Chemomab Therapeutics Ltd. 10-K

Item 1A. Risk Factors Risks Related to our Business A pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business. If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or elsewhere, our business may be adversely affected. 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 100 countries, including the United States and Israel. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. We are still assessing the effect on our business, from the spread of COVID-19 and the actions implemented by the governments across the globe. A significant outbreak of contagious diseases, such as COVID-19, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn. As a result, our ability to raise additional funds may be adversely impacted by risks, or the public perception of the risks, related to the recent outbreak of COVID-19. Furthermore, the third parties we engage, or seek to engage, for preclinical and clinical development activities may be adversely impacted by risks, or the public perception of the risks, related to the recent outbreak of COVID-19, which may delay preclinical and clinical development, and increase our costs. If these third parties do not, or are unable to, successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them, which may likewise delay the affected trial preclinical and clinical development. We are subject to risks and uncertainties arising from the conclusions that may emerge from our recently initiated strategic review. On February 26, 2020, our board of directors determined to advance the preclinical development of our pan-RAS inhibitor program while seeking to identify financing and strategic opportunities for the company. The opportunities may include, but are not limited to, a licensing or collaboration agreement involving the pan-RAS inhibitor program and/or our other in-licensed compound, a potential monetization transaction that may involve the sale of our rights in the in-licensed compounds or a merger or other strategic transaction. We cannot assure you that (i) we will be able to identify financial opportunities to enable our successful development of the pan-RAS inhibitor program; (ii) the review of strategic opportunities will result in a proposal for any of the above opportunities; (iii) we will be able to identify a suitable merger, collaboration or other strategic partner following the completion of this strategic review; or (iv) we will be able to consummate a transaction relating to any of the above opportunities . We also can provide no assurance that any transaction or other strategic alternative we may pursue will have a positive impact on our business, financial condition or results of operations. There is no finite timetable for completion of the strategic review. The process of exploring strategic opportunities will involve the dedication of significant resources and the incurrence of significant costs and expenses. In addition, speculation and uncertainty regarding the strategic review process may cause or result in disruption of our business, distraction of our employees, difficulty in recruiting, hiring, motivating, and retaining talented and skilled personnel, difficulty in maintaining or negotiating and consummating new business or strategic relationships or transactions (including with ADT), litigation and increased stock price volatility. If we are unable to mitigate these or other potential risks related to the uncertainty caused by the strategic review process, it may adversely affect our business, financial condition and results of operations. T he assessment of strategic opportunities and the evaluation of such assessment to the extent made by our current board of directors will be subject to review and possible change after our annual general meeting of shareholders by the then newly composed board of directors. As a result, you should not place undue reliance on the plans discussed in the section entitled “Business” relating to the pan-RAS and PDE10/ß-catenin programs. We recently changed our business strategy, are now a preclinical development company, and may encounter difficulties in managing this transition, which could significantly disrupt our business. On November 15, 2019, we announced the discontinuation of our Phase 2 Codex study evaluating the gene therapy inodiftagene vixteplasmid in patients with bladder cancer. After analysis of the data, we determined that there is a low probability of surpassing the predefined futility threshold at the planned interim analysis, which required 10 complete responses in 35 patients. The data also indicated a low probability of achieving an efficacy profile that, in our estimation, would be necessary to support regulatory approval. As a result, we changed our business strategy in November 2019 to devote our full resources to our small molecule pan-RAS inhibitor and PDE10/β-catenin inhibitor programs that we acquired in September 2019. To manage this change, we have undertaken a workforce reduction in order to accommodate our new business strategy. In particular, as previously announced, we are in the process of closing our office and laboratories located in Israel due to the discontinuation of our Phase 2 Codex study. Following the closure of the Israeli facilities, our sole office will be located in Cambridge, Massachusetts. Due to our limited resources, we may not be able to effectively manage this change in our business strategy. If our current management team is unable to effectively manage this transition, our expenses may increase more than expected and we may not be able to implement our business strategy. In addition, as discussed above, our strategy may be subject to review. 38 We will require substantial additional funds to complete our research and development activities, and, if additional funds are not available, we may need to significantly scale back or cease our business. We have generated substantial accumulated losses since inception. We have not generated any revenues to date and do not expect to generate any revenue in the near future. As a result, we expect to continue to experience negative cash flow for the foreseeable future. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. A significant portion of our research and development activities has been financed by the issuance of equity securities (including in our initial public offering in February 2019). There is no certainty that we will be able to obtain additional sources of funding for our research and development activities (see the risk factor entitled “Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or assets”). A lack of adequate funding may cause a cessation of all or part of our research and development activities and business. We will require substantial funds to discover, develop, protect and conduct research and development for our prospective products, including pre-clinical studies and clinical trials, and to manufacture and market any such product that may be approved for commercial sale. As of December 31, 2019, we held approximately $17.6 million in cash and cash equivalents. Our current available funds are not sufficient for all of these activities and we expect our current available funds to be adequate to satisfy our capital and operating needs through the end of 2020. Our financing needs may also increase substantially because of the results of our research and development, preclinical studies and clinical trials and costs arising from additional regulatory approvals. We may not succeed in raising additional funds in a timely manner. The timing of our need for additional funds will depend on a number of factors, which are difficult to predict or may be outside of our control, including: • the resources, time and costs required to initiate and complete our research and development and to initiate and complete preclinical studies and clinical trials and to obtain regulatory approvals for any products that we develop in the future; • progress in our research and development programs; • the timing and amount of milestone, royalty and other payments; and • costs necessary to protect any intellectual property rights. If our estimates and predictions relating to any of these factors are incorrect, we may need to modify our business plan. Additional funds may not be available to us when needed on acceptable terms, or at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. If we are not able to continue operations, investors may suffer a complete loss of their investments in our securities. We are now an early-stage preclinical biotechnology company and may never be able to successfully develop a marketable product. We have only recently acquired two preclinical programs, and there is no assurance that our future operations will generate any revenue. If we cannot develop a marketable product or generate sufficient revenues, we may be required to suspend or cease operations. We are now an early-stage preclinical biotechnology company that recently acquired an option to develop, manufacture and commercialize two developmental programs targeting oncogenic pathways that are focused on small molecule inhibitors RAS and PDE10/ß-catenin (the “Compounds”) pursuant to a collaboration and license agreement we entered into with ADT on September 20, 2019 (the “Collaboration Agreement”). Our operations prior to that date were not relevant to the development of the Compounds. Our operations relating to our two current preclinical programs have been limited to business planning, performing research, analyzing preclinical data and preparing to advance identified molecules through additional preclinical studies. The Compounds identified by us in connection with both our Pan-RAS and PDE10/ß-catenin programs are in the concept, research and preclinical stages. As a result, we cannot be certain that our research and development efforts will be successful or, if successful, that any products that are developed from the Compounds will ever be approved by the U.S. FDA. Typically, it takes 10 to 12 years to develop one new medicine from the time it is discovered to when it is available for treating patients, and longer timeframes are not uncommon. Even if approved, any products that are developed from the Compounds may not generate sufficient commercial revenues for us to continue operating. Our operating history should not be considered when evaluating our performance as it relates to our abandoned bladder cancer product candidate. As a result, we are subject to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of business strategy either in research, preclinical testing or in clinical trials, failure to establish business relationships, and competitive disadvantages against other companies. If we fail to become profitable, we may be forced to suspend or cease our operations. 39 We do not have a history of commercial sales and do not anticipate earning operating income over the coming years, and our failure to receive marketing approval for a product that we develop in the future would negatively impact our ability to continue our business operations. Our predecessor entity, BioCancell Therapeutics Inc. (“BTI”), was formed on July 26, 2004, and since then we have been a development-stage company. We have never received marketing approval for any product candidate and, as a result, have not recorded any sales. We expect that we will operate at a loss over the coming years, as we do not expect to generate any revenue from operations in the near term. We may not be able to develop, or receive marketing approval for, any product from our current preclinical research and development efforts. In addition, even if we obtain all necessary approvals to market a product, there is no certainty that there will be sufficient demand to justify the production and marketing of any such product. There is substantial doubt as to whether we can continue as a going concern. Our consolidated financial statements as of December 31, 2019 contain an explanatory paragraph that states that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any measurement or presentation adjustment for assets or liabilities that might result if we would be unable to continue as a going concern. We have incurred operating losses since inception, have not generated any revenues and have not achieved profitable operations. Our net loss, accumulated during the development stage through December 31, 2019, totaled approximately $105.4 million, and we expect to continue to incur substantial losses in future periods while we continue our research and development activities. We depend completely on the success of our two preclinical programs and, if we are not able to advance these successfully through the preclinical and clinical development process, our business prospects will be materially and adversely affected. We have no products that are in active clinical development or approved for commercial sale. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to the research and development of small molecule inhibitors (pan-RAS and PDE10/β-catenin programs). Our business depends completely on the successful preclinical and clinical development of products derived from the Compounds. We cannot be certain that any such product candidate will be developed or receive regulatory approval given that the Compounds remain in early preclinical stages of development. Our ability to develop, obtain regulatory approval for, and ultimately commercialize, a product derived from the Compounds effectively will depend on many factors, including the following: • successful completion of preclinical studies and clinical trials, which will depend substantially upon the satisfactory performance of third-party contractors; • successful achievement of the objectives of planned preclinical studies and clinical trials, including the demonstration of a favorable risk-benefit outcome; • receipt of marketing approvals from the FDA and similar regulatory authorities outside the United States; • establishing efficient and effective commercial manufacturing, supply and distribution arrangements; • establishing sufficient market share and promoting acceptance of the product by patients, the medical community and third-party payors; 40 • successfully executing an effective pricing and reimbursement strategy; • maintaining a continued acceptable safety and adverse event profile following regulatory approval; and • qualifying for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims. The Compounds will require additional non-clinical and clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can be in a position to generate any revenue from product sales. We are not permitted to market or promote any product derived from the Compounds before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval. If we are unable to develop or receive marketing approval in a timely manner or at all, we could experience significant delays or an inability to commercialize products derived from the Compounds, which would materially and adversely affect our business, financial condition and results of operations. Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or assets. Until such time, if ever, as we can generate sufficient revenues, we expect to finance our cash needs through equity offerings, debt financings or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We will require substantial funding to fund our developmental efforts, our operating expenses and other activities. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, certain price protection rights may be triggered and the terms of the newly issued securities may include liquidation or other preferences that adversely affect your rights. Investors in the June 2018 fundraising are entitled to certain price protection rights with respect to their ordinary shares and warrants in the event of a future share issue by us where the price per share is less than the price per share reflected in our initial public offering, which triggered these rights. Additionally, debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or both of our preclinical development programs, which would adversely impact our potential revenues, results of operations and financial condition. We may allocate our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may later prove to be more profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we must limit our licensing, research, and development programs to specific drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing, or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate. 41 The pharmaceutical and biotechnology market is highly competitive. If we are unable to compete effectively with existing products, new treatment methods and new technologies, we may be unable to commercialize any products that we may develop in the future. The biotechnology market is highly competitive, is subject to rapid technological change and is significantly affected by existing rival drugs and medical procedures, new product introductions and the market activities of other participants. Pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations may pursue the research and development of technologies, drugs or other therapeutic products for the treatment of some or all of the diseases that we are target. We also may face competition from products that have already been approved and accepted by the medical community for the treatment of these same indications. We are aware of a number of companies developing small molecule drugs for the treatment of cancer. Our competitors may develop products more rapidly or more effectively than us. Many of our competitors have: • much greater experience, financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization process; • more extensive experience in preclinical studies, conducting clinical trials, obtaining and maintaining regulatory approvals and manufacturing and marketing products; • products that have been approved or are in late stages of development; • established distribution networks; • collaborative arrangements with leading companies and research institutions; and • entrenched and established relationships with healthcare providers and payors. In addition, many of these companies, in contrast to us, are well-capitalized. As a result of any of the foregoing factors, our competitors may develop or commercialize products, including small molecule inhibitors, with significant advantages over any product that we may develop in the future. If our competitors are more successful in commercializing their products than us, their success could adversely affect our competitive position and harm our business prospects. Even if we receive regulatory approval to market a product that we develop in the future, the market may not be receptive to the product upon its commercial introduction. We may have difficulties convincing the medical community and third-party payors to accept and use any product that we are able to develop in the future even following our receipt of regulatory approval for commercialization. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors and consumers, may not accept a product that we develop. Even if such a product is accepted by these participants, the medical community may not consider effectiveness and safety alone as a sufficient basis for prescribing such as product in lieu of other alternative treatment methods and medications that are available. Risks Related to our Preclinical Development Our preclinical developmental programs are at an early stage. As a result, we are unable to predict if, or when, we will successfully develop or commercialize any product under either program. We currently have no products beyond preclinical studies and our internal product development programs are at an early stage of preclinical development. Any product that we develop in the future will require significant investment in both preclinical studies and later clinical trials. We cannot be certain that preclinical and clinical development of any product derived from our current product development programs will be successful or that we will obtain regulatory approval or be able to successfully commercialize any product and generate revenue. Success in preclinical studies does not ensure that clinical trials will be successful, and the clinical trial process may fail to demonstrate that a product that we develop is safe and effective for its proposed use. Any such failure could cause us to abandon further development of one or more products and may delay development of other potential products. Any delay in, or termination of, our preclinical studies or clinical trials will delay and possibly preclude the filing of a new drug application with the FDA or comparable regulatory authorities and, ultimately, our ability to generate any product revenue. 42 Any product that we develop in the future will be required to undergo a time-consuming, costly and burdensome pre-market approval process, and we may be unable to obtain regulatory approval for such product. Any product that we develop in the future will be subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical studies, clinical trials and extensive regulatory approval processes are required to be successfully completed in the United States and in many foreign jurisdictions, such as the European Union and Japan, before a new product may be offered and sold in any of these countries or regions. Satisfaction of these and other regulatory requirements is costly, time-consuming, uncertain and subject to unanticipated delays. Preclinical studies and clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because any product that we develop in the future will be based on new technologies, we expect that it will require extensive research and development and necessitate substantial manufacturing and processing costs. In addition, costs to treat potential side effects that may result from a product we develop may be significant. Accordingly, our preclinical and clinical trial costs could be significantly higher than for more conventional therapeutic technologies or drug products. In the United States, the products that we intend to develop and market are regulated by the FDA under its drug development and review process. The time required to obtain FDA and other approvals for any product that we develop in the future is inherently unpredictable. Before such products can be marketed, we must obtain clearance from the FDA first through submission of an IND, then through successful completion of human testing under three phases of clinical trials and finally through submission of an NDA. Even after successful completion of clinical testing, there is a risk that the FDA may request further information from us, disagree with our findings or otherwise undertake a lengthy review of our NDA submission. There can be no assurance that the FDA will grant a license for any NDA that we may submit. It is possible that none of the products that we develop in the future will obtain the appropriate regulatory approvals necessary for us to commence the offer and sale of such products. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from a particular prospective product. If we decide to market any drug that we develop in jurisdictions in addition to the United States, we may incur the same costs or more in satisfying foreign regulatory requirements governing the conduct of preclinical and clinical trials, manufacturing and marketing and commercialization of any product that we develop in the future. Approval by the FDA by itself does not assure approval by regulatory authorities outside the United States. Each of these foreign regulatory approval processes includes all of the risks associated with the FDA approval process, as well as risks attributable to having to satisfy local regulations within each of these foreign jurisdictions. Our inability to obtain regulatory approval outside the United States may adversely compromise our business prospects. If the preclinical and clinical studies that we are required to conduct to gain regulatory approval are delayed or unsuccessful, we may not be able to market any product that we develop in the future. We may experience delays in any phase of the preclinical or clinical development of a product, including during its research and development. The completion of any of these studies may be delayed or halted for numerous reasons, including, but not limited to, the following: • the FDA, IRBs, the European Union regulatory authorities (the European Medicines Agency (“EMA”) and national authorities), or other regulatory authorities do not approve a clinical study protocol or place a clinical study on hold; • patients do not enroll in a clinical study or results from patients are not received at the expected rate; • patients discontinue participation in a clinical study prior to the scheduled endpoint at a higher than expected rate; • patients experience adverse events from a product we develop; 43 • patients die during a clinical study for a variety of reasons that may or may not be related to the product that is the subject of the study; • third-party clinical investigators do not perform the studies in accordance with the anticipated schedule or consistent with the study protocol and good clinical practices or other third-party organizations do not perform data collection and analysis in a timely or accurate manner; • third-party clinical investigators engage in activities that, even if not directly associated with our studies, result in their debarment, loss of licensure, or other legal or regulatory sanction; • regulatory inspections of manufacturing facilities, which may, among other things, require us to undertake corrective action or suspend the preclinical or clinical studies; • changes in governmental regulations or administrative actions; • the interim results of the preclinical or clinical study, if any, are inconclusive or negative; and • the study design, although approved and completed, is inadequate to demonstrate effectiveness and safety. We have limited experience in conducting and managing preclinical studies and any product that we develop in the future may not have favorable results in later clinical trials or receive regulatory approvals. We have limited experience in conducting and managing the preclinical studies and clinical trials necessary to obtain regulatory approvals for a product. We may rely on third parties for preclinical and clinical development activities and our reliance on third parties will reduce our control over these activities. Accordingly, third-party contractors may not complete activities on schedule, or may not conduct preclinical studies and clinical trials in accordance with regulatory requirements or our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them, which may delay the affected trial. Clinical failure can occur at any stage of preclinical or clinical development. Preclinical studies and clinical trials may produce negative or inconclusive results, and our collaborators or we may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in pre-clinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a product. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in preclinical studies and clinical trials, even after seeing promising results in earlier trials or studies. We may experience difficulties in identifying and recruiting suitable patients for clinical studies, which may significantly compromise our ability to develop a product in the future. We may experience difficulties in identifying and recruiting suitable patients for clinical studies because of the high demand for such patients’ involvement in current and future studies and trials for potential drugs or because the supply of suitable patients may be low because of strict inclusion criteria requirements. The realization of any of the foregoing risks may significantly compromise our ability to develop a future product, which would adversely impact our potential revenues, results of operations and financial condition. 44 If toxicities or serious adverse or undesirable side effects are identified during preclinical or clinical development, we may need to abandon or limit such development. We do not have a product candidate in clinical development and, as a result, the risk we are unable to successfully develop a future product is high. A product’s preclinical toxicology profile might not support moving the product into clinical studies, and even then, it is impossible to predict when, or if, any future product that we develop will prove effective or safe in humans or will receive regulatory approval. If any such product is associated with undesirable side effects or has characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The commercial value of any clinical study that we may commence and conduct in the future will significantly depend upon our choice of medical indication and our selection of a patient population for our clinical study of an indication, and our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects. If we successfully complete a clinical study, the commercial value of any such study will depend significantly upon our choice of indication and our selection of a patient population for that indication. We may incorrectly assess the market opportunities of an indication or may incorrectly estimate or fail to appreciate fully the scientific and technological difficulties associated with treating an indication. Furthermore, the quality and robustness of the results and data of any clinical study that we may conduct in the future will depend upon our selection of a patient population for clinical testing. Our inability to commence clinical testing or our choice of clinical strategy may significantly compromise our business prospects. Risks Related to our Dependence on Third Parties We are substantially dependent on our Collaboration Agreement with ADT. If we fail to comply with our obligations under the Collaboration Agreement into which we entered with ADT, we could lose development and commercialization rights that are critical to the continuation of our business. On September 20, 2019, we entered into the Collaboration Agreement with ADT in which we agreed to use commercially reasonable efforts to conduct research and development activities with respect to the Compounds under the oversight of a jointly established steering committee. As part of the arrangement, we are primarily responsible for the research, development, manufacturing and regulatory activities relating to the Compounds. In consideration for the rights granted under the Collaboration Agreement, we agreed to make milestone payments to ADT with respect to the development and commercialization of any products containing the Compounds. ADT also granted us an exclusive option to research, develop, manufacture and commercialize Compounds relating to patents owned by ADT and any products containing such Compounds worldwide in exchange for an additional fee. We agreed to pay ADT royalties ranging in the low- to mid-single digit percentage on sales of any products containing the Compounds. ADT may terminate the Collaboration Agreement in the event of our material default in any of our material obligations under the Collaboration Agreement (following a cure period). In the event the Collaboration Agreement is terminated, all licenses and options granted to us will be terminated and we will not be able to develop the Compounds or any products containing the Compounds. The Collaboration Agreement also restricts assignment except to a successor of substantially all of the business to which the Collaboration Agreement relates, whether in a merger, sale of stock, sale of assets, reorganization or other transaction. The loss of such rights would materially adversely affect our business, financial condition, operating results and prospects. To the extent the strategic review results in a determination to monetize the pan-RAS program, we may be limited in our ability to do so. The failure of ADT to effectively perform its obligations under the Collaboration Agreement could materially and adversely affect us. Pursuant to the terms and conditions set forth in the Collaboration Agreement, ADT contractually agreed to collaborate with us in order to conduct research and development activities of the Compounds under the oversight of a joint steering committee that we established with ADT. As part of the arrangement, ADT is required to assist us with research activities relating to the Compounds as necessary. In connection with the Collaboration Agreement, ADT also granted us an exclusive option to research, develop, manufacture and commercialize Compounds relating to patents owned by ADT and any products containing such Compounds worldwide. Our right to research, develop, manufacturer and commercialize the Compounds is exclusively based upon the rights provided to us by ADT as part of the Collaboration Agreement. If ADT or a successor company fails or refuses to perform its obligations under, or comply with the terms and conditions set forth in, the Collaboration Agreement for any reason, we may not be able to research, develop, manufacture and/or commercialize the Compounds or any products containing the Compounds, which would materially adversely affect our business, financial condition, operating results and prospects. 45 We are dependent on ADT for certain support services related to our research and development activities with respect to the Compounds and any failure or delay by ADT to provide such services could harm our business. In connection with the Collaboration Agreement, we also entered into a Consulting and Collaboration Research Support Agreement with ADT (the “Support Agreement”), whereby ADT provides support services for our research and development activities with respect to the Compounds, including providing key research and discovery personnel. We are dependent upon ADT’s continued performance under this Support Agreement. To the extent ADT is unable to, or determines not to, perform these support services, we may not be able to undertake the research and development activities to develop the Compounds on our own or find other collaborators on acceptable terms. This could impact our ability to develop the Compounds and materially adversely impact our business, financial condition, operating results and prospects. We expect to rely significantly on preclinical contract research organizations and clinical research organizations to assist us with the development of the Compounds and any product that we develop in the future. Our reliance on clinical research organizations may result in delays in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform under our agreements with them. In the course of product development, we expect to engage clinical manufacturing organizations to manufacture drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct and manage non-clinical and clinical studies. As a result, many important aspects of our preclinical research activities and clinical testing will be out of our direct control. If any of these organizations we may engage in the future fail to perform their obligations under our agreements with them or fail to perform non-clinical testing and/or clinical trials in a satisfactory manner, we may face delays in completing such testing or trials. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our preclinical studies, clinical trials, regulatory filings and the potential market approval of our potential drug compounds. We may seek to enter into further collaborations in the future, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans. Any collaboration or license agreements that we may enter into in the future may impose various development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. Our obligations under any of these license agreements could include, without limitation: • royalty payments; • annual maintenance fees; • providing progress reports; • maintaining insurance coverage; • paying fees related to prosecution, maintenance and enforcement of patent rights; • minimum annual payments; and • undertaking diligent efforts to develop and introduce therapeutic products into the commercial market as soon as practicable. If we were to breach any of our material obligations as described above, the counterparties to any such agreements may have the right to terminate the agreement and any licenses contemplated thereby, which could result in our inability to develop, manufacture and sell products that are covered by the licensed technology or a competitor gaining access to the licensed technology. 46 If we, or if our service providers or any third-party manufacturers, fail to comply with regulatory requirements, we or they could be subject to enforcement actions, which could adversely affect our ability to market and sell a product we develop in the future. If we, or if our service providers or any third-party manufacturers, fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could adversely affect our ability to successfully develop, market and sell a product we develop in the future and could harm our reputation. These enforcement actions may include: • restrictions on, or prohibitions against, marketing; • restrictions on importation; • suspension of review or refusal to approve new or pending applications; • suspension or withdrawal of product approvals; • product seizures; • injunctions; and • civil and criminal penalties and fines. Risks Related to our Operations If we are unable to retain qualified employees, our ability to implement our business plan may be adversely affected. The loss of the service of key employees, such as Dr. Frank Haluska, our Chief Executive Officer, would likely delay our achievement of product development and our other business objectives. Although we have employment agreements with our key employees, some of these employment agreements provide for at-will employment, which means that the employee could terminate his or her employment with us at any time and, for certain employees, without notice. We do not carry key man life insurance on any of our executive officers. Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Difficulty in hiring employees to fill key roles could slow or prevent our ability to develop and commercialize our products. Our financial condition and the announcement of our process of exploring strategic opportunities may result in difficulties retaining and attracting qualified employees. In addition, we work extensively with consultants and advisors, including scientific and clinical advisors, who provide advice and/or services in various business and development functions, including preclinical and clinical development, operations and strategy, regulatory matters, legal, and finance, to assist us in formulating our research and development and commercialization strategy. The potential success of our drug development programs depends, in part, on continued collaborations with certain of these consultants and advisors. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. We do not know if we will be able to maintain such relationships or that such consultants and advisors will not enter into other arrangements with competitors, any of which could have a detrimental impact on our development objectives and our business. 47 Under applicable employment laws, we may not be able to enforce covenants not to compete. Our employment agreements generally include covenants not to compete. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work. For example, Israeli courts have required employers seeking to enforce covenants not to compete to demonstrate that the competitive activities of a former employee will harm one of a limited number of material interests of the employer, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such an interest will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our competitiveness may be diminished. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our potential competitors. Some of these employees may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. Our business may be affected by litigation and government investigations. We may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and others and we may become subject to claims and other actions related to our business activities. While the ultimate outcome of investigations, inquiries, information requests and legal proceedings is difficult to predict, defense of litigation claims can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, costs and significant payments, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Product liability claims or lawsuits could cause us to incur substantial liabilities. We will face an inherent risk of product liability exposure related to the testing of our drug candidates in human clinical trials. If we cannot successfully defend ourselves against claims that our products caused injuries, we could incur substantial liabilities. Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. Insurance coverage may be increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. We are exposed to a risk of substantial loss due to claims that may be filed against us in the future because our insurance policies may not fully cover the risk of loss associated with our operations. We are exposed to the risk of having claims seeking monetary damages being filed against us for loss or harm suffered by participants of our preclinical and clinical studies or for loss or harm suffered by users of any drug that may receive approval for commercialization in the future. In either event, the FDA or the regulatory authorities of other countries or regions may commence investigations of the safety and effectiveness of any such trial or commercialized drug, the manufacturing processes and facilities or marketing programs utilized in respect of any such trial or drug, and may result in mandatory or voluntary recalls of any commercialized drug or other significant enforcement action such as limiting the indications for which any such drug may be used, or suspension or withdrawal of approval for any such drug. Investigations by the FDA or any other regulatory authority in other countries or regions also could delay or prevent the completion of any of our other clinical development programs. In the event that we are required to pay damages for any such claim, we may be forced to seek bankruptcy or to liquidate because our asset and revenue base may be insufficient to satisfy the payment of damages and any insurance that we have obtained or may obtain for product, preclinical study or clinical trial liability may not provide sufficient coverage against potential liabilities. Our insurance policy for the discontinued inodiftagene compound provides coverage in the amount of up to $10 million in the aggregate. 48 Significant disruptions of information technology systems or security breaches could adversely affect our operations. We are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information (including, among other things, trade secrets or other 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. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors that may or could have access to our confidential information. Attacks on information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized groups and individuals with a wide range of motives and expertise. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, and the large amounts of confidential information stored on those systems, make such systems vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors, and/or business partners, or from cyber-attacks by malicious third parties. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability, and threated the confidentiality, integrity, and availability of information. Significant disruptions of our information technology systems, or those of our third-party vendors, or security breaches could adversely affect our business operations and/or result in the loss, misappropriation and/or unauthorized access, use or disclosure of, or the prevention of access to, confidential information, including, among other things, trade secrets or other intellectual property, proprietary business information and personal information, and could result in financial, legal, business, and reputational harm to us. Any failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with our privacy, confidentiality, data security or similar obligations to third parties, or any data security incidents or other security breaches that result in the unauthorized access, release or transfer of sensitive information, including personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause third parties to lose trust in us or could result in claims by third parties asserting that we have breached our privacy, confidentiality, data security, or similar obligations, any of which could have a material adverse effect on our reputation, business, financial condition, or results of operations. Moreover, data security incidents and other security breaches can be difficult to detect, and any delay in identifying them may lead to increased harm. While we have implemented data security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or data security incidents. Our business and operations would suffer in the event of system failures. Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of preclinical or clinical data from completed or ongoing or planned preclinical studies or clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of a product could be delayed. 49 Risks Related to Government Regulation We may be subject to U.S. federal and state healthcare fraud and abuse laws and regulations and other regulatory reforms, and a finding of our failure to comply with such laws, regulations and reforms could have a material adverse effect on our business. Our operations may be directly or indirectly affected by various broad U.S. federal and state healthcare fraud and abuse laws. These include the U.S. federal anti-kickback statute, which prohibits any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of an item or service, for which payment may be made under U.S. federal healthcare programs, such as the Medicare and Medicaid programs. The U.S. federal anti-kickback statute is very broad in scope, and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. In addition, many states have adopted laws similar to the U.S. federal anti-kickback statute, and some of these laws are broader than that statute in that their prohibitions are not limited to items or services paid for by a U.S. federal healthcare program but, instead, apply regardless of the source of payment. Violations of these laws could result in fines, imprisonment or exclusion from government-sponsored programs. Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings. Healthcare providers, physicians and third-party payors play a primary role in the recommendation of any product for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following: • the federal healthcare anti-kickback statute, as mentioned above, prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid; • the federal False Claims Act imposes civil penalties, including civil whistleblower actions, against individuals or entities for knowingly presenting, or causing to be presented, claims for payment to the federal government that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; • the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the federal transparency requirements under applicable healthcare laws will require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and 50 • analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs. Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business. The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and to accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Risks Related to Our Intellectual Property We may be required in the future to license patent rights from third-party owners in order to develop a product. If we cannot obtain such licenses, or if such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed. We currently license patents from ADT in conducting our research and development activities pursuant to the Collaboration Agreement. We may be required to obtain additional licenses in the future if we believe it is necessary or useful for our business and our research and development efforts to use third-party intellectual property or if our efforts would infringe upon the intellectual property rights of third parties. Our business prospects depend in part on the ability of ADT and any future licensor, to obtain, maintain and enforce patent protection for our licensed intellectual property. Our licensors may terminate our license, may not successfully prosecute or may fail to maintain their patent applications that we have licensed, may determine not to pursue litigation against other persons that are infringing these patents or may pursue such litigation less aggressively than we would. Without protection for the intellectual property that we have licensed and that we may license in the future, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive position and harm our business prospects. 51 Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. We currently rely, and intend to rely in the future, on trade secrets, know-how and technology that are not protected by patents to maintain our competitive position. In order to protect our proprietary technology and processes, we also rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive position and harm our business prospects. If we are unable to obtain and enforce patent protection for our inventions, our ability to develop and commercialize any product that we develop in the future will be harmed. Our success depends, to a considerable extent, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the United States and other countries, so that we may prevent others from unlawfully using our inventions and proprietary information. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the U.S. Patent and Trademark Office (the “PTO”) and its foreign counterparts use to grant patents are not always applied predictably or uniformly and may change. There also is no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed with respect to any patents issued to us or to others. Additionally, the mere issuance of a patent does not guarantee that it is valid or enforceable against third parties. We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful. A third party may sue us for infringing its patent rights or may claim that we have improperly obtained or used its confidential or proprietary information. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of third-party proprietary rights. In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, our licensors may have rights to file and prosecute such claims and we are reliant on them. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be significant, and the litigation would divert our management’s efforts. From a financial perspective, there is a risk that we would not be able to sustain the costs of any such litigation and would be forced to seek bankruptcy or to liquidate because of our limited asset and revenue base. We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business. We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing a product for us. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or the right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. 52 We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: • Others may be able to make products that are similar to a product we develop, but that are not covered by the claims of the patents that we own or have exclusively licensed. • We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed. • We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions. • Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights. • It is possible that our pending patent applications will not lead to issued patents. • Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors. • Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. • We may not develop additional proprietary technologies that are patentable. • The patents of others may have an adverse effect on our business. Should any of these events occur, they could significantly harm our business, results of operations and prospects. 53 Risks Related to the ADSs The ADS price could continue to be highly volatile and you may not be able to resell your ADSs at or above the price you paid for them. The trading price of the ADSs has been highly volatile, and is likely to continue to be highly volatile as we undertake the strategic review process, and such volatility may continue or become more severe if and when a transaction or business arrangement is announced or we announce that we are no longer exploring strategic opportunities. From our initial public offering on February 12, 2019 to December 31, 2019, the ADS price has ranged from $1.04 to $11.50 per ADS. The following factors, among others, could have a significant impact on the market price of the ADSs: • actual or anticipated fluctuations in our results of operations; • changes in operational strategy; • variance in our financial performance from the expectations of market analysts; • announcements by us or our competitors of significant business developments, changes in strategic relationships, acquisitions or development plans; • announcements by us regarding the clinical development, commercialization and market acceptance of a therapeutic candidate; • our involvement in litigation; • our sale of ADSs, ordinary shares or other securities in the future; • changes in personnel; • the trading volume of the ADSs, particularly as a microcap company with a few significant shareholders; • changes in the estimation of the future size and growth rate of our markets; • market conditions in our industry; and • general economic and market conditions. The ADSs may have a low trading volume for a number of reasons, including that a substantial portion of the ADSs are held by a few significant shareholders, limiting our public float. As a result, holders of our ADSs may encounter difficulty selling their ADSs or obtaining a suitable price at which to sell such ADSs. In addition, the stock markets have experienced extreme price and volume fluctuations, and securities of small cap and microcap companies are particularly volatile. Broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted. A limited number of shareholders will have the ability to influence the outcome of director elections and other matters requiring shareholder approval. According to a Schedule 13D filed on January 13, 2020, Clal Biotechnology Industries Ltd. (“CBI”) is the beneficial owner of approximately 23.6% of our outstanding shares and Access Industries Holdings LLC (“AIH”), Access Industries Management, LLC (“AIM”), Access Industries, LLC (“LLC”) and Len Blavatnik beneficially own approximately 40.1% of the Company’s outstanding shares (which includes the shares beneficially owned by CBI). In addition, according to the Schedule 13G filed on January 2, 2020, the Shavit Capital Funds collectively beneficially own approximately 21.7% of the Company’s outstanding shares. As a result of their significant holdings in our shares, Access, CBI and the Shavit Capital Funds have the ability to exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers, acquisitions or other business combination or corporate restructuring transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our Company and might reduce our share price. 54 If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline. The trading market for the ADSs relies in part on the research and reports that equity research analysts publish about us and our business. The price of the ADSs could decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. T he analysts at many brokerage firms do not currently monitor the trading activity or otherwise provide coverage of lower priced stocks, such as the ADSs. As a result, many investment funds are reluctant to invest in lower priced stocks. Market prices for securities of biotechnology and other life sciences companies historically have been particularly volatile, subject even to large daily price swings, due in part to the failure to elicit meaningful stock analyst coverage and downgrades of the company’s stock by analysts. Because we no longer qualify as a foreign private issuer, we are required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and, as a result, are expected to incur significant legal, accounting and other expenses that we would not incur as a foreign private issuer. Beginning on January 1, 2020, we have been required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers because we no longer qualify as a foreign private issuer. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer are expected to be significantly higher. We are now required to file periodic reports, proxy materials and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer, and we are required to present our financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) instead of in accordance with International Financial Reporting Standards (“IFRS”) as we previously did. We have also been required to modify certain of our corporate governance policies and committee charters to comply with accepted governance practices and requirements associated with U.S. domestic listed issuers. In addition, we lost our ability to rely upon exemptions from certain Nasdaq corporate governance requirements that are available to foreign private issuers. As a result of becoming a public company, our management is required to devote substantial additional time to new compliance initiatives as well as to compliance with ongoing public reporting requirements. As a public company in the United States, we incur significant additional accounting, legal and other expenses that we did not incur before our initial public offering. We incur costs associated with corporate governance requirements of the SEC and Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and make some activities more time consuming and costly. The implementation and testing of such processes and systems require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and Nasdaq, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, if any, or as executive officers. We do not intend to pay dividends in the foreseeable future. We do not anticipate paying any cash dividends on the ADSs. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be the investors’ sole source of gain for the next several years. In addition, Israeli law limits our ability to declare and pay dividends, and may subject us to certain Israeli taxes. 55 You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you. The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to affect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation under U.S. securities laws to register any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs. ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could augur less favorable results to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our ordinary shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federal court, which have non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one that is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may augur different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing. 56 Holders of ADSs must act through the depositary to exercise their rights as our shareholders. Holders of the ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law and our articles of association, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 14 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting. You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company, or PFIC. Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a PFIC for U.S. federal income tax purposes. We believe that we were a PFIC in 2017, 2018 and 2019 and, based on estimates of our gross income and gross assets and the nature of our business, we believe that we will be classified as a PFIC for the taxable year ending December 31, 2020. Because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine with certainty whether we will be characterized as a PFIC for the 2020 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in future years will depend on our income, assets and activities in those years. In any taxable year in which we are characterized as a PFIC for U.S. federal income tax purposes, a U.S. holder that owns ADSs could face adverse U.S. federal income tax consequences, including having gains realized on the sale of the ADSs classified as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on the ADSs by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of ADS sales. Certain elections exist that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of the ADSs. If we are a PFIC in any year, U.S. holders may be subject to additional Internal Revenue Service (“IRS”) filing requirements, including the filing of IRS Form 8621, as a result of directly or indirectly owning stock of a PFIC. We may be treated as a U.S. corporation for U.S. federal income tax purposes. For U.S. federal income tax purposes, a corporation generally is considered tax resident in the place of its incorporation. We are incorporated under the laws of the State of Israel and, therefore, we should be a non-U.S. corporation under this general rule. However, Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that may result in a foreign corporation being treated as a U.S. corporation for U.S. federal income tax purposes. The application of these rules is complex and there is little guidance regarding certain aspects of their application. 57 Under Section 7874 of the Code, a corporation created or organized outside the United States will be treated as a U.S. corporation for U.S. federal tax purposes when (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by a U.S. corporation, (ii) the former shareholders of the acquired U.S. corporation hold at least 80% of the vote or value of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation, and (iii) the foreign corporation’s “expanded affiliated group” does not have “substantial business activities” in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities. For this purpose, “expanded affiliated group” generally means the foreign corporation and all subsidiaries in which the foreign corporation, directly or indirectly, owns more than 50% of the stock by vote and value, and “substantial business activities” generally means at least 25% of employees (by number and compensation), assets and gross income of our expanded affiliated group are based, located and derived, respectively, in the country of incorporation. We were incorporated on September 22, 2011 under the laws of the State of Israel for the purpose of a reincorporation merger (“Reincorporation”), which merged BTI with and into a wholly-owned subsidiary of BioCancell Ltd. We do not believe that we should be treated as a U.S. corporation as a result of the Reincorporation under Section 7874 of the Code because we believe that we have substantial business activities in Israel. However, the IRS may disagree with our conclusion on this point. In addition, there could be legislative proposals to expand the scope of U.S. corporate tax residence and there could be changes to Section 7874 of the Code or the Treasury Regulations promulgated thereunder that could result in us being treated as a U.S. corporation. If it were determined that we should be treated as a U.S. corporation for U.S. federal income tax purposes, we could be liable for substantial additional U.S. federal income tax on our taxable income since the Reincorporation. In addition, payments of dividends to non-U.S. holders may be subject to U.S. withholding tax. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the ADSs. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to continue to, rely on exemptions from certain disclosure requirements, which could make the ADSs less attractive to investors. For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies, including: • an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act; and • an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements. 58 We will be an emerging growth company until the earliest of (i) the last day of the fiscal year during which we had total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, (iii) December 31, 2024 or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities Act. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile. We could now be treated as a smaller reporting company given we will report under U.S. GAAP. We may take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could make the ADSs less attractive to investors. We have a public float of less than $250 million and therefore qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company we are able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in its SEC filings. Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find the ADSs less attractive if we rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our share price may be more volatile. We may take advantage of the reporting exemptions applicable to a smaller reporting company until we are no longer a smaller reporting company, which status would end once we have a public float greater than $250 million. In that event, we could still be a smaller reporting company if our annual revenues were below $100 million and we have a public float of less than $700 million. The ADSs may be delisted from Nasdaq if we fail to comply with continued listing standards. If we fail to meet any of the continued listing standards of Nasdaq, the ADSs could be delisted from The Nasdaq Capital Market. These continued listing standards include specifically enumerated criteria, such as: · a $1.00 minimum closing bid price; · shareholders’ equity of $2.5 million; · 500,000 shares of publicly-held shares with a market value of at least $1 million; · 300 round-lot shareholders; and · compliance with Nasdaq’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of Nasdaq’s discretionary authority. There can be no assurance that we will be able to maintain compliance and remain in compliance in the future. In particular, our share price may continue to decline for a number of reasons, including many that are beyond our control. See “—The ADS price could continue to be highly volatile and you may not be able to resell your ADSs at or above the price you paid for them.” If we fail to comply with Nasdaq’s continued listing standards, we may be delisted and the ADSs will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of the ADSs could depress our share price, substantially limit liquidity of the ADSs and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Further, delisting of the ADSs would likely result in the ADSs becoming a “penny stock” under the Exchange Act. 59 Recent changes to the composition of our board of directors may disrupt our business plans. Three of our directors have recently resigned from our board of directors. Additional changes to the composition of our board of directors are likely to occur at our upcoming annual general meeting of shareholders. It is possible that these changes in the board’s composition and any future changes to the composition of our senior management team may disrupt our business and may create uncertainty among investors, employees and our collaboration partner concerning our future direction and performance. Any such disruption or uncertainty could have a material adverse impact on our results of operations and financial condition and the market price of the ADSs. 60 Item 1B. Unresolved Staff Comments None.