variety of factors including, the surgical indication, the number of centers involved in the study, the length of the study and the extent of the requisite follow-up. In addition, if successful, we plan to expand by developing, acquiring or in-licensing products or technologies that we believe will be a strategic fit with our focus on the surgical and hospital marketplace.

PRF-110 is made with a very efficient, scalable manufacturing process which contributes to a cost of goods that we anticipate will be extremely competitive. We believe this will facilitate a future sales strategy both flexible and profitable.

In contrast to the oil-based PRF-110, the only currently marketed non-opiate extended relief post-surgical topical product is a liposomal formulation containing bupivacaine. Liposomes require special handling, are fragile, and the product is a water-based suspension of liposomes. Mishandling of drug-filled liposomes is known to result in the release of free drug into the water, and thus reduces efficacy over time. Moreover, the physical characteristic of this product requires multiple injections which is a burdensome task to the surgeon. In comparison, PRF-110 is simply applied into the wound, prior to suturing.

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Intellectual Property

Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions, and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets, and operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.

We strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patent protection intended to cover our extended release drug-delivery system. As of July 31, 2020, our exclusively owned patent portfolio includes three U.S. patents, ten foreign patents and six pending foreign patent applications. The claims of these patents and patent applications are directed toward various aspects of our extended release drug-delivery system and research programs. For more information regarding the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.”

Risks Associated with Our Business

An investment in our ordinary shares involves a high degree of risk. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our securities. Among these important risks are the following:

•        We have incurred significant losses since our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain profitability.

•        We will need substantial additional funding, which may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce and/or eliminate our research and drug development programs or future commercialization efforts.

•        Raising additional capital may cause dilution to our shareholders, including purchasers of shares in this offering, restrict our operations or require us to relinquish rights to our product candidates.

•        We are dependent on the success of our lead product candidate, PRF-110, for which two clinical trials are planned. Our clinical trials of PRF-110 may not be successful. If we are unable to obtain approval for and commercialize PRF-110 or experience significant delays in doing so, our business will be materially harmed.

•        We have limited experience in conducting and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable to commercialize our products.

•        Even if we or our collaborative/strategic partners or potential collaborative/strategic partners receive approval to market our drug candidates, if our products fail to achieve market acceptance, we will never record meaningful revenues.

•        If our competitors develop and market products that are less expensive or more effective than our product, our revenues and results may be harmed and our commercial opportunities may be reduced or eliminated.

•        Maintain patent protection for our product, our competitors could develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected.

•        As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and the Nasdaq Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

•        It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.

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•        Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.

•        No public market for our ordinary shares currently exists, and an active trading market may not develop or be sustained following this offering.

•        Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

•        Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on our share price.

•        U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.

Implications of Our Emerging Growth Company and Foreign Private Issuer Status

As a company with less than $1.07 billion in revenue for our year ended December 31, 2018, we qualify as an “emerging growth company” under Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from reporting requirements that generally apply to public companies, including the ability to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations in the registration statement for offering of which this prospectus forms a part, exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and, to the extent that we no longer qualify as a foreign private issuer, exemption from say-on-pay, say-on-frequency, and say-on-golden parachute voting requirements, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenue of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided to emerging growth companies under the JOBS Act.

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

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

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

•        the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events we intend to report our results of operations voluntarily on a quarterly basis.

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Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.

As a foreign private issuer we will also have four months after the end of each fiscal year to file our annual report with the U.S. Securities and Exchange Commission, or the SEC. Our executive officers, directors, and principal shareholders will be exempt from the requirements to report transactions in our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we will also not be subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.

We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the U.S. or (iii) our business is administered principally in the U.S.

In this prospectus, we have taken advantage of certain of the reduced reporting requirements as a result of being an emerging growth company and a foreign private issuer. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Corporate Information

We were incorporated under the laws of the State of Israel in November 2007. Our principal executive offices are located at the offices of Medica Venture Partners, the general partner of our principal shareholder, at 60C Medinat Hayehudim, Herzliya, 4676670, Israel. Our telephone number is +972-9-960-1901. Our corporate website address is www.painreform.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

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THE OFFERING

Units to be offered

 

2,500,000 Units, each consisting of one Ordinary share and one Warrant to purchase one Ordinary share. The Warrants included within the Units are exercisable immediately, have an exercise price of $8.80 per share and expire five years from the date of issuance. The Ordinary shares and the Warrants comprising the Units are immediately separable upon issuance. The Warrants will not be listed for trading.

Ordinary shares to be outstanding immediately after this offering

 


8,910,125 Ordinary shares (or 9,285,125 Ordinary shares if the underwriters exercise their over-allotment option in full).

Over-allotment option

 

We have granted the underwriters a 45 day option to purchase up to 375,000 additional Ordinary shares at a public offering price of $7.99 per Ordinary share and/or 375,000 additional Warrants at a public offering price of $0.01 per Warrant, less, in each case, the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any.

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $17,629,500, or approximately $20,419,500 if the underwriters exercise their option to purchase 375,000 additional Units in full, after deducting the underwriting discount and estimated offering expenses payable by us.

   

We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, (i) to conduct and complete two Phase 3 clinical trials for PRF-110, (ii) development activities and preparation of initial NDAs, (iii) purchase of directors and officers liability insurance, and (iv) for general corporate purposes including, general and administrative expenses and working capital. See “Use of Proceeds” for more information about the intended use of proceeds from this offering.

Principal Shareholder

 

Upon the closing of this offering, the Medica III Investment group will beneficially own 3,359,728 Ordinary shares, or approximately 37.71% of our Ordinary shares (or approximately 36.18% of our ordinary shares if the underwriters’ option to purchase additional Units is exercised in full). As a result, we will not be a “controlled company” within the meaning of the listing rules of the Nasdaq Capital Market. See the sections titled “Management — Controlled Company Exception” and “Principal Shareholders.”

Nasdaq Capital Market symbol for the Ordinary shares

 


“PRFX”.

Risk Factors

 

You should carefully read the section titled “Risk Factors” and other information included in this prospectus for a discussion of factors that you should consider before deciding to invest in our ordinary shares.

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The number of Ordinary shares that will be outstanding after this offering is 8,910,125 shares, which is based on 576,556 Ordinary shares outstanding as of August 31, 2020 after giving effect to a three (3) share for one (1) share reverse split and the immediate conversion upon closing of this offering of (i) 2,954,267 convertible preferred shares on a one (1) for one (1) basis into 2,954,267 Ordinary shares, (ii) $3,929,000 of principal convertible debt plus $1,483,000 of accrued interest into 2,415,022 Ordinary shares, (iii) $1,666,500 of convertible notes (including a 10% increase in the principal amount of the August 2019 convertible notes due to our entry into an extension agreement dated August 20, 2020) plus $82,000 of accrued interest into 312,170 Ordinary shares; and (iv) 152,110 Ordinary shares issued to a consultant as a payment for services rendered and to be rendered pursuant to a public relations and investor relations consultancy and services agreement; and excludes:

•        options to purchase 373,338 Ordinary shares with a weighted average exercise price of $1.64 per share, granted under the 2008 PainReform Option Plan and the 2019 PainReform Option Plan;

•        297,589 Ordinary shares and 297,589 Warrants issuable upon exercise of the warrants to purchase our Ordinary shares at an exercise price of $6.72 per share that were issued in August and December 2019 in connection with a bridge financing;

•        312,170 Warrants issuable upon conversion of convertible notes that were issued in August and December 2019 in connection with a bridge financing;

•        55,785 Ordinary shares issuable upon exercise of the warrants to purchase our Ordinary shares at $10.00 per share that were issued to Joseph Gunnar & Co., LLC, the placement agent for the bridge financing;

•        2,500,000 Ordinary shares issuable upon exercise of the Warrants to be issued in this offering; and

•        125,000 Ordinary shares issuable upon exercise of the warrants to purchase our Ordinary shares at $10.00 per share to be issued the representatives of the underwriters.

Except as otherwise noted, the information in this prospectus assumes or gives effect to:

•        no exercise by the underwriters of their option to purchase additional Units in this offering to cover over-allotments; and

•        the adoption and effectiveness of our amended and restated articles of association upon the effectiveness of the registration statement of which this prospectus forms a part.

8

SUMMARY FINANCIAL DATA AND PRO FORMA FINANCIAL DATA

You should read the following selected financial data and certain pro forma financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, related notes and other financial information included elsewhere in this prospectus.

The following table sets forth a summary of our statements of comprehensive loss and summary of our consolidated balance sheet data for the periods indicated. The statements of comprehensive loss for the years ended December 31, 2019 and 2018 and the balance sheet data as of December 31, 2019 and 2018 have been derived from our financial statements included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP. Historical results are not necessarily indicative of the results expected in the future.

Statements of Comprehensive Loss
(U.S. dollars except share and per share data)

 

Year Ended
December 31,

   

2019

 

2018

Operating Expenses:

 

 

 

 

 

 

 

 

Research and development expenses

 

$

(136,000

)

 

$

(223,000

)

Selling, general and administrative expenses

 

 

(553,000

)

 

 

(277,000

)

Operating Loss

 

 

(689,000

)

 

 

(500,000

)

Financial expense, net

 

 

(590,000

)

 

 

(328,000

)

Net Loss and Comprehensive loss

 

 

(1,279,000

)

 

 

(828,000

)

Basic and diluted net loss per share

 

 

(4.17

)

 

 

(3.24

)

Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share

 

 

576,556

 

 

 

576,556

 

Pro forma weighted average number of Ordinary shares outstanding used in computing basic and diluted loss per share (unaudited)(1) 

 

 

5,795,534

 

 

 

 

Pro forma basic and diluted loss per ordinary share (unaudited)(2) 

 

 

(0.13

)

 

 

 

____________

(1)      Pro forma basic and diluted net loss per share were computed to give effect to the conversion of all of our outstanding preferred shares into 2,954,267 of our Ordinary shares; $3,688,000 of principal convertible debt and approximately $832,000 of accrued interest into 2,016,774 Ordinary shares and $1,562,000 of convertible notes into 278,929 Ordinary shares as of December 31, 2019, using the as-if converted method as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later.

(2)      Net loss and comprehensive loss used in the calculation of pro forma basic and diluted loss per ordinary share was adjusted to eliminate finance expenses of $540,000 recorded on convertible debt and convertibles notes during the year ended December 31, 2019.

Balance Sheet Data:
(U.S. dollars)

 

As of December 31,

   

2019

 

2018

Cash and cash equivalents

 

$

941,000

 

 

$

40,000

 

Restricted cash

 

 

6,000

 

 

 

6,000

 

Other current assets

 

 

25,000

 

 

 

34,000

 

Total current assets

 

 

972,000

 

 

 

80,000

 

Other non-current asset

 

 

192,000

 

 

 

 

Total current liabilities

 

 

6,339,000

 

 

 

18,000

 

Convertible debt

 

 

 

 

 

4,520,000

 

Derivative warrant liability

 

 

447,000

 

 

 

 

Temporary equity

 

 

6,621,000

 

 

 

6,621,000

 

Shareholders’ deficit

 

 

(12,243,000

)

 

 

(11,078,000

)

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RISK FACTORS

Investing in our Units involves a high degree of risk. Before you decide to invest in our Units, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus. We believe the risks described below are the risks that are material to us as of the date of this prospectus. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our Ordinary shares could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception and expect to incur losses for the foreseeable future. We may never achieve or maintain profitability.

We have incurred operating losses since our inception and expect to continue to incur operating losses for the foreseeable future. During the two years ended December 31, 2019 and 2018, we incurred losses of $1,279,000 and $828,000, respectively. We have not yet commercialized our initial drug candidate, PRF-110, or our drug delivery system and cannot be sure that we will ever be able to do so. Even if we commercialize PRF-110, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain regulatory approval and successfully commercialize PRF-110.

We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:

•        initiate and manage clinical trials for PRF-110;

•        seek regulatory approvals;

•        implement internal systems and infrastructures;

•        hire management and other personnel; and

•        progress PRF-110 towards commercialization.

If PRF-110 fails in clinical trials or does not gain regulatory clearance or approval, or if it does not achieve market acceptance, we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows. Moreover, our prospects must be considered in light of the risks and uncertainties encountered by a development-stage company in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval and market acceptance are uncertain. There can be no assurance that our efforts will ultimately be successful or result in revenues or profits.

Our limited operating history may make it difficult for you to assess our future viability. We have never generated revenues and may never be profitable.

We are an early clinical stage company. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our lead product candidate, PRF-110, identifying potential product candidates, conducting preclinical studies of our product candidates and conducting clinical trials. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain marketing approvals, manufacture commercial-scale drug products or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful drug commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We may need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

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As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any particular quarterly or annual periods as indications of future operating performance.

We will need substantial additional funding, which may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce and/or eliminate our research and drug development programs or future commercialization efforts.

Developing drug products, including conducting clinical trials, is a time-consuming, expensive and uncertain process. We expect our expenses to increase in connection with our ongoing activities, particularly as we conduct clinical trials of, and seek marketing approval for, PRF-110. In addition, if we obtain marketing approval for PRF-110, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time. Furthermore, commencing upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce and/or eliminate our research.

We plan to use the net proceeds from this offering to fund our ongoing clinical trials of PRF-110 and additional research and clinical development activity related to PRF-110 and other programs and for working capital and other general corporate purposes, which may include additional research, hiring additional personnel, capital expenditures and the costs of operating as a public company. We will be required to expend significant funds in order to advance the development of PRF-110, as well as any other product candidates. In any event, the net proceeds from this offering and our existing cash and cash equivalents may not be sufficient to fund the completion of development of PRF-110. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. We do not have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of the prospectus, including the completion of our two planned Phase 3 clinical studies for PRF-110. Our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including:

•        the scope, progress, results and costs of our current and future clinical trials of PRF-110 for our current targeted uses;

•        the costs, timing and outcome of regulatory review of PRF-110;

•        the extent to which we acquire or invest in businesses, products and technologies, including entering into or maintaining licensing or collaboration arrangements for PRF-110 on favorable terms, although we currently have no commitments or agreements to complete any such transactions;

•        the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator that we may have at such time;

•        the amount of revenue, if any, received from commercial sales of PRF-110, should it receive marketing approval;

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•        the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims;

•        our headcount growth and associated costs as we expand our business operations and our research and development activities; and

•        the costs of operating as a public company.

We may not receive any funds from the exercise of Warrants and additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize PRF-110 or any future products.

Raising additional capital may cause dilution to our shareholders, including purchasers of our Ordinary shares in this offering, restrict our operations or require us to relinquish rights to our product candidates.

We expect our expenses to increase in connection with our planned operations. Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a shareholder. In addition, debt financing, if available, would result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce and/or eliminate our product candidate development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Ordinary shares less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not applicable to emerging growth companies. For as long as we remain an emerging growth company we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include:

•        being permitted to provide only two years of audited financial statements, in addition to any required unaudited condensed interim financial statements, with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure;

•        not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

•        not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; and

•        reduced disclosure obligations regarding executive compensation.

12

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of: (1) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (3) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these reduced burdens, and therefore the information that we provide holders of our Ordinary shares may be different than the information you might receive from other public companies in which you hold equity. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies.

When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our Ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our Ordinary shares less attractive as a result, there may be a less active trading market for our Ordinary shares and our share price may be more volatile.

We will incur increased costs as a result of operating as a public company listed on a U.S. national securities exchange and our management will be required to devote substantial time to new compliance initiatives.

Historically, we have operated as a private company. As a public company listed on a U.S. national securities exchange, particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules implemented by the U.S. Securities and Exchange Commission, or the SEC, and the Nasdaq Capital Market, impose various requirements on public companies, including requirements to file annual reports with respect to our business and financial condition and operations and establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel have limited experience operating as a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective internal controls over financial reporting, or ICFR, and disclosure controls and procedures, or DCP, necessary to ensure timely and accurate reporting of operational and financial results. Our existing management team will need to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will be required to furnish a report by our management on our ICFR, which, after we are no longer an emerging growth company, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some public company required activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue generating activities to compliance activities. If our efforts to comply with new

13

laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being listed on a U.S. national securities exchange and complying with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantially higher costs to obtain and maintain the same or similar coverage that is currently in place. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors.

Risks Related to the Discovery, Development and Commercialization of Our Initial Product Candidate

We are dependent on the success of our initial product candidate, PRF-110, for which two clinical trials are planned. Our clinical trials of PRF-110 may not be successful. If we are unable to obtain approval for and commercialize PRF-110 or experience significant delays in doing so, our business will be materially harmed.

Our future success is substantially dependent on our ability to timely obtain marketing approval for, and then successfully commercialize, PRF-110, our lead product candidate. We are investing all of our efforts and financial resources in the research and development of PRF-110. Our business currently depends entirely on the successful development and commercialization of PRF-110. We currently have no drugs approved for sale and generate no revenues from sales of any products, and we may never be able to develop a marketable product.

PRF-110 will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, marketing approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote PRF-110 before we receive marketing approval from the FDA and comparable foreign regulatory authorities, and we may never receive such marketing approvals.

The success of PRF-110 will depend on several factors, including the following:

•        successful and timely completion of our ongoing clinical trials of PRF-110;

•        initiation and successful patient enrollment and completion of additional clinical trials on a timely basis;

•        our ability to demonstrate PRF-110’s safety, tolerability and efficacy to the FDA or any comparable foreign regulatory authority for marketing approval;

•        timely receipt of marketing approvals for PRF-110;

•        maintaining patent protection, trade secret protection and regulatory exclusivity, both in the U.S. and internationally;

•        successfully defending and enforcing our rights in our intellectual property portfolio;

•        avoiding and successfully defending against any claims that we have infringed, misappropriated or otherwise violated any intellectual property of any third party;

•        the performance of our future collaborators, if any;

•        the extent of, and our ability to timely complete, any required post-marketing approval commitments imposed by FDA or other applicable regulatory authorities;

•        establishment of supply arrangements with third-party raw materials and drug product suppliers and manufacturers who are able to manufacture clinical trial and commercial quantities of PRF-110 and to develop, validate and maintain a commercially viable manufacturing process that is compliant with current Good Manufacturing Practices, or cGMP, at a scale sufficient to meet anticipated demand and over time enable us to reduce our cost of manufacturing;

•        establishment of scaled production arrangements with third-party manufacturers to obtain finished products that are compliant with cGMP and appropriately packaged for sale;

•        successful launch of commercial sales following any marketing approval;

14

•        a continued acceptable safety profile following any marketing approval;

•        commercial acceptance by patients, the medical community and third-party payors;

•        the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

•        the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and

•        our ability to compete with other post-operative pain (“POP”) treatments.

We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of PRF-110. If we are not successful in commercializing PRF-110, or are significantly delayed in doing so, our business will be materially harmed.

The spread of the coronavirus may adversely affect our development efforts including the planned clinical trials for PRF-110.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and as of May 2020, has spread to over 212 countries and territories, including the United States and Israel. The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a disease. Many countries around the world, including Israel and the United States, have imposed quarantines and restrictions on travel, mass gatherings, closing of non-essential businesses and shelter-in-place orders to slow the spread of the virus. While the spread of COVID-19 has not yet directly impacted our operations, COVID-19 may result in the inability of our outside scientific collaborators, suppliers, consultants, advisors and other third parties to work with us on a timely basis and will likely impact the timing of the initiation of our planned clinical studies and the enrollment of patients. The extent to which COVID-19 impacts our development efforts will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Risks Related to Our Drug Development and Business

We have not yet commercialized any products or technologies, and we may never become profitable.

We have not yet commercialized any products or technologies, and we may never be able to do so. We do not know when or if we will complete any of our product development efforts, obtain regulatory approval for any product candidates incorporating our technologies or successfully commercialize any approved products. Even if we are successful in developing products that are approved for marketing, we will not be successful unless these products gain market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products will depend on a number of factors, including:

•        the timing of regulatory approvals in the countries, and for the uses, we seek;

•        the competitive environment;

•        the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products;

•        our ability to enter into strategic agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities;

•        the adequacy and success of distribution, sales and marketing efforts; and

•        the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.

15

Physicians, patients, third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover any of our products or products incorporating our technologies. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all. Even if we successfully develop one or more products that incorporate our technologies, we may not become profitable.

The loss of the services of our key personnel would negatively affect our business.

To successfully develop our drug candidates, we must be able to attract and retain highly skilled personnel, including consultants and employees. The retention of their services cannot be guaranteed. Our failure to retain and/or recruit such professionals might impair our performance and materially affect our technological and product development capabilities and our product marketing ability. Our future success depends to a large extent on the continued services of our senior management and key personnel, including, in particular, Dr. David Weinstein, Prof. Eli Hazum and Dr. Sigal Aviel. Any loss of the services of members of our senior management or other key personnel, and especially those of Dr. David Weinstein, Prof. Eli Hazum and Dr. Sigal Aviel would adversely affect our business. We do not currently maintain key-person insurance on the lives of any of our key personnel.

We may be unable to attract, develop and retain additional employees required for our development and future success.

Our success is largely dependent on the performance of our management team and certain key employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The inability to attract suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all.

If we are unable to successfully complete our clinical trial programs for PRF-110, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.

Whether or not and how quickly we complete clinical trials depends in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate at which we are able to collect, clean, lock and analyze the clinical trial database. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical trials on a cost-effective or timely basis.

We have limited experience in conducting and managing clinical trials necessary to obtain regulatory approvals. If our drug candidates and technologies do not receive the necessary regulatory approvals, we will be unable to commercialize our products.

We have not received, and may never receive, regulatory approval for commercial sale for PRF-110. We currently do not have any drug candidates pending approval with the Food and Drug Administration, or FDA or with regulatory authorities of other countries. In order to obtain FDA approval to market a new drug product, we or our potential partners must demonstrate proof of efficacy in humans. To meet these requirements, we and/or our potential partners will have to conduct “adequate and well-controlled” clinical trials.

Clinical development is a long, expensive and uncertain process. Clinical trials are very difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty of the product and requires the expenditure of substantial resources. The commencement and rate of completion of clinical trials may be delayed by many factors, including:

•        obtaining regulatory approvals to commence a clinical trial;

•        reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

16

•        slower than expected rates of patient recruitment due to narrow screening requirements and competing clinical studies;

•        the inability of patients to meet protocol requirements imposed by the FDA or other regulatory authorities;

•        the need or desire to modify our manufacturing process;

•        delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and

•        governmental or regulatory delays or “clinical holds” requiring suspension or termination of the trials.

Following the completion of a clinical trial, regulators may not interpret data obtained from clinical tests of our drug candidate the same way that we do, which could delay, limit or prevent our receipt of regulatory approval. In addition, the designs of any clinical trials may not be reviewed or approved by the FDA prior to their commencement, and consequently the FDA could determine that the parameters of any studies are insufficient to demonstrate efficacy in humans. Failure to approve a completed study could also result from several other factors, including unforeseen safety issues, the determination of dosing, low rates of patient recruitment, the inability to monitor patients adequately during or after treatment, the inability or unwillingness of medical investigators to follow our clinical protocols, and the lack of effectiveness of the trials.

If the clinical trials fail to satisfy the criteria required, the FDA and/or other regulatory agencies/authorities may request additional information, including additional clinical data, before approval of marketing a product. Negative or inconclusive results or medical events during a clinical trial could also cause us to delay or terminate our development efforts. If we experience delays in the testing or approval process, or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug candidates and technologies may be materially impaired.

Clinical trials have a high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after achieving promising results in earlier trials. It may take us many years to complete the testing of our drug candidates and technologies, and failure can occur at any stage of this process.

Even if regulatory approval is obtained, our products and their manufacture will be subject to continual review, and there can be no assurance that such approval will not be subsequently withdrawn or restricted. Changes in applicable legislation or regulatory policies, or discovery of problems with the products or their manufacture, may result in the imposition of regulatory restrictions, including withdrawal of the product from the market, or result in increased costs to us.

If third parties on which we will have to rely for clinical trials do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our products.

We will have to depend on independent clinical investigators, and other third-party service providers to conduct the clinical trials of our drug candidates and technologies. We also may, from time to time, engage a clinical research organization for the execution of our clinical trials. We will rely heavily on these parties for successful execution of our clinical trials, but we will not control many aspects of their activities. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with the general investigational plan and protocol. Our reliance on these third parties that we do not control does not relieve us of our responsibility to comply with the regulations and standards of the FDA and/or other foreign regulatory agencies/authorities relating to good clinical practices. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the applicable trial’s plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our products, or could result in enforcement action against us.

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If we do not establish or maintain drug development and marketing arrangements with third parties, we may be unable to commercialize our drug candidates and technologies into products.

We do not possess all of the capabilities to fully commercialize our drug candidates and technologies on our own. From time to time, we may need to contract with third parties to:

•        assist us in developing, testing and obtaining regulatory approval;

•        manufacture our drug candidates; and

•        market and distribute our products.

We can provide no assurance that we will be able to successfully enter into agreements with such third-parties on terms that are acceptable to us. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our drug candidates independently, which could result in delays. Moreover, if these development or marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of our products. Accordingly, to the extent that we rely on third parties to research, develop or commercialize our products, we may be unable to control whether such products will be scientifically or commercially successful.

Even if we or our collaborative/strategic partners or potential collaborative/strategic partners receive approval to market our drug candidates, if our products fail to achieve market acceptance, we will never record meaningful revenues.

Even if PRF-110 is approved for sale, it may not be commercially successful in the marketplace. Market acceptance of our product candidates will depend on a number of factors, including:

•        perceptions by members of the health care community, including physicians, of the safety and efficacy of our product;

•        the potential advantages that our product offers over existing treatment methods or other products that may be developed;

•        the cost-effectiveness of our product relative to competing products;

•        the availability of government or third-party pay or reimbursement for our products; and

•        the effectiveness of our and/or our partners’ sales, marketing and distribution efforts.

PRF-110, if successfully developed and commercially launched, will compete with both currently marketed and new products marketed by other companies. Health care providers may not accept or utilize our product candidates unless our products bring clear and demonstrable advantages over other products currently marketed for the same indication. Because we expect sales of PRF-110 will generate substantially all of our revenues for the foreseeable future, the failure of PRF-110 to find market acceptance would harm our business and future prospects.

If the third parties upon whom we rely to manufacture our products do not successfully manufacture our products, our business will be harmed.

We do not currently have the ability to manufacture the compounds that we need to conduct our clinical trials and, therefore, rely upon, and intend to continue to rely upon, certain manufacturers to produce and supply our drug candidates for use in clinical trials and for future sales. In order to commercialize our products, such products will need to be manufactured in commercial quantities while adhering to all regulatory and other local requirements, all at an acceptable cost. We may not be able to enter into future third-party contract manufacturing agreements on acceptable terms, if at all.

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If our contract manufacturers or other third parties fail to deliver PRF-110 for clinical use on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacement manufacturers or sources, we may be required to delay or suspend clinical trials or otherwise discontinue development and production of PRF-110.

Our contract manufacturers will be required to produce our clinical drug candidates under strict compliance with cGMP in order to meet acceptable regulatory standards for our clinical trials. If such standards change, the ability of contract manufacturers to produce our drug candidates on the schedule we require for our clinical trials may be affected. In addition, contract manufacturers may not perform their obligations under their agreements with us or may discontinue their business before the time required by us to successfully produce and market our drug candidates. Any difficulties or delays in our contractors’ manufacturing and supply of drug candidates could increase our costs, cause us to lose revenue or make us postpone or cancel clinical trials.

In addition, our contract manufacturers will be subject to ongoing periodic, unannounced inspections by the FDA and corresponding foreign or local governmental agencies to ensure strict compliance with, among other things, cGMP, in addition to other governmental regulations and corresponding foreign standards. We will not have control over, other than by contract, third-party manufacturers’ compliance with these regulations and standards. No assurance can be given that our third-party manufacturers will comply with these regulations or other regulatory requirements now or in the future.

In the event that we are unable to obtain or retain third-party manufacturers, we will not be able to commercialize our products as planned. If third-party manufacturers fail to deliver the required quantities of our products on a timely basis and at commercially reasonable prices, our ability to develop and deliver products on a timely and competitive basis may be adversely impacted and our business, financial condition or results of operations will be materially harmed.

If our competitors develop and market products that are less expensive or more effective than our product, our revenues and results may be harmed and our commercial opportunities may be reduced or eliminated.

The pharmaceutical industry is highly competitive. Our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer than our product. Some of these potential competing drugs are already commercialized or are further advanced in development than PRF-110. Even if we are successful in our developmental efforts, PRF-110 may not compete successfully with products produced by our competitors, who may be able to market their drugs more effectively.

Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop products that could render our technologies or our drug candidates obsolete or noncompetitive. Development of new drugs, medical technologies and competitive medical devices may damage the demand for our products without any certainty that we will successfully and effectively contend with those competitors.

Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future will be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our product candidates following approval.

Any of our product candidates for which we, or our future collaborators, obtain marketing approval in the future, will be subject to continual review by the FDA or comparable foreign regulatory authorities. For example in the U.S., the FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of drugs to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state healthcare fraud and abuse laws and state consumer protection laws.

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In addition, later discovery of previously unknown adverse events or other problems with our product candidates or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

•        litigation involving patients taking our drug;

•        restrictions on such drugs, manufacturers or manufacturing processes;

•        restrictions on the labeling or marketing of a drug;

•        restrictions on drug distribution or use;

•        requirements to conduct post-marketing studies or clinical trials;

•        warning letters or untitled letters;

•        withdrawal of the drugs from the market;

•        refusal to approve pending applications or supplements to approved applications that we submit;

•        recall of drugs;

•        fines, restitution or disgorgement of profits or revenues;

•        suspension or withdrawal of marketing approvals;

•        damage to relationships with any potential collaborators;

•        restrictions on coverage by third-party payors;

•        unfavorable press coverage and damage to our reputation;

•        refusal to permit the import or export of drugs;

•        drug seizure; or

•        injunctions or the imposition of civil or criminal penalties.

Recently enacted and future legislation, and a change in existing government regulations and policies, may increase the difficulty and cost for us and our future collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.

In the U.S. and some foreign jurisdictions, there have been and continue to be a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of our future collaborators, to profitably sell any drugs for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we, or our future collaborators, may receive for any approved drugs.

In the U.S., the Congress and recent presidential administrations have enacted or are considering a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell PRF-110, if approved, and to do so profitably. Among policy makers and payors in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access.

In the U.S., the pharmaceutical industry has been a particular focus of efforts to reform the healthcare system and has been significantly affected by major legislative initiatives, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “PPACA”), which contains provisions that may potentially affect the profitability of PRF-110, including, for example, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of

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sales to federal health care programs, and expansion of the entities eligible for discounts under the Public Health Services pharmaceutical pricing program. There have been judicial and Congressional challenges to the PPACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the PPACA that contribute to regulatory uncertainty that could affect the profitability of our products. Since January 2017, President Trump has signed several Executive Orders and other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements mandated by the PPACA. In December 2018, a federal district court in Texas ruled the individual mandate was unconstitutional and could not be severed from the PPACA. As a result, the court ruled the remaining provisions of the PPACA were also invalid, though the court declined to issue a preliminary injunction with respect to the PPACA. In April 2019, in a brief filed in the Fifth Circuit Court of Appeals, the Trump Administration took the position that the individual mandate was unconstitutional, that it could not be severed from the PPACA, and, as a result, the PPACA must be invalidated in its entirety. The case is pending before the Fifth Circuit, and it remains unclear whether, and to what extent, the PPACA may be affected by the Fifth Circuit’s and possibly other courts’ rulings.

While Congress has not enacted legislation to comprehensively repeal the PPACA, at least two bills affecting the implementation of the PPACA have been signed into law, including the repeal, effective January 1, 2019, of the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the PPACA, including the so-called “Cadillac” tax on certain high-cost employer-sponsored health insurance plans and the annual fee imposed on certain health insurance providers. Moreover, effective January 1, 2019, the Bipartisan Budget Act of 2018, among other things, further amends portions of the Social Security Act implemented as part of the PPACA to increase from 50% to 70% the point-of-sale discount that pharmaceutical manufacturers participating in the Coverage Gap Discount Program provide to eligible Medicare Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,” and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D plans. In the future, there may be additional challenges and/or amendments to the PPACA. It remains to be seen precisely what any new legislation will provide, when or if it will be enacted, and what impact it will have on the availability and cost of healthcare items and services, including drug products.

Other legislative changes have been proposed and adopted since PPACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions in Medicare payments to providers of up to 2% per fiscal year that started in April 2013 and, due to subsequent statutory amendments, will continue through 2027 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, which, among other changes, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These legislative changes may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

More recently, the cost of prescription pharmaceuticals has been the subject of considerable discussion in the U.S. Congress has begun developing legislation and the Trump Administration has proposed and begun implementing regulatory reforms to further increase transparency around prices and price increases, lower out-of-pocket costs for consumers, and decrease spending on prescription drugs by government programs. Congress has conducted or is in the process of conducting inquiries into the prescription drug industry’s pricing practices. The Trump Administration’s budget proposal for fiscal year 2019 contained additional drug price control measures that could be enacted in future legislation, including, for example, measures to end Medicare Part B coverage of medications and to shift those medication costs to Medicare Part D, to allow some states to negotiate prescription drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. While several proposed reform measures will require Congress to pass legislation to become effective, Congress and the Trump Administration have each indicated that it will continue to seek new legislative and/or regulatory measures to address prescription drug costs. At the state level, legislatures are increasingly passing legislation and states are implementing regulations designed to control spending on, and patient out-of-pocket costs for, drug products. Implementation of cost containment measures or other healthcare reforms that affect the pricing and/or availability of drug products may impact our ability to generate revenue, attain or maintain profitability, or commercialize products for which we may receive regulatory approval in the future.

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We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and/or new payment methodologies, and place additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels and imposition of more rigorous coverage criteria or new payment methodologies may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any coverage or reimbursement policies instituted by Medicare or other federal health care programs may result in similar policies from private payors. The implementation of cost containment measures or other healthcare reforms may affect our ability to generate revenue, attain or maintain profitability, or commercialize our product candidates. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the U.S. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to that of other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.

Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for drug 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 product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and any future collaborators to more stringent drug labeling and post-marketing testing and other requirements.

Changes in funding for the FDA could hinder FDA’s ability to hire and retain key leadership and other personnel, or otherwise prevent new products from being developed or commercialized in a timely manner.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S government has shut down several times, and the FDA has had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Our business and operations would suffer in the event of IT system failures, cybersecurity attacks, data breaches, or vulnerabilities in our or our third-party vendors’ information security program or defenses.

Our business relies upon information technology systems operated by us and by our third party service providers. These systems may fail or experience operational disruption, experience cybersecurity attacks, or be damaged by computer viruses and unauthorized access. In the ordinary course of business, we collect, store and transmit confidential information (including but not limited to intellectual property, proprietary business information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. While we are currently in the process of developing and implementing policies and procedures to ensure the security and integrity of our information technology systems and confidential and proprietary information, we do not currently have any such policies and procedures formally in place. If we fail to develop and maintain adequate policies and procedures for the protection of our information technology systems and confidential and proprietary information, we may be vulnerable to security breaches or disruptions and system breakdowns or other damage or interruptions.

We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to or store our confidential information. We do not conduct audits or formal evaluations of our third-party vendors’ information technology systems and

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cannot be sure that our third-party vendors have sufficient measures in place to ensure the security and integrity of their information technology systems and our confidential and proprietary information. If our third-party vendors fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage and the further development and commercialization of our product candidates could be delayed. While we have not, to our knowledge, experienced any material IT system failures or cybersecurity attacks to date, we cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or those of our third-party vendors and other contractors and consultants, or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs, business operations, a breach of sensitive personal information or a loss or corruption of critical data assets including trade secrets or other proprietary information. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such IT system failures, cybersecurity attacks or vulnerabilities to our or our third-party vendors’ information security programs or defenses could result in legal liability, reputational damage, business interruption, and our competitive position could be harmed and the further development and commercialization of our products or any future products could be delayed or disrupted. Moreover, containing and remediating any IT system failure, cybersecurity attack or vulnerability may require significant investment of resources. Furthermore, significant security breaches or disruptions of our internal information technology systems or those of our third-party vendors and other contractors and consultants could result in the loss, misappropriation and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information and personal information), which could result in financial, legal, business and reputational harm to us.

We face product liability risks and may not be able to obtain adequate insurance.

The use of our drug candidates in clinical trials, and the sale of any approved products, exposes us to liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to cease clinical trials of our drug candidates and technologies or limit commercialization of any approved products.

We believe that we will be able to obtain sufficient product liability insurance coverage for our planned clinical trials. We intend to expand our insurance coverage to include the commercial sale of any approved products if marketing approval is obtained; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:

•        decreased demand for a product;

•        damage to our reputation;

•        withdrawal of clinical trial volunteers; and

•        loss of revenues.

Consequently, a product liability claim or product recall may result in material losses.

Significant interruptions in our access to certain key inputs such as raw materials and drug products may impair our business.

Our business is dependent on a number of key inputs and their related costs, including raw materials, drug products supplied by third parties and production facilities for our drug products. Any significant interruption, price increase or negative change in the availability of the supply chain for our key inputs could curtail or preclude our ability to produce our product candidate. Our ability to compete is dependent on us having access, at a reasonable cost and in a timely manner, to key raw materials and drug products, skilled consultants and production facilities.

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No assurance can be given that we will be successful in maintaining our required supply of raw materials, and drug products or that we will be able to continue to attract skilled consultants with respect to our development efforts.

We may not be able to successfully identify and execute strategic alliances or other relationships with third parties or to successfully manage the impacts of acquisitions, dispositions or relationships on our operations.

We currently have, and may expand the scope of, and may in the future enter into, strategic alliances with third parties that we believe will complement or augment our existing business. Our ability to complete further such strategic alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance our business and may involve risks that could adversely affect us, including the investment of significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that our existing strategic alliances will continue to achieve, the expected benefits to our business or that we will be able to consummate future strategic alliances on satisfactory terms, or at all.

Although we do not currently plan to engage in other material strategic transactions, such as acquisitions, we may from time to time consider such transactions. Material strategic transactions involve a number of risks, including:

•        the potential disruption of our ongoing business;

•        the distraction of management away from the ongoing oversight of our existing business activities;

•        incurring additional indebtedness;

•        the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated;

•        an increase in the scope and complexity of our operations; and

•        the loss or reduction of control over certain of our assets.

A strategic transaction may result in a significant change in the nature of our business, operations and strategy, and we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our operations.

Risks Related to Our Intellectual Property

We are subject to risks relating to intellectual property rights and risks of infringement.

We are dependent upon our proprietary technology and we rely primarily on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. To protect our technologies, documentation and other written materials, we primarily rely on trade secret and copyright laws, which afford only limited protection. It is possible that others will develop technologies that are similar or superior to our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. It is difficult to police the unauthorized use of products in our field, and we expect piracy to be a persistent problem, although we are unable to determine the extent to which piracy of our products exists. In addition, the laws of certain countries do not protect our proprietary rights as fully as do the laws of the U.S. and Israel. We cannot be certain that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.

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We are not aware that we have infringed any proprietary rights of third parties. It is possible, however, that third parties will claim that we have infringed upon their intellectual property rights. It would be time consuming for us to defend any such claims, with or without merit, and any such claims could:

•        result in costly litigation;

•        divert management’s attention and resources;

•        cause product shipment delays; and

•        require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all.

If there is a successful claim of infringement against us and we are not able to license the infringed or similar technology or other intellectual property, our business, operating results and financial condition would be materially adversely affected. In addition, we could be subject to damages, injunction from use, sale or licensing of our product, as well as attorneys’ fees.

If we are unable to maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected.

As with our competitors, our ability to maintain and solidify a proprietary position for our product candidates will depend upon our success in obtaining effective patent claims that cover such product candidates, their manufacturing processes and their intended methods of use, and enforcing those claims once granted. Furthermore, in some cases, we may not be able to obtain issued claims covering our product candidates which are sufficient to prevent third parties, such as our competitors, from either utilizing our technology or designing around any patent claims to avoid infringing them. Any failure to obtain or maintain patent protection with respect to our product candidates could have a material adverse effect on our business, financial condition, and results of operations.

Changes in either the patent laws or their interpretation in the U.S. and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our issued patents. Additionally, we cannot predict whether the patent applications we or our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to file for or obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. If any licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised or even lost entirely. If there are material defects in the form, preparation or prosecution of our patents or patent applications, such patents or applications may be subject to challenges based on invalidity and/or unenforceability. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

Patents also have a limited lifespan. In the U.S., subject to certain extensions that may be obtained in some cases, the natural expiration of a utility patent is generally 20 years from its earliest effective filing date, and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our products and services, we may be open to competition. Further, if we encounter delays in our development efforts, the period of time during which we could market our products and services under patent protection would be reduced.

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Obtaining and maintaining our patent protection depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due to be paid to the U.S. Patent and Trademark Office (the “USPTO”) and various government patent agencies outside of the U.S. over the lifetime of our and our licensors’ patents and applications. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process and after patent issuance. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market in that jurisdiction with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, and results of operations.

If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to competitors and be unable to operate our business profitably.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, can be expensive or difficult to enforce, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

•        others may be able to make products that are similar to our product candidates or utilize similar science or technology but that are not covered by the claims of the patents that we may own or license from our licensors or that incorporate certain research in our product candidates that is in the public domain;

•        we might not have been the first to file patent applications covering our inventions;

•        others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

•        issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

•        our competitors or other third parties might conduct research and development activities in countries where do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

•        the patents of others may harm our business if, for example, we are found to have infringed those patents or if those patents serve as prior art to our patents which could potentially invalidate our patents; and

•        we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, which could ultimately result in public disclosure of the intellectual property if the third party’s patent application is published or issues to a patent.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, and results of operations.

Our reliance on third parties requires us to share our trade secrets and other intellectual property, which increases the possibility that a competitor will discover them or that our trade secrets and other intellectual property will be misappropriated or disclosed.

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, trade secrets and intellectual property by maintaining the physical security of our premises and physical and electronic security of our information technology systems.

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Despite our efforts to protect our trade secrets, our competitors or other third parties may discover our trade secrets, either through breach of confidentiality agreements, independent development or publication of information including our trade secrets by third parties. A competitor’s or other third party’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business, financial condition, results of operations and prospects.

Further, although we expect all of our employees and consultants and other third parties who may be involved in the development of intellectual property for us to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that we have entered into such agreements with all applicable third parties or that all such agreements have been duly executed. Even if we have entered into such agreements, we cannot assure you that our counterparties will comply with the terms of such agreements or that the assignment of intellectual property rights under such agreements is self-executing. We may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

There is a great deal of litigation concerning intellectual property in our industry, and we or our licensors could become involved in litigation. Even if resolved in our or our licensors’ favor, litigation or other legal proceedings relating to intellectual property claims may cause us or our licensors to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our securities. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct or defend against such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations and ability to compete in the marketplace.

Risks Relating to Operations in Israel

Conditions in the Middle East and in Israel may harm our operations.

Our executive office, research and development facilities, as well as some of our planned clinical sites are or will be located in Israel. Most of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas and Hezbollah militant groups. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. In recent years, the hostilities involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel.

Our offices, located in Herzliya, Israel, are within the range of the missiles and rockets that have been fired sporadically at Israeli cities and towns from Gaza and South Lebanon since 2006, with escalations in violence during which there were a substantially larger number of rocket and missile attacks aimed at Israel. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Since September 2015, there has been an increase in terrorist attacks on Israeli civilians including shootings, stabbings and car rammings which has impacted the general feeling of personal safety in the country. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business

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conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.

As a company incorporated under the laws of the State of Israel, we are subject to Israeli corporate law which requires approval by the Israeli Registrar of Companies (the “Registrar”) for merger transactions, imposes specific thresholders and criteria for tender offer acquisitions of shares, requires special approvals for transactions involving directors, officers or significant shareholders, and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Registrar and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

It may be difficult to enforce a U.S. judgment against us, our officers or our directors or to assert U.S. securities law claims in Israel.

Service of process upon us, since we are incorporated in Israel, and upon our directors and officers, who reside outside the U.S., may be difficult to obtain within the U.S. In addition, because substantially all of our assets and most of our directors and officers are located outside the U.S., any judgment obtained in the U.S. against us or any of our directors and officers may not be collectible within the U.S. There is a doubt as to the enforceability of

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civil liabilities under the Securities Act or the Exchange Act pursuant to original actions instituted in Israel. Subject to particular time limitations and provided certain conditions are met, executory judgments of a U.S. court for monetary damages in civil matters may be enforced by an Israeli court.

As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and the Nasdaq Capital Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

We are a “foreign private issuer” and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the Securities and Exchange Commission, or the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under regulations promulgated under the Companies Law, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most highly compensated officer holders on an individual basis (rather than on an aggregate basis), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions and short-swing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies.

In addition, as a “foreign private issuer,” we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the listing rules of the Nasdaq Capital Market for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to, among other things, board of directors independence requirements, director nomination procedures, compensation committee matters. In addition, we will follow our home country law instead of the listing rules of the Nasdaq Capital Market that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involving issuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market may provide less protection to you than what is accorded to investors under the listing rules of the Nasdaq Capital Market applicable to domestic U.S. issuers.

We would lose our foreign private issuer status if a majority of our shares are owned by U.S. residents and a majority of our directors or executive officers are U.S. citizens or residents or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher.

Under applicable U.S. and Israeli law, 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. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.

We generally enter into non-competition agreements with our employees and key consultants. These agreements prohibit our employees and 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

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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.

In addition, Chapter 8 of the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law, sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. As a result, it is unclear if, and to what extent, our research and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims are successful, which in turn could impact our future profitability.

Your rights and responsibilities as a shareholder will be governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies.

We are incorporated under Israeli law. The rights and responsibilities of the holders of our Ordinary shares are governed by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary shares that are not typically imposed on shareholders of U.S. corporations.

Risks Relating to Our International Operations

Our international clinical trials may be delayed or otherwise adversely impacted by social, political and economic factors affecting the particular foreign country.

We may conduct clinical trials in different geographical locations. Our ability to successfully initiate, enroll and complete a clinical trial in any of these countries, or in any future foreign country in which we may initiate a clinical trial, are subject to numerous risks unique to conducting business in foreign countries, including:

•        difficulty in establishing or managing relationships with clinical research organizations and physicians;

•        different standards for the conduct of clinical trials and/or health care reimbursement;

•        our inability to locate qualified local consultants, physicians, and partners;

•        the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; and

•        general geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations.

Any disruption to our planned international clinical trial program could significantly delay our product development efforts.

We are subject to anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act. Violations of such laws could result in criminal prosecution and substantial penalties.

The U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making, offering or authorizing improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. We do business and may do additional

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business in the future in countries or regions where strict compliance with anti-bribery laws may conflict with local customs and practices. Violations of anti-bribery laws (either due to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S. and elsewhere. Even allegations of such violations could disrupt our business and result in a material adverse effect on our business and operations.

We are committed to doing business in accordance with applicable anti-corruption laws and our own internal policies and procedures. We also plan to implement policies and procedures concerning compliance with the FCPA that is disseminated to employees, directors, contractors and agents. Our policies and procedures and any future improvements, however, may prove to be less than effective, and our employees and consultants may engage in conduct for which we might be held responsible. Some foreign jurisdictions may require us to utilize local agents and/or establish joint ventures with local operators or strategic partners. Even though some of our agents and partners may not themselves be subject to the FCPA or other non-U.S. anti-bribery laws to which we may be subject, if our agents or partners make improper payments to non-U.S. government officials in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violation of such anti-bribery laws and could incur civil and criminal penalties and other sanctions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.

We are exposed to risks relating to the laws of various countries as a result of our international operations.

We are exposed to various levels of political, economic, legal and other risks and uncertainties associated with operating in or exporting to other jurisdictions. These risks and uncertainties include, but are not limited to, changes in the laws, regulations and policies, political instability, currency controls, fluctuations in currency exchange rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing political conditions and governmental regulations relating to foreign investment.

Changes, if any, in the laws, regulations and policies around the world may adversely affect the operations or profitability of our international operations. Specifically, our operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, export controls, controls on currency remittance, increased income taxes, restrictions on foreign investment, and government policies rewarding contracts to local competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Failure to comply strictly with applicable laws, regulations and local practices could result in additional taxes, costs, civil or criminal fines or penalties or other expenses being levied on our international operations, as well as other potential adverse consequences such as the loss of necessary permits or governmental approvals.

Risks Relating to Ownership of Our Ordinary Shares and the Offering

There has been no prior public market for our Ordinary shares and an active, liquid and orderly trading market for our Ordinary shares may not develop or be maintained in the United States, which could limit your ability to sell our Ordinary shares.

There has been no public market for our Ordinary shares. Although we have been approved to list our Ordinary shares on the Nasdaq Capital Market, an active U.S. public market for our Ordinary shares and Warrants may not develop or be sustained after this offering. If an active market does not develop, the value of our Ordinary shares may be impaired and you may experience difficulty selling the Ordinary shares that you purchase in this offering.

Speculative nature of warrants.

The Warrants offered in this offering do not confer any rights of Ordinary share ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Ordinary shares and pay an exercise price of $8.80 per share, prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. Moreover, following this offering, there will be no active market for the Warrants There can be no assurance that the market price of the Ordinary shares will ever equal or exceed the exercise price of the Warrants, and consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants.

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Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rule changes proposed and enacted by the SEC and the NASDAQ Stock Market as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than necessary, we have not yet adopted all of these measures. As of the date of this prospectus, we are not in compliance with requirements relating to the distribution of annual and interim reports, the holding of shareholders meetings and solicitation of proxies for such meeting and requirements for shareholder approval for certain corporate actions.

Regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our shareholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on our share price.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. In the event that we consummate this offering, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. During the course of our testing, we may identify deficiencies or material weaknesses which we may not be able to remediate immediately. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley. Failure to achieve and maintain an effective internal control environment could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our ordinary share price.

Because certain of our directors and executive officers are among our largest shareholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from investors.

As of August 31, 2020, certain of our directors and executive officers collectively and beneficially own 57.73% of our outstanding Ordinary shares. The interests of such persons may differ from the interests of our other shareholders. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including the following actions:

•        to elect or defeat the election of our directors;

•        amend or prevent amendment of our charter documents or by-laws;

•        effect or prevent a merger, sale of assets or other corporate transaction; and

•        to control the outcome of any other matter submitted to our shareholders for vote.

Such persons’ share ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our share price.

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Our management team will have immediate and broad discretion over the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds arising from this offering. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income, do not yield a favorable return to our investors or even lose value. The decisions made by our management may not result in positive returns on your investment and you will not have an opportunity to evaluate the economic, financial or other information upon which our management bases its decisions.

FINRA sales practice requirements may also limit your ability to buy and sell shares of our Ordinary shares, which could depress the price of such shares.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the 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 and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Ordinary shares, which may limit your ability to buy and sell shares of our Ordinary shares, have an adverse effect on the market for shares of our Ordinary shares, and thereby depress price of our Ordinary shares.

Even if our securities are listed on the Nasdaq Capital Market, there can be no assurance that our securities, including our Ordinary shares, will continue to be listed or, if listed, that we will be able to comply with the continued listing standards of the Nasdaq Capital Market, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

Assuming that we are able to successfully list our Ordinary shares on the Nasdaq Capital Market, we cannot assure you that we will be able to meet the Nasdaq Capital Market’s continued listing requirement or maintain other listing standards. If our Ordinary shares are delisted by the Nasdaq Capital Market, and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, then we could face significant material adverse consequences, including:

•        less liquid trading market for our securities;

•        more limited market quotations for our securities;

•        determination that our Ordinary shares and/or warrants are a “penny stock” that requires brokers to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities;

•        more limited research coverage by stock analysts;

•        loss of reputation; and

•        more difficult and more expensive equity financings in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If our Ordinary shares remain listed on the Nasdaq Capital Market, our Ordinary shares will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If our securities were no longer listed on the Nasdaq Capital Market and therefore not “covered securities,” we would be subject to regulation in each state in which we offer our securities.

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Future issuance of our Ordinary shares could dilute the interests of existing shareholders.

We may issue additional shares of our Ordinary shares in the future in connection with a financing or an acquisition. The issuance of a substantial number of shares of Ordinary shares could have the effect of substantially diluting the interests of our existing shareholders and any subsequent sales or resales by our shareholders could have an adverse effect on the market price of our Ordinary shares.

We do not intend to pay dividends for the foreseeable future, and our investors must rely on increases in the market prices of our Ordinary shares for returns on equity investment.

To date, we have not paid any cash dividends on our Ordinary shares. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and availability and our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not used to pay dividends. Accordingly, our investors must rely on increases in the market prices of our Ordinary shares for returns on equity investment.

U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.

Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. We believe that we were a PFIC for U.S. federal income tax purposes for our 2018 and 2019 taxable years and we expect to be a PFIC for our current taxable year. We must determine our PFIC status annually based on tests that are factual in nature. Our status in future years will depend on our income, assets and activities in those years. In any taxable year in which we are characterized as a PFIC for U.S. federal income tax purposes, a U.S. Holder, as defined under the heading “United States Federal Income Taxation,” that owns Ordinary shares could face adverse U.S. federal income tax consequences, including having gains realized on the sale of Ordinary shares classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on Ordinary shares by U.S. Holders who are individuals, and having interest charges apply to distributions by us and the proceeds of ordinary share sales. Certain elections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of the Ordinary shares. If we are a PFIC in any year, U.S. Holders may be subject to additional Internal Revenue Service, or IRS, filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. It is not expected that a U.S. Holder will be able to make a QEF election because we do not intend to provide U.S. Holders with the information necessary to make a QEF election. U.S. Holders are urged to consult their own tax advisors regarding the application of the PFIC rules. For more information, See “United States Federal Income Taxation.”

The market price of our Ordinary shares may be highly volatile, which could result in substantial losses for purchasers of our Ordinary shares in this offering.

The trading price of our Ordinary shares is likely to be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your Ordinary Shares at or above the initial public offering price. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our Ordinary shares:

•        changes or developments in laws or regulations governing our business;

•        announcements of regulatory approvals or the failure to obtain them, or specific label indications or patient populations for their use, or changes or delays in the regulatory review process;

•        unsatisfactory results of preclinical studies or clinical trials;

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•        adverse actions taken by regulatory agencies with respect to our manufacturing supply chain or sales and marketing activities;

•        announcements of innovations or new products by us or our competitors;

•        any intellectual property infringement, misappropriation or other actions in which we may become involved;

•        any adverse changes to our relationships with manufacturers or suppliers;

•        announcements concerning our competitors;

•        achievement of expected product sales and profitability or our failure to meet expectations;

•        our commencement of, or involvement in, litigation; and

•        any changes in our board of directors or management.

If our results fall below the expectations of investors or securities analysts, the price of our Ordinary shares could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our shares to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

Further, the stock market in general may experience extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of companies. Broad market and industry factors may negatively affect the market price of our Ordinary shares regardless of our actual operating performance. In addition, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly. Price volatility of our Ordinary shares might be worse if the trading volume of our Ordinary shares is low. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation often has been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business, financial condition, results of operations and prospects.

Moreover, the liquidity of our Ordinary shares will be limited, not only in terms of the number of Ordinary shares that can be bought and sold at a given price, but by potential delays in the timing of executing transactions in our Ordinary shares and a reduction in security analyst and media’s coverage of our company, if any. These factors may result in lower prices for our Ordinary shares than might otherwise be obtained and could also result in a larger spread between the bid and ask prices for our Ordinary shares. In addition, without a large float, our Ordinary shares will be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our Ordinary shares may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate its investment in our Ordinary shares. Trading of a relatively small volume of our Ordinary shares may have a greater impact on the trading price of our Ordinary shares than would be the case if our public float were larger. We cannot predict the prices at which our Ordinary shares will trade in the future.

The grant and future exercise of registration rights may adversely affect the market price of our Ordinary shares.

Pursuant to the investors’ rights agreement among the Company and certain investors, we are required to comply with a demand that the Company register their registrable securities. The registration of these securities will permit the public resale of such securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Ordinary shares.

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If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negatively impacted.

The trading market for our Ordinary shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our Ordinary shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our Ordinary shares or publish inaccurate or unfavorable research about our business, the price of our Ordinary shares would likely decline. In addition, if our operating results fail to meet the forecast of analysts, the price of our Ordinary shares 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 Ordinary shares could decrease, which might cause the price of our Ordinary shares and trading volume to decline.

36

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “project,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “intends,” or “continue,” or the negative of these terms or other comparable terminology.

These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans, and strategies; statements that contain projections of results of operations or of financial condition; statements relating to the research, development, and use of our products; and all statements (other than statements of historical facts) that address activities, events, or developments that we intend, expect, project, believe, or anticipate will or may occur in the future.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

Important factors that could cause actual results, developments, and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

•        the outcomes of preclinical studies, clinical trials and other research regarding PRF-110 and future product candidates;

•        the commercialization and pricing of our products;

•        our competitors’ development, marketing and sale of products that compete with our products; and

•        our expectations regarding future growth, including;

•        our ability to develop an active trading market for our Ordinary shares and whether the market price of our Ordinary shares is volatile; and

•        our expectations regarding the maintenance of our foreign private issuer status and emerging growth company status.

These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

37

USE OF PROCEEDS

We estimate that the net proceeds to us from our issuance and sale of 2,500,000 Units in this offering will be approximately $17,629,500, or $20,419,500 if the underwriters exercise in full their option to purchase 375,000 additional Units at an initial public offering price of $8.00 per Unit after deducting the underwriting discount and estimated offering expenses payable by us. Based on proposals we received from contract research organizations that gave us a range of costs for the hernia and bunion clinical trials, we estimate that the total cost of the two pivotal clinical trials will be approximately $14 million. We also intend to use approximately $1.5 million for development activities and preparation of initial NDAs, $1.04 million for the purchase of directors and officers’ liability insurance and the balance for general corporate purposes, including general and administrative expenses and working capital. Commencing upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. There can be no assurance that any of the Warrants issued in the offering will be exercised. Accordingly, we will need to obtain substantial additional funding. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce and/or eliminate our research.

Based on our current plans, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations for at least the next twelve months. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

These expected uses of net proceeds from this offering represent our intentions based upon our current plans and business conditions which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly and will depend upon numerous factors, including the progress of our clinical trials and research and development efforts. Accordingly, our management will have broad discretion in applying the net proceeds of this offering and investors will be relying on the judgment of our management regarding the application of those net proceeds.

Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.

38

DIVIDEND POLICY

We have never declared or paid any cash dividends to the holders of our Ordinary shares, and we do not anticipate or intend to pay cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors in compliance with applicable legal requirements and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.

The Companies Law imposes further restrictions on our ability to declare and pay dividends. See “Description of Share Capital — Dividend and Liquidation Rights” for additional information. Payment of dividends may be subject to Israeli withholding taxes. See “Material Tax Considerations — Certain Israeli Tax Considerations” for additional information.

39

CAPITALIZATION

The following table sets forth our cash and capitalization as of December 31, 2019 as follows:

•        on an actual basis;

•        on a pro forma basis to give effect to a three (3) share for one (1) share reverse share split and the effectiveness of our amended and restated Articles of Association immediately prior to the closing of this offering and to the conversion upon closing of this offering of: (i) all of our outstanding convertible preferred shares on a one (1) for one (1) basis into 2,954,267 of our ordinary shares; (ii) $3,929,000 of principal convertible debt and approximately $1,212,000 of accrued interest into 2,293,916 ordinary shares, (iii) $1,562,000 of convertible notes and approximately $20,000 of accrued interest into 282,423 ordinary shares; and (iv) exercise of derivative warrant liabilities into equity in the amount of $447,000; and excludes (a) 18,972 Ordinary shares issuable following the extension of an agreement with the holders of our 2019 convertible notes in August 2019; and (b) 152,110 Ordinary shares issued to a consultant as a payment for investor relations, PR services and consulting services; and

•        on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments described in the preceding clauses; and (ii) the issuance and sale by us of 2,500,000 Ordinary shares as part of the Units to be issued in this offering at an initial public offering price of $8.00 per Unit after deducting the underwriting discount and commissions and estimated offering expenses payable by us.

You should read the information in this table together with our financial statements and related notes included elsewhere in this Prospectus and the sections titled “Selected Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

As of December 31, 2019

   

Actual

 

Pro Forma

 

Pro Forma as Adjusted

   

(unaudited)

   

(in dollars, except share data)

Cash(1)(2)

 

$

941,000

 

 

$

941,000

 

 

$

18,571,000

 

Other assets

 

 

223,000

 

 

 

223,000

 

 

 

31,000

 

Total current liabilities

 

 

6,339,000

 

 

 

166,000

 

 

 

166,000

 

Total non-current liabilities

 

 

447,000

 

 

 

 

 

 

 

 

Shareholders’ equity (deficit)(1, 2):

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred shares, par value NIS 0.03 per share; 18,300,000 shares authorized, 2,954,267 shares issued and outstanding, actual; and no shares authorized, issued and outstanding pro forma; and pro forma as adjusted

 

 

6,621,000

 

 

 

 

 

 

 

Ordinary share par value NIS 0.03 per share; 4,700,000 shares authorized, 576,556 shares issued and outstanding; 16,666,667 shares authorized and 6,107,162 shares issued and outstanding, pro forma; 16,666,667 shares authorized and 8,607,162 shares issued and outstanding, pro forma, as adjusted

 

 

5,000

 

 

 

53,000

 

 

 

75,000

 

Additional paid-in capital

 

 

180,000

 

 

 

13,373,000

 

 

 

30,789,000

 

Accumulated deficit

 

 

(12,428,000

)

 

 

(12,428,000

)

 

 

(12,428,000

)

Total shareholders’ equity (deficit)

 

$

(12,243,000

)

 

$

998,000

 

 

$

18,436,000

 

40

The total number of Ordinary shares to be outstanding after this offering is based on 576,556 Ordinary shares outstanding as of December 31, 2019 giving effect to a three (3) share for one (1) share reverse split effective July 6, 2020 and reflects:

•        the automatic conversion on a one (1) for one (1) basis of all outstanding convertible preferred shares into 2,954,267 Ordinary shares upon the closing of this offering;

•        the automatic conversion of $3,929,000 of principal convertible debt, and approximately $1,212,000 of accrued interest, into 2,293,916 Ordinary shares; and

•        the automatic conversion of $1,562,000 of convertible notes and approximately $20,000 of accrued interest into 282,423 Ordinary shares.

The Ordinary shares outstanding as of December 31, 2019 exclude the following:

•        373,388 Ordinary shares issuable upon the exercise of options to purchase our Ordinary shares at a weighted average exercise price of $1.64 per share, issuable pursuant to the 2008 PainReform Option Plan and 2019 PainReform Option Plan, of which 301,117 options have vested;

•        278,929 Ordinary shares and 278,929 Warrants issuable upon exercise of the warrants to purchase our Ordinary shares at an exercise price of $6.72 per share that were issued in August and December 2019 in connection with a bridge financing;

•        282,423 Warrants issuable upon conversion of convertible notes that were issued in August and December 2019 in connection with a bridge financing;

•        55,785 Ordinary shares issuable upon exercise of the warrants to purchase our Ordinary shares at $10.00 per share that were issued to Joseph Gunnar & Co., LLC, the placement agent for the bridge financing;

•        2,500,000 Ordinary shares issuable upon exercise of the Warrants issued in this offering;

•        125,000 Ordinary shares issuable upon exercise of the warrants to purchase our ordinary shares at $10.00 per share to be issued the representatives of the underwriters;

•        the issuance of 18,972 Ordinary shares to the holders of the convertible notes that were issued in August 2019 in connection with a bridge financing following our entry into an extension of the agreement with holders of the convertible notes in August 2020; and

•        152,110 Ordinary shares issuable to a consultant as a payment for services rendered and to be rendered pursuant to a public relations and investor relations consultancy and services agreement.

41

DILUTION

If you invest in our securities, your ownership interest will be immediately diluted to the extent of the difference between the offering price per Unit and the pro forma as adjusted net tangible book value per Ordinary share after completion of the offering. Dilution results from the fact that the per ordinary share offering price is substantially in excess of the book value per ordinary share attributable to the existing holders of our presently outstanding Ordinary shares.

Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangible book value per Ordinary Share (as adjusted for the offering) from the initial public offering price per Unit and after deducting the underwriting discounts, non-accountable expense allowance and the estimated offering expenses payable by us.

Our net tangible book value (deficit) as of December 31, 2019 was $(12,243,000), or $(21.23) per Ordinary share giving effect to the three (3) for one (1) reverse share split effected on July 6, 2020. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of December 31, 2019 after giving effect to the conversion of (i) all our outstanding convertible preferred shares into 2,954,267 Ordinary shares; (ii) $3,929,000 of principal convertible debt and approximately $1,212,000 of accrued interest into 2,293,916, Ordinary shares, and (iii) $1,562,000 of convertible notes and approximately $20,000 of accrued interest into 282,423 Ordinary shares; and (iv) the pro forma adjustments described above. After giving effect to such conversions our pro forma net tangible book value as of December 31, 2019 was $998,000 or $0.16 per ordinary share (giving effect to the three (3) for one (1) reverse share split effected on July 6, 2020).

After giving further effect to the sale of the Units in this offering at an initial public offering price of $8.00 per Unit after deducting the underwriting discount and estimated offering expenses, our pro forma as adjusted net tangible book value December 31, 2019 would have been $2.14 per Ordinary share. This represents an immediate increase in pro forma as adjusted net tangible book value of $23.38 per Ordinary share to existing shareholders (including shareholders who received their shares upon the conversion of preferred shares and convertible debt) and immediate dilution of $5.86 per Ordinary share to new investors.

The following table sets forth the estimated net tangible book value per Ordinary share after the offering and the dilution to persons purchasing Ordinary shares based on the foregoing offering assumptions.

Initial public offering price per Unit

 

 

 

 

 

$

8.00

Historical net tangible book value (deficit) per Ordinary share as of December 31, 2019 (giving effect to the reverse split)

 

$

(21.23

)

 

 

 

Increase per share attributable to the conversion of our convertible preferred shares and convertible debt

 

$

21.39

 

 

 

 

Pro forma net tangible book value per Ordinary share

 

$

0.16

 

 

 

 

Increase per Ordinary share attributable to this offering

 

$

1.98

 

 

 

 

Pro forma as adjusted net tangible book value per Ordinary share after this offering

 

 

 

 

 

$

2.14

Dilution per Ordinary share to new investors in this offering

 

 

 

 

 

$

5.86

If the underwriters exercise their option to purchase 375,000 additional Units in full, our pro forma as adjusted net tangible book value per Ordinary share after this offering would be $2.36, representing an immediate increase in pro forma as adjusted net tangible book value per Ordinary share of $23.59 to existing shareholders (including shareholders who received their shares upon the conversion of preferred shares and convertible debt) and immediate dilution in pro forma as adjusted net tangible book value per Ordinary share of $5.64 to new investors purchasing Units in this offering at an initial public offering price of $8.00 per Unit after deducting the underwriting discount and estimated offering expenses payable by us.

The following table summarizes on a pro forma as adjusted basis as described above:

•        the total number of our Ordinary shares purchased from us by our existing ordinary shareholders and preferred shareholders and by new investors purchasing Units in this offering;

•        the total number of our Ordinary shares to be issued upon closing of this offering upon conversion of the convertible debt and notes outstanding as of December 31, 2019;

42

•        the total consideration paid to us by our existing ordinary shareholders and preferred shareholders (including the consideration attributable to the shares to be issued to the holders of our outstanding convertible debt) and by new investors purchasing Units in this offering at an initial public offering price of $8.00 per Unit before deducting the underwriting discount and estimated offering expenses payable by us; and

•        the average price per share paid by existing ordinary shareholders and preferred shareholders (including the consideration attributable to the shares to be issued to the holders of our outstanding convertible notes and bonds) and by new investors purchasing shares in this offering.

 

Shares Purchased

 

Total Consideration

 

Average Price Per
Share

   

Number

 

Percent

 

Amount

 

Percent

 

Existing shareholders(1)

 

6,107,162

 

70.95

%

 

$

13,344,000

 

40.01

%

 

$

2.19

New investors

 

2,500,000

 

29.05

%

 

 

20,000,000

 

59.99

%

 

 

8.00

Total

 

 

 

100.0

%

 

 

33,344,000

 

100.0

%

 

$

3.87

____________

(1)      Includes as of December 31, 2019 existing Ordinary shareholders and preferred shareholders and assumes the conversion of all our outstanding convertible debt and excludes (a) the subsequent issuance of 18,972 Ordinary shares and 18,660 Ordinary shares issuable upon exercise of the warrants to purchase our Ordinary shares at an exercise price of $6.72 per share that were issued in August 2019 in connection with a bridge financing following an amendment to the convertible notes entered into in August 2020, and (b) 152,110 Ordinary shares issued to a consultant as a payment for services rendered and to be rendered pursuant to a public relations and investor relations consultancy and services agreement.

The table above assumes no exercise of the underwriters’ option to purchase additional Units in this offering. If the underwriters’ option to purchase additional Units is exercised in full, the number of Ordinary shares held by existing shareholders (including shareholders who received their shares upon the conversion of preferred shares and convertible debt) would be reduced to 67.99% of the total number of our Ordinary shares outstanding after this offering, and the number of Ordinary shares held by new investors purchasing Ordinary shares in this offering would be increased to 32.01% of the total number of our Ordinary shares outstanding after this offering.

The number of Ordinary shares to be outstanding after this offering is based on 576,556 Ordinary shares outstanding as of December 31, 2019 after giving effect of the reverse split and the issuance of 5,530,606 Ordinary shares upon the conversion our convertible preferred shares and convertible debt (including accrued interest).

To the extent any outstanding options are exercised, new options are issued under our equity incentive plans, or we issue additional Ordinary shares in the future, there will be further dilution to investors participating in this offering.

43

SELECTED FINANCIAL DATA AND PRO FORMA FINANCIAL DATA

The following selected statements of comprehensive loss data for the years ended December 31, 2019 and 2018 and selected balance sheet data as of December 31, 2019 and 2018 have been derived from our financial statements included elsewhere in this prospectus. Our financial statements have been prepared in accordance with U.S. GAAP. Historical results are not necessarily indicative of the results expected in the future.

You should read the following selected financial data and certain pro forma financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, related notes and other financial information included elsewhere in this prospectus.

Statements of Comprehensive Loss:

(U.S. Dollars, except share and per share data)

 

Year Ended
December 31,

   

2019

 

2018

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

(136,000

)

 

$

(223,000

)

Selling, general and administrative

 

 

(553,000

)

 

 

(277,000

)

Operating loss

 

 

(689,000

)

 

 

(500,000

)

Financial expense, net

 

 

(590,000

)

 

 

(328,000

)

Net loss and comprehensive loss

 

 

(1,279,000

)

 

 

(828,000

)

Basic and diluted net loss per share

 

 

(4.17

)

 

 

(3.24

)

Weighted average number of shares of ordinary share used in computing basic and diluted net loss per share

 

 

576,556

 

 

 

576,556

 

Pro forma weighted average number of ordinary shares outstanding used in computing basic and diluted loss per share (unaudited)(1)

 

 

5,795,534

 

 

 

 

Pro forma basic and diluted loss per ordinary share (unaudited)(2)

 

 

(0.13

)

 

 

 

____________

(1)      Pro forma basic and diluted net loss per share were computed to give effect to the conversion of all of our outstanding preferred shares into 2,954,267 of our ordinary shares; $3,688,000 of principal convertible debt and approximately $832,000 of accrued interest into 2,016,774 ordinary shares and $1,562,000 of convertible notes into 278,929 ordinary shares as of December 31, 2019, using the as-if converted method as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later.

(2)      Net loss and comprehensive loss used in the calculation of pro forma basic and diluted loss per ordinary share was adjusted to eliminate finance expenses of $540,000 recorded on convertible debt and convertibles notes during the year ended December 31, 2019.

Balance Sheet Data:

(U.S. Dollars)

 

As of
December 31,

   

2019

 

2018

Cash and cash equivalents

 

$

941,000

 

 

$

40,000

 

Restricted cash

 

 

6,000

 

 

 

6,000

 

Other current assets

 

 

25,000

 

 

 

34,000

 

Total current assets

 

 

972,000

 

 

 

80,000

 

Other non-current asset

 

 

192,000

 

 

 

 

Total current liabilities

 

 

6,339,000

 

 

 

18,000

 

Convertible debt

 

 

 

 

 

4,520,000

 

Derivative warrant liability

 

 

447,000

 

 

 

 

Temporary equity

 

 

6,621,000

 

 

 

6,621,000

 

Shareholders’ deficit

 

 

(12,243,000

)

 

 

(11,078,000

)

44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.” You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

We are a clinical stage specialty pharmaceutical company focused on the reformulation of established therapeutics. Our proprietary extended release drug-delivery system is designed to provide an extended period of post-surgical pain relief without the need for repeated dose administration while reducing the potential need for the use of opiates. Our strategy is to incorporate generic drugs with our proprietary extended release drug-delivery system in order to create extended release drug products and to take advantage of the 505(b)(2) regulatory pathway created by the FDA. The 505(b)(2) new drug application (“NDA”) process, provides for FDA approval of a new drug based in part on data that was developed by others, including published literature references and data previously reviewed by the FDA in its approval of a separate application. Using this pathway can significantly reduce the time and costs associated with clinical development. PRF-110, our first product, is based on the local anesthetic ropivacaine, targeting the post-operative pain relief market. PRF-110 is an oil-based, viscous, clear solution that is deposited directly into the surgical wound bed prior to closure to provide localized and extended post-operative analgesia.

In a small 15 patient Phase 2 proof-of-concept clinical study in herniorrhaphy (hernia repair), PRF-110 provided substantial pain reduction for up to 72 hours post-operatively. A comparison of these results to historical data for ropivacaine alone suggests a substantial advantage to using PRF-110 over the local anesthetic (ropivacaine) alone. As indicated in the FDA approved drug description for ropivacaine, such drug provides pain relief for only 2 to 6 hours. The surgeons that participated in the PRF-110 Phase 2 trial reported that it was easily integrated into the procedure and non-disruptive of existing surgical techniques. Ropivacaine, the active drug used in PRF-110, is a safe and well characterized local anesthetic and the other components that make up the remainder of the PRF-110 formulation are classified as GRAS (Generally Regarded As Safe) by the FDA, mitigating many potential safety issues that are common in drug development. In a phase 1 safety study conducted in Israel, healthy volunteers were treated with PRF-110.

No adverse events were attributed to PRF-110 treatment. Pharmacokinetic studies using subcutaneous administration of PRF-110 in healthy volunteers indicated that PRF-110 had good tolerability including low systemic exposure and no significant clinical adverse events.

Since our inception in November 2007, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, developing our proprietary drug delivery system and PRF-110, and raising capital.

We have never generated any revenue and have funded our business primarily through the sale of our capital share and issuance of convertible loans. We have raised net proceeds of $6.6 million from the sale of convertible preferred shares. As of December 31, 2019 and December 31, 2018, we had $941,000 and $40,000 in cash and cash equivalents, respectively. We recorded net losses of $1,279,000 and $828,000 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of approximately $12,428,000.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and as of March 2020, has spread to over 170 countries, including the United States and Israel. The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease. Many countries around the world, including Israel and the United States, have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. While the spread of COVID-19 has not yet directly impacted our operations, the continued spread of COVID-19 may result in the inability of our outside scientific collaborators, suppliers, consultants, advisors and other third parties to work with us on a timely basis and will likely impact the timing of the initiation of our planned clinical studies and the enrollment of patients. The extent to which COVID-19 impacts our development efforts will

45

depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

We expect to continue to incur significant expenses and increasing losses for next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities. We expect our expenses will increase substantially over time as we:

•        continue the ongoing and planned preclinical and clinical development of our drug candidates;

•        build a portfolio of drug candidates through the acquisition or in-license of drugs, drug candidates or technologies;

•        initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future;

•        seek marketing approvals for our current and future drug candidates that successfully complete clinical trials;

•        establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval;

•        develop, maintain, expand and protect our intellectual property portfolio;

•        implement operational, financial and management systems; and

•        attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.

Financial Operations Overview

Revenue

We have not generated any revenue and do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize one or more of our current or future drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, which include, among other things:

•        employee-related expenses, including salaries, benefits and stock-based compensation expense;

•        fees paid to consultants for services directly related to our drug development and regulatory effort;

•        expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;

•        costs associated with preclinical activities and development activities;

•        costs associated with technology and intellectual property licenses;

•        milestone payments and other costs under licensing agreements; and

•        depreciation expense for assets used in research and development activities.

Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.

46

Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include, but are not limited to, the following:

•        number of clinical trials required for approval and any requirement for extension trials;

•        per patient trial costs;

•        number of patients that participate in the clinical trials;

•        number of sites included in the clinical trials;

•        countries in which the clinical trial is conducted;

•        length of time required to enroll eligible patients;

•        potential additional safety monitoring or other studies requested by regulatory agencies; and

•        efficacy and safety profile of the drug candidate.

In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and share-based compensation. Other general and administrative expenses include travel expenses, conferences, professional fees for consultants, tax and legal services and facility-related costs.

We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly traded company. These increases will include legal and accounting fees, costs associated with maintaining compliance with The NASDAQ Stock Market LLC and the Securities and Exchange Commission, or the SEC, directors’ and officers’ liability insurance premiums and fees associated with investor relations. In addition, if our current or future drug candidates are approved for sale, we expect that we would incur expenses associated with building our commercial and distribution infrastructure.

Financial Expenses, Net

Financial expenses, net, primarily consists from accrued interest on convertible notes, bank management fees and commissions and exchange rate differences expenses.

Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

Year Ended
December 31,

   

2019

 

2018

Operating expenses:

 

 

   

 

 

Research and development

 

$

136,000

 

$

223,000

General and administrative

 

 

553,000

 

 

277,000

Total operating costs

 

 

689,000

 

 

500,000

Financial expenses

 

 

590,000

 

 

328,000

Net loss

 

$

1,279,000

 

$

828,000

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Operating Expenses

Research and development expenses.    Research and development expenses were $136,000 for the year ended December 31, 2019 compared to $223,000 for the year ended December 31, 2018, a decrease of $87,000 or 39%. In 2019, the components of our research and development expenses were: (i) Salary expenses of $59,419 (ii) patent prosecution expenses of $41,557; (iii) costs of chemistry, manufacturing and controls of $19,667; (iv) share based compensation expenses of $14,000; (v) payments to consultants of $1,479 and (vi) costs associated with clinical and pre-clinical trials of less than $1,000. In 2018, the components of our research and development expenses were: (i) costs associated with pre-clinical trials of $69,279; (ii) payments to consultants of $61,706; (iii) patent prosecution expenses of $51,232; and (iv) costs of chemistry, manufacturing and controls of $41,360.The decrease in research and development expenses during 2019 period is primarily due to our decreased use of subcontractors and consultants following completion of two clinical trials.

General and administrative expenses.    General and administrative expenses were $553,000 for the year ended December 31, 2019 compared to $277,000 for the year ended December 31, 2018, an increase of $276,000 or 99.6%. The increase in general and administrative expenses is primarily due to a $124,000 increase in professional services and consultants’ fees, an increase of $60,000 in payroll and related expenses (The increase in payroll and related expenses related to our entering into an agreement with Professor Eli Hazum, our Acting Chief Executive Officer and Chief Technology Officer, effective April 2018 (previously Professor Hazum provided consultancy services to the company through and under the management services provided by Zori Medica (2010) Ltd.) and an increase of $75,000 in share-based payment expenses.

Financial expenses.    Financial expense was $590,000 for the year ended December 31, 2019 compared to financial expenses of $328,000 for the year ended December 31, 2018, an increase of $262,000 or 79.8%. The increase is primarily due to a $161,000 increase in finance expenses from the amortization of the loan discount on the August and December convertible notes, a $55,000 increase in accrued interest expense with respect to our outstanding convertible debt and a $47,000 increase in issuance costs allocated to the derivative warrants.

Net loss.    As a result of the foregoing, we incurred a net loss of $1,279,000 for the year ended December 31, 2019 compared to a net loss of $828,000 for the year ended December 31, 2018, an increase of $451,000 or 54.4%.

Liquidity and Capital Resources

Overview

Since our inception through December 31, 2019, we have raised aggregate net proceeds of $6,621,000 from the sale of convertible preferred shares and issuance of $3,929,000 of convertible notes, which was used to fund our operations. In August and December 2019, we completed a bridge financing consisting of convertible notes and warrants in the total principal amount of $1,562,000. As of December 31, 2019, we had an accumulated deficit of approximately $12,428,000, cash and cash equivalents of $941,000 and negative working capital.

From 2014 to 2018, we issued convertible notes to our investors who were already existing shareholders. The convertible notes bear interest at a rate of 8% compounded annually and are due on December 31, 2020. As of December 31, 2019, the principal amount of convertible notes outstanding was $3,929,000. Each of the holders of the convertible notes may convert the convertible notes held by them into Series A-1 Preferred Shares, par value NIS 0.03, at a price of $2.241 per share. If the conversion option is not exercised as of the end of the loan term, we are entitled to pay each holder the principal outstanding plus accrued interest. Upon the closing of a qualified investment (the issuance of $3,000,000 of preferred securities to a third party), the convertible notes will be automatically converted into securities of our company on the same terms and conditions as in such qualified investment. The conversion will be on the same terms and conditions and bearing the same rights, subject to a conversion price per share equal to the lowest price per share paid under the qualified investment, less an agreed upon percentage equal to 3% multiplied by the number of months from the grant date of issuance of the applicable convertible note.

In August and December 2019, we sold units consisting of convertible notes and warrants to purchase the same securities of the company issued upon the closing of a qualified IPO (such as the Ordinary shares and Warrants to be issued in this offering) to accredited investors in a private placement for total proceeds of $1,420,000. Each unit consisted of (i) a 5% senior secured convertible promissory note in the principal amount of $110,000 that matures one year after issuance, and (ii) a five-year warrant to purchase the same securities of the company issued upon the closing of a qualified IPO (such as the Ordinary shares and Warrants to be issued in this offering). The principal

48

balance and unpaid accrued interest on these senior secured convertible promissory notes will automatically convert into the same securities of the company issued upon the closing of a qualified IPO (such as the Ordinary shares and Warrants to be issued in this offering) at a per share conversion price equal to the lesser of (i) 70% of the per share purchase price of shares or other units in the qualified IPO and (ii) the quotient obtained by dividing (x) $30,000,000 by (y) our fully diluted capitalization immediately prior to the qualified IPO.

Each investor was issued a warrant to purchase the same securities of the company issued upon the closing of a qualified IPO (such as the Ordinary shares and Warrants to be issued in this offering) at a per share exercise price equal to (a) if a qualified IPO has occurred on or before one calendar year after the issuance, 120% of the conversion price or (b) if a qualified IPO has not occurred on or before one calendar year after the issuance at a conversion price of $2.5425. The number of Ordinary shares and Warrants issuable upon exercise of each warrant if a qualified IPO has occurred on or before one calendar year after the issuance, will be determined by dividing $110,000 by the conversion price of the convertible notes. If a qualified IPO has not occurred on or before one calendar year after the issuance, the number of Ordinary shares and Warrants issuable upon exercise of each warrant will be determined by dividing $110,000 by $2.5425. The warrants contain an anti-dilution protection feature, to adjust the exercise price and number of warrant shares if Ordinary shares are sold or issued for a consideration per share less than the exercise price then in effect.

In connection with the bridge financing of August and December 2019 of convertible notes and warrants, after the expiration of a period of no less than 180 days following the effective date of this offering, the holders of these securities have unlimited piggyback registration rights with respect to the ordinary shares underlying the securities, until they have been sold.

We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years. We incurred net losses of approximately $1,279,000 and $828,000 for the years ended December 31, 2019 and 2018, respectively.

We believe following this offering, we will have sufficient funds to fund our current operating plans through at least the next 12 months.

Until such time, if ever, as we can generate revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaborations, license and development agreements. To the extent that we raise additional capital through future equity offerings or debt financings, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that such financings will be obtained on terms acceptable to us, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue our research and development programs or future commercialization efforts. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

Cash Flows

The following table sets forth the major components of our statements of cash flows for the periods presented:

 

Year Ended December 31, 2019

 

Year Ended December 31, 2018

Net cash used in operating activities

 

$

(609,000