RedHill Biopharma Ltd
RedHill Biopharma Ltd. (Form: 20-F, Received: 02/23/2017 09:45:01)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ________________

Commission file number 001-35773

 

 

RedHill Biopharma Ltd.

 

 

(Exact name of Registrant as specified in its charter)

 

 

 

 

 

N/A

 

 

(Translation of Registrant’s name into English)

 

 

 

 

 

Israel

 

 

(Jurisdiction of incorporation or organization)

 

 

 

21 Ha’arba’a Street, Tel Aviv 64739, Israel

(Address of principal executive offices)

 

Micha Ben Chorin, Chief Financial Officer

21 Ha’arba’a Street, Tel Aviv 64739, Israel

Tel: 972-3-541-3131; Fax: 972-3-541-3144

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of class

 

Name of each exchange on which registered

American Depositary Shares, each representing ten Ordinary Shares (1)

 

NASDAQ Capital Market

 

 

 

Ordinary Shares, par value NIS 0.01 per share (2)

 

NASDAQ Capital Market

 

(1)

Evidenced by American Depositary Receipts.

(2)

Not for trading, but only in connection with the listing of the American Depositary Shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 170,581,594 Ordinary Shares

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes     No  

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.

 

Yes     No  

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes     No    

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

     Yes    No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer

Accelerated filer

Non-accelerated filer ☐☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP

 

International Financing Reporting Standards as issued by the International Accounting

    Standards Board

Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17 [  ] Item 18  [  ]

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes     No  

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, may elect to comply with certain reduced public company reporting requirements.

 

 

 

 


 

Table of Contents

 

TABLE OF CONTENTS  

 

 

 

ITEM 1.  

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2.  

OFFER STATISTICS AND EXPECTED TIMETABLE

ITEM 3.  

KEY INFORMATION

ITEM 4.  

INFORMATION ON THE COMPANY

33 

ITEM 4A.  

UNRESOLVED STAFF COMMENTS

70 

ITEM 5.  

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

70 

ITEM 6.  

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

80 

ITEM 7.  

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

98 

ITEM 8.  

FINANCIAL INFORMATION

99 

ITEM 9.  

THE OFFER AND LISTING

99 

ITEM 10.  

ADDITIONAL INFORMATION

102 

ITEM 11.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

114 

ITEM 12.  

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

115 

ITEM 13.  

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

116 

ITEM 14.  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

116 

ITEM 15.  

CONTROLS AND PROCEDURES

117 

ITEM 16.  

[RESERVED]

118 

ITEM 16A.  

AUDIT COMMITTEE FINANCIAL EXPERT

118 

ITEM 16B.  

CODE OF ETHICS

118 

ITEM 16C.  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

118 

ITEM 16D.  

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

118 

ITEM 16E.  

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

118 

ITEM 16F.  

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.

118 

ITEM 16G.  

CORPORATE GOVERNANCE

119 

ITEM 16H.  

MINE SAFETY DISCLOSURE

119 

ITEM 17.  

FINANCIAL STATEMENTS

119 

ITEM 18.  

FINANCIAL STATEMENTS

119 

ITEM 19.  

EXHIBITS

120 

EXHIBIT INDEX  

123 

 


 

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Unless the context otherwise requires, all references to “RedHill,” “we,” “us,” “our,” the “Company” and similar designations refer to RedHill Biopharma Ltd., a limited liability company incorporated under the laws of the State of Israel, and its direct and indirect subsidiaries. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar”, “US$”, “$” or “U.S.” refer to U.S. dollars, the lawful currency of the United States of America. Our functional and presentation currency is the U.S. dollar. Unless otherwise indicated, U.S. dollar amounts herein (other than amounts originally receivable or payable in dollars) have been translated for the convenience of the reader from the original NIS amounts at the representative rate of exchange as of February 22, 2017 ($1 = NIS 3.71). The dollar amounts presented should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated. Foreign currency transactions in currencies other than U.S. dollars are translated in this Annual Report into U.S. dollars using exchange rates in effect at the date of the transactions.

 

All references to the term “therapeutic candidates” include both pharmaceuticals and programs related to their development, such as diagnostics and devices.

 


 

FORWARD-LOOKING STATEMENTS

 

Some of the statements under the sections entitled “Item 3. Key Information — Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and elsewhere in this Annual Report may include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, the sections of this Annual Report entitled “Item 4. Information on the Company” contain information obtained from independent industry and other sources that we may not have independently validated. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

 

Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

 

·

the initiation, timing, progress and results of our research, manufacturing, preclinical studies, clinical trials, and other therapeutic candidate development efforts, as well as the extent and number of additional studies that we may be required to conduct;

·

our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials;

·

our receipt of regulatory clarity and approvals for our therapeutic candidates, Donnatal ® , and products that we may sell or market, and the timing of other regulatory filings and approvals;

·

the research, manufacturing, preclinical and clinical development, commercialization, and market acceptance of our therapeutic candidates, Donnatal ® , and products that we may sell or market;

·

our ability to establish and maintain corporate collaborations for our therapeutic candidates, Donnatal ® , and products that we may sell or market;

·

our ability to acquire products, rights to products or commercialization rights to products approved for marketing in the U.S. or other territories that achieve commercial success;

·

our ability to build and maintain our own marketing, sales, and commercialization capabilities, including complying with all applicable laws, regulations and guidelines;

·

the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in research, development, manufacturing, preclinical studies or clinical trials;

·

the implementation of our business model, ongoing and strategic plans for our business, therapeutic candidates, Donnatal ® , and products that we may sell or market;

·

the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing upon the intellectual property rights of others;

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·

estimates of our expenses, future revenues, capital requirements and our need for additional financing;

·

parties from whom we acquire rights to our intellectual property defaulting in their obligations towards us;

·

the impact of competitive companies and technologies within our industry; and

·

the impact of the political and security situation in Israel, the U.S. and other countries in which we may obtain approvals for our products on our business.

 


 

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ITEM 1.           IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

 

ITEM 2.           OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

 

ITEM 3.           KEY INFORMATION

 

A.           Selected Financial Data

 

The following table sets forth our selected financial data, which is derived from our financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. We have derived the selected financial data as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2016, 2015 and 2014 from our audited financial statements included elsewhere in this Annual Report on Form 20-F. We have derived the selected financial data as of December 31, 2013, and 2012 and for the years ended December 31, 2013 and 2012 from our audited financial statements not included in this Annual Report. You should read this selected financial data and other information provided in this Annual Report in conjunction with, and is qualified in its entirety by, our historical financial information including “Item 5. Operating and Financial Review and Prospects” and our financial statements and related notes appearing elsewhere in this Annual Report.

 

 

 

Year ended December 31

 

 

    

2016

    

2015

    

2014

    

2013

    

2012

 

 

 

(U.S. Dollars, in thousands, except per share and weighted average shares data)

 

Statement of Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

101 

 

 

7,014 

 

12 

 

16 

 

Cost of Revenue

 

— 

 

— 

 

1,050 

 

— 

 

— 

 

Research and development expenses, net

 

25,241 

 

17,771 

 

12,700 

 

8,100 

 

6,455 

 

General, administrative and business development expenses

 

5,403 

 

4,134 

 

4,011 

 

2,684 

 

2,601 

 

Other (income) expenses

 

— 

 

100 

 

(100)

 

— 

 

— 

 

Operating loss

 

30,543 

 

22,002 

 

10,647 

 

10,772 

 

9,040 

 

Financial income

 

1,548 

 

1,124 

 

319 

 

158 

 

197 

 

Financial expenses

 

375 

 

212 

 

383 

 

14 

 

1,483 

 

Financial (income) expenses, net

 

(1,173)

 

(912)

 

64 

 

(144)

 

1,286 

 

Loss and comprehensive loss

 

29,370 

 

21,090 

 

10,711 

 

10,628 

 

10,326 

 

Loss per Ordinary Share (in U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.23 

 

0.19 

 

0.12 

 

0.17 

 

0.20 

 

Diluted

 

0.24 

 

0.19 

 

0.13 

 

0.17 

 

0.20 

 

Weighted average number of Ordinary Shares used in computing loss per Ordinary Share

 

128,513,729 

 

110,813,742 

 

86,610,126 

 

62,379,171 

 

52,595,128 

 

Weighted average number of Ordinary Shares used in computing diluted loss per share

 

128,808,543 

 

111,714,566 

 

87,222,188 

 

62,379,171 

 

52,595,128 

 

 

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As of December 31

 

 

 

(U.S. Dollars, in thousands)

 

 

    

2016 

    

2015 

    

2014 

    

2013 

    

2012 

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

Cash and short-term investments

 

66,154 

 

58,138 

 

22,945 

 

12,113 

 

18,365 

 

Working capital

 

62,459 

 

54,996 

 

24,299 

 

10,186 

 

17,485 

 

Total assets

 

74,212 

 

66,828 

 

28,856 

 

14,340 

 

20,096 

 

Total liabilities

 

11,511 

 

6,751 

 

3,845 

 

2,415 

 

1,078 

 

Accumulated deficit

 

(89,635)

 

(61,944)

 

(42,218)

 

(33,260)

 

(23,887)

 

Equity

 

62,701 

 

60,077 

 

25,011 

 

11,925 

 

19,018 

 

 

B.           Capitalization and Indebtedness

 

Not applicable.

 

C .            Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.           Risk Factors

 

You should carefully consider the risks we describe below, in addition to the other information set forth elsewhere in this Annual Report, including our financial statements and the related notes beginning on page F-1, before deciding to invest in our ordinary shares (the “Ordinary Shares”) or our American Depositary Shares (“ADSs”). These material risks could adversely impact our results of operations, possibly causing the trading price of our Ordinary Shares and ADSs to decline, and you could lose all or part of your investment.

 

Risks Related to Our Financial Condition and Capital Requirements

 

Since our incorporation in 2009, we have focused primarily on the development and acquisition of late clinical-stage therapeutic candidates and have a history of operating losses. We expect to incur additional losses in the future and may never be profitable.

 

Since our incorporation in 2009, we have focused primarily on the development and acquisition of late clinical-stage therapeutic candidates. All of our therapeutic candidates are in the clinical development stage and none of our therapeutic candidates has been approved for marketing or are being marketed or commercialized in the U.S., although RIZAPORT ® has been approved for marketing in Germany but has yet to be marketed.  In addition, we were recently granted certain rights to promote, but not sell or distribute, Donnatal ® in the U.S. pursuant to an exclusive commercialization agreement (the “Co-Promotion Agreement”) with a subsidiary of Concordia International Corp. (“Concordia”).  Pursuant to the Co-Promotion Agreement, Concordia maintains all responsibility to receive orders of Donnatal ® and distribute Donnatal ® in our marketing territories. 

 

Most of our therapeutic candidates will require additional clinical trials before we can obtain the regulatory approvals in order to initiate commercial sales. We have incurred losses since inception, principally as a result of research and development, general, administrative and business development expenses in support of our operations. We experienced net losses of approximately $28.9 million in 2016, $21.1 million in 2015 and $10.7 million in 2014.  As of December 31, 2016, we had an accumulated deficit of approximately $89.6 million.  We may incur significant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our therapeutic candidates, promoting Donnatal ® and products that we may sell or market.  Our ability to generate any revenue and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop our therapeutic candidates, obtain the required regulatory approvals in various territories and commercialize our therapeutic candidates and promote Donnatal ® and products we may acquire or for which we may acquire commercialization rights.  We may be unable to achieve any or all of these goals with regard to our therapeutic candidates.  As a result, we may never be profitable or achieve significant or sustained revenues.

 

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Our limited operating history makes it difficult to evaluate our business and prospects.

 

We have a limited operating history and our operations to date have been limited primarily to acquiring and in-licensing therapeutic candidates, research and development, raising capital and recruiting scientific and management personnel and third-party partners. Except with respect to RHB-106 and related rights, which is out-licensed to Valeant Pharmaceuticals International, Inc. (“Valeant”), and with respect to RIZAPORT ® , for which we have received marketing approval in Germany and have entered into exclusive license agreements to commercialize in Spain and South Korea, we have not yet demonstrated an ability to commercialize or obtain regulatory approval for any of our therapeutic candidates. Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability to complete development or commercialization of our therapeutic candidates, the success of products that we may sell or market, the success of promoting Donnatal ® , obtain regulatory approvals, reimbursement, achieve market acceptance or favorable pricing for our therapeutic candidates, Donnatal ® and products that we may sell or market.

 

Our current working capital may not be sufficient to complete our research and development with respect to any or all of our therapeutic candidates or to commercialize our products or products to which we have rights, including to promote Donnatal ® . We will need to raise additional capital to achieve our strategic objectives of acquiring, in-licensing, developing and commercializing therapeutic candidates, marketing, Donnatal ® , and products that we may sell or market, and our failure to raise sufficient capital would significantly impair our ability to fund our operations, develop our therapeutic candidates, and commercialize the products we may sell or market, such as Donnatal ® ,   attract development or commercial partners and retain key personnel.

 

As of December 31, 2016, we had cash and short-term investments of approximately $66.2 million, and as of December 31, 2015, we had cash and short-term investments of approximately $58.1 million.  We have funded our operations primarily through public and private offerings of our securities. We plan to fund our future operations through commercialization and out-licensing of our therapeutic candidates, commercialization of in-licensed or acquired products and raising additional capital through the sale of equity or debt. These amounts are not sufficient to complete the research and development of all of our therapeutic candidates, and we are also not yet certain of the financial impact of our commercialization activities.  Accordingly, we may need to raise additional capital in the future.

 

To date, our business has generated limited revenues. As we plan to continue expending funds in research and development, including clinical trials, as well as to acquire additional products, we will need to raise additional capital in the future through either debt or equity financing or pursuant to development or commercialization agreements with third parties with respect to particular therapeutic candidates. However, we cannot be certain that we will be able to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may have difficulty raising needed capital or securing a development or commercialization partner in the future as a result of, among other factors, our lack of revenues from commercialization of the therapeutic candidates and marketing of Donnatal ® and products that we may sell or market, as well as the inherent business risks associated with our company, our therapeutic candidates, Donnatal ® , and products that we may sell or market, and present and future market conditions. To the extent we are able to generate revenues from Donnatal ® , we may still need to raise capital because the revenues from Donnatal ® , if any, may not be sufficient to cover all of our operating expenses and may not be sufficient to cover our commercial operations expenses. In addition, global and local economic conditions may make it more difficult for us to raise needed capital or secure a development or commercialization partner in the future and may impact our liquidity. If we are unable to obtain future financing or obtain sufficient future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research, development or commercialization programs for our therapeutic candidates, marketing of Donnatal ® , and products that we may sell or market, any of which may have material adverse effect on our business, financial condition and results of operations. Moreover, to the extent we are able to raise capital through the issuance of debt or equity securities, it could result in substantial dilution to existing shareholders.

 

Our long-term capital requirements are subject to numerous risks.

 

Our long-term capital requirements are expected to depend on many potential factors, including: 

 

·

the number of therapeutic candidates in development;

·

the regulatory clarity and path of each of our therapeutic candidates;

·

the progress, success and cost of our clinical trials and research and development programs including manufacturing;

·

the identification and acquisition of additional therapeutic candidates;

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·

the costs, timing and outcome of regulatory review and obtaining regulatory clarity and approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;

·

the costs of enforcing our issued patents and defending intellectual property-related claims;

·

the costs of manufacturing, developing and maintaining sales, marketing and distribution channels;

·

our ability to successfully commercialize our therapeutic candidates, promote Donnatal ® , and products that we may sell or market, including through securing commercialization agreements with third parties and favorable pricing and market share or through securing and maintaining our own commercialization capabilities;

·

our ability to successfully commercialize products that we develop or acquire or for which we acquire commercialization rights; and

·

our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.

 

Risks Related to Our Business and Regulatory Matters

 

If we or our development or commercialization partners are unable to obtain or maintain the U.S. Food and Drug Administration (“FDA”) or other foreign regulatory clearance and approval for our therapeutic candidates or products we may sell or market, we or our commercialization partners will be unable to commercialize our therapeutic candidates or products we may sell or market.

 

To date, we have not marketed, distributed or sold any therapeutic candidate or product, although we have obtained marketing approval for RIZAPORT ® in Germany, and in December 2016, we entered into a Co-Promotion Agreement pursuant to which we were granted certain rights in the U.S. to promote Donnatal ®   (phenobarbital & belladonna alkyloids), an anticholinergic and barbiturate combination drug product used as adjunctive therapy for irritable bowel syndrome, a condition characterized by abdominal pain, bloating, and diarrhea or constipation.  It may also be used as adjunctive therapy for acute enterocolitis and duodenal ulcers.

 

Donnatal ® is a prescription drug included in the Drug Efficacy Study Implementation (“DESI”) review program of the FDA.  Donnatal ® was first commercialized before Congress’s 1962 amendment to the Food Drug and Cosmetic Act. The 1962 amendment required evidence of efficacy to be granted FDA approval.  At that time, the FDA introduced the DESI program to evaluate the efficacy of drugs approved before 1962.  Under DESI, Donnatal ® is not an FDA-approved drug, but it is cleared to be marketed and sold until a final determination regarding efficacy is made. To our knowledge at this time and based on our review of docketed correspondence with the FDA, the FDA has not made a final determination as to the efficacy of Donnatal ® .

 

Currently, we have seven therapeutic candidates in various programs and clinical development stages, “RHB-105” for the eradication of H. pylori infection; “RHB-104” for the treatment of Crohn’s disease and potentially other diseases; “RHB-106” (out-licensed to Valeant) for bowel preparation; BEKINDA ® (RHB-102) for acute gastroenteritis and gastritis, irritable bowel syndrome with diarrhea (“IBS-D”), and for the prevention of chemotherapy and radiotherapy-induced nausea and vomiting;   YELIVA ® (ABC294640), a sphingosine kinase-2 (“SK2”) selective inhibitor targeting multiple oncology, inflammatory and gastrointestinal (“GI”) indications;  “MESUPRON” for targeting GI and other solid tumor cancers; and RIZAPORT ® (RHB-103) for the treatment of acute migraine headaches. Our therapeutic candidates are subject to extensive governmental laws, regulations and guidelines relating to development, clinical trials, manufacturing and commercialization of drugs. Other than RIZAPORT ® which has received marketing approval to date only in Germany, we may not be able to obtain marketing approval for any of our therapeutic candidates in a timely manner or at all.  In addition, although we have certain rights to promote Donnatal ®   in the U.S., which is currently included in the FDA DESI review program, we cannot guarantee that our co-promotion partner will continue to be allowed to sell or promote Donnatal ® in the U.S.

 

Any material delay in obtaining or maintaining, or the failure to obtain or maintain, required regulatory clearances and approvals will increase our costs and materially adversely affect our ability to generate future revenues.  Any regulatory clearance or approval to market a therapeutic candidate, Donnatal ®   or products that we may sell or market may be subject to limitations on the indicated uses for marketing or may impose restrictive conditions of use, including cautionary information, thereby limiting the size of the market for the therapeutic candidate, Donnatal ® , or products that we may sell or market. We also are, and will be, subject to numerous regulatory requirements from both the FDA and other foreign regulatory authorities that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. Moreover, clearance or approval by one regulatory authority does not ensure clearance or approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes

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and may impose additional testing, development and manufacturing requirements for our therapeutic candidates, Donnatal ® , and products that we may sell or market. Additionally, the FDA or other foreign regulatory authorities may change its clearance or approval policies or adopt new laws, regulations or guidelines in a manner that materially delays or impairs our ability to obtain the necessary regulatory clearances or approvals or our ability to commercialize our therapeutic candidates, promote Donnatal ® and products that we may sell or market.

 

We or our commercialization partners are subject to risks related to the regulatory environment with respect to Donnatal ® .

 

Currently, we will promote Donnatal ® Donnatal ® is a pre-1962 drug that is not FDA-approved, but it is currently cleared to be marketed and sold in the U.S. as it is included in the FDA DESI review program.

 

Based on our review of docketed correspondence with the FDA, our co-promotion partner, Concordia, is currently a party to the unresolved Notice of Opportunity Hearing for anticholinergic and barbiturate combination drug products. We make no assurances that the FDA will not seek to begin a hearing process to remove Donnatal ®   from the market, commence proceedings to remove Donnatal ® from the market, or otherwise remove Donnatal ® from the market at any time. If this were to happen, it could have a material adverse effect on our reputation, business, financial condition, and results of operations.

 

Clinical trials and related non-clinical studies may involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We or our development or commercialization partners will not be able to commercialize our therapeutic candidates and products we may sell or market without completing such trials, even products that may have already been cleared or approved for marketing.

 

We have limited experience in conducting and managing the clinical trials that are required to commence commercial sales of our therapeutic candidates. Clinical trials and related non-clinical studies are expensive, complex, can take many years and have uncertain outcomes. We cannot predict whether we, independently or through third parties, will encounter problems with any of the completed, ongoing or planned clinical trials that will cause delays, including suspension of a clinical trial, delay of data analysis or release of the final report. The clinical trials of our therapeutic candidates may take significantly longer to complete than is estimated. Failure can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could materially delay or prevent commercialization of our current or future therapeutic candidates.

 

In connection with the clinical trials for our therapeutic candidates and other therapeutic candidates that we may seek to develop in the future, either on our own or through licensing or partnering agreements, we face various risks and uncertainties, including but not limited to:

 

·

delays in securing clinical investigators or trial sites for the clinical trials;

·

delays in receiving import or other government approvals to ensure appropriate drug supply;

·

delays in obtaining institutional review board (IRB) and other regulatory approvals to commence or continue a clinical trial;

·

expiration of clinical trial material before or during our trials as a result of degradation of, or other damage to, the clinical trial material;

·

negative or inconclusive results from clinical trials;

·

the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical studies;

·

the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials or studies in connection with therapeutic candidates in development as well as for products that have already been cleared and approved for marketing;

·

inability to monitor patients adequately during or after treatment;

·

problems with investigator or patient compliance with the trial protocols;

·

a therapeutic candidate may not prove safe or efficacious; there may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;

·

the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;

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·

the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;

·

the results may justify only limited or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of a therapeutic candidate;

·

the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and

·

changes to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection with our receiving the applicable regulatory clearances or approvals.

 

A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. As such, despite the results reported in earlier clinical trials of our therapeutic candidates, we do not know if the clinical trials we conduct will demonstrate adequate efficacy and safety sufficient to obtain regulatory approval to market our therapeutic candidates. If any of the clinical trials of any of our current or future therapeutic candidates does not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, which could have a material adverse effect on our business, financial condition and results of operations.

 

If we are unable to establish collaborations for our therapeutic candidates or products we may sell or market,   or otherwise not be able raise substantial additional capital, we will likely need to alter our development and commercialization plans.

 

Our drug development programs and the potential commercialization of our therapeutic candidates and products that we may sell or market, such as Donnatal ® ,   will require additional cash to fund expenses. As such, our strategy includes either selectively partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furthering development or potential commercialization of our therapeutic candidates, promoting Donnatal ®  and products that we may sell or market, in whole or in part, in some or all jurisdictions or through securing our own commercialization capabilities. Although we are currently aware of potential new third-party partners for the development or commercialization of our therapeutic candidates, marketing of Donnatal ® ,  and development or commercialization of products that we may sell or market, we may not be successful in entering into collaborations with third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development, commercialization or promotion agreements or otherwise raise substantial additional capital to secure our own commercialization capabilities, we may have to limit the size or scope of our activities or we may have to delay one or more of our development or commercialization programs. Any failure to enter into development or commercialization agreements with respect to the development, marketing and commercialization of any therapeutic candidate or failure to develop, market and commercialize such therapeutic candidate independently may have an adverse effect on our business, financial condition and results of operations.

 

Any collaborative arrangements that we have established or may establish may not be successful, or we may otherwise not realize the anticipated benefits from these collaborations, including our out-licensing of RHB-106 and RIZAPORT ® . We do not control third parties with whom we have or may have collaborative arrangements, and we rely on such third parties to achieve results which may be significant to us. In addition, any future collaborative arrangements may place the development or commercialization of our therapeutic candidates,   marketing of   Donnatal ® ,   or development or commercialization of products that we may sell or market,   outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.

 

Each of our collaborative arrangements requires us to rely on external consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory, market research, intellectual property and commercialization. We do not control these third parties, but we rely on such third parties to achieve results which may be significant to us. To date, we have out-licensed one of our therapeutic candidates, RHB-106, and related rights to Valeant and have entered into exclusive license agreements with Grupo JUSTE, S.A.Q.F. (now Exeltis Healthcare, S.L.) and Pharmatronic Co. to commercialize RIZAPORT ® in Spain and South Korea, respectively. We do not control Valeant, Exeltis Healthcare, S.L. or Pharmatronic Co., but we rely on Valeant to clinically develop and commercialize RHB-106 and related rights and rely on Exeltis Healthcare, S.L. and Pharmatronic Co. to obtain regulatory approvals and commercialize RIZAPORT ® in Spain and South Korea, respectively. In addition, with respect to Donnatal ® , pursuant to the Co-Promotion Agreement, we rely on Concordia as the party responsible for, among others, the manufacture, supply, and other operating responsibilities for Donnatal ® in all territories in the U.S.  

 

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Relying upon collaborative arrangements to develop and commercialize our therapeutic candidates, such as RHB-106 and RIZAPORT ® , and products that we may sell or market, and Donnatal ® , subjects us to a number of risks, including but not limited to the following:

 

·

we may not be able to control the amount and timing of resources that our collaborators may devote to our therapeutic candidates, Donnatal ® , or products that we may to sell or market;

·

should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held liable for such violations;

·

our collaborators may experience financial difficulties, making it difficult for them to fulfill their obligations to us, including payment obligations, or they may experience changes in business focus;

·

our collaborators’ partners may fail to secure adequate commercial supplies of our therapeutic candidates upon or after obtaining marketing approval, if at all, Donnatal ® , or of products that we may sell or market;

·

our collaborators' partners may have a shortage of qualified personnel;

·

we may be required to relinquish important rights, such as marketing and distribution rights;

·

business combinations or significant changes in a collaborator’s business or business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

·

under certain circumstances, a collaborator could move forward with a competing therapeutic candidate or product developed either independently or in collaboration with others, including our competitors; and

·

collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our therapeutic candidates or may limit or terminate our rights to promote Donnatal ®  in the U.S. or products we may sell or market.

 

In addition, our reliance upon Concordia in connection with our promoting of Donnatal ® pursuant to the Co-Promotion Agreement subjects us to a number of additional risks, including but not limited to, the following:

 

·

we do not control Concordia’s communications with the FDA, and the FDA may determine to withdraw Donnatal ® from the market due to any action or inaction taken by Concordia (see “– We or our development or commercialization partners may be subject to product withdrawal requests by the FDA or other foreign regulatory authorities for Donnatal ® or products which we may sell or market.”);

·

we rely on Concordia to manufacture Donnatal ® through third-party manufacturers with the requisite quality and manufacturing standards as required under applicable laws and regulations, and we also rely on Concordia to supply Donnatal ® , which may result in us having Donnatal ® in insufficient quantities or on timelines to achieve adequate or successful promotion and sale of Donnatal ® in the U.S.; 

·

Concordia may increase or decrease the price of Donnatal ® to a level that could adversely affect the sales or revenues of Donnatal ® ;  

·

we rely on Concordia for most decisions relating to the marketing of Donnatal ® , and any action or inaction taken by Concordia may adversely affect the sales of Donnatal ® ;  

·

Concordia may not be successful in maintaining or expanding reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators, which may adversely affect the sales of Donnatal ® ; and

·

Concordia may terminate the Co-Promotion Agreement with after an agreed upon period for reasons set forth in the Co-Promotion Agreement.  

 

If any of these or other scenarios materialize, they could have an adverse effect on our business, financial condition or results of operations.

 

Donnatal ® or products which we may sell or market may be withdrawn from the market at any time due to product withdrawal requests by the FDA or other foreign regulatory authorities.

 

Products we acquire or to which we acquire commercialization rights may be subject to withdrawal requests by the FDA or other foreign regulatory authorities for various reasons.  For instance, certain products, such as Donnatal ® , may be subject to regulatory review due to their classification as a DESI product which the FDA has the right to determine as ineffective and impose limitations or request withdrawal of the product from the market. Donnatal ® is currently subject to the FDA’s DESI proceedings, to determine its effectiveness and the right to continue to be marketed in the U.S. and there is no assurance as to the outcome of such proceedings. To our knowledge at this time and based on our review of docketed correspondence with the FDA, the FDA has not made a final determination as to the efficacy of Donnatal ® .  In addition,

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the process and timing of any FDA DESI proceedings with respect to Donnatal ® are unclear.  Historically, the FDA has generally permitted products to stay on the market during these proceedings, although there is no assurance as to the time of commencement of such proceedings or whether the FDA will in fact grant such permission to any future DESI-related proceedings, including for Donnatal ® . Regulatory authorities in other jurisdictions may have similar procedures that may subject any product we may sell or market to limitations or withdrawal requests.  In addition, the FDA or other foreign regulatory authorities may determine that the chemistry, manufacturing and controls (“CMC”) of marketed products that we develop, acquire or to which we acquire commercialization rights, such as Donnatal ® , is unsatisfactory due to the manufacturing standards of the products. If either of these or any regulatory action is taken, Donnatal ®   or   any product we sell or market could be withdrawn from the market at any time. In addition, we could suffer from delays in further commercialization of any product we sell or market. 

 

We may not be successful in acquiring products or companies that own the rights to, or otherwise acquire commercialization rights to, products cleared or approved for marketing in the U.S. or elsewhere that achieve commercial success or in building our own marketing and commercialization capabilities.

 

Part of our strategy is to identify and acquire rights to products that have been cleared or approved for marketing in the U.S. or elsewhere, in particular, those with a therapeutic focus on GI, inflammation or cancer.  Specifically, we seek to acquire rights to products that are already commercialized, which would enable us to commercialize such products independently and build our own marketing and commercialization capabilities.  We recently entered into a Co-Promotion Agreement with Concordia pursuant to which we were granted certain rights to promote Donnatal ®  in the U.S., which is our first agreement to commercialize a product being marketed in the U.S.,   However, there can be no assurance as to our ability to identify and acquire rights to any additional products, in particular those with a therapeutic focus on GI, inflammation or cancer.  If we are not successful in acquiring any products or in promoting Donnatal ® , we may not be able to build or maintain our own marketing and commercialization capabilities. This may limit our ability to commercialize products on our own and may require us to contract with third-party development or commercialization partners which may not be on commercially favorable terms. Additionally, these efforts to establish commercial capabilities could be found more costly than our forecast and have an adverse effect on our business, financial condition and results of operations.

 

In addition, there can be no assurance that we will accurately or consistently identify products approved for marketing that will achieve commercial success or that we will be able to successfully commercialize.

 

We may encounter difficulties successfully expanding our operations to build and maintain our own marketing and commercialization capabilities.

 

To build and maintain our own marketing and commercialization capabilities we will need to expand, among other things, our development, regulatory, manufacturing, marketing and sales capabilities and to increase our personnel to accommodate sales, including establishing a direct sales force and commercial team. Expanding our operations would also impose significant added responsibilities on our management. We must be able to manage our independent commercialization efforts effectively, hire, train and integrate additional management, administrative and sales and marketing personnel, and improve our managerial, operational and finance systems, all of which may impose a strain on our administrative and operational infrastructure and adversely affect our research and development activities.  We may also not have sufficient funds to finance the hiring of the additional personnel and the expansion of our marketing and commercialization activities. If we are not able to effectively expand our operations to build our own marketing and commercialization capabilities, our revenues and growth may be adversely affected, which will have a material adverse effect on our business, financial condition and results of operations.

 

We have no history of independently commercializing therapeutic candidates or marketed products and may have difficulty promoting Donnatal ® or commercializing any product on our own.

 

We have no prior experience in commercializing therapeutic candidates or marketed products on our own, which may materially increase marketing and sales expenses or cause us to be ineffective in these efforts.  We recently entered into a Co-Promotion Agreement with Concordia pursuant to which we were granted certain rights to promote Donnatal ®  in the U.S. There can be no assurance we will successfully commercialize our therapeutic candidates or promote Donnatal ® or any products we may sell or market.   

 

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In addition, many companies, both public and private, including well-known pharmaceutical companies and smaller niche-focused companies, are currently selling, marketing and distributing drug products that directly compete with the therapeutic candidates that we may seek to commercialize. Many of these companies have significantly greater financial capabilities, marketing and sales experience and resources than us. As a result, our competitors may be more successful than we are in commercializing products. 

 

We rely on third parties to conduct our clinical trials and related non-clinical studies and those third parties may not perform satisfactorily, including but not limited to failing to meet established deadlines for the completion of such clinical trials.

 

We currently do not have the ability to independently conduct clinical trials and related non-clinical studies for our therapeutic candidates, and we rely on third parties, such as contract research organizations, medical institutions, contract laboratories, development and commercialization partners, clinical investigators and independent study monitors to perform these functions. Our reliance on these third parties for research and development activities reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Although we have, in the ordinary course of business, entered into agreements with such third parties, other than with respect to RHB-106 and related rights, which we have out-licensed to Valeant, we continue to be responsible for confirming that each of our clinical trials and related non-clinical studies   is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected, and regulatory authorities in other jurisdictions may have similar responsibilities and requirements. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them or perform such functions independently. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional costs. Accordingly, we may be materially delayed in obtaining regulatory approvals for our therapeutic candidates and may be materially delayed in our efforts to successfully commercialize our therapeutic candidates for targeted diseases.

 

In addition, our ability to bring our therapeutic candidates to market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated.

 

If third parties do not manufacture our therapeutic candidates or do not manufacture and sell any products we may sell or market in sufficient quantities, in the required timeframe, and at an acceptable cost and quality, clinical development and commercialization of our therapeutic candidates or promotion of products we may sell or market would be delayed and sales of any product we may sell or market may be adversely affected.  

 

We do not currently own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties to manufacture clinical and commercial quantities of our therapeutic candidates and products that we may sell or market. For RIZAPORT ® , we rely on IntelGenx Corp. to supply and provide sufficient quantities in the required timeframe for registration and sales in Spain and South Korea, and for Donnatal ® , we rely on Concordia, which has a manufacturing agreement with a third party to provide sufficient quantities of Donnatal ® in the required timeframe. Our reliance on third parties includes our reliance on them for quality assurance related to regulatory compliance. Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates and any products that we may sell or market may adversely affect our future operations and our ability to develop therapeutic candidates and commercialize any therapeutic candidates and any products that we may sell or market on a timely and competitive basis.

 

We may not be able to maintain our existing or future third-party manufacturing arrangements on acceptable terms, if at all. If for some reason our manufacturers or our development or commercialization partners’ manufacturers do not perform as agreed or expected, we or our partners may be required to replace them. Although we are not substantially dependent upon our existing manufacturing agreements since we could replace them with other third-party manufacturers, we may incur added costs and delays in identifying, engaging, qualifying and training any such replacements, and such additional costs and delays may adversely impact our ability to obtain regulatory clearances and approvals to commercialize our therapeutic candidates or any product we may sell or market, or make such commercialization or marketing economically unfeasible.

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We rely on third parties to manufacture and supply us with high quality active pharmaceutical ingredients (“APIs”) in the quantities we require on a timely basis.

 

We currently do not manufacture any APIs ourselves. Instead, we rely on third-party vendors for the development, manufacture and supply of our APIs that are used to formulate our therapeutic candidates and products we may sell or market. If these suppliers are incapable or unwilling to meet our current or future needs on acceptable terms or at all, we could experience a delay in obtaining regulatory clearances or approvals for our therapeutic candidates or products that we may sell or market or in conducting clinical trials of our therapeutic candidates and incur additional costs or experience an adverse effect on our sale of any product we may sell or market.

 

For example, our supplier of raw materials for RIZAPORT ® has been sending updates to the FDA regarding progress of corrective actions in regard to compliance issues at its manufacturing facility and subsequently invited the FDA for re-inspection, which are independent of us and not specific to RIZAPORT ® . Although we were informed that the supplier recently resolved these compliance issues and although we have been working to ensure continued supply of the necessary raw materials for RIZAPORT ® from an alternative supplier, our ability to obtain FDA approval for RIZAPORT ® may be delayed until we are able to successfully manufacture new batches with new API secured from a compliant source.

 

While there may be several alternative suppliers of APIs on the market, we have yet to conclude extensive investigations into the quality or availability of their APIs. As a result, we can provide no assurances that supply sources will not be interrupted from time to time. Changing API suppliers or finding and qualifying new API suppliers can be costly and take a significant amount of time. Many APIs require significant lead time to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next.

 

If we are not able to find stable, affordable, high quality, or reliable supplies of our APIs, we may not be able to produce enough supplies of our therapeutic candidates or products we may sell or market, which could have a material adverse effect on our business, financial condition or results of operations.

 

We anticipate continued reliance on third-party manufacturers if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates and reliance on third-party manufacturers for any products that we may sell or market, including Donnatal ® .  

 

To date, our therapeutic candidates have been manufactured in relatively small quantities for preclinical testing and clinical trials as well as for other regulatory purposes by third-party manufacturers. If the FDA or other regulatory agencies approve any of our therapeutic candidates for commercial sale, we expect that we would continue to rely, at least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic candidates. In addition, we expect that we will rely, at least initially, on third-party manufacturers to produce commercial quantities of Donnatal ® or any product that we may sell or market. These manufacturers may not be able to successfully increase or maintain the manufacturing capacity for any of our approved therapeutic candidates, Donnatal ® or any product we may sell or market, in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the FDA or other foreign regulatory agencies must review and approve. If the third-party manufacturers are unable to successfully increase or maintain the manufacturing capacity for a therapeutic candidate or for products that we may sell or market, or we are unable to establish our own manufacturing capabilities or secure replacement third-party manufacturers, the commercial launch of any approved products may be delayed or there may be a shortage in supply which could have a material adverse effect on our business, financial condition or results of operations.

 

We and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities.

 

We and our third-party manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA and other foreign regulatory authorities setting forth current good manufacturing practices (“cGMP”). These laws, regulations and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates and any products we may sell or market, including Donnatal ® . We and our third-party manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our third-party manufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions,

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civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our therapeutic candidates and commercially marketed products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates and commercially marketed products, and materially and adversely affect our reputation, business, financial condition and results of operations.

 

Our therapeutic candidates, Donnatal ® , and any product we may sell or market,   even if all regulatory clearances and approvals are obtained, will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations and guidelines, we could lose those clearances and approvals, and our reputation, busines s , financial condition and results of operations may be materially and adversely affected.

 

Even if our therapeutic candidates, Donnatal ® , and products we may sell or market receive regulatory approval, we and our commercialization partners, as applicable, will be subject to ongoing reporting obligations with respect to our therapeutic candidates, Donnatal ® , and any product we may sell or market,   including pharmacovigilance, and the manufacturing operations of our therapeutic candidates, Donnatal ® , and any product we may sell or market will be subject to continuing regulatory review, including inspections by the FDA and other foreign regulatory authorities. The results of any ongoing review may result in withdrawal from the market of a therapeutic candidate, Donnatal ® , or another product we may sell or market, interruption of manufacturing operations or imposition of labeling or marketing limitations for such therapeutic candidate or product. Since many more patients are exposed to drugs following their marketing clearance or approval, serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing of the therapeutic candidate or any product we may sell or market, including Donnatal ® .  As we develop our therapeutic candidates or commercialize our products, we may also periodically discuss with the FDA and other regulatory authorities certain clinical, regulatory and manufacturing matters and, our views may, at times, differ from those of the FDA and other regulatory authorities. For example, the FDA may seek to regulate our therapeutic candidates or any product we may sell or market that consist of two or more active ingredients as combination drugs under its Combination Drug Policy. The Combination Drug Policy requires that we demonstrate that each active ingredient in a drug product contributes to the product’s claimed effect. If the FDA raises questions regarding whether available data and information provided to the FDA demonstrate the contribution of each active ingredient in such combination drug products, we may be required to provide additional information, which may require us to conduct additional preclinical studies or clinical trials. If we are required to conduct additional clinical trials or other testing of our therapeutic candidates, Donnatal ® or any product we may sell or market, we may face substantial additional expenses, be delayed in obtaining marketing approval or may never obtain marketing approval for such therapeutic candidate or product we may sell or market, including Donnatal ® . In addition, Donnatal ®  is currently subject to the FDA’s DESI proceedings to determine its effectiveness and the right to continue to be marketed in the U.S., and there is no assurance as to the outcome of such proceedings.  To our knowledge at this time and based on our review of docketed correspondence with the FDA, the FDA has not made a final determination as to the efficacy of Donnatal ® .  See “–  We or our development or commercialization partners may be subject to product withdrawal requests by the FDA or other foreign regulatory authorities for Donnatal ® or products which we may sell or market.”

 

In addition, third-party manufacturers and the manufacturing facilities that we and our development or commercialization partners use to manufacture any therapeutic candidate and any products that we may sell or market, including Donnatal ® , will be subject to periodic review and inspection by the FDA and may be subject to similar review by other regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate or product we may sell or market, including Donnatal ® , manufacturer or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions, including but not limited to the following:

 

·

restrictions on such therapeutic candidate, marketed product, manufacturer or manufacturing process;

·

warning letters from the FDA or other foreign regulatory authorities;

·

withdrawal of the therapeutic candidate or marketed product from the market;

·

suspension or withdrawal of regulatory approvals;

·

refusal to approve pending applications or supplements to approved applications that we or our development or commercialization partners submit;

·

voluntary or mandatory recall;

·

fines;

·

refusal to permit the import or export of our therapeutic candidates or products that we may sell or market;

·

product seizure or detentions;

·

injunctions or the imposition of civil or criminal penalties; and

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·

adverse publicity.

 

If we or our commercialization partners, suppliers, third-party contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we and our development or commercialization partners may lose marketing clearance or approval for any of our therapeutic candidates if any of our therapeutic candidates are approved, and we may lose marketing clearance or approval of any products already cleared or approved for marketing in any jurisdiction, resulting in decreased or lost revenue from such therapeutic candidates and products and could also result and other civil or criminal sanctions, including fines and penalties .

 

Modifications to our therapeutic candidates, or to any product that we may sell or market, may require new regulatory clearances or approvals or may require us or our development or commercialization partners, as applicable, to recall or cease marketing of these therapeutic candidates or products until clearances or approvals are obtained.

 

Modifications to our therapeutic candidates and any products we may sell or market, after they have been cleared or approved for marketing, if at all, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA and other regulatory authorities require pharmaceutical product and device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a modification may be implemented without pre-clearance by the FDA or other regulatory authorities. However, the FDA or other regulatory authorities can review a manufacturer’s decision and may disagree. The FDA or other regulatory authorities may also on their own initiative determine that a new clearance or approval is required. If the FDA or other regulatory authorities require new clearances or approvals of any pharmaceutical product for which we or our partners, including development or commercialization partners previously received marketing approval, we or our partners, including development or commercialization partners may be required to recall and stop marketing such marketed product, which could require us or our partners, including development or commercialization partners to redesign the marketed product and may cause a material adverse effect on our reputation, business, financial condition and results of operations.

 

We may depend on our ability to identify and in-license or acquire therapeutic candidates to achieve commercial success, including products approved for marketing in the U.S.   or elsewhere.

 

Our seven therapeutic candidates were all acquired or licensed by us from third parties. We evaluate internally and with external consultants each therapeutic candidate. However, there can be no assurance as to our ability to accurately or consistently identify therapeutic candidates that are likely to achieve commercial success, specifically therapeutic candidates that have been approved for marketing in the U.S. or elsewhere. In addition, even if we identify additional therapeutic candidates that are likely to achieve commercial success, there can be no assurance as to our ability to in-license or acquire such therapeutic candidates under favorable terms or at all.

 

We compete with other entities for some in-license or acquisition opportunities.

 

As part of our overall strategy, we pursue opportunities to in-license or acquire therapeutic candidates. We may compete for in-license and acquisition opportunities with other established and well-capitalized companies. As  a result, we may be unable to in-license or acquire additional therapeutic candidates at all or on favorable terms. Our failure to further in-license or acquire therapeutic candidates in the future may materially hinder our ability to grow and could materially harm our business, financial condition and results of operations.

 

If we cannot meet our obligations under our acquisition, in-license or other development or commercialization agreements or renegotiate our obligations under such agreements, or if other events occur that are not within our control such as bankruptcy of a licensor or a partner, we could lose the rights to our therapeutic candidates or products we may sell or market, experience delays in developing or commercializing our therapeutic candidates or products we may sell or market or incur additional costs, which could have a material adverse effect on our business, financial condition and results of operations.

 

We acquired our rights to three of our therapeutic candidates, RHB-105, RHB-104 and RHB-106, from a third party pursuant to an asset and purchase agreement. In addition, we in-licensed our rights to four other therapeutic candidates,

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BEKINDA ® , YELIVA ® , MESUPRON and RIZAPORT ® pursuant to license agreements in which we received exclusive perpetual licenses to certain patent rights and know-how related to these therapeutic candidates. We have also obtained certain rights to promote Donnatal ®  in the U.S. under   our Co-Promotion Agreement. These agreements require us to make payments and satisfy various performance obligations in order to maintain our rights and licenses with respect to these therapeutic candidates and marketed products. If we do not meet our obligations under these agreements, or if other events occur that are not within our control such as the bankruptcy of a licensor, we could lose the rights to our therapeutic candidates, experience delays in developing or commercializing our therapeutic candidates or incur additional costs, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, our agreement with IntelGenx Corp. for RIZAPORT ® requires us to renegotiate certain provisions of the agreement in the event the agreed-to budget is exceeded by a certain amount. In the event we are required to renegotiate this agreement, there is no guarantee that we will agree upon new terms promptly, or at all, which could delay the development or commercialization of RIZAPORT ® .  

 

In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under these agreements in a timely manner or if other events occur that are not within our control, such as the bankruptcy of a licensor, which impact our ability to prosecute certain patent applications and maintain certain issued patents licensed to us, we could lose the rights to our therapeutic candidates which could have a material adverse effect on our business, financial condition and results of operations. We manage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain territories for various reasons, such as a current belief that the commercial market for the therapeutic candidate will not be large or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinue maintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect our therapeutic candidates from competition in those territories.

 

Our business could suffer if we are unable to attract and retain key employees.

 

The loss of the services of members of senior management or other key personnel could delay or otherwise adversely impact the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates and any product we may sell or market, including Donnatal ® or otherwise affect our ability to manage our company effectively and to carry out our business plan. These key personnel are Dror Ben-Asher, our Chief Executive Officer, Reza Fathi, Ph.D., our Senior Vice President for Research and Development, Gilead Raday, our Chief Operating Officer, Adi Frish, our Senior Vice President for Business Development and Licensing, Guy Goldberg, our Chief Business Officer, and Micha Ben Chorin, our Chief Financial Officer. We do not maintain key-man life insurance. Although we have entered into employment or consultancy agreements with all of the members of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract such personnel.

 

Our growth and success also depend on our ability to attract and retain additional highly qualified scientific, technical, business development, marketing, sales, managerial and finance personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to liability from their former employers. In addition, as part of our plan to promote Donnatal ®   and potentially products we may develop, we will need to build and expand and maintain our marketing and sales capabilities. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be able to develop and commercialize competitive therapeutic candidates. Further, any failure to effectively integrate new personnel could materially prevent us from successfully growing our company.

 

We face several risks associated with international business .

 

We operate our business in multiple international jurisdictions. Such operations could be materially affected by changes in foreign exchange rates, capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to, our therapeutic candidates and products we may sell or market, including Donnatal ® , as well as by political unrest, unstable governments and legal systems and inter-

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governmental disputes. Any of these changes could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Our Industry

 

Even if our therapeutic candidates or any product we may sell or market, receive, have received regulatory clearance or approval or do not require regulatory clearance or approval, they may not become commercially viable products.

 

Except for RIZAPORT ® , which has been approved for marketing in Germany but has yet to be marketed, none of our therapeutic candidates or products have been cleared or approved for marketing, and except for Donnatal ® ,   for which we were granted certain rights to promote Donnatal ®  in the U.S., none is currently being marketed or commercialized in any jurisdiction. Even if any of our therapeutic candidates or any product we may sell or market receive, have received or do not require regulatory clearance or approval, it may not become a commercially viable product. For example, even if we or our development or commercialization partners receive regulatory clearance or approval to market a therapeutic candidate, or have received regulatory clearance or approval to sell or market any product, the clearance or approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and adversely affect their marketability and profitability. In addition, a new therapeutic candidate may appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate or any product that we may sell or market, may not result in commercial success for various reasons, including but not limited to:

 

·

difficulty in large-scale manufacturing, including yield and quality;

·

low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to products, prevalence and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods;

·

insufficient or unfavorable levels of reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators;

·

infringement on proprietary rights of others for which we or our development or commercialization partners have not received licenses;

·

incompatibility with other therapeutic candidates or marketed products;

·

other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate a particular market segment, if at all;

·

ineffective marketing, sales and distribution activities and support;

·

lack of significant competitive advantages over existing products on the market;

·

lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market;

·

inability to generate sufficient revenues from the sale or marketing of a product in view of the economic arrangements that we have with commercialization or other partners;

·

changes to labels, indications or other regulatory requirements as they relate to the commercialization of our products;

·

inability to establish collaborations with third-party development or commercialization partners on acceptable terms, or at all, and our inability or unwillingness for cost or other reasons to commercialize the therapeutic candidates or any product we may sell or market on our own; and

·

timing of market introduction of competitive products.

 

Physicians, various other health care providers, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our approved therapeutic candidates and any product we may sell or market. If we are unable, either on our own or through third parties, to manufacture, commercialize or market our proposed formulations, therapeutic candidates or any product we may sell or market when planned, or to develop them commercially, we may not achieve any market acceptance or generate meaningful revenue.

 

The market for our therapeutic candidates and for any product we may sell or market is rapidly changing and competitive, and new drug delivery mechanisms, drug delivery technologies, new drugs, treatments and products which may be developed by others could impair our ability to maintain and grow our business and remain competitive.

 

The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products

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designed to address the indications for which we are currently developing therapeutic candidates or may develop therapeutic candidates in the future or for which we may sell or market products. There are various other companies that currently market, are in the process of developing or may develop in the future products that address all of the indications or diseases treated by our therapeutic candidates or products that we may sell or market. For information regarding our competition, see Item 4. “Information on the Company – B. Business Overview – Our Therapeutic Candidates”.

 

New drug delivery mechanisms, drug delivery technologies, new drugs and new treatments that have been developed or that are in the process of being developed or will be developed by others may render our therapeutic candidates and products we may sell or market noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our therapeutic candidates and products we may sell or market. In addition, Donnatal ®   and products we may sell or market may compete with products for market share, and generic drugs or products that treat the same indications as Donnatal ® or products we may sell or market can have an adverse effect on our revenues by reducing our market share or requiring us to reduce the price of the products we market.  

 

Technological competition from, and commercial capabilities of, pharmaceutical and biotechnology companies, universities, governmental entities and others is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities, human resources and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.

 

The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our formulations, therapeutic candidates or products we may sell or market, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use, among other possible advantages. The established use of these competitive drugs may limit the potential for our therapeutic candidates to receive widespread acceptance if commercialized and may limit the potential for widespread acceptance of promoting Donnatal ®   and for products we may sell or market.

 

We could be adversely affected if healthcare reform measures substantially change the market for medical care or healthcare coverage in the U.S.

 

On March 23, 2010, President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) and on March 30, 2010, the President signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, the provision of health care, and conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients. Through the law making process, substantial changes have been and continue to be made to the current system for paying for healthcare in the U.S., including changes made in order to extend medical benefits to tens of millions of Americans who lacked insurance coverage and to contain healthcare costs. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services and drugs. This legislation is one of the most comprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions are designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. Through modified reimbursement rates and other incentives, the U.S. government is requiring that providers identify the most cost-effective services, supplies and pharmaceuticals. This environment has caused changes in the purchasing habits of providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. To the extent that our therapeutic candidates may at some point be reimbursable by U.S. federal government programs, this attention may result in our therapeutic candidates and products we may sell or market being chosen less frequently or the pricing being substantially lowered.  Some of the provisions of the Healthcare Reform Law have not yet been fully implemented and the effect of the legislation is difficult to predict.  At this stage, we are unable to estimate the full extent of the direct or indirect impact of the Healthcare Reform Law on us.

 

These structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare, Medicaid and state children’s health insurance programs), creation of government-sponsored

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healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, such as those we and our development or commercialization partners are currently developing or those that we may sell or market. If reimbursement for approved therapeutic candidates or any product we may sell or market, if any, is substantially reduced in the future, or rebate obligations associated with them are substantially increased, it could have a material adverse effect on our business, financial condition and results of operations.

 

Extending medical benefits to those who currently lack coverage will likely result in substantial cost to the U.S. federal government, which may force significant additional changes to the healthcare system in the U.S. Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced by decreasing the level of reimbursement for medical services or products (including those therapeutic candidates currently being developed by us or our development or commercialization partners or any product we may sell or market, including Donnatal ® ), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for, any therapeutic candidate or any product we may sell or market, including Donnatal ® , or for which we receive marketing approval in the future, could have a material adverse effect on our business, financial condition and results of operations.

 

Several states and private entities initially mounted legal challenges to the Healthcare Reform Law, and they continue to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of the Healthcare Reform Law at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperly required the states to expand their Medicaid programs to cover more individuals. As a result, the states have a choice as to whether they will expand the number of individuals covered by their respective state Medicaid programs. Some states have determined that they will not expand their Medicaid programs and will develop other cost-saving and coverage measures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented could have a material adverse effect on our business, financial condition and results of operations. Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux.  Legislative initiatives to modify, limit, or repeal the Healthcare Reform Law and judicial challenges continue, including a recent executive order issued by the U.S. President directing government agencies and departments to minimize the economic burden of the Healthcare Reform Law to the extent permitted by law, and may increase in light of the change in administrations following the presidential election.  We cannot predict the impact on our business of future legal challenges to the Healthcare Reform Law or other changes to the current laws and regulations.

 

If third-party payors do not adequately reimburse customers for any of our therapeutic candidates that are approved for marketing or for products that we may sell or market, including Donnatal ®   they might not be purchased or used, and our revenues and profits will not increase and they may decrease.

 

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved therapeutic candidates, if any, and any products that we may sell or market, from governmental or other third-party payors, both in the U.S. and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including but not limited to the third-party payor’s determination that the use of an approved therapeutic candidate and product is, among others:

 

·

a covered benefit under its health plan;

·

safe, effective and medically necessary;

·

appropriate for the specific patient;

·

cost-effective; and

·

neither experimental nor investigational.

 

Obtaining reimbursement approval for a therapeutic candidate or for any product that we may sell or market from any government or other third-party payor is a time-consuming and costly process that could require us or our development or commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our therapeutic candidates or any product that we may sell or market to each payor. Even when a payor determines that a therapeutic candidate or any product that we may sell or market is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory

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authorities. Reimbursement rates may vary according to the use of the therapeutic candidate or the use of any product that we may sell or market and the clinical setting in which it used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for products or services, and may reflect budgetary constraints or imperfections in Medicare, Medicaid or other data used to calculate these rates. In particular, reimbursement for the use of Donnatal ®   is not available from Medicare and Medicaid, and reimbursement from other third-party payors may be limited for Donnatal ®   due to its status as a DESI product. 

 

In the U.S., there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services, which may affect payments for our therapeutic candidates or for any product that we may sell or market in the U.S. In addition, there is a growing emphasis on comparative effectiveness research, both by private payors and by government agencies. To the extent other drugs or therapies are found to be more effective than our products, payors may elect to cover such therapies in lieu of our products or reimburse our products at a lower rate.  Legislation that reduces reimbursement for our therapeutic candidates could adversely impact how much or under what circumstances healthcare providers will prescribe or administer our therapeutic candidates, if approved, or for any product that we may sell or market. This could materially and adversely impact our business, financial condition and results of operations by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market. At this stage, we are unable to estimate the extent of the direct or indirect impact of any such federal and state proposals.

 

Furthermore, the Centers for Medicare and Medicaid Services frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers for Medicare and Medicaid Services and other third-party payors may have sufficient market power to demand significant price reductions.

 

We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on our business, financial condition and results of operations.

 

Upon our marketing of products in the U.S. , we will become subject to additional healthcare regulation and enforcement by the federal government and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate include, but are not limited to, the following:

 

·

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs;

·

the federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State healthcare program;

·

the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients for certain designated health services where that physician or family member has a financial relationship with the entity providing the designated health service, unless an exception applies;

·

federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;

·

the so-called federal “Sunshine Act”, which requires pharmaceutical and medical device companies to monitor and report certain financial relationships with physicians and other healthcare providers to the Centers for Medicare and Medicaid Services for disclosure to the public;

·

the federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing such products for off-label use and regulates the distribution of samples;

·

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and

·

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

 

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Further, the Healthcare Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity can now be found guilty of fraud or an anti-kickback violation without actual knowledge of the statute or specific intent to violate it. In addition, the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the False Claims Act. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, financial condition and results of operations.

 

The Healthcare Reform Law also imposes reporting requirements on certain medical device and pharmaceutical manufacturers, among others, to make annual public disclosures of certain payments and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians or their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and report such data to the Centers for Medicare and Medicaid Services by March 31 st each year.  The Centers for Medicare and Medicaid Services made the data publicly available on its searchable database beginning in September 2014.

 

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing, medical directorships, and other purposes. Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts.

 

Most recently, there has been a trend in federal and state legislation aimed at requiring pharmaceutical companies to disclose information about their production and marketing costs, and ultimately lowering costs for drug products. Several states have introduced bills that would require disclosure of certain pricing information for prescription drugs that have no threshold amount or are above a certain annual wholesale acquisition cost, and in June 2016 Vermont became the first state to pass legislation requiring certain drug companies to disclose information relating to justification of certain price increases. The U.S. Congress has also introduced bills targeting prescription drug price transparency.

 

Any such implementation of legislation requiring publication of drug costs could materially and adversely impact our business, financial condition and results of operations by promoting a reduction in drug prices. As such, patients may choose to use other low-cost, established drugs or therapies.

 

The scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business, financial condition nor results of operations of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, financial condition and results of operations. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.

 

We could be exposed to significant drug product liability claims which could be time consuming and costly to defend, divert management attention and adversely impact our ability to obtain and maintain insurance coverage.

 

The clinical trials that we conduct, and the testing, manufacturing, marketing and commercial sale and use or misuse of our therapeutic candidates and any products we may sell or market, involve and will involve an inherent risk that significant liability claims may be asserted against us or our development or commercial partners. We currently have a product liability policy that includes coverage for our clinical trials and intend to obtain product liability insurance that covers our co-promotion of Donnatal ® . Should we decide to seek additional insurance against such risks before product sales commence, there is a risk that such insurance will be unavailable to us, or if it can be obtained at such time, that it will be available at an unaffordable cost. Even if we obtain insurance, it may prove inadequate to cover claims or litigation costs, especially in the case of wrongful death claims. Product liability claims or other claims related to our therapeutic candidates and any products we may sell or market, regardless of merit or their outcome, could require us to spend significant time and money in litigation or to pay significant settlement amounts or judgments. Any successful product liability or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential

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product liability claims could prevent or inhibit the commercialization of our therapeutic candidates or products we may sell or market. A product liability claim could also significantly harm our reputation and the market price of our shares and delay market acceptance of our therapeutic candidates and decrease demand for any products that we sell or market, including Donnatal ® .

 

Global economic conditions may make it more difficult for us to commercialize our therapeutic candidates and any products that we may sell or market.

 

The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challenging economic environment. Patients experiencing the effects of the challenging economic environment, including high unemployment levels and increases in co-pays, may switch to generic products, delay treatments, skip doses or use other less effective treatments to reduce their costs. Challenging economic conditions in the U.S. include the demands by payors for substantial rebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in a number of emerging markets there are government-mandated reductions in prices for certain pharmaceutical products, as well as government-imposed access restrictions in certain countries. All of the aforesaid may make it more difficult for us to commercialize our therapeutic candidates and any products that we may sell or market.

 

Our business involves risks related to handling regulated substances which could severely affect our ability to conduct research and development of our therapeutic candidates.

 

In connection with our or our development or commercialization partners’ research and clinical development activities, as well as the manufacture of materials and therapeutic candidates and any products that we may sell or market, we and our development or commercialization partners are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and waste. We and our development or commercialization partners may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Our research and clinical development, as well as the activities of our manufacturing and commercialization partners, both now and in the future, may involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.

 

Risks Related to Intellectual Property

 

We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and anticipated profits.

 

Our success depends, in part, on our ability, and the ability of our development or commercialization partners to obtain patent protection for our therapeutic candidates and any products that we may sell or market, maintain the confidentiality of our trade secrets and know-how, operate without infringing on the proprietary rights of others and prevent others from infringing on our proprietary rights.

 

We try to protect our proprietary position by, among other things, filing U.S., European, and other patent applications related to our therapeutic candidates, inventions and improvements that may be important to the continuing development of our therapeutic candidates, and we plan to try to do the same with products we may acquire, sell or market in the future, where this is possible.

 

Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our issued patents and the issued patents of our development or commercialization partners may not provide us with any competitive advantages, may be held invalid or unenforceable as a result of legal challenges by third parties or could be circumvented. Ownership of the patent rights we in-license from our development or commercialization partners or the patent rights to the products already approved for marketing that we acquire or for which we acquire commercialization rights may be challenged, and as a result, the rights we in-license and the rights to products we acquire may turn out not to be exclusive or we may not actually have rights under the patents despite receiving representations from a development or commercialization partner. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, or licensed by, us. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we may license from third

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parties may not result in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.

 

Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.

 

After the completion of development and registration of our patents, third parties may still manufacture or market products in infringement of our patent-protected rights. Such manufacture or market of products in infringement of our patent-protected rights is likely to cause us damage and lead to a reduction in the prices of our therapeutic candidates or any product we may sell or market, including Donnatal ® , thereby reducing our potential profits.

 

In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may sell or market, any patents that protect our therapeutic candidate or any product we may sell or market may expire early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline in market share and profits.

 

In addition, in some cases we may rely on our licensors to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in our therapeutic candidates and potential approved for marketing products. Any failure by our licensors or development or commercialization partners to properly conduct patent prosecution, patent maintenance, patent enforcement, or patent defense could materially harm our ability to obtain suitable patent protection covering our therapeutic candidates or products or ensure freedom to commercialize the products in view of third-party patent rights, thereby materially reducing our potential profits.

 

In addition, Donnatal ® , for which we were granted certain rights to promote Donnatal ®  in the U.S, is not protected by patents.  If the FDA proceedings related to Donnatal ® designed to determine its effectiveness will be ongoing, only products that receive a New Drug Application (“NDA”) from the FDA, DESI products and those actively participating in the hearing process of the FDA may be marketed. However, other competing products may freely enter the market, and w e and our partners may not have sufficient intellectual property rights in Donnatal ® to protect it from such competition.  See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Business and Regulatory Matters – We or our development or commercialization partners may be subject to product withdrawal requests by the FDA or other foreign regulatory authorities for Donnatal ® or products which we may sell or market.”

 

If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.

 

In addition to filing patents, we generally try to protect our trade secrets, know-how and technology by entering into confidentiality or non-disclosure agreements with parties that have access to it, such as our development or commercialization partners, employees, contractors and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants while we employ or engage them. However, these agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor.

 

To the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in connection with any of our projects, disputes may arise as to the

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proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs to a third party.

 

Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could prevent us from developing or commercializing our therapeutic candidates and any products we may sell or market.

 

The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates or any products that we may sell or market may infringe on the claims of third-party patents or other intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries patent holders may choose for an extension of their filings under the Patent Cooperation Treaty or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates or any products we may sell or market in the event of an infringement action.

 

In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate and any products that we may sell or market or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.

 

In addition to infringement claims against us, we may become a party to other patent litigation or proceedings before regulatory agencies, including interference or re-examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates or any products that we may sell or market, as well as other disputes regarding intellectual property rights with development or commercialization partners, or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon, and we and/or our development or commercialization partners will be required to defend these opposition procedures as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail which could harm our business significantly.

 

Risks Related to our Ordinary Shares and ADSs

 

We may be a “passive foreign investment company” for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. investors.

 

While the determination of passive foreign investment company, or PFIC, status is fact-specific and generally cannot be made until the close of the taxable year in question, based on the value and composition of our assets, we may be a PFIC for U.S. federal income tax purposes for our current taxable year and future taxable years. A non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. Because the value of our assets for purposes of this determination will generally be determined by reference to the market price of the ADSs, our PFIC status will depend in large part on the market price of the ADSs. A separate determination must be made each taxable year as to whether we are a PFIC (after the close of each such taxable year). If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information – Taxation — U.S. Federal Income Tax Considerations –

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Passive Foreign Investment Companies”) holds Ordinary Shares or ADSs, the U.S. Holder may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of an interest charge with respect to such gain and certain dividends and (iii) compliance with certain reporting requirements. Each U.S. Holder is strongly urged to consult its own tax advisor regarding these issues. See “Item 10. Additional Information – E. Taxation – U.S. Federal Income Tax Considerations – Passive Foreign Investment Companies.”

 

The market price of our Ordinary Shares and our ADSs are subject to fluctuation, which could result in substantial losses by our investors.

 

The stock market in general and the market price of our Ordinary Shares on the Tel Aviv Stock Exchange (“TASE”) and our ADSs on the NASDAQ Capital Market in particular, are subject to fluctuation, and changes in the price of our securities may be unrelated to our operating performance. The market price of our Ordinary Shares on the TASE and the market price of our ADSs on the NASDAQ Capital Market have fluctuated in the past, and we expect they will continue to do so. The market price of our Ordinary Shares and ADSs are and will be subject to a number of factors, including but not limited to:

 

·

announcements of technological innovations or new therapeutic candidates or new products approved for marketing by us or others;

·

announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;

·

expiration or terminations of licenses, research contracts or other development or commercialization agreements;

·

public concern as to the safety of drugs we, our development or commercialization partners or others develop or market;

·

the volatility of market prices for shares of biotechnology companies generally;

·

success or failure of research and development projects;

·

departure of or major events adversely affecting key personnel;

·

developments concerning intellectual property rights or regulatory approvals;

·

variations in our and our competitors’ results of operations;

·

changes in earnings estimates or recommendations by securities analysts, if our Ordinary Shares or ADSs are covered by analysts;

·

changes in government regulations or patent proceedings and decisions;

·

developments by our development or commercialization partners; and

·

general market conditions and other factors, including factors unrelated to our operating performance.

 

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our Ordinary Shares or ADSs and result in substantial losses by our investors.

 

Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful.

 

Future sales of our Ordinary Shares or ADSs could reduce the market price of our Ordinary Shares and ADSs .

 

All of our outstanding Ordinary Shares are registered and available for sale in Israel. In addition, as of February 22, 2017, we had options to purchase 20,275,548 Ordinary Shares under our 2010 Stock Option Plan outstanding and non-tradable warrants to purchase an aggregate of 2,025,458 ADSs (each representing 10 Ordinary Shares) outstanding. In addition, our board of directors reserved up to 30,000,000 Ordinary Shares for issuance under our 2010 Stock Option Plan. Substantial sales of our Ordinary Shares or ADSs, or the perception that such sales may occur in the future, including sales of shares issuable upon the exercise of options and warrants, may cause the market price of our Ordinary Shares or ADSs to decline. Moreover, the issuance of shares underlying our options and warrants will also have a dilutive effect on our shareholders, which could further reduce the price of our Ordinary Shares and ADSs on their respective exchanges.

 

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Our Ordinary Shares and our ADSs are traded on different markets and this may result in price variations.

 

Our Ordinary Shares have been traded on the TASE since February 2011, and our ADSs have been listed on the NASDAQ Capital Market since December 27, 2012. Trading in our securities on these markets takes place in different currencies (U.S. dollars on the NASDAQ Capital Market and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the U.S and Israel). The trading prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.

 

There has been a limited market for our ADSs. We cannot ensure investors that an active market will continue or be sustained for our ADSs on the NASDAQ Capital Market, and this may limit the ability of our investors to sell our ADSs in the U.S.

 

In the past, there was limited trading in our ADSs, and there is no assurance that an active trading market of our ADSs will continue or will be sustained. Limited or minimal trading in our ADSs has in the past, and may in the future, lead to dramatic fluctuations in market price and investors may not be able to liquidate their investment at all or at a price that reflects the value of the business.

 

While our ADSs began trading on the NASDAQ Capital Market in December 2012, we cannot assure you that we will maintain compliance with all of the requirements for our ADSs to remain listed. Additionally, there can be no assurance that trading of our ADSs on such market will be sustained or desirable.

 

We have incurred additional increased costs as a result of the listing of our ADSs on the NASDAQ Capital Market, and we may need to devote substantial time and resources to new compliance initiatives and reporting requirements.

 

As a public company in the U.S. and Israel, we incur additional significant accounting, legal and other expenses as a result of the listing of our securities on both the NASDAQ Capital Market and the TASE. These include costs associated with the reporting requirements of the Securities and Exchange Commission (“SEC”) and the requirements of the NASDAQ Listing Rules, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). These rules and regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations, travel costs, stock exchange listing fees and shareholder reporting, and made some activities more time consuming and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the NASDAQ Listing Rules, as well as applicable Israeli reporting requirements, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult and costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers and may require us to pay more for such positions.

 

Since we are an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the SEC thereunder). We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our Ordinary Shares pursuant to an effective registration statement (in our case, December 31, 2018); (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which would occur if the market value of our Ordinary Shares held by non-affiliates is $700 million or more as of the last business day of our most recently completed fiscal quarter. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with such reporting requirements. We cannot predict or estimate the amount of additional costs we may incur as a result of complying with these additional reporting requirements.

 

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As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NASDAQ Stock Market requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.

 

As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ Listing Rules for domestic issuers. For instance, we follow home country practice in Israel with regard to, among other things, director nomination procedures and quorum at shareholders’ meetings. In addition, we follow our home country law, instead of the NASDAQ Listing Rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the Company, certain transactions other than a public offering involving issuances of a 20% or more interest in the Company and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. domestic issuer listed on the NASDAQ Stock Market may provide less protection than is accorded to investors under the NASDAQ Listing Rules applicable to domestic issuers.

 

In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

 

We may fail to maintain effective internal controls over financial reporting, which may adversely affect investor confidence in us and, as a result, may affect the value of our Ordinary Shares and ADSs.

 

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Pursuant to the JOBS Act, we are classified as an “emerging growth company,” and we are exempt from certain reporting requirements, including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.  Under this exemption, our auditor will not be required to attest to and report on management’s assessment of our internal controls over financial reporting during a five-year transition period commencing in 2013.

 

Our management report regarding our internal control over financial reporting must include, among other things, disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming.

 

We have documented and tested our internal control systems and procedures in order for us to comply with the requirements of Section 404. While our assessment of our internal control over financial reporting resulted in our conclusion that as of December 31, 2016, our internal control over financial reporting was effective, we cannot predict the outcome of our testing in future periods. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting.  Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities, and could have a material adverse effect on our reputation, business, financial condition, results of operations, and investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Ordinary Shares and ADSs to decline.

 

We currently do not anticipate paying cash dividends, and accordingly, investors must rely on the appreciation in our ADSs and our Ordinary Shares for any return on their investment.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs and our Ordinary Shares will depend upon any future appreciation in their value. There is no guarantee that our ADSs or our Ordinary Shares will appreciate in value or even maintain the price at which our investors have purchased their securities.

 

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Investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, investors in our ADSs may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal or impractical to make them available to investors in our ADSs.

 

The depositary for the ADSs has agreed to pay to investors in our ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive these distributions in proportion to the number of Ordinary Shares such ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold amounts on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, investors in our ADSs may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause a material decline in the value of the ADSs.

 

Holders of ADSs must act through the depositary to exercise their rights as our shareholders.

 

Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders’ meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders’ meeting. When a shareholders’ meeting is convened, holders of our ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as an ADS holder, they are not able to call a shareholders’ meeting.

 

The depositary for our ADSs gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs if a holder of our ADSs does not give voting instructions, except in limited circumstances, which could adversely affect their interests.

 

Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our Ordinary Shares underlying ADSs at shareholders’ meetings if a holder of our ADSs does not give voting instructions, unless:

 

·

we have instructed the depositary that we do not wish a discretionary proxy to be given;

·

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or

·

we have informed the depositary that a matter to be voted on at the meeting would have a material adverse impact on shareholders.

 

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The effect of this discretionary proxy is that a holder of our ADSs cannot prevent our Ordinary Shares underlying such ADSs from being voted, absent the situations described above, and it may make it more difficult for holders of our ADSs to influence our management. Holders of our Ordinary Shares are not subject to this discretionary proxy.

 

Risks Related to our Operations in Israel

 

We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the region.

 

We are incorporated under the laws of the State of Israel, our principal offices are located in central Israel and some of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the summer of 2014, Israel was engaged in an armed conflict with Hamas in Gaza, which involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (ISIL), a violent jihadist group, is involved in hostilities in Iraq and Syria. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel.  The tension between Israel and Iran or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

 

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there is no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

 

The State of Israel and Israeli companies have been subject to economic boycotts. These restrictions and boycotts may have material adverse impact on our operating results, financial condition or the expansion of our business.

 

Our operations may be disrupted as a result of the obligation of management or personnel to perform military service.

 

Some of our employees in Israel, including members of our senior management, perform up to one month, and in some cases more, of annual military reserve duty until they reach the age of 40 or older and, in the event of a military conflict, may be called to active duty. There have also been periods of significant call-ups of military reservists, and it is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees. Such disruption could have a material adverse effect on our business, financial condition and results of operations.

 

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Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.

 

Our reporting and functional currency is the U.S. dollar. Most of the royalty payments from our agreements with our development or commercialization partners are payable in U.S. dollars, and we expect our revenues from future licensing and co-promotion agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial portion of our expenses in U.S. dollars; however, a portion of our expenses, including salaries of the employees in Israel and payment to part of the service providers in Israel and other territories, are paid in NIS and in other currencies. In addition, a portion of our financial assets is held in NIS and in other currencies. As a result, we are exposed to the currency fluctuation risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition, if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.

 

Provisions of the RedHill Biopharma Ltd. 2010 Option Plan (the “2010 Option Plan”), Israeli law and our articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, our Company, or an acquisition of a significant portion of our shares, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.

 

Our 2010 Option Plan provides that all options granted by us will be fully accelerated upon a “hostile takeover” of the Company. A “hostile takeover” is defined in our 2010 Option Plan as an event in which any person, entity or group that was not an “interested party”, as defined in the Israeli Securities Law – 1968, on the date of the initial public offering of our Ordinary Shares on the TASE, will become a “controlling shareholder” as defined in the Israel Securities Law, 1968. See “Item 6. Directors, Senior Management and Employees – E. Share Ownership – Option Plans” for a description of interested parties under the Israeli Securities Law – 1968, or a “holder,” as defined in the Israel Securities Law 1968, of 25% or more of the voting rights in the Company or any merger or consolidation involving the Company, in each case without a resolution by the board of directors of the Company supporting the transaction. In addition, if a “Significant Event” occurs and following which the employment of a grantee with the Company or a related company is terminated by the Company or a related company other than for “Cause”, and unless the applicable agreement provides otherwise or the board of directors determines otherwise, all the outstanding options held by or for the benefit of any such grantee will be accelerated and immediately vested and exercisable. A “Significant Event” is defined in our 2010 Option Plan as a consolidation or merger of the Company with or into another corporation approved by the board of directors of the Company in which the Company is the continuing or surviving corporation or in which the continuing or surviving corporation assumes the option or substitutes it with an appropriate option in the surviving corporation.

 

The Israeli Companies Law, 1999, or the Israeli Companies Law, regulates mergers, requires tender offers for acquisitions of shares or voting rights above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company are subject to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company, if there is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, without conducting a special tender offer. The Israeli Companies Law further provides that a purchase of shares or voting power of a public company or a class of shares of a public company, which will result in the purchaser’s holding 90% or more of the company’s shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full tender offer for all of the company’s shares or class of shares. The purchaser will be allowed to purchase all of the company’s shares or class of shares (including those shares held by shareholders who did not respond to the offer), if either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class. The shareholders, including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration for the shares purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares. Such application to the court may be filed as a class action.

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In addition, the Israeli Companies Law provides for certain limitations on a shareholder that holds more than 90% of the company’s shares, or class of shares.

 

Pursuant to our articles of association, the size of our board of directors may be no less than five persons and no more than seven, excluding the external directors whose appointment is required by law. The directors who are not external directors are divided into three classes, as nearly equal in number as possible. At each annual general meeting, the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three-year term that expires at the annual general meeting held in the third year following such election. This process continues indefinitely. Such provisions of our articles of association make it more difficult for a third party to affect a change in control or takeover attempt that our management and board of directors oppose.

 

Furthermore, Israeli tax considerations may, in certain circumstances, make potential transactions unappealing to us or to some of our shareholders. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.

 

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, or an acquisition of a significant portion of our shares, even if such an acquisition or merger would be beneficial to us or to our shareholders. See “Item 10. Additional Information – B. Memorandum and Articles of Association.”

 

It may be difficult to enforce a U.S. judgment against us and our directors and officers in Israel or the U.S., or to serve process on our directors and officers.

 

We are incorporated in Israel. Most of our directors and executive officers reside outside of the U.S., and most of our assets and most of the assets of our directors and executive officers are located outside of the U.S. Therefore, a judgment obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by an Israeli court. It may also be difficult to affect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in Israel.

 

The obligations and responsibilities of our shareholders are governed by Israeli law which may differ in some respects from the obligations and responsibilities of shareholders of U.S. companies.   Israeli law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of corporations in the U.S.

 

We are incorporated under Israeli law. The obligations and responsibilities of the holders of our Ordinary Shares are governed by our articles of association and Israeli law. These obligations and responsibilities differ in some respects from the obligations and responsibilities of shareholders in typical U.S.-based corporations.  In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be interpreted to impose additional obligations and responsibilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations.

 

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful shareholder claims against us and may reduce the amount of money available to us.

 

The Israeli Companies Law and our articles of association permit us to indemnify our directors and officers for acts performed by them in their capacity as directors and officers. The Israeli Companies Law provides that a company may

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not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of: (a) a breach by the director or officer of his duty of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission done with the intent to derive an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director. Our articles of association provide that the Company may exempt or indemnify a director or an officer to the maximum extent permissible under law.  See Item 6. “Directors, Senior Management and Employees – C. Board Practices - Corporate Governance Practices - Exemption, Insurance and Indemnification of Directors and Officers".

 

We have issued letters of indemnification to our directors and officers, pursuant to which we have agreed to indemnify them in advance for any liability or expense imposed on or incurred by them in connection with acts they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $5 million.

 

Our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their duties as directors by shifting the burden of such losses and expenses to us. Although we have obtained directors' and officers' liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to who may choose to bring a claim against our Company. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their duties, and may similarly discourage the filing of derivative litigation by our shareholders against the directors and officers even though such actions, if successful, might otherwise benefit our security holders.

 

 

ITEM 4.           INFORMATION ON THE COMPANY

 

A.           History and Development of the Company

 

Our legal and commercial name is RedHill Biopharma Ltd. The company was incorporated on August 3, 2009 and was registered as a private company limited by shares under the laws of the State of Israel. Our principal executive offices are located at 21 Ha’arba’a Street, Tel Aviv, Israel and our telephone number is 972-3-541-3131.

 

In February 2011, we completed our initial public offering in Israel, pursuant to which we issued 14,302,300 Ordinary Shares, and 7,151,150 tradable Series 1 Warrants to purchase 7,151,150 Ordinary Shares for aggregate gross proceeds of approximately $14 million. On December 27, 2012, we completed the listing of our ADSs on the NASDAQ Capital Market. Our Ordinary Shares are traded on the Tel-Aviv Stock Exchange under the symbol “RDHL,” and our ADSs are traded on the NASDAQ Capital Market under the symbol "RDHL".

 

Our capital expenditures for the years ended December 31, 2016, 2015 and 2014 were approximately $85,000, $14,000 and $70,000, respectively. Our current capital expenditures involve equipment and leasehold improvements.

 

B.         Business Overview

 

We are a specialty biopharmaceutical company primarily focused on the development and commercialization of late clinical-stage, proprietary, orally-administered, small molecule drugs for the treatment of GI and inflammatory diseases and cancer. From inception to the end of the period covered by this Annual Report, we have invested a total of $6.2 million on in-licensing and acquisitions of therapeutic candidates and related technologies.

 

Depending on the specific development program, our therapeutic candidates are designed to exhibit greater efficacy and provide improvements over existing drugs by improving their safety profile, reducing side effects, lowering the number of administrations, using a more convenient administration form or providing a cost advantage. Where applicable, we intend to seek FDA approval for the commercialization of certain of our therapeutic candidates through the alternative Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding regulatory paths in other foreign jurisdictions. Our current pipeline consists of seven clinical development therapeutic candidates.

 

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We generate our pipeline of therapeutic candidates by identifying, rigorously validating and in-licensing or acquiring products that are consistent with our products strategy and that we believe exhibit a relatively high probability of therapeutic and commercial success. With the exception of RIZAPORT ® which was approved for marketing in Germany, our therapeutic candidates have not yet been approved for marketing and, to date, our therapeutic candidates have not generated meaningful sales. We intend to commercialize our therapeutic candidates through licensing and other commercialization arrangements with pharmaceutical companies on a global and territorial basis. We also evaluate, on a case by case basis, co-development and similar arrangements and the independent commercialization of our therapeutic candidates in the U.S. We have recently entered into a Co-Promotion Agreement with a subsidiary of Concordia, pursuant to which we were granted certain rights to promote Donnatal ®  in the U.S., and we have begun building our own marketing and commercialization capabilities in the U.S. to support the promotion of Donnatal ®   as well as the potential future commercialization of our therapeutic candidates and any product we may sell or market.  

 

Our Strategy

 

Our goal is to become a significant player in the development and commercialization of pharmaceuticals for the treatment of inflammatory and GI diseases and cancer.

 

Key elements of our strategy are to:

 

·

identify and acquire rights to products from pharmaceutical companies that have encountered cash flow or operational problems or that decide to divest one or more of their products for various reasons. Specifically, we seek to acquire rights to and develop products that are intended to treat pronounced clinical needs, have patent or other protections, and have target markets totaling tens of millions to billions of dollars. Additionally, we seek to acquire rights to and develop products based on different technologies designed to reduce our dependency on any specific product or technology. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field;

·

advance our initiative to become a revenue-generating, GI-focused, specialty biopharmaceutical company with a commercial presence in the U.S. to support potential future commercialization of our therapeutic candidates and products approved for marketing by identifying and acquiring rights to products that have been approved for marketing in the U.S from pharmaceutical companies that are interested in divesting one or more of their products. Specifically, we seek to acquire rights to products that are already commercialized in the U.S., preferably with a therapeutic focus on GI, inflammation or cancer, which would enable us to commercialize such products independently and build our own marketing and commercialization capabilities. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field;

·

enhance existing pharmaceutical products, including broadening their range of indications, or launching innovative and advantageous pharmaceutical products based on existing active ingredients. Because there is a large knowledge base regarding existing products, the preclinical, clinical and regulatory requirements needed to obtain marketing approval for enhanced formulations are relatively well- defined. In particular, clinical trial designs, inclusion criteria and endpoints previously accepted by regulators may sometimes be re-used. In addition to reducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy profiles provides us a better prospect of clinical success;

·

where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficient approval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seek FDA approval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication of a pharmaceutical product that has previously been approved by the FDA. This process enables us to partially rely on the FDA findings of safety or efficacy for previously approved drugs, thus avoiding the duplication of costly and time-consuming preclinical and various human studies. See “Item 4. Information on the Company – B. Business Overview – Government Regulations and Funding – Section 505(b)(2) New Drug Applications”; and

·

cooperate with third parties to develop or commercialize therapeutic candidates in order to share costs and leverage the expertise of others.

 

Our seven current clinical stage therapeutic candidates include “RHB-105”, “RHB-104”, “BEKINDA ® ”, “RHB-106”, “YELIVA ® ”, “MESUPRON” and “RIZAPORT ® ” and related research and development programs, the most advanced of which are described below. We have also entered into a co-promotion agreement with Concordia pursuant to which we were granted certain rights to promote Donnatal ®  in the U.S..

 

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Our Therapeutic Candidates and Donnatal ®

 

Summary

 

A summary of our therapeutic candidates’ select programs is provided below:

 

Name of 
Product

  

Relevant Indication

  

Potential
Advantages
Over
Most Existing
Treatments

  

Development
Stage

  

Rights to the 
Product

RHB-105

 

H. pylori infection

 

Improved efficacy, potential to overcome bacterial resistance; all-in-one pill

 

First Phase III study in the U.S. completed. Confirmatory Phase III study planned

 

Acquired all rights to the composition and use of two antibiotics and a proton pump inhibitor, worldwide and exclusive.  We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

 

Crohn’s disease

 

Novel mechanism of action and improved clinical benefit (targeting suspected underlying cause of Crohn's disease)

 

First Phase III study in N. America, Israel, Australia, New Zealand and Europe ongoing

 

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive.  We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

 

Multiple sclerosis (MS)

 

Oral formulation and novel mechanism of action

 

Phase IIa proof of concept study in Israel completed

 

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive.  We filed our own IP applications directed to the proposed commercial formulation and use

RHB-104

 

Nontuberculous Mycobacteria (NTM) infections

 

Oral formulation targeting suspected underlying cause of NTM infections

 

Under review

 

Acquired all rights to the triple antibiotic combination and its use, worldwide and exclusive.  We filed our own IP applications directed to the proposed commercial formulation and use

BEKINDA ®   24 mg

 

Acute gastroenteritis and gastritis

 

No other approved 5-HT3 serotonin receptor inhibitor for this indication; once daily dosing

 

Phase III ongoing  in the U.S.

 

Worldwide, exclusive license to technology used in the commercial formulation.  We filed our own IP applications directed to the proposed commercial formulation and use

BEKINDA ®   12 mg

 

IBS-D

 

Potential 5-HT3 serotonin receptor inhibitor with improved safety, while maintaining efficacy, for broader use in the indication

 

Phase II ongoing in the U.S.

 

Worldwide, exclusive license to technology used in the commercial formulation.  We filed our own IP applications directed to the proposed commercial formulation and use

RHB-106

 

Bowel preparation

 

Oral pill, avoid severe bad taste of chemical solutions, no known nephrotoxicity issues

 

Licensed to Valeant (which acquired Salix Pharmaceuticals, Inc.)

 

Worldwide rights licensed to Valeant

YELIVA ®

 

Advanced solid tumors

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

 

Phase I study in the U.S. completed (ABC-101)

 

Worldwide, exclusive license

YELIVA ®

 

Refractory or relapsed diffuse large B-Cell lymphoma (DLBCL), including patients with virus-induced (e.g., KSHV- or EBV-associated) lymphoma, or Kaposi sarcoma

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

 

Phase I/IIa study in the U.S. initiated (ABC-102)

 

Worldwide, exclusive license

YELIVA ®

 

Refractory or relapsed multiple myeloma

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

 

Phase Ib/II study in the U.S. initiated (ABC-103)

 

Worldwide, exclusive license

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YELIVA ®

 

Advanced hepatocellular carcinoma

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities

 

Phase II study in the U.S. initiated (ABC-106)

 

Worldwide, exclusive license

YELIVA ®

 

Oncology support, prevention of radiation - associated mucositis in the treatment of head and neck cancer

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.

 

Phase Ib study planned (ABC-104)

 

Worldwide, exclusive license

YELIVA ®

 

Moderate to severe ulcerative colitis

 

Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.

 

Phase II study planned (ABC-105)

 

Worldwide, exclusive license

MESUPRON

 

Gastrointestinal and other solid tumors

 

Oral administration; new non-cytotoxic approach to cancer therapy potentially inhibiting both tumor invasion and metastasis

 

Completed two Phase II studies; Pre-clinical studies ongoing, preparations for Phase I/II study for resected pancreatic cancer

 

Worldwide exclusive license; excludes China, Hong Kong, Taiwan and Macao

RIZAPORT ®

 

Acute migraine

 

Oral thin film formulation; Avoids exacerbation of nausea, administered without water, ease of use, convenient portability and discrete carriage and use

 

NDA filed and accepted, Complete Response Letter (CRL) received and preparing for resubmission in the U.S.; European marketing application approved in Germany

 

Worldwide, exclusive license and co-development

Combination against Ebola virus

 

Ebola virus disease

 

Efficacy and safety

 

Nonclinical research collaboration with a U.S. government agency ongoing

 

All worldwide rights to the product.  We filed our own IP applications directed to the combination formulations and their use

 

RHB-105

 

RHB-105 is intended for the eradication of H. pylori bacterial infection in the GI tract. RHB-105 is a combination of three approved drug products – omeprazole, which is a proton pump inhibitor (prevents the secretion of hydrogen ions necessary for digestion of food in the stomach), amoxicillin and rifabutin, which are antibiotics. RHB-105 is administered to patients orally.

 

Chronic infection with H. pylori irritates the mucosal lining of the stomach and small intestine. The original discovery of the H. pylori bacteria and its association with peptic ulcer disease warranted the Nobel Prize in 2005. H. pylori infection has since been associated with a variety of outcomes which include: dyspepsia (non-ulcer or functional), peptic ulcer disease (duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma, vitamin B12 deficiency, iron deficiency, anemia and gastric cancer.

 

Gastric cancer is one of the most commonly diagnosed cancers worldwide and one of the most common causes of cancer-related deaths, accounting for approximately 700,000 deaths annually. According to a 2010 report by Polk DB et al. published in Nature Reviews Cancer, H. pylori- induced gastritis is the strongest singular risk factor for cancers of the stomach, and eradication of  H. pylori  significantly decreases the risk of developing cancer in infected individuals without pre-malignant lesions.  

 

RHB-105 was granted Qualified Infectious Disease Product (“QIDP”) designation by the FDA in November 2014. The QIDP designation was granted under the FDA's Generating Antibiotic Incentives Now Act, which is intended to encourage development of new antibiotic drugs for the treatment of serious or life-threatening infections that have the potential to pose a serious threat to public health. The granted QIDP designation allows us to benefit from Fast-Track development

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status with an expedited development pathway for RHB-105 and Priority Review status which potentially provides shorter review time by the FDA of a future potential marketing application. If approved, RHB-105 will also receive an additional five years of U.S. market exclusivity on top of the standard exclusivity period, for a total of eight years of market exclusivity.

 

RHB-105 is targeting a significantly broader indication than that of existing H. pylori therapies, as a first line treatment of H. pylori infection, regardless of ulcer status.

 

We acquired the rights to RHB-105 pursuant to an agreement with Giaconda Limited. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.”

 

Competition and Market

 

The most common treatments of H. pylori type bacteria combine clarithromycin or metronidazole antibiotics with amoxicillin and a proton pump inhibitor. Such current standard of care treatments fail in approximately 30% of the patients due to the development of antibiotic resistance, based on reports by Prof. David Y. Graham, M.D., et al. published in Nature Clinical Practice Gastroenterology & Hepatology in 2008 and in Gut in 2010 and by Malfertheiner P. et al. published in Gut in 2012.

 

As published in the 2006 study report by Dr. T.J. Borody, et. al. in Alimentary Pharmacology & Therapeutics, the potential advantage of RHB-105 over these drugs (such as PrevPac ® of Takeda Pharmaceuticals and Pylera ® of Allergan Plc) was shown in a Phase II study comprised of 130 subjects. In the study, a different formulation of RHB-105, using the same antibiotic ingredients and a similar proton pump inhibitor, was shown to eradicate H. pylori in over 90% of treated patients who failed previous eradication attempts using standard of care treatments. Furthermore, final results from the first Phase III study in the U.S. (the “ERADICATE Hp Study”) conducted by us demonstrated 89.4% efficacy in eradicating H. pylori infection with RHB-105 in 118 dyspepsia patients with confirmed H. pylori infection.

 

In the U.S., we estimate that approximately three million patients per annum that present with first time dyspeptic symptoms caused by an H. pylori infection, based on a 2007 report by Colin W. Howden, M.D., et. al. published in The American Journal of Managed Care and a 2005 report by Nicholas J. Talley, M.D., et al. published in The American Journal of Gastroenterology. Based on this figure, combined with the price of branded treatments, we estimate the potential global and U.S. market for RHB-105 was approximately $4.83 billion and $1.45 billion in 2015, respectively.

 

Clinical Development

 

A Phase II clinical trial in Australia was completed with a different formulation of RHB-105, using the same antibiotic ingredients and a similar proton pump inhibitor.   A first Phase III trial in the U.S., the ERADICATE Hp Study, which was completed in 2015, showed 89.4% eradication of H. pylori with   RHB-105   therapy while open-label standard-of-care yielded an H. pylori eradication rate of 63% in placebo subjects.

 

Professor David Y. Graham, MD, from Baylor College of Medicine, Houston, Texas, served as the lead investigator of the ERADICATE Hp Study.

 

We met with the FDA in April 2016 to discuss the successful results of the ERADICATE Hp Study and the proposed design of the confirmatory Phase III study for the treatment of  H. pylori infection. In light of the feedback received from the FDA, we expect to initiate a confirmatory Phase III randomized, double-blind, active comparator, two-arm clinical study, comparing RHB-105 against a dual therapy amoxicillin and omeprazole regimen at equivalent doses in the second quarter of 2017. In January 2017, we entered into an agreement with ICON Clinical Research Limited to perform clinical trial services for the confirmatory Phase III study.

 

Pursuant to a recommendation from the FDA, we intend to complete a supportive pharmacokinetic (PK) program by end of the first quarter of 2017, prior to initiating the confirmatory Phase III study. Subject to their successful outcome, we expect that the supportive PK program and the confirmatory Phase III study will complete the clinical package required for a submission of an NDA for RHB-105, if we proceed to file an NDA.

 

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The following chart summarizes the clinical trial history and status of RHB-105:

 

Clinical
trial name

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical
trial site

    

Number of
subjects of
the trial

    

Nature and
status
  of
the trial

    

Schedule

-

 

Phase IIa

 

Examining the therapeutic candidate’s effectiveness in treating H. pylori infection in patients for whom standard of care had failed to treat the infection

 

Center for Digestive Disease, Australia

 

130

 

The trial was completed and indicated that the treatment is effective for H. pylori- infected patients for whom standard of care had failed to treat the infection

 

Completed in 2005

-

 

Comparative Bioavailability

 

Comparing the bioavailability of RHB-105 to the bioavailability of an equivalent dose of commercially available active ingredients

 

Algorithme Pharma,Canada

 

16

 

Completed

 

Completed in 2013

ERADICATE Hp Study

 

Phase III

 

Examining the effectiveness, safety and PK of the final formulation

 

13 sites in the U.S.

 

Up to 118

 

C ompleted

 

Completed in 2015

-

 

Comparative Bioavailability

 

Comparing the bioavailability of RHB-105 in fed and fasted state and to the bioavailability of the active comparator for the confirmatory Phase III study

 

Algorithme Pharma,Canada

 

18

 

Ongoing

 

Ongoing

TBD

 

Phase III

 

Assess the safety and efficacy of RHB-105 as compared to active comparator

 

Up to 55 sites in the U.S.

 

440

 

Planned

 

Planned for initiation in Q2 2017

 

We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

RHB-104

 

Crohn’s Disease

 

RHB-104 is intended to treat Crohn’s disease, which is a serious inflammatory disease of the GI system that may cause severe abdominal pain and bloody diarrhea, malnutrition and potentially life-threatening complications.

 

RHB-104 is a patented combination of clarithromycin, clofazimine and rifabutin, three generic antibiotic ingredients, in a single capsule. The compound was developed to treat Mycobacterium avium paratuberculosis  (“MAP”) infections in Crohn’s disease.

 

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To date, Crohn’s disease has been considered an autoimmune disease, but the exact pathological mechanism is unclear. Dr. Robert J. Greenstein suggested in The Lancet Infectious Diseases , 2003 that Crohn’s disease is caused by MAP, the same organism responsible for a major cause of disease in animal agriculture production, domestic and wild animals. This hypothesis is supported by an expanding number of scientific and clinical studies published in peer-reviewed journals since a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s disease took place in 1998. Specific genetic loci like NOD2 have been implicated in the pathogenesis of Crohn’s disease with mutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in patients with Crohn’s disease. Recent advances in diagnostic technology have led to increasingly higher identification of MAP, with studies, such as Bull TJ et al . J Clin Microbiol, 2003 and Shafran I et al.  Dig Dis Sci, 2002, demonstrating high prevalence of MAP in Crohn’s disease patients. However, there is currently no FDA-approved commercial diagnostic test for MAP.

 

In 2011, we obtained FDA “Orphan Drug” status for RHB-104 for the treatment of Crohn’s disease in the pediatric population. See “Item 4. Information on the Company – B. Business Overview – Government Regulations and Funding – Orphan Drug Designation.”

 

The formulation for RHB-104 is presently complete and manufacturing of the all-in-one capsules for our clinical trials is currently in process. Stability testing of the clinical trial material is ongoing.

 

We acquired the rights to RHB-104 pursuant to an asset purchase agreement with Giaconda Limited, a publicly traded Australian company. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.”

 

A diagnostic technology enabling the identification of the presence of MAP bacterial DNA in patients was developed and patented by Professor Saleh Naser of the University of Central Florida in Orlando. On September 15, 2011, we entered into an agreement with the University of Central Florida Research Foundation, Inc. (“UCF”), pursuant to which we acquired the exclusive rights in this patented diagnostic test. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement related to RHB-104.”

 

On February 12, 2012, we entered into an agreement with Q Squared Solutions LLC (f/k/a Quest Diagnostics Ltd.) (“Q Squared”) to develop a commercial diagnostic test for detecting the presence of MAP bacterial DNA in the blood based upon the rights we acquired from UCF. Additional intellectual property covering other aspects of MAP detection was licensed from the University of Minnesota in December 2014 in order to potentially enhance our ability to detect MAP.  On January 29, 2015, we announced that, together with Q Squared, we concluded a pre-submission meeting with the FDA regarding the development path of a commercial companion diagnostic test for the detection of MAP in Crohn’s disease patients. 

 

We reported in October 2016 the results from the MAP diagnostic development program, including an initial validation of our platform PCR (polymerase chain reaction) detection methodology licensed from UCF and developed by Professor Saleh A. Naser, a leading investigator in the field of  Mycobacterium avium subspecies paratuberculosis  (MAP) and its association with Crohn’s disease. Further testing of the methodology at three different U.S. laboratories has successfully identified MAP DNA in blood samples drawn from patients with Crohn’s disease, including a test in collaboration with the Baylor College of Medicine intended to further advance the development of a companion diagnostic for MAP.  Further optimization of the processes for rapid detection of MAP is currently in progress. We believe that ensuring that any future commercial test is accurate and reproducible is critical to the successful development of a companion diagnostic.

 

Competition and Market

 

According to GlobalData, a provider of market intelligence for the pharmaceutical sector, there were approximately 1.39 million prevalent cases of Crohn's disease in the 10 major markets in 2016. This number of prevalent cases is expected to increase to 1.48 million by 2022.

 

According to a report by EvaluatePharma, a leading market intelligence and information resource, the market of drug treatments for Crohn’s disease was estimated to exceed $7.6 billion worldwide in 2016. The report also estimates that the worldwide market for drug treatment of Crohn’s disease will exceed $8 billion in 2017.

 

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Therapeutic interventions in Crohn’s disease patients are based on the disease location, severity and associated complications. Therapeutic approaches for the treatment of Crohn’s disease are individualized according to the patient’s symptomatic response and tolerance to the prescribed treatment. Since the existing treatments are not curative, the current therapeutic approaches are sequential and involve treatment of an acute disease or inducing clinical remission through mucosal healing, followed by maintenance of the response or remission to improve the patient’s quality of life.

 

Currently available drugs on the market for the treatment of Crohn’s disease offer only symptomatic relief, the effects of which are largely temporary or partial and are accompanied by numerous adverse effects. The most commonly prescribed drugs for treatment of Crohn’s disease include 5 Aminosalicylates (5-ASA, such as mesalamine), corticosteroids (such as prednisone), immunosuppressant drugs (such as azathioprine and methotrexate) and biologic agents, including TNF-α inhibitors (such as Remicade ® , Humira ® and Cimzia ® ), an integrin inhibitor (Tysabri ® , Entyvio ® ) and an IL 12 and IL23 inhibitor (Stelara ® ).

 

Unlike drugs currently on the market for the treatment of Crohn’s disease which are immunosuppressive agents, RHB-104 is intended to address the suspected cause of the disease - MAP bacterial infection. To the best of our knowledge, there are no drugs approved for marketing that target infections caused by MAP bacteria in Crohn’s disease patients.

 

We may also be exposed to potentially competitive products which may be under development to treat Crohn’s disease, including new anti-TNFα, biological and other new therapies. Additionally, a clinical trial is being conducted by Valeant with the antibiotic rifaximin (Xifaxan ® ) for the treatment of Crohn’s disease.

 

Clinical Development

 

A Phase III clinical trial for RHB-104 was conducted in Australia, sponsored by Pharmacia, a Swedish company (which merged with Pfizer), with the primary objective of evaluating the ratio of patients with recurrent symptoms of Crohn’s disease following the initial induction of remission with 16 weeks of treatment. Subjects were subsequently assessed at 52, 104 and 156 weeks. The main secondary objective was the percentage of patients who achieved clinical remission at 16 weeks. The results of the trial were published by Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology . Although the study did not meet the main objective of showing a difference in relapse rate with long-term treatment, there was a statistically significant difference between the treatment groups in the percentage of subjects in remission at week 16. Professor Marcel Behr and Professor James Hanley from McGill University published a re-analysis of the study in The Lancet Infectious Diseases in June 2008, based on the intent-to-treat (ITT) principle and found that there was a significant statistical advantage for the active therapy over the placebo throughout the period of administration that disappeared once the active therapy was discontinued.

 

In October 2012, we entered into an agreement with our Canadian service provider which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the manufacturing and supply of RHB-104 for our clinical trials. In addition, we entered into additional manufacturing agreements directly with the Canadian manufacturer.

 

In June 2011, we entered into an agreement with our Canadian service provider which entered into a back-to-back agreement with PharmaNet Canada Inc. for the provision of clinical trial services for the RHB-104 adult studies in North America and Europe. PharmaNet was subsequently acquired by inVentiv Health and our agreements were transferred to inVentiv. See “– Master Service Agreement with 7810962 Canada Inc. and see also "Clinical Services Agreement –  Clinical Services Agreement related to RHB-104."

 

Subsequent to our discussions with the FDA for approval to conduct the North American trial based upon an Investigative New Drug (IND) approved by the FDA on July 18, 2007, we made a number of changes to the original protocol. On August 29, 2012, we revised the IND filed by Giaconda with the submission of a new Phase III protocol to the FDA, and after 30 days, the IND became effective. Based upon the response from the FDA on issues relating to the clinical study, additional changes have been made, and will be made, to the clinical study in North America, Israel, and other countries. Further amendments to the protocol were submitted to the FDA in 2014 and 2016 responding to recommendations from the investigators, and in order to expedite recruitment in the study.

 

In October 2013, we commenced a randomized, double-blind, placebo-controlled first Phase III clinical trial in North America, Europe, Israel, Australia and New Zealand, and other countries with RHB-104 (“MAP US”), based on the analysis and data from a Phase III trial conducted in Australia with the RHB-104 active ingredients in a different formulation.  The MAP US study is ongoing and is expected to enroll 410 patients with moderately to severely active

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Crohn’s disease at up to 150 clinical sites in the U.S., Canada, Europe, Israel, Australia and New Zealand. Patients are randomized 1:1 to receive either RHB-104 or a placebo for 52 weeks and are evaluated for the primary endpoint of remission (Crohn’s disease active index (“CDAI”) <150) at week 26 of treatment.

 

In February 2017, we entered into an agreement with our Canadian service provider which entered into a back-to-back agreement with inVentiv Health for the provision of clinical trial services for an RHB-104 open-label extension study that would allow patients who complete 26 weeks of study drug administration and remain out of remission (CDAI>150) the opportunity to receive treatment with RHB-104 for a 52-week period.

 

Following a pre-planned review of safety data, an independent interim Data and Safety Monitoring Board (DSMB) unanimously recommended in December 2016 that the MAP US study continue as planned, without any modifications. Two additional DSMB meetings are planned to take place after 50% and after 75% of the 410 patients planned to be enrolled in the study complete the 26 weeks of study participation. Over half of the patients have already been enrolled in the MAP US study, with the 205 th patient enrolled in August 2016. As a result, we expect the second independent DSMB meeting to be held in the second quarter of 2017, after the first 205 patients complete 26 weeks of study participation. The second DSMB meeting will include safety and interim efficacy analysis and will evaluate the option of an early stop for success, according to a pre-specified statistical significance threshold for analysis requiring overwhelming efficacy of RHB-104 versus placebo in the primary endpoint (two sided p-value <0.003). Assuming that the study is not stopped early for success or inefficacy following the second DSMB meeting, we expect to complete the recruitment of all 410 subjects planned to enroll for the study by the end of 2017. Additional studies will be required to support a U.S. NDA for RHB-104.

 

We also plan to initiate two additional ex-U.S. small-scale open-label clinical studies with RHB-104, each with up to 20 Crohn’s disease patients, to provide additional supportive clinical data for potential future marketing applications, as well as to evaluate RHB-104’s efficacy in newly diagnosed and treatment-naïve Crohn’s disease patients and as an add-on therapy to current standard of care.

 

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The following chart summarizes the clinical trial history and status of RHB-104 and its earlier individual active agents:

 

Clinical trial
author/designnation

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical
trial site

    

Planned
number of
 subjects of
the trial

    

Nature and
status   of
the trial

    

Schedule

Borody 2002

 

Phase IIa

 

Examining the effect of the treatment on Crohn’s disease patients

 

Center for Digestive Disease, Australia

 

12

 

Performed

 

Completed in 2002

Borody 2005

 

Phase II

 

Examining the effect of the treatment on Crohn’s disease patients

 

Center for Digestive Disease, Australia

 

52

 

Performed

 

Completed in 2005

Selby

 

Phase III

 

Examining the effect of the treatment with the product on Crohn’s disease patients

 

20 clinical centers in Australia

 

213

 

The trial was performed and indicated promising improvement rates, although it did not meet the main trial objective, as defined

 

Published in 2007

Biovail PK study 2007

 

PK Study

 

Optimize the formulation of RHB-104 on a PK basis

 

Toronto, Ontario

 

24

 

Trial compared two formulations to determine the optimum formulation for RHB-104

 

Completed in 2007

MAP US

 

Phase III

 

Assess the safety and efficacy of RHB-104 in Crohn’s disease patients

 

U.S., Canada. Israel, Australia, New Zealand and Europe

 

410

 

Phase III trial in North America, Israel, and other countries has commenced

 

First patient entered study in Q3 2013

Food Effect Study

 

PK Study

 

Determine the effect of food on the bioavailability of RHB-104 in healthy volunteers

 

Algorithme Pharma, Canada

 

84

 

Completed

 

Completed in 2014

Drug-Drug Interaction Study

 

PK Study

 

To assess the net PK effect of multiple doses of RHB-104 on CYP3A4 enzymes in healthy volunteers

 

Algorithme Pharma, Canada

 

36

 

Ended

 

Ended in 2014

 

We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

Multiple Sclerosis (“MS”)

 

MS is an inflammatory, demyelinating, and neurodegenerative disease of the central nervous system of uncertain etiology that exhibits characteristics of both infectious and autoimmune pathology. There is a growing consensus in the medical community that a dysregulated immune system plays a critical role in the pathogenesis of MS.

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Clinical Development

 

We have performed several preclinical studies, including studies in an experimental autoimmune encephalomyelitis (EAE) mouse model of MS, to investigate the potential impact of RHB-104 in treating MS. The first preclinical study measured cytokine production (biomarkers of inflammation) and demonstrated that the RHB-104 treatment led to a significant reduction of pro-inflammatory cytokine concentrations of IL-6 and TNF, which are associated with inflammation and MS, compared to the control group. The second preclinical study measured the efficacy of RHB-104 as prophylactic therapy, and the treatment with RHB-104 demonstrated a significant reduction in the inflammatory area and level of demyelination, compared with the control group. The third preclinical study measured relapses, demonstrating RHB-104’s efficacy in significantly reducing the incidence of relapse compared with the control group.

 

Following these preclinical studies, in June 2013, we initiated a Phase IIa proof-of-concept study with RHB-104 for relapsing remitting multiple sclerosis (“RRMS”) (the “CEASE MS” study) at two clinical sites in Israel. The study was completed, and the top-line final results (48 weeks) were announced in December 2016. The top-line final results (48 weeks) were consistent with the interim results (24 weeks) suggesting meaningful positive safety and clinical signals upon 24 weeks of treatment with RHB-104 as an add-on therapy, including an encouraging relapse-free rate, Expanded Disability Status Scale scores and MRI results, which support further clinical development.

 

The following chart summarizes the development history and status of RHB-104-MS:

 

Trial name

    

Development
phase

    

Purpose of
the trial

    

Clinical
trial sites

    

Planned
number of
subjects of 
the trial

    

Nature and
status of
the trial

    

Schedule

EAE Mouse T-cell Function Study

 

Pre-Clinical

 

Measure cytokine production as a measure of inflammation in EAE mice treated with RHB-104 vs. negative controls

 

-

 

 

 

 

 

Completed 2012

EAE Prophylaxis Study

 

Pre-Clinical

 

Scoring EAE severity in mice treated prophylactically with RHB-104 vs. negative controls

 

-

 

 

 

 

 

Completed 2012

EAE Relapse Study

 

Pre-Clinical

 

Scoring EAE severity in mice treated with RHB-104 vs. negative and positive controls

 

-

 

 

 

 

 

Completed 2012

Lipopolysaccharide (LPS)-induced cytokine production study

 

Pre-Clinical

 

Measure LPS induced cytokine production in C57BL/6 mice treated with RHB-104 vs. negative and positive controls

 

-

 

 

 

 

 

Completed 2013

CEASE-MS

 

Phase IIa 

 

Proof of concept study to assess the safety and efficacy of RHB-104 in RRMS

 

Israel

 

18

 

Completed

 

Completed 2016. Final top-line results announced in December 2016

 

Additional trials will be required as part of the RHB-104 MS global development program and regulatory strategy.

 

We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

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Nontuberculous Mycobacteria Infections  

 

In January 2017, RedHill announced that RHB-104 had been granted Qualified Infectious Disease Product (“QIDP”) designation by the FDA for the treatment of Nontuberculous Mycobacteria (“NTM”) infections. RedHill plans to consult with the FDA regarding the RHB-104 development program for NTM infections.

 

BEKINDA ® (RHB-102)

 

BEKINDA ® is a once-daily bi-modal extended release oral formulation of ondansetron, a leading member of the family of 5-HT3 serotonin receptor inhibitors. We are developing BEKINDA ® with two dosages: 24 mg and 12 mg. BEKINDA ® is under development for the intended use in the following indications, which are novel indications for ondansetron targeting large potential markets:

 

1)

Acute gastroenteritis and gastritis - 24 mg strength

 

2)

Irritable Bowel Syndrome with Diarrhea (IBS-D) - 12 mg strength

 

RedHill is also exploring the development of BEKINDA ® 24 mg for the oncology support indications of chemotherapy and radiotherapy-induced nausea and vomiting in Europe. This is an existing indication for ondansetron targeting a smaller potential market. This program is currently on hold given the focus on the gastroenteritis and IBS-D programs.

 

BEKINDA ® utilizes a technology called CDT ® that uses salts to provide an extended release of ondansetron. The CDT ® platform enables extended drug release (i.e., measured rate of introduction of active drug) at a relatively low manufacturing cost.

 

In March 2014, we entered into a License Agreement with Temple University to secure direct rights to patents related to BEKINDA ® . Previously, these rights were licensed to us from SCOLR, which announced that they had ceased business operations in 2013. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement for BEKINDA ® ”.

 

Acute Gastroenteritis and Gastritis

 

Acute gastroenteritis and gastritis both involve inflammation of the mucus membranes of the GI tract. Symptoms of gastroenteritis and gastritis include nausea, vomiting, diarrhea and abdominal pain.  Acute gastroenteritis and gastritis are a major cause of emergency room visits, particularly for pediatrics. If approved, BEKINDA ® could potentially decrease the number of emergency room visits of patients suffering from acute gastroenteritis and gastritis by offering them an effective and long-lasting treatment which can be taken in the comfort of their home.

 

Competition and Market

 

A single dose of BEKINDA ® is intended to treat nausea and vomiting over a time window of approximately 24 hours. This is potentially advantageous for acute gastroenteritis and gastritis patients as it is intended to provide them with relief from nausea and vomiting symptoms for a full 24-hour period with a single oral tablet, thus avoiding the need to take additional drugs (tablets) during the day or receiving intravenously administered drugs. BEKINDA ® could also potentially reduce the burden on health systems by reducing visits to emergency departments.

 

If BEKINDA ® is approved for the treatment of acute gastroenteritis and gastritis, it could potentially hold substantial advantages over existing treatments. To the best of our knowledge, if approved, BEKINDA ® will be the first 5-HT3 serotonin receptor inhibitor indicated for the treatment of acute gastroenteritis and gastritis in the U.S. If approved, BEKINDA ® could be prescribed by primary care physicians to patients early on, potentially preventing emergency room visits, dehydration and the need to provide IV fluids.

 

BEKINDA ® is targeting an annual potential worldwide market for acute gastroenteritis and gastritis treatment estimated to exceed $650 million, based on Graves S. Nancy, Acute Gastroenteritis, Prim Care Clin Office Pract 40 (2013) 727–741 and our analysis.

 

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To the best of our knowledge, there are no other 5-HT3 serotonin receptor inhibitors indicated or in the clinical stage of development in the U.S. for this indication. Patients presenting at hospitals with gastroenteritis and gastritis are often treated primarily in IV administration with antiemetic drugs not indicated or approved for this condition, off label, including 5-HT3 serotonin receptor inhibitors.

 

To the best of our knowledge, a product that potentially directly competes with BEKINDA ® is EUR-1025 for controlled release of ondansetron, based on a different technology of controlled release originally developed by Eurand N.V. (now owned by Adare Pharmaceuticals, Inc.). According to Eurand N.V.’s press release from March 4, 2010, Eurand N.V. completed two pivotal pharmacokinetic studies of EUR-1025 intended to establish the bioequivalence of EUR-1025 versus Zofran ® (ondansetron hydrochloride). To the best of our knowledge, EUR-1025 was being developed for the indication of postoperative-induced nausea and vomiting, for which Zofran ® and generic ondansetron were already approved, and according to Eurand N.V.’s press release, a Phase III study was planned to be conducted in this indication. To the best of our knowledge, the Phase III study was not initiated and there has not been further clinical development of EUR-1025 since the completion of the above-mentioned pharmacokinetic studies.

 

Clinical Development

 

We are conducting a randomized, double-blind, placebo-controlled, parallel group Phase III study (the “GUARD study”) at 29 clinical sites in the U.S. We completed enrollment for the study in February 2017.  Three hundred twenty (320) adults and children over the age of 12 were treated in the GUARD study. Patients were randomized to receive either BEKINDA ® or a placebo. The primary endpoint for the study is the absence of vomiting and the need for rescue medications or intravenous hydration after 30 minutes and through 24 hours after the first dose of the study drug. Secondary endpoints include, among others, frequency of vomiting, severity and time to resolution of nausea and time to resumption of normal activities. We implemented a protocol amendment to the ongoing GUARD study to increase the safety data collected so that the study results may support a potential NDA filing, as recommended by the FDA. We expect to receive top-line results from the GUARD study in the second quarter of 2017.  Following prior discussions with the FDA, the GUARD study is intended to support potential future submissions of marketing applications in the U.S. for this indication.

 

The lead investigator for the Phase III study is Dr. Robert A. Silverman, MD, MS, Associate Professor at the Hofstra North Shore-LIJ School of Medicine and an emergency medicine specialist.

 

Clinical trial
name

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical
trial site

    

Planned
number of
subjects
of the trial

    

Nature and
status
  of
the trial

    

Schedule

GUARD Study

 

Phase III

 

Randomized double blind placebo-controlled Phase III study in acute gastroenteritis and gastritis

 

29 sites in the U.S.

 

320

 

Evaluating the safety and efficacy of BEKINDA ® in acute gastroenteritis and gastritis

 

Top-line data expected in Q2 2017

 

We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

Irritable Bowel Syndrome with Diarrhea (IBS-D)

 

Irritable bowel syndrome (IBS) is a multifactorial disorder marked by recurrent abdominal pain or discomfort and altered bowel function. Certain factors that alter GI function can contribute to IBS symptoms, including stress, prior gastroenteritis, and changes in the gut microbiome, bile acids and short-chain fatty acids, which may stimulate 5-HT3 serotonin release and increase colonic permeability and motility. (Source: http://www.mayoclinic.org/medical-professionals/clinical-updates/digestive-diseases/better-agents-needed-irritable-bowel-syndrome-diarrhea).

 

In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K, Chernova J, Hastings M, et al. Gut Published Online First December 12, 2013). Unlike alosetron (a currently approved 5-HT3 antagonist in IBS-D), ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex ® (alosetron), 2010; FDA labeling for Zofran ® (ondansetron), 2014).

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BEKINDA ® is a bimodal release formulation of ondansetron. It provides an initial release similar to immediate release ondansetron and then extended release over 24 hours.  In light of the activity of ondansetron demonstrated in the preliminary studies described above, and because of its extended release properties and once daily dosing, we believe it is a promising candidate for treatment of IBS-D.

 

Competition and Market

 

IBS is one of the most common GI disorders, and IBS-D is the most common subtype of IBS in the U.S., according to a report by GlobalData.

 

According to reports by Saito YA. et al published in 2002 in The American Journal of Gastroenterology and by Lovell RM et al. , published in 2012 in Clinical Gastroenterology and Hepatology, it is estimated that at least 30 million Americans may suffer from IBS. According to GlobalData, approximately 40% of the cases of IBS worldwide are of the IBS-D subtype.

 

According to a report from EvaluatePharma, the U.S. potential market for IBS-D treatments is estimated to reach approximately $830 million in 2017 and exceed $1 billion in 2018.

 

To the best of our knowledge, there is one other 5-HT3 serotonin receptor inhibitor indicated for this indication in the U.S. – alosetron (currently marketed under the brand name Lotronex ® by Sebela Pharmaceuticals and generic versions marketed by Actavis plc, West-Ward and Amneal Pharmaceuticals). However, alosetron is approved only for the treatment of IBS in women with severe chronic IBS-D and is under a restricted prescribing program due to potential severe side effects. The active ingredient in BEKINDA ® , ondansetron, is approved by the U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe that BEKINDA ® , if approved for the treatment of IBS-D in the U.S., may provide improved safety while maintaining efficacy, for broader use in the treatment of IBS-D and has the potential to be the preferred 5-HT3 serotonin receptor inhibitor treatment for patients suffering from IBS-D. According to GlobalData, the U.S. sales of Lotronex ®  were approximately $60 million in 2016. Ramosetron, another 5-HT3 serotonin receptor inhibitor, is marketed by Astellas Pharma Inc. under the brand name Irribow ® for the treatment of IBS-D in Japan and South Korea, for chemotherapy -induced nausea and vomiting in Japan, South Korea and China, and for and postoperative nausea and vomiting in South Korea. To the best of our knowledge, there is currently no clinical development of ramosetron for marketing approval in the U.S. for any indication.

 

To the best of our knowledge, one of the main competitors of BEKINDA ® for the treatment of IBS-D is Xifaxan ® (rifaximin), marketed in the U.S. by Valeant. Xifaxan ®   is an antibiotic treatment that was approved for the treatment of IBS-D in 2015. Xifaxan ® is also approved in the U.S. for the treatment of hepatic encephalopathy and traveler's diarrhea. According to a report by GlobalData, it is believed that Xifaxan ® exerts its therapeutic effects in patients with IBS by treating intestinal bacteria overgrowth. In the treatment of IBS-D patients, Xifaxan ® is administered orally at a dose of 550 mg three times daily for two weeks. According to a GlobalData analysis, due to the chronic nature of IBS, physicians may have safety concerns associated with the long-term use of antibiotics, such as the induction of antibiotic resistance and imbalance in the intestinal flora. According to a report by EvaluatePharma, the worldwide annual sales of Xifaxan ® for the treatment of IBS are estimated to exceed $920 million by 2020.

 

Viberzi ® (eluxadoline) is another drug for the treatment of IBS-D approved by the FDA in 2015. Viberzi ® is a locally-acting mu-opioid receptor agonist and a delta-opioid receptor antagonist marketed in the U.S. by Ironwood Pharmaceuticals and Allergan plc. According to EvaluatePharma, the worldwide sales of Viberzi ® are estimated to reach $470 million in 2020.

 

Donnatal ®  ( Phenobarbital, Hyoscyamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide) is also used as a treatment for IBS and included in the FDA DESI review program, although it is not approved by the FDA. In December 2016, we were granted certain rights to promote Donnatal ® (tablets and elixir) in the U.S. pursuant to an exclusive Co-Promotion Agreement with Concordia.

 

Clinical Development

 

We are conducting a randomized, double-blind, placebo-controlled, Phase II study to evaluate the safety and efficacy of BEKINDA ® 12 mg in patients with IBS-D.  The study is expected to enroll 120 adults over the age of 18 who suffer from

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IBS-D in up to 16 clinical sites in the U.S. Patients are randomized to receive either BEKINDA ® 12 mg once daily or a placebo. Top-line results are expected in mid-2017.

 

The primary endpoint for the trial is the proportion of patients in each treatment group with response in stool consistency on study drug as compared to baseline. Response is defined as per FDA guidelines for the indication. Additional endpoints will be analyzed including:

 

·

Proportion of patients in each treatment group who are pain responders, per FDA guidance definition

·

Proportion of patients in each treatment group who are overall responders, per FDA guidance definition

·

Differences between treatment groups in: 

o

Abdominal pain

o

Abdominal discomfort

o

Frequency of defecation

o

Incidence and severity of adverse events

 

Clinical trial
name

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical
trial site

    

Planned
number of
subjects
of the trial

    

Nature and
status
  of
the trial

    

Schedule

-

 

Phase II

 

Randomized double blind placebo-controlled Phase II study in IBS-D

 

Up to 16 sites in the U.S.

 

Up to 120

 

Evaluating the safety and efficacy of BEKINDA ® 12 mg in IBS-D

 

Top-line data expected in mid-2017

 

We cannot predict with certainty our development costs and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.

 

Oncology Support

 

Clinical Development

 

We completed two comparative bioavailability studies with BEKINDA ® 24 mg given once daily as compared to approved regimens of Zofran ® 8 mg tablets given in multiple doses per day, a food-effect study and a comparative bioavailability study with BEKINDA ® 24 mg given once daily as compared to Zofran ® 16 mg suppository, which is approved in major territories in the EU.

 

The following chart summarizes the PK trial history and status of BEKINDA ® :

 

Clinical trial
name

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical
trial site

    

Number of
subjects
of the trial

    

Nature and
status of
the trial

    

Schedule

PK Program

 

Comparative Bioavailability

 

Five PK studies with BEKINDA ®

 

Algorithme Pharma, Canada

 

80

 

To support marketing applications in EU and U.S. in oncology support

 

Completed in 2016

-

 

Comparative Bioavailability

 

Comparative Bioavailability of BEKINDA ®   12 mg

 

Algorithme Pharma, Canada

 

44

 

To support marketing applications in EU in oncology support

 

Completed in 2017

 

We submitted a Marketing Authorization Application (MAA) for BEKINDA ® 24 mg in Europe for chemotherapy and radiotherapy-induced nausea and vomiting in December 2014, which we subsequently decided to withdraw. We conducted another comparative bioavailability study with BEKINDA ® 12 mg compared to Zofran ® 16 mg suppository and Zofran 8 mg bid regimens and concluded, subject to final clinical study report yet to be received, that bioequivalence of the two

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approved regimens is unlikely. Given the focus on the gastroenteritis and IBS-D programs, the oncology support program for the EU is currently on hold.

 

In the U.S., FDA feedback in 2015 indicated that clinical efficacy data is required to support a U.S. NDA for BEKINDA ® for oncology support indications under the 505(b)(2) regulatory path. Further development for oncology support indications will be decided as data from the ongoing and planned efficacy studies with BEKINDA ® for acute gastroenteritis and gastritis and IBS-D becomes available.

 

We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

RHB-106

 

RHB-106 is a tablet intended for the preparation and cleansing of the GI tract prior to the performance of abdominal procedures, including diagnostic tests such as colonoscopy, barium enema or virtual colonoscopy, as well as surgical interventions, such as laparotomy.

 

As noted above, we acquired the rights to RHB-106 pursuant to an agreement with Giaconda Limited. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.”

 

On February 27, 2014, we entered into a licensing agreement with Salix Pharmaceuticals, Ltd. (“Salix”), which was later acquired by Valeant, pursuant to which Salix licensed the exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation and rights to other purgative developments. Pursuant to this agreement, we received an upfront payment of $7 million and are entitled to an additional potential $5 million in subsequent milestone payments. In addition, as part of the terms of the agreement, Salix agreed to pay us tiered royalties on net sales of RHB-106, ranging from the low single-digits up to low double-digits. See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Exclusive License Agreement with Valeant Pharmaceuticals International, Inc.”

 

Competition and Market

 

According to a report by EvaluatePharma, the worldwide market of laxative products intended for cleansing the GI system was estimated at approximately $900 million in 2016 and is expected to exceed $1 billion in 2021.

 

To the best of our knowledge, the main competitors of RHB-106 are GI cleansing products based on polyethylene glycol (PEG 3350). These products are delivered in the form of  a water-soluble powder, and require users to drink between 2-4 liters of solution before performance of the gastroenterological procedure. In addition to the need to drink considerable amounts of solution, a common side effect that raises difficulties with users is the accompanying harsh and unpleasant taste, leading to potential difficulties with patient compliance. RHB-106 offers the potential for improved patient compliance because it is tasteless and eliminates the need for drinking several liters of ill-flavored electrolyte solution. RHB-106 also potentially has an advantage compared to currently available tablet products in the field in that it does not contain sodium phosphate, an active ingredient linked with a risk of nephrotoxicity.

 

An additional product, called PrepoPik ® in the U.S., is marketed by Ferring Pharmaceuticals and received FDA approval on July 17, 2012. The product, marketed under the name PicoPrep ® in other countries, is based on an active chemical ingredient called sodium picosulfate, the same active ingredient used in RHB-106. This product is intended to be used for clearing the GI system and it is given in the form of a water-soluble powder and requires drinking quantities of fluids. Another product, called Suprep ® in the U.S., is marketed by BrainTree Laboratories Inc. and received FDA approval in 2010 as an osmotic laxative indicated for cleansing of the colon in preparation for colonoscopy in adults. Suprep ® ’s active ingredients include sodium sulfate, potassium sulfate and magnesium sulfate in oral solution, and it is administered as a split-dose regimen (taken in the evening before and on the day of the colonoscopy). In August 2016 Perrigo Company Plc announced tentative FDA approval of its generic version of Suprep ® ; however, it has not begun marketing the generic version of Suprep ® , and, to the best of our knowledge, no other generic version of Suprep ® is currently marketed in the U.S.

 

Products administered in the form of tablets or capsules that were released on the market in the U.S., such as OsmoPrep ®   and Visicol ® (marketed by Valeant), are based on a chemical substance called sodium phosphate. In December 2008, the

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FDA published a severe warning against the use of these products due to rare but severe side effects linked to kidney damage. As a consequence of this development, the FDA required in 2008 that oral sodium phosphate products carry a severe warning (black box label). As announced by Salix (now Valeant), following the black box warning received from the FDA, sales in 2009 of these products declined by 39% compared to 2008.

 

A leading product among the PEG 3350 family of products is MoviPrep ® , marketed by Valeant in the U.S. and by Norgine B.V. in Europe. It requires drinking about 2 liters of solution, and some users report it has an unpleasant taste. The potential advantage of RHB-106 over the current competitor products of the PEG 3350 type (such as MoviPrep ® ), as well as over PicoPrep ® , is that it is administered in an oral tablet, permits the patient to drink any clear liquid with the product and spares the patient the exposure to the unpleasant taste that may accompany these products. RHB-106 also does not fall under the black box warning against nephrotoxicity issued by the FDA in December 2008 with respect to currently marketed sodium phosphate capsule preparations.

 

To the best of our knowledge, Norgine B.V. is also developing a new PEG-based bowel preparation oral solution named Plenvu ™   (NER1006), administered as a 2-day split dose regimen. According to Norgine B.V., Plenvu is being developed to provide whole bowel cleansing, with an additional focus on the ascending colon. Norgine B.V. announced in October 2016 that a third Phase III study of Plenvu met its primary endpoints. On August 8, 2016, Norgine B.V. announced that the commercial rights to Plenvu ™   in the U.S. and Canada were licensed to Valeant.

 

Salix (now Valeant), which acquired a worldwide exclusive license to RHB-106 and other purgative developments from us, estimated in its 2014 Investor Day that the peak year revenue from their encapsulated bowel prep would reach approximately $280 million.

 

Clinical Development 

 

Following the acquisition of Salix by Valeant, we received confirmation, in July 2015, that Valeant is continuing the development of RHB-106.

 

Clinical
trial name

    

Development
phase of the
clinical trial

    

Purpose of the
clinical trial

    

Clinical site

    

Number of
subjects of
the trial

    

Nature and
status of
the trial

    

Performance
schedule

-

 

Phase IIa

 

Comparison of the product’s effectiveness and safety with an existing product

 

Center for Digestive Disease, Australia

 

60

 

Performed

 

Completed in 2005

 

YELIVA ® (ABC294640)

 

YELIVA ® is a proprietary, first-in-class, orally-administered SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities, targeting multiple inflammatory, GI and oncology indications.

 

YELIVA ® inhibits SK2, a lipid kinase that catalyzes formation of the lipid signaling molecule sphingosine 1-phosphate (“S1P”). S1P promotes cancer growth and proliferation and pathological inflammation, including TNFα signaling and other inflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, YELIVA ® blocks the synthesis of S1P which regulates fundamental biological processes such as cell proliferation, migration, immune cell trafficking and angiogenesis, and is also involved in immune-modulation and suppression of innate immune responses from T cells.

 

On March 31, 2015, we entered into an exclusive worldwide license agreement with Apogee Biotechnology Corporation (Apogee), pursuant to which Apogee granted us the exclusive worldwide development and commercialization rights to ABC294640 (which we then renamed to YELIVA ® ) and additional intellectual property for all indications. Under the terms of the agreement, we agreed to pay Apogee an upfront payment of $1.5 million, as well as $4 million in potential milestone payments, and tiered royalties starting in the low double-digits. See “Item 4. Information on the Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement for YELIVA ® ”.

 

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Competition and Market

 

YELIVA ® , an orally-administered, first-in-class SK2 inhibitor is being developed for several indications, including for the treatment of refractory/relapsed diffused large B-cell lymphoma (“DLBCL”) and Kaposi sarcoma, for refractory or relapsed multiple myeloma, for advanced hepatocellular carcinoma (“HCC”) and for radioprotection in head and neck cancer patients undergoing therapeutic radiotherapy. Additional oncology and GI and inflammatory disease indications are currently being explored.

 

DLBCL can affect any age group but occurs mostly in elderly people (average age is mid-60s). The most widely used treatment for DLBCL is chemotherapy, usually with a regimen of 4 drugs known as “CHOP” (cyclophosphamide, doxorubicin, vincristine, and prednisone), plus the monoclonal antibody rituximab (Rituxan ® ). This regimen, known as R-CHOP, is most often given in cycles 3 weeks apart.

 

According to the American Cancer Society, DLBCL is the most common subtype of non-Hodgkin’s lymphoma in the U.S., accounting for an estimated 30% of the approximately 72,000 projected non-Hodgkin’s lymphoma cases to be diagnosed in the U.S. in 2017. The total worldwide sales of DLBCL therapies are estimated at approximately $1.5 billion in 2017 according to GlobalData. There are several drugs in late-stage clinical development for DLBCL.

 

Kaposi sarcoma (“KS”) is a cancer that develops from the cells that line lymph or blood vessels, mostly commonly appearing as tumors on the skin and on mucosal surfaces. Human herpesvirus-8 (“HHV-8”), also called Kaposi sarcoma herpesvirus (“KSHV”), is found in the lesions of all patients with Kaposi sarcoma. There are several types of KS, defined by the different populations it develops in. According to the American Cancer Society, the most common type of KS in the U.S. is epidemic or HIV-related KS, which develops in people infected with HIV. According to the American Cancer Society, KS occurs at a rate of about 6 cases per million people each year; it is more common in men than in women and rarely seen in children. Treatment of KS is decided based on the patient’s immune system as well as the number, location, and size of the KS lesions, and may include local therapy, radiation, chemotherapy and treatment with biologic agents (immunotherapy). 

 

The American Cancer Society estimated that approximately 30,200 new cases of multiple myeloma will be diagnosed in the U.S. in 2017 and approximately 12,500 deaths are expected to occur. The risk of multiple myeloma increases as people age. Standard treatment options for multiple myeloma include biological therapy, chemotherapy, corticosteroids, stem cell transplantation and radiation therapy. The total worldwide sales of multiple myeloma therapies were estimated to exceed $12 billion in 2016 according to GlobalData. There are several drugs in late-stage clinical development for multiple myeloma.

 

Hepatocellular carcinoma is the most common primary malignant cancer of the liver, accounting for approximately 85% of liver cancer cases, according to GlobalData. It is the second and sixth most frequent cause of cancer-related deaths worldwide in men and women, respectively. Annual worldwide incidence of liver cancer was estimated to have reached 782,000 cases in 2012, with a mortality rate of 95%; the corresponding U.S. numbers are 30,000 and 80%, respectively, according to a 2012 report by the World Health Organization International Agency for Research on Cancer. Most patients with HCC suffer from liver cirrhosis, which develops following long periods of chronic liver disease. The majority of HCC cases are associated with hepatitis B and hepatitis C virus infections. Few treatment options exist for patients diagnosed at an advanced stage, representing the majority of HCC patients. Sorafenib (Nexavar ® ) is a targeted drug approved for the treatment of HCC in patients who are not candidates for surgery and do not have severe cirrhosis. According to Globaldata, the worldwide market for the treatment of HCC is estimated to reach approximately $780 million in 2020. There are several drugs in late-stage clinical development for hepatocellular carcinoma.

 

Radiation therapy can cause both acute and chronic side effects. The side effects that develop depend on, among other things, the area of the body being treated, the dose given per day, the total dose given, the patient’s general medical condition, and other treatments given at the same time. Acute side effects may include skin irritation or damage at regions exposed to the radiation beams. The oral cavity is highly susceptible to direct and indirect toxic effects of cancer chemotherapy and ionizing radiation. According to a 2011 publication by Peterson DE et al. , the incidence of World Health Organization grades 3 or 4 oral mucositis in patients receiving high-dose head and neck radiation (e.g. 60–70 Gy) to the oral cavity approaches 85%, but all treated patients have some degree of oral mucositis. There are currently limited therapeutic options to prevent oral mucositis in cancer patients undergoing radiotherapy. To the best of our knowledge, several drugs are currently in development for prevention of oral mucositis in cancer patients undergoing radiation therapy. These development programs include Phase II clinical studies for IZN-6N4, an oral rinse developed by Izun

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Pharamaceuticals Corp., for GC-4419, a small molecule enzyme replacement developed by Galera Therapeutics, Inc. and for Brilacidin, a defensin-mimetic antibiotic developed by Cellceutix Corporation.  

 

To the best of our knowledge, there is only one other SK2 inhibitor being developed by SphynKx Therapeutics LLC (“SphynKx”). According to SphynKx’s website, SphynKx’s SK2 inhibitor program is targeting fibrosis and is currently in pre-clinical development stage of lead optimization.

 

Clinical Development

 

ABC-101: Advanced solid tumors

 

A Phase I study, first-in-man evaluation of YELIVA ® in advanced solid tumors was completed in the summer of 2015. Final results demonstrated that the study, conducted at the Medical University of South Carolina (MUSC), successfully met its primary and secondary endpoints, demonstrating that the compound is well tolerated and can be safely administered to cancer patients at doses predicted to have therapeutic activity.

 

Twenty-one patients with advanced solid tumors were treated with YELIVA ® in the study, the majority of who were GI cancer patients, including pancreatic, colorectal and cholangiocarcinoma cancers.

 

The study included the first-ever longitudinal analysis of plasma S1P levels as a potential pharmacodynamic biomarker for activity of a sphingolipid-targeted drug.  Administration of YELIVA ® resulted in a rapid and pronounced decrease in levels of S1P with several patients having prolonged stabilization of disease.

 

The study was supported by grants from the U.S. National Cancer Institute (NCI) awarded to MUSC Hollings Cancer Center, an NCI-Designated Cancer Center, and from the FDA Office of Orphan Products Development (OOPD) awarded to Apogee.

 

ABC-102: Refractory/relapsed diffused large B-cell lymphoma (DLBCL)

 

In June 2015, we initiated a Phase I/IIa study in the U.S. evaluating YELIVA ®   in patients with refractory/relapsed DLBCL at the Louisiana State University Health Sciences Center (LSUHSC) in New Orleans.  In view of improving recruitment prospects, the study was recently modified to include Kaposi sarcoma subjects.

 

The study is intended to evaluate the safety and tolerability of YELIVA ® , as well as to provide a preliminary evaluation of efficacy of the study drug in patients with refractory/relapsed DLBCL, primarily patients with HIV-related DLBCL and in patients with Kaposi sarcoma.

 

Up to 33 patients are expected to be enrolled in the study. The study is funded primarily by a grant awarded to Apogee by the National Cancer Institute Small Business Technology Transfer program. Dr. Chris Parsons, MD, an associate professor in the Departments of Medicine and Microbiology, Immunology & Parasitology at LSUHSC, is the lead investigator for the study.

 

ABC-103: Refractory or relapsed multiple myeloma

 

A Phase Ib/II study with YELIVA ® for the treatment of refractory or relapsed multiple myeloma was initiated in the third quarter of in 2016. The study is being conducted at Duke University Medical Center and is planned to enroll up to 77 patients. The study is funded primarily by a grant awarded by the NCI Small Business Innovation Research program, awarded to Apogee in conjunction with Duke University.

 

The primary objectives of the first portion of the study (Phase I) are to assess safety and determine the maximum tolerated dose in this group of patients. Secondary objectives include assessment of antitumor activity and determination of the PK and pharmacodynamic (PD) properties of YELIVA ®   in refractory or relapsed multiple myeloma patients.

 

The primary objectives of the second portion of the study (Phase II) are to assess the overall treatment response rate and overall survival. Secondary objectives include evaluating the treatment response of YELIVA ® in patients with refractory or relapsed multiple myeloma after three cycles of treatment and evaluation of pharmacodynamic markers.

 

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ABC-106: Advanced hepatocellular carcinoma

 

A Phase II study to evaluate the efficacy and safety of YELIVA ® as a second-line monotherapy in patients with advanced hepatocellular carcinoma (“ HCC”) was initiated in the third quarter of 2016.  The study is currently being conducted at MUSC and will include additional collaborating clinical sites. The study is planned to enroll up to 39 patients who have experienced tumor progression following treatment with first-line single-agent sorafenib (Nexavar ® ).

 

A U.S. NCI grant awarded to MUSC for a research program covering a variety of solid tumor cancers will partially support this study. The trial is additionally funded by us.

 

ABC-104: Oncology support, radioprotectant. Prevention of radiation-associated mucositis in the treatment of head and neck cancer.

 

A Phase Ib study is planned to evaluate YELIVA ® as a radioprotectant in head and neck cancer patients undergoing therapeutic radiotherapy. We expect to initiate the study with YELIVA ® mid-2017.

 

The primary objective of the study is to determine a recommended Phase II dose of YELIVA ® in combination with cisplatin chemoradiotherapy. The secondary objectives include determining PK properties of YELIVA ®   (e.g., the effect of food and interaction with cisplatin) and pharmacodynamic assessments by measuring plasma levels of various markers. Furthermore, severity of mucositis and quality of life will be assessed in placebo and YELIVA ®   treated patients to plan for a randomized placebo-controlled study.

 

Following the successful Phase I study with YELIVA ® in patients with advanced solid tumors, and in light of the compound’s novel mechanism of action, we are evaluating potential clinical studies in inflammatory indications.

 

ABC-105: Ulcerative Colitis (“UC”)

 

We plan to initiate a Phase II study in the second half of 2017 post-expanded toxicology studies. The primary objective of this study is to evaluate efficacy of YELIVA ® in patients with moderate to severe UC by the proportion of patients who are in remission at the end of treatment. Secondary objectives include assessing pharmacodynamics and PKs of YELIVA ® in this study population, as well as the safety in UC patients.

 

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The following chart summarizes the clinical trial history and

status of YELIVA ® :

 

Clinical trial
name

    

Development
phase of the
clinical trial

    

Purpose of
the clinical
trial

    

Clinical
trial site

    

Planned
number of
subjects of
the trial

    

Nature and
status of
the trial

    

Schedule

ABC-101

 

Phase I

 

Safety, PK and pharmacodynamic study in patients with advanced solid tumors

 

Medical University of South Carolina, Charleston, U.S.

 

22

 

Completed. Top-line results indicate the study drug is well tolerated and can be safely administered to cancer patients

 

Completed in 2015; final clinical study report in 2016

ABC-102

 

Phase I/IIa

 

Safety and preliminary efficacy study in refractory or relapsed DLBCL, including patients with virus-induced (e.g., KSHV- or EBV-associated) lymphoma, or Kaposi sarcoma

 

Louisiana State University, New Orleans, U.S.

 

 Up to 33

 

Study was initiated and recently modified to increase recruitment prospects. Patient enrollment is anticipated 

 

Initiated Q2 2015

ABC-103

 

Phase Ib/II

 

Safety and efficacy study in patients with refractory or relapsed multiple myeloma that have previously been treated with proteasome inhibitors and immunomodulatory drugs

 

Duke University, North Carolina, U.S. and collaborating sites (multicenter, U.S.)

 

Up to 77

 

Study was initiated

 

Initiated Q3 2016

ABC-104

 

Phase Ib

 

Safety and efficacy study in the prevention of mucositis in combination with radiotherapy for treatment of squamous head and neck carcinoma

 

Multicenter study across the U.S.

 

Up to 32

 

Planned

 

Mid-2017

ABC-105

 

Phase II

 

A study for the treatment of moderate to severe ulcerative colitis

 

Multicenter study

 

Up to 94

 

Planned

 

Expected H2 2017

ABC-106

 

Phase II

 

A Safety and Efficacy Study in Patients with Advanced Hepatocellular Carcinoma Who Have Progressed on Sorafenib

 

Medical University of South Carolina, Charleston, U.S.A. and collaborating sites (Multicenter, U.S.)

 

From 12 to 39

 

Study was initiated

 

Initiated Q3 2016

 

We cannot predict with certainty our development costs, and such costs may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

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MESUPRON

 

MESUPRON (INN: upamostat) is a proprietary small molecule, first-in-class, protease inhibitor administered by oral capsule.

 

MESUPRON has several potential mechanisms of action to inhibit tumor invasion and metastasis and it presents a new non-cytotoxic approach to cancer therapy.

 

As mentioned under “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement for MESUPRON”, on June 30, 2014 we signed an exclusive license agreement for this oncology therapeutic candidate. Under this agreement, we are responsible for all development, regulatory and commercialization of MESUPRON in the entire world, excluding China, Taiwan, Macao and Hong Kong.

 

Competition and Market

 

MESUPRON is an orally-administered protease inhibitor with several potential mechanisms of action to inhibit tumor invasion and metastasis and has been developed for the treatment of solid tumor cancers, including GI cancers, with the focus on locally advanced non-metastatic pancreatic cancer.

 

Pancreatic cancer is the fourth leading cause of cancer mortality in western countries. It is characterized as a disease with very high unmet need in oncology. According to data from the National Cancer Institute, with approximately 53,000 new cases diagnosed in 2016 and approximately 41,000 deaths, pancreatic cancer is the 12 th most common cancer in the U.S. and the third most common cause of cancer-related death. The overall five-year survival rate for the disease is only 7.7% in the U.S., representing one of the poorest prognoses across the GI cancers. The total worldwide sales of pancreatic cancer therapies are estimated to reach approximately $1.6 billion in 2017, according to GlobalData.

 

According to the same GlobalData report, the majority of pancreatic cancer cases are diagnosed late, at which point the disease is already locally advanced or metastatic. Furthermore, pancreatic cancer is predominately a cancer of the elderly, with the median age of diagnosis being 71 years in the U.S. These factors result in a significant minority (approximately 20%) of advanced patients being ineligible for chemotherapy treatment, who are managed with best supportive care.

 

Pancreatic adenocarcinoma has some of the highest levels of unmet needs in the oncology space, which present many challenges for physicians treating pancreatic cancer patients. Surgical resection remains the only curative method. Patients who are classified as resectable (no regional or distant organ metastasis) are often treated by surgical intervention, depending on the location of the tumor within the pancreas. Patients with greater than Stage IIb disease are usually deemed unresectable. Of the unresectable group, the majority of locally-advanced patients are treated in the same manner as metastatic patients - with treatment choices that are mainly dependent on their performance status.

 

There are a number of drugs in late-stage clinical development for pancreatic cancer. There are several drugs in late-stage clinical development for pancreatic cancer.

 

Clinical Development

 

Several Phase I trials and two Phase II proof-of-concept trials have been completed with MESUPRON. The first Phase II trial in locally advanced non-metastatic pancreatic cancer and the second trial in metastatic breast cancer established the therapeutic candidate's safety and tolerability profile. The Phase II trials with MESUPRON in both indications failed to demonstrate significant improvement in either progression-free survival or overall survival. While response rates were arithmetically higher in patients receiving MESUPRON than in control patients, in no case did these differences approach clinical or statistical significance. A post hoc subgroup analysis of the breast cancer study suggested that a certain clinically-defined subgroup may benefit from MESUPRON added to capecitabine, a standard single agent cytotoxic therapy. In the pancreatic cancer study, patients treated with the higher dose of MESUPRON, along with gemcitabine, had a three month longer median overall survival than those treated with gemcitabine alone, although the difference was not statistically significant. The Phase II trials with MESUPRON were done with 227 randomized subjects, of which 95 subjects were in the pancreatic cancer study and 132 subjects were in the metastatic breast cancer study.

 

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None of the prior studies used any molecular markers to target certain patient populations. Using technologies developed since the original clinical trials were performed, we are currently performing several preclinical studies, including biomarker analysis and mechanism of action studies. Some of these studies were completed in 2016, while others are still ongoing. We expect that the findings from these studies can help us determine the patient populations to be studied in subsequent clinical trials. We are preparing a protocol for a Phase I/II study of the safety, efficacy and dose evaluation of MESUPRON in combination with chemotherapy in patients receiving adjuvant chemotherapy for resected pancreatic cancer. We anticipate the Phase I/II study to be initiated in up to 6 sites in Germany in the second half of 2017.

 

In the third quarter of 2016, we initiated a manufacturing campaign for the preparation of MESUPRON. 

 

We cannot predict with certainty our development costs, and such costs may be subject to change. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

RIZAPORT   ®      

 

RIZAPORT ® is an oral thin film formulation of rizatriptan intended for the treatment of acute migraine headaches. Migraines are commonly treated with triptans, a class of molecules that narrow (constrict) blood vessels in the brain in order to relieve swelling and other migraine symptoms. Examples of triptans include sumatriptan, zolmitriptan and rizatriptan, the API in RIZAPORT ® .

 

RIZAPORT ® is based on a patented technology called “VersaFilm .” This technology allows the production of thin film strips that dissolve rapidly in the mouth, allowing the drug to be absorbed through the oral mucosa and into the bloodstream. The proprietary VersaFilm technology is a novel, non-mucoadhesive, fast dissolving oral dosage form.

 

The VersaFilm platform offers potential advantages that include fast absorption of the drug and the convenience of use compared to conventional tablets.

 

We acquired the rights to RIZAPORT ® under an August 26, 2010 joint development and commercialization agreement with IntelGenx Corp., pursuant to which we received a worldwide, exclusive and perpetual license to various patent rights and know-how related to RIZAPORT ® . See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement for RIZAPORT ® ”.

 

Competition and Market

 

To the best of our knowledge, the main competitors of RIZAPORT ® are oral drugs from the triptan family (5-HT 1B/1D serotonin agonists), such as rizatriptan from Merck and Co., Inc., which is marketed in the U.S. under the name of Maxalt ® and in generic form since 2012, and sumatriptan, produced by GlaxoSmithKline and marketed in the U.S. as Imitrex ® and in generic form since 2009. According to a report from GlobalData, the prevalence of migraines in the U.S. is estimated to reach over 30 million cases in 2017. The triptan market, the target market for RIZAPORT ® , was estimated at approximately $593 million worldwide in 2016 according to EvaluatePharma.

 

In December 2012, the patent on rizatriptan expired and, as of the date of this filing, there are various generic versions of Maxalt ® and Maxalt MLT ® available for prescription.

 

We believe that RIZAPORT ® could compare favorably to the other triptan drugs due to the fact that it is delivered through oral dissolution, rather than through conventional tablets. This feature may be especially advantageous to patients suffering dysphagia, and to patients who suffer from migraine-related nausea, which according to an article published by Lipton RB et al. is estimated to affect 80% of all of total migraine population. We believe that RIZAPORT ® will also be advantageous to patient populations such as geriatrics, who often struggle with swallowing capsules with water.

 

Clinical Development

 

In April 2012, we completed, together with our development partner IntelGenx Corp., a bioequivalence clinical study to examine the PK equivalence between the soluble film of RIZAPORT ® and rizatriptan of Merck & Co. Inc. (Maxalt MLT ® ), with 26 volunteers. The final results of the clinical trial demonstrated that RIZAPORT ® met its specified endpoints and the FDA criteria in all parameters for bioequivalence with rizatriptan of Merck & Co. Inc. (Maxalt MLT ® ).

 

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In March 2013, together with IntelGenx Corp., we filed a NDA with the FDA for U.S. marketing approval under the 505(b)(2) regulatory path for RIZAPORT ® .

 

On February 4, 2014, together with IntelGenx Corp., we announced the receipt of a complete response letter from the FDA indicating that certain matters would need to be addressed prior to obtaining approval for marketing. These matters related primarily to third-party CMC issues, as well as to packaging and labeling of the film. The FDA’s letter did not raise any safety issues or questions regarding the results of the clinical trials. On March 3, 2014, together with IntelGenx Corp., we responded to the FDA’s complete response letter and in response, the FDA requested additional CMC data. In relation to the FDA response, we were also informed that a supplier of raw material for RIZAPORT ® was having compliance discussions with the FDA that are not specific to RIZAPORT ® .

 

In April 2014, together with IntelGenx Corp., we initiated a comparative bioavailability study with RIZAPORT ® and the European reference drug Maxalt ® Lingua marketed in Germany by MSD Sharp & Dohme GMBH, based on a positive European Scientific Advice meeting with the German Federal Institute for Drugs and Medical Devices (BfArM) regarding RIZAPORT ® that took place in 2013. In May 2014, together with IntelGenx Corp., we announced the successful completion of the clinical trial that demonstrated bioequivalence based on the criteria discussed with BfArM.

 

Based on the data from that trial, we submitted a MAA to BfArM, as the reference member state under the European Mutual Recognition Procedure. In October 2015, BfArM informed us that the MAA had been approved. Approval from Luxembourg is anticipated in 2017.

 

In July 2016, we, together with IntelGenx Corp., entered into an exclusive license agreement with Grupo JUSTE S.A.Q.F., pursuant to which we granted Grupo JUSTE an exclusive license to commercialize RIZAPORT ® in Spain and a right of first refusal for the commercialization rights in certain additional territories. Under the terms of the agreement, we granted Grupo JUSTE the exclusive rights to register and commercialize RIZAPORT ® in Spain and a right of first refusal for a predetermined term for the territories of Belize, the Caribbean, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, the Middle East and Morocco. An upfront payment was paid by Grupo JUSTE, and we and IntelGenx Corp. are entitled to receive additional milestone payments upon the achievement of certain predefined regulatory and commercial targets, as well as tiered royalties. The initial term of the agreement is ten years from the date of the first commercial sale and will automatically renew for an additional two-year term. Commercial launch of RIZAPORT ® in Spain is expected to take place in the second half of 2017. In January 2017, Exeltis Healthcare, S.L. acquired from Grupo JUSTE S.A.Q.F. all activities of Grupo JUSTE S.A.Q.F. related to the pharmaceutical business.

 

In the third quarter of 2016, Grupo JUSTE filed an MAA for RIZAPORT ® to the Spanish regulatory authorities.

 

On December 13, 2016, we, together with IntelGenx Corp., entered into an exclusive license agreement with Pharmatronic Co. granting Pharmatronic Co. an exclusive license to commercialize RIZAPORT ® in the Republic of Korea (South Korea). Under the terms of the agreement, we and IntelGenx Corp. are entitled to receive an upfront payment and are entitled to receive additional milestone payments upon the achievement of certain predetermined regulatory and commercial targets, as well as tiered royalties. The initial term of the agreement is ten years from the date of the first commercial sale and will automatically renew for an additional two-year term. Commercial launch of RIZAPORT ® in South Korea is expected to take place in the first quarter of 2019.

 

Following the receipt of a complete response letter from the FDA, as announced on February 4, 2014, we, together with IntelGenx Corp., expect to re-submit the NDA for RIZAPORT ®   to the FDA in the third quarter of 2017 and subsequently receive a new Prescription Drug User Fee Act (PDUFA) date.

 

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The following chart summarizes the clinical trial history and status of RIZAPORT ® :

 

Clinical trial
name

    

Development
phase of the
clinical trial

    

Purpose of
the clinical
trial

    

Clinical
trial site

    

Number
of subjects
of the trial

    

Nature and
status of
 the trial

    

Schedule

PLT-008-09

 

Phase I

 

PK comparison with a parallel product

 

RA Chem Pharma, India

 

10

 

The trial was performed and indicated similarity between the PK profile of the therapeutic candidate and the profile of the reference product

 

Completed in 2009

RZA-P9-688

 

Comparative Bioequivalence

 

PK comparison with Maxalt MLT ®

 

Algorithme Pharma, Canada

 

26

 

Completed the study demonstrating bioequivalence as defined by the FDA

 

Completed in 2012

RZA-P3-697

 

Comparative Bioequivalence

 

PK comparison with Maxalt ® Lingua

 

Algorithme Pharma, Canada

 

26

 

Completed the study demonstrating bioequivalence as defined by the European Medicines Agency (“EMA”)

 

Completed in 2014

 

Together with IntelGenx Corp., we are working diligently on a variety of options to ensure continued supply of the raw material.

 

We cannot predict with certainty our development costs and they may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risks Related to Our Financial Condition and Capital Requirements.”

 

Donnatal ®

 

Regulatory status

 

In December 2016, we entered into the Co-Promotion Agreement with Concordia to promote Donnatal ® (Phenobarbital, Hycosamine Sulfate, Atropine Sulfate, Scopolamine Hydrobromide). The prescription drug product is sold in two formulations:  an immediate-release tablet and an immediate-release fast-acting liquid (tablets and elixir).

 

Based on Concordia’s 2015 Annual Information Form, Concordia currently, markets its Donnatal ® products as the owner of the conditionally approved abbreviated NDA for Donnatal ® and as a party to the unresolved Notice of Opportunity Hearing for anticholinergic and barbiturate combination drug products. Donnatal ® is included in the FDA DESI review program. The DESI program was created, in part, to require the FDA to conduct a retrospective evaluation of the effectiveness of drug products that were approved as safe between 1938 and 1962 through the new drug approval process. According to the DESI program, drugs approved before October 10, 1962, were reviewed to evaluate whether there was substantial evidence of their effectiveness. When a review was completed, the FDA would issue a DESI notice describing the marketing conditions for the class of drug products covered by the notice.

 

Donnatal ® has been approved for safety but not for efficacy for its labeled uses. As a DESI drug, Donnatal ® is classified as “possibly effective” as an adjunctive therapy in the treatment of IBS (irritable colon, spastic colon, and mucous colitis)

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and acute enterocolitis. Donnatal ® may also be useful as adjunctive therapy in the treatment of duodenal ulcer. It has not been shown conclusively whether articholinergic/antispasmodic drugs aid in the healing of duodenal ulcers, decrease the rate of recurrences or prevent complications. Donnatal ® slows the natural movements of the gut by relaxing the mucous in the stomach and intestines and acts on the brain to produce a calming effect.

 

The FDA has said that all products marketed as drugs under the DESI Program are new drugs, requiring FDA approval of an NDA or an abbreviated NDA for marketing. The agency has issued guidance that outlines its priorities for enforcement action relating to a particular drug’s effect on public safety and other factors.  The FDA has used enforcement discretion concerning many DESI drugs, particularly where there is a pending hearing on a final determination regarding efficacy that has not yet been made.  There is a long and complicated regulatory history involving Donnatal ® , but currently there is an open hearing request for anticholinergic and barbiturate combination drug products, of which Donnatal ® is one.  While Concordia is ultimately responsible for regulatory compliance as the application holder, if the FDA convenes a hearing and concludes the product has not been shown to be effective, it may take enforcement action, including requiring Donnatal ® to be removed from the market. 

 

Market and Competition

 

According to reports by Saito YA. et al . published in 2002 in The American Journal of Gastroenterology and by Lovell RM et al. , published in 2012 in Clinical Gastroenterology and Hepatology, it is estimated that at least 30 million Americans may suffer from IBS. The U.S. potential market for IBS treatments is estimated by EvaluatePharma to exceed $2.4 billion by 2018. According to Concordia International Corp. Investor Presentation from October 2016, Donnatal ® accounted for 7.7% of Concordia’s consolidated revenues in the first half of 2016.

 

According to Medi-Span Price Rx ® Pro service, a third party is distributing an unapproved generic version of Donnatal ® in the U.S. Concordia International Corp. reported in its third quarter 2016 Management’s Discussion and Analysis report (dated November 7, 2016) that it had commenced a lawsuit against the third party and its principal owner claiming damages from such conduct.

 

According to GlobalData, antispasmodic drugs, such as Donnatal ® , are commonly prescribed as first-line therapies for IBS patients. There are several competing antispasmodic drugs indicated for the treatment of IBS on the U.S. market, including formulations of hyoscyamine sulfate, one of the active ingredients in Donnatal ® . Hyoscyamine sulfate is marketed in generic form and also under the brand names Levsin ® and Nulev ® (by Meda Pharmaceuticals Inc.). Another competing drug which includes both antispasmodic and a sedative activity, as Donnatal ® does, is a fixed-dose combination of chlordiazepoxide and clidinium bromid marketed in generic form and under the brand name Librax ® (by Valeant). An additional competing anticholinergics/antispasmodics drug is dicyclomine hydrochloride, marketed in generic form and under the brand name Bentyl ® (by Allergan Inc.).

 

Additional competing drugs in the U.S. include Linzess ® (Ironwood Pharmaceutical Inc. and Allergan Inc.) and Amitiza ® (Takeda Pharmaceuticals U.S.A) which are used as second-line treatments in patients with IBS with constipation (“IBS-C”), and Xifaxan ® (Valeant), Viberzi ® (Ironwood Pharmaceutical Inc. and Allergan Inc.) and Lotronex ® (Sebela Pharmaceuticals) which are used as second or third-line therapies for patients with IBS-D. Antidepressants, mainly tricyclic antidepressants and selective serotonin reuptake inhibitors, are also used as second or third-line treatments in patients with IBS. There are several drugs in late-stage clinical development for IBS.

 

Termination of Rights in RP101 and RHB-101

 

RP101

 

On August 13, 2014, we entered into a binding exclusive option agreement with RESprotect GmbH, a German company, granting us an option to acquire the oncology therapeutic candidate RP101 and the next generation compounds. On February 23, 2017, we provided RESprotect a notice of termination of the option agreement, clarifying that we would not exercise or extend the option to acquire RP101 and thus terminated the exclusive option agreement for RP101.

 

RHB-101

 

On November 18, 2009, we entered into an exclusive license agreement with Egalet a/s, a private Danish pharmaceutical company, pursuant to which Egalet a/s granted us a worldwide, exclusive and perpetual license to a therapeutic candidate

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containing the active ingredient “carvedilol”, named by us “RHB-101”. On January 23, 2017, we provided Egalet a/s a notice of termination of the exclusive license agreement for RHB-101.

 

Acquisition and License Agreements

 

Acquisition of RHB-104, RHB-105 and RHB-106

 

On August 11, 2010, we entered into an asset purchase agreement with Giaconda Limited, a publicly traded Australian company, pursuant to which Giaconda Limited transferred all of its patents, tangible assets, production files, regulatory approvals and other data related to the “Myoconda”, “Heliconda” and “Picoconda” products to us. We renamed these products RHB-104, RHB-105 and RHB-106, respectively. Giaconda Limited further transferred to us products in process, product samples and raw materials, as well as certain rights of first refusal with respect to intellectual property in relation to digestive condition treatments. The agreement excluded the transfer of the rights to two products of Giaconda Limited that are not related to RHB-104, RHB-105 and RHB-106. However, to the extent that the intellectual property associated with these two other products may be required for the research, development, manufacture, registration, import/export, use, commercialization, distribution, sale or offer for sale of any of RHB-104, RHB-105 and RHB-106, Giaconda Limited granted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this transaction occurred on August 26, 2010.

 

We paid Giaconda Limited $500,000 in consideration for the assets purchased by us. We and Giaconda Limited also agreed that until the expiration of the last patent transferred to us, we will pay to Giaconda Limited 7% of net sales from the sale of the products by us and 20% of the royalties received from sublicensees, in each case, only after we recoup the amounts and expenses exceeding an approved budget.

 

Under the agreement, it was agreed that none of Giaconda Limited, the developer of the products, nor any of their respective affiliates may compete with us or assist others to compete with us with respect to the products and acquired technology. Such non-compete undertaking will be in force for a period of time of up to 10 years from the date of the agreement.

 

The agreement provides that, should we elect not to proceed with the registration proceedings or the maintenance of any patent transferred to us, we will notify Giaconda Limited and Giaconda Limited will have the right to proceed with the registration, maintenance, development and commercialization of such patent at its expense. Should Giaconda Limited exercise such right, it will be entitled to all amounts received in connection with sales relating to such patent.

 

The agreement also requires us to make a good faith, continuous and commercially reasonable effort to allocate appropriate financial resources to prepare, initiate and complete the clinical development of the products (with the exception of Picoconda) and file an application for regulatory marketing approval in accordance with industry standards. Development failures, negative regulatory decisions, or other reasons beyond our control will not constitute a breach of this obligation. Should we breach this obligation with respect to the development of any of the products, and fail to cure the breach within 90 days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy back all of the intellectual property rights with respect to such product for the original purchase price, plus the related development costs incurred by us through the date of the buy-back.

 

In connection with the license agreement with Salix (later acquired by Valeant), dated February 27, 2014, described below, we amended the asset purchase agreement and related agreements by excluding from the non-compete undertakings of Giaconda and certain of its affiliate products, technology and related activities in the purgative field and excluded from such non-compete undertakings certain of Giaconda's affiliates.

 

License Agreement for BEKINDA ®

 

In March 2014, we entered into a License Agreement with Temple University to directly secure rights to patents related to BEKINDA ® . Previously, these rights were licensed to us from SCOLR Pharma Inc. (“SCOLR”), which announced that they had ceased business operations in 2013. The agreement with Temple University replaced our previous license agreement with SCOLR. SCOLR had itself licensed those patents from Temple University, the original owner of the patents. Under the agreement with Temple University, we will continue to develop its BEKINDA ® formulation and pursue commercialization options once relevant.

 

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