Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We
are exposed to a variety of risks, including changes in interest rates, foreign currency exchange rates, changes in the value of our
marketable securities and inflation.
As of December 31, 2024, we had approximately $54,420,000 in cash and
cash equivalents and approximately $55,281,000 in short term bank deposits.
We
aim to preserve our financial assets, maintain adequate liquidity and maximize return while minimizing exposure to market risks. Such
policy further provides that we should hold most of our current assets in bank deposits. As of today, the currency of our financial assets
is mainly in U.S. dollars.
Marketable
securities
We
own 1,701,357 common shares of DNA, 6,500,000 shares of Scilex Common Stock and 117,000 ordinary shares of Entera, which are presented
in our financial statements as marketable securities. Marketable securities are presented at fair value and their realization is subject
to certain limitations if sold through the market, and we are therefore exposed to market risk. There is no assurance that at the time
of sale of the marketable securities the price per share will be the same or higher, nor that we will be able to sell all of the securities
at once given the volume of securities we hold. Entera shares and the Closing Penny Warrants are traded on Nasdaq in U.S. dollars, while
DNA shares are traded on the Tel Aviv Stock Exchange in NIS. We are also exposed to changes in the market price of the Scilex, Entera
and DNA shares and the Closing Penny Warrants, as well as to exchange rates fluctuations in the NIS currency compared to the U.S. dollar
with respect to the DNA shares.
43
Interest
Rate Risk
We
invest a major portion of our cash surplus in bank deposits in banks in Israel. Since the bank deposits typically carry fixed interest
rates, financial income over the holding period is not sensitive to changes in interest rates, but only the fair value of these instruments.
However, our interest gains from future deposits may decline in the future as a result of changes in the financial markets.
The
Note issued by Scilex is based on the SOFR rate. Our interest income may decline in the future as a result of a change in the SOFR rate.
Foreign
Currency Exchange Risk
A significant portion of our expenditures, including salaries, clinical
research expenses, consultants’ fees and office expenses relate to our operations in Israel. The cost of those Israeli operations,
as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is
offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar. If the U.S. dollar declines in value in relation
to the NIS, it will become more expensive for us to fund our operations in Israel. In addition, as of December 31, 2024, we own net balances
in NIS of approximately $2,078,000. Assuming a 10% appreciation of the NIS against the U.S. dollar, we would experience an exchange rate
gain of approximately $231,000, while assuming a 10% devaluation of the NIS against the U.S. dollar, we would experience an exchange rate
loss of approximately $189,000.
The
exchange rate of the U.S. dollar to the NIS, based on exchange rates published by the Bank of Israel, was as follows:
Year
ended
December 31,
2024
2023
Average rate for period
3.70
3.69
Rate at period-end
3.65
3.63
We
do not use any currency hedging transactions of options or forwards to decrease the risk of financial exposure from fluctuations in the
exchange rate of the U.S. dollar against the NIS.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See
Item 15 of this Annual Report on Form 10-K.
44
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.