Item 1A. Risk Factors
ITEM 1A. RISK FACTORS.
An investment in our
securities involves a high degree of risk. You should consider carefully the following information about these risks, together with the
other information contained in this Annual Report on Form 10-K before making an investment decision. Our business, prospects, financial
condition and results of operations may be materially and adversely affected as a result of any of the following risks. The value of
our securities could decline as a result of any of these risks. You could lose all or part of your investment in our securities. Some
of the statements in “Item 1A. Risk Factors” are forward-looking statements. The following risk factors are not the only
risk factors facing the Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may
also affect our business, prospects, financial condition and results of operations.
Risks Related to Our Business
We continue, and in the
future expect, to incur losses .
Successful completion of our
development programs and our transition to normal operations are dependent upon obtaining necessary regulatory approvals from the FDA
prior to selling our products within the United States, and foreign regulatory approvals must be obtained to sell our products internationally.
There can be no assurance that we will receive regulatory approval of any of our product candidates, and a substantial amount of time
may pass before we achieve a level of revenues adequate to support our operations. We also expect to incur substantial expenditures in
connection with the regulatory approval process for each of our product candidates during their respective developmental periods. Obtaining
marketing approval will be directly dependent on our ability to implement the necessary regulatory steps required to obtain marketing
approval in the United States and in other countries. We cannot predict the outcome of these activities.
Based on our current cash
resources and commitments, we believe we will be able to maintain our current planned development activities and the corresponding level
of expenditures for at least the next 12 months, although no assurance can be given that we will not need additional funds prior to such
time. If there are unexpected increases in our operating expenses, we may need to seek additional financing during the next 12 months.
We will need substantial
additional capital in order to satisfy our business objectives.
To date, we have financed
our operations principally through offerings of securities and we will require substantial additional financing at various intervals in
order to continue our research and development programs, including significant requirements for operating expenses including intellectual
property protection and enforcement, for pursuit of regulatory approvals, and for commercialization of our products. We can provide no
assurance that additional funding will be available on a timely basis, on terms acceptable to us, or at all. In the event that we are
unable to obtain such financing, we will not be able to fully develop and commercialize our technology. Our future capital requirements
will depend upon many factors, including:
●
Continued scientific progress in our research and development programs,
●
Costs and timing of conducting clinical trials and seeking regulatory approvals and patent prosecutions,
●
Competing technological and market developments,
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●
Our ability to establish additional collaborative relationships, and
●
Effects of commercialization activities and facility expansions if and as required.
If we cannot secure adequate
financing when needed, we may be required to delay, scale back or eliminate one or more of our research and development programs or to
enter into license or other arrangements with third parties to commercialize products or technologies that we would otherwise seek to
develop ourselves and commercialize ourselves. In such event, our business, prospects, financial condition and results of operations may
be adversely affected as we may be required to scale-back, eliminate, or delay development efforts or product introductions or enter into
royalty, sales or other agreements with third parties in order to commercialize our products.
We have a history of losses
and can provide no assurance as to our future operating results.
We do not have sufficient revenues
from our research and development activities to fully support our operations. Consequently, we have incurred net losses and negative cash
flows since inception. We currently have only licensing revenues and no product revenues, and may not succeed in developing or commercializing
any products which could generate product revenues. We do not expect to have any products on the market for several years. In addition,
development of our product candidates requires a process of pre-clinical and clinical testing, during which our products could fail. We
may not be able to enter into agreements with one or more companies experienced in the manufacturing and marketing of therapeutic drugs
and, to the extent that we are unable to do so, we will not be able to market our product candidates. Eventual profitability will depend
on our success in developing, manufacturing, and marketing our product candidates. As of August 31, 2021, August 31, 2020 and August 31,
2019, we had working capital of $88,658,000, $35,975,000 and $28,016,000, respectively, and stockholders’ equity of $116,517,000,
$32,879,000 and $19,393,000, respectively. During fiscal 2021 and the fiscal years ended August 31, 2020, or fiscal 2020, and 2019, we
generated revenues of $2,703,000, $2,710,000 and $2,703,000, respectively. For the period from our inception on April 12, 2002 through
August 31, 2021, fiscal 2021, fiscal 2020 and fiscal 2019, we incurred net losses of $114,852,000, $22,238,000, $11,511,000 and $14,355,000,
respectively. We may never achieve profitability and expect to incur net losses in the foreseeable future. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
We rely upon patents to
protect our technology.
The patent position of biopharmaceutical
and biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our current
or future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented.
Patents may not provide a competitive advantage or afford protection against competitors with similar technology. Competitors or potential
competitors may have filed applications for, or may have received patents and may obtain additional and proprietary rights to compounds
or processes used by or competitive with ours. In addition, laws of certain foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States.
Patent litigation is becoming
widespread in the biopharmaceutical and biotechnology industry and we cannot predict how this will affect our efforts to form strategic
alliances, conduct clinical testing or manufacture and market any products under development. If challenged, our patents may not be held
valid. We could also become involved in interference proceedings in connection with one or more of our patents or patent applications
to determine priority of invention. If we become involved in any litigation, interference or other administrative proceedings, we will
likely incur substantial expenses and the efforts of our technical and management personnel will be significantly diverted. In addition,
an adverse determination could subject us to significant liabilities or require us to seek licenses that may not be available on favorable
terms, if at all. We may be restricted or prevented from manufacturing and selling our products in the event of an adverse determination
in a judicial or administrative proceeding or if we fail to obtain necessary licenses.
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We may be unable to protect
our intellectual property rights and we may be liable for infringing the intellectual property rights of others.
Our ability to compete effectively
will depend on our ability to maintain the proprietary nature of our technologies. We currently hold several pending patent applications
in the United States, Canada, Brazil, Europe, India, Hong Kong, Japan and China for our technologies covering oral administration of insulin
and other proteins and oral administration of exenatide and proteins and 87 patents issued by the United States, Australian, Canadian,
Chinese, Israeli, Japanese, New Zealand, South African, Russian, European, Hong Kong, Swiss, German, Spanish, French, United Kingdom,
Italian, Indian, Austrian, Belgian, Irish, Swedish, Denmark, Luxembourg, Monaco, Norway and Netherlands patent offices for our technologies
covering oral administration of insulin and other proteins, or for our technologies covering oral administration of exenatide, or for
methods and compositions for treating diabetes. Further, we intend to rely on a combination of trade secrets and non-disclosure and other
contractual agreements and technical measures to protect our rights in our technology. We intend to depend upon confidentiality agreements
with our officers, directors, employees, consultants, and subcontractors, as well as collaborative partners, to maintain the proprietary
nature of our technology. These measures may not afford us sufficient or complete protection, and others may independently develop technology
similar to ours, otherwise avoid our confidentiality agreements, or produce patents that would materially and adversely affect our business,
prospects, financial condition and results of operations. We believe that our technology is not subject to any infringement actions based
upon the patents of any third parties; however, our technology may in the future be found to infringe upon the rights of others. Others
may assert infringement claims against us or against companies to which we have licensed our technology, and if we should be found to
infringe upon their patents, or otherwise impermissibly utilize their intellectual property, our ability to continue to use our technology
could be materially restricted or prohibited. If this event occurs, we may be required to obtain licenses from the holders of this intellectual
property, enter into royalty agreements, or redesign our products so as not to utilize this intellectual property, each of which may prove
to be uneconomical or otherwise impossible. Licenses or royalty agreements required in order for us to use this technology may not be
available on terms acceptable to us, or at all. These claims could result in litigation, which could materially adversely affect our business,
prospects, financial condition and results of operations. Further, we may need to indemnify companies to which we licensed our technology
in the event that such technology is found to infringe upon the rights of others.
Our commercial success will
also depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Patent
applications are, in many cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent
literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications are
filed. In the event of infringement or violation of another party’s patent, we may be prevented from pursuing product development
or commercialization. See “Item 1. Business—Description of Business—Patents and Licenses.”
At present, our success
depends primarily on the successful commercialization of our oral insulin capsule.
The successful commercialization
of our oral insulin capsule is crucial for our success. At present, our principal product is the oral insulin capsule. Our oral insulin
capsule is in a clinical development stage and faces a variety of risks and uncertainties. Principally, these risks include the following:
●
Future clinical trial results may show that the oral insulin capsule is not well tolerated by recipients at its effective doses or is not efficacious as compared to placebo,
●
Future clinical trial results may be inconsistent with previous preliminary testing results and data from our earlier studies may be inconsistent with clinical data,
●
Even if our oral insulin capsule is shown to be safe and effective for its intended purposes, we may face significant or unforeseen difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices,
●
Our ability to complete the development and commercialization of the oral insulin capsule for our intended use is significantly dependent upon our ability to obtain and maintain experienced and committed partners to assist us with obtaining clinical and regulatory approvals for, and the manufacturing, marketing and distribution of, the oral insulin capsule on a worldwide basis,
●
Even if our oral insulin capsule is successfully developed, commercially produced and receives all necessary regulatory approvals, there is no guarantee that there will be market acceptance of our product, and
●
Our competitors may develop therapeutics or other treatments which are superior or less costly than our own with the result that our products, even if they are successfully developed, manufactured and approved, may not generate significant revenues.
If we are unsuccessful in
dealing with any of these risks, or if we are unable to successfully commercialize our oral insulin capsule for some other reason, it
would likely seriously harm our business.
We have limited experience
in conducting clinical trials.
Clinical trials must meet
FDA and foreign regulatory requirements. We have limited experience in designing, conducting and managing the preclinical studies and
clinical trials necessary to obtain regulatory approval for our product candidates in any country. We have entered into agreements with
Integrium LLC and other consultants to assist us in designing, conducting and managing our various clinical trials in the United States,
Europe and Israel. Any failure of Integrium LLC or any other consultant to fulfill their obligations could result in significant additional
costs as well as delays in designing, consulting and completing clinical trials on our products.
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Our clinical trials may
encounter delays, suspensions or other problems.
We may encounter problems
in clinical trials that may cause us or the FDA or foreign regulatory agencies to delay, suspend or terminate our clinical trials at any
phase. These problems could include the possibility that we may not be able to conduct clinical trials at our preferred sites, enroll
a sufficient number of patients for our clinical trials at one or more sites or begin or successfully complete clinical trials in a timely
fashion, if at all. Furthermore, we, the FDA or foreign regulatory agencies may suspend clinical trials at any time if we or they believe
the subjects participating in the trials are being exposed to unacceptable health risks or if we or they find deficiencies in the clinical
trial process or conduct of the investigation. If clinical trials of any of the product candidates fail, we will not be able to market
the product candidate which is the subject of the failed clinical trials. The FDA and foreign regulatory agencies could also require additional
clinical trials, which would result in increased costs and significant development delays. Our failure to adequately demonstrate the safety
and effectiveness of a pharmaceutical product candidate under development could delay or prevent regulatory approval of the product candidate
and could have a material adverse effect on our business, prospects, financial condition and results of operations. Finally, the COVID-19
pandemic has impacted clinical trials broadly. We may experience delays in site initiation and patient enrollment, failures to comply
with study protocols, delays in the manufacture of our product candidates for clinical testing and other difficulties in starting or competing
our clinical trials.
Clinical trials of our
products conducted by third parties may encounter delays, suspensions or other problems and are outside of our control.
Third parties who conduct
clinical trials of our products may encounter problems that may cause delays, suspensions or other problems at any phase. These problems
could include the possibility that they may not be able to conduct clinical trials at their preferred sites, enroll a sufficient number
of patients for their clinical trials at one or more sites or begin or successfully complete clinical trials in a timely fashion, if at
all. In addition, these third parties are not controlled by us and may conduct these trials in a manner in which we disagree or which
may prove to be unsuccessful. Furthermore, domestic or foreign regulatory agencies may suspend clinical trials at any time if they believe
the subjects participating in the trials are being exposed to unacceptable health risks or if they find deficiencies in the clinical trial
process or conduct of the investigation. If such clinical trials conducted by third parties fail, it could have a material adverse effect
on our business, prospects, financial condition and results of operations.
We can provide no assurance
that our products will obtain regulatory approval or that the results of clinical studies will be favorable.
The testing, marketing and
manufacturing of any of our products will require the approval of the FDA or regulatory agencies of other countries. We have completed
certain non-FDA clinical trials and pre-clinical trials for our products. In addition, we have completed a Phase IIb clinical trial in
patients with T2D under an IND with the FDA and we have completed Phase IIa clinical trials of ORMD-0801 in patients with T1D, under an
IND with the FDA. However, success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be
successful. Even within a clinical trial there might be discrepancies from statistically significant data, as occurred at two of the sites
in the initial cohort of our Phase IIb trial, which we excluded while we investigate such discrepancies. For example, a number of companies
in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials.
We cannot predict with
any certainty the amount of time necessary to obtain regulatory approvals, including from the FDA or other foreign regulatory authorities,
and whether any such approvals will ultimately be granted. In any event, review and approval by the regulatory bodies is anticipated to
take a number of years. Preclinical and clinical trials may reveal that one or more of our products are ineffective or unsafe, in which
event further development of such products could be seriously delayed or terminated. Moreover, obtaining approval for certain products
may require the testing on human subjects of substances whose effects on humans are not fully understood or documented. Delays in obtaining
necessary regulatory approvals of any proposed product and failure to receive such approvals would have an adverse effect on the product’s
potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible
that a product may be found to be ineffective or unsafe due to conditions or facts which arise after development has been completed and
regulatory approvals have been obtained. In this event we may be required to withdraw such product from the market. See “Item 1.
Business—Description of Business—Government Regulation.”
We are dependent upon third
party suppliers of our raw materials.
We are dependent on outside
vendors for our entire supply of the oral insulin and GLP-1 capsules and do not currently have any long-term agreements in place for the
supply of oral insulin or GLP-1 capsules. While we believe that there are numerous sources of supply available, if the third party suppliers
were to cease production, including as a result of the COVID-19 pandemic, or otherwise fail to supply us with quality raw materials in
sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these services with alternative suppliers,
our ability to produce our products and to conduct testing and clinical trials would be materially adversely affected.
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Our future revenues from
HTIT are dependent upon third party suppliers and Chinese regulatory approvals.
Our future revenues from HTIT
are dependent upon the achievement of certain milestones and conditions, and the success of HTIT to implement our technology and to manufacture
the oral insulin capsule. Our future revenues from HTIT are also dependent upon the ability of third parties to scale-up one of our oral
capsule ingredients and to scale-up the manufacturing process of our capsules. Our future revenues from royalties from HTIT are further
dependent upon the granting of regulatory approvals in the Territory. Accordingly, if any of the foregoing does not occur, we may not
be successful in receiving future revenues from HTIT and may not succeed with our business plans in China.
If we do not resolve our
dispute with HTIT favorably, we may need to reverse deferred revenue of up to $2 million and may not receive an additional $4 million
in royalties.
On August 21, 2020, we received
a letter from HTIT, disputing certain pending payment obligations of HTIT under the TLA. We estimate this obligation to be between $2
million and $6 million. While we wholly dispute said claims and have been engaged in discussions and exchanges with HTIT in an attempt
to clarify and resolve disagreements between the parties regarding milestone payments and work plan implementation, we may be subsequently
required to repay to HTIT up to $2 million, which has been received and has been included in our deferred revenue in each of the consolidated
balance sheets fiscal years ended August 31, 2021 and 2020. In addition, we may not receive an additional $4 million in Royalties if HTIT
is entitled to the full disputed amount of $6 million.
We are highly dependent
upon our ability to enter into agreements with collaborative partners to develop, commercialize and market our products.
Our long-term strategy is
to ultimately seek a strategic commercial partner, or partners, such as large pharmaceutical companies, with extensive experience in the
development, commercialization, and marketing of insulin applications and/or other orally digestible drugs. Although Phase III clinical
trials for our oral insulin candidate, ORMD-0801 will start without a partner, if we engage such a partner, we anticipate such partner
or partners would be responsible for, or substantially support, late stage clinical trials, and sales and marketing of our oral insulin
capsule and other products. Such planned strategic partnership, or partnerships, may provide a marketing and sales infrastructure for
our products as well as financial and operational support for global clinical trials, post marketing studies, label expansions and other
regulatory requirements concerning future clinical development in the United States and elsewhere. While our strategy is to partner with
an appropriate party for our expected Phase III clinical trials, no assurance can be given that any third party would be interested in
partnering with us. We currently lack the resources to manufacture any of our product candidates on a large scale and we have no sales,
marketing or distribution capabilities. In the event we are not able to enter into a collaborative agreement with a partner, or partners,
on commercially reasonable terms, or at all, we may be unable to commercialize our products, which would have a material adverse effect
upon our business, prospects, financial condition and results of operations.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete with more
substantial enterprises.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition. As a result, our products could become
obsolete before we recoup any portion of our related research and development and commercialization expenses. These industries are highly
competitive, and this competition comes both from biotechnology firms and from major pharmaceutical and chemical companies. Many of these
companies have substantially greater financial, marketing and human resources than we do (including, in some cases, substantially greater
experience in clinical testing, manufacturing and marketing of pharmaceutical products). We also experience competition in the development
of our products from universities and other research institutions and compete with others in acquiring technology from such universities
and institutions. In addition, certain of our products may be subject to competition from products developed using other technologies.
See “Item 1. Business—Description of Business—Competition.”
We have limited senior
management resources and may be required to obtain more resources to manage our growth.
We expect the expansion of
our business to place a significant strain on our limited managerial, operational and financial resources. We will be required to expand
our operational and financial systems significantly and to expand, train and manage our work force in order to manage the expansion of
our operations. Our failure to fully integrate our new employees into our operations could have a material adverse effect on our business,
prospects, financial condition and results of operations. Our ability to attract and retain highly skilled personnel is critical to our
operations and expansion. We face competition for these types of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial, technical, human and other resources than we have. We may not
be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms or at all. If we are not successful
in attracting and retaining these personnel, our business, prospects, financial condition and results of operations will be materially
adversely affected. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
“Item 1. Business—Description of Business—Strategy” and “—Employees.”
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We depend upon our senior
management and skilled personnel and their loss or unavailability could put us at a competitive disadvantage.
We currently depend upon the
efforts and abilities of our senior executives, as well as the services of several key consultants and other key personnel, including
Dr. Miriam Kidron, our Chief Scientific Officer. The loss or unavailability of the services of any of these individuals for any significant
period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We do not
maintain “key man” life insurance policies for any of our senior executives. In addition, recruiting and retaining qualified
scientific personnel to perform future research and development work will be critical to our success. There is currently a shortage of
employees with expertise in developing, manufacturing and commercialization of products and related clinical and regulatory affairs, and
this shortage is likely to continue. Competition for skilled personnel is intense and turnover rates are high. Our ability to attract
and retain qualified personnel may be limited. Our inability to attract and retain qualified skilled personnel would have a material adverse
effect on our business, prospects, financial condition and results of operations.
Our existing and any future
joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements.
We are currently party to a joint venture, and we may in the future sell or contribute additional assets or acquire, develop or recapitalize
assets to or in this joint venture or other joint ventures that we may enter.
Our participation in our existing joint venture
is subject to risks, including the following:
●
We share approval rights over certain major decisions affecting the ownership or operation of the joint venture and any assets owned by the joint venture;
●
We may need to contribute additional capital in order to preserve, maintain or grow the joint venture and its investments;
●
Our joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to fully benefit from the assets owned by the joint venture;
●
Our joint venture investors may be subject to different laws or regulations than us, which could create conflicts of interest;
●
Our joint venture has license and other agreements with other investors, which we are not party to and have no control over;
●
Our ability to sell our interest in, or sell additional assets to, the joint venture or the joint venture’s ability to sell additional interests of, or assets owned by, the joint venture when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint venture; and
● Disagreements with our joint venture investors could result in litigation
or arbitration that could be expensive and distracting to management and could delay important decisions.
Any
of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. Further,
these, similar, enhanced or additional risks, including possible risks of the other joint venture investors having licensed assets to
the joint venture, may apply to any future additional or amended joint ventures that we may enter into.
Healthcare policy changes,
including pending legislation recently adopted and further proposals still pending to reform the U.S. healthcare system, may harm our
future business.
Healthcare costs have risen
significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to
keep these costs down. Certain proposals, if passed, would impose limitations on the prices we will be able to charge for the products
that we are developing, or the amounts of reimbursement available for these products from governmental agencies or third-party payors.
These limitations could in turn reduce the amount of revenues that we will be able to generate in the future from sales of our products
and licenses of our technology.
In 2010, the federal government
enacted healthcare reform legislation that has significantly impacted the pharmaceutical industry. In addition to requiring most individuals
to have health insurance and establishing new regulations on health plans, this legislation requires discounts under the Medicare drug
benefit program and increased rebates on drugs covered by Medicaid. In addition, the legislation imposes an annual fee, which has increased
annually, on sales by branded pharmaceutical manufacturers. There can be no assurance that our business will not be materially adversely
affected by these increased rebates, fees and other provisions. In addition, these and other initiatives in the United States may continue
the pressure on drug pricing, especially under the Medicare and Medicaid programs, and may also increase regulatory burdens and operating
costs. The announcement or adoption of any such initiative could have an adverse effect on potential revenues from any product that we
may successfully develop. An expansion in government’s role in the U.S. healthcare industry may lower the future revenues for the
products we are developing and adversely affect our future business, possibly materially.
In September 2017, members
of the U.S. Congress introduced legislation with the announced intention to repeal and replace major provisions of the Patient Protection
and Affordable Care Act, or the ACA. In addition to those efforts, on October 12, 2017, an executive order was issued that modified certain
aspects of the ACA. Various litigation to invalidate parts of the ACA are pending in court and, despite an upcoming change in presidential
administration, attempts to repeal or to repeal and replace the ACA may continue. In addition, various other healthcare reform proposals
have also emerged at the federal and state level. We cannot predict what healthcare initiatives, if any, will be implemented at the federal
or state level, or the effect any future legislation or regulation will have on us.
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We are exposed to fluctuations
in currency exchange rates.
A considerable amount of our
expenses are generated in dollars or in dollar-linked currencies, but a significant portion of our expenses such as some clinical studies
and payroll costs are generated in other currencies such as NIS and Euro. Most of the time, our non-dollar assets are not totally offset
by non-dollar liabilities. Due to the foregoing and to the fact that our financial results are measured in dollars, our results could
be adversely affected as a result of a strengthening or weakening of the dollar compared to these other currencies. During the fiscal
years ended August 31, 2016, 2017, 2019, 2020 and 2021, the dollar depreciated in relation to the NIS, which raised the dollar cost of
our Israeli based operations and adversely affected our financial results, while during the fiscal year ended August 31, 2018 the dollar
increased in relation to the NIS, which reduced the dollar cost of our Israeli based operations costs. In addition, our results could
also be adversely affected if we are unable to guard against currency fluctuations in the future. Although we may in the future decide
to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge
our exposure to foreign currency exchange risks. These transactions, however, may not adequately protect us from future currency fluctuations
and, even if they do protect us, may involve operational or financing costs we would not otherwise incur.
The COVID-19 pandemic,
or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect our business and operations.
The spread of COVID-19 may
result in the inability of our suppliers to deliver supplies to us on a timely basis. In addition, health professionals may reduce staffing
and reduce or postpone meetings with clients in response to the spread of an infectious disease. Though we have not yet experienced such
events, if they would occur, they could result in a period of business disruption, and in reduced operations, any of which could materially
affect our business, financial condition and results of operations. Although, as of the date of this Annual Report on Form 10-K, we do
not expect any material impact on our long-term activity, the extent to which COVID-19 impacts our business will depend on future developments,
which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and
the actions to contain COVID-19 or treat its impact, among others. We are actively monitoring the pandemic and we are taking any necessary
measures to respond to the situation in cooperation with the various stakeholders.
The outbreak of COVID-19
may materially and adversely affect our clinical trial operations and our financial results.
The outbreak of COVID-19 originated
in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States, Israel and several European
countries where we expected to initiate clinical trials. The extent to which COVID-19 may impact our clinical trial operations will depend
on future developments, which are still uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity
of COVID-19, or the effectiveness of actions to contain and treat for COVID-19. The continued spread of COVID-19 globally could adversely
impact our clinical trial operations in the United States, Israel and in Europe, including our ability to recruit and retain patients
and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs
in their geography or due to government or institutional quarantines or stay-at-home measures.
Moreover, COVID-19 may also
affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out such enrollments
and trials. Any negative impact COVID-19 has to patient enrollment or treatment could cause costly delays to clinical trial activities,
which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating
expenses, and have a material adverse effect on our financial results.
Risks Related to our Common Stock
Future sales of our common
stock by our existing stockholders could adversely affect our stock price.
The market price of our common
stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that these sales
could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that
we deem appropriate. As of November 24, 2021, we had outstanding 38,086,020 shares of common stock, a large majority of which are freely
tradable. Giving effect to the exercise in full of all of our outstanding warrants, options and restricted stock units, or RSUs, including
those currently unexercisable or unvested, we would have outstanding 41,151,814 shares of common stock.
Our issuance of warrants,
options and RSUs to investors, employees and consultants may have a negative effect on the trading prices of our common stock as well
as a dilutive effect.
We have issued and may continue
to issue warrants, options, RSUs and convertible notes at, above or below the current market price. As of November 24, 2021, we had outstanding
warrants and options exercisable for 1,056,405 shares of common stock at a weighted average exercise price of $5.91. We also had outstanding
RSUs exercisable for 364,635 shares of common stock at a total exercise price of $900. In addition to the dilutive effect of a large number
of shares of common stock and a low exercise price for the warrants and options, there is a potential that a large number of underlying
shares of common stock may be sold in the open market at any given time, which could place downward pressure on the trading of our common
stock.
Because we will not pay
cash dividends in the foreseeable future, investors may have to sell shares of our common stock in order to realize their investment.
We have not paid any cash
dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings,
if any, for reinvestment in the development and expansion of our business. Any credit agreements which we may enter into with institutional
lenders or otherwise may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion
of our Board and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that
our Board decides is relevant.
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Because certain of our
stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder
approval.
As of November 24, 2021, our
directors, executive officers and principal affiliated stockholders beneficially own approximately 7.0%
of our outstanding shares of common stock, excluding shares issuable upon the exercise of options, warrants and RSUs. As a result, these
stockholders, should they act together, may have the ability to control the outcome of matters submitted to our stockholders for approval,
including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these
stockholders, should they act together, may have the ability to control our management and affairs. Accordingly, this concentration of
ownership might harm the market price of our common stock by:
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Delaying, deferring or preventing a change in corporate control,
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Impeding a merger, consolidation, takeover or other business combination involving us, or
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Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
Risks Related to Conducting Business in Israel
We are affected by the
political, economic and military risks of having operations in Israel.
We have operations in the
State of Israel, and we are directly affected by political, economic and security conditions in that country. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for Israel. In addition, acts of terrorism, armed conflicts
or political instability in the region could negatively affect local business conditions and harm our results of operations. We cannot
predict the effect on the region of any diplomatic initiatives or political developments involving Israel or the Palestinians or other
countries and territories in the Middle East. Recent political events, including political uprisings, social unrest and regime change,
in various countries in the Middle East and North Africa have weakened the stability of those countries and territories, which could result
in extremists coming to power. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons.
Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon.
This situation has escalated in the past and may potentially escalate in the future to violent events which may affect Israel and us.
Our business, prospects, financial condition and results of operations could be materially adversely affected if major hostilities involving
Israel should occur or if trade between Israel and its current trading partners is interrupted or curtailed.
All adult male permanent residents
of Israel, unless exempt, may be required to perform military reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of our officers, directors and employees currently are or in the
future may be obligated to perform annual military reserve duty. We can provide no assurance that such requirements will not have a material
adverse effect on our business, prospects, financial condition and results of operations in the future, particularly if emergency circumstances
occur.
Because we received grants
from the Israel Innovation Authority of the Israeli Ministry of Economy & Industry we are subject to ongoing restrictions.
We received royalty-bearing
grants from the Israel Innovation Authority of the Israeli Ministry of Economy & Industry, or IIA, for research and development programs
that meet specified criteria. We did not recognize any grants in fiscals 2021, 2020 and 2019. We do not expect to receive further grants
from the IIA in the future. The terms of the IIA grants limit our ability to transfer know-how developed under an approved research and
development program outside of Israel, regardless of whether the royalties were fully paid.
It may be difficult to
enforce a U.S. judgment against us or our officers and directors and to assert U.S. securities laws claims in Israel.
Almost all of our directors
and officers are nationals and/or residents of countries other than the United States. As a result, service of process upon us, our Israeli
subsidiary and our directors and officers, may be difficult to obtain within the United States. Furthermore, because the majority of our
assets and investments, and most of our directors and officers are located outside the United States, it may be difficult for investors
to enforce within the United States any judgments obtained against us or any such officers or directors. Additionally, it may be difficult
to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation
of U.S. securities laws because Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli
court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to such claim. If U.S. law is found to
be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law.
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Subject to specified time
limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce
a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the U.S. securities laws, as well
as a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:
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subject to limited exceptions, the judgment is final and non-appealable;
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the judgment was given by a court competent under the laws of the state in which the court is located and is otherwise enforceable in such state;
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the judgment was rendered by a court competent under the rules of private international law applicable in Israel;
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the laws of the state in which the judgment was given provides for the enforcement of judgments of Israeli courts;
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adequate service of process has been effected and the defendant has had a reasonable opportunity to present its arguments and evidence;
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the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;
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the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and
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an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.
If any of these conditions are not met,
Israeli courts will likely not enforce the applicable U.S. judgment.
General Risk Factors
Changes to tax laws could
have a negative effect on us or our stockholders.
At any time, the U.S. federal
or state income tax laws, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly
under review by persons involved in the legislative process, the U.S. Internal Revenue Service, the U.S. Department of the Treasury and
state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application,
could adversely affect us. Our stockholders are encouraged to consult with their tax advisors about the potential effects that changes
in law may have on them and their ownership of our securities.
As the market price of
our common stock may fluctuate significantly, this may make it difficult for you to sell your shares of common stock when you want or
at prices you find attractive.
The price of our common stock
is currently listed on Nasdaq and on the Tel Aviv Stock Exchange and constantly changes. In recent years, the stock market in general
has experienced extreme price and volume fluctuations. We expect that the market price of our common stock will continue to fluctuate.
These fluctuations may result from a variety of factors, many of which are beyond our control. These factors include:
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Clinical trial results and the timing of the release of such results,
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The amount of cash resources and our ability to obtain additional funding,
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Announcements of research activities, business developments, technological innovations or new products by us or our competitors,
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Entering into or terminating strategic relationships,
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Changes in government regulation,
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The impact of the recent outbreak of COVID-19 on our business or on the economy generally,
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Departure of key personnel,
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Disputes concerning patents or proprietary rights,
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Changes in expense level,
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Future sales of our equity or equity-related securities,
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Public concern regarding the safety, efficacy or other aspects of the products or methodologies being developed,
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Activities of various interest groups or organizations,
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Media coverage, and
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Status of the investment markets.
Future sales of common
stock or the issuance of securities senior to our common stock or convertible into, or exchangeable or exercisable for, our common stock
could materially adversely affect the trading price of our common stock, and our ability to raise funds in new equity offerings.
Future sales of substantial
amounts of our common stock, including pursuant to our New Equity Distribution Agreement (as defined below), or other equity-related securities
in the public market or privately, or the perception that such sales could occur, could adversely affect prevailing trading prices of
our common stock and could impair our ability to raise capital through future offerings of equity or other equity-related securities.
We anticipate that we will need to raise capital through offerings of equity and equity related securities. We can make no prediction
as to the effect, if any, that future sales of shares of our common stock or equity-related securities, or the availability of shares
of common stock for future sale, will have on the trading price of our common stock.
Our stockholders may experience
significant dilution as a result of any additional financing using our equity securities.
To the extent that we raise
additional funds by issuing equity securities, including pursuant to our New Equity Distribution Agreement (as defined below), our stockholders
may experience significant dilution.
Our management will have
significant flexibility in using the net proceeds of any offering of securities.
We intend generally to use
the net proceeds from any offerings of our securities for expenses related to our clinical trials, research and product development activities,
and for general corporate purposes, including general working capital purposes. Our management will have significant flexibility in applying
the net proceeds of any such offering. The actual amounts and timing of expenditures will vary significantly depending on a number of
factors, including the amount of cash used in our operations and our research and development efforts. Management’s failure to use
these funds effectively would have an adverse effect on the value of our common stock and could make it more difficult and costly to raise
funds in the future.
Delaware law could discourage
a change in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, and thereby adversely
affect existing stockholders.
The Delaware General Corporation
Law contains provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of the Company,
even when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination
transactions with “interested stockholders.” These provisions and others that could be adopted in the future could deter unsolicited
takeovers or delay or prevent changes in our control or management, including transactions in which stockholders might otherwise receive
a premium for their shares of common stock over then current market prices. These provisions may also limit the ability of stockholders
to approve transactions that they may deem to be in their best interests.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We believe that our existing
facilities are suitable and adequate to meet our current business requirements. In the event that we should require additional or alternative
facilities, we believe that such facilities can be obtained on short notice at competitive rates.
ITEM 3. LEGAL PROCEEDINGS.
From time to time we may become
subject to litigation incidental to our business. We are not currently a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II