Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
We are exposed to a variety
of risks, including changes in interest rates, foreign currency exchange rates, changes in the value of our marketable securities and
inflation.
As of December 31, 2023,
we had $9.1 million in cash and cash equivalents and $95.3 million in short term bank deposits.
We aim to preserve our financial
assets, maintain adequate liquidity and maximize return while minimizing exposure to market risks. Such policy further provides that
we should hold most of our current assets in bank deposits. As of today, the currency of our financial assets is mainly in U.S. dollars.
Marketable securities
We own 1,701,357 common shares
of DNA, 117,000 ordinary shares of Entera and 4,500,000 Closing Penny Warrants, which are presented in our financial statements as marketable
securities. Marketable securities are presented at fair value and their realization is subject to certain limitations if sold through
the market, and we are therefore exposed to market risk. There is no assurance that at the time of sale of the marketable securities
the price per share will be the same or higher, nor that we will be able to sell all of the securities at once given the volume of securities
we hold. Entera shares and the Closing Penny Warrants are traded on Nasdaq in U.S. dollars, while DNA shares are traded on the Tel Aviv
Stock Exchange in NIS. We are also exposed to changes in the market price of the Entera, DNA shares and the Closing Penny Warrants, as
well as to exchange rates fluctuations in the NIS currency compared to the U.S. dollar with respect to the DNA shares.
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Interest Rate Risk
We invest a major portion
of our cash surplus in bank deposits in banks in Israel. Since the bank deposits typically carry fixed interest rates, financial income
over the holding period is not sensitive to changes in interest rates, but only the fair value of these instruments. However, our interest
gains from future deposits may decline in the future as a result of changes in the financial markets.
The Note issued by Scilex
is based on the SOFR rate. Our interest income may decline in the future as a result of a change in the SOFR rate.
Foreign Currency Exchange Risk
A significant portion of our
expenditures, including salaries, clinical research expenses, consultants’ fees and office expenses relate to our operations in
Israel. The cost of those Israeli operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate
of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar. If
the U.S. dollar declines in value in relation to the NIS, it will become more expensive for us to fund our operations in Israel. In addition,
as of December 31, 2023, we own net balances in NIS of approximately $546,000. Assuming a 10% appreciation of the NIS against the U.S.
dollar, we would experience an exchange rate gain of approximately $50,000, while assuming a 10% devaluation of the NIS against the U.S.
dollar, we would experience an exchange rate loss of approximately $61,000.
The exchange rate of the
U.S. dollar to the NIS, based on exchange rates published by the Bank of Israel, was as follows:
Year Ended
December 31,
2023
2022
Average rate for period
3.69
3.358
Rate at period-end
3.627
3.519
We do not use any currency
hedging transactions of options or forwards to decrease the risk of financial exposure from fluctuations in the exchange rate of the
U.S. dollar against the NIS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
See Item 15 of this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.