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
Our
strategic review process may not be successful or timely.
Following
the results of the ORA-D-013-1 Phase 3 trial, we conducted a comprehensive analysis of the data to understand if there is a path forward
for our oral insulin candidate and are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. Concurrently,
we are examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, including among
others, continuation as a stand-alone business, capital raises, or one or more acquisitions, mergers or business combinations or other
strategic transactions. Potential counterparties in a strategic transaction involving us may place minimal or no value on our assets.
While we are devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this
strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive
terms or at all. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction,
or series of transactions, will be pursued, successfully consummated, or lead to any stockholder value. Any potential transaction would
be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends,
the interest of third parties in a potential transaction with us, obtaining stockholder approval and the availability of financing to
third parties in a potential transaction with us on reasonable terms. The process of reviewing alternative strategic paths may be time
consuming, may involve the dedication of significant resources and may require us to incur significant costs and expenses. It could negatively
impact our ability to attract, retain and motivate employees, and expose us to potential litigation in connection with this process or
any resulting transaction. If we are not successful in setting forth a new strategic path for the Company, or if our plans are not executed
in a timely fashion, this may cause reputational harm with our stockholders and other stakeholders and the value of our securities may
be adversely impacted. In addition, speculation regarding any developments related to the review of strategic alternatives and perceived
uncertainties related to the future of the Company could cause our stock price to fluctuate significantly. There can be no guarantee
that the process of evaluating alternative strategic paths will result in our entering into or completing potential transactions within
the anticipated timing or at all.
If
we are successful in completing a strategic transaction, we may be exposed to other operational and financial risks.
Although
there can be no assurance that a strategic transaction will result from the process we have undertaken to identify and evaluate strategic
alternatives, the negotiation and consummation of any such transaction will require significant time on the part of our management and
may disrupt our business. The negotiation and consummation of any such transaction may also require more time or greater cash resources
than we anticipate and expose us to other operational and financial risks, including: increased near-term and long-term expenditures;
exposure to unknown liabilities; higher than expected acquisition or integration costs; incurrence of substantial debt or dilutive
issuances of equity securities to fund future operations; write-downs of assets or goodwill or incurrence of non-recurring, impairment
or other charges; increased amortization expenses; impairment of relationships with key suppliers of any acquired business
due to changes in management and ownership; inability to retain our key employees; and possibility of future litigation. Any
of the above risks could have a material adverse effect on our business, financial condition, and prospects.
Our
ability to consummate a strategic transaction depends on our ability to retain our employees required to consummate such transaction.
Our
ability to consummate a strategic transaction depends upon our ability to retain our employees required to consummate such a transaction,
the loss of whose services may adversely impact the ability to consummate such transaction. Our cash conservation activities may yield
unintended consequences, such as attrition and reduced employee morale, which may cause remaining employees to seek alternative employment.
Our ability to successfully complete a strategic transaction depends in large part on our ability to retain certain of our remaining
personnel. If we are unable to successfully retain our remaining personnel, we are at risk of a disruption to our exploration and consummation
of a strategic alternative as well as business operations.
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We
may become involved in securities and stockholder litigation that could divert management’s attention and harm the Company’s
business, and insurance coverage may not be sufficient to cover all costs and damages.
In
the past, securities and stockholder litigation has often followed certain significant business transactions, such as the sale of a company
or announcement of any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials.
The market price of our common stock dropped substantially when we announced the results of the ORA-D-013-1 Phase 3 trial. We may be
exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and
resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction
or the ultimate value our stockholders receive in any such transaction.
We
continue, and in the future expect, to incur losses .
Successful
evaluation and completion of our remaining 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 expect to incur substantial expenditures in connection with our research and development programs, our strategic evaluation process,
as well as the regulatory approval process with FDA and other agencies for each of our current or future 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 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 may require substantial additional financing
at various intervals in order to implement any potential strategic alternative, to continue our remaining or potential future 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 remaining or future 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 may not be able to implement the actions we decide to take as part of our strategic review process, and we will not
be able to fully develop and commercialize our technology or pursue new technology. Our future capital requirements will depend upon
many factors, including:
● the
results of our strategic review process and any new strategic direction we decide to take;
● 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;
● 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 existing or
planned courses of action or 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.
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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. For example, in January 2023, the ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints.
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 or in pursuing a successful strategic alternative.
As of December 31, 2023 and 2022, we had working capital of $109,370,000 and $151,363,000, respectively, and stockholders’ equity
of $163,821,000 and $151,812,000, respectively. During the years ended December 31, 2023 and 2022, we generated revenues of $1,340,000
and $2,703,000, respectively. For the period from our inception on April 12, 2002 through December 31, 2023, we incurred net losses of
$157,556,000. 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 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.
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 117 patents issued by the United
States and various other countries’ patent offices that cover a part of our technology, which allows for the oral delivery of proteins;
patents issued by various patent offices that cover part of our technology for the oral delivery of exenatide; and patents issued by
patent offices for treating diabetes. Further, we 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 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.
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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— Intellectual Property
and Patents.”
Our
success was primarily dependent on the successful commercialization of our oral insulin capsule.
The
successful commercialization of our principal product, the oral insulin capsule, was crucial for our success. On January 12, 2023, we
announced top-line results from the phase 3 trial of our oral insulin capsule, which did not meet its primary or secondary endpoints,
and indicated that we expect to discontinue oral insulin clinical activities for T2D. At present, following the results of the ORA-D-013-1
Phase 3 trial, we conducted a comprehensive analysis of the data to understand if there is a path forward for our oral insulin candidate
and are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. Concurrently, we are examining our existing
pipeline and have commenced an evaluation process of potential strategic opportunities. Even if we succeed in commencing a new clinical
trial for our oral insulin capsule, there are a variety of risks and uncertainties related to its development. Principally, these risks
include the following:
● Future
clinical trial results may show the same results as the ORA-D-013-1 Phase 3 trial;
● Future
clinical trial results may be inconsistent with previous preliminary testing results and
data from our earlier trials may be inconsistent with clinical data;
● Even
if our oral insulin capsule is shown to be safe and effective for its intended purposes in
future clinical trials, 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.
Our
business may be seriously harmed if our analysis does not produce positive results, if we are unable to find a path forward to continue
development of our oral insulin capsule, if we are unsuccessful in realizing new strategic opportunities or dealing with any of these
risks, or if we are unable to successfully commercialize our oral insulin capsule for some other reason.
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
trials and clinical trials necessary to obtain regulatory approval for our product candidates in any country. In the past, we 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 a 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. For example, the rate of enrollment for our Phase 1 clinical trial for our oral COVID-19
vaccine in South Africa was slower than anticipated due to several factors, including the fact that many volunteers did not qualify during
screening due to prior asymptomatic COVID-19 infection and other conditions, and as a result we had to add an additional clinical site.
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. For example, see “Item
1. Business—Description of Business— Research and Development” regarding the results of the ORA-D-013-1 Phase 3 trial
that did not meet its primary or secondary endpoints. Finally, the COVID-19 pandemic impacted clinical trials generally in recent years,
and we experienced approximately six months of delays in clinical trials due to slow-downs of recruitment for trials generally related
to COVID-19. We may experience further 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.
Initial
success in the completed and ongoing early-stage clinical trials does not ensure success in later stage trials, regulatory approval or
commercial viability of a product.
Positive
results in a clinical trial may not be replicated in subsequent or confirmatory trials. Additionally, success in preclinical work or
early stage clinical trials does not ensure that later stage or larger scale clinical trials will be successful or that regulatory approval
will be obtained. Any of our product’s failure to show sufficient efficacy in patients with the targeted indication, or if such
studies are discontinued for any other reason, could negatively impact our development and commercialization goals for these products
and our stock price could decline. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. As a result, preliminary
and interim data should be viewed with caution until the final data are available. We have invested in clinical studies of medicines
that have not met the primary clinical endpoints in their Phase 3 studies or have been discontinued for other reasons. For example, in
January 2023, we reported that ORA-D-013-1 trial did not meet its primary or secondary endpoint. Even if later stage clinical trials
are successful, regulatory authorities may delay or decline approval of our product candidates.
There
are a number of factors that could cause a clinical study to fail or be delayed, including: (i) the clinical study may produce negative
or inconclusive results; (ii) regulators may require that we hold, suspend or terminate clinical research for noncompliance with regulatory
requirements; (iii) we, our partners, the FDA or foreign regulatory authorities could suspend or terminate a clinical study due to adverse
side effects of a product on subjects or lack of efficacy in the trial; (iv) we, or our partners, may decide, or regulators may require
us, to conduct additional preclinical testing or clinical studies; (v) change in rates of enrollment and dropout among clinical trial
participants; (vi) differences in the size and type of the patient populations; (vii) changes in and adherence to the dosing regimen
and other clinical trial protocols; and (viii) people who enroll in the clinical study may later drop out due to adverse events, a perception
they are not benefiting from participating in the study, fatigue with the clinical study process or personal or other issues. The occurrence
of any of these events could result in significant costs and expense, have an adverse effect on our business, financial condition and
results of operations and/or cause our stock price to decline or experience periods of volatility.
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. For example, the rate of enrollment for our Phase 1 clinical trial for our oral COVID-19 vaccine in South
Africa was slower than anticipated due to several factors, including the fact that many volunteers did not qualify during screening due
to prior asymptomatic COVID-19 infection and other conditions, and as a result we had to add an additional clinical site. 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.
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We
can provide no assurance that our products will obtain regulatory approval or that the results of clinical trials 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 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. For example, in January 2023,
we announced that our ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints. As a result, we decided to terminate
our ORA-D-013-2 Phase 3 trial, conducted a comprehensive analysis of the data to understand if there is a path forward for our oral insulin
candidate and are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. 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 and for other services.
We
are dependent on outside vendors for our entire supply of the oral insulin capsules and do not currently have any long-term agreements
in place for the supply of oral insulin capsules, which is still necessary if we decide to continue development of these projects. While
we believe that there are numerous sources of supply available, if the third party suppliers were to cease production, 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.
We
rely on suppliers, vendors, outsourcing partners, alliance partners and other third parties to research, develop, manufacture, commercialize,
co-promote and sell our products, manage certain marketing, IT, data and other business unit and functional services and meet their contractual,
regulatory and other obligations. Using these third parties poses a number of risks, such as: (i) they may not perform to our standards
or legal requirements, for example, in relation to the outsourcing of significant clinical development activities for innovative medicines
to some CROs; (ii) they may not produce reliable products; (iii) they may not perform in a timely manner; (iv) they may not maintain
confidentiality of our proprietary information; (v) they may incur a significant cyberattack or business disruption; (vi) they may be
subject to government orders or mandates that require them to give priority to the government and set aside pre-existing commercial orders;
(vii) disputes may arise with respect to ownership of rights to technology developed with our partners; and (viii) disagreements could
cause delays in, or termination of, the research, development or commercialization of the product or result in litigation or arbitration.
The failure of any critical third party to meet its obligations; to adequately deploy business continuity plans in the event of a crisis;
and/or to satisfactorily resolve significant disagreements with us or address other factors, could have a material adverse impact on
our operations and results. In addition, if these third parties violate, or are alleged to have violated, any laws or regulations, including
the local pharmaceutical code, the U.S. Foreign Corrupt Practice Act of 1977, the U.K. Bribery Act of 2010, the EU’s General Data
Protection Regulations, and other similar laws and regulations, during the performance of their obligations for us, we could suffer financial
and reputational harm or other negative outcomes, including possible legal consequences.
Any
future revenues from HTIT are dependent upon third party suppliers and Chinese regulatory approvals.
Any
future revenues from HTIT under the TLA 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. Any future revenues from HTIT under the TLA 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.
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If
we fail to complete the transactions contemplated under the JV Agreement with HTIT, if such joint venture is not successful, or if we
fail to realize the benefits we anticipate from such joint venture, we may not be able to capitalize on the full market potential of
our drug products and technology.
On
January 22, 2024, we entered into the JV Agreement with HTIT, pursuant to which, subject to the terms and conditions set forth in the
JV Agreement, the parties will establish a JV based on Oramed’s oral drug delivery technology.
The
consummation of the JV Agreement is subject to and contingent upon the parties entering into additional agreements within a three-month
period, including an asset transfer agreement for the transfer of Oramed’s intellectual property to the JV, a commercial supply
agreement for the manufacture and supply of products by HTIT to the JV, as well as other documents and agreements to regulate the relationship
of the parties and the JV to be formed pursuant to the JV Agreement. There is no assurance that the parties will complete and sign these
additional agreements within the agreed timeline or at all. If such agreements are not signed within the agreed timeframe, then either
party may apply a 30-day extension, after which the JV Agreement may be terminated and voided by either party. Thereafter, the consummation
of the JV transaction is further subject to the satisfaction or waiver of certain other closing conditions within a three-month period
following the completion of the aforesaid ancillary agreements. If the closing conditions are not met within the agreed timeframe, then
either party may apply a 30-day extension, after which the JV Agreement may be terminated and voided by either party.
If
we do not successfully complete the ancillary agreements in a timely manner, or at all, this may harm our ability to complete additional
clinical trials and marketing of our oral insulin candidate. In addition, this may cause irreparable harm to our financial position and
business operations.
Furthermore,
there can be no assurances that the JV will receive the necessary regulatory approvals for the Phase 3 oral insulin trial in the United
States or that our drug products and our technology will be developed and commercialized successfully. In addition, the JV will subject
us to a number of risks including risks relating to the lack of full control of the JV, potential disagreements with HTIT about how to
manage the JV that may result in the delay or termination of the commercialization of our products or product candidates or that result
in costly litigation or arbitration that diverts management attention and resources, conflicting interests of the JV, and the JV and
its business not being profitable.
While
we believe that our board representation, voting rights and other contractual rights with respect to the JV will serve to mitigate some
of these risks, we may have disagreements with the other directors and HTIT that could impair our ability to influence the JV to act
in a manner that we believe is in the best interest of the Company.
If
we do not resolve our dispute with HTIT favorably, we may need to reverse deferred revenue of up to $2 million and will 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 disputed said claims and are planning to resolve any such claims
as part of our discussions with HTIT, if we are not successful in consummating the JV or resolving the claims as part of the JV, 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 for the years ended December 31, 2023 and 2022. In addition, we will not receive an additional
$4 million in Royalties if HTIT is entitled to the full disputed amount of $6 million.
We
may not realize a return on the ordinary shares of DNA and Entera that we own.
DNA’s
ordinary shares are traded on the Tel Aviv Stock Exchange and Entera’s ordinary shares are traded on the Nasdaq Stock Market, both
of which are subject to market fluctuations, and may, at times, have a price below the value on the date we acquired such shares. In
addition, the ordinary shares of DNA and Entera have historically experienced low trading volume. As a result, there is no guarantee
that we will be able to resell the ordinary shares of DNA or Entera at the prevailing market prices or that we will realize a positive
return on such shares.
We
may not realize the full benefit from our distribution license agreement with Medicox.
Our
distribution license agreement with Medicox provides that Medicox will comply with agreed distribution targets and will purchase ORMD-0801
at an agreed upon transfer price per capsule and pay us up to $15 million in developmental milestones, $2 million of which have already
been received by us. If we are not successful in finding a mutually agreed way to continue our collaboration following the results of
the ORA-D-013-1 Phase 3 trial, or if Medicox is not successful in independently advancing the oral insulin candidate, we may not realize
the benefits from this collaboration.
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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. 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 trials, label expansions and other regulatory requirements concerning future clinical
development in the United States and elsewhere. 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. We face the risk that new market entrants and existing competition may
try to replicate our business model or introduce a more innovative offering that renders our services less competitive or obsolete. In
addition, our research and development efforts may target diseases and conditions for which there are existing therapies or therapies
that are being developed by our competitors. Further, any products resulting from our research and development efforts might not be able
to compete successfully with others’ existing and future products. See “Item 1. Business—Description of Business—Competition.”
Our
financial position or results could be negatively affected by product liability claims.
It
is possible that we will be responsible for potential product liability stemming from product research, development or manufacturing
and may face an even greater risk if any product candidate that we develop is commercialized. If we cannot successfully defend ourselves
against claims that products we develop independently or with our partners caused injuries, we could incur substantial liabilities. Regardless
of the merit or eventual outcome of such claims, any liability claims may result in, among other things, decreased demand for any product
that we may develop, loss of revenues, significant time and costs to defend the related litigation, initiation of investigations by regulators
and injury to our reputation and significant negative media attention. On occasion, large judgments have been awarded in class action
lawsuits based on drugs or medical treatments that had unanticipated adverse effects. Our clinical trials are covered by liability insurance,
but notwithstanding such coverage, our financial position or results could be negatively affected by product liability claims.
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, as well as the activities we take as a result of our strategic review process, 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—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 certain joint ventures, and we may in the future sell or contribute additional assets or acquire, develop or recapitalize
assets to or in these joint ventures or other joint ventures that we may enter.
Our
participation in our existing joint ventures is subject to risks, including the following:
● We
share approval rights over certain major decisions affecting the ownership or operation of
the joint ventures and any assets owned by the joint ventures;
● We
may need to contribute additional capital in order to preserve, maintain or grow the joint
ventures and their 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 ventures;
● Our
joint venture investors may be subject to different laws or regulations than us, which could
create conflicts of interest;
● Our
joint ventures may have license and other agreements with other investors, which we are not
party to and have no control over;
● Our
ability to sell our interests in, or sell additional assets to, the joint ventures or the
joint ventures’ ability to sell additional interests of, or assets owned by, the joint
ventures 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 ventures; 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.
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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. Following several years of litigation in the federal courts, in June 2021, the U.S.
Supreme Court upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality. Further 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.
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 trials 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 years ended December 31, 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 year ended December 31, 2022
and 2023, 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.
We
face uncertainties related to Oravax’s oral COVID-19 vaccine.
We
face uncertainties related to Oravax’s oral COVID-19 vaccine, including uncertainties related to the risk that our continued development
programs may not be successful, commercially viable or receive approval from regulatory authorities. Other companies may produce superior
or competitive oral or other products that make Oravax’s oral COVID-19 vaccine not commercially worthwhile. Even if we succeed
in developing the product, the demand for any product we may develop may no longer exist, given the fluid nature of the COVID-19 pandemic,
including possible decreased demand for vaccines due to weaker strains, the need for different vaccines for new variants of the virus
or an end of the pandemic that may render Oravax’s vaccine obsolete.
Risks
Related to the Note
We
have lent a substantial amount of funds to Scilex. In the event that Scilex is unable to service its obligations under the Note and defaults
on such Note, it could have a material adverse effect on our business.
On
September 21, 2023, we were issued the Note in an aggregate principal amount of $101,875,000 by Scilex pursuant to the Scilex SPA. The
Note matures on March 21, 2025 and is payable in six principal installments, with the first installment paid on December 21, 2023. Interest
under the Note accrues at a fluctuating per annum interest rate equal to the sum of (1) the greater of (x) four percent (4%) and (y)
Term SOFR (as defined in the Note) and (2) eight and one half percent (8.5%), payable in-kind on a monthly basis.
21
There
is no guarantee that Scilex will be able to service its repayment obligations under the Note. Although the Note is secured by a first
priority security interest in and liens on all of the assets of Scilex and its subsidiaries, no assurance can be made that Scilex will
be able to repay the Note when due or that we will be able to foreclose on such assets and recover enough value upon the sale of such
assets to repay the amounts owed to us. In such an event, we could lose all or a substantial portion of our loan investment. Additionally,
Scilex has disclosed in its periodic reports filed with the SEC that there is substantial doubt about its ability to continue as a going
concern. If Scilex is unable to continue as a going concern or defaults on the Note, we may be unable to recover some or all of the principal
amount of the Note, which could have a material adverse affect on our business, financial condition and results of operations.
We
may have difficulty realizing the full value of the Warrants.
The
Closing Penny Warrant will be exercisable upon the earliest of (i) March 14, 2025, (ii) the date on which the Note has been repaid in
full, and (iii) the Management Sale Trigger Date (as defined therein), if any, and will expire on the date that is the fifth anniversary
of the issuance date. For purposes of the Penny Warrants, the Management Sale Trigger Date is generally the first date that certain members
of Scilex management engage in certain sales or other similar transfers of shares of Scilex Common Stock or other of Scilex’s or
any of its subsidiaries’ securities, subject to certain exceptions as are customary for lock-up agreements executed by directors
and officers in connection with financings or similar transactions.
The
Subsequent Penny Warrants will vest and become exercisable on the date that is the later of (i) Subsequent Penny Warrant Vesting Date,
and (ii) the earliest of (A) March 14, 2025, (B) the date on which the Note has been repaid in full and (C) the Management Sale Trigger
Date, if any. Each Subsequent Penny Warrant will expire on the date that is the fifth anniversary of the issuance date; provided that,
if the Note is repaid in full prior to the Subsequent Penny Warrant Vesting Date applicable to such Subsequent Penny Warrant, such Subsequent
Penny Warrant will expire on the date the Note is repaid in full.
The
Transferred Warrants are listed on Nasdaq, have an exercise price of $11.50 per share, are fully exercisable, and expire on November
10, 2027.
Because
of the foregoing restrictions on exercisability of the Closing Penny Warrant and the Subsequent Penny Warrants, and exercise price of
the Transferred Warrants, we may not be able to exercise the Warrants for shares of Scilex Common Stock at a time when it would be financially
beneficial for us to do so. Accordingly, there is no guarantee that we will be able to realize the full or any value of the Warrants.
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. We experienced a significant decline in the market price of our common stock and a significant increase in trading volume
after announcing the results of our ORA-D-013-1 Phase 3 trial in January 2023. Any strategic decision we make as a result of our strategic
review process may also negatively affect our common stock price or cause volatility in the market price of our common stock. Sales of
large amounts of our securities or large variations in trading volume 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 March 6, 2024, we had outstanding 40,519,160 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 45,487,537 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 March 6, 2024, we had outstanding
warrants and options exercisable for 20,000 shares of common stock at a weighted average exercise price of $4.13. We also had outstanding
RSUs exercisable for 350,761 shares of common stock. 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.
22
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.
Our
failure to maintain compliance with the Nasdaq Capital Market’s continued listing requirements could result in the delisting of
our common stock.
Our
common stock is currently listed on the Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and
other requirements. Nasdaq Listing Rule 5550(a)(2) requires the minimum bid price of our common stock on the Nasdaq Capital Market to
remain above $1.00. If the bid price of our common stock closes below $1.00 per share for 30 consecutive business days, we would be in
violation of Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we would have 180 calendar days to
regain compliance with the minimum bid requirement.
While
we intend to engage in efforts to maintain compliance, and thus maintain our listing, there can be no assurance that we will continue
to meet all applicable Nasdaq Capital Market requirements in the future, especially in light of any strategic transaction we may choose
to undertake. If our common stock were removed from listing with the Nasdaq Capital Market, it may be subject to the so-called “penny
stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market
price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange, which
is the exception on which we currently rely. For any transaction involving a “penny stock,” unless exempt, the rules impose
additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined
to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more
difficult to acquire or dispose of our common stock on the secondary market.
If
our common stock is delisted and there is no longer an active trading market for our shares, it may, among other things: cause stockholders
difficulty in selling our shares without depressing the market price for the shares or selling our shares at all; substantially impair
our ability to raise additional funds; result in a loss of institutional investor interest and fewer financing opportunities for us;
and/or result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have
a material adverse effect on our financial condition, business and results of operations.
A
delisting would also reduce the value of our equity compensation plans, which could negatively impact our ability to retain employees.
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 the Nasdaq Capital Market 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.
For example, we experienced a significant decline in the market price of our common stock after announcing the results of our ORA-D-013-1
Phase 3 trial in January 2023. These factors include:
● market
acceptance of our new strategy, once determined and announced;
● clinical
trial results and the timing of the release of such results;
● the
amount of cash resources and our ability to obtain additional funding;
● announcements
of research activities, business developments, technological innovations or new products
by us or our competitors;
● entering
into or terminating strategic relationships;
23
● changes
in government regulation;
● departure
of key personnel;
● disputes
concerning patents or proprietary rights;
● changes
in expense level;
● future
sales of our equity or equity-related securities;
● public
concern regarding the safety, efficacy or other aspects of the products or methodologies
being developed;
● activities
of various interest groups or organizations;
● media
coverage; and
● 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 any strategic opportunity, the Cantor 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 in connection with any strategic opportunity or pursuant
to the Cantor Equity Distribution Agreement, our stockholders may experience significant dilution. Additionally, we may, from time to
time or in connection with a strategic alternative, issue additional shares of common stock at a discount from the current trading price
of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common
stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in
the future, including the issuance of convertible debt securities, preferred stock or common stock. If we issue common stock or securities
convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.
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. On October 7, 2023, the State of Israel was attacked by and subsequently declared war on Hamas.
Israel has been in an ongoing state of war with Hamas since that time. Following the attack by Hamas, Hezbollah has also launched attacks
against Israel and Israel has been responding to these attacks with targeted air strikes. It is possible that other terrorist organizations,
including Palestinian military organizations in the West Bank, as well as other hostile countries, such as Iran, will join the hostilities.
Although we believe that there is no immediate risk to our business operations related to these events, our business, prospects, financial
condition and results of operations could be materially adversely affected if such hostilities involving Israel continue or escalate
or if trade or scientific cooperation between Israel and its current partners is interrupted or curtailed. Moreover, we cannot predict
how this war will ultimately affect Israel’s economy in general, which may involve a downgrade in Israel’s credit rating
by rating agencies (such as the recent downgrade by Moody’s of its credit rating of Israel from A1 to A2, as well as the downgrade
of its outlook rating from “stable” to “negative”). We may also be targeted by cyber terrorists specifically
because we are an Israeli-related company.
24
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, and several hundred thousand Israeli
military reservists were drafted to perform immediate military service during the current war with Hamas and other hostile elements,
such as Hezbollah in Lebanon. Some of our employees may in the future be obligated to perform annual military reserve duty, although
none were called up for reserves in the current war. If called up, such persons may be absent from their positions for a lengthy period
of time. 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 and Industry we are subject to ongoing restrictions.
We
received royalty-bearing grants from the Israel Innovation Authority of the Israeli Ministry of Economy and Industry, or IIA, for research
and development programs that meet specified criteria. We did not recognize any grants in the years ended December 31, 2023 and December
31, 2022. 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.
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:
● subject
to limited exceptions, the judgment is final and non-appealable;
● 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;
● the
judgment was rendered by a court competent under the rules of private international law applicable
in Israel;
● the
laws of the state in which the judgment was given provides for the enforcement of judgments
of Israeli courts;
● adequate
service of process has been effected and the defendant has had a reasonable opportunity to
present its arguments and evidence;
● the
judgment and its enforcement are not contrary to the law, public policy, security or sovereignty
of the State of Israel;
● 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
● 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.
25
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.
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
Despite
the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to
damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or
cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside
our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer
hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted
attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations,
it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed
or ongoing or planned clinical trials could result in delays in our clinical trial efforts and significantly increase our costs to recover
or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, and damage
to our reputation, and the further development of our product candidates could be delayed.
We
also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material,
nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures
around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and
could have a material adverse effect on our financial position and value of our stock.
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 and we will necessarily be using our capital when we decide
on new strategic initiatives. 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.
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