UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31 , 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________________ to ____________________
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report____________________
Commission file number 001-36349
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Executive Vice President, General Counsel and Corporate Secretary
Telephone: +
E-mail:
MediWound Ltd.
(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:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
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: As of December 31, 2022, the registrant had 7,240,020 ordinary shares, par value NIS 0.07 per share, outstanding.
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 of 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” and “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Emerging Growth Company
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis for accounting the registrant has used to prepare the financing statements included in this filing:
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U.S. GAAP ☐
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by the International Accounting Standards Board ☒ |
Other ☐
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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 ☒
MEDIWOUND LTD.
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FORM 20-F
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 |
TABLE
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INTRODUCTION
In this annual report, the terms “MediWound,” “we,”
“us,” “our” and “the company” refer to MediWound Ltd. and its subsidiaries.
This annual report includes other statistical, market and industry
data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe
to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information
from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we
believe that these sources are reliable, we have not independently verified the information contained in such publications. Certain estimates
and forecasts involve uncertainties and risks and are subject to change based on various factors, including those discussed under the
headings “Special Note Regarding Forward-Looking Statements” and “ITEM 3.D. Risk Factors” in this annual report.
Throughout this annual report, we refer to various trademarks,
service marks and tradenames that we use in our business. Solely for convenience, the trademarks, service marks and trade names are referred
to herein without the use of ® and ™ symbols. However, the omission of such symbols are not intended to indicate, in any way,
that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks,
service marks and trade names. The “MediWound” design logo, “MediWound,” “NexoBrid,” “EscharEx”
and other trademarks or service marks of MediWound Ltd. appearing in this annual report are the property of MediWound Ltd. We have
several other trademarks, service marks and pending applications relating to our solutions. Other trademarks and service marks appearing
in this annual report are the property of their respective holders. Our use or display of other companies’ trademarks, service marks
or trade names is not intended to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
All historical share and per-share numbers appearing in this annual
report reflect a retroactive adjustment for our 1-for-7 reverse share split effected on December 20, 2022.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
In addition to historical facts, this annual report on Form 20-F
contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities
Act”), Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. We make forward-looking statements in this annual report that
are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results
of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking
statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,”
“intend,” “should,” “plan,” “expect,” “predict,” “potential,”
or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking
by their nature:
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our commercialization, marketing and manufacturing capabilities and strategy and the
ability of our marketing team to cover European regional burn centers and units; | |
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the timing and conduct of our trials of NexoBrid, EscharEx and our other pipeline
product candidates, including statements regarding the timing, progress and results of current and future preclinical studies and clinical
trials, and our research and development programs; | |
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the clinical utility, potential advantages and timing or likelihood of regulatory
filings and approvals of EscharEx and our other pipeline products; | |
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our expectations regarding future growth, including our ability to develop new products;
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our estimates regarding expenses, future revenues, capital requirements and our need
for additional financing; |
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anticipated funding under our contracts with the U.S. Biomedical Advanced Research
and Development Authority; |
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our ability to maintain adequate protection of our intellectual property; |
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our estimates regarding the market opportunity for NexoBrid, EscharEx and our other
pipeline products; | |
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our expectation regarding the duration of our inventory of intermediate drug substances
and products; | |
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the impact of our research and development expenses as we continue developing product
candidates; and | |
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the impact of government laws and regulations. |
The preceding list is not intended to be an exhaustive list of
all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future
performance, taking into account the information currently available to us. These statements are only predictions based upon our current
expectations and projections about future events. These statements may be found in the sections of this annual report on Form 20-F entitled
“ITEM 3.D. Risk Factors,” “ITEM 4. Information on the Company,” “ITEM 5. Operating and Financial Review
and Prospects,” “ITEM 10.E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company
Considerations” and elsewhere in this annual report, including the section entitled “ITEM 4.B. Business Overview” and
“ITEM 4.B. Business Overview—Our Focus,” which contain information obtained from independent industry sources. Actual
results could differ materially from those anticipated in these forward-looking statements due to various important factors, including
all the risks discussed in “ITEM 3.D. Risk Factors” and information contained in other documents filed with or furnished to
the Securities and Exchange Commission.
You should not rely upon forward-looking statements as predictions
of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee
that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be
achieved or will occur. Except as required by law, we undertake no obligation to publicly update any forward-looking statements for any
reason after the date of this annual report to conform these statements to actual results or to changes in our expectations.
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PART I
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Item 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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Item 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
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Item 3. |
KEY INFORMATION |
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[Reserved] |
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B. |
Capitalization and Indebtedness |
Not applicable.
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C. |
Reasons for the Offer and Use of Proceeds |
Not applicable.
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D. |
Risk Factors |
Our business faces significant risks. You should
carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and
Exchange Commission (the “SEC”), including the following risk factors which we face and which are faced by our industry. Our
business, financial condition and results of operations could be materially and adversely affected by any of these risks. In that event,
the trading price of our ordinary shares would likely decline and you might lose all or part of your investment. This report also contains
forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking
statements, as a result of certain important factors including the risks described below and elsewhere in this report and our other SEC
filings. See “Special Note Regarding Forward-Looking Statements” on page i.
1
Risks Related to Development, Clinical Testing and Regulatory Approval
Product development is a lengthy and expensive
process, with an uncertain outcome.
We intend to develop and commercialize pipeline product candidates
based on our patented enzymatic technology platform for (i) marketing authorization of EscharEx in the U.S. and other jurisdictions, (ii)
NexoBrid in the U.S. for children and in other jurisdictions and (iii) MW005 in variety of jurisdictions across the world. However, before
obtaining regulatory approval for the sale of our pipeline product candidates in any jurisdiction, we must conduct, at our own expense,
clinical studies to demonstrate that the products are safe and effective.
Preclinical and clinical testing is expensive, is difficult to
design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials
can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the
clinical trial process. Even if preclinical or clinical trials are successful, we still may be unable to commercialize the product, as
success in preclinical trials, clinical trials or previous clinical trials does not ensure that later clinical trials will be successful.
A number of events could delay or prevent our ability to complete
necessary clinical trials for our pipeline product candidates, including:
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regulators may not authorize us to conduct a clinical trial within a country or at
a prospective trial site or may require us to change the design of a study;
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delays may occur in reaching agreement on acceptable clinical trial terms with regulatory
authorities or prospective sites, or obtaining institutional review board or ethics committee approval or opinion;
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our preclinical tests or clinical trials may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct additional trials or to abandon strategic projects;
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the number of patients required for our clinical trials may be larger than we anticipate,
enrollment in our clinical trials may be slower or more difficult than we expect, or patients may not participate in necessary follow-up
visits to obtain required data, any of which would result in significant delays in our clinical testing process;
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our third-party contractors, such as a research institute, may fail to comply with
regulatory requirements or meet their contractual obligations to us;
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we may be forced to suspend or terminate our clinical trials if the participants are
being exposed, or are thought to be exposed, to unacceptable health risks or if any participant experiences an unexpected serious adverse
event;
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regulators or institutional review boards may require that we hold, suspend or terminate
clinical research for various reasons, including noncompliance with regulatory requirements;
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undetected or concealed fraudulent activity by a clinical researcher, if discovered,
could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive scientific review of
one or more of our marketing applications by regulatory agencies, and result in the recall of any approved product distributed pursuant
to data determined to be fraudulent;
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the cost of our clinical trials may be greater than we anticipate;
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an audit of preclinical or clinical studies by regulatory authorities may reveal noncompliance
with applicable protocols or regulations, which could lead to disqualification of the results and the need to perform additional studies;
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political unrest and wars, such as the conflict between Russia and Ukraine, which
could delay or disrupt business activity, and if such political unrest escalates or spills over to or otherwise impacts additional regions,
it could also heighten many of the other risk factors described in this Annual Report;
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delays may occur in obtaining our clinical materials; and
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epidemics or pandemics, such as the COVID-19 pandemic that can affect the overall
healthcare infrastructure, including the ability to recruit patients, the ability to conduct studies at medical sites and the pace with
which governmental agencies, such as the FDA and foreign regulatory authorities, will review and approve regulatory submissions.
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Moreover, we do not know whether preclinical tests or clinical
trials will begin or be completed as planned or will need to be restructured. Significant delays could also shorten the patent protection
period during which we may have the exclusive right to commercialize our pipeline product candidates or could allow our competitors to
bring products to the market before we do, impairing our ability to commercialize our pipeline product candidates.
Development and commercialization of EscharEx
in the United States, NexoBrid in the United States and our pipeline product candidates worldwide requires successful completion of the
regulatory approval process, and may suffer delays or fail.
In the United States, as well as other jurisdictions, we are required
to apply for and receive marketing authorization before we can market our products, as we have already received for NexoBrid in the United
States, the European Union and other international markets. This process can be time-consuming and complicated and may result in unanticipated
delays. To secure marketing authorization, an applicant generally is required to submit an application that includes the data supporting
preclinical and clinical safety and efficacy as well as detailed information on the manufacturing and control of the product, proposed
labeling and other information. Before marketing authorization is granted, regulatory authorities generally require the inspection of
the manufacturing facility or facilities and quality systems (including those of third parties) at which the product candidate is manufactured
and tested, to assess compliance with strictly enforced current good manufacturing practices (“cGMP”) and similar foreign
requirements such as Good Manufacturing Practices (“GMP”) in the European Union, as well as potential audits of the non-clinical
and clinical trial sites that generated the data cited in the marketing authorization application to assess compliance with requisite
good clinical practices (“GCP”).
We cannot predict how long the applicable regulatory authority
or agency will take to grant marketing authorization or whether any such authorizations will ultimately be granted. Regulatory agencies,
including the FDA and the European Medicines Agency (the “EMA”), have substantial discretion in the approval process, and
the approval process and the requirements governing clinical trials vary from country to country. The policies of the FDA, the EMA or
other regulatory authorities may change or may not be explicit, and additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of EscharEx, NexoBrid or our pipeline product candidates. For instance, the regulatory landscape related
to clinical trials in the European Union (“EU”) recently evolved. The EU Clinical Trials Regulation (“CTR”) which
was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials
Directive required a separate clinical trial application (“CTA”) to be submitted in each member state, to both the competent
national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission
of a single application to all member states concerned. The CTR allows sponsors to make a single submission to both the competent authority
and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been
harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect
to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the
sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. The CTR foresees a three-year
transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an
application was submitted (i) prior to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January
31, 2023 and for which the sponsor has opted for the application of the Clinical Trials Directive remain governed by said Directive until
January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the
CTR. Compliance with the CTR requirements may impact our development plans. It is currently unclear to what extent the United Kingdom
(“UK”) will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived
from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the UK Medicines and Healthcare
products Regulatory Agency (“MHRA”) launched an eight-week consultation on reframing the UK legislation for clinical trials.
The consultation closed on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials
transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation
is being closely watched and will determine whether the UK chooses to align with the CTR or diverge from it to maintain regulatory flexibility.
A decision by the UK not to closely align its regulations with the new approach that has been adopted in the EU may have an effect on
the cost of conducting clinical trials in the UK as opposed to other countries and/or make it harder to seek a marketing authorization
in the EU for our product candidates on the basis of clinical trials conducted in the UK.
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Additionally, the EU pharmaceutical legislation is currently undergoing
a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in
November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal products
(potentially revising the duration of regulatory exclusivity, eligibility for expedited pathways, etc.) is currently expected in the first
quarter of 2023. The proposed revisions, once they are agreed and adopted by the European Parliament and European Council (not expected
before the end of 2024) may have a significant impact on the biopharmaceutical industry in the long term. If we are slow or unable to
adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing authorization that we may have obtained and we may not achieve or sustain profitability. We also
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive
action, either in the United States or abroad. If such actions impose constraints on the FDA’s ability to engage in oversight and
implementation activities in the normal course, or if we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are unable to maintain regulatory compliance, we may be subject to enforcement action and our
business may be negatively impacted.
In addition, any regulatory approval that we will receive may also
contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor
the safety and efficacy of the product candidate. For example, as part of the EMA regulatory approval process, we agreed to provide further
data from a post-marketing U.S. Phase III clinical trial of NexoBrid, which serves to address this post-marketing commitment to EMA. Once
a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising,
promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submission of safety and other post-marketing information and reports, registration and continued compliance with cGMP and similar
foreign requirements and GCP for any clinical trials that we conduct post-approval. Although our manufacturing facility is cGMP-certified,
we may face difficulties in obtaining regulatory approval for the manufacturing and quality control process of our pipeline product candidates.
Any delays or failures in obtaining regulatory and marketing authorization
for EscharEx in the United States, or for NexoBrid or our pipeline product candidates worldwide, would adversely affect our business,
prospects, financial condition and results of operations.
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Even though the FDA has approved NexoBrid for eschar removal in
adults with deep partial thickness and/or full thickness thermal burns, we will still face extensive and ongoing regulatory requirements
and obligations for EscharEx, NexoBrid, and for any product candidates for which we obtain approval.
Any regulatory approvals that we have received for NexoBrid and
may receive for NexoBrid, EscharEx or any of our product candidates will require the submission of reports to regulatory authorities and
surveillance to monitor the safety and efficacy of the product, may contain significant limitations related to use restrictions for specified
age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements.
For example, the FDA-approved label for NexoBrid includes certain warnings and precautions regarding hypersensitivity reactions, pain
management, proteolytic injury to non-target tissue and coagulopathy. The FDA may also require a Risk Evaluation and Mitigation Strategies
(REMS) program in order to approve a product candidate, which could entail requirements for a medication guide, physician training and
communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools.
In addition, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for NexoBrid are and will remain
subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information
and reports, registration, as well as on-going compliance with cGMPs, and GCPs for any clinical trials that we conduct post-approval.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections
by the FDA and other regulatory authorities for compliance with cGMP regulations and standards. If we or a regulatory authority discover
previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facilities
where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including
requiring recall or withdrawal of the product from the market or suspension of manufacturing.
In addition, later discovery of previously unknown adverse events
or other problems with our products, manufacturers or manufacturing processes or failure to comply with regulatory requirements, may yield
various results, including:
• restrictions on manufacturing such products;
• restrictions on the labeling or marketing of products;
• restrictions on product manufacturing, distribution
or use;
• requirements to conduct post-marketing studies or
clinical trials;
• warning letters or untitled letters;
• withdrawal of the products from the market;
• refusal to approve pending applications or supplements
to approved applications that we submit;
• recall of products;
• fines, restitution or disgorgement of profits or
revenues;
• suspension or withdrawal of marketing authorizations;
• refusal to permit the import or export of our products;
• product seizure; or
• injunctions or the imposition of civil or criminal
penalties.
5
Further, the policies of the FDA and other regulatory authorities
may change, and additional government regulations may be enacted that could impose extensive and ongoing regulatory requirements and obligations
on any product candidate for which we obtain marketing authorization. We also cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad.
Changes in funding or disruptions at FDA and
other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership
and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner
or at all, or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely,
which could negatively impact our business.
The ability of FDA and foreign regulatory authorities to review
and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory,
and policy changes, FDA’s and foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment
of user fees, and other events that may otherwise affect FDA’s and foreign regulatory authorities’ ability to perform routine
functions. Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition,
government funding of other government agencies that fund research and development activities is subject to the political process, which
is inherently fluid and unpredictable. Disruptions at FDA and other agencies such as the EMA, following its relocation to Amsterdam and
resulting staff changes, may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary regulatory
authorities, which would adversely affect our business. For example, over the last several years, including for 35 days beginning
on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as FDA, have had to furlough
critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, the FDA postponed
most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection
operations of domestic facilities where feasible, the FDA has continued to monitor and implement changes to its inspectional activities
to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic, and any resurgence
of the virus or emergence of new variants may lead to further inspectional delays. Regulatory authorities outside the United States may
adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or
if global health concerns continue to prevent FDA, other regulatory authorities, or notified bodies from conducting their regular inspections,
reviews, or other regulatory activities, it could significantly impact the ability of FDA, other regulatory authorities, or notified bodies
to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
NexoBrid, EscharEx or our pipeline product
candidates may cause unanticipated and undesirable side effects or have other properties, which are currently unknown to us.
NexoBrid, EscharEx and all of our current pipeline product candidates
rely on our patented enzymatic platform technology, although their specific formulations or mode of applications may vary. Like most pharmaceutical
products, our approval labels for NexoBrid in the United States, Europe and other international markets list certain side effects. If
we or others identify previously unknown problems with NexoBrid, EscharEx or their underlying proteolytic enzymes, including adverse events
of unanticipated severity or frequency, problems with our manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, the following consequences, among others, may result, including, without limitation:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product
from the market or voluntary or mandatory product recalls; |
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fines, warning letters or holds on clinical trials; |
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harm to our reputation, reduced demand for our products and loss of market acceptance;
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refusal by the applicable regulatory authority to approve pending applications or
supplements to approved applications filed by us, or suspension or revocation of product license approvals; |
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product seizure or detention, or refusal to permit the import or export of products;
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injunctions or the imposition of civil or criminal penalties. |
Any of these events could prevent us from achieving or maintaining
market acceptance of NexoBrid, and future market acceptance of EscharEx, our pipeline product candidates or future product candidates,
which would adversely affect our business, prospects, financial condition and results of operations.
Regulatory approval for NexoBrid, EscharEx
and other pipeline product candidates is and may be limited to specific indications and conditions for which clinical safety and efficacy
have been demonstrated, and the prescription of off-label uses could adversely affect our business.
The marketing authorization for NexoBrid in the European Union
and other international markets is limited to the treatment of deep partial- and full-thickness burns in adults. In the United States,
the marketing authorization for NexoBrid is limited to eschar removal in adults with deep partial thickness and/or full thickness thermal
burns. Any additional regulatory approval of NexoBrid for severe burns and any regulatory approval we may receive for any of our pipeline
product candidates in the future, would be limited to those specific indications for which such pipeline product candidate had been deemed
safe and effective by the FDA, EMA, or another regulatory authority Additionally, labeling restrictions in the U.S. and EU limit the manner
in which a product may be used. For example, NexoBrid’s label in the U.S. and EU provides that it may only be used in specialized
burns centers or by burn specialists and that it is not to be applied to more than 30% and 15% of the patient’s total body surface
area, respectively. If physicians prescribe the medication for unapproved, or “off-label,” uses or in a manner that is inconsistent
with the manufacturer’s labeling, it could produce results such as reduced efficacy or other adverse effects, and the reputation
of our products in the marketplace may suffer. In addition, should any of our future products have a significant price difference and
if they are used interchangeably, off-label uses may cause a decline in our revenues or potential revenues. Furthermore, while physicians
may choose to prescribe treatments for uses that are not described in the product’s labeling and for uses that differ from those
approved by regulatory authorities, we cannot promote the products for any indications other than those that are specifically approved
by the European Commission, the FDA or other regulatory authorities. Regulatory authorities restrict communications by companies on the
subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to enforcement
actions by those authorities. In the United States, “off-label promotion” by pharmaceutical companies has resulted in significant
litigation under the Federal False Claims Act, violations of which may result in substantial civil penalties and fines as well as exclusion
from government health care programs. More generally, failure to follow the rules and guidelines of regulatory agencies relating to promotion
and advertising, such as that promotional materials not be false or misleading, can result in refusal to approve a product, the suspension
or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions, injunctions
or criminal prosecution.
We may rely on the Animal Rule in conducting trials, which could
be time consuming and expensive.
To obtain FDA approval for our product candidates, we may obtain
clinical data from trials in healthy human subjects that demonstrate adequate safety, and efficacy data from adequate and well-controlled
animal studies under regulations issued by the FDA in 2002, often referred to as the “Animal Rule.” Among other requirements,
the animal studies must establish that the drug or biological product is reasonably likely to produce clinical benefits in humans. If
we use this approach we may not be able to sufficiently demonstrate this correlation to the satisfaction of the FDA, as these corollaries
are difficult to establish and are often unclear. Because the FDA must agree that data derived from animal studies may be extrapolated
to establish safety and effectiveness in humans, seeking approval under the Animal Rule may add significant time, complexity and uncertainty
to the testing and approval process. The FDA may decide that our data are insufficient for approval and require additional preclinical,
clinical or other studies, refuse to approve our product candidates, or place restrictions on our ability to commercialize the products.
In addition, products approved under the Animal Rule are subject to additional requirements, including post-marketing study requirements,
restrictions imposed on marketing or distribution, or requirements to provide information to patients. Further, regulatory authorities
in other countries may not have established an “Animal Rule” equivalent, and, consequently, there can be no assurance that
we will be able to make a submission for marketing authorization in foreign countries based on such animal data.
7
Risks Related to Manufacturing
We may not be able to expand our production
or processing capabilities or satisfy future demand.
We are currently seeking to expand our manufacturing capabilities
in order to increase our capacity to manufacture NexoBrid and future product candidates and satisfy near term demand. We cannot guarantee
that we will be able to obtain the requisite approvals, including meeting regulatory and quality requirements, or if we do, that the facility
will satisfy additional growing demand. Conversely, there can be no assurance that even if we obtain a new facility, demand for our products
will increase proportionately to the increased production capability. Furthermore, we cannot assure that this or similar projects will
be implemented in a timely and cost-efficient manner, and that our current production will not be adversely affected by the operational
challenges of implementing the expansion project.
If our manufacturing facility in Yavne, Israel
was to suffer a serious accident, or if a force majeure event were to materially affect our ability to operate and produce NexoBrid, EscharEx
and our pipeline product candidates, all of our manufacturing capacity could be shut down for an extended period.
We currently rely on a single manufacturing facility in Yavne,
Israel, and we expect that all of our revenues in the near future will be derived from products manufactured at this facility. If this
facility were to suffer an accident or a force majeure event such as war, missile or terrorist attack, earthquake, major fire or explosion,
major equipment failure or power failure lasting beyond the capabilities of our backup generators or similar event, our revenues would
be materially adversely affected and any of our clinical trials could be materially delayed. In this situation, our manufacturing capacity
could be shut down for an extended period, we could experience a loss of raw materials, work in process or finished goods inventory and
our ability to operate our business would be harmed. In addition, in any such event, the reconstruction of our manufacturing facility
and storage facilities, and obtaining regulatory approval for the new facilities could be time-consuming. During this period, we would
be unable to manufacture NexoBrid or our pipeline product candidates. In addition, we currently have limited inventory of NexoBrid that
we can supply to our customers if we are unable to further manufacture NexoBrid.
Moreover, our business 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, we cannot assure you 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.
8
We are subject to a number of other manufacturing
risks, any of which could substantially increase our costs and limit supply of NexoBrid, EscharEx and our pipeline product candidates.
The process of manufacturing NexoBrid, EscharEx and our pipeline
product candidates is complex, highly regulated and subject to the risk of product loss due to contamination, equipment failure or improper
installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes or quality
requirements for our products could result in reduced production yields, product defects and other supply disruptions. If microbial, viral
or other contaminations are discovered in NexoBrid, EscharEx or our pipeline product candidates or in the manufacturing facilities in
which NexoBrid, EscharEx or our pipeline product candidates are or will be made, such manufacturing facilities may need to be closed to
investigate and remedy the contamination.
Aside from the significant COVID-19 impact, we may experience any
contaminations, major equipment failures, or other similar manufacturing problems of such magnitude, any adverse developments affecting
manufacturing operations for NexoBrid, EscharEx or our pipeline product candidates which may result in additional shipment delays, inventory
shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of NexoBrid, EscharEx or our pipeline product candidates.
We may also have to take inventory write-offs and incur other charges and expenses for our products that fail to meet specifications,
undertake costly remediation efforts, or seek costlier manufacturing alternatives.
Our ability to continue manufacturing and distributing
our products depends on our continued adherence to cGMP regulations.
The manufacturing processes for our products are governed by detailed
cGMP and similar foreign regulations, both for our marketed products in the EU and the U.S. and product candidates in clinical testing
in the U.S., EU and Israel. Failure by our manufacturing and quality operations unit to adhere to established regulations or to meet a
specification or procedure set forth in cGMP and similar foreign requirements could require that a product or material be rejected and
destroyed. Our adherence to cGMP and similar foreign regulations and the effectiveness of our quality control systems are periodically
assessed through inspections of our manufacturing facility by regulatory authorities. Such inspections could result in deficiency citations,
which would require us to take action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If critical
deficiencies are noted or if we are unable to prevent recurrences, we may have to recall products or suspend operations until appropriate
measures can be implemented. Since cGMP and similar foreign regulations reflect ever-evolving standards, we need to regularly update our
manufacturing processes and procedures to comply with cGMP and similar foreign regulations. These changes may cause us to incur additional
costs and may adversely impact our profitability. For example, more sensitive testing assays (if and when they become available, or due
to the discontinuation of the availability of the disposables currently used in production) may be required, or existing procedures or
processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing of NexoBrid
or launch of a new product.
We depend on a sole supplier to obtain our
intermediate drug substance, bromelain SP, which is necessary for the production of our products.
We currently procure bromelain SP, a key substance starting material
in the manufacturing of NexoBrid, EscharEx and our pipeline product candidates, from a single supplier, Challenge Bioproducts Corporation Ltd.
(“CBC”). CBC’s manufacturing facilities are located in the Republic of China and it uses proprietary methods to manufacture
bromelain SP. Our supply agreement with CBC has no fixed expiration date and can be voluntarily terminated by us, with at least six months’
advance written notice, or by CBC, with at least 24 months’ advance written notice.
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Although we have a contractual right to procure this material from
other suppliers, subject to payment of a one-time, non-material licensing fee to CBC, procuring this material from any other source would
require time and effort which may interrupt our supply of bromelain SP and may cause an interruption of the supply of NexoBrid, EscharEx
and our pipeline product candidates to the marketplace and for future clinical trials or other development purposes. Regulatory authorities
could require that we conduct additional studies in support of a new supplier, which could result in significant additional costs or delays.
Furthermore, there can be no assurance that we would be able to procure alternative supplies of bromelain SP at all or at comparable quality
or competitive prices or upon fair and reasonable contractual terms and conditions. Although we believe that we currently store sufficient
inventory of bromelain SP in our warehouse and CBC warehouse to continue full capacity operations for approximately two years, this inventory
may prove insufficient, and any interruption or failure to source additional bromelain SP from CBC or other third parties in a timely
manner, or at all, would adversely affect our business, prospects, financial condition and results of operations.
In addition, if CBC experiences any closures and labor shortages
as a result of the COVID-19 pandemic or as a result of rising tensions between the People’s Republic of China and Taiwan, we may
face difficulty sourcing bromelain SP, which could negatively affect our revenues.
Our sole supplier of intermediate drug substance,
bromelain SP, is located in Taiwan, which exposes us to risks that harm our ability to manufacture NexoBrid, EscharEx and our pipeline
product candidates and substantially harm our business.
The manufacturing facilities of CBC, our sole supplier of bromelain
SP, a key substance as starting material in the manufacturing of NexoBrid, EscharEx and our pipeline product candidates, are located in
Taiwan. We believe one of the most significant risks associated with these
facilities being located in Taiwan is the risk that production may be interrupted or limited due to strains on the local infrastructure.
In addition, facilities located in Taiwan may be adversely affected by tensions, hostilities or trade disputes involving China, the United
States or other countries. There is considerable potential political instability in Taiwan related
to its disputes with China. Although we do not do business in North Korea, any future increase in
tensions between South Korea and North Korea, such as an outbreak or escalation of military hostilities,
or between Taiwan and China could materially adversely affect our operations in Asia or the global
economy, which in turn may seriously harm our business.
Risks Related to Commercialization
Our revenue growth depends initially on our
ability to commercialize NexoBrid.
We currently have a marketing authorization in the United States,
the European Economic Area (“EEA”) (which consists of the 27 EU member states plus Norway, Liechtenstein, Switzerland and
Iceland), U.K., Israel, Argentina, Russia, Ukraine, South Korea, Peru, Chile, Taiwan, United Arab Emirates Eurasian countries, Japan and
India for a single product, NexoBrid for eschar removal in adults with deep partial thickness and/or full thickness thermal burns, which
we refer to as severe burns. We are currently relying, for a significant portion of our revenues from sales of products, on sales of NexoBrid
in Europe and in other international markets for the treatment of severe burns We anticipate that, for at least the next several years,
our ability to generate revenues and become profitable will depend on the commercial success of NexoBrid in these markets, BARDA’s
procurement as well as successful launches in new markets such as the U.S.
The commercialization success of NexoBrid in
the U.S. is dependent on the actions of our partner Vericel.
On May 6, 2019, we entered into an exclusive license and supply agreements with
Vericel Corporation (”Vericel”) to commercialize NexoBrid in all countries of North America (the “Vericel License
Agreement”). In accordance with the Vericel License Agreement, Vericel paid us $17.5 million in cash as an upfront payment
at the execution of the Vericel License Agreement and an additional milestone payment of $7.5 million upon the achievement of BLA approval
for NexoBrid. Vericel is obligated to pay us up to $125 million, in the aggregate, upon attainment of certain sales milestones. Vericel
is also obligated to pay us tiered royalties on net sales of NexoBrid ranging from mid-high single-digit to mid-teen percentages, subject
to certain customary reductions, as well as a percentage of gross profits on committed purchases by BARDA and a royalty on additional
sales to BARDA. The success of our business depends largely on Vericel's success in commercializing NexoBrid. If Vericel does not succeed
in launching and commercializing NexoBrid in the U.S. or does not comply with the terms of our agreement, and as a result a dispute between
us and Vericel arises, our ability to generate revenues from NexoBrid will be substantially harmed.
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The commercial success of NexoBrid, EscharEx
and our pipeline product candidates will depend upon their degree of market acceptance.
NexoBrid, EscharEx and our pipeline product candidates may not
gain market acceptance by physicians and their teams, healthcare payors, patients and others in the medical community. Although many physicians
in burn centers throughout Europe, the United States and other international markets have used NexoBrid for severe burns as part of our
clinical trials or since NexoBrid’s commercial launch in Europe, and other international markets, we cannot guarantee that use of
NexoBrid will be accepted in the market. We need to successfully integrate NexoBrid into the overall treatment of burns in burn centers.
If NexoBrid, EscharEx and our pipeline product candidates do not achieve an adequate level of acceptance, we may not generate revenue
and we may not achieve or sustain profitability. The degree of market acceptance of NexoBrid in U.S., Europe and in other international
countries where we receive marketing authorization, and of EscharEx and our pipeline product candidates, will depend on a number of factors,
some of which are beyond our control, including:
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the willingness of physicians, burn care teams and hospital administrators to administer
our products and the acceptance of our products as part of the medical department routine; |
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the consent of hospitals to fund/purchase NexoBrid or obtain third-party coverage
or reimbursement for our products; |
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the ability to offer NexoBrid, EscharEx and our pipeline product candidates for sale
at an attractive value; |
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the efficacy and potential advantages of NexoBrid, EscharEx and our pipeline product
candidates relative to current standard of care; |
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the prevalence and severity of any side effects; and |
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the efficacy, potential advantages and timing of introduction to the market of alternative
treatments. |
Failure to achieve market acceptance for NexoBrid, EscharEx or
any of our pipeline product candidates, if and when they are approved for commercial sale, will have a material adverse effect on our
business, financial condition and results of operations.
We may be unsuccessful in commercializing our
products due to unfavorable pricing regulations or third-party coverage and reimbursement policies.
We cannot predict the pricing and reimbursement of NexoBrid, EscharEx
or our pipeline product candidates. The regulations that govern marketing authorizations, pricing and reimbursement for new products vary
widely from country to country, among regions within some countries and among some hospitals. In some foreign jurisdictions, including
the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In other countries, coverage negotiations must
occur at the regional or hospital level in order to be included in the hospital formulary. Pricing negotiations with governmental authorities
at the regional or hospital level can take considerable time after the receipt of marketing authorization for a product candidate. Additionally,
while we are executing a country-specific market access strategy, which includes pricing and/or reimbursement targets for NexoBrid in
most of Europe, we cannot guarantee that we will receive favorable hospital, regional or national funding or pricing and reimbursement.
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As a result, even after obtaining regulatory approval for a product
in a particular country, we may be subject to price regulations or denied or limited by reimbursement or formulary inclusion, which may
delay or limit our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product
in that country. Adverse pricing limitations may hinder our ability to recoup our investment in NexoBrid, EscharEx or our pipeline product
candidates, even after obtaining regulatory approval.
Additionally, we cannot be sure that coverage and reimbursement
will be available for NexoBrid, EscharEx or any pipeline product candidate that we commercialize in the future, and, if reimbursement
is available, whether the level of reimbursement will be adequate. Coverage and reimbursement may affect the demand for, the price of,
or the budget allocated for reimbursement for any product for which we obtain marketing authorization. Obtaining coverage and adequate
reimbursement for our products may be particularly difficult because of the higher prices often associated with products administered
under the supervision of a physician. If coverage and reimbursement are not available or are available only at limited levels, we may
not be able to successfully commercialize NexoBrid, EscharEx or any pipeline product candidate that we successfully develop. Eligibility
for reimbursement does not guarantee that any product will be paid for in all cases or at a rate that covers our costs. Interim payments
for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according
to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that
are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory
discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently
restrict imports of products from countries where they may be sold at lower prices than in certain other countries, such as the United
States. In the United States, third-party payors often rely on the coverage policies and payment limitations imposed by Medicare and other
government payors, in setting their own coverage policies and reimbursement rates. Our inability to promptly obtain coverage and profitable
payment rates from hospital budget, government-funded and private payors for NexoBrid, EscharEx or any pipeline product candidate could
have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall
financial condition.
Recently enacted and future legislation in
the United States may increase the difficulty and cost for us to commercialize NexoBrid and seek marketing authorizations for and, if
approved, commercialize EscharEx and our pipeline product candidates in the United States and in foreign jurisdictions and affect the
prices at which our products may be sold.
The United States and several other jurisdictions are considering,
or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that may affect the
ability to sell NexoBrid, EscharEx or any of our pipeline product candidates profitably, if approved. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of hospitals, governments, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:
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the market acceptance or demand for NexoBrid, EscharEx or any of our pipeline product
candidates, if approved; |
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the ability to set a price that we believe is fair for NexoBrid, EscharEx or any of
our pipeline product candidates, if approved; |
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our ability to generate revenues and achieve or maintain profitability; |
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the level of taxes that we are required to pay; and |
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the availability of capital. |
Among policy makers and payors in the United States and elsewhere,
there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving
quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has
been significantly affected by major legislative initiatives. In March 2010, the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act(the “ACA”) was signed into law
and intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud
and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health
industry and impose additional health policy reforms.
Among the provisions of the ACA of importance to our potential
product candidates are the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded
prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare
programs; |
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid
Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; |
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addressed a new methodology by which rebates owed by manufacturers under the Medicaid
Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; |
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree
to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; |
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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed
to individuals who are enrolled in Medicaid managed care organizations; |
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing
states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals
with income at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical
pricing program; |
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a new requirement to annually report drug samples that manufacturers and distributors
provide to physicians; and |
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities
in, and conduct comparative clinical effectiveness research. |
Since its enactment, there have been judicial, executive
and congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial
challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain
in effect in its current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order that initiated
a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace from February 15, 2021 through
August 15, 2021. The executive order instructed certain governmental agencies to review and reconsider their existing policies and rules
that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include
work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or
the ACA.
In addition, other legislative changes have been proposed and adopted
since the Affordable Care Act was enacted. These changes included aggregate reductions to Medicare payments to providers, which went into
effect in April 2013 and, due to subsequent legislative amendments, will stay in effect through 2031, with the exception of a temporary
suspension from May 1, 2020 through March 31, 2022, unless additional Congressional action is taken. In January 2013, the American Taxpayer
Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result
in additional reductions in Medicare and other healthcare funding, which could negatively impact the market for NexoBrid, EscharEx and
our other product candidates, if approved, and, accordingly, our financial operations.
There has been heightened governmental scrutiny recently over the
manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and
proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drug products. In March 2021, the American
Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s
average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In August 2022, the Inflation
Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage
in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare
Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap
discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human
Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other
reasons, it is currently unclear how the IRA will be effectuated, or the impact of the IRA on our business. At the state level, legislatures
have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including
price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that other possible healthcare reform measures may result
in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional
downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs.
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Legislative and regulatory proposals have been made to expand post-approval
requirements and restrict sales and promotional activities for drugs. We cannot be sure whether additional legislative changes will be
enacted, or whether the FDA or comparable regulations, guidance or interpretations will be changed, or what the impact of such changes
on the marketing authorizations of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the
FDA’s approval process may significantly delay or prevent marketing authorization, as well as subject us to more stringent product
labeling and post-marketing testing and other requirements.
In the EU, similar developments may affect our ability to profitably
commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative
developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating
costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement
of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers
have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context.
In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement
of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to
develop and market products, this could prevent or delay marketing authorization of our product candidates, restrict or regulate post-approval
activities and affect our ability to commercialize our product candidates, if approved. In markets outside of the United States and EU,
reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific
products and therapies.
In December 2021, Regulation No 2021/2282 on Health Technology
Assessment (“HTA”) amending Directive 2011/24/EU, was adopted. This regulation which entered into force in January 2022 intends
to boost cooperation among EU member states in assessing health technologies, including new medicinal products, and providing the basis
for cooperation at the EU level for joint clinical assessments in these areas. The regulation foresees a three-year transitional period
and will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas,
including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific
consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising
technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for
assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
We face competition from the existing standard
of care, and we are furthermore subject to the risk that potential changes in medical practice and technology, or the development by our
competitors of products, treatments or procedures that are similar, more advanced, safer or more effective than ours, will render our
product candidates obsolete.
The medical, biotechnology and pharmaceutical industries are intensely
competitive and subject to significant technological and practice changes. We may face competition from many different sources with respect
to NexoBrid, EscharEx and our pipeline product candidates or any product candidates that we may seek to develop or commercialize in the
future. Possible competitors may be medical practitioners, pharmaceutical and wound care companies, academic and medical institutions,
governmental agencies and public and private research institutions, among others. Should any competitor’s product candidates receive
regulatory or marketing authorization prior to ours, they may establish a strong market position and be difficult to displace, or may
diminish the need for our products.
Our commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products, treatments or procedures that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any product that we may develop. In addition, we face competition from the current
standard of care for eschar removal in severe burns, which includes surgery, where eschar removal can occur by tangential excision, dermabrasion
or hydro jet, and non-surgical alternatives, such as topical medications applied to the eschar to facilitate the natural healing process.
In chronic and other hard-to-heal wounds, we expect to face competition from current standard of care for debridement via sharp debridement
or from the current non-surgical standard of care, either enzymatic debridement, primarily Smith Nephew Plc’s Santyl,
a collagenase-based product indicated for debriding chronic dermal ulcers and severely burned areas, or autolytic debridement.
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Many of our current or future competitors may have significantly
greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we may have. Mergers and acquisitions in the pharmaceutical and biotechnology
industries or wound care markets may result in even more resources being concentrated among a smaller number of our competitors. For example,
Healthpoint Biotherapeutics, which marketed Santyl, was acquired by Smith Nephew Plc in 2012. Smaller and other early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These companies compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs
Risks Related to Our Financial Position and Need for Additional
Capital
If we fail to manage our growth effectively,
our business could be disrupted.
Our future financial performance and ability to successfully commercialize
our products and to compete effectively will depend, in part, on our ability to manage any future growth effectively. We have made and
expect to continue to make significant investments to enable our future growth through, among other things, new product development, clinical
trials for new indications, expansion of our marketing and sales infrastructure and continued exploring for potential business development
opportunities. While we believe that our current manufacturing capacity is sufficient to meet the expected near-term commercial demand
for NexoBrid, we initiated a facility scale-up in 2022 to meet the growing global demand for NexoBrid. We expect the cost will be approximately
$10-12 million. We must also be prepared to expand our workforce and train, motivate and manage additional employees as the need for additional
personnel arises. Even following expansion, our facilities, personnel, systems, procedures and controls may not be adequate to support
our future operations, or we may expand, but then fail to grow our sales of NexoBrid or our pipeline product candidates sufficiently to
support such operational growth. Any failure to manage future growth effectively could have a material adverse effect on our business
and results of operations.
We have a history of net losses. We expect
to continue to incur substantial and increasing net losses for the foreseeable future, and we may never achieve or maintain profitability.
We have incurred significant net losses, including
a net loss of $19.6 million for the year ended December 31, 2022 and $13.6 million for the year ended December 31, 2021. As of December 31,
2022, we had an accumulated deficit of $168.1 million. We expect to incur substantial net losses for the foreseeable future. These losses
and negative cash flows have had, and will continue to have, an adverse effect on our shareholder's equity and working capital.
We expect to incur significant expenses and
increasing operating losses for the foreseeable future.
We anticipate that our expenses and future capital requirements
may increase if and as we:
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accelerate our clinical development activities, particularly with respect to our clinical
development of EscharEx for the debridement of chronic and other hard-to-heal wounds and our clinical trials for our other pipeline product
candidates; |
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further scale-up the manufacturing process for NexoBrid; |
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seek regulatory and marketing authorizations for our products and any pipeline product
candidate that successfully completes clinical trials; |
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initiate additional preclinical, clinical or other studies for NexoBrid, EscharEx
and our pipeline product candidates, and seek to identify and validate new products; |
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commercialize NexoBrid and any pipeline product candidates for which we obtain marketing
authorization; |
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acquire rights to other product candidates and technologies; |
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change or add suppliers; |
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maintain, expand and protect our intellectual property portfolio; |
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attract and retain skilled personnel; and |
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experience any delays or encounter issues with any of the above. |
We may need substantial additional capital in
the future, which may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our pipeline
product candidates or intellectual property. If additional capital is not available, we may have to delay, reduce or cease operations.
We may seek additional funding in the future, which may consist
of equity offerings, collaborations, licensing arrangements or any other means to develop our pipeline product candidates, increase our
commercial manufacturing capabilities, operate our sales and marketing capabilities or other general corporate purposes.
Our prior registered equity offerings diluted then-existing shareholders,
and to the extent that we raise additional capital through, for example, the sale of equity or convertible debt securities under our shelf
registration statement, our existing shareholders’ ownership interest will be further diluted, and the terms may include liquidation
or other preferences that adversely affect our shareholders’ rights. The incurrence of indebtedness or the issuance of certain equity
securities could result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations
on our ability to incur additional debt or to issue additional equity, limitations on our ability to acquire or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, the issuance of
additional equity securities by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline.
Securing additional financing may also divert our management’s attention from our day-to-day activities, which may adversely affect
our ability to develop and commercialize NexoBrid, EscharEx and our pipeline product candidates.
17
Additional funding may not be available to us on acceptable terms,
or at all. In the event that we enter into collaborations or licensing arrangements in order to raise capital, we may be required to accept
unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to product candidates or intellectual
property that we otherwise would seek to develop or commercialize ourselves or reserve for future potential arrangements when we might
be able to achieve more favorable terms.
If we are unable to raise additional capital when required or on
acceptable terms, we may be required to:
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delay, scale back or discontinue the development, manufacturing scale-up or commercialization
of NexoBrid, EscharEx or our pipeline product candidates;
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seek additional corporate partners for NexoBrid, EscharEx or one or more of our pipeline
product candidates on terms that are less favorable than might otherwise be available; or
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relinquish or license to additional parties, on unfavorable terms, our rights to NexoBrid,
EscharEx or our pipeline product candidates that we otherwise would seek to develop or commercialize ourselves.
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any such consequence will have a material adverse effect on our business, operating
results and prospects and on our ability to develop our pipeline product candidates.
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We believe that our existing cash and cash equivalents will enable
us to fund our operating expenses and capital expenditure requirements into 2026. Our estimates may prove to be wrong, and we could use
our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control,
could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than
planned.
We are dependent on our contract with BARDA
to fund our development activities for NexoBrid in the United States and to procure from us NexoBrid (and to thereby provide us with revenues).
If we do not continue to receive funding under this contract, we may need to obtain alternative sources of funding. In addition, if BARDA
will suspend or terminate its procurement obligation of NexoBrid it will adversely impact our future revenues.
We have a contract with BARDA, valued at up to $168 million, for
the advancement of the development and manufacturing, as well as the procurement, of NexoBrid in the United States (the “First BARDA
Contract”). Under the First BARDA Contract, BARDA has agreed to fund $91 million of the development costs of NexoBrid required to
obtain marketing authorization in the United States and the emergency readiness for NexoBrid deployment. Under the First BARDA Contract,
BARDA is procuring from us emergency stockpile of NexoBrid valued at $16.5 million as part of the HHS mission to build national preparedness
for public health medical emergencies. The First BARDA Contract also includes options for BARDA (i) to further fund $10 million in development
activities for other potential NexoBrid indications, and (ii) to further fund $50 million for additional procurement of NexoBrid.
As of December 31, 2022, the Company has received from BARDA approximately $78 million in the aggregate pursuant to the First BARDA Contract,
and an additional $16.5 million for procurement of NexoBrid for U.S. emergency preparedness.
However, BARDA may terminate the contract at any time, at its
convenience, without any further funding obligations. There can be no assurances that BARDA will not terminate the contract. Changes
in government budgets and agendas may result in a decreased and de-prioritized emphasis on supporting the development of products for
the treatment of severe burns such as NexoBrid and the cessation of the procurement. Any reduction or delay in BARDA funding may force
us to suspend the program or seek alternative funding, which may not be available on non-dilutive terms, terms favorable to us or at all.
Further, we cannot provide any assurances as to when or whether BARDA’s commitment for procurement of NexoBrid will continue or
whether BARDA's options to fund additional development activities for NexoBrid and further fund $50 million for additional procurement
of NexoBrid will be exercised.
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We make business decisions based on forecasts
of future sales of our products and pipeline product candidates that may be inaccurate.
Our market estimates are based on many assumptions, including,
but not limited to, reliance on external market research, our own internal research, population estimates, estimates of disease diagnostic
rates, treatment trends, and market estimates by third parties. Any of these assumptions can materially impact our forecasts and we cannot
be assured that the assumptions are accurate. If the market for any of our products or product candidates is less than this data would
suggest, the potential sales for the product or pipeline product candidates in question could be adversely affected, and our inventories
and net losses could increase.
Because of the numerous risks and uncertainties associated with
biopharmaceutical product development and commercialization, we are unable to accurately predict the timing or amount of future expenses
or when, or if, we will be able to achieve or maintain profitability. We have financed our operations primarily through the sale of equity
securities, licensing agreements and government grants. The size of our future net losses will depend, in part, on the rate of growth
or contraction of our expenses and the level and rate of growth, if any, of our revenues. If we are unable to successfully commercialize
NexoBrid, EscharEx or one or more of our pipeline product candidates or if revenue from NexoBrid, EscharEx or any pipeline product candidate
that receives marketing authorization is insufficient, we will not achieve profitability. Even if we do achieve profitability, we may
not be able to sustain or increase profitability.
Exchange rate fluctuations between the U.S.
dollar and the Israeli shekel, the Euro and other non-U.S. currencies may negatively affect our earnings.
The dollar is our functional and reporting currency. However, a
significant portion of our operating expenses are incurred in Israeli shekels and Euros. As a result, we are exposed to the risks that
the shekel may appreciate relative to the dollar, or, if the shekel instead devalues relative to the dollar, that the inflation rate in
Israel may exceed such rate of devaluation of the shekel, or that the timing of such devaluation may lag behind inflation in Israel. In
any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely
affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the shekel against
the dollar. For example, the shekel depreciated relative to the dollar, on average, by 13.2% in 2022 and appreciated relative to the dollar,
on average, by 3.3% and 7.0% in 2021 and 2020, respectively. If the dollar or Euro cost of our operations in Israel increases, our dollar-
and Euro-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to
effectively hedge against currency fluctuations in the future.
To the extent that we may receive revenues from sales in certain
countries, such as certain countries in the Asia Pacific region, where our sales are expected to be denominated in dollars, a strengthening
of the dollar in relation to other currencies could make our products less competitive in those foreign markets and collection of receivables
more difficult. For further information, see “ITEM 11. Quantitative and Qualitative Disclosures About Market Risk” elsewhere
in this annual report.
19
Risks Related to Healthcare Laws and Other Legal Compliance Matters
Certain of our business practices could become
subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens. Failure to comply with applicable law
or an adverse decision in lawsuits may result in adverse consequences to us.
The laws governing our conduct in the United States and in foreign
jurisdictions are enforceable by criminal, civil and administrative penalties. In the United States, violations of laws such as the Federal
Food, Drug and Cosmetic Act (the “FDCA”), the Public Health Service Act, the Federal False Claims Act, provisions of the U.S.
Social Security Act, including the “Anti-Kickback Statute,” or any regulations promulgated under their authority, may result
in significant administrative, civil and criminal sanctions, jail sentences, fines or exclusion from federal and state programs, as may
be determined by the U.S. Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services (the
“OIG”), the Centers for Medicare Medicaid Services, (“CMS“) other regulatory authorities and the courts.
There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities or that
our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators”
under federal or state false claims laws.
The federal Anti-Kickback Statute prohibits, among other things,
knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly
or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase,
lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare
programs. The term “remuneration” has been broadly interpreted to include anything of value. Although there are a number of
statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are
drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations
may be subject to scrutiny if they do not qualify for an exception or safe harbor.
For example, even common business arrangements, such as discounted
terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and
hospitals, can result in substantial legal penalties, including, among other things, exclusion from Medicare and Medicaid programs if
not carefully structured to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees
to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers and
financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits to avoid
any possibility of unlawfully inducing healthcare providers to prescribe or purchase particular products or rewarding past prescribing.
Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct
per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based
on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean
that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback
Statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation. Violations of the federal Anti-Kickback Statute may result in significant civil monetary
penalties for each violation, plus up to three times the remuneration involved. Moreover, a claim including items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False
Claims Act. Accordingly, civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also
result in criminal penalties, including criminal fines and imprisonment. Similarly, violations can result in exclusion from participation
in government healthcare programs, including Medicare and Medicaid.
Significant enforcement activity has also taken place under federal
and state false claims act statutes. Violations of the federal False Claims Act can result in treble damages, and a penalty for each false
claim submitted for payment. Pharmaceutical, device and other healthcare companies have been prosecuted under these laws for, among other
things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
Companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved,
and thus non-covered, uses. The government may further prosecute conduct constituting a false claim under the criminal False Claims Act.
The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious,
or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.
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The federal False Claims Act, as well as certain state false claims
acts, also permits relators to file complaints in the name of the United States (and if applicable, particular states). These relators
may be entitled to receive up to 30% of total recoveries and have been active in pursuing cases against pharmaceutical companies. Where
practices have been found to involve improper incentives to use products, the submission of false claims, or other improper conduct, government
investigations and assessments of penalties against manufacturers have resulted in substantial damages and fines. In addition, to avoid
exclusion from participation in federal healthcare programs, many manufacturers have been required to enter into Corporate Integrity Agreements
that prescribe allowable corporate conduct and impose reporting and disclosure obligations by the manufacturer to the government. Failure
to satisfy requirements under the FDCA can also result in a variety of administrative, civil and criminal penalties, including injunctions
or consent decrees that prescribe allowable corporate conduct.
The federal Health Insurance Portability and Accountability Act
of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully
embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and
knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Additionally, there has been a recent trend of increased federal
and state regulation of payments and transfers of value provided to healthcare professionals and/or entities. The ACA, among other things,
imposed annual reporting requirements on certain manufacturers of drugs, devices, biologicals and medical supplies for payments and other
transfers of value provided by them, directly or indirectly, to physicians (defined to include doctors, dentists, optometrists, podiatrists
and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified
registered nurse anesthetists, anesthesiologist assistants, and certified nurse midwives), and teaching hospitals, as well as ownership
and investment interests held by physicians and their family members. A manufacturer’s failure to submit timely, accurately and
completely the required information for all payments, transfers of value or ownership or investment interests may result in significant
civil monetary penalties.
In addition, we are subject to analogous state and foreign laws
and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving
healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance
guidance promulgated by the governments or otherwise restrict payments that may be made to healthcare providers. For instance, payments
made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians must often be subject
of prior notification and/or approval by the physician’s employer, their competent professional organization, and/or the competent
authorities of the individual EU member states, state and foreign laws that require drug manufacturers to report information related to
payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws
requiring the registration of pharmaceutical sales representatives.
Efforts to ensure that our business arrangements with third parties
will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities
will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable
fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including,
without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and
Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of
the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable
laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare
programs, which could also materially affect our business.
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As a public company with securities registered under the U.S. Securities
Exchange Act of 1934, as amended (the “Exchange Act”), we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”).
The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to
officials for the purpose of obtaining or retaining business. While we continue to maintain and enhance internal policies mandating compliance
with these anti-bribery laws, we may operate in parts of the world that have experienced governmental corruption to some degree and in
certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact
with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the United States. Our internal
control policies and procedures may not be sufficient to effectively protect us against reckless or criminal acts committed by our employees
or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect
on our financial condition, results of operations and cash flows.
Actual or perceived failures to comply with
applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business,
results of operations, and financial condition.
The global data protection landscape is rapidly evolving, and we
are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, use, disclosure,
retention, and security of personal information, such as information that we may collect in connection with clinical trials. Implementation
standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact
future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty
in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information,
necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost
of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure
by us to comply with federal, state or foreign laws or regulations, our internal policies and procedures or our contracts governing our
processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third
parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
In the United States, HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, or collectively HIPAA, imposes, among other
things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information.
While we do not believe that we are currently acting as a covered entity or business associate under HIPAA and thus are not directly regulated
under HIPAA, any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or
conspiracy principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly
receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied
HIPAA’s requirements for disclosure of individually identifiable health information. Certain states have also adopted comparable
privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to
interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our
customers and strategic partners. For example, the California Consumer Privacy Act (“CCPA”), which went into effect on January
1, 2020, among other things, creates new data privacy obligations for covered companies and provides individual privacy rights to California
residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action
with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Although the law
includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate,
it may regulate or impact our processing of personal information depending on the context. Further, the California Privacy Rights Act
(“CPRA”) recently passed in California. The CPRA will impose additional data protection obligations on covered businesses,
including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for
certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations
and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January
1, 2023, and additional compliance investment and potential business process changes may be required. Similar laws have passed in Virginia,
Connecticut, Utah and Colorado, and have been proposed in other states and at the federal level, reflecting a trend toward more stringent
privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance
challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection
laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
22
We are subject to data privacy and security laws in the EU as well
as the EEA, including Regulation 2016/679, or the General Data Protection Regulation (“GDPR”) with respect to our collection,
control, processing, sharing, disclosure and other use of personal data located in the EEA. The GDPR went into effect in May 2018, and
companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement
of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of
the noncompliant company, whichever is greater. Among other requirements, the GDPR regulates transfers of personal data subject to the
GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States; in
July 2020, the Court of Justice of the EU (“CJEU”) limited how organizations could lawfully transfer personal data from the
EEA to the United States by invalidating the Privacy Shield for purposes of international transfers and imposing further restrictions
on the use of standard contractual clauses (“SCCs”). In March 2022, the US and EU announced a new regulatory regime intended
to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not been implemented beyond an executive order
signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence Activities. The European Commission
issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board.
The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements
must be migrated to the revised clauses by December 27, 2022. The new SCCs apply only to the transfer of personal data outside of the
EEA and not the United Kingdom. The UK’s Information Commissioner’s Office has published new data transfer standard contracts
for transfers from the UK under the UK GDPR. This new documentation will be mandatory for relevant data transfers from September 21, 2022;
existing standard contractual clauses arrangements must be migrated to the new documentation by March 21, 2024; the United Kingdom’s
Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021.
There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can
be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal
data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer
additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between
and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location
or segregation of our relevant systems and operations, and could adversely affect our financial results.
Further, since January 2021, we may also be subject to the UK GDPR,
which, together with the UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR,
meaning the potential of parallel fines of up to the greater of £17.5 million or 4% of global turnover. The European Commission has
adopted an adequacy decision in favor of the UK, enabling data transfers from EU member states to the UK without additional safeguards.
However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/extends
that decision and remains under review by the Commission during this period. In September 2021, the UK government launched a consultation
on its proposals for wide-ranging reform of UK data protection laws following Brexit. There is a risk that any material changes which
are made to the UK data protection regime could result in the European Commission reviewing the UK adequacy decision, and the UK losing
its adequacy decision if the European Commission deems the UK to no longer provide adequate protection for personal data. The relationship
between the UK and the EU in relation to certain aspects of data protection law remains uncertain, and it is unclear how UK data protection
laws and regulations will develop in the medium to longer term.
23
Our business and operations may suffer in the
event of information technology system failures, cyberattacks or deficiencies in our cybersecurity.
We collect and maintain information in digital form that is necessary
to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business.
In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual
property, proprietary business information and personal information of customers and our employees and contractors. It is critical that
we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have implemented physical
and electronic security measures to protect our proprietary information, maintain standard operation procedures and conduct business continuity
and disaster recovery simulations, penetration testing and train our employees. However, we cannot provide assurance that our data protection
and security measures will not be breached or will provide adequate protection for our property.
Our information technology systems and those of our third-party
service providers, strategic partners and other contractors or consultants are vulnerable to attack and damage or interruption from computer
viruses and malware (e.g. ransomware), malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking,
cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation
of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization,
or persons with access to systems inside our organization. We have also outsourced elements of our information technology infrastructure,
and as a result a number of third-party vendors may or could have access to our confidential information.
There is a risk that third parties may obtain and improperly utilize
our proprietary information to our competitive disadvantage. Attacks upon information technology systems are increasing in their frequency,
levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with
a wide range of motives and expertise. We may also face increased cybersecurity risks due to our reliance on internet technology and the
number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not
recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.
We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately
investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent
controls, to avoid detection, and to remove or obfuscate forensic evidence. We may not be able to detect or prevent the unauthorized
use of such information or take appropriate and timely steps to enforce our intellectual property rights.
We and certain of our service providers are from time to time subject
to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident or security
breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of
our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets,
personal information or other proprietary or sensitive information or other similar disruptions. It could also expose us to risks, including
an inability to provide our services and fulfill contractual demands, and could cause management distraction and the obligation to devote
significant financial and other resources to mitigate such problems. If a security breach or other incident were to result in the unauthorized
access to or unauthorized use, disclosure, release or other processing of personal information, it may be necessary to notify individuals,
governmental authorities, supervisory bodies, the media and other parties pursuant to privacy and security laws. Any security compromise
affecting us, our service providers, strategic partners, other contractors, consultants, or our industry, whether real or perceived, could
harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. To the extent that
any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential
or proprietary or personal information, we could incur liability, including litigation exposure, penalties and fines, we could become
the subject of regulatory action or investigation, our competitive position could be harmed and the further development and commercialization
of our products and services could be delayed.
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Laws and regulations affecting government contracts
make it more costly and difficult for us to successfully conduct our business.
We must comply with numerous laws and regulations relating to the
formation, administration and performance of government contracts, which can make it more difficult for us to retain our rights under
our BARDA contracts. These laws and regulations affect how we conduct business with government agencies. Among the most significant government
contracting regulations that affect our business are:
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the Federal Acquisition Regulations (“FAR”) and agency-specific regulations
supplemental to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts;
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business ethics and public integrity obligations, which govern conflicts of interest
and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and include other
requirements such as the Anti-Kickback Statute and Foreign Corrupt Practices Act;
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export and import control laws and regulations; and
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laws, regulations and executive orders restricting the use and dissemination of information
classified for national security purposes and the exportation of certain products and technical data. |
Any material changes in applicable laws and regulations could restrict
our ability to maintain our BARDA contracts or obtain new contracts with the U.S. federal government.
We could be subject to product liability lawsuits,
which could result in costly and time-consuming litigation and significant liabilities.
The development of biopharmaceutical products involves an inherent
risk of product liability claims and associated adverse publicity. Our products may be found to be harmful or to contain harmful substances.
This exposes us to substantial risk of litigation and liability or may force us to discontinue production of certain products. Although
we have product liability insurance covering up to $10 million for claims in countries where NexoBrid is sold through our sales force
or through our distributors, the coverage may not insure us against all claims that may be asserted against us. Product liability insurance
is costly and often limited in scope. There can be no assurance that we will be able to obtain or maintain insurance on reasonable terms
or to otherwise protect ourselves against potential product liability claims that could impede or prevent commercialization of NexoBrid,
EscharEx or our pipeline product candidates. Furthermore, a product liability claim could damage our reputation, whether or not such claims
are covered by insurance or are with or without merit. A product liability claim against us or the withdrawal of a product from the market
could have a material adverse effect on our business or financial condition. Furthermore, product liability lawsuits, regardless of their
success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, which could seriously
harm our business.
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We are subject to extensive environmental,
health and safety, and other laws and regulations.
Our business involves the controlled use of chemicals. The risk
of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any such chemicals
or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination,
including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory procedures. Although we maintain workers’ compensation
insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials,
this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent laws and regulations affecting
our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain
consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits required pursuant
to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform
other corrective actions at our respective facilities. In addition, fines and penalties may be imposed for noncompliance with environmental,
health and safety and other laws and regulations or for the failure to have, or comply with the terms and conditions of, required environmental
or other permits or consents.
The enactment of legislation implementing changes in tax legislation
or policies in different geographic jurisdictions could materially impact our business, financial condition and results of operations.
We conduct business globally and file income tax returns in multiple
jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing
tax laws, regulations and treaties, or the interpretation thereof (such as the Inflation Reduction Act of 2022 signed into law in the
United States on August 16, 2022 which, among other changes, introduced a 15% corporate minimum tax on certain corporations and a 1% excise
tax on certain stock repurchases by United States corporations, which the U.S. Treasury indicated may also apply to certain stock redemptions
by a foreign corporation funded by certain United States affiliates); tax policy initiatives and reforms under consideration (such as
those related to the Organization for Economic Co-Operation and Development’s (“OECD”) Base Erosion and Profit Shifting,
or BEPS, project, the European Commission’s state aid investigations and other initiatives); the practices of tax authorities in
jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties.
Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific
context of withholding tax) dividends, royalties and interest paid.
We are unable to predict what tax reforms may be proposed or enacted
in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation,
regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed
to date and paid or accrued on our consolidated financial statements, and otherwise affect our future results of operations, cash flows
in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns
to our shareholders and increase the complexity, burden and cost of tax compliance.
Risks Related to Our Intellectual Property Rights
Our success depends in part on our ability
to obtain and maintain protection for the intellectual property relating to, or incorporated into, our technology and products.
Our commercial success depends in part on our ability to obtain
and maintain patent protection and trade secret protection for our intellectual property and proprietary technologies, our products and
their uses, as well as our ability to operate without infringing upon the proprietary rights of others. We rely on a combination of patents,
trademark and trade secret laws, non-disclosure and confidentiality agreements, licenses, assignments of invention agreements and other
restrictions on disclosure and use to protect our intellectual property rights.
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As of December 31, 2022, we had been granted a
total of 85 patents and have 11 pending patent applications. The family of patents that covers NexoBrid specifically includes 35 granted
patents worldwide. EscharEx is covered in 13 patents and 6 national phase applications. However, there can be no assurance that patent
applications relating to our products, processes or technologies will result in patents being issued, that any patents that have been
issued will be adequate to protect our intellectual property or that we will enjoy patent protection for any significant period of time.
Additionally, any issued patents may be challenged by third parties, and patents that we hold may be found by a judicial authority to
be invalid or unenforceable. Other parties may independently develop similar or competing technology or design around any patents that
may be issued to or held by us. Our current patents will expire or they may otherwise cease to provide meaningful competitive advantage,
and we may be unable to adequately develop new technologies and obtain future patent protection to preserve our competitive advantage
or avoid adverse effects on our business.
Our patent protection may be limited, subjecting
us to challenges by competitors.
At present, we consider our patents relating to our enzymatic platform
technology, which underlies NexoBrid, EscharEx and our current pipeline product candidates, to be material to the operation of our business
as a whole. Our patents which cover NexoBrid claim specific mixtures of proteolytic enzymes, methods of producing such mixtures and methods
of treatment using such mixtures. Although the protection achieved is significant for NexoBrid, EscharEx and our pipeline product candidates,
when looking at our patents’ ability to block competition, the protection offered by our patents may be, to some extent, more limited
than the protection provided by patents which claim chemical structures that were previously unknown. If our patents covering NexoBrid
in various jurisdictions were subject to a successful challenge or if a competitor were able to successfully design around them, our business
and competitive advantage could be significantly affected.
In addition, the patent landscape in the biotechnology field is
highly uncertain and involves complex legal, factual and scientific questions, and changes in either patent laws or in the interpretation
of patent laws in the United States and other countries may diminish the value and strength of our intellectual property or narrow the
scope of our patent protection. In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology
or products or enforce our patents due to lack of information about the exact use of our process by third parties. Even if patents are
issued to us, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to
prevent competitors from using similar technology or marketing similar products, or limit the length of time our technologies and products
have patent protection. In addition, we are a party to license agreement with Mark Klein, that imposes various obligations upon us as
a licensee, including the obligation to make milestone and royalty payments contingent on the sales of NexoBrid. If we fail to comply
with these obligations, the licensor may terminate the license, in which event we might not be able to market any product that is covered
by the licensed intellectual property, including NexoBrid.
In order to preserve and enforce our patents and other intellectual
property rights, we may need to assert claims or file lawsuits against third parties. Such lawsuits could entail significant costs to
us and divert our management’s attention from developing and commercializing our products. Lawsuits may ultimately be unsuccessful
and may also subject us to counterclaims and cause our intellectual property rights to be challenged, narrowed, invalidated or held to
be unenforceable.
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The timing of a patent application, grant,
and expiration may put us at a disadvantage compared to our competitors.
Our material patents also may not afford us protection against
competitors with similar technology. Because patent applications in the United States and many other jurisdictions are typically not published
until 18 months after their filing, if at all, and because publications of discoveries in scientific literature often lag behind
actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our or
their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth
in such patent applications. As a result, the patents we own and license may be invalidated in the future, and the patent applications
we own and license may not be granted. For example, if a third party has also filed a patent application covering an invention similar
to one covered in one of our patent applications, we may be required to participate in an adversarial proceeding known as an “interference
proceeding,” declared by the U.S. Patent and Trademark Office or its foreign counterparts, to determine priority of invention. The
costs of these proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated
patent position. In addition, if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing
technology or marketing products covered by that patent. Additionally, patents and patent applications owned by third parties may prevent
us from pursuing certain opportunities such as entering into specific markets or developing certain products. Finally, we may choose to
enter into markets where certain competitors have patents or patent protection over technology that may impede our ability to compete
effectively.
We may not be able to protect our intellectual
property rights in all jurisdictions.
Effective protection of our intellectual property rights may be
unavailable or limited in some countries, and even if available, we may fail to pursue or obtain necessary intellectual property protection
in such countries, because filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the
world would be prohibitively expensive. In addition, the legal systems of certain countries do not favor the aggressive enforcement of
patents and other intellectual property rights, and the laws of certain foreign countries do not protect our rights to the same extent
as the laws of the United States. As a result, our intellectual property may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours. Competitors may use our technologies in jurisdictions where we have not obtained
patent protection to develop their own products, and we may be unable to prevent such competitors from importing such infringing products
into territories where we have patent protection but where enforcement is not as strong as in the United States or into jurisdictions
in which we do not have patent protection. These products may compete with our product candidates and our patents and other intellectual
property rights may not be effective or sufficient to prevent them from competing in those jurisdictions.
Our currently issued NexoBrid patents are nominally due to expire
at various dates between 2025 and 2029. However, because of the extensive time required for development, testing and regulatory review
of a potential product, and although such delays may entitle us to patent term extensions, it is possible that, before NexoBrid can be
commercialized in additional international jurisdictions and/or before any of our future products can be commercialized, any related patent
may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent. The
international PCT patent applications relating to EscharEx were filed on January 30, 2017. National phase applications corresponding to
these PCT applications were filed in several jurisdictions and the expiration date of the 13 patents that issued and those that will be
issued is January 30, 2037, absent patent-term adjustment and/or extensions. Our pending and future patent applications may not lead to
the issuance of patents or, if issued, the patents may not provide us with any competitive advantage. We also cannot guarantee that:
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any of our present or future patents or patent claims or other intellectual property
rights will not lapse or be invalidated, circumvented, challenged or abandoned;
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our intellectual property rights will provide competitive advantages or prevent competitors
from making or selling competing products; |
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our ability to assert our intellectual property rights against potential competitors
or to settle current or future disputes will not be limited by our agreements with third parties;
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any of our pending or future patent applications will be issued or have the coverage
originally sought;
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our intellectual property rights will be enforced in jurisdictions where competition
may be intense or where legal protection may be weak; or
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we will not lose the ability to assert our intellectual property rights against, or
to license our technology to, others and collect royalties or other payments. |
We may be unable to identify all past or future
unauthorized uses of our intellectual property.
Additionally, unauthorized use of our intellectual property may
have occurred or may occur in the future. Any failure to identify unauthorized use of, and otherwise adequately protect, our intellectual
property could adversely affect our business, including by reducing the demand for our products. Any reported adverse events involving
counterfeit products that purport to be our products could harm our reputation and the sale of our products. Moreover, if we are required
to commence litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time-consuming, force
us to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn, result
in lower revenue and higher expenses.
In addition to patented technology, we rely
on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary information, such as trade secrets, know-how
and confidential information, to protect intellectual property that may not be patentable or that we believe is best protected by means
that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements,
or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors,
scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements
may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information,
may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information.
We have limited control over the protection of trade secrets used by our suppliers and service providers and could lose future trade secret
protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known
or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, scientific
advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the related
rights or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope
of our and relevant third parties’ proprietary rights and failure to obtain or maintain protection for our proprietary information
could adversely affect our competitive business position. In addition, if a third party is able to establish that we are using their proprietary
information without their permission, we may be required to obtain a license to such information or, if such a license is not available,
re-design our products to avoid any such unauthorized use or temporarily delay or permanently stop manufacturing or sales of the affected
products. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our
trade secrets.
Some of our employees were previously employed at universities
or other biotechnology or pharmaceutical companies, including potential competitors. While we take steps to prevent our employees from
using the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have
inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s
former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could
result in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition
to paying monetary damages, we may lose valuable intellectual property rights or personnel.
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If we are unable to protect our trademarks
from infringement, our business prospects may be harmed.
We own trademarks that identify “MediWound,” “NexoBrid”
and “EscharEx,” among others, and have registered these trademarks in certain key markets. Although we take steps to monitor
the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our
trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition, our enforcement
against third-party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate remedy.
We may be subject to claims that we infringe,
misappropriate or otherwise violate the intellectual property rights of third parties.
Our development, marketing or sale of NexoBrid, EscharEx or our
pipeline product candidates may infringe or be accused of infringing one or more claims of an issued patent to which we do not hold a
license or other rights. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other intellectual
property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us or our strategic
partners that would cause us to incur substantial expenses, including litigation costs or costs associated with settlement, and, if successful
against us, could cause us to pay substantial damages. Further, if such a claim were brought against us, we could be forced to temporarily
delay or permanently stop manufacturing or sales of NexoBrid, EscharEx or our pipeline product candidates that are the subject of the
suit.
If we are found to be infringing, misappropriating or otherwise
violating the patent or other intellectual property rights of a third party, or in order to avoid or settle claims, we may choose or be
required to seek a license from a third party and be required to pay license fees or royalties or both, which could be substantial. 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 nonexclusive,
which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing
a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened claims, we or our strategic
partners are unable to enter into licenses on acceptable terms.
There have been substantial litigation and other proceedings regarding
patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition, to the extent that we gain
greater visibility and market exposure as a public company in the United States, we face a greater risk of being involved in such litigation.
In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference,
opposition, re-examination and similar proceedings before the U.S. Patent and Trademark Office and its foreign counterparts, regarding
intellectual property rights with respect to NexoBrid, EscharEx or our pipeline product candidates. The cost to us of any patent litigation
or other proceeding, even if resolved in our favor, could be substantial. A negative outcome could result in liability for monetary damages,
including treble damages and attorneys’ fees if, for example, we are found to have willfully infringed a patent. A finding of infringement
could prevent us from developing, marketing or selling a product or force us to cease some or all of our business operations. Some of
our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially
greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace, and patent litigation and other proceedings may also absorb
significant management time.
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Under applicable employment laws, we may not
be able to enforce covenants not to compete.
We generally enter into non-competition agreements with our employees.
These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors
or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees
work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants
developed while working for us. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings
of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material
interests of the employer which have been recognized by the courts, such as the protection of a company’s trade secrets or other
intellectual property.
We may become subject to claims for remuneration
or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been developed
for us by our employees in the course of their employment. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived
by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,”
which belong to the employer, absent a specific agreement between the employee and employer giving the employee proprietary rights. The
Patent Law also provides under Section 134 that if there is no agreement between an employer and an employee as to whether the employee
is entitled to consideration for service inventions, and to what extent and under which conditions, the Israeli Compensation and Royalties
Committee, or the Committee, a body constituted under the Patent Law, shall determine these issues. Section 135 of the Patent law provides
criteria for assisting the Committee in making its decisions. According to case law handed down by the Committee, an employee’s
right to receive consideration for service inventions is a personal right and is entirely separate from the proprietary rights in such
invention. Therefore, this right must be explicitly waived by the employee. A decision handed down in May 2014 by the Committee clarifies
that the right to receive consideration under Section 134 can be waived and that such waiver can be made orally, in writing or by behavior
like any other contract. The Committee will examine, on a case by case basis, the general contractual framework between the parties, using
interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating
this remuneration, nor the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded.
Similarly, it remains unclear whether waivers by employees in their employment agreements of the alleged right to receive consideration
for service inventions should be declared as void being a depriving provision in a standard contract. We generally enter into assignment-of-invention
agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their
employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived
their right to receive any special remuneration for such service inventions beyond their regular salary and benefits, we may face claims
demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional
remuneration or royalties to our current or former employees or be forced to litigate such claims, which could negatively affect our business.
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Risks Related to an Investment in Our Ordinary Shares
The market price of our ordinary shares may
be subject to fluctuation and you could lose all or part of your investment.
Our ordinary shares were first offered publicly
in our IPO in March 2014 at a price of $98.00 per share, and our ordinary shares have subsequently traded as high as $127.12 per share
and as low as $8.47 per share through December 31, 2022. The market price of our ordinary shares on the Nasdaq Global Market may fluctuate
as a result of a number of factors, some of which are beyond our control, including, but not limited to:
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actual or anticipated variations in our and our competitors’ results of operations
and financial condition;
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market acceptance of our products;
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general economic and market conditions and other factors, including factors unrelated
to our operating performance;
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the mix of products that we sell and related services that we provide;
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changes in earnings estimates or recommendations by securities analysts, if our ordinary
shares continue to be covered by analysts; |
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publication of the results of preclinical or clinical trials for NexoBrid, EscharEx
or any of our pipeline product candidates; |
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failure by us to achieve a publicly announced milestone;
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delays between our expenditures to develop and market new or enhanced products and
the generation of sales from those products; |
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development of technological innovations or new competitive products by others;
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announcements of technological innovations or new products by us;
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regulatory developments and the decisions of regulatory authorities as to the marketing
of our current products or the approval or rejection of new or modified products;
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developments concerning intellectual property rights, including our involvement in
litigation;
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changes in our expenditures to develop, acquire or license new products, technologies
or businesses;
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changes in our expenditures to promote our products; |
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changes in the structure of healthcare payment systems;
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our sale or proposed sale, or the sale by our significant shareholders, of our ordinary
shares or other securities in the future; |
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changes in key personnel;
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success or failure of our research and development projects or those of our competitors;
and
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the trading volume of our ordinary shares. |
These factors and any corresponding price fluctuations may materially
and adversely affect the market price of our ordinary shares and result in substantial losses being incurred by our investors. In the
past, following periods of market volatility, public company shareholders have often instituted securities class action litigation. If
we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management
from our business.
Future sales of our ordinary shares could reduce the market price of our ordinary shares.
If we or our existing shareholders, our directors or their affiliates
or certain of our executive officers, sell a substantial number of our ordinary shares in the public market, the market price of our ordinary
shares could decrease significantly. The perception in the public market that we or our shareholders might sell our ordinary shares could
also depress the market price of our ordinary shares and could impair our future ability to obtain capital, especially through an offering
of equity securities.
We have made significant offerings of our ordinary
shares in the past and may do so again in the future. For example, on April 23, 2019, the SEC declared effective our shelf registration
statement on Form F-3, which registered the resale of 1,605,732 shares that are subject to registration rights. All shares sold pursuant
to an offering covered by that registration statement (or a subsequent shelf registration that we may file to replace it after it expires)
will be freely transferable. See “ITEM 7.B. Related Party Transactions—Registration Rights Agreement.” In February 2020,
we entered into an Open Market Sales Agreement with Jefferies LLC to issue and sell our ordinary shares with gross sales proceeds of up
to $15 million, from time to time, through an at the market offering under which Jefferies LLC will act as our sales agent. As of the
date hereof, we have not issued or sold any ordinary shares pursuant to the Open Market Sales Agreement. Sales by us or our shareholders
of a substantial number of ordinary shares in the public market could cause the market price of our ordinary shares to decline or could
impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.
In addition, as of March 15, 2023, 938,518 ordinary
shares were subject to outstanding option and RSU awards granted to employees and office holders under our share incentive plans, including
367,967 ordinary shares issuable under currently exercisable share options and RSUs. On April 28, 2014, we filed a registration statement
on Form S-8 registering the issuance of up to 433,249 ordinary shares issuable under our share incentive plans, which amount included
137,296 ordinary shares issuable upon the exercise of option awards previously granted under our 2003 Israeli Share Option Plan and 211,721
ordinary shares issuable under our 2014 Equity Incentive Plan. On January 1, 2016, 2018, 2019, 2020, 2021 and 2022, the shares available
for issuance under our 2014 Equity Incentive Plan automatically increased by 61,573, 77,280, 77,654, 77,723, 77,820 and 357,143 shares,
respectively. As of March 15, 2023, 6,523 shares remained available for future issuance under our share incentive plans. Shares included
in such registration statement may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain
restrictions on their ability to sell.
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As a foreign private issuer, we are permitted
to, and actually do, follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements.
As a foreign private issuer, we are permitted to, and do, follow
certain home country corporate governance practices instead of those otherwise required under the Nasdaq Stock Market listing rules for
domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to the (i) quorum requirement for shareholder
meetings (ii) independence requirement for the board of directors and (iii) shareholder approval for certain transactions other than
a public offering involving issuances of a 20% or more interest in the company. See “ITEM 16G. Corporate Governance.”
We may in the future elect to follow home country practices in Israel with regard to other matters as well, such as the formation and
composition of the nominating and corporate governance committee, separate executive sessions of independent directors and the requirement
to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation
plans, issuances that will result in a change of control of 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. company listed on
the Nasdaq Global Market may provide less protection to you than what is accorded to investors under the Nasdaq Stock Market listing rules
applicable to domestic U.S. issuers. See “ITEM 16G. Corporate Governance.”
As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
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 and current reports and financial statements with the SEC as frequently or as
promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and we are generally exempt from filing quarterly
reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which prohibits the selective
disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances
in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. Even
though we intend to comply voluntarily with Regulation FD, these exemptions and leniencies will reduce the frequency and scope of information
and protections to which you are entitled as an investor.
For so long as we qualify as a foreign private issuer, we are not
required to comply with the proxy rules applicable to U.S. domestic companies, including the requirement applicable to emerging growth
companies to disclose the compensation of our Chief Executive Officer and other two most highly compensated executive officers on an individual,
rather than an aggregate, basis. Nevertheless, the regulations promulgated under the Israeli Companies Law, 5759-1999 (the “Israeli
Companies Law”) require us to disclose the annual compensation of our five most highly compensated officers on an individual, rather
than on an aggregate, basis. See “ITEM 6.B. Compensation.” Under the Companies Law regulations, this disclosure is required
to be included in the proxy statement for our annual meeting of shareholders each year, which we furnish to the SEC under cover of a Report
of Foreign Private Issuer on Form 6-K. Because of that disclosure requirement under Israeli law, we are also including such information
in this annual report, pursuant to the disclosure requirements of Form 20-F.
We would lose our foreign private issuer status if a majority
of our outstanding ordinary shares are held of record by U.S. shareholders and we fail to meet additional requirements necessary to avoid
loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign
private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a
U.S. domestic issuer may be significantly higher. If we lose our foreign private issuer status, we will be required to file periodic reports
and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available
to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose
more detailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify
certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications
will involve additional costs. In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements
on U.S. stock exchanges that are available to foreign private issuers.
34
We have never paid cash dividends on our share
capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our share capital,
nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. We currently intend to retain all available
funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary
shares will be an investor’s sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare
and pay dividends, and may subject our dividends to Israeli withholding taxes. See “ITEM 8.A. Consolidated Statements and Other
Financial Information—Dividend Policy,” “ITEM 10.B. Articles of Association—Dividend and liquidation rights”
and “ITEM 10.E. Taxation—Israeli Tax Considerations and Government Programs.”
If we are unable to satisfy the requirements
of Section 404 of the Sarbanes-Oxley Act, or if our internal control over financial reporting or our disclosure controls and procedures
are not effective, investors may lose confidence in the accuracy and the completeness of the reports we furnish or file with the SEC,
the reliability of our financial statements may be questioned and our share price may suffer.
We are required to comply with the internal control, evaluation
and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Pursuant to Section 404(a)
of the Sarbanes-Oxley Act, we are required to furnish a report by management on the effectiveness of our internal control over financial
reporting. If we become an accelerated filer or a large accelerated filer, we will be required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes Oxley Act.
To maintain the effectiveness of our disclosure controls and procedures
and our internal control over financial reporting, we expect that we will need to continue to enhance existing, and implement new, financial
reporting and management systems, procedures and controls to manage our business effectively and support our growth in the future. The
process of evaluating our internal control over financial reporting requires an investment of substantial time and resources, including
by our Chief Financial Officer and other members of our senior management. The determination and any remedial actions required could divert
internal resources and take a significant amount of time and effort to complete and could result in us incurring additional costs that
we did not anticipate, including the hiring of outside consultants.
Irrespective of compliance with Section 404, any failure of our
internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may
experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation
of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively
or efficiently, it could adversely affect our operations, financial reporting or results of operations. Further, if our internal controls
over financial reporting are not effective, the reliability of our financial statements may be questioned and our share price may suffer.
35
Our U.S. shareholders may suffer adverse tax consequences if we
are characterized as a passive foreign investment company.
Generally, if for any taxable year 75% or more of our gross income
is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market value of
our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized
as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Based on our current estimates of our
gross income and gross assets and the nature of our business, we do not believe we were classified as a PFIC for the taxable year ended
December 31, 2022. There can be no assurance that we will not be considered a PFIC for the current or any future taxable year. PFIC status
is determined as of the end of the taxable year and depends on a number of factors, including the value of a corporation’s assets
and the amount and type of its gross income. Furthermore, the value of our gross assets is likely to be determined in large part by reference
to our market capitalization. As such, a decline in the value of our ordinary shares or an increase in the value of our passive assets
(including cash and short term investments), for example, may result in our becoming a PFIC. If we are characterized as a PFIC, our U.S.
shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary
income, rather than as capital gain, the loss of the preferential rate that may be applicable to dividends received on our ordinary shares
by individuals who are U.S. Holders (as defined in “ITEM 10.E. Taxation—United States Federal Income Taxation”), and
having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some
of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary
shares. However, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we
are classified as a PFIC. See “ITEM 10.E. Taxation—United States Federal Income Taxation—Passive Foreign Investment
Company Considerations.”
If a U.S. person is treated
as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. person is treated as owning (directly, indirectly, or
constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “U.S. shareholder”
with respect to each “controlled foreign corporation” in our group (if any). Since our group includes one or more U.S. subsidiaries,
certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not we are treated as
a controlled foreign corporation). A U.S. shareholder of a controlled foreign corporation may be required to report annually and include
in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and
investments in U.S. property by controlled foreign corporations, regardless of whether the Company makes any distributions. An individual
that is a U.S. shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign
tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. Failure to comply with these reporting obligations
may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such U.S.
shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances
that we will assist holders of ordinary shares in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign
corporation or whether any holder of ordinary shares is treated as a U.S. shareholder with respect to any such controlled foreign corporation
or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations.
The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available
information to comply with their reporting and taxpaying obligations with respect to foreign-controlled controlled foreign corporations.
A U.S. holder should consult its tax advisors regarding the potential application of these rules to an investment in the ordinary shares.
36
Risks Primarily Related to our Operations in Israel
Our headquarters, manufacturing and other significant
operations are located in Israel and, therefore, our results may be adversely affected by political, economic or military instability
in Israel and by conflicts between Israel and neighboring terrorist groups or countries.
Our headquarters, manufacturing and research and development facilities
are located in Yavne, Israel. In addition, the majority of our key employees, officers and directors are residents of Israel. In recent
years, there has been political instability in Israel, including four national elections within the last two-plus years. Over the past
decade, there have been multiple hostilities between Israel and Hamas (an Islamist militia and political group in the Gaza strip) and
in the summer of 2006, there was an armed conflict between Israel and Hezbollah (an Islamist militia and political group in Lebanon).
Even during times without formal conflict, Hamas and other terrorist groups in the Gaza strip have shot rockets into southern Israel,
which have sometimes damaged civilian and commercial property.
In recent years, Iran, which has threatened to attack Israel and
is widely believed to be developing nuclear weapons, has been expanding its influence in Syria and in Lebanon through Hezbollah and other
proxy terrorist groups. Although Iran’s activities have not directly affected the political and economic conditions in Israel, Iran’s
purpose is widely believed to take control of the Middle East, including Israel. Israel has responded with attacks on Iranian military
operations in Syria. These events and any future political, economic and military instability have the potential to interrupt our operations
by damaging our facilities (to the extent rocket attacks against Israel reach the region of our headquarters) or preventing our employees,
officers and directors from working. Such interruptions or stoppages may result in a material adverse effect on our business, operations
and results of operations.
The Israeli government is currently pursuing extensive changes
to Israel’s judicial system. In response to the foregoing developments, individuals, organizations and institutions, both within
and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel including
due to reluctance of foreign investors to invest or transact business in Israel as well as to increased currency fluctuations, downgrades
in credit rating, increased interest rates, increased volatility in security markets, and other changes in macroeconomic conditions. To
the extent that any of these negative developments do occur, they may have an adverse effect on our business, our results of operations
and our ability to raise additional funds, if deemed necessary by our management and board of directors.
Our commercial insurance may leave us subject
to a risk of a loss if a terrorist attack or act of war occurs.
Our commercial insurance does not cover losses that may occur as
a result of an event associated with the security situation in the Middle East. The reinstatement value of direct damages that are caused
by terrorist attacks or acts of war that the Israeli government is currently committed to covering might not be maintained or, if maintained,
might not 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 conflict involving Israel could adversely affect our operations and results of operations.
Our operations may be disrupted by the obligation
of our employees to perform military service.
As of December 31, 2022, we had 73 employees based in Israel, certain
of whom may be called upon to perform up to 54 days (and in the case of non-officer commanders or officers, up to 70 or 84 days, respectively)
of military reserve duty in each three-year period until they reach the age of 40 (and in some cases, depending on their specific military
profession, up to 45 or even 49 years of age). In certain emergency circumstances, these employees may be called to immediate and unlimited
active duty. Our operations could be disrupted by the absence of a significant number of employees related to military service, which
could materially adversely affect our business and results of operations.
37
Boycotts and various Middle Eastern business
restrictions in the region may adversely impact our ability to operate sell our products.
Several countries, principally in the Middle East, restrict doing
business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli
companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to
cause companies and consumers to boycott Israeli goods based on Israeli government policies. Recently, Israel has signed bilateral peace
agreements with several Middle Eastern (including Arab) countries, forging new economic ties with them. Nevertheless, if the actions by
boycott activists become more widespread and successful, that may adversely impact our ability to sell our products.
Provisions of Israeli law and our articles of association may delay,
prevent or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and
our shareholders.
Israeli corporate law regulates mergers, requires tender offers
for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant
shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a
company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at
least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not
have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98%
of the company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender
offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration
for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal
rights. See “ITEM 10.B. Articles of Association—Acquisitions Under Israeli law” for additional information.
Furthermore, Israeli tax considerations may make potential transactions
unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders
from Israeli tax. 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 a
number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and
dispositions of shares of the participating companies are subject to certain restrictions. 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 disposition of the shares
has occurred.
We have received Israeli government grants
for certain research and development activities. The terms of those grants require us to satisfy specified conditions and to pay penalties
in addition to repayment of the grants upon certain events.
Our research and development efforts have been
financed in part through grants from the Israeli Innovation Authority (“IIA”), formerly operating as the Israeli Office of
the Chief Scientist (the “OCS”). The total gross amount of grants actually received by us from the IIA, including accrued
LIBOR interest (or such other interest rate that the IIA may set in the future) and net of royalties actually paid as of December 31,
2022, totaled approximately $13.6 million and the amortized cost (using the interest method) of the liability as of that date totaled
approximately $7.6 million. As of December 31, 2022, we had accrued and paid net royalties to the IIA in an amount of $1.6 million.
As of December 31, 2018 we determined that we will no longer be supported by the IIA. As a result, we did not submit applications for
IIA grants in 2020, 2021 or 2022 and we do not plan to submit in 2023.
The IIA grants that we have received are repayable by payment of
royalties from the sale of products developed as part of the programs for which grants were received. Our obligation to pay these royalties
is contingent on our actual sale of such products and services. In the absence of such sales, no payment of such royalties is required.
38
Even following full repayment of any IIA grants, we must nevertheless
continue to comply with the requirements of the Encouragement of Research, Development and Technological Innovation in the Industry Law,
5744-1984 (formerly known as the Law for the Encouragement of Industrial Research and Development, 5744-1984), and related regulations
(collectively, the “Innovation Law”). When a company develops know-how, technology or products using IIA grants, the terms
of these grants and the Innovation Law restrict the transfer outside of Israel of such know-how, and the manufacturing or manufacturing
rights of such products, technologies or know-how, without the prior approval of the IIA. Therefore, if aspects of our technologies are
deemed to have been developed with IIA funding, the discretionary approval of an IIA committee would be required for any transfer to third
parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not
receive those approvals. Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology
or development out of Israel.
The transfer of IIA-supported technology or know-how or manufacturing
or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of significant penalties and
other amounts, depending upon the value of the transferred technology or know-how, the amount of IIA support, the time of completion of
the IIA-supported research project and other factors. If our products are manufactured outside of Israel, assuming we receive prior approval
from the IIA for the foreign manufacturing, we may be required to pay increased royalties. The increase in royalties depends on the manufacturing
volume that is performed outside of Israel. These restrictions and requirements for payment may impair our ability to sell our technology
assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology
outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel
of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are
required to pay to the IIA.
It may be difficult to enforce a judgment of
a U.S. court against us, our officers and directors or the Israeli experts named in this annual report in Israel or the United States,
to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these experts.
We are incorporated in Israel. All of our executive officers and
three of our directors listed in this annual report reside outside of the United States, and most of our assets and most of the assets
of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including
a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and
may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United
States or to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based
on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim.
In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the
claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can
be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case
law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us
in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.
Your rights and responsibilities as a shareholder
will be governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S.
companies.
Since we are incorporated under Israeli law, the rights and responsibilities
of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects
from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has
a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards 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 certain matters, such as an amendment to the company’s articles of association, an increase of the company’s
authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder
also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder
who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment
of an office holder in the company or has another power with respect to the company, has a duty to act in fairness towards the company.
However, Israeli law does not define the substance of this duty of fairness. See “ITEM 6.C. Board Practices.” Some of the
parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may
be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of
U.S. corporations.
39
Additionally, the quorum requirements for meetings of our shareholders
are lower than is customary for domestic issuers. As permitted under the Companies Law, pursuant to our articles of association, the quorum
required for an ordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or by other voting
instrument in accordance with the Companies Law, who hold at least 25% of our outstanding ordinary shares. For an adjourned meeting at
which a quorum is not present, the meeting may generally proceed irrespective of the number of shareholders present at the end of half
an hour following the time fixed for the meeting.
General Risk Factors
If equity research analysts
do not continue to publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares,
the price of our ordinary shares could decline.
The trading market for our ordinary shares relies in part on the
research and reports that equity research analysts publish about us and our business. We do not have control over these analysts and we
do not have commitments from them to write research reports about us. The price of our ordinary shares could decline if no research reports
are published about us or our business, or if one or more equity research analysts downgrades our ordinary shares or if those analysts
issue other unfavorable commentary or cease publishing reports about us or our business.
Item 4.
INFORMATION ON THE COMPANY
|
A. |
History and Development of the Company |
Our History
MediWound Ltd. ("MediWound") is a company limited by shares organized
under the laws of the State of Israel in January 2000. We are registered with the Israeli Registrar of Companies. Our registration number
is 51-289494-0. Our principal executive offices are located at 42 Hayarkon Street, Yavne 8122745, Israel, and our telephone number is
+972 (77)-971-4100. Our website address is www.MediWound.com. Information contained on, or that can be accessed through, our website does
not constitute a part of this annual report and is not incorporated by reference herein. We have included our website address in this
annual report solely for informational purposes. Our agent for service of process in the United States is Puglisi Associates, located
at 850 Library Avenue, Suite 204, Newark, Delaware 19711, and its telephone number is +1 (302) 738-6680. The SEC maintains an internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC at: http://www.sec.gov.
40
Principal Capital Expenditures
See “ITEM 5.B. Liquidity and Capital Resources.”
|
|
B. |
Business Overview |
We are a biopharmaceutical company that develops, manufactures,
and commercializes novel, cost effective, bio‑therapeutic, non-surgical solutions for tissue repair and regeneration. Our strategy
leverages our breakthrough enzymatic technology platform into a diversified portfolio of biotherapeutics across multiple indications to
pioneer solutions for unmet medical needs. Our current portfolio is focused on next-generation enzymatic therapies for burn care, wound
care and tissue repair.
NexoBrid®
is our commercial orphan biological product for early non-surgical eschar removal of deep-partial and full-thickness thermal burns. It
is a bromelain-based biological product containing a sterile mixture of proteolytic enzymes that selectively removes burn eschar within
four hours without harming surrounding viable tissue. NexoBrid is currently marketed in the EU, Japan, India, as well as in other international
markets, and recently received FDA authorization for marketing in the U.S.
EscharEx®,
our next-generation enzymatic therapy under development for the debridement of chronic and hard-to-heal wounds, is based on the same
active pharmaceutical ingredient (“API”) as NexoBrid. Results from Phase II studies showed that EscharEx is significantly
more effective and faster than standard of care (“SOC”) or placebo control in debridement of Venous Leg Ulcers (“VLUs”)
and Diabetic Foot Ulcers (“DFUs”), with a good safety and tolerability profile. EscharEx’s mechanism of action is believed
to be mediated by the proteolytic enzymes that cleave and remove the necrotic tissue and prepare the wound bed for healing.
Our third innovative product candidate, MW005, is a topical biological
drug under development for the treatment of low-risk Basal Cell Carcinoma (“BCC”). In a Phase I/II open-label, multicenter,
randomized clinical trial conducted in the U.S., MW005 was shown to be safe, well-tolerated, and an effective treatment for BCC with patients
demonstrating complete clinical and histological clearance of target lesions.
We manufacture NexoBrid and our product candidates in our cGMP
certified sterile manufacturing facility at our headquarters in Yavne, Israel.
Key Recent Developments
NexoBrid
Our FDA authorization of NexoBrid for treatment of severe burns
was received in December 2022. Our Biologics License Application (“BLA”) submission leading to FDA authorization, which we
originally submitted in September 2020 and re-submitted in August 2022 following its initial review, was covered by a comprehensive battery
of pre-clinical studies and 8 clinical studies, including the pivotal Phase III U.S. clinical study (DETECT), which evaluated the efficacy
and safety of NexoBrid in adult patients with deep-partial and full-thickness thermal burns of 3%-30% of total body surface area (TBSA).
The BLA approval triggered a $7.5 million milestone payment from our commercial partner in the U.S., Vericel Corporation.
In December 2022, NexoBrid received marketing authorization in
Japan and India. Kaken Pharmaceutical, a leading pharmaceutical company in Japan, has the exclusive rights to market and distribute NexoBrid
in Japan. Bharat Serums and Vaccines Limited (BSV), a leading biopharmaceutical company in India, has the exclusive rights to market and
distribute NexoBrid in India.
In September, 2022, we announced that EMA has validated for review
our Type II Variation submitted by us to expand the currently approved indication for NexoBrid (removal of eschar in adults with deep
partial-and full-thickness thermal burn wounds) into the pediatric population. We expect a decision from the European Commission by mid-year
2023.
41
EscharEx
In July 2022, we announced positive results from our U.S. Phase
II Pharmacology Study of EscharEx for Debridement of lower leg ulcers (VLUs and DFUs). The study was designed to evaluate the clinical
performance, safety, and pharmacology effect of EscharEx in the debridement of lower leg ulcers in up to fifteen patients. The study evaluated
the safety and efficacy of debridement as measured by incidence of, and time to complete debridement. In addition, the study evaluated
the pharmacological effects of EscharEx as measured by the changes from baseline to end of the treatment period in (1) wound biofilm presence
in wound biopsies, (2) bacterial burden measured by MolecuLight®
fluorescence images, and (3) biomarkers of wound healing and inflammation in wound fluid. 70% of patients achieved complete debridement
during the course of treatment within up to 8 applications. On average, complete debridement was achieved after 3.9 applications of EscharEx.
Additionally, an average reduction of 35% in wound size was achieved by the end of the 2-week follow-up period. In all patients that were
positive for biofilm at baseline, the biofilm was reduced substantially to single individual microorganisms or completely removed by the
end of treatment. Seven patients had positive red fluorescence (indicative of bacteria) at baseline and average red fluorescence was reduced
from 1.69 cm2 pre-treatment to 0.60 cm2 post treatment. Biomarker analysis from wound fluid is on-going and safety data showed that EscharEx
is safe and well-tolerated.
In May 2022, we announced positive results from our U.S. Phase
II clinical study of EscharEx for the debridement of VLUs. The study met its primary endpoint with a high degree of statistical significance
and demonstrated that patients treated with EscharEx had a statistically significant higher incidence of complete debridement during the
14-day measurement period within up to 8 applications, compared to gel vehicle (EscharEx: 63% (29/46) vs. gel vehicle: 30% (13/43),
p-value=0.004). EscharEx efficacy superiority remained statistically significant after adjusting for pre-specified covariates ascribed
to patient baseline characteristics, wound size, wound age and regions. The study also met key secondary and exploratory endpoints. In
addition, the study showed that EscharEx was safe and well tolerated, and the overall safety was comparable between the arms as assessed
by the data safety monitoring board. Importantly, there were no observed deleterious effects on wound closure and no material differences
in reported adverse events. We are having discussions with the FDA regarding the EscharEx pivotal Phase III study design, which is expected
to be initiated in the second half of 2023.
In July 2022 we presented a market research conducted by Oliver
Wyman, describing the market potential of EscharEx, Based on this market research, EscharEx Targeted Addressable Market (“TAM”)
for VLUs and DFUs is estimated at approximately $2 billion in the U.S. In addition, this market research and physician feedback suggests
potential market share for EscharEx at approximately 30%.
MW005
In December 2022, we announced positive results in U.S. Phase I/II study of MW005 for
the treatment of basal cell carcinoma. The data showed MW005 to be safe and well-tolerated, with patients achieving complete clinical
and histological clearance of their target lesions. Based on these positive results, we plan to continue enrolling patients in our Phase
I/II study, thereby optimizing its dosing regimen and application technique. We anticipate announcing the final results in the third quarter
of 2023.
Our Focus:
Burn
Care
NexoBrid, a concentrate of proteolytic enzymes enriched in bromelain,
is an easy to use, topically-applied product that removes eschar in four hours without harming the surrounding healthy tissues. Eschar
removal is a critical first step in the successful healing of severe burns. Under existing SOC, burn eschar may be removed either by employing
certain existing topical agents that have been found to be minimally effective or that take a significantly longer period of time to work,
or by resorting to non-selective surgery, which is traumatic and may result in loss of blood and viable tissue. NexoBrid’s rapid
and selective debridement alleviates the known risks associated with eschar, such as infection, eventual sepsis, wound deterioration and
consequential scarring, and it allows physicians to reach an informed decision on further treatment at an earlier stage by direct visual
assessment of the actual burn depth. Furthermore, NexoBrid minimizes the burden associated with invasive surgical procedures, reduces
the need for skin grafting and sacrifice of healthy tissue from donor sites on a patient’s body and generally results in a more
favorable overall long-term patient outcome. NexoBrid has been investigated in hundreds of patients across more than 22 countries
and four continents in nine completed Phase II, Phase III and post-marketing clinical studies. Over 12,000 burn patients
have been treated with NexoBrid in the market since 2013 and the safety and efficacy data reported from post marketing data sources are
consistent with the data available from clinical trials and no new safety signals have been observed.
42
There have been hundreds of presentations and several award winning abstracts of NexoBrid in international and national scientific conferences, as well as about 120 peer-reviewed papers, resulting in support of burn specialists and key opinion leaders. Awareness of NexoBrid continues to grow through our marketing efforts in countries where NexoBrid is approved.
Burn Wounds
Burns are life threatening and debilitating traumatic injuries
causing considerable morbidity and mortality. A burn may result from thermal, electrical or chemical means that destroy the skin to varying
depths. According to Critical Care, an international clinical medical journal, burns are also among the most expensive traumatic injuries
because of long and costly hospitalization, rehabilitation and wound and scar treatment.
Most burn injuries involve part of or the entire thickness of the
skin and in some cases, the deeper subcutaneous fat tissue or underlying structures. The severity of the burn depends on three main factors:
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The extent of the surface that the burn occupies is usually referred to as percent
of total body surface area (“TBSA”). A burn on an adult’s entire palm would generally amount to 1% TBSA, and the average
hospitalized patient has a burn covering approximately 9% TBSA. Burns covering more than 15-20% TBSA usually require hospitalization and
may result in dehydration, shock and increased risk of mortality.
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The depth of the burn, referred to in terms of “degree” is generally classified into four categories:
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Superficial or first-degree burns. Such burns
do not penetrate the basal membrane and usually heal naturally.
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Dermal/partial thickness or second-degree burns.
Such burns are characterized by varying amounts of damaged dermis and can be further subdivided into superficial and deep partial-thickness
burns. Superficial partial-thickness burns may heal spontaneously after removal of the covering thin eschar. Conversely, deep partial-thickness
burns are often difficult for physicians to accurately diagnose before eschar removal and may progress and transform into full-thickness
burns if not debrided in a timely manner, depending on the magnitude of latent tissue death of the surrounding skin.
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Full thickness or third-degree burns. Such
burns are characterized by death of the entire dermal tissue down to the subcutaneous fat and must be debrided and treated by autografting,
which is the process of harvesting skin from healthy donor sites on a patient’s body and transplanting it on the post-debridement,
clean wound bed.
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43
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Fourth-degree burns. Such burns, which are
rare, extend beyond the subcutaneous fat tissue into the underlying structures, such as muscle or bone, and also require debridement and
further substantial treatment.
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Other factors include the age of the victim, the body part where the burn occurred
and any co-morbidities of the patient. For example, some patients may require hospitalization regardless of the TBSA or degree of the
burn, such as children, the elderly or victims with burns to the extremities, joints or head/neck area or with co-morbidities such as
smoke inhalation, diabetes or obesity.
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When patients are hospitalized for a severe burn, the first step
in the treatment after patient stabilization and resuscitation is usually eschar removal. The eschar is the burned tissue in the wound,
which is deprived of blood and isolated from all natural systemic defense mechanisms. Eschar removal is an essential first step in the
treatment of patients with severe burns, allowing for:
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the prevention of local infection, sepsis (a systemic inflammatory response caused
by severe infection) and additional damage to surrounding viable tissue; and
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• |
the initiation of the body’s healing process and scar prevention.
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In addition to minimizing the possibility of additional complications,
once the eschar is removed, a physician may properly diagnose the true extent of the trauma by a direct visual assessment of the clean
wound bed. An informed treatment strategy can be decided upon only if the depth of the burn and extent of the tissue damage is known.
Diagnosis of burn depth is difficult, especially because the burn commonly changes its appearance during the first days after injury due
to burn progression. Burns that are initially difficult to classify due to the presence of eschar are referred to as “indeterminate”
burns. This ambiguity can delay the assessment of the burn depth and formulation of proper treatment. Unless the burns are life-threatening,
definitive treatment is postponed for several days post-injury until diagnosis is clearer, when burn progression by death of the surrounding
and underlying tissue has already occurred and ended. During this delay, local and systemic effects of post-burn inflammation and bacterial
contamination can occur. Therefore, earlier, selective eschar removal is essential to prevent eschar-related complications and to allow
the physician to reach an informed decision on further treatment.
Currently, there are two main treatment modalities for debridement:
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Surgical debridement
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Surgical debridement predominantly includes tangential excision, a procedure in which
a surgeon amputates the entire dead tissue mass, layer after layer, down to healthy, viable tissue. The excision is extended into healthy
intact tissue to make sure that no trace of the eschar remains, resulting in up to an estimated 30-50% of healthy tissue being excised
during this procedure. Other methods include dermabrasion, in which a mechanically powered, hand-held rotating abrading cylinder is used
to slowly scrape off tissue, and hydro surgery, in which a high-pressure flow of water abrades the tissue. These alternative methods have
attempted to limit the trauma associated with tangential excision, but entail spray of contaminated eschar or take a significantly longer
time to complete than tangential excision. |
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The benefits of surgical eschar removal are that it is usually fast and effective.
Disadvantages include the significant trauma of the procedure, associated blood loss, risk of surgery in delicate areas of the body such
as hands, added costs, and, most importantly, the loss of viable tissue that necessitates additional surgical procedures for harvesting
skin from healthy donor sites and autografting. |
44
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Due to the disadvantages of surgery in extensive burns some surgeons limit their debriding
surgery to only a part of the affected area in a single session (15-30% TBSA in most centers), thus delaying full debridement by days.
After several days, complications related to eschar contamination may begin and some of the benefits of the earlier debridement may not
be realized. On the other hand, when excising burns immediately, all suspected necrotic tissue will be excised, inevitably resulting in
over-excision, especially in “indeterminate” burns, as after surgical excision, the remaining skin often no longer has any
spontaneous healing potential and will heal only by autografting. |
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Non-surgical debridement
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Non-surgical debridement includes many different treatment options that do not require
direct surgical removal of the skin to remove eschar. With non-surgical debridement, the eschar is naturally, but slowly, removed by contaminant
microorganisms, tissue autolysis, or self-decomposition, and the inflammatory process that may lead to serious local and systemic complications.
In seeking to facilitate such natural processes, topical medication, anti-microbial agents, enzymes and biological/chemical applications
are often applied onto the eschar.
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The benefits of this approach are that it is non-surgical, reduces trauma to the patient
and is easier to apply. Disadvantages include numerous dressing changes and mechanical scraping with limited debridement efficacy. This
prolongs the eschar removal process, which may lead to death of the tissue surrounding the initial burn wound, causing partial-thickness
wounds to transform into full-thickness wounds and forming granulation tissue that may develop into heavy scars.
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As demonstrated in our clinical trials, NexoBrid combines the advantages
of surgical and non-surgical debridement modalities by providing rapid and effective eschar removal while not harming viable tissue. This
allows for earlier direct visual assessment of the burn wound in order to formulate proper treatment.
Market Opportunity
Severe burns require specialized care in hospitals or burn centers.
Approximately 100,000 patients with severe burns are hospitalized every year in the United States and Europe. The prevalence of patients
with severe burns is even higher in emerging economies. For example, approximately 400,000 patients are hospitalized every year with burns
in India according to a study conducted by IMS Health. The severe burn patients are predominantly treated by specialists in approximately
250 burn centers in Europe and the United States, as well as at burn units of large hospitals in Europe. We believe these patients can
benefit from NexoBrid’s effective and selective, non-surgical eschar removal.
In addition to our current marketing of NexoBrid in Europe and
the United States, we have signed local distribution agreements for distribution of NexoBrid in Europe, Latin America, Asia-Pacific countries,
members of the Commonwealth of Independent States (“CIS”) and the Middle East and we plan to target additional markets in
these territories by leveraging our approved registration file for additional regional marketing authorizations.
In addition to the market opportunities for NexoBrid discussed above, we believe that
NexoBrid has the potential to play a critical role in the event of a burn mass casualty incident (“BMCI”), which is generally
defined as any incident in which emergency medical services resources, such as personnel and equipment, are overwhelmed by the number
and severity of casualties. A variety of public emergencies may give rise to a BMCI, such as terrorist attacks, natural disasters, fires
and explosions. One example of a BMCI is a mass burn casualty disaster, which is defined by the American Burn Association as a catastrophic
event in which the number of burn victims exceeds the capacity of the local burn center to provide optimal care. If a significant number
of burn victims arrive at a burn center following an event, some victims may go untreated until the bottleneck is resolved. The use of
non-surgical means that are capable of providing rapid eschar removal without harming healthy tissue, particularly during public health
emergencies, could potentially reduce the time, labor and resource burdens associated with the current standard-of-care, thereby enabling
the treatment of more patients. In the event of a mass burn casualty disaster, healthcare professionals can use NexoBrid to begin treatment
at the patient’s bedside without the need for a surgical team and facilities. NexoBrid has demonstrated in clinical studies, with
statistical significance, its ability to non-surgically and rapidly remove eschar in a single four-hour application. Once the acute treatment
has been completed, the wound can be covered with available means and further managed once the BMCI is under control and the bottlenecks
resolved. NexoBrid has been recognized by BARDA as a medical countermeasure for treatment of burns in the event of a BMCI.
45
BARDA Contracts
In September 2015, we were awarded the first BARDA Contract for
treatment of thermal burn injuries, representing a total value of up to $112 million. Between 2017 and 2020, BARDA expanded its commitment
by an aggregate supplemental amount of $47 million. In February 2022 BARDA expanded its awarded contract by providing supplemental funding
of $9 million to support the NexoBrid BLA resubmission to the FDA and the continuous expanded access program (collectively the "First
BARDA Contract").
The First BARDA Contract is our primary contract with BARDA and
relates to the advancement of the development and manufacturing, as well as the procurement of NexoBrid as a medical countermeasure as
part of U.S. preparedness for mass casualty events.
Under the First BARDA Contract, BARDA provided technical assistance
and a total of up to $91 million in funding for NexoBrid development activities required to achieve U.S. marketing authorization from
the FDA. These activities include the NexoBrid Phase III (DETECT) study and subsequent requirements for BLA submission, the ongoing Phase
III pediatric (CIDS) study and the NexoBrid expanded access treatment protocol (NEXT). In January 2020, BARDA committed an additional
$16.5 million to procure NexoBrid as part of the HHS mission to build national preparedness for public health medical emergencies.
The contract further includes a $10 million option to fund the development of other potential NexoBrid indications and an option to procure
additional NexoBrid valued at up to $50 million.
In September 2018, we were awarded an additional, separated BARDA
contract (the “Second BARDA Contract”), which is an additional, separate contract to develop NexoBrid for the treatment of
Sulfur Mustard injuries as part of BARDA’s preparedness for mass casualty events. The Second BARDA Contract provides approximately
$12 million of funding to support research and development activities up to pivotal studies in animals under the U.S. FDA Animal Rule,
and contains options for BARDA to provide additional funding of up to $29 million for additional development activities, animal pivotal
studies, and the BLA submission for licensure of NexoBrid for the treatment of sulfur mustard injuries.
As of December 31, 2022, the Company has received approximately
$82 million in aggregate of funding, from BARDA under the two contracts, and an additional $16.5 million for procurement of NexoBrid for
U.S. emergency preparedness.
Each BARDA contract may be terminated by BARDA at any time at BARDA’s
discretion.
NexoBrid Clinical History
NexoBrid, our innovative biopharmaceutical product, has received
marketing authorizations from the U.S., European Commission and the Israeli, Argentinean, South Korean, Russian, Peruvian, Chilean, Taiwanese,
Ukrainian, other Eurasian states, United Arab Emirates, Japanese and Indian Ministries of Health for the removal of eschar in adults
with deep partial- and full-thickness thermal burns. The active ingredient of NexoBrid is a concentrate of proteolytic enzymes enriched
in bromelain extracted from pineapple stems. Proteolysis is a breakdown of proteins into smaller building blocks, polypeptides or amino
acids. Our research and development strategy is centered around our validated proteolytic enzyme platform technology, focused on next-generation
bio-active therapies for burn and wound care and biological medicinal products for tissue repair. For each indication, our research and
development team further develops and optimizes our enzymatic platform technology, creating unique and differentiated products meeting
separate needs based on the specific indication, which is the basis for NexoBrid, EscharEx and all other pipeline product candidates.
One vial of NexoBrid containing 2 grams of concentrate of proteolytic enzymes enriched in bromelain is sufficient for treating a burn
wound area of 1% total body surface area (“TBSA”).
46
We developed NexoBrid to fulfill the previously unmet need for
a non-surgical effective and selective debriding agent that combines the efficacy and speed of surgery with the non-invasiveness of non-surgical
methods. NexoBrid enhances the ability of physicians to conduct an earlier direct visual assessment of the burn depth to reach an informed
decision on further treatment as well as to reduce the surgical burden and achieve a favorable long-term patient outcome.
NexoBrid has been investigated in hundreds of patients across 22
countries and four continents in nine completed Phase II and Phase III and post-marketing clinical studies. While we are marketing
our product for the removal of eschar in burn wounds under the name “NexoBrid,” in clinical trials the product has been referred
to as “Debridase” and “Debrase.”
The following table sets forth information regarding the completed
clinical trials of NexoBrid:
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Trial 1
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Trial 2
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Trial 3
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Trial 4
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Trial 5
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Trial 6
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Trial 7
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Trial 8
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Trial 9
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Study Type
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Retrospective Phase II
Investigator initiated
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Dose range Phase II
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Prospective Phase II
IND/FDA
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Phase II
IND/FDA
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Phase III
EMA
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Phase IIIb
EMA
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Phase II
EMA
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Post approval safety study
EMA
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Phase III
IND/FDA
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Design
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Data collected from files of patients treated with NexoBrid
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Parallel, controlled, observer-
blind, randomized, single-center |
Parallel, controlled, observer-
blind, three-arm, randomized, multi-center |
Parallel, controlled, open label, three-arm, randomized, single-center
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Parallel, controlled, open label, two-arm, randomized, multi-center
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Parallel, controlled, blinded, two-arm, multi-center
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Open label,
single-arm, multi-center |
Observational retrospective data collection
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Parallel, controlled, open label, three-arm, randomized, multi-center
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Main Objectives
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Safety and efficacy
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Comparison of efficacy and safety
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Safety and efficacy
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Safety
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Safety
Efficacy
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Long-term scar assessment
Quality of life
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Safety and pharmacokinetics
Efficacy
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Effectiveness of the risk minimization activities
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Safety
Efficacy
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Wound Types
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Deep partial/full thickness thermal burns
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Deep partial /full thickness thermal burns
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Deep partial /full thickness thermal burns
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Deep partial /full thickness thermal burns
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Deep partial/ full thickness thermal burns
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Scar formation
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Deep partial/full thickness thermal burns
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Burns which were treated with NexoBrid in the market
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Deep partial/ full thickness thermal burns
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Number of Patients
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154
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20
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140
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30
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182
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89
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36
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160
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175
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Study Length
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1985-2000
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2002-2005
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2003-2004
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2006-2007
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2006-2009
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2011
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2009-2015
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2017-2019
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2015-2020
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Location
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Israel
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Israel
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International
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United States
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International
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International
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International
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Europe
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International
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Ongoing clinical trials
Pediatric investigational plan – CIDS study
The CIDS study is a Phase III, multicenter, multinational, randomized,
controlled, open-label study in children with thermal burns. The study objectives are to evaluate the efficacy and safety of treatment
with NexoBrid compared with SOC in hospitalized children with severe thermal burns of 1% to 30% TBSA. We expanded this study also to United
States burn centers, following approval of the study protocol by the FDA. The study is underway in accordance with a study design
endorsed by the FDA and the EMA as part of the agreed Pediatric Investigational Plan (“PIP”) to support extension of the indication
to pediatric patients. The CIDS study includes pediatric patients of all ages, from newborn to eighteen years of age, offering NexoBrid
to this important and sensitive group of patients. The primary endpoints evaluate early eschar removal, surgical burden, and cosmesis
and function with a 12-month follow-up. Secondary endpoints included reduction in the need for surgical excision for eschar removal
(surgical need), blood loss, reduction of the need for autograft in DPT wounds and non-inferiority in cosmesis and function at twenty-four
months follow-up from wound closure. Additional extended long term cosmesis and function assessment at more than 30 months from wound
closure was added to the protocol. Non-inferiority of the time to complete wound closure and other standard safety measurements were also
compared with the SOC control arm.
The study was expanded to include burn centers in the United States
following agreement with the FDA, under the same protocol with alignment to the U.S. Phase III study (DETECT) protocol for the adult population.
The non-inferiority of cosmesis and function at twelve months and twenty-four months from wound closure were defined as safety measurements.
In addition, reduction in surgical need was measured only by reduction in incidence of surgical excision for eschar removal.
In July 2021, we announced positive top-line results, which include
acute phase and 12-month follow-up data analysis. The study enrolled 145 pediatric patients, from newborn to eighteen years of age, randomized
to either NexoBrid or SOC at a ratio of 1:1, across 36 burn centers worldwide. The study met all three primary endpoints with a high degree
of statistical significance, as well as certain secondary endpoints. NexoBrid demonstrated a significant reduction in time to achieve
complete eschar removal and significant reduction in wound area requiring surgical excision while demonstrating non-inferiority to standard-of-care
in quality of scars. In addition, the study showed that NexoBrid was safe and well-tolerated. The long-term follow-up for cosmesis and
function, quality of life and safety measurements is ongoing, and data is expected in the first half of 2023. This study is funded by
BARDA. See “—BARDA Contracts” above.
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Expanded access treatment protocol (“NEXT”)
The NEXT protocol, which we initiated in October 2019, is an
open-label, single-arm treatment protocol which allows for the treatment of up to 250 burn patients with deep partial- and full-thickness
thermal burns up to 30% TBSA. In September 2020, the FDA agreed to allow the NEXT protocol to be expanded to include pediatric as well
as adult burn patients. The NEXT protocol is being funded by BARDA. See “—BARDA Contracts” above. NEXT has been
designed to be consistent with current real-life burn treatment practices in the U.S. and up to 30 U.S. burn centers are anticipated to
participate. We received FDA concurrence that patients can be treated under the NEXT protocol in a burn MCI that is not a declared
national emergency. We have provided documents for consideration by the FDA supporting the use of NexoBrid in a declared national medical
emergency contingent upon the FDA issuance of an Emergency Use Authorization (“EUA”). The EUA is a mechanism by which the FDA
can allow an unapproved medical product that qualifies as a mass casualty medical countermeasure to be used in a public health emergency.
Wound
Care
Our second innovative product candidate, EscharEx, is a bio-active
therapeutic product under development for debridement of chronic and other hard-to-heal wounds. EscharEx is complementary to the large
number of existing advanced wound healing therapies, which require a clean wound bed in order to heal the wound. EscharEx API is a concentrate
of proteolytic enzymes enriched in bromelain and as such, benefits from the wealth of existing development data on NexoBrid. The mechanism
of action of EscharEx is mediated by the proteolytic enzymes that cleaves and removes the necrotic tissue and prepares the wound bed for
healing. Results from several Phase II studies showed that EscharEx is significantly more effective and faster than SOC or placebo control
in debridement of VLUs and DFUs, with a good safety and tolerability profile.
Chronic and Other Hard-to-Heal
Wounds
The chronic and other hard-to-heal wound market consists of a broader
addressable population of more than 14 million patients in Europe and the United States alone suffering from chronic wounds such
as VLUs, DFUs, pressure ulcers and additional patients suffering from surgical/traumatic hard-to-heal wounds. Chronic and other hard-to-heal
wounds represent a $25 billion burden to the U.S. healthcare system. Chronic and hard-to-heal wounds are caused by impairment in
the biochemical and cellular healing processes due to local or systemic conditions and generally can take several weeks to heal, if not
longer. Such wounds can lead to significant morbidity, including pain, infection, impaired mobility, hospitalization, reduced productivity,
amputation and mortality. In each of the various wound types, the presence of the eschar is a frequent cause for “chronification”
of wounds and the removal of eschar is the key step to commence healing. Eschar needs to be removed to prevent further deterioration of
the wound that may result in additional adverse patient outcomes. If not effectively treated, these wounds can lead to potentially severe
complications including further infection, osteomyelitis, fasciitis, amputation and mortality. Most advanced wound care therapies, including
negative pressure wound therapy, such as V.A.C. Therapy, and skin substitutes such as Apligraf and Dermagraft and human amniotic tissue
products, are complementary to our lead product candidate, EscharEx, as these products require a clean wound bed to effectively heal a
wound. Four common chronic and other hard-to-heal wounds are:
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Venous leg ulcers. VLUs develop as a
result of vascular insufficiency, or the inability for the vasculature of the leg to return blood back toward the heart properly. Based
on our comprehensive market research study on EscharEx that involved more than 200 healthcare professionals in the U.S. and Europe, which
was last updated in 2022, the VLU overall prevalence is approximately 3.3 million (1% of total U.S. population). Furthermore, the annual
incidence of VLUs in the U.S. alone, is approximately 960,000 (accounting for 45% recurrence), of which approximately 690,000 undergo
debridement in a given year. These ulcers usually form on the sides of the lower leg, above the ankle and below the calf, and are
slow to heal and often recur if preventative steps are not taken. The risk of VLUs can increase as a result of a blood clot forming in
the deep veins of the legs, obesity, smoking, lack of physical activity or work that requires many hours of standing. |
49
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Diabetic foot ulcers. Diabetes can lead
to a reduction in blood flow, which can cause patients to lose sensation in their feet and may prevent them from noticing injuries, sometimes
leading to the development of DFUs, which are open sores or ulcers on the feet that may take several weeks to heal, if ever. Based
on our comprehensive market research study conducted in 2015 on EscharEx that involved more than 200 healthcare professionals in the U.S.
and Europe and, which was updated in 2019, there are estimated 31 million diabetics in 2019 (9.4% of the U.S. population). The annual
incidence of DFUs in the United States alone, is approximately 990,000 (accounting for 45% recurrence), of which approximately 820,000
undergo debridement in a given year. |
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• |
Pressure ulcers. Pressure ulcers
form as a result of pressure sores, or bed sores, which are injuries to the skin or the tissue beneath the skin. Constant pressure on
an area of skin reduces blood supply to the area and over time can cause the skin to break down and form an open ulcer. These often
occur in patients who are hospitalized or confined to a chair or bed, and usually form over bony areas, where there is little cushion
between the bone and the skin, such as lower parts of the body. Annually, 2.5 million pressure ulcers are treated in the United
States in acute care facilities alone. |
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• |
Surgical/traumatic wounds. Surgical wounds
form as a result of various types of surgical procedures such as investigative or corrective, minor or major, open (traditional) or minimal
access surgery, elective or emergency, and incisions (simple cuts) or excision (removal of tissue), among others. Traumatic wounds form
as a result of cuts, lacerations or puncture wounds, which have caused damage to the skin and underlying tissue. Severe traumatic wounds
may require surgical intervention to close the wound and stabilize the patient. Surgical/traumatic hard-to-heal wounds develop for various
reasons, such as local surgical complications, suboptimal closure techniques, presence of foreign materials, exposed bones or tendons
and infection. In the United States, millions receive post-surgical wound care annually. |
Market Opportunity
Currently, surgery (sharp debridement) is generally considered
a first-line option. Sharp debridement is an effective method to debride a wound. However, this method requires surgically skilled physicians
performing surgery with patients under, anesthesia, which in elderly patients with various co-morbidities is accompanied with a higher
risk of local and systemic complications. Surgery may also involve hemorrhage which could be more difficult to control due to a high incidence
of use of anticoagulants in this population. Surgery on wounds may very easily become infected with the infection propagating to surrounding
soft and boney tissues ending in life threatening major complication or amputation. Very often even minor, limited sharp debridement exposes
other sensitive tissue, such as tendons, deep vessels/nerves and bones that may become infected or may be severely damaged, necessitating
additional, more extensive debridement or even amputation. Due to these limitations, chronic wounds are treated by conservative methods,
with autolytic and enzymatic debridement being the most commonly-used non-sharp methods. This includes collagenase-based enzymatic debriding
ointment, hydrogels and other topical dressings, which require numerous application sessions and a long time (6-8 weeks) to achieve a
clean wound bed, if they achieve this at all. Thus, there is an unmet medical need for a non-surgical rapid and effective debridement
agent for the outpatient setting, nursing home facilities and patients’ homes. Given the high demand for an effective non-surgical
debridement technique and the clinical data generated to date, EscharEx has the potential to expand the current use of enzymatic debridement
across all sites of care and achieve substantial market share. As documented in the Phase II study described below, EscharEx significantly
improved the rate of complete debridement after few once-daily applications, thus potentially facilitating wound debridement without the
need for surgery. Based on our comprehensive market research study on EscharEx that involved more than 200 healthcare professionals in
the U.S. and Europe, which was last updated in 2022, EscharEx TAM for VLUs and DFUs is estimated at approximately $2 billion in the U.S.
This market research and physician feedback suggests potential market share for EscharEx at approximately 30%.
50
EscharEx Clinical History
EscharEx is a topical agent being developed for debridement of
chronic and other hard-to-heal wounds, in order to fulfill an unmet need for a non-surgical rapid and effective debridement option. EscharEx
is based on the same active substance as NexoBrid but differs in other aspects, such as in formulation and presentation. Based on our
current pre-clinical studies, the second generation EscharEx demonstrated even higher potency in lower doses, which could further contribute
to EscharEx’s efficacy and tolerability. This advanced generation of EscharEx has been designed in accordance with the current treatment
workflow and reimbursement programs, providing a non-surgical easy-to-use, potent product for daily application, which we believe will
enhance patient compliance and improve quality of care. Based on the feedback received from different stakeholders, we believe that our
second generation EscharEx can better address the unmet medical need for a non-surgical rapid and effective product, particularly in the
outpatient setting, where the majority of patients are treated, and has a greater potential to achieve substantial market share.
Second generation EscharEx is more differentiated from NexoBrid,
which further limits the chances for competition between the two products.
Non-clinical safety studies performed with NexoBrid support EscharEx
development, and we have already completed successfully bridging toxicology studies. In a pre-IND meeting the FDA stated that existing
toxicology data for EscharEx, including cross-referenced NexoBrid data, could be sufficient to support initiation of clinical studies
in the product.
Following the successful completion of the EscharEx U.S. Phase
II study in VLU patients, we have entered into discussions with the FDA regarding the EscharEx pivotal Phase III study design, which expected
to be initiated in the second half of 2023.
Completed clinical trials
We completed a first Phase II feasibility study in Israel
for chronic and other hard-to-heal wounds. In January 2017 we completed and announced the final results of a second Phase II prospective
study in Israel and Europe. In November 2017, we announced the final results of a second cohort of the second Phase II study. Based on
the completed studies, we believe that our product candidate may be effective for debridement of chronic and other hard-to-heal wounds.
First Phase II feasibility study—Israel
This first Phase II feasibility study was conducted in Israel
to study the efficacy of our technology on chronic and other hard-to-heal wounds. The study assessed 24 patients at two sites. The results
showed that our technology was effective in debriding various chronic and other hard-to-heal wound etiologies, such as VLUs, DFUs, pressure
sores and trauma on diseased skin.
51
Second Phase II study—Israel/E.U. – First Cohort
This second Phase II study was a prospective, controlled, assessor-blinded,
randomized, multi-center Phase II study in Israel and Europe. The study objectives were to evaluate the efficacy and safety of EscharEx
in comparison to the Gel Vehicle at a ratio of 2:1 for the treatment of a variety of chronic and other hard-to-heal wounds in three etiologies:
DFUs, VLUs and post-surgical or traumatic hard-to-heal wounds.
The primary endpoint assessed incidence of complete non-viable
tissue removal (debridement) at the end of the debridement period (within up to 10 daily applications) and the secondary endpoints assessed
various efficacy and safety endpoints, including wound bed preparation and wound healing.
In January 2017 we reported final results of the first cohort of
73 patients. The average wound age in the EscharEx arm was more than double (72.8 weeks) that
of the gel vehicle group (30.8 weeks). The average wound size was 33.6 cm2 in the EscharEx arm vs. 25.8 cm2 in the gel vehicle group.
Despite the larger wounds and that wounds treated with EscharEx were older than wounds treated with gel vehicle (72.8 vs. 30.8 weeks),
the study met its primary endpoint. EscharEx demonstrated a statistically significant higher incidence of complete debridement at the
end of the debridement period. Patients treated with EscharEx demonstrated a higher incidence of complete debridement (55% or 27/49) compared
with patients treated with the hydrogel6 vehicle (29% or 7/24) with p=0.047.
*w/i 10 daily applicationsPredefined sub-group analyses showed that 50% of patients with
DFUs treated with EscharEx (8/16) achieved complete debridement at the end of the debridement period compared with 14.3% of patients with
DFUs treated with hydrogel vehicle (1/7). In addition, 62.5% of patients with VLUs treated with EscharEx (10/16) achieved complete debridement
at the end of the debridement period compared with 25% of patients with VLUs treated with hydrogel vehicle (2/8). Post hoc analysis showed
that 56.3% of patients with VLU or DFU in the EscharEx group had complete debridement at the end of the debridement period compared with
20.0% in hydrogel vehicle group (p=0.028).
The study included secondary endpoints that provide further insight
into number of efficacy and safety parameters. The secondary endpoint of time to complete debridement demonstrated a clear trend (p=0.075)
that strongly suggests that not only is there a difference in the incidence of debridement, as confirmed by the primary endpoint, but
that debridement occurred earlier in the group treated by EscharEx. The advantage in time to complete debridement was corroborated by
the statistically significant post hoc result in the subgroup of patients with VLUs or DFUs that were treated with EscharEx (p=0.024).
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Post hoc analysis showed that of patients who achieved complete
debridement in the EscharEx group, 93% (25/27) completed the debridement within 7 days (4-5 applications on average).
The overall patient demographics were comparable across both arms.
No deleterious effect on wound healing was observed and no material differences were found in reported adverse events. The overall safety
was comparable between the arms.
Second Phase II study—Israel/E.U. – Second Cohort
After successfully completing the first cohort of the study which
included 73 patients recruited in 15 clinical sites, we initiated a second cohort of patients to demonstrate safety and tolerability over
extended periods of application to further support the product’s convenient application. In this second cohort, we recruited 38
patients from two etiologies, either VLUs or DFUs, over extended periods of application (24-72 hours) with up to eight applications, randomizing
the patients to two study arms EscharEx or gel vehicle at a ratio of 2:1. The primary objective was to assess safety.
EscharEx met its primary safety endpoint in this cohort, and the
overall patient demographics and wound baseline characteristics were comparable across the arms in the second cohort. No related systemic
adverse events were reported and adverse events related to local application were mild to moderate, reversible and resolved during the
trial. Vital signs, pain scores, infection rates, laboratory parameters and blood loss were comparable between the two arms of the trial.
Overall, no material safety concerns were identified.
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EscharEx U.S. Phase II Study in Venous Leg Ulcer (VLU) Patients
In December 2019, we initiated a U.S. Phase II adaptive design clinical study of EscharEx
for the treatment of VLUs. The study was a multicenter, prospective, randomized, placebo-controlled, adaptive design study, evaluating
the safety and efficacy of EscharEx in debridement of VLUs compared to gel vehicle (placebo control) and non-surgical standard-of-care
of either enzymatic or autolytic debridement (NSSOC). The study enrolled 120 patients, with 119 treatet at approximately 20 clinical sites,
primarily in the U.S. Study participants were treated with either EscharEx (n=46), gel vehicle control (n=43), or non-surgical standard-of-care
(n=30), with a three-month follow-up. The single primary endpoint was incidence of complete debridement (non-viable tissue removal), clinically
assessed, within up to 8 treatment applications during the assessment period (within 14 days), compared to gel vehicle placebo control.
Secondary and exploratory endpoints assessed time to achieve complete debridement, reduction of pain, reduction of wound area, granulation
tissue and wound quality of life, enabling evaluation of clinical benefits compared to both gel vehicle and NSSOC. Incidence and time
to achieve wound closure were assessed as safety measurements.
In May 2022 we announced our results from this study. The
study met its primary endpoint with a high degree of statistical significance, demonstrating that patients treated with EscharEx had a
statistically significant higher incidence of complete debridement during the 14-day measurement period within up to 8 applications compared
to gel vehicle (EscharEx: 63% (29/46) vs. gel vehicle: 30% (13/43), p-value=0.004). EscharEx efficacy superiority remained statistically
significant compared to gel vehicle after adjusting for pre-specified covariates ascribed to patient baseline characteristics, wound size,
wound age and region.
The study met key secondary and exploratory endpoints. Patients
treated with EscharEx had a statistically significant higher incidence of complete debridement, during the same 14-day measurement period,
compared to patients treated by non-surgical standard-of-care ("NSSOC") (EscharEx: 63% (29/46) vs. NSSOC: 13% (4/30)) and the time to
achieve complete debridement was significantly shorter. Estimated median time to complete debridement was 9 days for patients treated
with EscharEx and 59 days for patients treated with NSSOC (p-value=0.016). On average, complete debridement was achieved after 3.6 applications
of EscharEx compared to 12.8 applications with NSSOC. Patients treated with EscharEx demonstrated significantly higher incidence of greater
than 75% granulation tissue at the end of the treatment period compared to gel vehicle (p-value 0.0001). Favorable trends were observed
in wound area reduction and reduction of pain compared to gel vehicle.
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In addition, the study showed that EscharEx was safe and well tolerated,
and the overall safety was comparable between the arms as assessed by the data safety monitoring board. Importantly, there were no observed
deleterious effects on wound closure and no material differences in reported adverse events. Estimated time to complete wound closure
was 64 days for patients treated with EscharEx compared to 78 days for patients treated with NSSOC.
EscharEx Pharmacology Study
In May 2022, we announced positive results from our U.S. Phase
II pharmacology study of EscharEx for debridement of lower leg ulcers. The study was a prospective, open label, single-arm study, conducted
at three U.S. clinical sites. The study evaluated the clinical performance, safety, and pharmacology effect of EscharEx in the debridement
of lower leg ulcers (VLUs and DFUs). The study evaluated the safety and efficacy of debridement as measured by incidence of, and time
to complete debridement. In addition, the study evaluated the pharmacological effects of EscharEx as measured by the changes from baseline
to end of treatment period in (1) wound biofilm presence in wound biopsies, (2) bacterial burden measured by MolecuLight®
fluorescence images, and (3) biomarkers of wound healing and inflammation in wound fluid. Twelve patients with either VLUs or DFUs were
enrolled in the study. Patients were treated with up to eight daily applications of EscharEx and then continued follow-up for 2 weeks.
Punch biopsies and wound fluids were collected prior to the first, and after the last treatment. Biofilm presence was analyzed from wound
biopsies. Wound fluids were analyzed to evaluate biomarkers of wound healing and inflammation, i.e., MMPs, cytokines, chemokines, growth
factors and HNE. Fluorescent imaging was used during treatment to measure wound size and bacterial load. Fluorescent imaging was also
utilized to identify the highest fluorescence area to obtain the biopsy. EscharEx demonstrated safe and effective debridement with a few
daily applications. In addition, evaluation of wounds’ tissue samples (biopsies) and fluorescence images, indicated reduction of
wound area, biofilm and bacterial bioburden following the treatment with EscharEx.
Seventy percent of patients achieved complete debridement during
the course of treatment within up to 8 applications. On average, complete debridement was achieved after 3.9 applications of EscharEx.
Additionally, an average reduction of 35% in wound size was achieved by the end of the 2-week follow-up period. In all patients that were
positive for biofilm at baseline, the biofilm was reduced substantially to single individual microorganisms or completely removed by the
end of treatment. Seven patients had positive red fluorescence (indicative of bacteria) at baseline and average red fluorescence was reduced
from 1.69 cm2 pre-treatment to 0.60 cm2 post treatment. Biomarker analysis from wound fluid is on-going and safety data shows that EscharEx
is safe and well-tolerated.
The development of EscharEx for the debridement of chronic and other hard-to-heal wound
indications is in Phase 2 studies, and there is no certainty that EscharEx will achieve all of the objectives of the trials as required
or that the FDA will allow at this stage to initiate further studies or that we will successfully complete the development to obtain a
marketing authorization for EscharEx. See “ITEM 3.D. Risk Factors—Development and commercialization of EscharEx in the United
States and our pipeline product candidates worldwide requires successful completion of the regulatory approval process, and may suffer
delays or fail.”
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Non-Melanoma
Skin Cancer
MW005, is a topically applied biological product candidate
for the treatment of non-melanoma skin cancers, based on the same active substance of NexoBrid and EscharEx, a concentrate of proteolytic
enzymes enriched in bromelain. The clinical development plan of MW005 is supported by the results from several toxicological and other
preclinical studies, as well as vast clinical experience from NexoBrid and EscharEx, which share the same API. We launched a new clinical
program to evaluate our drug product candidate MW005 in patients with non-melanoma skin cancer.
Non-melanoma Skin Cancers
Cancers of the skin are by far the most common of all types of
cancer with about approximately 5.4 million basal and squamous cell skin cancers are diagnosed each year in the US. The number of these
cancers has been increasing for many years due to combination of better skin cancer detection, people getting more sun exposure, and people
living longer.
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• |
Basal cell carcinomas - BCC starts in the basal cell layer, which is the lower part
of the epidermis. If not removed completely, basal cell carcinoma can come back (recur) in the same place on the skin. People who
have had basal cell skin cancers are also more likely to get new ones in other places. BCCs are uncontrolled and abnormal growths that
arise in the basal cells of the skin and the tumors primarily affect photo exposed areas, most commonly in the head, and infrequently
appear on unexposed areas such as the genital and genitalia regions. The main cause of BCC is chronic ultraviolet (UV) exposure. BCC is
the most common form of skin cancer, accounting for 75-80% of all skin cancers
|
|
|
• |
Squamous cell carcinomas - Squamous cell carcinomas (“SCC”) start in the
flat cells in the upper (outer) part of the epidermis |
|
|
• |
Actinic keratosis - Actinic keratosis (“AK”), also known as solar keratosis,
is a pre-cancerous skin condition caused by too much exposure to the sun. People who have them usually develop more than one. A small
percentage of AKs may turn into squamous cell skin cancer.
|
|
|
• |
Bowen disease - Bowen disease (squamous cell carcinoma in situ), is the earliest form
of squamous cell skin cancer
|
Market opportunity
Basal cell carcinoma is a non-melanoma skin cancer that arises
from the basal layer of epidermis and its appendages and is the most diagnosed skin cancer in the US (~4.3 million cases annually).
Under existing standard of care, low-risk patients are treated
with tumor resection via either standard surgical excision or Mohs micrographic surgery. Recurrence rates for these sharp methods of tumor
removal are low (~5% at 5 years), and the procedure is considered straightforward with limited patient downtime or side effects. Topical
products (5-FU and Imiquimod) are used primarily in superficial lesions, but have limited use and are reserved for surgery ineligible
patients. Drawbacks include longer treatment duration (6 weeks), low efficacy (~14% at 5 years), and side effects such as scarring,
skin-site reactions, and fatigue/flu-like illness. High-risk patients are also primarily treated with surgery; surgery-ineligible patients
are treated with oral hedgehog pathway inhibitors, which are effective in the short-term, but have high recurrence rates / safety concerns.
There is a need for more effective, safer topical products in low-risk superficial basal cell carcinoma for surgery-ineligible patients
(e.g., site of tumor is challenging for excision or may result in cosmetic issues) or for patients for whom surgery is not appropriate
(e.g., older / frail patients, or those with challenges in seeking pre and post-surgical appointments) and current topical agents may
be avoided due to long treatment durations and because they result in an unpleasant treatment process for patients.
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MW005 Clinical History
Ongoing clinical trials
U.S. Phase I/II Study in basal cell carcinoma Patients
In July 2021, we initiated a U.S. Phase I/II study of MW005 for
the treatment of low-risk basal cell carcinoma (BCC). The Phase I/II open-label, randomized clinical study in BCC is designed to evaluate
safety and tolerability of MW005 using different schedules of administration, as well as provide a preliminary evaluation of efficacy
as measured by the percentage of target lesion with complete histological clearance.
The Phase I/II study was an open-label, multicenter, randomized
clinical trial designed to evaluate the safety and efficacy of MW005 in patients with BCC, using different regimens. All patients enrolled
in the study had histologically confirmed superficial or nodular BCC. Those patients received seven topical applications of MW005 once
every other day for 14 days. Eight weeks after the last treatment, all patients underwent a complete excisional biopsy, and the specimen
was subject to an independent histological clearance examination. The study’s endpoints included safety and tolerability measurements,
as well as efficacy assessment, as measured by the proportion of patients who reached clinically and histologically confirmed complete
clearance.
In December 2022, we announced positive results from this study. The data showed MW005 to be safe and well-tolerated,
with patients achieving complete clinical and histological clearance of their target lesions. Based on these positive results, we plan
to continue enrolling patients in its Phase I/II study, optimizing its dosing regimen and application technique. The final results are
expected in the third quarter of 2023.
Although we have conducted preclinical trials, the development
of MW005 for non-melanoma skin cancer indications is still in its preliminary phase and there is no certainty that it will achieve all
the aims of the trials as required and/or successfully complete the approval process for such indication. See “ITEM 3.D. Risk Factors—Development
and commercialization of EscharEx in the United States and our pipeline product candidates worldwide requires successful completion of
the regulatory approval process, and may suffer delays or fail.”
Research and Development
Our research and development strategy is centered around our validated
proteolytic enzyme platform technology, focused on next-generation protein-based therapies for burn and wound care, and for tissue repair,
which underlies NexoBrid and EscharEx, into additional product candidates for high-value indications. For more information regarding our
research and development expenses, see “ITEM 5.C. Research and Development, Patents and Licenses, etc.”
Pre-Clinical Clinical Studies
We conduct clinical studies and preclinical studies to support
the efficacy and safety of our products and their ingredients and to extend and validate their benefits for human health. Preclinical
studies allow us to substantiate the safety of our products and obtain preliminarily indications of their pharmacological and safety profile.
As of the date hereof, we have conducted more than 50 non-GLP and GLP preclinical studies. All pre-clinical safety and toxicology studies
were conducted according to the principles of Good Laboratory Practices (“GLP”), and thirteen clinical studies, according
to the principles of Good Clinical Practices (“GCP”), for NexoBrid, EscharEx and our pipeline product candidates. As a result,
we have developed significant experience in planning, designing, executing, analyzing and publishing clinical studies.
57
Our research and development team manages our clinical studies
and coordinates the project planning, trial design, execution, outcome analyses and clinical study report submission. During the design,
execution and analyses of our studies, our research and development team consults with key opinion leaders and top-tier consultants in
the relevant field of research to optimize both design and execution, as well as to strengthen the scientific, medical and regulatory
compliance level of the investigational plan. Our clinical studies have been conducted in collaboration with leading medical and research
centers throughout the world.
Manufacturing, Supply and Production
We operate a manufacturing facility in Yavne, Israel, in a building
that we sub-lease from Clal Life Sciences L.P., with 39 employees as of December 31, 2022. This facility allows us to manufacture
sterile biopharmaceutical products, such as NexoBrid. The facility is designed to meet current cGMP requirements and similar foreign requirements,
as certified by the U.S., EU member states competent authorities, the Israeli Ministry of Health, South Korean ministry of health and
Japanese ministry of health. Our facility is subject to audits for reassessment of cGMP compliance and similar foreign requirements, which
are performed periodically by regulatory authorities and was re-approved as cGMP-compliant for an additional three years term as of the
audit date, until 2025. Additionally, as part of the regulatory approval process for NexoBrid our plant was inspected in 2022 by the FDA
and the Pharmaceuticals and Medical Devices Agency (“PMDA”) of Japan to confirm it meets all regulatory requirements. In addition,
other regional applicable authorities may also need to inspect our plant to confirm it meets all regulatory requirements in order to obtain
marketing authorization in these jurisdictions. Applicable changes in our production processes for NexoBrid must be approved by the EMA
and similar authorities in other jurisdictions.
While we believe that our current manufacturing capacity at the facility is sufficient
to meet the expected near-term commercial demand for NexoBrid, we initiated a facility scale-up in 2022 to meet the growing global demand
for NexoBrid. We expect the cost will be approximately $10-12 million.
The starting material used by us in the manufacturing of NexoBrid
and our other product candidates is bromelain SP, which is derived from pineapple plant stems. We have entered into an agreement with
CBC, dated January 11, 2001, as amended on February 28, 2010, pursuant to which CBC uses proprietary methods to manufacture
bromelain SP and supplies us with this intermediate drug substance in bulk quantities. According to the terms of the agreement, CBC shall
not, and shall not permit related companies or a third party to, manufacture, use, supply or sell the raw materials for the use or production
of a product directly or indirectly competing with any of our products. Our supply agreement with CBC has no fixed expiration date and
can be voluntarily terminated by us, with at least six months’ advance written notice, or by CBC, with at least 24 months’
advance written notice.
Upon obtaining bromelain SP from CBC, we further process it into
the drug substance and then into the drug product to finally create the powder form of NexoBrid. The necessary inactive ingredients contained
in NexoBrid, or the excipients, are readily available and generally sold to us by multiple suppliers. In addition to this powder, we manufacture
a sterile gel substance by combining water for injections produced by us at our facility and additional excipients.
Marketing, Sales and Distribution
We commercialize globally NexoBrid via multiple sales channels:
Europe
In Europe and Israel, we sell NexoBrid, primarily through
our own sales force consisting of a marketing team of specialized and knowledgeable sales representatives in Europe, focusing on leading
burn centers and Key Opinion Leaders (KOL) management. We have obtained national reimbursement for NexoBrid in Belgium, Italy, and Greece
and we continue to locally execute our market access strategy for most of Europe to obtain procurement by burn centers and hospitals as
part of their budget, or under local, regional or national reimbursement, depending on the specific process required in each country.
We believe that additional burn units in large hospitals as well as smaller hospitals will follow the treatment trends once established
by the burn centers. See “—Government Legislation and Regulation—Pharmaceutical Coverage, Pricing and Reimbursement.”
Furthermore, we are establishing additional distribution channels through local partners to extend outreach in EU (Sweden, Finland, Denmark,
France, Switzerland, Greece, Malta, Bulgaria, Cyprus, Portugal, the Netherlands and Luxemburg), where NexoBrid is already approved for
marketing as part of the European marketing authorization. In addition to receiving marketing authorization for NexoBrid in the European
Union, key opinion leaders in the burn care field worldwide are already aware of NexoBrid’s efficiency in removing eschar due to
hundreds of scientific presentations and several award-winning abstracts at international and national conferences and about 120 peer-reviewed
papers.
58
North
America
Vericel License and Supply Agreements
On May 6, 2019, we entered into exclusive license and supply agreements with Vericel to
commercialize NexoBrid in all countries of North America (which we refer to as the “Territory”).
License Agreement.
We entered into the Vericel License Agreement pursuant to which
we granted Vericel an exclusive license, with the right to grant sublicenses, to develop and commercialize NexoBrid and any improvements
of NexoBrid (the “Licensed Product”) in the Territory.
Pursuant to the terms of the Vericel License Agreement, Vericel
will have exclusive control regarding the commercialization of Licensed Products in the Territory and must use commercially reasonable
efforts to commercialize Licensed Products within the Territory. We and Vericel have made customary representations and warranties and
have agreed to certain customary covenants, including confidentiality and indemnification.
Within 10 days of signing the Vericel License Agreement, Vericel
paid us an upfront fee of $17.5 million (the “Upfront Payment”) and upon the U.S. regulatory approval of the BLA for NexoBrid
Vericel paid us $7.5 million. Vericel is obligated to pay us up to $125 million, in the aggregate, upon attainment of certain sales milestones.
The first sales milestone of $7.5 million is triggered when annual net sales of the Licensed Products in the Territory exceed $75 million.
Vericel is also obligated to pay us tiered royalties on net sales of Licensed Products at rates ranging from mid-high single-digit to
mid-teen percentages, subject to certain customary reductions, as well as a percentage of gross profits on committed purchases by BARDA
and a royalty on additional sales to BARDA. The royalties will expire on a product-by-product and country-by-country basis upon the latest
to occur of (i) twelve years following the first commercial sale of such Licensed Product in such country, (ii) the earliest date on which
there are no valid claims of MediWound patent rights covering such Licensed Product in such country, and (iii) the expiration of the regulatory
exclusivity period for such Licensed Product in such country (the “Royalty Term”). Such royalties are subject to reduction
in the event that (a) Vericel must license additional third-party intellectual property in order to develop, manufacture or commercialize
a Licensed Product, or (b) biosimilar competition occurs with respect to the Licensed Product in any country within the Territory. After
the expiration of the applicable royalties for the Licensed Product in any country within the Territory, the license for such Licensed
Product in such country would become a fully paid-up, royalty-free, perpetual and irrevocable license.
The Vericel License Agreement expires on the date of expiration
of all royalty obligations due under the agreement unless earlier terminated in accordance with its terms. Either party may terminate
the agreement upon the failure of the other party to comply with its material obligations under the agreement if that failure is not remedied
within certain specified cure periods or in the event of a party’s insolvency. In addition, Vericel may terminate the agreement
upon a 150-day written notice to us.
59
Supply Agreement.
On May 6, 2019, concurrently with our entry into the License Agreement,
we entered into a supply agreement with Vericel (the “Supply Agreement”) pursuant to which we are obligated to supply
Vericel with NexoBrid for sale in the Territory on an exclusive basis for the first five years of the term of the Supply Agreement.
The Supply Agreement requires us to take steps to ensure that our manufacturing capacity meets Vericel’s demand for NexoBrid.
In addition, after the exclusivity period or upon supply failure, Vericel will be permitted to establish an additional or alternate source
of supply.
Pursuant to the Supply Agreement, we will supply NexoBrid to Vericel
based on Vericel’s fixed orders on a unit price basis. After a specified period, the unit price, on an annual basis, may be
increased based on the United States Producer Price Index for Chemical Manufacturing published by the Bureau of Labor Statistics.
The Supply Agreement’s initial term is five years (the “Initial
Term”), with Vericel required to provide us with notice regarding whether it plans to extend the Initial Term for an additional
two years by the third anniversary of the Supply Agreement. On May 2022, Vericel notified us on its election to extend the Initial Term
for an additional 2 years until 2026. After the Initial Term and optional two-year extension, Vericel, at its sole discretion, may
choose to extend the Supply Agreement’s term for additional one-year periods for a potential total term of fifteen years.
The Supply Agreement will automatically terminate upon the expiration
or termination of the License Agreement. Either party may terminate the Supply Agreement upon the failure of the other party to
comply with its material obligations under the Supply Agreement if such failure is not remedied within certain specified cure periods.
After the Initial Term, Vericel may terminate the Supply Agreement upon 12 months’ prior written notice to us, and we may terminate
the Supply Agreement upon 36 months prior written notice to Vericel.
BARDA
Pursuant to the First BARDA Contract, BARDA has initiated the procurement
of NexoBrid valued at $16.5 million, for emergency stockpile as part of the HHS mission to build national preparedness for public health
medical emergencies. BARDA purchased inventory is being managed by MediWound under vendor managed inventory. As of December 31, 2022,
the Company has received $16.5 million for procurement of NexoBrid for U.S. emergency preparedness.
Under our exclusive license and supply agreements with Vericel,
we will equally split the gross profits on the initial procurement and receive a double-digit royalty on any additional future BARDA purchases
of NexoBrid. Please see “Vericel License and Supply Agreements” above.
Other
International Markets
In other international markets, we sell NexoBrid through local
distributors with which we have distribution agreements, focusing on Asia Pacific, EMEA, CEE and LATAM. We have signed local distribution
agreements for distribution in Argentina, Russia, Colombia, Mexico, Peru, Chile, Ecuador, Panama, India, Bangladesh, Sri Lanka, Japan,
Australia, New-Zealand, Singapore, Ukraine, Taiwan and United Arab Emirates.
Our distributors in Argentina, Russia, South Korea, Peru, Chile,
Taiwan, Japan, India, United Arab Emirates and Eurasian countries have obtained marketing authorization. Our additional distributors have
filed or are in the process of filing for market authorization in their respective territories and are expected to launch NexoBrid after
receipt of local regulatory approval, which may take a year or more to be granted, and, consequently, may occur in certain markets during
2023. We have launched NexoBrid in Argentina, South Korea, Russia, Taiwan and Chile and expect additional launches following receipt of
local marketing authorizations. We plan to enter other international markets through collaboration with local distributors and leverage
our approved registration file in Europe to obtain regional marketing authorizations.
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For a breakdown of our consolidated revenues by geographic markets
and by categories of operations for the years ended December 31, 2021 and 2022, please see “Item 5.A Operating and Financial Review
and Prospects—Operating Results.”
Intellectual Property
Our intellectual property and proprietary technology
are important to the development, manufacture and sale of NexoBrid, EscharEx and our future pipeline product candidates. We seek to protect
our intellectual property, core technologies and other know-how through a combination of patents, trademarks, trade secrets, non-disclosure
and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants,
partners, suppliers, customers and others. Additionally, we rely on our research and development program, clinical trials, know-how and
marketing and distribution programs to advance our products and product candidates. As of December 31, 2022, we had been granted a total
of 85 patents and have 11 pending patent applications. The family of patents that covers NexoBrid specifically includes 35 granted patents
worldwide. EscharEx is covered by 13 patents and 6 national phase applications.
The main patents for our proteolytic enzyme technology which underlies
NexoBrid, EscharEx and our current pipeline product candidates have been issued in Europe, the United States and other international markets.
Our patents which cover NexoBrid claim specific mixtures of proteolytic enzymes, methods of producing such mixtures and methods of treatment
using such mixtures. Although the protection achieved is significant for NexoBrid, EscharEx and our pipeline product candidates, when
looking at our patents’ ability to block competition, the protection offered by our patents may be, to some extent, more limited
than the protection provided by patents which claim chemical structures which were previously unknown. Absent patent-term extensions,
the NexoBrid patents are nominally set to expire in 2025 and in 2029 in the United States. The NexoBrid patents issued in Europe
and in other foreign jurisdictions are nominally set to expire in 2025. The patents and the national phase applications relating
to EscharEx, if the national phase applications are granted, will expire on January 30, 2037, absent any patent-term adjustment and/or
extensions.
While our policy is to obtain patents by application, license or
otherwise, to maintain trade secrets and to seek to operate without infringing on the intellectual property rights of third parties, technologies
related to our business have been rapidly developing in recent years. Additionally, patent applications that we may file or license from
third parties may not result in the issuance of patents, and our issued patents and any issued patents that we may receive in the future
may be challenged, invalidated or circumvented. For example, we cannot predict the extent of claims that may be granted or enforceable
in our patents nor can we be certain of the priority of inventions covered by pending third‑party patent applications filed in the
U.S. If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may
have to participate in proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual
outcome is favorable to us. Moreover, because of the extensive time required for clinical development and regulatory review of a product
we may develop, it is possible that, before NexoBrid can be commercialized in additional jurisdictions and/or before any of our future
products can be commercialized, related patents will expire a short period following commercialization, thereby reducing the advantage
of such patent. Loss or invalidation of certain of our patents, or a finding of unenforceability or limited scope of certain of our intellectual
property rights, could have a material adverse effect on us. See “ITEM 3.D. Risk Factors — Our success depends in part on
our ability to obtain and maintain protection for the intellectual property relating to, or incorporated into, our technology and products.”
In addition to patent protection, we also rely on trade secrets,
including unpatented know‑how, technology innovation, drawings, technical specifications and other proprietary information in attempting
to develop and maintain our competitive position. We also rely on protection available under trademark laws, and we currently hold various
registered trademarks, including “MediWound,” “NexoBrid” and “EscharEx” in various jurisdictions,
including the United States, the European Union and Israel.
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Klein License Agreement
In September 2000, we signed an exclusive license agreement, as
amended in June 2007, with Mark Klein, a third party, for use of certain patents and intellectual property (the “Klein License Agreement”).
Under the Klein License Agreement, we received an exclusive license to use the third party’s patents and intellectual property to
develop, manufacture, market and commercialize NexoBrid and its pipeline product candidates for the treatment of burns and other wounds.
The claims of such patents are directed to a process of preparing a mixture of escharase and proteolytic enzymes and cover the underlying
proteolytic mixture of escharase and proteolytic enzymes prepared by that specific process. Pursuant to the Klein License Agreement, we
are obligated to keep accounting records related to the sales of NexoBrid and its pipeline product candidates and pay royalties as discussed
below. The Klein License Agreement may be terminated by Mark Klein, subject to notice and dispute resolution provisions of the Klein License
Agreement, in the event of our breach, bankruptcy petition, insolvency or failure to achieve a development milestone within six months
of a target date. We have already achieved all development milestones under the Klein License Agreement.
In consideration for the Klein License Agreement, we paid an aggregate
amount of $1.0 million following the achievement of certain development milestones. In addition, we undertook to pay royalties of
1.5‑2.5% from revenues, 10% of royalties received from sublicensing and 2% of lump‑sum payments received from sublicensing
up to $1 million and 4% above $1 million, in each case relating to products based on the licensed patents and intellectual property, for
a term of 10‑15 years, as applicable, from the date of the first commercial delivery in a major country. In addition, under
the Klein License Agreement, we agreed to pay a one‑time lump‑sum amount of $1.5 million upon reaching aggregate revenues
of $100 million from the sale of such products.
Competition
NexoBrid received orphan drug status in the European Union on July 31,
2002 and in the United States on August 20, 2003 for debridement of deep partial‑ and full‑thickness burns in hospitalized
patients. In the United States and the European Union, a sponsor that develops an orphan drug has marketing exclusivity for seven years
post‑approval by the FDA and for ten years post‑approval by the EMA, respectively. The exclusive marketing rights in both
regions are subject to certain exceptions, including the development of a clinically significant benefit over the prevalent SOC. Once
the market exclusivity for our orphan indication expires in a given jurisdiction, subject to other protections such as patents, we could
face competition from other companies that may attempt to develop other products for the same indication.
The medical, biotechnology and pharmaceutical industries are intensely
competitive and subject to significant technological change and changes in practice. While we believe that our innovative technology,
knowledge, experience and scientific resources provide us with competitive advantages, we may face competition from many different sources
with respect to NexoBrid, EscharEx, MW005 and our existing pipeline product candidates or any product candidates that we may seek to develop
or commercialize in the future. Possible competitors may include medical practitioners, pharmaceutical and wound care companies, academic
and medical institutions, governmental agencies and public and private research institutions, among others. Any product that we successfully
develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
In addition, we face competition from the current SOC. The current SOC for eschar removal
in severe burns is surgery, where eschar removal can be performed by tangential excision, dermabrasion or hydro jet, or non‑surgical
alternatives, such as applying topical medications to the eschar to facilitate the natural healing process. Consequently, we face competition
from traditional surgical procedures and topical agents. However, based on our clinical trials, we believe that NexoBrid has a sustainable
competitive advantage over the current non‑surgical alternatives and is less invasive than surgery in removing eschar in patients
with burn wounds. See “—NexoBrid and Our Clinical History” for the results of our clinical trials.
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Although we are in the clinical and preclinical phases for our
pipeline product candidates for debridement of chronic and other hard‑to‑heal wounds and treatment of low-risk basal cell
carcinoma and connective tissue disorders and other indications, respectively, if one of our pipeline product candidates receives approval
in the future, we would compete with traditional surgery and existing non‑surgical and other treatments. In chronic and other hard‑to‑heal
wounds, we expect to face competition from current standard of care for debridement by sharp debridement or from the current non-surgical
standard of care, either enzymatic debridement, primarily Smith Nephew Plc’s Santyl, a collagenase-based product
indicated for debriding chronic dermal ulcers and severely burned areas or autolytic debridement.
The current standard of care for treatment of low-risk basal cell
carcinoma is surgical excision. In superficial basal cell carcinoma and inoperable nodular basal cell carcinoma, we expect to face competition
from current topical applications such as imiquimod and 5FU.
In addition to the currently available products, other products
may be introduced to debride chronic and other hard‑to‑heal wounds or treat superficial and nodular basal cell carcinoma and
connective tissue disorders during the time that we engage in necessary development. Accordingly, if one of our pipeline product candidates
is approved, our main challenge in the market would be to educate physicians seeking alternatives to surgery to use our product instead
of already existing treatments. While we are still in the development stages, based on our studies, we believe that our pipeline product
candidates will be more effective than the current non‑surgical alternatives and less invasive than surgery in removing eschar in
chronic and other hard‑to‑heal wounds or tumor resection and may be comparable or perhaps better than currently available
treatments for connective tissue disorders.
Government Legislation and Regulation
Our business is subject to extensive government regulation. Regulation
by governmental authorities in the United States, the European Union and other jurisdictions is a significant factor in the development,
manufacture and marketing of NexoBrid and in ongoing research and development activities.
European Union
The approval process of medicinal products in the European Union
generally involves satisfactorily completing each of the following:
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laboratory tests, animal studies and formulation studies all performed in accordance
with the applicable EU GLP or GMP regulations; |
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submission to the relevant authorities of a CTA, which must be approved before human
clinical trials may begin;
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performance of adequate and well‑controlled clinical trials to establish the
safety and efficacy of the product for each proposed indication;
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submission to the relevant competent authorities of a marketing authorization application
(“MAA”), which includes the data supporting preclinical and clinical safety and efficacy as well as detailed information on
the manufacture and composition and control of the product development and proposed labeling as well as other information; |
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inspection by the relevant national authorities of the manufacturing facility or facilities
and quality systems (including those of third parties) at which the product is produced, to assess compliance with strictly enforced GMP;
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potential audits of the non‑clinical and clinical trial sites that generated
the data in support of the MAA; and
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review and approval by the relevant competent authority of the MAA before any commercial
marketing, sale or shipment of the product. |
Quality/preclinical studies
In order to assess the potential safety and efficacy of a product,
tests include laboratory evaluations of product characterization, analytical tests and controls, as well as studies to evaluate toxicity
and pharmacological effects in animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must
comply with the relevant E.U. regulations and requirements. The results of such tests, together with relevant manufacturing control information
and analytical data, are submitted as part of the CTA. Non-clinical studies are performed to demonstrate the health or environmental safety
of new biological substances. Non-clinical studies must be conducted in compliance with the principles of GLP as set forth in EU Directive
2004/10/EC. In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported
and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational
process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development
requirements.
Clinical trial approval
Clinical drug development is often described as consisting of four
temporal phases (Phase I‑IV). See, for example, the EMA’s note for guidance on general considerations for clinical trials
(CPMP/ICH/291/95).
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Phase I (Most typical kind of study: Human Pharmacology);
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Phase II (Most typical kind of study: Therapeutic Exploratory);
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Phase III (Most typical kind of study: Therapeutic Confirmatory); and
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Phase IV (Variety of Studies: Therapeutic Use).
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Studies in Phase IV are all studies other than routine surveillance
performed after drug approval and are related to the approved indication.
The phase of development provides an inadequate basis for classification
of clinical trials because one type of trial may occur in several phases. The phase concept is a description, not a set of requirements.
The temporal phases do not imply a fixed order of studies since for some drugs in a development plan the typical sequence will not be
appropriate or necessary.
Clinical trials of medicinal products in the EU must be conducted
in accordance with EU and national regulations and the International Conference on Harmonization (“ICH”) guidelines on GCP
as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If
the sponsor of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal representative. The
sponsor must take out a clinical trial insurance policy, and in most EU member states, the sponsor is liable to provide ‘no fault’
compensation to any study subject injured in the clinical trial.
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The regulatory landscape related to clinical trials in the EU has
been subject to recent changes. The EU Clinical Trials Regulation (“CTR”) which was adopted in April 2014 and repeals the
EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is directly applicable in all EU member
states without the need for member states to further implement it into national law. The CTR notably harmonizes the assessment and supervision
processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal and database.
While the Clinical Trials Directive required a separate CTA to
be submitted in each member state, to both the competent national health authority and an independent ethics committee, much like the
FDA and IRB respectively, the CTR introduces a centralized process and only requires the submission of a single application to all member
states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each
member state, leading to a single decision per member state. The CTA must include, among other things, a copy of the trial protocol and
an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation.
The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate
assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member
state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development
may proceed.
The CTR foresees a three-year transition period. The extent to
which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior
to January 31, 2022 under the Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor
has opted for the application of the Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date,
all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR.
Medicines used in clinical trials must be manufactured in
accordance with GMP. Other national and EU-wide regulatory requirements may also apply.
Pediatric investigation plan (“PIP”)
We initiated a PIP study in November 2014.
On January 26, 2007, Regulation (EC) 1901/2006 came into force
with its primary purpose being the improvement of the health of children without subjecting children to unnecessary trials, or delaying
the authorization of medicinal products for use in adults. The regulation established the Pediatric Committee (“PDCO”), which
is responsible for coordinating the EMA’s activities regarding medicinal products for children. The PDCO’s main role is to
determine which studies the applicant needs to perform in the pediatric population as part of the PIP.
All applications for marketing authorization for new medicinal
products that were not authorized in the EU prior to January 26, 2007 must include the results of studies carried out in children
of different ages. The PDCO determines the requirements and procedures of such studies, describing them in a PIP. This requirement also
applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.
The PDCO can grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough
information to demonstrate its effectiveness and safety in adults. The PDCO can also grant waivers when development of a medicine in children
is not needed or is not appropriate, because the product is likely to be ineffective or unsafe in children, the disease or condition for
which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit
over existing treatments for pediatric patients.
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Before an MAA can be filed, or an existing marketing authorization
can be amended, the EMA confirms that the applicant complied with the studies’ requirements and measures listed in the PIP. Since
the regulation became effective, several incentives for the development of medicines for children become available in the European Union,
including:
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medicines that have been authorized for marketing in the EU with the results of PIP
studies included in the product information are eligible for an extension of their supplementary protection certificate extension (if
any is in effect at the time of approval) by six months. This is the case even when the studies’ results are negative;
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for orphan medicines, such as NexoBrid, the incentive is an additional two years of
market exclusivity instead of one;
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scientific advice and protocol assistance at the EMA are free of charge for questions
relating to the development of medicines for children; and
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medicines developed specifically for children that are already authorized, but are
not protected by a patent or supplementary protection certificate, can apply for a pediatric use marketing authorization (“PUMA”).
If a PUMA is granted, the product will benefit from 10 years of market protection as an incentive.
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In September 2022, we announced that EMA validated for review our
Type II Variation to expand the currently approved indication for NexoBrid (removal of eschar in adults with deep partial-and full-thickness
thermal burn into the pediatric population. We expect decision from EMA by mid-year 2023.
Marketing authorization
Authorization to market a product in the EU member states proceeds
under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national
procedure. Marketing authorization may be granted only to an applicant established in the European Union. Through our wholly‑owned
German subsidiary, we received approval for NexoBrid pursuant to the centralized authorization procedure.
The centralized procedure provides for the grant of a single marketing
authorization, issued by the European Commission based on the opinion of the EMA’s Committee for Medicinal Products for Human Use
(“CHMP”), that is valid throughout the EU and the EEA countries, and including Norway, Iceland and Lichtenstein. The
centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal
products, advanced therapy medicinal products (“ATMPs”) and products with a new active substance indicated for the treatment
of certain diseases, and is optional for products which constitute a significant therapeutic, scientific, or technical innovation or for
which a centralized process is in the interest of patients. Products that have received orphan designation in the EU, such as NexoBrid,
will qualify for this centralized procedure, under which each product’s MAA is submitted to the EMA. Under the centralized procedure
in the European Union, the maximum time frame for the evaluation of an MAA by the EMA is 210 days (excluding clock stops, when additional
written or oral information is to be provided by the applicant in response to questions asked by the Committee of Medicinal Products for
Human Use).
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In general, if the centralized procedure is not followed, there
are three alternative procedures where applications are filed with one or more members state medicines regulators, each of which will
grant a national marketing authorization:
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Mutual recognition procedure. If an authorization
has been granted by one-member state, or the Reference Member State, an application may be made for mutual recognition in one or more
other member states, or the Concerned Member State(s).
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Decentralized procedure. The decentralized
procedure may be used to obtain a marketing authorization in several European member states when the applicant does not yet have a marketing
authorization in any country.
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National procedure. Applicants following the
national procedure will be granted a marketing authorization that is valid only in a single member state. Furthermore, this marketing
authorization is not based on recognition of another marketing authorization for the same product awarded by an assessment authority of
another member state. If marketing authorization in only one-member state is preferred, an application can be filed with the national
competent authority of a member state. The national procedure can also serve as the first phase of a mutual recognition procedure.
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It is not always possible for applicants to follow the national
procedure. In the case of medicinal products in the category for which the centralized authorization procedure is compulsory, that procedure
must be followed. In addition, the national procedure is not available in the case of medicinal product dossiers where the same applicant
has already obtained marketing authorization in one of the other European Union member state or has already submitted an application for
marketing authorization in another member state and the application is under consideration. In the latter case, applicants must follow
a mutual recognition procedure.
After a drug has been authorized and launched, it is a condition
of maintaining the marketing authorization that all aspects relating to its quality, safety and efficacy must be kept under review. Sanctions
may be imposed for failure to adhere to the conditions of the marketing authorization. In extreme cases, the authorization may be revoked,
resulting in withdrawal of the product from sale.
Period of authorization and renewals
Under the above-described procedures, in order to grant the marketing
authorization, the EMA or the competent authorities of the EU member states make an assessment of the risk benefit balance of the product
on the basis of scientific criteria concerning its quality, safety and efficacy. Marketing authorization is valid for an initial five‑year
period and may be renewed thereafter on the basis of a re‑evaluation of the risk‑benefit balance by the EMA or by the competent
authority of the authorizing member state. To this end, the marketing authorization holder shall provide the EMA or other applicable competent
authority a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the
marketing authorization was granted, at least six months before the end of the initial five‑year period. Once renewed, the marketing
authorization is valid for an unlimited period, unless the EMA or other applicable competent authority decides, on justified grounds relating
to pharmacovigilance, to proceed with one additional five‑year renewal. Any authorization which is not followed by the actual placing
of the drug on the E.U. market (in case of centralized procedure) or on the market of the authorizing member state within three years
after authorization shall cease to be valid.
Orphan designation
In the EU, the Committee for Orphan Medicinal Products assesses
orphan drug designation. The criteria for designating an “orphan medicinal product” in the EU are similar in principle to
those in the United States. A medicinal product can be designated as an orphan if its sponsor can establish that (1) the product
is intended for the diagnosis, prevention or treatment of a life threatening or chronically debilitating condition; (2) either (a) such
condition affects not more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits
derived from the orphan status, would not generate sufficient return in the EU to justify the necessary investment; and (3) there exists
no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized for marketing in the
EU or, if such method exists, the product will be of significant benefit to those affected by that condition.
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In the EU, orphan drug designation also entitles a party to financial
incentives such as reduction of fees or fee waivers, protocol assistance, access to the centralized procedure, and ten years of market
exclusivity upon grant of a marketing authorization for the approved indication, which means that the competent authorities cannot accept
another MAA, or grant a marketing authorization, or accept an application to extend a marketing authorization for a similar medicinal
product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan medicinal
products that have also complied with an agreed PIP. No extension to any supplementary protection certificate can be granted on the basis
of pediatric studies for orphan indications. Orphan drug designation does not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. This period may be reduced to six years if, at the end of the fifth year, the orphan drug designation
criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market
exclusivity, where the prevalence of the condition has increased above the threshold, or a safer, more effective or otherwise clinically
superior product is available. Orphan drug designation must be requested before submitting an MAA. Additionally, granting of an authorization
for another similar orphan medicinal product where another product has market exclusivity can happen at any time if: (i) the second applicant
can establish that its product, although similar to the authorized product, is safer, more effective or otherwise clinically superior,
(ii) inability of the applicant to supply sufficient quantities of the orphan medicinal product or (iii) where the applicant consents
to a second orphan medicinal product application. A company may voluntarily remove a product from the orphan register.
Orphan drug designation does not convey any advantage in, or shorten
the duration of, the regulatory review and approval process.
Regulatory data protection
Without prejudice to the law on the protection of industrial and
commercial property, some marketing authorizations benefit from an “8+2(+1)” year period of regulatory protection. During
the first eight years from the grant of the innovator company’s marketing authorization, data exclusivity applies. If granted, the
data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in
the dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period of eight years from the date
on which the reference product was first authorized in the EU. After the eight years have expired, a generic company can make use of the
preclinical and clinical trial data of the originator in their regulatory applications but still cannot market their product until the
end of the 10 year market exclusivity period. An additional one year of market exclusivity can be obtained if, during the first eight
years of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications which, during
the scientific evaluation prior to their approval, are determined to bring a significant clinical benefit in comparison with existing
therapies. However, there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical
or biological entity, and products may not qualify for data exclusivity. Under the current rules, a third party may reference the preclinical
and clinical data of the reference product beginning eight years after first approval, but the third party may market a generic version
only after 10 (or 11) years have lapsed.
There is a special regime for biosimilars, or biological medicinal products that are
similar to a reference medicinal product but that do not meet the definition of a generic medicinal product, for example, because of differences
in raw materials or manufacturing processes. For such products, the results of appropriate preclinical or clinical trials must be provided,
and guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of biological product.
There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and so it is unlikely that
biosimilars of those products will currently be approved in the EU. However, guidance from the EMA states that they will be considered
in the future in light of the scientific knowledge and regulatory experience gained at the time.
Additional data protection can be applied for when an applicant
has complied with all requirements as set forth in an approved PIP.
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Post-Approval Requirements
Similar to the United States, both marketing authorization holders
and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the
competent regulatory authorities of the member states. The holder of a marketing authorization must establish and maintain a pharmacovigilance
system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations
include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”).
All new MAA must include a risk management plan (“RMP”)
describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated
with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such
risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs,
or the conduct of additional clinical trials or post-authorization safety studies.
Failure to comply with the aforementioned EU and member state laws
may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of
clinical trials, or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation
of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions,
injunctions, suspension of licenses, fines and criminal penalties. These penalties could include delays or refusal to authorize the conduct
of clinical trials, or to grant the marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal
or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials,
operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
The aforementioned EU rules are generally applicable in the EEA.
Brexit
The UK left the EU on January 31, 2020, following which existing
EU medicinal product legislation continued to apply in the United Kingdom during the transition period under the terms of the EU-UK Withdrawal
Agreement. The transition period, which ended on December 31, 2020, maintained access to the EU single market and to the global trade
deals negotiated by the EU on behalf of its members. The transition period provided time for the UK and EU to negotiate a framework for
partnership for the future, which was then crystallized in the Trade and Cooperation Agreement (“TCA”) and became effective
on January 1, 2021. The TCA includes specific provisions concerning pharmaceuticals, which include the mutual recognition of GMP inspections
of manufacturing facilities for medicinal products and GMP documents issued but does not foresee wholesale mutual recognition of UK and
EU pharmaceutical regulations.
EU laws which have been transposed into UK law through secondary
legislation continue to be applicable as “retained EU law”. However, under the Retained EU Law (Revocation and Reform) Bill
2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic
law or extended by ministerial regulations (to no later than 23 June 2026) will automatically expire and be revoked by December 31, 2023.
In addition, new legislation such as the EU CTR or in relation to orphan medicines will not be applicable. The UK government has passed
a new Medicines and Medical Devices Act 2021, which introduces delegated powers in favor of the Secretary of State or an ‘appropriate
authority’ to amend or supplement existing regulations in the area of medicinal products and medical devices. This allows new rules
to be introduced in the future by way of secondary legislation, which aims to allow flexibility in addressing regulatory gaps and future
changes in the fields of human medicines, clinical trials and medical devices.
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As of January 1, 2021, the Medicines and Healthcare Products Regulatory
Agency (“MHRA”) is the UK’s standalone medicines and medical devices regulator. As a result of the Northern Ireland
protocol, different rules will apply in Northern Ireland than in England, Wales, and Scotland, together, Great Britain (“GB”);
broadly, Northern Ireland will continue to follow the EU regulatory regime, but its national competent authority will remain the MHRA.
The MHRA has published a guidance on how various aspects of the UK regulatory regime for medicines will operate in GB and in Northern
Ireland following the expiry of the Brexit transition period on December 31, 2020. The guidance includes clinical trials, importing, exporting,
and pharmacovigilance and is relevant to any business involved in the research, development, or commercialization of medicines in the
UK. The new guidance was given effect via the Human Medicines Regulations (Amendment etc.) (EU Exit) Regulations 2019 (the “Exit
Regulations”).
The MHRA has introduced changes to national licensing procedures,
including procedures to prioritize access to new medicines that will benefit patients, including a 150-day assessment and a rolling review
procedure. All existing EU MAs for centrally authorized products were automatically converted or grandfathered into UK MAs, effective
in GB (only), free of charge on January 1, 2021, unless the MA holder chose to opt-out. After Brexit, companies established in the UK
cannot use the centralized procedure and instead must follow one of the UK national authorization procedures or one of the remaining post-Brexit
international cooperation procedures to obtain an MA to commercialize products in the UK. For a period of three years from January 1,
2021, the MHRA may rely on a decision taken by the an Commission on the approval of a new (centralized procedure) MA when determining
an application for a GB authorization; or use the MHRA’s decentralized or mutual recognition procedures which enable MAs approved
in EU member states (or Iceland, Liechtenstein, Norway) to be granted in GB.
There will be no pre-MA orphan designation. Instead, the MHRA will
review applications for orphan designation in parallel to the corresponding MA application. The criteria are essentially the same, but
have been tailored for the market, i.e., the prevalence of the condition in GB, rather than the EU, must not be more than five in 10,000.
Should an orphan designation be granted, the period or market exclusivity will be set from the date of first approval of the product in
GB.
Data Privacy and Security Laws
Numerous state, federal and foreign laws, regulations, and standards
govern the collection, use, access to, confidentiality and security of health-related and other personal information, and could apply
now or in the future to our operations or the operations of our partners. In the United States, numerous federal and state laws and regulations,
including data breach notification laws, health information privacy and security laws and consumer protection laws and regulations govern
the collection, use, disclosure, and protection of health-related and other personal information. In addition, certain laws govern the
privacy and security of personal data, including health-related data in the EU/EEA and in other foreign jurisdictions. Privacy and security
laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can
result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Cybersecurity
In the normal course of business, we may collect and store personal
information and certain sensitive company information, including proprietary and confidential business information, trade secrets, intellectual
property, information regarding trial participants in connection with clinical trials, sensitive third-party information and employee
information. To protect this information, our existing cybersecurity policies require continuous monitoring and detection programs,
network security precautions, encryption of critical data, and in depth security assessment of vendors. We maintain various protections
designed to safeguard against cyberattacks, including firewalls and virus detection software. We have established and regularly test our
disaster recovery plan and we protect against business interruption by backing up our major systems. In addition, we periodically scan
our environment for any vulnerabilities, perform penetration testing and engage third parties to assess effectiveness of our data security
practices. A third party security consultant conducts regular network security reviews, scans and audits. In addition, we maintain insurance
that includes cybersecurity coverage.
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Our cybersecurity program is led by a team of highly skilled cybersecurity
professionals. The program incorporates industry-standard frameworks, policies and practices designed to protect the privacy and security
of our sensitive information (“SOPs”). In addition, we maintain business continuity and disaster recovery plans, conducted
penetration testing, maintain regular cyber security training to employees and conducted an internal audit on our cyber security preparedness
in 2022.
Despite the implementation of our cybersecurity program, our security
measures cannot guarantee that a significant cyberattack will not occur. A successful attack on our information technology systems could
have significant consequences to the business. While we devote resources to our security measures to protect our systems and information,
these measures cannot provide absolute security. See “Risk Factors – Risk Related to Healthcare Laws and Other Legal Compliance
Matters” for additional information about the risks to our business associated with a breach or compromise to our information technology
systems.
Manufacturing
The manufacturing of authorized drugs, for which a separate manufacturer’s
license is mandatory, must be conducted in strict compliance with the EMA’s cGMP requirements and comparable requirements of other
regulatory bodies, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure
their safety and proper identification. The EMA monitors compliance with its GMP requirements through mandatory registration of facilities
and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying
them out rests with the competent authority of the member state under whose responsibility the manufacturer falls. Failure to comply with
these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant
to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product,
injunctive action or possible civil and criminal penalties. In January 2013, the EU and Israel signed the Protocol on Conformity Assessment
and Acceptance of Industrial Products (the “ACAA”), which covers medicinal products. The ACAA provides for mutual recognition
of the conclusions of inspections of compliance of manufacturers and importers with the principles and guidelines of EU GMP and equivalent
Israeli cGMP. Certification of the conformity of each batch to its specifications by either the importer or the manufacturer established
in Israel or in the EU shall be recognized by the other party without re‑control at import from one party to the other.
Marketing and promotion
The marketing and promotion of authorized medicinal products, including
industry‑sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public,
are strictly regulated in the European Union, notably under Directive 2001/83 and subject to laws concerning promotion of medicinal products,
interactions with physicians, misleading and comparative advertising and unfair commercial practices. The applicable legislation aims
to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately
reflects the safety and efficacy claims authorized by the EMA or by the applicable national authority of the authorizing member state.
All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics, and
therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU.
Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are
governed by regulations in each member state and can differ from one country to another. Failure to comply with these requirements can
result in adverse publicity, warning letters, mandated corrective advertising and potential civil and criminal penalties.
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United States
Review and approval of biologics
In addition to E.U. regulations, NexoBrid is marketed as a biologic
product in the United States for eschar removal in adults with deep partial thickness and/or full thickness thermal burns and is therefore
subject to various U.S. regulations. In the United States, the FDA regulates biologics under the Federal, Food, Drug and Cosmetic Act
(“FDCA”), the Public Health Service Act, and their respective implementation regulations. Biologics require the submission
of a BLA and licensure by the FDA prior to being marketed in the United States. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial
time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process,
approval process or after approval may subject an applicant to a variety of administrative or judicial sanctions as well as enforcement
actions brought by the FDA, the U.S. Department of Justice or other governmental entities. Possible sanctions may include the FDA’s
refusal to approve pending BLAs or supplements, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters,
product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement and civil or criminal penalties.
The process required by the FDA prior to marketing and distributing
a biologic in the United States generally involves the following:
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completion of laboratory tests, animal studies and formulation studies in compliance
with the FDA’s GLP and GMP regulations, as applicable;
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submission to the FDA of an investigational new drug application (“IND”),
which must become effective before clinical trials may begin;
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approval by an independent institutional review board (“IRB”) at each
clinical site before each trial may be initiated; |
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performance of adequate and well‑controlled clinical trials in accordance with
GCP to establish the safety and efficacy of the product for each indication;
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preparation and submission to the FDA of a BLA;
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satisfactory completion of an FDA advisory committee review, if applicable;
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satisfactory completion of one or more FDA inspections of the manufacturing facility
or facilities at which the product, or components thereof, are produced to assess compliance with cGMP requirements, and to assure that
the facilities, methods and controls are adequate to preserve the product’s safety, purity and potency, and of selected clinical
investigation sites to assess compliance with GCP; and
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payment of user fees and FDA review and approval of the BLA to permit commercial marketing
of the product for particular indications for use in the United States.
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Preclinical studies
Preclinical studies include laboratory evaluation of product chemistry,
toxicity and formulation, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinical
safety tests must be conducted in compliance with FDA regulations regarding good laboratory practices. The results of the preclinical
tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND which must become effective
before clinical trials may commence. Some preclinical testing may continue even after the IND is submitted.
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Clinical trials in support of a BLA
Clinical trials involve the administration of an investigational
product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other
things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical
trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters
to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent
protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical
hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
In addition, an IRB representing each institution participating
in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must
conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol
and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information
about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination
on their website, ClinicalTrials.gov.
For purposes of BLA approval, clinical trials are typically conducted
in three sequential phases, which may overlap or be combined. In the United States, the three phases are generally described as follows:
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The investigational product is initially introduced into healthy human subjects or
patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion
and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
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The investigational product is administered to a limited patient population to identify
possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
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The investigational product is administered to an expanded patient population, generally
at geographically dispersed clinical trial sites, in well‑controlled clinical trials to generate enough data to statistically evaluate
the efficacy and safety of the product for approval, to establish the overall risk‑benefit profile of the product, and to provide
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In some cases, the FDA may require, or companies may voluntarily
pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase IV studies
may be made a condition to approval of the BLA.
Progress reports detailing the results of the clinical trials must
be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase I, Phase II and Phase III clinical
trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health
risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted
in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
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Submission of a BLA to the FDA
The results of the preclinical studies and clinical trials, together
with other detailed information, including information on the manufacture, control and composition of the product, are submitted to the
FDA as part of a BLA requesting approval to market the product candidate for a proposed indication. Under the Prescription Drug User Fee
Act (PDUFA), as amended, applicants are required to pay user fees to the FDA for reviewing a BLA. These user fees, as well as the annual
program fees required for approved products, can be substantial. Each BLA submitted to the FDA for approval is typically reviewed for
administrative completeness and reviewability within 60 days following submission of the application. If found complete, the FDA will
“file” the BLA, which triggers a full review of the application. The FDA may refuse to file any BLA that it deems incomplete
or not properly reviewable at the time of submission. The FDA’s established goals are to review and act on standard applications
within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after
the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended
by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product
is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the
product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application
review questions.
Before approving a BLA, the FDA generally inspects the facilities
at which the product is manufactured or facilities that are significantly involved in the product development and distribution process,
and will not approve the product unless cGMP compliance is satisfactory. Additionally, before approving a BLA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or
manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing
or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval. After the FDA evaluates a BLA and conducts inspections of manufacturing facilities
where the investigational product will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter
authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter
will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting
the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections,
testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions
that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification.
The FDA may deny approval of a BLA if applicable statutory or regulatory
criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any
application may include many delays or may never be granted. If a product is approved, the approval will impose limitations on the indicated
uses for which the product may be marketed, will require that warning statements be included in the product labeling, may impose additional
warnings to be specifically highlighted in the labeling (e.g., a Black Box Warning), which can significantly affect promotion and sales
of the product, may require that additional studies be conducted following approval as a condition of the approval and may impose restrictions
and conditions on product distribution, prescribing or dispensing. For example, the FDA may approve the BLA with a Risk Evaluation and
Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known
or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their
safe use. A REMS program may be required to include various elements, such as a medication guide or patient package insert, a communication
plan to educate healthcare providers of the drug’s risks, or other elements to assure safe use, such as limitations on who may prescribe
or dispense the drug, dispensing only under certain circumstances, special monitoring and the use of patient registries.
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Once a product is approved, marketing the product for other indicated
uses or making certain manufacturing or other changes requires FDA review and approval of a supplemental BLA or a new BLA, which may require
additional clinical data. In addition, further post‑marketing testing and surveillance to monitor the safety or efficacy of a product
may be required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing
problems occur following initial marketing. In addition, new government requirements may be established that could delay or prevent regulatory
approval of our product candidates under development.
Post‑approval requirements
Any biologic products for which we receive FDA approvals are subject
to pervasive continuing regulation by the FDA. Certain requirements include, among other things, record‑keeping requirements, reporting
adverse experiences with the product, providing the FDA with updated safety and efficacy information annually or more frequently for specific
events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying
with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct‑to‑consumer
advertising, prohibitions against promoting drugs for uses or in patient populations that are not described in the drug’s approved
labeling, known as “off‑label use,” and other promotional activities, such as those considered to be false or misleading.
Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials,
adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal
penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies. Although physicians may
prescribe legally available drugs for off‑label uses, manufacturers may not encourage, market or promote such off‑label uses.
As a result, “off‑label promotion” has formed the basis for litigation under the Federal False Claims Act, violations
of which are subject to significant civil fines and penalties.
The manufacturing of NexoBrid, EscharEx and our pipeline product
candidates are and will be required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations.
NexoBrid is manufactured at our production plant in Yavne, Israel, which is cGMP certified. The FDA’s cGMP regulations require,
among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive records and documentation.
Biologic manufacturers and other entities involved in the manufacture and distribution of approved drugs and biologics are also required
to register their establishments and list any products they make with the FDA and to comply with related requirements in certain states.
These entities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP
and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control
to maintain cGMP compliance. In addition, a BLA holder must comply with post‑marketing requirements, such as reporting of certain
adverse events. Such reports can present liability exposure, as well as increase regulatory scrutiny that could lead to additional inspections,
labeling restrictions or other corrective action to minimize further patient risk. Discovery of problems with a product after approval
may result in serious and extensive restrictions on the product, manufacturer or holder of an approved BLA, as well as lead to potential
market disruptions. These restrictions may include recalls, fines, warning letters, or untitled letters, clinical holds on clinical studies,
refusal of the FDA to approve pending applicants or supplements to approved applications, product seizure or detention, or refusal to
permit the import or export of products, suspension or revocation of a product license approval until the FDA is assured that quality
standards can be met, and continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes
the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the
market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of
changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review
and approval.
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The FDA also may impose a number of post‑approval requirements
as a condition of approval of a BLA. For example, the FDA may require post‑marketing testing, or Phase IV testing, as well
as REMS and/or surveillance to monitor the effects of an approved product or place other conditions on an approval that could otherwise
restrict the distribution or use of NexoBrid.
Orphan designation and exclusivity
On August 20, 2003, NexoBrid received orphan drug designation
in the United States. Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended
to treat a rare disease or condition, meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in
which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment
of the disease or condition will be recovered from sales of the product. A company must request orphan product designation before submitting
a BLA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation
does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product with orphan status receives the first FDA approval
for the disease or condition for which it has such designation, the product will be entitled to orphan product exclusivity. Orphan product
exclusivity means that FDA may not approve any other applications for the same product for the same disease or condition for seven years,
except in certain limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Competitors
may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for
the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing
authorization for an indication broader than that designated in its orphan product application, it may not be entitled to exclusivity.
In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation
was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients
with the rare disease or condition.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs
for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing new products
that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat a serious
or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast
track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of
a fast track product has opportunities for frequent interactions with the review team during product development and, once a BLA is submitted,
the product may be eligible for priority review. A fast track product may also be eligible for rolling review, where the FDA may consider
for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for
the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable,
and the sponsor pays any required user fees upon submission of the first section of the BLA.
A product intended to treat a serious or life-threatening disease
or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough
therapy designation if preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early
as Phase I and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.
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Any marketing application for a biologic submitted to the FDA for
approval, including a product with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of
FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is
eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of
a serious disease or condition compared to marketed products. For products containing new molecular entities, priority review designation
means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, compared with ten
months under standard review.
Additionally, products studied for their safety and effectiveness
in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product
has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured
earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality
or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative
treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled
post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical
benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which
could adversely impact the timing of the commercial launch of the product.
In 2017, FDA established a new regenerative medicine advanced therapy,
or RMAT, designation as part of its implementation of the 21st Century Cures Act, which was signed into law in December 2016. To qualify
for RMAT designation, the product candidate must meet the following criteria: (1) it qualifies as a RMAT, which is defined as a cell
therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products,
with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition;
and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease
or condition. Like fast track and breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent
meetings with FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Products
granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably
likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion
to additional sites. Once approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval
through the submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence such as electronic
health records; through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with
the therapy prior to approval.
Fast track designation, breakthrough therapy designation, priority
review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development or approval
process.
Pediatric studies and exclusivity
Under the Pediatric Research Equity Act of 2003, a BLA or supplement
thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in
all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product
is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline
of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver
requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then
review the information submitted, consult with each other and agree upon a final plan. The FDA or the applicant may request an amendment
to the plan at any time.
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The FDA may, on its own initiative or at the request of the applicant,
grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial
waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension
of deferrals are contained in the FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products
with orphan designation.
Separately, in the event the FDA issues a Written Request for pediatric
data relating to a product, a BLA sponsor who submits such data may be entitled to pediatric exclusivity. Pediatric exclusivity is another
type of non‑patent marketing exclusivity in the United States which, if granted, provides for the attachment of an additional six
months of marketing protection to the term of any existing exclusivity, including other non‑patent and orphan exclusivity. This
six‑month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to the Written Request from the
FDA for such data. The data do not need to show that the product is effective in the pediatric population studied; rather, if the clinical
trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric
studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity
or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the
regulatory period during which the FDA cannot accept or approve another application.
The Animal Rule
In the case of product candidates that are intended to treat certain
rare life-threatening diseases, conducting controlled clinical trials to determine efficacy may be unethical or unfeasible. Under regulations
issued by the FDA in 2002, often referred to as the “Animal Rule”, the approval of such products can be based on clinical
data from trials in healthy human subjects that demonstrate adequate safety and efficacy data from adequate and well-controlled animal
studies. Among other requirements, the animal studies must establish that the drug or biological product is reasonably likely to produce
clinical benefits in humans. Because the FDA must agree that data derived from animal studies may be extrapolated to establish safety
and effectiveness in humans, seeking approval under the Animal Rule may add significant time, complexity and uncertainty to the testing
and approval process. In addition, products approved under the Animal Rule are subject to additional requirements including post-marketing
study requirements, restrictions imposed on marketing or distribution or requirements to provide information to patients.
Patent term restoration and extension
A patent claiming a new drug product may be eligible for a limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch‑Waxman Act”),
which permits a patent restoration of up to five years for the patent term lost during product development and the FDA regulatory review.
The restoration period granted is typically one‑half the time between the effective date of an IND and the submission date of a
BLA, plus the time between the submission date of a BLA and the ultimate approval date. Patent term restoration cannot be used to extend
the remaining term of a patent past a total of fourteen years from the product’s approval date. Only one patent applicable to an
approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of
the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of
the approvals. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration
in consultation with the FDA.
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Biosimilars and reference product exclusivity
The Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act (collectively, the “ACA”), which was signed into law in 2010, includes a subtitle
called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway
for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product.
Biosimilarity, which requires that there be no clinically meaningful
differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical
studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product
and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient
and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or
switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive
use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products,
as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval
pathway that are still being worked out by the FDA.
Under the BPCIA, an application for a biosimilar product may not
be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the
approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was
first licensed. During this 12‑year period of exclusivity, another company may still market a competing version of the reference
product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate
and well‑controlled clinical trials to demonstrate the safety, purity and potency of their product.
The BPCIA also created certain exclusivity periods for biosimilars
approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA
will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law. The BPCIA is complex and continues to be
interpreted and implemented by the FDA. In addition, recent government proposals have sought to reduce the 12‑year reference product
exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject
of recent litigation. As a result, the ultimate impact, implementation, and meaning of the BPCIA remains subject to significant uncertainty.
Review and Approval of Drug Products Outside
the European Union and the United States
In addition to the above regulations, we must obtain approval of
a product by the comparable regulatory authorities of foreign countries outside of the European Union and the United States before we
can commence clinical trials or marketing of NexoBrid in those countries. The approval process varies from country to country and the
time may be longer or shorter than that required for FDA or EU approval. In addition, the requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted
in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration
of Helsinki.
If we fail to comply with applicable regulatory requirements, we
may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution.
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Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement
status of any products for which we obtain regulatory approval. In the United States, EU and other markets, sales of any products for
which we receive regulatory approval for commercial sale will depend to a large extent on the availability of reimbursement from third‑party
payors. Third‑party payors include governments, government health administrative authorities, managed care providers, private health
insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate
from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third‑party payors may
limit coverage to specific drug products on an approved list, or formulary, which might not include all of the drug products approved
for a particular indication by the FDA, European Commission or National Ministries of Health. Third‑party payors are increasingly
challenging the price and examining the medical necessity and cost‑effectiveness of medical products and services, in addition to
their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and
cost‑effectiveness of NexoBrid, in addition to the costs required to obtain the FDA or other Ministry of Health approvals. Additionally,
NexoBrid may not be considered medically necessary or cost‑effective. A payor’s decision to provide coverage for a drug product
does not guarantee that an adequate reimbursement rate will be approved. Adequate third‑party reimbursement may not be available
to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In the United States, the ACA substantially changed the way healthcare
is financed by both governmental and private insurers and significantly impacted the pharmaceutical industry. The ACA contains a number
of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse provisions,
which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment
for performance initiatives and improvements to the physician quality reporting system and feedback program. Additionally, the ACA:
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increases the minimum level of Medicaid rebates payable by manufacturers of brand‑name
drugs from 15.1% to 23.1%;
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requires collection of rebates for drugs paid by Medicaid managed care organizations;
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imposes a non‑deductible annual fee on pharmaceutical manufacturers or importers
who sell certain “branded prescription drugs” to specified federal government programs. |
Since its enactment, there have been judicial, executive and congressional
challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the
ACA brought by several states without specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain in effect in
its current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order that initiated a special
enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace from February 15, 2021 through August
15, 2021. The executive order instructed certain governmental agencies to review and reconsider their existing policies and rules that
limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work
requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
There has been heightened governmental scrutiny recently over the
manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and
proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drug products. . In March 2021, the
American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of
a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In August
2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain
drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes
rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces
the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department
of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
For that and other reasons, it is currently unclear how the IRA will be effectuated, or the impact of the IRA on our business. We expect
that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S.
federal government will pay for healthcare products and services, which could result in reduced demand for our products or additional
pricing pressures. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
80
In the EU, pricing and reimbursement schemes vary widely from country
to country and often within regions or provinces of countries. Some countries may limit the annual budget of coverage or request that
the company participate in the cost above certain use levels or for treatments perceived as unsuccessful and impose monitoring processes
on the use of the product. Some countries and hospitals may require inclusion into the hospital formulary for payment from the hospital
budget. Some countries and hospitals may require the completion of additional studies that compare the cost‑effectiveness of a particular
drug candidate to currently available therapies. For example, the EU provides options for its member states to restrict the range of medicinal
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. This Health Technology Assessment (“HTA process”) which is currently governed by the national laws of the individual
EU member states, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic
and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. The
outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal
products by the competent authorities of individual EU Member States. On December 15, 2021, the Health Technology Regulation (“HTA
Regulation”) was adopted. The HTA Regulation is intended to boost cooperation among EU member states in assessing health technologies,
including new medicinal products, and providing the basis for cooperation at EU level for joint clinical assessments in these areas. When
it enters into application in 2025, the HTA Regulation will be intended to harmonize the clinical benefit assessment of HTA across the
EU.
Further, EU member states may approve a specific price for a drug
product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the
market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward
pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers
are being erected to the entry of new products. In addition, in some countries, cross‑border imports from low‑priced markets
exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations
for drug products may not allow favorable reimbursement and pricing arrangements. Historically, products launched in the EU do not follow
price structures of the United States and generally prices tend to be significantly lower.
81
Healthcare Law and Regulation
Healthcare providers, physicians and third‑party payors play
a primary role in the recommendation and prescription of drug products that are granted marketing authorization. Arrangements with healthcare
providers, third‑party payors and other customers are subject to broadly applicable fraud and abuse and other healthcare laws and
regulations. Such restrictions under applicable federal, state and foreign healthcare laws and regulations, include the following:
|
|
• |
the federal healthcare Anti‑Kickback Statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for
which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does
not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation;
|
|
|
• |
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims
for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
|
|
|
• |
HIPAA, imposes criminal and civil liability for executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters;
|
|
|
• |
the federal false statements statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare
benefits, items or services;
|
|
|
• |
the federal physician payment transparency requirements under the Affordable Care
Act require certain manufacturers of drugs, devices and medical supplies to report to Centers for Medicare Medicaid Services information
related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors),
certain other non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals and physician ownership
and investment interests;
|
|
|
• |
analogous state and foreign laws and regulations, such as state anti‑kickback
and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non‑governmental
third‑party payors, including private insurers.
|
Violations of any of these laws or any other governmental laws
and regulations that may apply include, without limitation, significant civil, criminal and administrative penalties, damages, fines,
imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual
damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.
Some state laws require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or
marketing expenditures. Additionally, certain state and local laws require the registration of pharmaceutical sales representatives.
82
Environmental, Health and Safety Matters
We are subject to extensive environmental, health and safety laws
and regulations in a number of jurisdictions, primarily Israel, governing, among other things: the use, storage, registration, handling,
emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; air emissions and the
cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals,
waste materials and sewage. Our operations at our Yavne manufacturing facility use chemicals and produce waste materials and sewage. Our
activities require permits from various governmental authorities including, local municipal authorities, the Ministry of Environmental
Protection and the Ministry of Health. The Ministry of Environmental Protection and the Ministry of Health, local authorities and the
municipal water and sewage company conduct periodic inspections in order to review and ensure our compliance with the various regulations.
These laws, regulations and permits could potentially require the
expenditure by us of significant amounts for compliance or remediation. If we fail to comply with such laws, regulations or permits, we
may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary
to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third‑party
claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture
or dispose of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several
liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments
could have a material adverse effect on our business, financial condition and results of operations.
In addition, laws and regulations relating to environmental, health
and safety matters are often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance
measures or to penalties for activities which were previously permitted. For instance, new Israeli regulations were promulgated in 2012
relating to the discharge of industrial sewage into the sewer system. These regulations establish new and potentially significant fines
for discharging forbidden or irregular sewage into the sewage system.
Properties
Our principal executive offices are located at 42 Hayarkon Street,
Yavne 8122745, Israel. We lease these facilities from our largest shareholder, Clal Life Sciences, L.P. (“CLS”), pursuant
to a sub‑lease agreement, as amended, that expires on October 30, 2025. The facilities consist of approximately 32,300 square feet
of space, and the yearly lease fee is approximately $578,000. These facilities house our administrative headquarters, our research and
development laboratories and our manufacturing plant.
C. Organizational
Structure
The legal name of our company is MediWound Ltd. and we are organized
under the laws of the State of Israel. Our corporate structure consists of MediWound Ltd., our Israeli parent company, (i) MediWound Germany
GmbH, our active wholly‑owned subsidiary, which was incorporated on April 16, 2013 under the laws of the Federal Republic of Germany
(ii) MediWound US, Inc., which was incorporated on December 8, 2020 under the laws of the State of Delaware and (iii) MediWound UK Limited,
our inactive wholly‑owned subsidiary, which was incorporated on July 26, 2004 under the laws of England.
D. Property,
Plants and Equipment
See “ITEM 4.B. Business Overview—Properties”,
“ITEM 4.B. Business Overview—Manufacturing, Supply and Production” and “ITEM 4.B. Business Overview—Environmental,
Health and Safety Matters”.
83
Item 4A. UNRESOLVED STAFF
COMMENTS
None.
Item 5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
A. Operating
Results
The information contained in this section should
be read in conjunction with our consolidated financial statements for the year ended December 31, 2022 and related notes, and the information
contained elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS, as issued by the IASB.
Company Overview
We are a biopharmaceutical company that develops, manufactures,
and commercializes novel, cost effective, bio‑therapeutic, non-surgical solutions for tissue repair and regeneration. Our strategy
leverages our breakthrough enzymatic technology platform into diversified portfolio of biotherapeutics across multiple indications to
pioneer solutions for unmet medical needs. Our current portfolio is focused on next-generation protein-based therapies for burn care,
wound care and tissue repair.
Our first innovative biopharmaceutical product, NexoBrid®,
has received marketing authorization from the FDA and marketing authorization from the European Medicines Agency (the “EMA”)
and other international markets for removal of dead or damaged tissue, known as eschar, in adults with deep partial-thickness and full-thickness
thermal burns, also referred to as severe burns. NexoBrid, a concentrate of proteolytic enzymes enriched in bromelain, represents a new
paradigm in burn care management, and our clinical trials have demonstrated, with statistical significance, its ability to non‑surgically
and rapidly remove the eschar, without harming viable tissues, earlier relative to existing standard of care.
We commercialize NexoBrid globally through multiple sales channels.
We sell NexoBrid to burn centers in the European Union, United Kingdom and Israel, primarily through our direct sales force, focusing
on key burn centers and KOLs. In the United States, we entered into exclusive license and supply agreements with Vericel Corporation (Nasdaq:
VCEL) to commercialize NexoBrid in North America. We have established local distribution channels in multiple international markets, focusing
on Asia Pacific, EMEA, CEE and LATAM, which local distributors are also responsible for obtaining local marketing authorization within
the relevant territories.
We have been awarded two contracts with the U.S. Biomedical Advanced
Research and Development Authority ("BARDA"), for the advancement of the development and manufacturing, as well as the procurement of
NexoBrid which has initiated on January 2020, as a medical countermeasure as part of BARDA preparedness for mass casualty events.
In September 20, 2022, we announced that that the EMA has validated
for review the Type II Variation submitted by MediWound to expand the current approved indication for NexoBrid (removal of eschar in adults
with deep partial-thickness and full-thickness thermal burn wounds) into the pediatric population. MediWound expects a decision from the
European Commission in the first quarter of 2023.
EscharEx, our next-generation enzymatic therapy under development,
is a topical biological drug candidate for the debridement of chronic and other hard-to-heal wounds. Designed for the outpatient setting,
EscharEx is an easy-to-use concentrate of proteolytic enzymes enriched in bromelain; having the same API as NexoBrid. In several Phase
II trials, EscharEx was shown to be well-tolerated and demonstrated safety and efficacy in the debridement of various chronic and other
hard-to-heal wounds with only few daily applications. EscharEx’s mechanism of action is mediated by the proteolytic enzymes that
cleave and remove the necrotic tissue and prepare the wound bed for healing.
84
On May 12, 2022, we announced positive results from our U.S. Phase
II clinical study of EscharEx for the debridement of VLUs. The study met its primary endpoint with a high degree of statistical significance,
demonstrating that patients treated with EscharEx had a statistically significant higher incidence of complete debridement during the
14-day measurement period within up to 8 applications, compared to gel vehicle (EscharEx: 63% (29/46) vs. gel vehicle: 30% (13/43), p-value=0.004).
EscharEx efficacy superiority remained statistically significant after adjusting for pre-specified covariates ascribed to patient baseline
characteristics, wound size, wound age and regions.
The study met key secondary and exploratory endpoints. Patients
treated with EscharEx had a statistically significant higher incidence of complete debridement, during the same 14-day measurement period,
compared to patients treated by non-surgical standard-of-care ("NSSOC") (EscharEx: 63% (29/46) vs. NSSOC: 13% (4/30)) and the time to
achieve complete debridement was significantly shorter. Estimated median time to complete debridement was 9 days for patients treated
with EscharEx and 59 days for patients treated with NSSOC (p-value=0.016). On average, complete debridement was achieved after 3.6 applications
of EscharEx compared to 12.8 applications with NSSOC. Patients treated with EscharEx demonstrated significantly higher incidence of at
least 75% granulation tissue at the end of the treatment period compared to gel vehicle (p-value 0.0001). Favorable trends were observed
in wound area reduction and reduction of pain compared to gel vehicle.
In addition, the study showed that EscharEx was safe and well tolerated, and the overall
safety was comparable between the arms as assessed by the data safety monitoring board. Importantly, there were no observed deleterious
effects on wound closure and no material differences in reported adverse events. Estimated time to complete wound closure was 64 days
for patients treated with EscharEx compared to 78 days for patients treated with NSSOC.
EscharEx was also evaluated in a U.S. Phase II pharmacology study.
The study was prospective, open label, single-arm and conducted at three U.S. clinical sites. On July 7, 2022, we announced positive results
from this study. 70% of patients achieved complete debridement during the course of treatment within up to 8 applications. On average,
complete debridement was achieved after 3.9 applications of EscharEx. Additionally, an average reduction of 35% in wound size was achieved
by the end of the 2-week follow-up period. In all patients that were positive for biofilm at baseline, the biofilm was reduced substantially
to single individual microorganisms or completely removed by the end of treatment. Seven patients had positive red fluorescence (indicative
of bacteria) at baseline and average red fluorescence was reduced from 1.69 cm2 pre-treatment to 0.60 cm2 post treatment. Biomarker analysis
from wound fluid is on-going and safety data shows that EscharEx is safe and well-tolerated.
Our third innovative product candidate, MW005, is a topically
applied biological drug candidate for the treatment of non-melanoma skin cancers, based on the same API as NexoBrid and EscharEx (a concentrate
of proteolytic enzymes enriched in bromelain). In July 2021, we initiated a phase I/II study of MW005 for the treatment of low-risk BCC.
On July 11, 2022, we announced positive initial data from this study. In the first cohort, eleven patients with either superficial or
nodular BCC were treated. Patients enrolled into the study received seven topical applications of MW005, once every other day. At the
end of eight weeks post treatment period, all patients undergo complete excision, and the specimen is subject to an independent histological
clearance examination. Based on the data generated to date, MW005 is safe, well-tolerated and an effective treatment for BCC with a majority
of patients who completed the study demonstrating a complete histological clearance of target lesions. We anticipate announcing the final
results in the third quarter of 2023.
We manufacture NexoBrid and our product candidates in our cGMP
certified sterile manufacturing facility at our headquarters in Yavne, Israel.
85
As of December 31, 2022, we had cash and
cash equivalents of $33.9 million. Our revenues were $26.5 million and $23.8 in 2022 and 2021, respectively. Our net operating loss was
$8.3 million and $11.2 in 2022 and 2021, respectively. We had an accumulated deficit of $168.1 million as of December 31, 2022. We expect
to incur significant expenses and operating losses for the foreseeable future, as research and development activities are central to our
operations, which will offset by cash inflows from NexoBrid.
We expect to continue to invest in our research and development
efforts, including in respect of our NexoBrid ongoing clinical trials which are fully funded by BARDA, as well as the clinical development
and trials of EscharEx, MW005 and our other pipeline product candidates. In addition, we expect to continue to advance NexoBrid as a standard
of care, and expand its commercial reach in international markets, including for potential use as a medical countermeasure during mass
casualty events.
Key Components of Statements of Operations
Revenues
Sources of revenues. We
derive revenues from sales of NexoBrid to burn centers and hospitals burn units in Europe and Israel as well as to local distributors
in other countries in accordance with distribution agreements we have in place, which also include revenues from licenses. We generate
revenues from BARDA procurement of NexoBrid for emergency stockpile pursuant to BARDA contract.
We generate revenues from development services provided to BARDA.
Our ability to generate additional, more significant revenues will
depend on the successful commercialization of NexoBrid.
Cost of Revenues
Our total cost of revenues includes expenses for the manufacturing
of NexoBrid, including: the cost of raw materials; employee‑related expenses, including salaries, equity based‑compensation
and other benefits and related expenses, lease payments, utility payments, depreciation, changes in inventory of finished products,
royalties and other manufacturing expenses. These expenses are partially reduced by an allotment of manufacturing costs associated with
research and development activities to research and development expenses.
Cost of revenues includes costs associated with the research and
development services provided to BARDA and MTEC, including salaries and related expenses, clinical trials, sub‑contractors
and external advisors.
We expect that our cost of revenues from sale of products
will continue to increase as we expand the sale of NexoBrid throughout the European Union, the United States and other international markets.
Operating Expenses
Research and Development Expenses
Research and development activities are central to our business
model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages
of clinical development, primarily due to the increased size and duration of later‑stage clinical trials. We expect research and
development costs to increase significantly for the foreseeable future as EscharEx progresses in its clinical program in the U.S. and
our other pipeline product candidates' progress in clinical trials. However, we do not believe that it is possible at this time to accurately
project total program‑specific expenses to reach commercialization. There are numerous factors associated with the successful development
of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined
with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control
will affect our clinical development programs and plans. Our actual spending could differ as our plans change and we invest in other
drugs or potentially reduce our anticipated funding on research for existing products.
86
Research and development expenses consist primarily of compensation
for employees engaged in research and development activities, including salaries, equity‑based compensation, benefits and related
expenses, clinical trials, contract research organization sub‑contractors, development materials, external advisors and the
allotted cost of our manufacturing facility for research and development purposes.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of compensation
expenses for personnel engaged in sales and marketing, including salaries, equity based‑compensation and benefits and related expenses,
as well as promotion, marketing, market access, medical, and sales and distribution activities. These expenses are primarily comprised
of costs related to our subsidiary in Germany, which is focused on marketing NexoBrid in E.U., and costs related to maintain marketing
authorization.
General and Administrative Expenses
General and administrative expenses consist principally of compensation
for employees in executive and administrative functions, including salaries, equity‑based compensation, benefits and other related
expenses, professional consulting services, including legal and audit fees, as well as costs of office and overhead. We expect general
and administrative expenses to remain stable.
Financial Income/Financial Expense
Financial income includes interest income, revaluation of financial
instruments and exchange rate differences. Financial expense consists primarily of revaluation of financial instruments, financial expenses
in respect of deferred revenue, revaluation of lease liabilities and exchange rate differences. The market interest due on government
grants received from the IIA is also considered a financial expense, and is recognized beginning on the date we receive the grant until
the date on which the grant is expected to be repaid as part of the revaluation to fair value of liabilities in respect of government
grants.
Taxes on Income
The standard corporate tax rate in Israel is 23%.
We do not generate taxable income in Israel, as
we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $157 million as of December
31, 2022. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not
expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.
Under the Law for the Encouragement of Capital Investments, 5719‑1959
(the “Investment Law”), we have been granted “Beneficiary Enterprise” status, which provides certain benefits,
including tax exemptions and reduced corporate tax rates. Income not eligible for Beneficiary Enterprise benefits is taxed at the regular
corporate tax rate. The benefit entitlement period starts from the first year that the Beneficiary Enterprise first earns taxable income,
and is limited to 12 years from the year in which the company requested to have tax benefits apply.
87
Comparison of Period to Period Results of Operations
We are providing within this section a supplemental
discussion that compares our historical statement of operations data in accordance with IFRS, as issued by the IASB. The below table and
the below discussion provides data for each of the years ended December 31, 2022 and 2021. The below discussion of our results of
operations omits a comparison of our results for the years ended December 31, 2020 and 2021. In order to view that discussion, please
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results— Comparison
of Period to Period Results of Operations— Year Ended December 31,
2020 Compared to Year Ended December 31, 2021” in our Annual Report on Form 20-F for the year ended December 31, 2021, which
we filed with the SEC on March 25, 2022.
|
Years Ended December 31, |
||||||||
|
2022 |
2021 | |||||||
|
(in thousands) |
||||||||
|
Condensed statements of operations data:
|
||||||||
|
Revenues |
$ |
26,496 |
$ |
23,763 |
||||
|
Cost of revenues
|
13,331 |
14,992
|
||||||
|
Gross profit
|
13,165 |
8,771
|
||||||
|
Operating expenses: |
||||||||
|
Research and development
|
10,181 |
10,256
|
||||||
|
Selling and marketing
|
3,725 |
3,388
|
||||||
|
General and administrative
|
6,920 |
6,348
|
||||||
|
684 |
- |
|||||||
|
Other expenses |
||||||||
|
Operating loss
|
(8,345 |
) |
(11,221 |
) | ||||
|
Financial expenses, net
|
(11,176 |
) |
(2,303 |
) | ||||
|
Loss before taxes on income
|
(19,521 |
) |
(13,524 |
) | ||||
|
Tax expenses |
(78 |
) |
(27 |
) | ||||
|
Net loss
|
$ |
(19,599 |
) |
$ |
(13,551 |
) | ||
88
Year Ended December 31, 2021 Compared to Year Ended December 31,
2022
Revenues
|
Years Ended December 31, |
||||||||
|
2022 |
2021 | |||||||
|
(in thousands) |
||||||||
|
Revenues from sale of products |
$ |
5,347 |
$ |
9,613 |
||||
|
Revenues from development services |
12,943 |
12,372
|
||||||
|
Revenues from license agreements |
8,206 |
1,778
|
||||||
|
|
26,496 |
23,763
|
||||||
We generated total revenues of approximately $26.5 million
for the year ended December 31, 2022 compared to approximately $23.8 million for the year ended December 31, 2021. Revenues from products
in 2022 were $5.3 million, a 44% decrease compared to $9.6 million in 2021. This was primarily the result of BARDA's $4.3 million decrease
in emergency stockpile procurement. Revenues from licenses in 2022 were $8.2 million compared to $1.8m in 2021, driven by the BLA
approval milestone.
Revenues from sale of products
Revenues from sales of products in 2022 were $5.3 million, a 44%
decrease compared to $9.6 million in 2021. This was primarily the result of BARDA's $4.3 million decrease in emergency stockpile procurement.
Revenues from development services
Revenues from development services increased 5% from $12.4 million in 2021 to $12.9
million in 2022.
Revenues from license agreement
In 2022, revenues from licenses were $8.2 million compared to $1.8m
in 2021, driven by the BLA approval milestone of $7.5 million from Vericel.
89
Our revenues, as reported in our consolidated financial statements,
are based on the location of the customers, as shown in the below table:
|
Years Ended December 31, |
||||||||
|
2022 |
2021 |
|||||||
|
(in thousands) |
||||||||
|
International (excluding U.S.) |
$ |
4,624 |
$ |
5,661 |
||||
|
U.S. |
21,872 |
18,102 |
||||||
|
|
26,496 |
23,718 |
||||||
BARDA contributed 51% and 76% of our total revenues in 2022 and 2021, respectively.
Vericel contributed 28% of our total revenues in 2022.
Costs and Expenses
Cost of revenues
|
Years Ended December 31, |
||||||||
|
2022 |
2021 |
|||||||
|
(in thousands) |
||||||||
|
Cost of revenues from sales of products |
$ |
3,184 |
$ |
4,983 |
||||
|
Cost of revenues from development services |
9,829 |
9,907
|
||||||
|
Cost of revenues from license agreements |
318 |
102
|
||||||
|
|
13,331 |
14,992
|
||||||
Cost of revenues as a percentage of total revenues decreased from
63% for 2021 to 50% for 2022.
Cost of revenues from sales of products as a percentage of revenues
from sales of products increased to approximately 60% for the year ended December 31, 2022 from approximately 52% in the year
ended December 31, 2021. The increase of cost of revenues from sales of product is primarily driven by BARDA procurement for emergency
response preparedness.
Cost of revenues from development services as a percentage of revenues
from development services was approximately 76% in the year ended December 31, 2022 compared to approximately 80% in the year
ended December 31, 2021.
Cost of revenues from license agreements as a percentage of revenues
from license agreements were 4% in the year ended December 31, 2022, due to costs associated with royalties’ payments
pursuant to a license agreement with Mark Klein un regard to Vericel milestone payment.
Research and development expenses,
Research and development expenses decreased by 1% from approximately
$10.3 million in the year ended December 31, 2021 to approximately $10.2 million in the year ended December 31, 2022.
Selling and marketing expenses
Selling and marketing expenses increased by 10% in 2022 compared
to 2021, from approximately $3.4 million in the year ended December 31, 2021 to approximately $3.7 million in the year ended
December 31, 2022.
90
General and administrative expenses
General and administrative expenses increased 9% in 2022 compared
to 2021 from approximately $6.3 million in the year ended December 31, 2021 to approximately $6.9 million in the year ended December 31,
2022. The increase in general and administrative expenses was primarily a result of one-time expenses related to the BLA approval and
management changes in mid-2022.
Other expenses
Other one-time expenses for the year ended December 31, 2022 were $0.7 million
associated with management replacement and Vericel milestone payment fee.
|
Financial income, net |
Years Ended December 31,
|
|||||||
| |
2022
|
2021 |
||||||
|
|
(in thousands)
|
|||||||
|
Financial income |
$ |
461 |
$ |
11 |
||||
|
Financial expenses |
(11,637 |
) |
(2,314 |
) | ||||
|
|
(11,176 |
) |
(2,303 |
) | ||||
Financial income
Financial income increased from approximately $0
million in the year ended December 31, 2021 to approximately $0.5 million in the year ended December 31, 2022. The increase was primarily
driven by $0.3 million of interest income from short‑term banks deposits.
Financial expense
Financial expenses increased from approximately $2.3 million in
the year ended December 31, 2021 to approximately $11.2 million in the year ended December 31, 2022. The increase in financial
expenses was primarily driven by $10.9 million of revaluation and issuance expenses related to our issues and outstanding warrants.
B. Liquidity
and Capital Resources
Our primary uses of cash are to fund working capital requirements,
manufacturing costs, research and development expenses of EscharEx and other products candidates, as well as sales and marketing activities
associated with the commercialization of NexoBrid in Europe.
In February 2020, we entered into an Open Market Sales Agreement
with Jefferies LLC to issue and sell our ordinary shares with gross sales proceeds of up to $15 million, from time to time, through an
at the market offering under which Jefferies LLC will act as our sales agent. As of the date hereof, we have not issued or sold any ordinary
shares pursuant to the Open Market Sales Agreement.
Under our current shelf registration statement
on Form F-3 declared effective by the SEC on June 3, 2022, we may offer from time to time up to $125 million in the aggregate of our ordinary
shares, warrants and/or debt securities in one or more series or issuances. As of the date hereof, we have issued approximately $40.76
million of our ordinary shares pursuant to the F-3, including $13.26 million of ordinary shares the RD Offering (as defined below) and
$27.5 million of ordinary shares in the 2023 Offering (as defined below).
91
Funding under the BARDA contracts is classified under cash use
for continuing operating activities.
As of December 31, 2022, we had $33.9 million of
cash, cash equivalents. Our net operating loss was $8.3 million and $11.2 million for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, we had an accumulated deficit of $157 million. We expect to incur significant expenses and operating losses for
the foreseeable future. The net losses we will incur may fluctuate from quarter to quarter.
Our capital expenditures for fiscal years 2022
and 2021 amounted to $0.6 million and $0.5 million, respectively. Capital expenditures consist primarily of investments in manufacturing
equipment and leasehold improvements.
In March 2022, we entered into an underwriting
agreement with Oppenheimer Co., Inc., a representative of the several underwriters (the “Underwriters”), relating to
the issuance and sale of an aggregate of 744,048 of our ordinary shares at a price per share equal to $13.44. Total gross proceeds
of the offering was approximately $10 million. The offering closed on March 7, 2022 and we received approximately $8.6 million in net
proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Certain entities affiliated with
Clal Biotechnology Industries Ltd. (“CBI”) purchased approximately $2.8 million of ordinary shares in the offering at the
public offering price. The Underwriters received the same underwriting discount on the shares purchased by these entities as they will
on any other shares sold to the public in this offering. The securities purchased by these entities are subject to lock-up agreements
with the Underwriters. We also granted the underwriters a 30-day option to purchase up to an additional 89,012 ordinary shares at the
public offering price, less underwriting discounts and commissions.
On September 22, 2022, we entered into a Securities Purchase Agreement
with the several purchasers listed on the signature pages thereto (the “2022 Purchasers”), in connection with the offer and
sale of 1,082,223 of our ordinary shares, (the “2022 RD Securities Purchase Agreement”) and, pursuant to the RD Securities
Purchase Agreement, we also agreed to issue to the 2022 Purchasers 1,082,223 unregistered ordinary warrants (the “RD Warrants”)
to purchase up to 1,082,223 Ordinary Shares (the “2022 RD Offering”). The combined purchase price of for one ordinary share
and associated RD Warrant was $12.25. The RD Warrants have an exercise price of $13.475 per ordinary share and became exercisable on November
28, 2022 for four years. The 2022 RD Offering closed on September 26, 2022. The gross proceeds from the 2022 RD Offering were approximately
$13.26 million. As of December 31, 2022, none of the RD Warrants have been exercised.
Concurrently with the signing of the 2022 RD Securities
Purchase Agreement, we entered the PIPE Securities Purchase Agreement with the several purchasers listed on the signature pages thereto
(the “PIPE Purchasers”), in connection with the offer and sale of 1,407,583 pre-funded warrants to purchase up to 1,407,583
Ordinary Shares (the “Pre-Funded Warrants”) and 1,407,583 ordinary warrants to purchase up to 1,407,583 Ordinary Shares (the
“PIPE Ordinary Warrants,” and together with the Pre-Funded Warrants, the “PIPE Warrants”) (the “PIPE Offering”).
The combined purchase price for one Pre-Funded Warrant and associated PIPE Ordinary Warrant was $12.243. The Pre-Funded Warrants have
an exercise price of $0.007 per Ordinary Share and the PIPE Ordinary Warrants have an exercise price of $13.475 per Ordinary Share and
each become exercisable on November 28, 2022. The PIPE Offering closed on October 6, 2022. The gross proceeds from the PIPE Offering
were approximately $17.23 million. As of December 31, 2022, all Pre-Funded Warrants have been exercised and none of the PIPE Ordinary
Warrants have been exercised.
H.C. Wainwright Co., LLC (“Wainwright”)
acted as the exclusive placement agent for the RD Offering and the PIPE Offering (together, the “2022 Offerings”). Upon closing
of the Offerings, we issued Wainwright (or its designees) the warrants to purchase up to 124,491 ordinary shares (the “Wainwright
Warrants”). The warrants have substantially the same terms as the RD Warrants and the Series A Warrants, except that the Wainwright
Warrants have an exercise price equal to $15.3125 per share (which represents 125% of the offering price per Ordinary Share in the Offerings)
and will expire four (4) years after November 28, 2022, but no more than five (5) years following the commencement of the sales pursuant
to the RD Offering.
92
On February 3, 2023, we entered into a securities purchase agreement
(the “2023 Securities Purchase Agreement”) with the purchasers listed on the
signature pages thereto (the “2023 Purchasers”), in connection with the offer
and sale of 1,964,286 ordinary shares (the “2023 Offering”). The purchase
price per ordinary share was $14.00. The 2023 Offering closed on February 7, 2023. The gross proceeds from the Offering were approximately
$27.5 million.
Our future capital requirements will depend on many factors, including
our revenue growth, timing of milestone payments, the timing and extent of our spending on research and development efforts, and international
expansion. We may also seek to invest in or acquire complementary businesses or technologies. To the extent that existing cash and cash
from operations are insufficient to fund our future activities, we may need to raise additional funding through debt and equity financing.
Additional funds may not be available on favorable terms or at all. We believe our existing cash, cash equivalents and short‑term
bank deposits will be sufficient to satisfy our liquidity requirements for at least the next 24 months.
Cash Flows
The following table summarizes our consolidated statement of cash
flows for the periods presented. The below discussion beneath the table omits a description of our cash flows for the year ended December
31, 2020. In order to view that discussion, please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity
and Capital Resources—Cash Flows” in our Annual Report on Form 20-F for the year ended December 31, 2021, which we filed with
the SEC on March 25, 2022:
|
|
Year Ended December 31,
|
|||||||
|
|
2022
|
2021
|
||||||
|
|
||||||||
|
Net cash provided by (used in): |
||||||||
|
Operating activities
|
$ |
(11,885 |
) |
$ |
(8,916 |
) | ||
|
Investing activities
|
(481 |
) |
3,548 |
| ||||
|
Financing activities
|
35,764 |
|
(1,050 |
) | ||||
Net cash used in all periods resulted primarily from our net loss
adjusted for non‑cash charges and measurements and changes in components of working capital. Adjustments for non‑cash items
include depreciation and amortization, equity‑based compensation, revaluation of contingent liabilities and lease liability, and
changes in assets and liabilities items.
Net cash used in continuing operating activities
increased to approximately $11.9 million in the year ended December 31, 2022 compared to net cash used by continuing operating activities
of approximately $8.9 million in the year ended December 31, 2021, primarily as a result of our operational net loss, partially offset
by various non-cash items such as depreciation, shared based compensation and revaluation of contingent considerations and warrants.
93
Net cash provided by (used in) investing activities
Net cash related continuing investing activities primarily provided
by proceeds of investments in short‑term banks deposits offset by used in purchases of property and equipment. Net cash used in
investing activities was $0.5 million in the year ended December 31, 2022, compared to $3.5 million provided during the year ended December
31, 2021.
Net cash provided by (used in) financing activities
Net cash provided by continuing financing activities was $35.8
million during the year ended December 31, 2022 compared to use in of $1.1 million during the year ended December 31, 2021. The increase
in net cash provided by continuing financing activities was primarily a result of our proceeds from our 2022 Offerings, net of issuance
expenses offset with payments of lease liabilities and repayment pursuant to IIA and TEVA considerations.
Israeli Corporate-Level Tax Considerations and Government Programs
The following is a brief summary of the material Israeli tax laws
applicable to us, and certain Israeli Government programs that benefit us and therefore impact our results of operations and financial
condition. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative
interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.
The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative
interpretations of Israeli law, which change could affect the tax consequences described below.
General Corporate Tax Structure in Israel
Generally, Israeli companies are subject to a corporate tax on
their taxable income. Effective January 1, 2018 and thereafter, the corporate tax rate is 23%. However, the effective tax rate payable
by a company that derives income from an Approved Enterprise, a Beneficiary Enterprise, a Preferred Enterprise or Technology Enterprise
(as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing regular
corporate tax rate.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969 (the
“Industry Encouragement Law”), provides several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company”
as an Israeli resident-company which was incorporated in Israel, of which 90% or more of its income in any tax year, other than income
from certain government loans, is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area”,
in accordance with the definition under section 3A of the Israeli Income Tax Ordinance (New Version) 1961. An “Industrial Enterprise”
is defined as an enterprise whose principal activity in a given tax year is industrial production.
The following tax benefits, among others, are available to Industrial
Companies:
| |
• |
amortization of the cost of purchased a patent, rights to use a patent, and know-how,
which are used for the development or advancement of the Industrial Enterprise, over an eight-year period, commencing on the year in which
such rights were first exercised; |
94
|
|
• |
under limited conditions, an election to file consolidated tax returns with related
Israeli Industrial Companies controlled by it; and
|
|
|
• |
expenses related to a public offering are deductible in equal amounts over a three
years period commencing on the year of the offering. |
Eligibility for benefits under the Industry Encouragement Law is
not contingent upon approval of any governmental authority.
We believe that we currently qualify as an Industrial Company within
the meaning of the Industry Encouragement Law. However, there can be no assurance that we will continue to qualify as an Industrial Company
or that the benefits described above will be available in the future.
Law for the Encouragement of Capital Investments, 5719-1959
The Investment Law provides certain incentives for capital investments
in production facilities (or other eligible assets).
The Investment Law was significantly amended several times during
recent years, with the three most significant changes effective as of April 1, 2005 (the “2005 Amendment”), as of January
1, 2011 (the “2011 Amendment”), and as of January 1, 2017 (the “2017 Amendment”). Pursuant to the 2005 Amendment,
tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force
but any benefits granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced
new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However,
companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy
such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits
of the 2011 Amendment apply. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
Prior to 2011, we did not utilize any of the benefits for which we were eligible under the Investment Law.
The following is a summary of the Investment Law subsequent to
its amendments as well as the relevant changes contained in the new legislation.
Tax Benefits Subsequent to the 2005 Amendment
The 2005 Amendment applies to new investment programs and investment
programs commencing after 2004, but does not apply to investment programs approved prior to April 1, 2005 (“Approved Enterprise”).
The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment
became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval.
Pursuant to the 2005 Amendment, the Israeli Authority for Investments and Development of the Israeli Ministry of Economy (the “Investment
Center”) will continue to grant Approved Enterprise status to qualifying investments. The 2005 Amendment, however, limits the scope
of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise.
The 2005 Amendment provides that Approved Enterprise status will
only be necessary for receiving cash grants. As a result, it is no longer necessary for a company to obtain the advance approval of the
Investment Center in order to receive the tax benefits previously available under the alternative benefits track. Rather, a company may
claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax
benefits set forth in the 2005 Amendment. Companies or programs under the new provisions receiving these tax benefits are referred to
as Beneficiary Enterprises. Companies that have a Beneficiary Enterprise, are entitled to approach the Israel Tax Authority for a pre‑ruling
regarding their eligibility for tax benefits under the Investment Law, as amended.
95
Tax benefits are available under the 2005 Amendment to production
facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export to
specific markets with a population of at least 14 million in 2012 (such export criteria will further increase in the future by 1.4% per
annum). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets certain conditions,
including exceeding a minimum investment amount specified in the Investment Law. Such investment allows a company to receive “Beneficiary
Enterprise” status, and may be made over a period of no more than three years ending in the year in which the company chose to have
the tax benefits apply to its Beneficiary Enterprise. Where the company requests to apply the tax benefits to an expansion of existing
facilities, only the expansion will be considered to be a Beneficiary Enterprise and the company’s effective tax rate will be the
weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a Beneficiary Enterprise
is required to exceed a certain percentage of the value of the company’s production assets before the expansion.
The extent of the tax benefits available under the 2005 Amendment
to qualifying income of a Beneficiary Enterprise depends on, among other things, the geographic location in Israel of the Beneficiary
Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from
corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Beneficiary
Enterprise in Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the
level of foreign investment in the company in each year. A company qualifying for tax benefits under the 2005 Amendment which pays a dividend
out of income attributed to its Beneficiary Enterprise during the tax exemption period will be subject to corporate tax in respect of
the amount of the dividend distributed (grossed‑up to reflect the pre‑tax income that it would have had to earn in order to
distribute the dividend) at the corporate tax rate that would have otherwise been applicable. Dividends paid to Israeli shareholders out
of income attributed to a Beneficiary Enterprise (or out of dividends received from a company whose income is attributed to a Beneficiary
Enterprise) are generally subject to withholding tax at source at the rate of 15% (in the case of non-Israeli shareholders - subject to
the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 15% or such lower rate as may be provided
in an applicable tax treaty, applicable to dividends and distributions out of income attributed to a Beneficiary Enterprise). The reduced
rate of 15% is limited to dividends and distributions out of income attributed to a Beneficiary Enterprise during the benefits period
and actually paid at any time up to 12 years thereafter, except with respect to a qualified Foreign Investment Company (as such term is
defined in the Investment Law), in which case the 12‑year limit does not apply.
The benefits available to a Beneficiary Enterprise are subject to the fulfillment of
conditions stipulated in the Investment Law and its regulations. If a company does not meet these conditions, it would be required to
refund the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest, or other monetary penalties.
We currently have Beneficiary Enterprise programs under the Investment
Law, which we believe will entitle us to certain tax benefits. The majority of any taxable income from our Beneficiary Enterprise programs
(once generated) would be tax exempt for a period of ten years commencing in the year in which we will first earn taxable income relating
to such enterprises, subject to the 12-year limitation from the year the company chose to have its tax benefits apply.
Tax Benefits Under the 2011 Amendment
The 2011 Amendment canceled the availability of the tax benefits
granted under the Investment Law prior to 2011 and, instead, introduced new tax benefits for income generated by a “Preferred Company”
through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. The definition
of a Preferred Company includes a company incorporated in Israel that is not fully owned by a governmental entity, and that has, among
other things, Preferred Enterprise status and is controlled and managed from Israel.
96
The tax benefits under the 2011 Amendment for a Preferred Company
meeting the criteria of the law include, among others, a reduced corporate tax rate of 15% for preferred income attributed to a Preferred
Enterprise in 2011 and 2012, unless the Preferred Enterprise was located in a specified development zone, in which case the rate was 10%.
Under the 2011 Amendment, such corporate tax rate was reduced in 2013 from 15% and 10%, respectively, to 12.5% and 7%, respectively, and
then increased to 16% and 9%, respectively, in 2014 and thereafter until 2016. Pursuant to the 2017 Amendment, in 2017 and thereafter,
the corporate tax rate for Preferred Enterprise which is located in a specified development zone was decreased to 7.5%, while the reduced
corporate tax rate for other development zones remains 16%. Income attributed to a Preferred Company from a “Special Preferred Enterprise”
(as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to reduced tax rates of 8%, or
5% if the Special Preferred Enterprise is located in a certain development zone. As of January 1, 2017, the definition of “Special
Preferred Enterprise” includes less stringent conditions. Dividends paid to Israeli shareholders out of preferred income attributed
to a Preferred Enterprise or to a Special Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% (in
the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax
rate, 20%, or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company,
no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non‑Israeli company,
the aforesaid will apply).
The 2011 Amendment also provided transitional provisions to address
companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things,
that: unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to
be derived as of January 1, 2011, a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the
2011 Amendment came into effect, provided that certain conditions are met.
We have examined the possible effect, if any, of these provisions
of the 2011 Amendment on our financial statements and have decided, at this time, not to opt to apply the new benefits under the 2011
Amendment. There can be no assurance that we will comply with the conditions required to remain eligible for benefits under the Investment
Law in the future or that we will be entitled to any additional benefits thereunder.
New Tax benefits under the 2017 Amendment that
became effective on January 1, 2017.
The 2017 Amendment was enacted as part of the Economic Efficiency
Law that was published on December 29, 2016, and is effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for
two types of “Technology Enterprises,” as described below, and is in addition to the other existing tax beneficial programs
under the Investment Law.
The 2017 Amendment provides that a technology company satisfying
certain conditions will qualify as a “Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate
of 12% on income that qualifies as “Preferred Technology Income,” as defined in the Investment Law. The tax rate is further
reduced to 7.5% for a Preferred Technology Enterprise located in development zone A. In addition, a Preferred Technology Company will
enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets”
(as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company
after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the Israeli Innovation Authority.
The 2017 Amendment further provides that a technology company satisfying
certain conditions will qualify as a “Special Preferred Technology Enterprise” and will thereby enjoy a reduced corporate
tax rate of 6% on “Preferred Technology Income” regardless of the company’s geographic location within Israel. In addition,
a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain
“Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either developed by Special
Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from
IIA. A Special Preferred Technology Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500
million will be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
97
Dividends distributed by a Preferred Technology Enterprise or a
Special Preferred Technology Enterprise, to Israeli shareholders paid out of Preferred Technology Income, are generally subject to withholding
tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from
the ITA allowing for a reduced tax rate, 20%, or such lower rate as may be provided in an applicable tax treaty. However, if such dividends
are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals
or a non-Israeli company, the aforesaid will apply). If such dividends are distributed to a foreign company that holds solely or together
with other foreign companies 90% or more in the Israeli company and other conditions are met, the withholding tax rate will be 4% (or
a lower under the tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the Israeli Tax Authority allowing
for a reduced tax rate).
C. Research
and Development, Patents and Licenses, etc.
Our research and development strategy is centered on developing
our patented proteolytic enzyme technology, which underlies NexoBrid and EscharEx, into additional products for high‑value indications.
Our research and development team is located at our facilities in Yavne, Israel, and consists of 73 employees as of December 31, 2022
and is supported by highly experienced consultants in various research and development disciplines.
We have received government grants (subject to
our obligation to pay royalties) as part of the NexoBrid and EscharEx research and development programs approved by the IIA. The total
gross amount of grants actually received by us from the IIA, including accrued LIBOR interest and net of royalties actually paid, totaled
approximately $13.6 million as of December 31, 2022 and the amortized cost (using the interest method) of the liability totaled approximately
$7.6 million and $8.1 million as of December 31, 2022 and 2021, respectively. Because the repayment of IIA grants is in the form of future
royalties, the balance of the commitments to the IIA is presented as an amortized liability on our balance sheet. As of December 31, 2022,
we had accrued and paid royalties to the IIA totaling $1.6 million.
We received funds from BARDA in accordance with the terms of our
BARDA contracts. As of December 31, 2022 we had accrued $82 million of BARDA’s participation in NexoBrid’s research and development
programs.
For a description of our research and development policies for
the last three years, see “ITEM 4.B. Business Overview—Research and Development.”
D. Trend
Information
We continue to closely monitor macro-economic conditions,
including the headwinds caused by supply chain problems, inflation, increased interest rates and other trends that have been adversely
impacting economic activity on a global scale in the aftermath of the COVID-19 pandemic. We have been assessing, on an ongoing basis,
the implications of those global conditions for our operations, supply chain, liquidity, cash flow and product orders, and will act in
an effort to mitigate adverse consequences as needed. To the extent inflation increases our costs and expenses, we could consider price
increases to offset those cost pressures.
Specific developments that may potentially impact our operating
performance in an adverse manner include:
| • |
further actions taken by central banks in Europe and the U.S. to increase interest rates as a means to slow down inflation,
which may worsen credit/financing conditions for our customers who purchase our products; |
| • |
potential contraction of economic activities and recessionary conditions that could arise as a result of interest rate increases
and a decrease in consumer demand; and |
| • |
the continued depreciated value of the Euro relative to the U.S. dollar, which may have an adverse impact on the U.S.- denominated
value of our European-derived revenues for purposes of our financial statements. |
We cannot provide any assurances as to the extent of our resilience
to the adverse impact of these specific developments in future periods. See also “ITEM 3.D. – Risk Factors –“We
depend on a sole supplier to obtain our intermediate drug substance, bromelain SP, which is necessary for the production of our products.”
Other than the foregoing and as disclosed elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2022 to the present
time that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources,
or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
98
E. Critical
Accounting Estimates
Our consolidated financial
statements are prepared in conformity with IFRS, as issued by the IASB. The preparation of these historical financial statements
in conformity with IFRS requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported
amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. [Our critical accounting estimates are described in Notes 2 and 3 to our
consolidated financial statements included elsewhere in this annual report.
Item 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
A. Directors
and Senior Management
The following table sets forth the name, age and position of each
of our executive officers and directors as of March 15, 2023:
|
Name |
|
Age |
|
Position |
|
Executive Officers |
|
|
|
|
|
Ofer Gonen |
|
50 |
|
Chief Executive Officer |
|
Boaz Gur-Lavie |
|
49 |
|
Chief Financial Officer |
|
Ety Klinger Ph.D. |
|
61 |
|
Chief Research and Development Officer |
|
Robert Snyder |
73 |
Chief Medical Officer | ||
|
Tzvi Palash |
67 |
Chief Operations Officer | ||
|
Yaron Meyer |
|
44 |
|
Executive Vice President, General Counsel and Corporate Secretary |
|
|
|
|
|
|
|
Directors |
|
|
||
|
Nachum (Homi) Shamir (3)(5) |
|
68 |
|
Executive Chairman of the Board of Directors |
|
Stephen T. Willis (1)(2)(4)(5) |
|
66 |
|
Director |
|
Assaf Segal |
|
51 |
|
Director |
|
Vickie R. Driver, M.D (4)(5) |
|
69 |
|
Director |
|
Nissim Mashiach (1)(2)(5) |
|
62 |
|
Director |
|
Sharon Kochan (1)(2)(5) |
|
54 |
|
Director |
|
David Fox (3)(5) |
|
65 |
|
Director |
|
Sharon Malka (4) |
|
51 |
|
Director |
|
|
|
|
(1) |
Member of our audit committee. |
|
(2) |
Member of our compensation committee.
|
|
(3) |
Member of our nominating, governance
and sustainability committee. |
|
(4) |
Member of our research and development
committee. |
|
(5) |
Independent director under the listing rules of the Nasdaq Stock Market. |
Executive Officers
Ofer Gonen has served as
our Chief Executive Officer since July 2022 and on our board of directors since September 2003. Mr. Gonen is the Chief Executive Officer
of CBI (TASE: CBI) and Cactus Acquisition Corp. 1 (Nasdaq: CCTS). Mr. Gonen has more than 20 years of experience in managing life science
investments and business collaborations in both the US and Israel. Mr. Gonen serves as a board member of several private and publicly-traded
portfolio companies of CBI, including Gamida Cell (Nasdaq: GMDA), MediWound (Nasdaq: MDWD) and Cactus (Nasdaq: CCTS), as well as a managing
partner at the Anatomy Medical Fund. Before joining CBI, Mr. Gonen was the General Manager of Biomedical Investments Ltd., a partner at
Arte Venture Group, as well as a technology consultant to various Israeli venture capital funds. Mr. Gonen gained extensive experience
in RD and management of defense-oriented projects at the prestigious “Talpiot” program of the Israeli Defense Forces.
He holds a B.Sc. in Physics, Mathematics and Chemistry from the Hebrew University of Jerusalem, and an M.A. in Economics and Finance from
Tel Aviv University, with distinction.
Boaz Gur-Lavie has served
as our Chief Financial Officer since June 2019. Prior to joining MediWound, Mr. Gur-Lavie co-founded in 2015 the Center for Digital Innovation
(CDI), a non-profit organization determined to improve the quality of lives by creating innovative new solutions for challenges in the
space of healthy aging and digital health, while focusing on senior citizens. In early 2015, he also co-founded MDClone, which introduced
the world’s first Healthcare Data Sandbox, unlocking healthcare data to enable exploration, discovery and collaboration. Previously,
he served as the chief financial officer of the Nasdaq-listed company, Pluristem Therapeutics, a stem-cell development company, from 2013
to 2015. He also served as the chief financial officer of STARLIMS, a Nasdaq listed company, until it was acquired by Abbott Laboratories
in 2010, after which he served as the chief financial officer of Abbott’s informatics division until 2013. Mr. Gur-Lavie is a certified
public accountant and received his B.A. in economics and M.B.A. in finance from the Ben-Gurion University in Israel.
99
Ety Klinger has served
as our Chief Research and Development Officer since May 2014. Prior to joining MediWound, Dr. Klinger was Vice President of Research and
Development at Proteologics Ltd since July 2011, where she was responsible for discovery projects in the ubiquitin system, conducted in
collaboration with GlaxoSmithKline plc and Teva. Prior to this, Dr. Klinger served for 17 years in numerous leadership positions at Teva’s
global innovative RD division and served as Teva’s Board representative at various biotechnology companies. Dr. Klinger was
a key member of the Copaxone® development team. As a project leader she led the chemistry, manufacture and control, preclinical,
clinical and post‑marketing RD activities of various innovative treatments for multiple sclerosis (MS), autoimmune and neurological
diseases. From 2006 to 2011, as a Senior Director at Teva, Dr. Klinger was a member of Teva’s global innovative RD management
team. From 2006 to 2008, she served as the Head of MS and Autoimmune Diseases at Teva, and led the Life Cycle Management (LCM) of innovative
RD. Dr. Klinger holds a B.Sc. in Biology from the Hebrew University in Jerusalem, a M.S. and a Ph.D. in Biochemistry from Tel‑Aviv
University and an MBA degree from Tel Aviv University and Northwestern University.
Dr. Robert Snyder has served
as our Chief Medical Officer since January 2023. Dr. Robert J. Snyder (DPM, MSc, MBA, CWSP, FFPM RCPS) is Dean, Professor, Director of
Clinical Research and Fellowship Director in Wound Care and Research at Barry University School of Podiatric Medicine. He is certified
in foot and ankle surgery by the American Board of Podiatric Surgery and is also a board-certified wound specialist. Dr. Snyder is past-president
of the Association for the Advancement of Wound Care and past-president of the American Board of Wound Management. Dr. Snyder has completed
an MBA in Health Management from The George Washington University and the Global Clinical Scholars Research Training Program at Harvard
Medical School. Dr. Snyder is a key opinion leader and sought-after speaker, lecturing extensively throughout the United States and abroad.
He has published several book chapters and over 165 papers in peer reviewed and trade journals on wound care, and was the recipient of
the Dr. Robert Warriner Memorial Award for excellence in wound management. Dr. Snyder serves as the Associate Editor for JAPMA and on
the editorial advisory boards of Ostomy Wound Management, Wounds and as a periodic reviewer for the Lancet and NEJM. He has been a Principal
Investigator on more than 65 randomized controlled trials for innovative wound healing modalities and products.
Tzvi Palash has served
as our Chief Oeraptions Officer since July 2022. He joins MediWound from Enlivex, where he leads the design and construction of the new
cGMP manufacturing facility. Prior to this, he served as COO at Gamida Cell, where he directed all operational activities towards its
rolling Biologics License Application (BLA) submission to the U.S. Food and Drug Administration (FDA) for omidubicel. Mr. Palash was COO
at Protalix Biotherapeutics, where he led all operational activities through the company’s FDA approval of Elelyso®. Prior
to Protalix, Mr. Palash was a General Manager at ColBar LifeScience, a biomaterial company acquired by Johnson Johnson, where he
led the planning, construction, scale-up and regulatory oversight of its Israel-based manufacturing facility. He also successfully led
FDA audits for Evolence® and Ossix® and was a member of the Global Aesthetic Management Team within the Consumer Group of Johnson
Johnson. Earlier in his career, Mr. Palash held operational roles at Teva Pharmaceutical Industries and Interpham Laboratories.
Yaron Meyer has served
as our Executive Vice President since March 2019 and as our General Counsel and Corporate Secretary since December 2013. From April 2008
to November 2013, he served as the Corporate Secretary of CBI. From November 2010 to November 2013, he served as the General Counsel and
Corporate Secretary of D‑Pharm Ltd. From April 2008 to May 2010, he served as a legal counsel of Clal Industries Ltd. From May 2005
to April 2008, he worked as an associate at Shibolet Co. Advocates. Mr. Meyer holds an LL.B. degree from Haifa University, Israel.
100
Directors
Nachum (Homi) Shamir has
served as Chairman of our board of directors since August 2022. Mr. Shamir most recently the Chairman, and Chief Executive Officer of
Luminex Corporation from 2014 through its sale to DiaSorin S.p.A.(“DiaSorin”) in 2021. Mr. Shamir continued to serve as President
of Luminex after its sale to DiaSorin pursuant to a transition agreement with DiaSorin until June 2022. Additionally, Mr. Shamir has served
as President and Chief Executive Officer of Given Imaging from 2006 through its sale to Covidien (now Medtronic) in 2014. Mr. Shamir currently
serves on the Board of Directors of IsoPlexis Corporation (Nasdaq: ISO) and Strata Skin Sciences (Nasdaq: SSKN); and as Chairman
of the Board of Cactus Acquisition Corp. (Nasdaq: CCTS). Mr. Shamir holds a Bachelor of Science degree from the Hebrew University of Jerusalem
and a Masters of Public Administration from Harvard University.
Stephen T. Wills has
served as a member of our Board since May 2017, as Chairman of our Board since October 2017 and as Executive Chairman of our board since
May 2019. Mr. Wills serves as Chief Financial Officer (since 1997) and Chief Operating Officer (since 2011) of Palatin Technologies, Inc.
(NYSE: PTN), a biopharmaceutical company developing targeted, receptor‑specific peptide therapeutics for the treatment of diseases
with significant unmet medical need and commercial potential. He also serves as Chief Financial Officer of Cactus Acquisition Corp.
1 Limited (Nasdaq: CCTS), a special purposee acquisition company, since 2021. Mr. Wills serves on the boards of Gamida Cell Ltd. (Nasdaq:
GMDA), a leading cellular and immune therapeutics company since March 2019 (audit and compensation and finance committee member) and of
Amryt Pharma, a biopharmaceutical company focused on developing and delivering treatments to help improve lives of patients with rare
and orphan diseases since September 2019 (chairman of audit committee and member of the compensation and finance committee). Mr. Wills
also serves on the board of trustees and executive committee of The Hun School of Princeton, a college preparatory day and boarding school
since 2013, and its chairman since June 2018. Mr. Wills served on the board of directors of Caliper Corporation, a psychological assessment
and talent development company since March 2016 and as chairman from December 2016 until December 2019, when Caliper was acquired by PSI.
Mr. Wills served as executive chairman and interim principal executive officer of Derma Sciences Inc. a provider of advanced wound care
product from December 2015 to February 2017, when Derma Sciences was acquired by Integra Lifesciences (Nasdaq: IART). Previously, Mr.
Wills served on the Board of Derma Sciences as the lead director and chairman of the audit committee from June 2000 to December 2015.
Mr. Wills served as the Chief Financial Officer of Derma Sciences from 1997 to 2000. Mr. Wills served as the president and Chief Operating
Officer of Wills, Owens Baker, P.C., a public accounting firm from 1991 to 2000. Mr. Wills, a certified public accountant, earned
his Bachelor of Science in accounting from West Chester University, and a Master of Science in taxation from Temple University.
Assaf Segal has served
as a member of our Board since October 2017. Assaf Segal has served as a member of our board of directors since October 2017. Mr. Segal
Serves as Chief Executive Officer of CBI since July 2022. Prior to that Mr. Segal has served as the Chief Financial Officer at CBI since
July 2015. Mr. Segal serves as a board member of several companies, including Biokine therapeutics Ltd., eXIthera Pharmaceuticals Inc.,
Elicio Therapeutics Inc., Colospan Ltd., FDNA Inc., and Clal Life Sciences L.P. Prior to that time, Mr. Segal was a Partner at Variance
Economic Consulting Ltd., from 2004 until June 2015, where he provided in-depth consulting for international and local clients in a wide
range of industries, including telecommunications, internet, biotech, heavy industry and financial sectors. Previously, he founded a start-up
software company. Mr. Segal also previously held a managerial position at PriceWaterhouseCoopers Corporate Finance and was an Economic
Department manager at the North American division of Amdocs Inc. (NYSE: DOX). His experience also includes risk management and house account
(“Nostro”) trading at the Union Bank of Israel, and serving as an economist for capital markets in the Research Department
of the Bank of Israel. Mr. Segal also has many years of experience in economic consulting and company valuations, joint ventures and financial
instruments for investments, MA, and IPOs. He has 15 years of experience in economic consulting for international and local clients
in the Bio-Tech sector as well as in Hi-Tech, financial and other sectors. Mr. Segal is a co-founder of Nextrade Ltd. and Solid Capital,
a start-up financial software company. Mr. Segal holds a B.A. in Economics and Statistics and an M.B.A. (Finance and Information Systems)
from the Hebrew University of Jerusalem.
101
Vickie R. Driver has
served as a member of our Board since May 2017. She is board certified in foot surgery by the American Board of Podiatric Surgery and
is a Fellow at the American College of Foot and Ankle Surgeons, licensed in Virginia, Massachusetts, and Rhode Island. Dr Driver serves
as Chair, Board of Directors for the Wound Care Collaborative Community, an important collaboration with the FDA, CMS and the NIH and
has received a prestigious honor of receiving The Robert A. Warriner III, MD Memorial Award. She is System Wide Medical Director of the
Wound Care and Hyperbaric Centers at INOVA Healthcare in the DC Metropolitan area and is Professor, University of Virginia, School of
Medicine. She is also Fellow, Royal College of Physicians and Surgeons-Glasgow, PM and Inaugural Fellow, Assoc for the Advancement of
Wound Care, FAAWC. She currently serves as Honorary Visiting Professor at Cardiff University (UK) in the Department of Medicine and Professor
at Barry University (USA). She proudly serves as a member of the Wound Healing Society (WHS) Board of Directors and as member Board of
Directors for the Critical Limb Ischemia (CLI) Global Society. She has completed her tenure as president for the Advancement of Wound
Care Association (AAWC) and served for 9 years on the Board of Directors. Dr. Driver is a former Professor of Surgery in the Department
of Orthopedics at Brown University (Clinical) and Associate Professor of Surgery at Boston University. She has also chaired the Wound
Care Experts and U.S. Food and Drug Administration (“FDA”) Clinical Endpoints Project [WEF-CEP]. The project was successful
in developing the research to expand the wound healing clinical endpoints considered by FDA. She and her team proposed a combined effort
to develop the Wound-care Experts/FDA-Clinical Endpoints Project [WEF-CEP] to strategically identify clinically meaningful, evidence-based,
and patient-centered wound care endpoints that are relevant for clinical research and trials. The goal was to collaboratively work with
the FDA to expand the list of acceptable primary endpoints, recognizing that new and innovative treatments, devices, and drugs may not
have complete healing as the focus. She has served as a senior investigator for more than 70 important multi‑center randomized clinical
trials, as well as developed and supervised multiple research fellowship training programs. She has served and chaired multiple committees
for large national and international pivotal clinical trials, has authored over 150 publications and abstracts and is former Director,
Translational Medicine at Novartis Institute for BioMedical Research. Dr. Driver is credited with the development and directorship of
multiple major multidisciplinary Limb Preservation- Wound Healing Centers of Excellence, including Military/VA, Hospital and University
based programs. Dr Driver served on the Inaugural Educational Committee at the American College of Wound Healing and Tissue Repair
at University of Illinois School of Medicine and was Scientific Director, Colorado Prevention Center, Wound Care Laboratory at the University
of Colorado. Dr. Driver has held several leadership, teaching, research and clinical positions at Academic Medical Centers, Veterans Administration
Medical Centers, and Military Medical Centers. Dr. Driver received a Doctorate of Podiatric Medicine and Surgery from the California College
of Podiatric Medicine and Surgery and a master’s degree in medical education from Samuel Merritt University.
Nissim Mashiach has
served as a member of our Board since June 2017, serving as an external director under the Companies Law until December 2022. Mr. Mashiach
served as President and Chief Executive Officer of Macrocure Ltd., a Nasdaq‑listed biotechnology company focused on the treatment
of chronic and other hard‑to‑heal wounds, from June 2012 to January 2017. From 2009 to 2012, he served as General Manager
at Ethicon, a Johnson Johnson company. Prior to Ethicon, he served as President and Chief Operating Officer at Omrix Biopharmaceuticals,
Inc., which was acquired by Johnson Johnson in 2008. Prior to Omrix, Mr. Mashiach held leadership positions at several pharmaceutical
companies. He holds an MBA from the University of Manchester in Manchester, England, an MPharmSc from the Hebrew University in Jerusalem,
Israel, and a B.Sc, Chemical Engineering from the Technion‑Israel Institute of Technology in Haifa, Israel.
Sharon Kochan has
served as a member of our Board since June 2017, serving as an external director under the Companies Law until December 2022. Mr. Kochan
has served as Presidnet and CEO of Padagis LLC since its incorporation in July 2021 when it was carved out of Periggo company and started
its independent journey (acquired by Altaris Capital for $1.55 billion). Prior to that, Mr. Kochan served as Executive Vice President
President international, for Perrigo Company Plc., a global, over‑the‑counter, consumer goods and specialty pharmaceutical
company listed on the New York Stock Exchange, since 2012, and has been a member of the Perrigo Executive Committee since 2007. From March
2007 to July 2012, he served as Executive Vice President, General Manager of Prescription Pharmaceuticals for Perigo and from 2005 to
2007, he was Senior Vice President of Business Development and Strategy for Perrigo. Mr. Kochan was Vice President, Business Development
of Agis Industries (1983) Ltd. from 2001 until Perrigo acquired Agis in 2005. He completed the Senior Management Program at the Technion
Institute of Management in Haifa, Israel, received a Master of Science in Operations Research Management Science from Columbia University
in New York City and received a Bachelor of Science in Industrial and Management Engineering from Tel‑Aviv University in Tel‑Aviv,
Israel.
102
Mr. Sharon Malka has served
as a member of our board of directors since August 2022. Prior to joining our board, Mr. Malka served as our Chief Executive Officer from
May 2019 to June 2022. Prior to that time, he served as our Chief Financial and Operations Officer, beginning in April 2007. From 2002
to 2007, Mr. Malka was a partner at Variance Economic Consulting Ltd., a multi-disciplinary consulting boutique that specializes in financial
and business services. Mr. Malka also served as a Senior Manager at Kesselman Corporate Finance, a division of PricewaterhouseCoopers
Global Network, from 1998 to 2002. Mr. Malka holds a B.Sc. in Business Administration from the Business Management College in Israel and
an M.B.A. from Bar Ilan University, Israel.
Mr. David Fox has served
as a member of our board of directors since April 2020. Mr. Fox was most recently a partner at Kirkland Ellis LLP and served as
a member of its Global Executive Management Committee until 2019. Prior to joining Kirkland, Mr. Fox was partner with Skadden, Arps, Slate,
Meagher Flom LLP, where he was a member of its top governing committee. Mr. Fox is a member of the executive committee of the board
of directors at the Park Avenue Armory and is the chairman of the leadership council of New Alternatives for Children. In addition, Mr.
Fox serves on the executive committee of the board of governors, and is an honorary fellow of the Hebrew University, Jerusalem. He holds
an LL.B. degree from Jerusalem University, Israel.
B. Compensation
Compensation of Directors and Executive Officers
The table below reflects the compensation granted to our five most
highly compensated officers during or with respect to the year ended December 31, 2022. All amounts reported in the table reflect the
cost to the company, as recognized in our financial statements for the year ended December 31, 2022.
|
Name and Position |
Salary Social Benefits(1) |
Bonus
|
Share‑Based Payment(2) |
Other Compensation(3)
|
Total
|
||||||||||
|
|
( thousand U.S. dollars)(4) |
||||||||||||||
|
|
|||||||||||||||
|
Sharon Malka, Director and
former CEO(5) |
308 |
- |
345 |
316 |
969 |
||||||||||
|
Ofer Gonen, Chief Executive
Officer |
253 |
200 |
365 |
32 |
850 |
||||||||||
|
Lior Rosenberg, M.D., Chief Medical Technology Officer |
324 |
167 |
90 |
236 |
817 |
||||||||||
|
Ety Klinger, Chief Research Development Officer |
298 |
75 |
77 |
20 |
470 |
||||||||||
|
Boaz Gur-Lavie, Chief Financial
Officer |
255 |
60 |
76 |
18 |
409 |
||||||||||
|
|
|
|
(1) |
Represents the officer’s gross salary plus payment of mandatory social benefits
made by the company on behalf of such officer. Such benefits may include, to the extent applicable to the executive, payments, contributions
and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren
hishtalmut”), pension, severance, risk insurances (e.g., life or work disability insurance) and payments for social security.
|
103
|
(2) |
Represents the equity‑based compensation expenses recorded in the company’s
consolidated financial statements for the year ended December 31, 2022 based on the options’ grant date fair value in accordance
with accounting guidance for equity‑based compensation.
|
|
(3) |
Represents the other benefits to such officer, which includes either or both of (i)
car expenses, including lease costs, gas and maintenance, provided to the officers, (ii) vacation benefits and (iii) severance payment.
|
|
(4) |
Converted (i) from NIS into U.S. dollars at the rate of NIS 3.358 = U.S$1, based on
the average representative rate of exchange between the NIS and the U.S. dollar in the year ended December 31, 2022 as reported by the
Bank of Israel in the year ended December 31, 2022.
|
|
(5) |
The compensation received by Mr. Malka in respect of the year ended December 31, 2022
consists of compensation that he received as our CEO until June 30, 2022 and cash, equity awards and other compensation that he received
in his role as active director commencing in July 2022. |
The aggregate compensation paid and equity‑based
compensation and other payments expensed by us and our subsidiaries to our directors and executive officers with respect to the year ended
December 31, 2022 was $4.9 million. As of December 31, 2022, options to purchase 482,321 ordinary shares, exercisable at a weighted average
exercise price of $25.54 per share, and restricted share units (“RSUs”) that may be settled for 59,169 ordinary shares, in
each case granted to our directors and executive officers, were outstanding under our equity incentive plans. We do not have any written
agreements with any director providing for benefits upon the termination of such director’s relationship with our company or its
subsidiaries.
Employment Agreements with Executive Officers
We have entered into written employment agreements with all of
our executive officers, which include standard provisions for a company in our industry regarding non‑competition/solicitation,
confidentiality of information and assignment of inventions. Except for Ofer Gonen, our Chief Executive Officer, our executive officers
will not receive benefits upon the termination of their respective employment with us, other than payment of salary and benefits (and
limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual.
Upon termination of his employment, Mr. Gonen is entitled to a one‑time termination payment of six months of salary.
Directors’ Service Contracts
Other than with respect to our directors that are also executive
officers, there are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing
for benefits upon termination of their service as directors of our company.
2003 Israeli Share Option Plan
In November 2003, we adopted our 2003 Israeli Share Option Plan
(the “2003 Plan”). The 2003 Plan provides for the grant of options to our and our subsidiaries’ directors, employees,
officers, consultants and service providers, among others.
The initial reserved pool under the 2003 Plan was 244,286 ordinary
shares and subsequently increased to a total of 461,429 ordinary shares. The 2003 Plan expired on December 31, 2013. Options that
remain outstanding under the 2003 Plan continue to be governed by the terms of the plan, notwithstanding that expiration. The 2003
Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli
law, the grantees of options, the terms of the options, including exercise prices, vesting schedules, acceleration of vesting, the type
of option and the other matters necessary or desirable for, or incidental to the administration of the 2003 Plan. The 2003 Plan provides
for the issuance of options under various tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Israeli
Income Tax Ordinance (New Version) 1961 (the “Ordinance”).
104
Section 102 of the Ordinance allows employees, directors and officers
who are not controlling shareholders and who are Israeli residents to receive favorable tax treatment for compensation in the form of
shares or options. Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares
to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly
to the grantee. Section 102(b)(2) of the Ordinance, which provides the most favorable tax treatment for grantees, permits the issuance
to a trustee under the “capital gains track.” In order to comply with the terms of the capital gains track, all options granted
under a specific plan and subject to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such
options and other shares received following any realization of rights with respect to such options, such as share dividends and share
splits, must be registered in the name of a trustee selected by the board of directors and held in trust for the benefit of the relevant
employee, director or officer. The trustee may not release these options or shares to the relevant grantee before the second anniversary
of the registration of the options in the name of the trustee. However, under this track, we are not allowed to deduct an expense with
respect to the issuance of the options or shares.
The 2003 Plan provides that options granted to our employees, directors
and officers who are not controlling shareholders and who are considered Israeli residents are intended to qualify for special tax treatment
under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Our Israeli non‑employee service providers
and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Options granted under the 2003 Plan are subject to vesting schedules
and generally expire ten years from approval of the option and vest over a four‑year period commencing on the date of grant, such
that 25% of the granted options vest annually on each of the first, second, third and fourth anniversaries of the date of grant. Under
the 2003 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of
death, his or her legal successor, may exercise options that have vested prior to termination within a period of six months after the
date of termination. If a grantee’s employment or service is terminated for cause, all of the grantee’s vested and unvested
options expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee
may exercise his or her vested options within 90 days after the date of termination. Any expired or unvested options are returned to the
pool for reissuance.
The 2003 Plan provides that in the event of a merger or consolidation
of our company or a sale of all, or substantially all, of our assets, the unexercised options outstanding may be assumed, or substituted
for an appropriate number of shares of each class of shares or other securities as were distributed to our shareholders in connection
with such transaction and the exercise price will be appropriately adjusted. If not so assumed or substituted, all non‑vested and
non‑exercised options will expire upon the closing of the transaction. Our board of directors or its designated committee, as applicable,
may provide in the option agreement that if the acquirer does not agree to assume or substitute the options, vesting of the options shall
be accelerated so that any unvested option or any portion thereof will vest 10 days prior to the closing of the transaction. In the event
that such consideration received in the transaction is not solely in the form of ordinary shares of another company, the board of directors
or the designated committee, as applicable, may, with the approval of the acquirer, provide that in lieu of the assumption or substitution
of the options, the options will be substituted by another type of asset or property, including cash.
105
2014 Equity Incentive Plan
In March 2014, we adopted and obtained shareholder
approval for our 2014 Equity Incentive Plan, which was amended as of December 18, 2018 (the “2014 Plan”). The 2014 Plan provides
for the grant of options, restricted shares, RSUs and other share‑based awards to our and our subsidiaries’ and affiliates’
directors, employees, officers, consultants and advisors, among others and to any other person whose services are considered valuable
to us or them, to continue as service providers, to increase their efforts on our behalf or behalf of a subsidiary or affiliate and to
promote the success of our business. Following the approval of the 2014 Plan by the Israeli tax authorities, we are only granting options
or other equity incentive awards under the 2014 Plan, although previously‑granted options and awards will continue to be governed
by our 2003 Plan and the shares underlying such options and awards will count against the reserved pool for the 2014 Plan. The initial
reserved pool under the 2014 Plan was 433,249 ordinary shares, which will automatically increase on January 1 of each year by a number
of ordinary shares equal to the lowest of (i) 2% of our outstanding shares, (ii) 85,714 shares and (iii) a number of shares determined
by our board of directors, if so determined prior to January 1 of the year in which the increase will occur; provided that the pool of
shares reserved under the Plan shall not exceed 15% (fifteen percent) of the then outstanding shares. Pursuant to an “evergreen”
provision in the 2014 Plan, the reserved pool was increased by 61,573, 77,280, 77,654, 77,723 , 77,820 and 357,143 ordinary
shares as of January 1, 2016, January 1, 2018, January 1, 2019, January 1, 2020, January 1, 2021 and January 2022 , respectively,
representing 2% of our outstanding shares as of each such date. We did not increase the reserved pool in 2015 or 2017.
The 2014 Plan is administered by our board of directors or by a
committee designated by the board of directors, which determine, subject to Israeli law, the grantees of awards and the terms of the grant,
including exercise prices, vesting schedules, acceleration of vesting and the other matters necessary in the administration of the 2014 Plan.
The 2014 Plan enables us to issue awards under various tax regimes, including, without limitation, pursuant to Sections 102 and 3(i) of
the Ordinance, as discussed under “—2003 Share Incentive Plan” above, and under Section 422 of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”).
Options granted under the 2014 Plan to U.S. residents may qualify
as “incentive stock options” within the meaning of Section 422 of the Code, or may be non‑qualified. The exercise price
for “incentive stock options” must not be less than the fair market value on the date on which an option is granted, or 110%
of the fair market value if the option holder holds more than 10% of our share capital.
We currently intend to grant awards under the 204 Plan under the
capital gains track of Section 102(b)(2) of the Ordinance only to our employees, directors and officers who are not controlling shareholders
and are considered Israeli residents.
Awards under the 2014 Plan may be granted until ten years from
the date on which the 2014 Plan was approved by our board of directors.
Options granted under the 2014 Plan generally vest over three or
four years commencing on the date of grant, such that 33% or 25%, respectively, vests annually on the anniversary of the date of grant.
Options, other than certain incentive share options, that are not exercised within ten years from the grant date expire, unless otherwise
determined by our board of directors or its designated committee, as applicable. Share options that qualify as “incentive stock
options” and are granted to a person holding more than 10% of our voting power will expire within five years from the date of the
grant. In the event of the death of a grantee while employed by or performing service for us or a subsidiary or within three months thereafter,
or the termination of a grantee’s employment or services for reasons of disability, the grantee, or in the case of death, his or
her legal successor, may exercise options that have vested prior to termination within a period of one year from the date of disability
or death. If we terminate a grantee’s employment or service for cause, all of the grantee’s vested and unvested options will
expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee may exercise
his or her vested options within three months of the date of termination. Any expired or unvested options return to the pool for reissuance.
106
In the event of a merger or consolidation of our company or a sale
of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then without the consent of
the option holder, our board of directors or its designated committee, as applicable, may but is not required to (i) cause any outstanding
award to be assumed or an equivalent award to be substituted by such successor corporation, or (ii) in case the successor corporation
refuses to assume or substitute the award (a) provide the grantee with the option to exercise the award as to all or part of the shares
or (b) cancel the options against payment in cash in an amount determined by the board of directors or the committee as fair in the circumstances.
Notwithstanding the foregoing, our board of directors or its designated committee may upon such event amend or terminate the terms of
any award, including conferring the right to purchase any other security or asset that the board of directors shall deem, in good faith,
appropriate. Our board of directors or its designated committee may, in its discretion, approve that any awards granted under the 2014
Plan shall be subject to additional conditions in the case of a merger or a consolidation.
Restricted share awards are ordinary shares that are awarded to
a participant subject to the satisfaction of the terms and conditions established by the board of directors or a committee designated
by the board of directors. Until such time as the applicable restrictions lapse, restricted shares are subject to forfeiture and may not
be sold, assigned, pledged or otherwise disposed of by the participant who holds those shares. Generally, if a grantee’s employment
or service is terminated for any reason prior to the expiration of the time when the restrictions lapse, shares that are still restricted
will be forfeited.
The following table provides information regarding
the outstanding options to purchase our ordinary shares, and RSUs held by each of our directors and executive officers who beneficially
owns greater than 1% of our ordinary shares (after including shares underlying options or RSUs) as of March 15, 2023:
|
|
Number of |
Number of |
Exercise |
Vested |
| |||||||||
|
Name |
Options |
RSUs |
Grant Date |
Price - $ |
Options/RSU's |
Expiration Date |
||||||||
|
Sharon Malka |
17,371 |
24/12/2013 |
90.23 |
17,371 |
22/12/2023 | |||||||||
|
7,142 |
23/12/2015 |
67.06 |
7,142 |
20/12/2025 | ||||||||||
|
|
19,285 |
31/12/2018 |
36.05 |
19,285 |
28/12/2028 | |||||||||
|
5,714 |
24/03/2019 |
34.44 |
4,286 |
21/03/2029 | ||||||||||
|
|
11,595 |
23/04/2020 |
12.25 |
5,798 |
21/04/2030 | |||||||||
|
6,527 |
04/03/2021 |
37.52 |
3,264 |
02/03/2031 | ||||||||||
|
|
28,572 |
07/06/2022 |
14.42 |
21,428 |
04/06/2032 | |||||||||
|
6,428 |
31/12/2018 |
0 |
6,428 |
28/12/2028 | ||||||||||
|
|
2,857 |
24/03/2019 |
0 |
2,142 |
21/03/2029 | |||||||||
|
1,087 |
04/03/2021 |
0 |
544 |
02/03/2031 | ||||||||||
|
3,571 |
07/06/2022 |
0 |
2,678 |
04/06/2032 |
107
C. Board
Practices
Board of Directors
Under the Israeli Companies Law, the management of our company
is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically
granted to our shareholders or to management. Our executive officers are responsible for our day‑to‑day management and have
individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion
of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are also
appointed by our board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with
them.
Under our articles of association, our board of directors must
consist of at least five and not more than nine directors, including, to the extent then required to appoint them, at least two external
directors, who may be required to be appointed under the Israeli Companies Law. At any time the minimum number of directors (other than
the external directors) shall not fall below three. Other than external directors, for whom special election requirements apply under
the Israeli Companies Law when they are required to be elected, as detailed below, the Israeli Companies Law and our articles of association
provide that directors are elected annually at the general meeting of our shareholders by a vote of the holders of a majority of the voting
power represented present and voting, in person or by proxy, at that meeting. We have only one class of directors.
In accordance with the exemption available to foreign
private issuers under Nasdaq rules, we are not required to comply with the requirements of the Nasdaq rules with regard to having a majority
of independent directors on our board of directors, as long as we follow Israeli law and practice, in accordance with which our board
of directors includes at least two external directors. However, because we have elected under the Israeli Companies Law regulations to
opt-out from compliance with Israeli law requirements related to appointment of external directors and audit and compensation committee
composition (as described under “External Directors” below), we are not permitted to also exempt ourselves from the Nasdaq
majority independent directors requirement. Our board of directors has determined that six of our eight current directors are independent
under the Nasdaq Stock Market listing rules such that we comply with the Nasdaq majority independence rule.
In accordance with the exemption available to foreign private issuers
under Nasdaq rules, we do not follow the requirements of the Nasdaq rules with regard to the process of nominating directors, and instead
follow Israeli law and practice, in accordance with which our board of directors (or a committee thereof) is authorized to recommend to
our shareholders director nominees for election.
Under the Israeli Companies Law and our articles of association,
nominees for directors may also be proposed by any shareholder holding at least 1% of our outstanding voting power. However, any such
shareholder may propose a nominee only if a written notice of such shareholder’s intent to propose a nominee has been given to our
Secretary (or, if we have no such Secretary, our Chief Executive Officer). Pursuant to our Articles of Association, any such notice must
include certain information, including, among other things, a description of all arrangements between the nominating shareholder and the
proposed director nominee(s) and any other person pursuant to which the nomination(s) are to be made by the nominating shareholder, the
consent of the proposed director nominee(s) to serve as our director(s) if elected and a declaration signed by the nominee(s) declaring
that there is no limitation under the Israeli Companies Law preventing their election, and that all of the information that is required
under the Israeli Companies Law to be provided to us in connection with such election has been provided. Under the Israeli Companies Law
regulations, any such shareholder nomination must be delivered to our registered Israeli office within seven days after we publish notice
of our upcoming annual general meeting of shareholders (or within 14 days after we publish a preliminary notification of an upcoming annual
general meeting).
In addition, our articles of association allow our board of directors
to appoint directors to fill vacancies on our board of directors for a term of office equal to the remaining period of the term of office
of the director(s) whose office(s) have been vacated.
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Under the Israeli Companies Law, our board of directors must determine
the minimum number of directors who are required to have accounting and financial expertise. In determining the number of directors required
to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity
of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have
accounting and financial expertise is one.
We are not a party to, and are not aware of, any voting agreements
among our shareholders. In addition, there are no family relationships among our executive officers and directors.
External Directors
Under the Israeli Companies Law, the boards of directors of companies,
whose shares are publicly traded, including companies with shares traded in the United States, are generally required to include at least
two members who qualify as external directors. Nissim Mashiach and Sharon Kochan had served as our external directors for the period following
their re-election at our 2020 annual general meeting of shareholders held on June 29, 2020 until our Board elected to be governed by the
exemption from appointing external directors (as described below).
Under regulations promulgated under the Israeli Companies Law,
Israeli public companies whose shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Market, and that lack a controlling
shareholder (as defined below) are exempt from the requirement to appoint external directors. Any such company is also exempt from the
Israeli Companies Law requirements related to the composition of the audit and compensation committees of the Board. Eligibility for these
exemptions is conditioned on compliance with U.S. stock exchange listing rules related to majority Board independence and the composition
of the audit and compensation committees of the Board, as applicable to all listed domestic U.S. companies. Eligibility is furthermore
conditioned on our election of a female or male director at any time when we hold elections of directors and the Board is then composed
of solely male or solely female members.
On December 5, 2022, in light of our Board’s determination
that Clal Biotechnology Industries Ltd. is no longer a “controlling shareholder” of our company under the Israeli Companies
Law definition (provided further below), the Board elected, pursuant to the Israeli Companies Law regulations, to exempt our company from
compliance with the (i) requirement to appoint external directors, and (ii) required composition of the audit committee and compensation
committees of the Board under the Israeli Companies Law. At the time that it made that election, our Board affirmatively determined that
we meet the conditions for exemption from the external director requirement, including that a majority of the members of our Board, along
with each of the members of the audit and compensation committees of the Board, are independent under the Nasdaq Listing Rules.
Under the Israeli Companies Law regulations, each of our former
external directors— Nissim Mashiach and Sharon Kochan— will be entitled to continue to serve as ordinary directors, and their
current term as directors will expire at the three-year anniversary of their election, on June 29, 2023 (or earlier, if our Board chooses
to nominate them for re-election as ordinary directors at our 2023 annual general meeting of shareholders to be held before June 29, 2023).
Our election to exempt our company from compliance with the
external director and related requirements can be reversed at any time by our Board, in which case we would need to hold a shareholder
meeting to once again to appoint external directors, whose election would be for a three-year term. The election of each external director
would require a majority vote of the shares present and voting at a shareholders meeting, provided that either:
• the majority voted in favor of election includes
a majority of the shares held by non-controlling shareholders who do not have a personal interest in the election of the external director
(other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding
abstentions, which we refer to as a disinterested majority; or
109
• the total number of shares held by non-controlling,
disinterested shareholders (as described in the previous bullet-point) voted against the election of the director does not exceed two
percent (2%) of the aggregate voting rights in the company.
The term “controlling shareholder” is defined in
the Israeli Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an
office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in
a company or has the right to appoint the majority of the directors of the company or its general manager (i.e., its CEO).
For further information concerning the Israeli Companies Law provisions
related to external directors, please see “Item 6. Directors, Senior Management and Employees— C. Board Practices— Board
of Directors— External Directors” in our annual report on Form 20-F for the year ended December 31, 2021, which we filed with
the SEC on March 17, 2022.
Leadership Structure of the Board
In accordance with the Israeli Companies Law and
our articles of association, our board of directors is required to appoint one of its members to serve as chairman of the board of directors.
Our board of directors has appointed Homi Shamir to serve as chairman of the board of directors.
Audit Committee
Israeli Companies Law composition requirements
Under the Israeli Companies Law, we are required to have an audit
committee comprised of at least three directors. To the extent we are then required to appoint external directors, this committee must
include all of the external directors, one of whom must serve as chairman of the committee. There are additional requirements as to the
composition of the audit committee under the Israeli Companies Law. However, when we elected to exempt our company from the external director
requirement, we concurrently elected to exempt our company from all of such requirements (which exemption is conditioned on our fulfillment
of all Nasdaq listing requirements related to the composition of the audit committee).
Nasdaq listing rules composition requirements
Under the Nasdaq Stock Market listing rules, we are required to
maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has
accounting or related financial management expertise. If we choose to follow requirements under Israeli law in lieu of those Nasdaq requirements,
we must disclose that fact in this annual report.
Our audit committee consists of Sharon Kochan (chairperson), Nissim
Mashiach and Stephen T. Wills, each of whom is an independent director in accordance with Rule 10A‑3(b)(1) under the Exchange Act
and satisfies the independent director requirements under the Nasdaq Stock Market listing rules. All members of our audit committee meet
the requirements for financial literacy under the applicable listing rules of the Nasdaq Stock Market. Our board of directors has determined
that Sharon Kochan is an “audit committee financial expert,” as defined in the SEC regulations.
Audit committee role
Our board of directors has adopted an audit committee charter that
sets forth the responsibilities of the audit committee consistent with the rules and regulations of the SEC and the Nasdaq Stock Market
listing rules, as well as the requirements for such committee under the Israeli Companies Law, including the following:
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oversight of our independent registered public accounting firm and recommending the
engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in
accordance with Israeli law; |
110
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• |
recommending the engagement or termination of the person filling the office of our
internal auditor; and
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recommending the terms of audit and non‑audit services provided by the independent
registered public accounting firm for pre‑approval by our board of directors. |
Our audit committee provides assistance to our board of directors
in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control
and legal compliance functions by pre‑approving the services performed by our independent accountants and reviewing their reports
regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit
efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent
of management.
Under the Israeli Companies Law, our audit committee is responsible
for:
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determining whether there are deficiencies in the business management practices of
our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of
directors to improve such practices;
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determining whether to approve certain related party transactions (including transactions
in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Israeli Companies
Law) (see “—Approval of Related Party Transactions Under Israeli Law”);
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establishing the approval process (including, potentially, the approval of the audit
committee and conducting a competitive procedure supervised by the audit committee) for certain transactions with a controlling shareholder
or in which a controlling shareholder has a personal interest;
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• |
where the board of directors approves the working plan of the internal auditor, examining
such working plan before its submission to the board of directors and proposing amendments thereto;
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examining our internal audit controls and internal auditor’s performance, including
whether the internal auditor has sufficient resources and tools to fulfill his responsibilities;
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examining the scope of our auditor’s work and compensation and submitting a
recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment
of our auditor; and
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establishing procedures for the handling of employees’ complaints as to the
management of our business and the protection to be provided to such employees.
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Our audit committee may not approve any actions requiring its approval
(see “—Approval of Related Party Transactions Under Israeli Law”), unless at the time of the approval a majority of
the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.
Compensation Committee and Compensation Policy
Israeli Companies Law compensation committee composition requirements
Under the Israeli Companies Law, the board of directors of a public
company must appoint a compensation committee. If a company is required to appoint external directors, the committee must consist of at
least three members, including all of the external directors, one of whom must serve as chairman of the committee. There are additional
requirements as to the composition of the audit committee under the Companies Law. However, when we elected to exempt our company from
the external director requirement, we concurrently elected to exempt our company from all of such requirements (including the three-member
minimum). Our exemption under the Companies Law is conditioned on our fulfillment of all Nasdaq listing requirements related to the composition
of the compensation committee.
111
Israeli Companies Law committee duties
The duties of the compensation committee include the recommendation
to the company’s board of directors of a policy regarding the terms of engagement of office holders, which we refer to as a compensation
policy. That policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation
committee, and must be approved by the company’s shareholders, which approval requires what we refer to as a Special Majority Approval
for Compensation. A Special Majority Approval for Compensation requires shareholder approval by a majority vote of the shares present
and voting at a meeting of shareholders called for such purpose, provided that either (a) such majority includes at least a majority of
the shares held by all shareholders who are not controlling shareholders and do not have a conflict of interest (referred to under the
Israeli Companies Law as a “personal interest”) in such compensation arrangement or (b) the total number of shares of non-controlling
shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement
does not exceed 2% of the company’s aggregate voting rights.
Compensation policy requirements
We have adopted a compensation policy, most recently at the extraordinary
general meeting of shareholders held on November 28, 2022, which policy serves as the basis for decisions concerning the financial terms
of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation
of payment or other benefit in respect of employment or engagement. Under the Israeli Companies Law, the compensation policy must relate
to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy,
and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management,
size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
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the knowledge, skills, expertise and accomplishments of the relevant office holder;
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the office holder’s roles and responsibilities and prior compensation agreements
with him or her;
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the relationship between the terms offered and the average compensation of the other
employees of the company, including those employed through manpower companies;
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the impact of disparities in salary upon work relationships in the company;
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the possibility of reducing variable compensation at the discretion of the board of
directors;
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the possibility of setting a limit on the exercise value of non-cash variable equity-based
compensation; and
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as to severance compensation, the period of service of the office holder, the terms
of his or her compensation during such service period, the company’s performance during that period of service, the person’s
contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which
the person is leaving the company.
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The compensation policy must also include the following principles:
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the link between variable compensation and long-term performance, which variable compensation
shall, other than office holder who report to the CEO, be primarily based on measurable criteria;
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112
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the relationship between variable and fixed compensation, and the ceiling for the
value of variable compensation;
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the conditions under which an office holder would be required to repay compensation
paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated
in the company’s financial statements;
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the minimum holding or vesting period for variable, equity-based compensation; and
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maximum limits for severance compensation.
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The compensation committee is responsible
for (a) recommending the compensation policy to the company’s board of directors for its approval (and subsequent approval by its
shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as
functions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement
of office holders, including:
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recommending whether a compensation policy should continue in effect, if the then-current
policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation
policy must in any case occur every three years, other than following a company’s initial public offering, in which case such approval
must occur within 5 years of the initial public offering);
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recommending to the board of directors periodic updates to the compensation policy
and assessing implementation of the compensation policy;
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approving compensation terms of executive officers, directors and employees that require
approval of the compensation committee; |
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determining whether the compensation terms of a chief executive officer nominee, which
were determined pursuant to the compensation policy, will be exempt from approval of the shareholders because such approval would harm
the ability to engage with such nominee; and
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determining, subject to the approval of the board and under special circumstances,
whether to override a determination of the company’s shareholders regarding certain compensation related issues.
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A copy of our current compensation policy serves as an exhibit to this annual report
on Form 20-F.
Nasdaq listing rules compensation
committee composition requirements
Under Nasdaq corporate governance rules, we are required to maintain
a wholly-independent compensation committee consisting of at least two independent directors or, if we choose to follow requirements under
Israeli law, we must disclose that fact in this annual report. Each of the members of the compensation committee is required to be independent
under the Nasdaq rules relating to compensation committee members and Rule 10C‑1(b)(1) under the Exchange Act, which are different
than the general test for independence of board members.
Our compensation committee consists of Nissim Mashiach (chairperson),
Sharon Kochan and Stephen T. Wills, each of whom is an independent director under the Nasdaq Stock Market listing rules and each of whom
satisfies the above-described additional requirements for compensation committee members under the Nasdaq rules and Exchange Act.
113
Compensation committee charter and role
Our board of directors has adopted a compensation committee charter
setting forth the responsibilities of the compensation committee, which include:
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the responsibilities set forth in the compensation policy;
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reviewing and approving the granting of options and other incentive awards to the
extent such authority is delegated by our board of directors; and
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reviewing, evaluating and making recommendations regarding the compensation and benefits
for our non-employee directors.
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Nominating, Governance and Sustainability Committee
Our nominating, governance and sustainability committee consists
of Nachum Shamir and David Fox, with Mr. Fox serving as chair. Our board of directors has adopted a nominating committee charter setting
forth the responsibilities of the committee, which include:
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overseeing and assisting our board
in reviewing and recommending nominees for election of directors; |
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assessing the performance of the
members of our board; and |
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establishing and maintaining effective
corporate governance policies and practices, including, but not limited to, developing and recommending to our board a set of corporate
governance guidelines applicable to our business. |
Research and Development Committee
The research and development committee is composed of
Vickie R Driver, Stephen T. Wills, Nissim Mashiach and Sharon Malka, with Dr. Driver serving as chairperson. The primary functions of
the research and development committee include:
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overseeing the Company's scientific, technical, research and development
strategy, and the implementation thereof; and |
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advising our board of directors and management regarding program prioritization,
clinical development strategy, regulatory strategy and interactions, and related matters. |
Internal Auditor
Under the Israeli Companies Law, the board of directors of an Israeli
public company must appoint an internal auditor recommended by the audit committee. An internal auditor may not be:
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a person (or a relative of a person) who holds 5% or more of the company’s outstanding
shares or voting rights;
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a person (or a relative of a person) who has the power to appoint a director or the
general manager of the company (i.e., the chief executive officer);
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an office holder (including a director) of the company (or a relative thereof); or
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a member of the company’s independent accounting firm, or anyone on its behalf.
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The role of the internal auditor is to examine, among other things,
our compliance with applicable law and orderly business procedures.
The audit committee is required to oversee the
activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Our internal
auditor is Mr. Yisrael Gewirtz.
Fiduciary Duties of Directors and Executive Officers
The Israeli Companies Law codifies the fiduciary duties that office
holders owe to a company. Each person listed in the table under “—Executive Officers and Directors” is an office holder
under the Israeli Companies Law.
An office holder’s fiduciary duties consist of a duty of
care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder
in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith
and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
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information on the advisability of a given action brought for his or her approval
or performed by virtue of his or her position; and
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• |
all other important information pertaining to any such action.
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114
The duty of loyalty includes a duty to:
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refrain from any conflict of interest between the performance of his or her duties
to the company and his or her other duties or personal affairs;
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• |
refrain from any activity that is competitive with the business of the company;
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• |
refrain from exploiting any business opportunity of the company to receive a personal
gain for himself or herself or others; and |
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disclose to the company any information or documents relating to the company’s
affairs which the office holder received as a result of his or her position as an office holder.
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Disclosure of personal interests of an office holder and approval
of certain transactions
The Israeli Companies Law requires that an office holder promptly
disclose to the board of directors any personal interest that he or she may be aware of and all related material information or documents
concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly
and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest
includes an interest of any person in an act or transaction of a company, including a personal interest of such person’s relative
or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or
in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from
one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest
of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote
on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder
is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction
that is not considered an extraordinary transaction. Under the Israeli Companies Law, an extraordinary transaction is defined as any of
the following:
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a transaction other than in the ordinary course of business;
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a transaction that is not on market terms; or
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a transaction that may have a material impact on a company’s profitability,
assets or liabilities.
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If it is determined that an office holder has a personal interest
in a transaction which is not an extraordinary transaction, approval by the board of directors is required for the transaction, unless
the company’s articles of association provide for a different method of approval. Further, so long as an office holder has disclosed
his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise
be deemed a breach of his or her duty of loyalty. However, a company may not approve a transaction or action that is not in the best interest
of the company or that is not performed by the office holder in good faith. An extraordinary transaction in which an office holder has
a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation
of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation
committee, then by the company’s board of directors. If such compensation arrangement or an undertaking to indemnify or insure is
inconsistent with the company’s stated compensation policy, or if the office holder is the chief executive officer (apart from a
number of specific exceptions), then such arrangement is further subject to a Special Majority Approval for Compensation. Arrangements
regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directors
and shareholders by ordinary majority, in that order, and under certain circumstances, a Special Majority Approval for Compensation.
115
Generally, a person who has a personal interest in a matter which
is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter
unless the chairman of the relevant committee or board of directors (as applicable) determines that he or she should be present in order
to present the transaction that is subject to approval. If a majority of the members of the audit committee or the board of directors
(as applicable) has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit
committee or the board of directors (as applicable) on such transaction and the voting on approval thereof, but shareholder approval is
also required for such transaction.
Disclosure of personal interests of controlling shareholders and
approval of certain transactions
Pursuant to Israeli law, the disclosure requirements regarding
personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the
context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or
more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose,
the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee
or the compensation committee, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary
transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling
shareholder or his or her relative, directly or indirectly, including through a company under the control of the controlling shareholder,
for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her
relative who is an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than
as an office holder. In addition, the shareholder approval requires one of the following, which we refer to as a Special Majority:
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at least a majority of the shares held by all shareholders who do not have a personal
interest in the transaction and who are present and voting at the meeting approves the transaction, excluding abstentions; or
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the shares voted against the transaction by shareholders who have no personal interest
in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company.
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To the extent that any such transaction with a controlling shareholder
is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions,
the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto. Arrangements
regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require
the approval of the compensation committee, board of directors and shareholders by a Special Majority, in that order, and the terms thereof
may not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations promulgated under the Israeli Companies
Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise require approval
of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee and board
of directors.
Shareholder duties
Pursuant to the Israeli Companies Law, a shareholder has a duty
to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power
in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following
matters:
|
|
• |
an amendment to the company’s articles of association; |
116
|
|
• |
an increase of the company’s authorized share capital;
|
|
|
• |
a merger; or
|
|
|
• |
the approval of related party transactions and acts of office holders that require
shareholder approval.
|
A shareholder also has a general duty to refrain from discriminating
against other shareholders. In addition, certain shareholders have a duty of fairness toward the company. These shareholders include any
controlling shareholder, any shareholder who knows that he or she has the power to determine the outcome of a shareholder vote and any
shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company.
The Israeli Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available
upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Israeli Companies Law, a company may not exculpate an
office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability
to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision
authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. A company
may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Israeli Companies Law, a company may indemnify an office
holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant
to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing
such indemnification:
|
|
• |
financial liability imposed on him or her in favor of another person pursuant to a
judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder
with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the
board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount
or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail
the abovementioned foreseen events and amount or criteria;
|
|
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office
holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation
or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding, and
(ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation
or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal
intent; and (2) in connection with a monetary sanction; and
|
|
|
• |
reasonable litigation expenses, including attorneys’ fees, incurred by the office
holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection
with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require
proof of criminal intent. |
117
Under the Israeli Companies Law, a company may insure an office
holder against the following liabilities incurred for acts performed by him or her as an office holder, if and to the extent provided
in the company’s articles of association:
|
|
• |
a breach of the duty of loyalty to the company, provided that the office holder acted
in good faith and had a reasonable basis to believe that the act would not harm the company;
|
|
|
• |
a breach of duty of care to the company or to a third party, to the extent such a
breach arises out of the negligent conduct of the office holder; and
|
|
|
• |
a financial liability imposed on the office holder in favor of a third party.
|
Under the Israeli Companies Law, a company
may not indemnify, exculpate or insure an office holder against any of the following:
|
|
• |
a breach of the duty of loyalty, except for indemnification and insurance for a breach
of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that
the act would not harm the company; |
|
|
• |
a breach of duty of care committed intentionally or recklessly, excluding a breach
arising out of the negligent conduct of the office holder;
|
|
|
• |
an act or omission committed with intent to derive illegal personal benefit; or
|
|
|
• |
a fine or forfeit levied against the office holder.
|
Under the Israeli Companies Law, exculpation,
indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors
and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related
Party Transactions Under Israeli Law.”
Our articles of association permit us to exculpate, indemnify and
insure our office holders to the fullest extent permitted or to be permitted by the Israeli Companies Law. We have obtained directors’
and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay
all premiums thereunder to the fullest extent permitted by the Israeli Companies Law. In addition, we have entered into agreements with
each of our directors and executive officers exculpating them from liability to us for damages caused to us as a result of a breach of
duty of care and undertaking to indemnify them, in each case, to the fullest extent permitted by our articles of association and Israeli
Law.
The maximum indemnification amount set forth in those agreements
is limited to an amount equal to the greater of (i) 25% of our total shareholders’ equity based on our most recently financial statements
of the time of the actual payment of the indemnification; (ii) $50 million; (iii) 40% of our total market cap (which shall mean the average
closing price of the Company’s ordinary shares over the 30 trading days prior to the actual payment of indemnification multiplied
by the total number of issued and outstanding shares of the Company as of the date of actual payment); and (iv) in connection with or
arising out of a public offering of our securities, the aggregate amount of proceeds from the sale by us and/or any shareholder of ours
securities in such offering. The maximum amount set forth in those agreements is in addition to amounts actually paid, if any, under insurance
policies and/or by a third-party pursuant to an indemnification arrangement.
118
|
|
D. |
Employees |
As of December 31, 2022, we had 83 employees, 73 of whom were
based in Israel and 10 based throughout Europe and employed by our German subsidiary. The distribution of our employees according to main
areas of activity is as follows: 10 employees in the administrative department, 24 employees in the research and development department,
39 employees in the manufacturing department and 10 employees in the sales and marketing department. As of December 31, 2022, we
did not employ a significant number of temporary employees.
Israeli labor laws govern the length of the workday and workweek,
minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days,
advance notice of termination, payments to the National Insurance Institute and other conditions of employment, and include equal opportunity
and anti-discrimination laws. While none of our employees is party to any collective bargaining agreements, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic
Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israeli Ministry
of the Economy. These provisions primarily concern pension fund benefits for all employees, insurance for work-related accidents, recuperation
pay and travel expenses. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages
and believe our relationships with our employees are good.
|
|
E. |
Share Ownership |
For information regarding the share ownership of our directors
and executive officers, see “ITEM 6.B. Compensation—2014 Equity Incentive Plan” and “ITEM 7.A. Major Shareholders.”
Item
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
|
A. |
Major Shareholders |
The following table sets forth information with
respect to the beneficial ownership of our shares as of March 15, 2023 by:
|
|
• |
each person or entity known by us to own beneficially more than 5% of our outstanding shares;
|
|
|
• |
each of our directors and executive officers individually; and
|
|
|
• |
all of our executive officers and directors as a group.
|
The
beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares
over which a person exercises sole or shared voting or investment power. The percentage of shares beneficially owned is based on 9,474,661
ordinary shares issued and outstanding as of March 15, 2023. Ordinary shares that are issuable under stock options or RSUs that are currently
exercisable or exercisable within 60 days of March 15, 2023 are deemed to be outstanding and to be beneficially owned by the person
holding the stock option for the purpose of computing the number of shares and percentage ownership of that person. Those shares are not
deemed outstanding, however, for the purpose of computing the percentage ownership of any other person.
119
All of our shareholders, including the shareholders listed below,
have the same voting rights attached to their ordinary shares. See “ITEM 10.B. Articles of Association.” None of our principal
shareholders nor our directors or executive officers possesses different or special voting rights with respect to their ordinary shares.
Unless otherwise noted below, each shareholder’s address is c/o MediWound Ltd., 42 Hayarkon Street, Yavne 8122745, Israel.
A description of any material relationship that our principal shareholders
have had with us or any of our predecessors or affiliates within the past three years is included under “ITEM 7.B. Related Party
Transactions.”
|
Name of Beneficial Owner |
Number of Shares Beneficially Held
|
Percentage of Class
|
||||||
|
Directors and Executive Officers |
||||||||
|
Nacchum (Homi) Shamir |
* |
* |
||||||
|
Ofer Gonen |
* |
* |
||||||
|
Assaf Segal |
* |
* |
||||||
|
Vickie R. Driver |
* |
* |
||||||
|
Nissim Mashiach |
* |
* |
||||||
|
Sharon Kochan |
* |
* |
||||||
|
David Fox |
* |
* |
||||||
|
Stephen T. Wills |
* |
* |
||||||
|
Sharon Malka |
96,127 |
1.01 |
% | |||||
|
Boaz Gur-Lavie |
* |
* |
||||||
|
Ety Klinger |
* |
* |
||||||
|
Yaron Meyer |
* |
* |
||||||
|
All executive officers and directors as a group (13 persons)( 1) |
309,285 |
3.30 |
% | |||||
|
Principal Shareholders (who are not Directors or Executive Officers)
|
||||||||
|
Clal Biotechnology Industries Ltd.(2) |
1,497,414 |
15.80 |
% | |||||
|
Point72 Associates, LLC |
821,500 |
8.70 |
% | |||||
________
|
* |
Less than 1%. |
120
|
(1) |
Shares beneficially owned consist of 1,884,067 ordinary shares held directly or indirectly
by such executive officers and directors and 268,394 ordinary shares issuable upon exercise of outstanding options that are currently
exercisable or exercisable within 60 days of March 15, 2023. |
|
(2) |
Shares beneficially owned consist of: 1,172,710 ordinary shares held by Clal Life
Sciences, LP, whose managing partner is Clal Application Center Ltd., a wholly-owned subsidiary of CBI; (ii) 308,811 ordinary shares held
by CBI and (iii) 15,893 ordinary shares issuable upon exercise of outstanding options held directly by CBI that are currently exercisable
or exercisable within 60 days of March 15, 2023. As reported on a Schedule 13D/A filed on February 13, 2023 by Access Industries Holdings
LLC, Access Industries Holdings LLC indirectly owns 100% of the outstanding shares of Clal Industries Ltd., which owns 47.17% of the outstanding
shares of CBI. The address of Clal Industries Ltd. is the Triangular Tower, 3 Azrieli Center, Tel Aviv 67023, Israel and the address of
Access Industries Holdings LLC is c/o Access Industries Inc., 40 West 57th Street, New York, New York 10019, United States |
|
(3) |
As reported on a Schedule 13G filed on February 8, 2023, shares beneficially
owned consist of: 821,500 ordinary shares held by Point72 Associates, LLC which are controlled by Point72 Asset Management, L.P. pursuant
to an investment management agreement. Point72 Capital Advisors Inc. is the general partner of Point72 Asset Management. Steven
Cohen, as manager, controls each of Point72 Asset Management and Point72 Capital Advisors Inc. and their business address is 72 Cummings
Point Road, Stamford, CT 06902. |
Changes in Ownership of Major Shareholders
To our knowledge,
other than as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change
in the percentage ownership held by any major shareholder since January 1, 2020. The major shareholders listed above do not have voting
rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares.
Registered Holders
As of March 15, 2023, we had one holder of record
of our ordinary shares in the United States, which is Cede Co., the nominee of The Depository Trust Company. This shareholder held
in the aggregate 82.7% of the 9,204,306 ordinary shares issued and outstanding as of Mach 15, 2023. The number of record holders in the
United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are
resident since many of these ordinary shares were held by brokers or other nominees.
|
|
B. |
Related Party Transactions |
Information Rights Agreement
We have entered into an information rights agreement with CBI,
which provides CBI with certain information rights relating to our financial information of the company and certain other information
necessary for CBI to meet Israeli Securities Law requirements. CBI is not required to reimburse us for expenses we incur in providing
such information.
Registration Rights Agreement
We are party to an amended and restated registration
rights agreement, dated April 6, 2021, with certain of our shareholders (the “Registration Rights Agreement”). The Registration
Rights Agreement, which was approved by our shareholders at our 2021 annual general meeting of shareholders, replaced the registration
rights agreement, dated March 3, 2014 (the “Original Registration Rights Agreement”), that we had entered into in connection
with our initial public offering with certain of our pre-IPO shareholders, which expired by its own terms on its seven-year anniversary. The
ordinary shares held by most of our pre-IPO shareholders who were party to the Original Registration Rights Agreement were no longer entitled
to registration rights under that agreement as of the time that it expired, given their ability to freely sell their shares in the open
market under Rule 144 of the Securities Act. However, each of CBI and Professor Lior Rosenberg, and their affiliated entities that hold
ordinary shares (consisting of Clal Life Sciences LP and L.R. Research Development Ltd., respectively) remained entitled to
registration rights as of the time of the expiration of the Original Registration Rights Agreement, and we therefore entered into the
Registration Rights Agreement with them as a means of extending those rights. The Registration Rights Agreement provides to the
holders of our ordinary shares that are party to the agreement the right to demand that we file a registration statement or request that
their ordinary shares be covered by a registration statement that we are otherwise filing. In May 2022, we filed, and the SEC declared
effective, on June 3, 2022, a shelf registration statement on Form F-3 that registered the resale of the 1,819,780 shares that were then
entitled to registration rights under the Registration Rights Agreement. That registration statement remains in effect as of the date
of this Annual Report. The registration rights under the Registration Rights Agreement are described in more detail under “ITEM
10.B. Articles of Association” and in Exhibit 2.1 to this Annual Report, which is incorporated by reference in that ITEM 10.B.
121
Founders’ and Shareholders’ Agreement
In
January 2001, we entered into a founders’ and shareholders’ agreement (the “Founders Agreement”), with CBI, Prof.
Lior Rosenberg, and LR, a private company which is wholly-owned by Prof. Rosenberg. The Founders Agreement was amended in 2006. Pursuant
to the Founders Agreement, in exchange for the issuance of ordinary shares and certain rights thereunder and the payment of certain fixed
amounts, Prof. Rosenberg granted to us a perpetual, exclusive, non-revocable, royalty-free, sub-licensable, worldwide license for intellectual
property relating to debridement using products based on our proteolytic enzyme technology. As of the date hereof, all of the payments
under the Founders Agreement were paid by us to Prof. Rosenberg in accordance with the Founders Agreement. The Founders Agreement also
provided for anti-dilution, pre-emptive rights, a right of first refusal on the sale of our ordinary shares and bring-along rights, all
of which were subsequently terminated. In September 2022 we entered into an additional license agreement with LR for intellectual property
rights related to the development of a synthetic hyaluronic acid polyurethane dressing for debrided and non-debrided burns. Under
this license LR received an upfront payment of $150,000.
Sub-Lease Agreement
In January 2018, we entered into a sub-lease agreement (the “Sub-Lease
Agreement”), with Clal Life Sciences, L.P. (“CLS”), a subsidiary of CBI, our controlling shareholder, which was amended
in February 2019. Pursuant to the Sub-Lease Agreement, we currently sublease approximately 32,300 square feet of laboratory, office and
clean room space from CLS and our yearly rent is $0.4 million. The Sub-Lease Agreement is scheduled to expire on October 30, 2025.
Agreements with Directors and Officers
Employment Agreements
We have entered into employment agreements with each of our executive
officers, which include standard provisions for a company in our industry regarding non-competition/solicitation, confidentiality of information
and assignment of inventions. However, the enforceability of the non-competition provisions may be limited under applicable law. Our executive
officers will not receive benefits upon the termination of their respective employment with us, other than payment of salary and benefits
(and limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual.
Options
Since our inception, we have granted options to purchase our ordinary
shares to our directors and executive officers. Such option agreements may contain acceleration provisions upon certain merger, acquisition
or change of control transactions. We describe our option plans under “ITEM 6.B. Compensation—2003 Israeli Share Option Plan”
and “ITEM 6.B. Compensation—2014 Equity Incentive Plan.” Upon the consummation of a merger or acquisition transaction,
an executive officer’s options will be assumed or substituted by the surviving company, if applicable, or, in the compensation committee’s
sole discretion, will vest immediately or be amended, modified or terminated. Our compensation committee approved accelerated vesting
in the case of a merger or an acquisition transaction for certain of our directors and executive officers with respect to the option agreements
dated December 23, 2015, June 22, 2017, January 16, 2018, December 31, 2018, May 2, 2019, April 23, 2020, March 4, 2021 and February 15,
2023.
122
RSUs
Under the 2014 Plan, we have granted RSUs to our executive officers
and our chairman of the board. The RSU agreements generally provide for vesting of RSUs over a four-year period of continuous employment
or service, with 25% of the RSUs vesting at the lapse of one year following the vesting commencement date, and the remaining 75% of the
RSUs vesting in three equal installments, at the lapse of each of the following three years. Absent a specific acceleration provision,
if a grantee’s service is terminated for any reason, all RSUs that have not vested will immediately terminate. RSUs that have vested
but have not been settled yet for underlying ordinary shares may generally be settled within the three months following the termination
of the service of the grantee, other than in the case of termination due to death or disability (in which case the grantee or his/her
estate will have one year to settle the vested RSUs for underlying ordinary shares) or termination for cause (in which case all unsettled
RSUs will immediately terminate). Upon the consummation of a merger or acquisition transaction, an executive officer’s or the chairman’s
RSUs will be assumed or substituted by the surviving company, if applicable, or, in the compensation committee’s sole discretion,
will vest immediately or be amended, modified or terminated. The RSUs that we grant may contain acceleration provisions upon certain merger,
acquisition or change of control transactions, if approved by our board of directors with respect to a specific grant. The RSUs are generally
subject to the further terms of the 2014 Plan, which we describe under “ITEM 6.B. Compensation—2014 Equity Incentive Plan.”
Exculpation, indemnification and insurance
Our articles of association permit us to exculpate, indemnify and
insure each of our directors and office holders to the fullest extent permitted by the Israeli Companies Law. Additionally, we have entered
into indemnification agreements with each of our directors and executive officers, undertaking to indemnify them to the fullest extent
permitted by Israeli law, including with respect to liabilities resulting from a public offering of our shares, to the extent that these
liabilities are not covered by insurance. We have also obtained Directors and Officers insurance for each of our executive officers and
directors. See “ITEM 6.C. Board Practices—Exculpation, Insurance and Indemnification of Directors and Officers.”
|
C. |
Interests of Experts and Counsel |
Not applicable.
|
Item 8. |
FINANCIAL INFORMATION |
|
|
A. |
Consolidated Statements and Other Financial Information |
Consolidated Financial Statements
See Item 18. “Financial Statements”.
Legal and Arbitration Proceedings
From time to time, we may be party to litigation or subject to
claims incident to the ordinary course of business.
123
Settlement of Litigation Involving Our Company
and Teva
Under a previously reported settlement agreement, as amended, we
are obligated to pay Teva up to $10.2 million of which twelve quarterly equal installments are being paid during the period commencing
on January 1, 2021 and ending on December 31, 2023. In addition, commencing on January 1, 2021, we agreed to pay Teva an aggregate annual
amount of $1 million in four quarterly equal installments, unless we do not recognize any revenues generated from the sale or license
of NexoBrid in any such quarter, up to an aggregate amount equal to $7.2 million regardless of the number of quarters required for purposes
of the payment of such aggregate amount. we also agreed to indemnify Teva and its controlled affiliates from and against claims relating
to a certain milestone related to PolyHeal under an agreement associated with our collaboration agreements with Teva, for up to an amount
of $10.2 million, if a notice of such claim has been received by us prior to December 31, 2023.
Dividend Policy
We have never declared or paid cash dividends to our shareholders
and we do not intend to pay cash dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our
business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend
on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements,
business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors
may deem relevant.
|
|
B. |
Significant Changes |
No significant changes have occurred since December
31, 2021, except as otherwise disclosed in this annual report.
|
Item 9. |
THE OFFER AND LISTING |
|
|
A. |
Listing Details |
Our ordinary shares trade on the Nasdaq Global Market
under the symbol “MDWD”.
|
B. |
Plan of Distribution |
Not applicable.
124
|
|
C. |
Markets |
See “—Listing Details” above.
|
|
D. |
Selling Shareholders |
Not applicable.
|
|
E. |
Dilution |
Not applicable.
|
|
F. |
Expenses of the Issue |
Not applicable.
|
Item 10. |
ADDITIONAL INFORMATION |
|
|
A. |
Share Capital |
Not applicable.
|
|
B. |
Articles of Association |
A copy of our amended and restated articles of association is attached
as Exhibit 1.1 to this Annual Report. Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.1
to this Annual Report on Form 20-Fm which is incorporated by reference into this Annual Report.
Election of directors
Our ordinary shares do not have cumulative voting
rights for the election of directors. As a result, the holders of a majority of the voting power represented at a meeting of shareholders
have the power to elect each of our directors. Under our articles of association, our board of directors must consist of at least five
and not more than nine directors, including, when we are then required to appoint them (we are not current required to do so), at least
two external directors appointed under the Israeli Companies Law. At any time the minimum number of directors (other than the external
directors) shall not fall below three. Pursuant to our articles of association, each of our directors, other than the external directors,
for whom special election requirements apply under the Israeli Companies Law, will be appointed by a simple majority vote of holders of
our voting shares, participating and voting at an annual general meeting of our shareholders. Each director will serve until his or her
successor is duly elected and qualified or until his or her earlier death, resignation or removal by a vote of the majority voting power
of our shareholders at a general meeting of our shareholders or until his or her office expires by operation of law, in accordance with
the Israeli Companies Law. Our articles of association allow our board of directors to appoint directors to fill vacancies on the board
of directors to serve until the next annual general meeting of shareholders. External directors are elected for an initial term of three
years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to
the terms of the Israeli Companies Law. Under regulations promulgated under the Israeli Companies Law, Israeli public companies whose
shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Market and that lack a controlling shareholder are exempt
from the requirement to appoint external directors. See “ITEM 6.C. Board Practices—Board of Directors and External Directors.”
125
|
C. |
Material Contracts |
For a description of the registration rights that are subject to
our Registration Rights Agreement, see “ITEM 7.B. Related Party Transactions—Registration Rights Agreement.”
For a description of our contract with the U.S. Biomedical Advanced
Research and Development Authority, see “ITEM 4.B. Our Focus—Burn Care—BARDA Contract.”
For a description of our exclusive license and supply agreements
with Vericel, see “ITEM 4.B. Business Overview— Marketing, Sales and Distribution— Vericel
License and Supply Agreements.”
For a description of our license agreement with Mark Klein, see
“ITEM 4.B. Business Overview—Intellectual Property—Klein License Agreement.”
We have entered into an agreement with Challenge Bioproducts Corporation
Ltd. (“CBC”), a corporation organized and existing under the laws of the Republic of China, dated January 11, 2001, as amended
on February 28, 2010, pursuant to which CBC uses proprietary methods to manufacture bromelain SP and supplies us with this intermediate
drug substance in bulk quantities. According to the terms of the agreement, CBC shall not, and shall not permit related companies or a
third party to, manufacture, use, supply or sell the raw materials for the use or production of a product directly or indirectly competing
with any of our products. Our supply agreement with CBC has no fixed expiration date and can be voluntarily terminated by us, with at
least six months’ advance written notice, or by CBC, with at least 24 months’ advance written notice.
|
|
D. |
Exchange Controls |
In 1998, Israeli currency control regulations were liberalized
significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and non-residents may freely
deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances of dividends
on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation
remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our securities.
Neither our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares
by non-residents, except that such restrictions may exist with respect to citizens of countries which are in a state of war with Israel.
Israeli residents are allowed to purchase our ordinary shares.
126
|
|
E. |
Taxation |
The following description is not intended to constitute a complete
analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your
own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the
laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations for Our Shareholders
Capital gains taxes applicable to non‑Israeli resident shareholders
A non‑Israeli resident (whether an individual or a corporation)
who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for
trading on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, will generally be exempt from Israeli capital
gain tax so long as the shares were not held through a permanent establishment that the non‑resident maintains in Israel (and with
respect to shares listed on a recognized stock exchange outside of Israel, so long as the particular capital gain is otherwise subject
to the Israeli Income Tax Law (Inflationary Adjustments) 5745‑1985. These provisions dealing with capital gain are not applicable
to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. However, non‑Israeli
corporations will not be entitled to the foregoing exemption if Israeli residents (i) have a controlling interest of more than 25% in
such non‑Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such
non‑Israeli corporation, whether directly or indirectly.
If not exempt, a non-Israeli resident shareholder would generally
be subject to tax on capital gain at the ordinary corporate tax rate (23% in 2022), if generated by a company, or at the rate of 25%,
if generated by an individual, or 30%, if generated by an individual who is a “substantial shareholder” (as defined under
the Tax Ordinance), at the time of sale or at any time during the preceding 12-month period (or if the shareholder claims a deduction
for interest and linkage differences expenses in connection with the purchase and holding of such shares). A “substantial shareholder”
is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a
permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means
of control” generally include, among others, the right to vote, receive profits, nominate a director or an executive officer, receive
assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Individual
and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate
for a corporation (23% in 2022) and a marginal tax rate of up to 47% for an individual in 2022 (excluding excess tax as discussed below))
unless contrary provisions in a relevant tax treaty apply.
Additionally, a sale of shares by a non‑Israeli resident
may also be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention
Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended
(the “United States‑Israel Tax Treaty”), the sale, exchange or other disposition of shares by a shareholder who is a
United States resident (for purposes of the United States‑Israel Tax Treaty) holding the shares as a capital asset and is entitled
to claim the benefits afforded to such a resident by the United States‑Israel Tax Treaty (a “Treaty U.S. Resident”)
is generally exempt from Israeli capital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed
to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii)
the capital gain arising from the such sale, exchange or disposition can be attributable to a permanent establishment of the shareholder
maintained in Israel, under certain terms; (iv) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more
of the voting capital of a company during any part of the 12‑month period preceding such sale, exchange or disposition, subject
to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israel for a period or periods aggregating
to 183 days or more during the relevant taxable year. In each case, the sale, exchange or disposition of our ordinary shares would be
subject to such Israeli tax, to the extent applicable; However, under the United States‑Israel Tax Treaty, such Treaty U.S. Resident
would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or
disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The United States-Israel Tax Treaty does not provide
such credit against any U.S. state or local taxes.
127
In some instances where our shareholders may be liable for Israeli
tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source
at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of
a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations
in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non‑Israeli
resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of non‑Israeli shareholders on receipt of dividends
Non‑Israeli residents (whether individuals or corporations)
are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25% unless a relief
is provided in a treaty between Israel and a shareholder's country of residence (provided that a valid certificate from the Israeli Tax
Authority allowing for a reduced withholding tax rate is obtained in advance). With respect to a person who is a “substantial shareholder”
at the time of receiving the dividend or on any time during the preceding 12 months, the applicable tax rate is 30%. Such dividends are
generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether or
not the recipient is a substantial shareholder), unless relief is provided in a treaty between Israel and the shareholder’s country
of residence and provided that a valid certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained
in advance. However, a distribution of dividends to non‑Israeli residents is generally subject to withholding tax at source at a
rate of 15% if the dividend is distributed from income attributed to a Beneficiary Enterprise, or such a reduced tax rate as may be provided
under an applicable tax treaty (provided that a valid certificate from the Israel Tax Authority allowing for a reduced withholding tax
rate or such lower tax rate as may be provided in an applicable tax treaty is obtained in advance). For example, under the United States‑Israel
Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a Treaty
U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by an Approved Enterprise or
Beneficiary Enterprise, that are paid to a U.S. corporation holding 10% or more of the outstanding voting capital throughout the tax year
in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income
for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from
income attributed to an Approved Enterprise or Beneficiary Enterprise are not entitled to such reduction under the tax treaty but are
subject to a withholding tax rate of 15% for such a U.S. corporation, provided that the condition related to our gross income for the
previous year (as set forth in the previous sentence) is met. The aforementioned rates under the United States-Israel Tax Treaty would
not apply if the dividend income is derived through a permanent establishment of the U.S. resident in Israel. If the dividend is attributable
partly to income derived from an Approved Enterprise, Beneficiary Enterprise or Preferred Enterprise, and partly to other sources of income,
the withholding rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we
will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.
A non‑Israeli resident who receives dividends from which
tax was withheld, is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i)
such income was not derived from a business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income
in Israel with respect to which a tax return is required to be filed and (iii) the tax payer is not obligated to pay the excess tax (as
further explained below).
128
Excess Tax
Individuals who are subject to tax in Israel (whether any such
individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income exceeding
a certain level, which amount is linked to the annual change in the Israeli consumer price index, including but not limited to, dividends,
interest and capital gain. In 2022, the additional tax was at a rate of 3% on annual income exceeding NIS 663,240.
United States Federal Income Taxation
The following is a description of the material U.S. federal income
tax consequences of the ownership and disposition of our ordinary shares by a U.S. Holder that holds the ordinary shares as capital assets.
This description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without
limitation:
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banks, financial institutions or insurance companies;
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real estate investment trusts, regulated investment companies or grantor trusts;
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dealers or traders in securities, commodities or currencies;
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tax‑exempt entities or organizations, including an “individual retirement
account” or “Roth IRA” as defined in Section 408 or 408A of the Code, respectively;
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certain former citizens or long‑term residents of the United States;
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persons that received our shares as compensation for the performance of services;
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persons that holds our shares as part of a “hedging,” “integrated”
or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes;
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partnerships (including entities classified as partnerships for U.S. federal income
tax purposes) or other pass‑through entities, or holders that will hold our shares through such an entity;
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S corporations;
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holders that acquired ordinary shares as a result of holding or owning our preferred
shares;
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U.S. Holders (as defined below) whose “functional currency” is not the
U.S. dollar;
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persons that are residents of ordinarily resident in or have a permanent establishment
in a jurisdiction outside the United States; or
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holders that own directly, indirectly or through attribution 10.0% or more of the
voting power or value of our shares.
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Moreover, this description does not address the U.S. federal estate,
gift or alternative minimum tax consequences, Medicare consequences, or any state, local or foreign tax consequences, of the ownership
and disposition of our ordinary shares.
This summary is based on the Internal Revenue Code of 1986, as
amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations,
all as currently in effect and available. These authorities are subject to change or differing interpretation, possibly with retroactive
effect. U.S. Holders should consult their tax advisors concerning the U.S. federal, state, local and foreign tax consequences of owning
and disposing of our ordinary shares in their particular circumstances.
129
For purposes of this summary, a “U.S. Holder” is a
beneficial owner of our ordinary shares who is, for U.S. federal income tax purposes:
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an individual who is a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation regardless
of its source; or
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a trust that (1) is subject to the primary supervision of a U.S. Court and one or
more U.S. persons that have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under
applicable Treasury regulations to be treated as a U.S. person.
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If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership generally will depend
upon the status of the partner and upon the activities of the partnership. Investors who are partners in a partnership should consult
their tax advisors as to the particular U.S. federal income tax consequences of owning and disposing of our ordinary shares in their particular
circumstances.
A “Non‑U.S. Holder” is a beneficial owner of
our ordinary shares that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.
Unless otherwise indicated, this discussion assumes that the company
is not, and will not become, a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes. See
“ITEM 10.E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations”
below. Further, this summary does not address the U.S. federal estate and gift, state, local or non‑U.S. tax consequences to U.S.
Holders of owning and disposing of our ordinary shares. Investors should consult their own tax advisors regarding the U.S. federal, state
and local, as well as non‑U.S. income and other tax consequences of owning and disposing of our ordinary shares in their particular
circumstances.
Distributions
If you are a U.S. Holder, the gross amount of any distribution
made to you with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain distributions,
if any, of our ordinary shares distributed pro rata to all our shareholders, generally will be includible in your income as dividend income
to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under U.S. federal income
tax principles. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore,
if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be taxable as dividend income to
you. Non‑corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable
to long‑term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions
are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such dividends
will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders.
130
If you are a U.S. Holder, dividends paid to you with respect to
our ordinary shares will generally be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation.
Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited
against your U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect
to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income.”
A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements.
The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether
and to what extent you will be entitled to this credit.
Subject to the discussion below under “—Backup Withholding
Tax and Information Reporting Requirements,” if you are a Non‑U.S. Holder, you generally will not be subject to U.S. federal
income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United
States and such income is effectively connected with that trade or business (or, if required by an applicable income tax treaty, the dividends
are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
Sale, Exchange or Other Taxable Disposition
of Ordinary Shares
If you are a U.S. Holder, you generally will recognize gain or
loss on the sale, exchange or other taxable disposition of our ordinary shares equal to the difference between the amount realized on
such sale, exchange or other taxable disposition and your adjusted tax basis in our ordinary shares, and such gain or loss will be capital
gain or loss. The initial tax basis in an ordinary share generally will be equal to the cost of such ordinary share. Except with respect
to foreign currency gain or loss, if you are a non‑corporate U.S. Holder, capital gain from the sale, exchange or other taxable
disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding
period for such ordinary shares exceeds one year (i.e., such gain is long‑term capital gain). The deductibility of capital losses
for U.S. federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally
will be treated as U.S. source income or loss for foreign tax credit limitation purposes.
Subject to the discussion below under “—Backup Withholding
Tax and Information Reporting Requirements,” if you are a Non‑U.S. Holder, you generally will not be subject to U.S. federal
income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
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such gain is effectively connected with your conduct of a trade or business in the
United States (or, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base
that such holder maintains in the United States); or
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you are an individual and have been present in the United States for 183 days or more
in the taxable year of such sale or exchange and certain other conditions are met.
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131
Passive Foreign Investment Company Considerations
If we were to be classified as a “passive foreign investment
company,” or “PFIC,” in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce
or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non‑U.S.
company that does not distribute all of its earnings on a current basis.
A non‑U.S. corporation will be classified as a PFIC for federal
income tax purposes in any taxable year in which, after applying certain look‑through rules with respect to the income and assets
of subsidiaries, either:
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at least 75% of its gross income is “passive income”; or
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at least 50% of the average quarterly value of its total gross assets (which may be
determined in part by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive
income” or are held for the production of passive income.
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Passive income for this purpose generally includes dividends, interest,
royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which
produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary
shares. If a non‑U.S. corporation owns at least 25% by value of the stock of another corporation, the non‑U.S. corporation
is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly
its proportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S.
Holder owns our ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during
which the U.S. Holder owns our ordinary shares unless we cease to be a PFIC and the U.S. holder has made a “deemed sale” election
under the PFIC rules.
Based on our current estimates of our gross income and the estimated
fair market value of our gross assets and the nature of our business, we do not believe we were classified as a PFIC for the taxable year
ending December 31, 2022. However, we must determine our PFIC status annually based on tests which are factual in nature, and our status
in future years will depend on our income, assets and activities in those years. Further, because the value of our gross assets is likely
to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares or an increase
in the value of our passive assets (including cash and short term investments) may result in our becoming a PFIC. There can be no assurance
that we will not be considered a PFIC for any taxable year. If we were a PFIC and you are a U.S. Holder, then unless you make one of the
elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to you (generally,
your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the
shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition
of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject
to tax as if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized
in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income
allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s
regular ordinary income rate for the current year and would not be subject to the interest charge discussed below) and (c) the interest
charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition,
dividend distributions made to you will not qualify for the lower rates of taxation applicable to long‑term capital gains discussed
above under “Distributions.” Certain elections may be available that would result in an alternative treatment (such as mark‑to‑market
treatment) of our ordinary shares.
If a U.S. Holder makes a valid mark‑to‑market election
for the first tax year in which such U.S. Holder holds (or is deemed to hold) ordinary shares in a corporation and for which such corporation
is determined to be a PFIC, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ordinary
shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of
the adjusted tax basis of the ordinary shares over their fair market value at the end of the taxable year (but only to the extent of the
net amount of income previously included as a result of the mark‑to‑market election). If a U.S. Holder makes the election,
the U.S. Holder’s tax basis in the ordinary shares will be adjusted to reflect these income or loss amounts. Any gain recognized
on the sale or other disposition of ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will
be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark‑to‑market
election). The mark‑to‑market election is available only if we are a PFIC and our ordinary shares are “regularly traded”
on a “qualified exchange.” Our ordinary shares will be treated as “regularly traded” in any calendar year in which
more than a de minimis quantity of the ordinary shares, are traded on a qualified exchange on at least 15 days during each calendar quarter.
Nasdaq is a qualified exchange for this purpose and, consequently, if the ordinary shares are regularly traded, the mark‑to‑market
election will be available to a U.S. Holder.
132
If we are a PFIC, the general tax treatment for U.S. Holders described
in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any entity in which
we hold equity that is also a PFIC (a "lower tier PFIC"). Because a mark‑to‑market election generally would not be available
with respect to any lower‑tier PFICs, a U.S. Holder may continue to be subject to the PFIC rules with respect to such holder’s
indirect interest in any investments held by us that are treated as an equity interest in such lower-tiers PFICs.
We do not intend to provide the information necessary for U.S.
Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders should consult their tax advisors to determine
whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular
circumstances.
If a U.S. Holder owns ordinary shares during any year in which
we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund) or successor form with respect to the company, generally with the U.S. Holder’s federal
income tax return for that year. If the company was a PFIC for a given taxable year, then you should consult your tax advisor concerning
your annual filing requirements.
U.S. Holders should consult their tax advisors regarding whether
we are a PFIC and the potential application of the PFIC rules.
Backup Withholding Tax and Information Reporting
Requirements
U.S. backup withholding tax and information reporting requirements
may apply to certain payments to certain holders of stock. Information reporting generally will apply to payments of dividends on, and
to proceeds from the sale, exchange or redemption of, our ordinary shares made within the United States, or by a United States payor or
United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a payee that is not a United States
person that provides an appropriate certification and certain other persons). Payments made (and sales or other dispositions effected
at an office) outside the U.S. will be subject to information reporting in limited circumstances. A payor will be required to withhold
backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United
States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish
its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding
tax requirements, or to report dividends required to be shown on the holder’s U.S. federal income tax returns. Back up withholding
is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against the beneficial owner’s
U.S. federal income tax liability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided
that the required information is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders who are individuals and certain entities may
be required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception
for shares held in accounts maintained by certain financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial
Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors regarding their information reporting
obligations, if any, with respect to their ownership and disposition of our ordinary shares.
F. Dividends
and Paying Agents
Not applicable.
G. Statement
by Experts
Not applicable.
133
H. Documents
on Display
We are required to make certain filings with the SEC. The SEC maintains
an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with
the SEC. The address of that site is www.sec.gov.
We also make available on our website, free of charge, our annual
reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC
filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is www.mediwound.com.
The information contained on our website is not incorporated by reference in this document.
I. Subsidiary
Information
Not applicable.
J. Annual
Report to Security Holders
Not Applicable.
Item 11. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency
exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation risks to minimize
any adverse effects on our business as a result of those factors.
Foreign Currency Risk
The U.S. dollar is our functional and reporting currency. A significant
portion of our operating expenses are denominated in Israeli shekels, accounting for approximately 44%, 45% and 47% of our operating expenses
in the years ended December 31, 2020, 2021 and 2022, respectively. We also have expenses in other non‑dollar currencies, in particular
the Euro, and for the next few years, we expect that a substantial portion of our revenues will be denominated in U.S dollar. A devaluation
of the shekel in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or payables that are payable
in shekels, unless those expenses or payables are linked to the U.S. dollar. Conversely, any increase in the value of the shekel in relation
to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked shekel expenses, which would have a negative impact
on our profit margins.
Because exchange rates between the U.S. dollar and both the shekel
and the Euro (as well as between the U.S. dollar and other currencies) fluctuate continuously, such fluctuations have an impact on our
results and period‑to‑period comparisons of our results. The effects of foreign currency re‑measurements are reported
in our consolidated financial statements of operations.
134
The following table presents information about the changes in the
exchange rates of the shekel against the U.S. dollar and changes in the exchange rates of the Euro against the U.S. dollar:
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Appreciation (Devaluation) of
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Period |
Shekel against the U.S. dollar
(%) |
Euro
against the U.S. dollar (%) |
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2020 |
7.0
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8.0
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2021 |
3.3
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7.7 |
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2022 |
(13.2 |
) |
5.8 |
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A 10% increase (decrease) in the value of the NIS and Euro
against the U.S. dollar would have increased (decreased) our net profit by (loss) approximately $1.65 million for the year ended December
31, 2022.
As we are marketing and selling NexoBrid in Europe and conducting
clinical trials of outside the United States, we will continue to monitor exposure to currency fluctuations. We do not currently engage
in currency hedging activities in order to reduce this currency exposure, but we may begin to do so in the future. Instruments that may
be used to hedge future risks may include foreign currency forward and swap contracts. These instruments may be used to selectively manage
risks, but there can be no assurance that we will be fully protected against material foreign currency fluctuations.
Other Market Risks
We do not believe that we have material exposure to interest rate
risk due to the fact that we have no long‑term debt.
We do not believe that we have any material exposure to inflationary
risks. We do not believe that the rate of inflation in Israel has had a material impact on our business to date. However, our costs in
Israel will increase if inflation in Israel exceeds the devaluation of the shekel against the U.S. dollar (to the extent that it devalues
at all) or if the timing of such devaluation lags behind inflation in Israel.
Item 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
Item 13. DEFAULTS, DIVIDEND
ARREARAGES AND DELINQUENCIES
None.
135
Item 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
Item 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a‑15(e)
and 15d‑15(e) under the Exchange Act) as of December 31, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.
(b) Management Annual Report on Internal Control over Financial
Reporting
Our management, under the supervision of our Chief Executive Officer
and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act.
Our management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this
assessment, our management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded, based on its assessment, that our internal
control over financial reporting was effective as of December 31, 2022.
(d) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting
(as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the period covered
by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial
reporting.
Item 16. [Reserved]
Item 16A. AUDIT COMMITTEE
FINANCIAL EXPERT
Our board of directors has determined that Sharon Kochan qualifies
as an “audit committee financial expert,” as defined under the U.S. federal securities laws and has the requisite financial
experience defined by the Nasdaq Marketplace Rules. In addition, Sharon Kochan is independent as such term is defined in Rule 10A‑3(b)(1)
under the Exchange Act and under the listing standards of the Nasdaq Global Market.
Item 16B. CODE OF ETHICS
We have adopted a code of business conduct and ethics applicable
to our executive officers, directors and all other employees. A copy of the code is delivered to every employee of MediWound Ltd. and
its subsidiaries and is available to our investors and others on our website http://ir.mediwound.com/ or by contacting our investor relations
department. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and
is not incorporated by reference herein. Any waivers of this code for executive officers or directors will be disclosed through the filing
of a Form 6‑K or on our website. We granted no waivers under our code of ethics in 2022.
136
Item 16C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
Principal Accountant Fees and Services
We paid the following fees for professional
services rendered by Kost Forer Gabbay Kasierer, a member of Ernst Young Global, who was our independent registered public
accounting firm until April 28, 2021:
|
|
2021
|
2022
|
||||||
|
Audit Fees |
$ |
75,000 |
$ |
— | ||||
|
Audit‑Related Fees |
—
|
—
|
||||||
|
Tax Fees |
—
|
— |
||||||
|
Total
|
$ |
75,000 |
$ |
— |
||||
We also paid the following fees for professional services rendered
by Somekh Chaikin, a member firm of KPMG International Haifa, Israel, Auditor firm ID: 1057, who became our independent registered public
accounting firm on June 15, 2021 for the year ended December 31, 2022 and 2021:
|
|
2021
|
2022
|
||||||
|
Audit Fees |
$ |
170,000 |
$ |
270,000 |
||||
|
Audit‑Related Fees |
—
|
—
|
||||||
|
Tax Fees |
15,000
|
28,549 |
||||||
|
Total
|
$ |
185,000 |
$ |
298,549 |
||||
“Audit fees”
are the aggregate fees paid for the audit of our annual financial statements for the years 2022 and 2021. This category also includes
services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the
SEC.
“Audit‑related fees”
are the aggregate fees paid for assurance and related services that are reasonably related to the performance of the audit and are not
reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur
in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
“Tax fees” include
fees for professional services rendered by our independent registered public accounting firm for tax compliance, transfer pricing and
tax advice on actual or contemplated transactions.
The Audit Committee pre‑approves all audit and non‑audit
services provided by the independent registered public accounting firm.
Item 16D. EXEMPTIONS FROM
THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY
SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
The information required by this Item 16F was previously
reported in our report of foreign private issuer on Form 6‑K (File No. 001‑36349) filed with the SEC on March 2, 2022.
137
Item 16G. CORPORATE GOVERNANCE
As a foreign private issuer, we are permitted to comply with Israeli
corporate governance practices instead of the Nasdaq Stock Market requirements, provided that we disclose those Nasdaq Stock Market requirements
with which we do not comply and the equivalent Israeli requirement that we follow instead. We currently rely on this “foreign private
issuer exemption” with respect to the following requirements:
| |
• |
Quorum. As permitted under the Israeli Companies
Law pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders will consist of at least two
shareholders present in person, by proxy or by other voting instrument in accordance with the Israeli Companies Law, who hold at least
25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, at least two shareholders), instead of 33 1/3%
of the issued share capital required under the Nasdaq Stock Market listing rules. |
| |
• |
Shareholder approval. We do not intend
to follow Nasdaq Stock Market rules which require shareholder approval in order to enter into any transaction, other than a public offering,
involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for
ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before
the issuance for less than the greater of book or market value of the ordinary shares. We will follow Israeli law with respect to any
requirement to obtain shareholder approval in connection with any private placements of equity securities. |
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. Disclosure
Regarding Foreign Jurisdictions that Prevent Inspections.
[Not applicable.]
PART III
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
See pages F‑1 through F-50 of this annual report.
138
Item 19. EXHIBITS
|
Exhibit No. |
Description |
139
| 4.19 |
|
| 4.20 |
|
| 4.21 |
|
| 4.22
|
|
|
101.INS |
Inline XBRL Instance Document |
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
101.DEF |
Inline XBRL Taxonomy Definition Linkbase Document |
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
104 |
Cover Page Interactive Data File (the cover page iXBRL tags are embedded within the
Inline XBRL document) |
140
|
† |
Portions of this exhibit have been omitted pursuant to Instruction 4(a) to Exhibits
to Form 20-F because they are both (i) not material and (ii) the type that the Registrant treats as private or confidential.
|
|
(1)
|
Previously filed with the SEC on March 3, 2014
pursuant to the Registrant’s registration statement on Form F‑1 (File No. 333‑193856) and incorporated by reference
herein.
|
|
(2) |
Previously furnished to the SEC on May 5, 2021 as Appendix B to the Registrant’s
proxy statement for its 2021 annual general meeting of shareholders held on June 15, 2021, attached as Exhibit 99.1 to the Registrant’s
report of foreign private issuer on Form 6‑K (File No. 001‑36349) and incorporated by reference herein.
|
|
(3) |
Previously filed with the SEC on February 10, 2014 pursuant to the Registrant’s
registration statement on Form F‑1 (File No. 333‑193856) and incorporated by reference herein.
|
|
(4) |
Previously filed with the SEC on February 25, 2020 pursuant to the Registrant’s
annual report on Form 20-F for the year ended December 31, 2019 (File No. 001-36349) and incorporated by reference herein.
|
|
(5) |
Previously furnished to the SEC on August 14, 2019 as Appendix A to the Registrant’s
proxy statement for its extraordinary general meeting of shareholders held on September 23, 2019, attached as Exhibit 99.1 to the Registrant’s
report of foreign private issuer on Form 6‑K (File No. 001‑36349) and incorporated by reference herein.
|
|
(6) |
Previously filed with the SEC on February 25, 2021 pursuant to the Registrant’s
annual report on Form 20-F for the year ended December 31, 2020 (File No. 001-36349) and incorporated by reference herein.
|
|
(7) |
Previously filed with the SEC on January 25, 2016 as Exhibit 4.14 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2015 (File No. 001‑36349) and incorporated by reference herein.
|
|
(8) |
Previously filed with the SEC on February 21, 2017 as Exhibit 4.15 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2016 (File No. 001‑36349) and incorporated by reference herein.
|
|
(9) |
Previously filed with the SEC on March 19, 2018 as Exhibit 4.16 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2017 (File No. 001‑36349) and incorporated by reference herein.
|
|
(10) |
Previously filed with the SEC on March 25, 2019 as Exhibit 4.17 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein.
|
|
(11) |
Previously filed with the SEC on March 19, 2018 as Exhibit 4.17 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2017 (File No. 001‑36349) and incorporated by reference herein.
|
|
(12) |
Previously filed with the SEC on March 25, 2019 as Exhibit 4.20 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein.
|
|
(13)
|
Previously filed with the SEC on March 25, 2019 as Exhibit 4.21 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein.
|
|
(14) |
Previously filed with the SEC by Vericel Corporation on August 6, 2019 as Exhibit
10.9 to its quarterly report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001‑35280) and incorporated by reference
herein.
|
|
(15) |
Previously filed with the SEC by Vericel Corporation on August 6, 2019 as Exhibit
10.10 to its quarterly report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001‑35280) and incorporated by reference
herein.
|
|
(16) |
Previously furnished to the SEC on June 9, 2022 as Appendix A to the Registrant’s
proxy statement for its 2022 annual general meeting of shareholders held on July 19, 2022, attached as Exhibit 99.1 to the Registrant’s
report of foreign private issuer on Form 6‑K (File No. 001‑36349) and incorporated by reference herein.
|
|
(17) |
Previously filed with the SEC on March 17, 2022 as Exhibit 4.11.7 to the Registrant’s
annual report on Form 20‑F for the year ended December 31, 2021 (File No. 001‑36349) and incorporated by reference herein.
|
|
(18) |
Previously furnished to the SEC
on September 26, 2022 as Exhibit 4.1 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349)
and incorporated by reference herein.
|
|
(19) |
Previously furnished to the SEC
on September 26, 2022 as Exhibit 4.2 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349)
and incorporated by reference herein.
|
|
(20) |
Previously furnished to the SEC
on September 26, 2022 as Exhibit 4.4 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349)
and incorporated by reference herein. |
|
(21) |
Previously furnished to the SEC
on September 26, 2022 as Exhibit 10.3 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349)
and incorporated by reference herein. |
141
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20‑F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
MediWound Ltd. |
|
|
|
|
|
|
Date: March 16, 2023 |
By: /s/ Boaz Gur-Lavie |
|
|
|
Boaz Gur-Lavie |
|
|
|
Chief Financial Officer |
|
142
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
INDEX
|
Page
|
|
|
|
|
|
(Firm Name: KPMG (Somekh Chaikin) / PCAOB ID No. |
F-2 – F-5 |
|
(Firm Name: KOST FORER GABBAY & KASIERER / PCAOB ID No. 1281) |
|
|
F-6
|
|
|
F -7
|
|
|
F-8
|
|
|
F-9 - F-10 |
|
|
F-11 - F-50 |
- - - - - - - - - - - - - - - - - - - - -
F - 1
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
MediWound Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of MediWound Ltd. and its subsidiaries (hereinafter – “the Company”) as of December 31, 2022 and 2021, the related consolidated statements of profit or loss and other comprehensive income (loss), changes in shareholders’ equity (deficit), and cash flows for each of the years in the two‑year period ended December 31, 2022, and the related notes (collectively, “the consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F - 2
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Critical Audit Matter
Israeli Innovation Authority grant liability
As discussed in Notes 3g and 13 to the consolidated financial statements, in previous years the Company received grants from the Israeli Innovation Authority (“IIA”) to finance its research and development efforts. These grants were recognized as a liability to the extent the Company expected to refund them through royalties on its revenues derived from sales of products or services developed in whole or in part using the grants. The amount of the liability is reexamined each period using the Company’s updated future revenue forecasts discounted to their present value. Any changes in the IIA grant liability are recognized in profit or loss. The IIA grant liability was $7,566 thousand as of December 31, 2022.
We identified the evaluation of the subsequent period end measurement of the IIA grant liability as a critical audit matter. Specifically, a high degree of subjective auditor judgment was involved in evaluating certain significant assumptions used by the Company to develop its future revenue forecasts, including the likelihood and timing of achievement of regulatory approvals and potential market demand and market share for the Company’s products, which were based on external market research. These significant assumptions were forward-looking and could be affected by future economic and market conditions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s process for measuring the IIA grant liability, including controls related to the determination of the above referenced significant assumptions used to develop future revenue forecasts. We compared the Company’s assumption of the likelihood and timing for obtaining regulatory approvals for its products, based on the specific phases of their development, to relevant data in industry research reports. We evaluated the Company’s assumption of potential market demand and market share by evaluating the relevance and reliability of the external market research upon which the Company based its future revenue forecasts. We performed sensitivity analyses over these significant assumptions to assess the impact of changes in the assumptions on the period end IIA grant liability.
/s/ Somekh Chaikin
Somekh Chaikin
Member Firm of KPMG International
We have served as the Company’s auditor since 2021.
March 16, 2023
F - 3
MEDIWOUND LTD. AND ITS SUBSIDIARIES
 |
Kost Forer Gabbay & Kasierer
144 Menachem Begin Rd.
Tel-Aviv 6492102, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of MediWound Ltd and subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of comprehensive or loss, shareholders' equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
F - 4
Liabilities in respect of Israel Innovation Authority (IIA) grants
|
Description of the matter
|
As more fully described in Note 16b to the consolidated financial statements, under the Research and Development Lawthe Company undertook to pay royalties of 3% on the revenues derived from sales of products or services developed in whole or in part using IIA grants, up to the amount of total grants received, plus LIBOR interest. The liability to the IIA is measured at amortized cost using the effective interest method and amounted as of December 31, 2020 to $7,529 thousands.
Auditing the Company's IIA contingent liability involved a high degree of subjectivity as it is based on assumptions about future revenues forecast, such as long-term demand for the Company’s products and licenses and revenue growth rates. These significant assumptions are forward looking and could be affected by future economic and market conditions.
|
|
How we addressed the matter in our audit
|
Our substantive audit procedures included, among others, evaluating the significant assumptions and operating data used. For example, we analyzed the reasonableness of significant assumptions used to estimate future revenues based on historical trends, we did look back analyses, we obtained support to evaluate the accuracy of the data used in management's calculation and performed some independent recalculations.
|
|
|
/s/ KOST FORER GABBAY & KASIERER |
|
Tel-Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
|
February 25, 2021
|
A Member of Ernst & Young Global
|
We have served as the Company's auditor since 2001 to 2020
F - 5
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Financial Position
U.S. dollars in thousands
|
As of December 31
|
|||||||||||
|
Note
|
2022
|
2021
|
|||||||||
|
Cash and cash equivalents
|
4
|
|
|
||||||||
|
Trade receivables
|
5
|
|
|
||||||||
|
Inventories
|
6
|
|
|
||||||||
|
Other receivables
|
7, 24
|
|
|
||||||||
|
Total current assets
|
|
|
|||||||||
|
Other receivables
|
8
|
|
|
||||||||
|
Property, plant and equipment, net
|
9
|
|
|
||||||||
|
Right-of-use assets, net
|
10
|
|
|
||||||||
|
Intangible assets, net
|
11
|
|
|
||||||||
|
Total non-current assets
|
|
|
|||||||||
|
Total assets
|
|
|
|||||||||
|
Current maturities of long-term liabilities
|
|
|
|||||||||
|
Trade payables and accrued expenses
|
|
|
|||||||||
|
Other payables
|
12, 24
|
|
|
||||||||
|
Total current liabilities
|
|
|
|||||||||
|
Deferred revenues
|
|
|
|||||||||
|
Warrants, net
|
18c
|
|
|
|
|||||||
|
Liabilities in respect of IIA grants
|
13, 16b
|
|
|
|
|||||||
|
Liabilities in respect of TEVA
|
16c
|
|
|
|
|||||||
|
Lease liabilities
|
10
|
|
|
||||||||
|
Severance pay liability, net
|
15
|
|
|
||||||||
|
Total non-current liabilities
|
|
|
|||||||||
|
Total liabilities
|
|
|
|||||||||
|
Shareholders' equity:
|
18
|
||||||||||
|
Ordinary shares of NIS
|
|||||||||||
|
Authorized * :
|
|
|
|||||||||
|
Share premium
|
|
|
|||||||||
|
Foreign currency translation reserve
|
(
|
)
|
(
|
)
|
|||||||
|
Accumulated deficit
|
(
|
)
|
(
|
)
|
|||||||
|
Total equity (deficit)
|
|
(
|
)
|
||||||||
|
Total liabilities and equity
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
* Restated to reflect 1:7 reverse ratio of shares (See note 18b)
F - 6
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Profit or Loss and Other Comprehensive Income or Loss
U.S. dollars in thousands (except of share and per share data)
|
Year Ended December 31
|
|||||||||||||
|
Note
|
2022
|
2021
|
2020
|
||||||||||
|
Revenues from sale of products
|
|
|
|
||||||||||
|
Revenues from development services
|
|
|
|
||||||||||
|
Revenues from license agreements
|
|
|
|
||||||||||
|
Total revenues
|
22a
|
|
|
|
|||||||||
|
Cost of revenues from sale of products
|
|
|
|
||||||||||
|
Cost of revenues from development services
|
|
|
|
||||||||||
|
Cost of revenues from license agreements
|
|
|
|
||||||||||
|
Total cost of revenues
|
22b
|
|
|
|
|||||||||
|
Gross profit
|
|
|
|
||||||||||
|
Research and development
|
22c
|
|
|
|
|||||||||
|
Selling and marketing
|
22d
|
|
|
|
|||||||||
|
General and administrative
|
22e
|
|
|
|
|||||||||
|
Other expenses
|
22f
|
|
|
|
|||||||||
|
Total operating expenses
|
|
|
|
||||||||||
|
Operating loss
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Financial income
|
|
|
|
||||||||||
|
Financial expense
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Financing expenses, net
|
22g
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Loss before taxes on income
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Taxes on income
|
(
|
)
|
(
|
)
|
|
||||||||
|
Loss from continuing operations
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Profit from discontinued operations
|
16c,21
|
|
|
|
|||||||||
|
Net loss for the year
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Other comprehensive income (loss):
|
|||||||||||||
|
Foreign currency translation adjustments
|
|
|
(
|
)
|
|||||||||
|
Total comprehensive loss
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Loss per share data
|
23,18
|
||||||||||||
|
Total basic and diluted net loss per share - USD
|
(
|
)
|
*(
|
)
|
*(
|
)
|
|||||||
|
Number of shares used in calculating basic loss per share
|
|
*
|
*
|
||||||||||
*Restated to reflect 1:7 reverse ratio of shares (See note 18b)
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
U.S. dollars in thousands
|
Share capital
|
Share premium
|
Foreign currency translation reserve
|
Accumulated
deficit
|
Total
equity (deficit)
|
||||||||||||||||
|
Balance as of January 1, 2022
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Net loss
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Other comprehensive income
|
|
|
|
|
|
|||||||||||||||
|
Total comprehensive loss
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Exercise of options
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||||||
|
Issuance of ordinary shares, net of issuance expenses (see note 18c)
|
|
|
|
|
|
|||||||||||||||
|
Exercise of pre-funded warrants (see note 18c)
|
|
|
|
|
|
|||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2022
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
Balance as of January 1, 2021
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
Net loss
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Other comprehensive income
|
|
|
|
|
|
|||||||||||||||
|
Total comprehensive loss
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Exercise of options
|
(
|
)
|
|
|
|
|
||||||||||||||
|
Share-based compensation
|
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2021
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Balance as of January 1, 2020
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||
|
Net loss
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||
|
Other comprehensive loss
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Total comprehensive loss
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||||||
|
Exercise of options
|
(
|
)
|
(
|
)
|
-(
|
) |
|
(
|
)
|
|||||||||||
|
Share-based compensation
|
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2020
|
|
|
(
|
)
|
(
|
)
|
|
|||||||||||||
* Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
U.S. dollars in thousands
|
Year ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Loss for the year
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Adjustments to reconcile net loss to net cash used in continuing operating activities:
|
||||||||||||
|
Adjustments to profit and loss items:
|
||||||||||||
|
Profit from discontinued operation
|
|
|
(
|
)
|
||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Share-based compensation
|
|
|
|
|||||||||
|
Revaluation of warrants accounted at fair value
|
|
|
|
|||||||||
|
Issuance expenses of warrants through profit and loss
|
|
|
|
|||||||||
|
Revaluation of liabilities in respect of IIA grants
|
(
|
)
|
|
|
||||||||
|
Revaluation of liabilities in respect of TEVA
|
|
|
(
|
)
|
||||||||
|
Revaluation of lease liabilities
|
(
|
)
|
|
|
||||||||
|
Increase in severance pay liability, net
|
|
|
|
|||||||||
|
Net financing income
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Un-realized foreign currency loss (gain)
|
|
(
|
)
|
(
|
)
|
|||||||
|
|
|
|
||||||||||
|
Changes in asset and liability items:
|
||||||||||||
|
Decrease (increase) in trade receivables
|
(
|
)
|
|
|
||||||||
|
Decrease (increase) in inventories
|
(
|
)
|
|
|
||||||||
|
Decrease (increase) in other receivables
|
|
(
|
)
|
(
|
)
|
|||||||
|
Increase (decrease) in trade payables and accrued expenses
|
|
|
(
|
)
|
||||||||
|
Increase (decrease) in other payables and deferred revenues
|
|
(
|
)
|
(
|
)
|
|||||||
|
(
|
)
|
|
(
|
)
|
||||||||
|
Net cash used in continuing operating activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Net cash used in discontinued operating activities
|
|
|
(
|
)
|
||||||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
U.S. dollars in thousands
|
Year ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Interest received
|
|
|
|
|||||||||
|
Proceeds from short term bank deposits, net
|
|
|
|
|||||||||
|
Net cash (used in) provided by investing activities
|
(
|
)
|
|
|
||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Repayment of leases liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from exercise of options
|
(
|
)
|
|
(
|
)
|
|||||||
|
Proceeds from exercise of pre-funded warrants
|
|
|
|
|||||||||
|
Proceeds from issuance of shares and warrants, net
|
|
|
|
|||||||||
|
Repayment of IIA grants, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Repayment of liabilities in respect of TEVA
|
(
|
)
|
|
|
||||||||
|
Net cash provided by (used in) continuing financing activities
|
|
(
|
)
|
(
|
)
|
|||||||
|
Exchange rate differences on cash and cash equivalent balances
|
(
|
)
|
|
|
||||||||
|
Increase (decrease) in cash and cash equivalents from continuing activities
|
|
(
|
)
|
|
||||||||
|
Decrease in cash and cash equivalents from discontinued activities
|
|
|
(
|
)
|
||||||||
|
Balance of cash and cash equivalents at the beginning of the year
|
|
|
|
|||||||||
|
Balance of cash and cash equivalents at the end of the year
|
|
|
|
|||||||||
|
Supplement disclosure of Non-cash transactions:
|
||||||||||||
|
ROU asset, net recognized with corresponding lease liability
|
|
|
|
|||||||||
* Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 1: |
General
|
| a. |
Description of the Company and its operations:
|
MediWound Ltd. Was incorporated in Israel. The Company which is located in Yavne, Israel (The "Company" or "MediWound"), is biopharmaceutical company that develops, manufactures and commercializes novel, cost effective, bio-therapeutic, non-surgical solutions for tissue repair and regeneration. The Company’s strategy leverages its breakthrough enzymatic technology platform into diversified portfolio of biotherapeutics across multiple indications to pioneer solutions for unmet medical needs. The Company’s current portfolio is focused on next-generation protein-based therapies for burn care, wound care and tissue repair.
The Company's first innovative biopharmaceutical product, NexoBrid, has received in December 2022, an approval from the U.S. Food and Drug Administration (“FDA”) and marketing approval in each of India, Switzerland and Japan. In addition its has a marketing authorization from the European Medicines Agency (“EMA”) and regulatory agencies in other international markets for removal of dead or damaged tissue, known as eschar, in adults with deep partial and full thickness thermal burns.
The Company commercialize NexoBrid globally through multiple sales channels.
| • |
The Company sell NexoBrid to burn centers in the European Union, United Kingdom and Israel, primarily through its commercial organizations.
|
| • |
The Company have established local distribution channels in multiple international markets, focusing on Asia Pacific, EMEA, CEE and LATAM, which local distributors are also responsible for obtaining local marketing authorization within the relevant territories.
|
| • |
In the United States, the Company entered into exclusive license and supply agreements with Vericel Corporation (“Vericel”) to commercialize NexoBrid in North America upon FDA approval.
|
On September 20, 2022, The Company announced that EMA has validated for review the Type II Variation to expand the currantly approved indication for NexoBrid (removal of eschar in adults with deep partial-and full-thickness thermal burn wounds) into the pediatric population.
The Company’s second investigational next-generation enzymatic therapy product, EscharEx, a topical biological drug being developed for debridement of chronic and other hard-to-heal wounds, is currently under discussions with the FDA regarding the pivotal Phase 3 study design.
The third clinical-stage innovative product candidate, MW005, is a topical applied biological drug candidate for the treatment of non-melanoma skin cancers. A U.S. phase 1/2 study of MW005 for the treatment of low-risk basal cell carcinoma (BCC) was initiated in July 2021, and an investigator-initiated phase II trial of MW005 in non-melanoma skin cancer is being conducted in parallel in Israel. In December 2022, the Company announced final positive results from the study. Based on the positive results, The Company plan to continue enrolling patients in its Phase 1/2 study.
F - 11
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 1: |
General (Cont.)
|
| b. |
The Company's securities are listed for trading on NASDAQ since March 2014.
|
On November 28, 2022, the Company’s shareholders general meeting has approved a reverse stock split. Following to that approval, on December 5, 2022, the Company’s board of directors approved a reverse stock split, in a range of 1-for-7 ratio . The reverse split went effective on December 20, 2022.(see also Note 18b).
During March, September and October 2022, the Company completed a series of capital public and private offerings. The gross proceeds before deducting underwriting discounts and commissions and offering expenses, were approximately $41,700 . (see also Note 25).
| c. |
The Company has three wholly owned subsidiaries: MediWound Germany GmbH, acting as Europe (“EU”) marketing authorization holder and EU sales and marketing arm, and MediWound UK Limited and MediWound US, Inc. which are currently inactive companies.
|
| d. |
The Company awarded two contracts with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") valued at up to $
|
| e. |
On February 17, 2022 the Company engaged with the U.S. Department of Defense (DoD), through the Medical Technology Enterprise Consortium (MTEC), for a $
|
Note 2: Basis of Preparation of the Consolidated Financial Statements
| a. |
Statement of compliance with International Financial Reporting Standards
|
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
These consolidated financial statements were approved by the board of directors on March 16, 2023.
F - 12
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 2: Basis of Preparation of the Consolidated Financial Statements (Cont.)
| b. |
Functional currency, reporting currency and foreign currency:
|
| 1. |
Functional currency and reporting currency:
|
The reporting currency of the financial statements is the U.S. dollar.
The Company determines the functional currency based on the currency in which it primarily generates and expends cash. The Company determined that its functional currency is the U.S. dollar since most of the Company's expenses are in U.S. dollars and the economic environment in which the Company operates in and performs its transactions is mostly affected by the U.S dollar. A certain portion of the Company's costs are denominated in NIS mainly due to payroll and related benefit costs incurred in Israel. To further support the Company's determination, the Company has analyzed the currency in which funds from financing activities are generated or held and the currency in which receipts from operating activities are usually retained. In this respect, funds from financing activities were principally derived from significant funds raising in U.S. dollars and U.S governmental funds.
The Company operates and plans its activities in U.S. dollars and accordingly its periodic budgets and internal management reports are prepared and monitored using the U.S. dollar as the primary currency and provides the basis for the determination of share-based compensation.
The functional currency of the Company's subsidiary in Germany has been determined to be its local currency - the EURO. Assets and liabilities of this subsidiary are translated at year end exchange rates and its statement of operations items are translated using the averegae exchange rates at the quarter of which those items are recognized. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity (deficit).
| 2. |
Transactions, assets and liabilities in foreign currency:
|
Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date.
Exchange differences are recognized in profit or loss.
F - 13
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 2: Basis of Preparation of the Consolidated Financial Statements (Cont.)
| c. |
Use of estimates and judgments
|
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Discussed below are the key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Company that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
| • |
Determining the fair value of share based compensation to employees and directors:
|
The fair value of share based compensation to employees and directors is determined using the binomial option pricing models.The assumptions used in the models include the expected volatility, early exercise factor, expected dividend and risk-free interest rate.
| • |
Liabilities in respect to IIA grants:
|
Government grants received from the IIA are recognized as a liability if future economic benefits are expected from the research and development activity that will result in royalty‑bearing sales. As the contingent liability is calculated based on future royalty-bearing sales, there is uncertainty regarding the estimated future cash flows and the estimated discount rate used to measure the amortized cost of the liability.
|
•
|
Fair value estimations of warrants
|
The Company completed financing transactions in which it issued shares and warrants to purchase additional shares. The fair value of the warrants, which are not traded on an active market, is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates.
| Note 3: |
Significant Accounting Policies
|
The accounting policies set out below have been consistently applied for all periods presented in these consolidated financial statements:
| a. |
Basis of consolidation:
|
Consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee.
F - 14
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
The financial statements of the Company and its subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all entities in the Group. Significant intercompany balances and transactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.
| b. |
Cash equivalents:
|
Cash equivalents are considered as highly liquid investments, including unrestricted short‑term bank deposits with an original maturity of three months or less from the date of deposit.
| c. |
Short-term bank deposits:
|
Short-term bank deposits have a maturity of more than three months, but less than one year, from the deposit date.
| d. |
Inventories:
|
Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling costs. The Company periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly.
Cost of inventories is determined as follows:
|
Raw materials
|
-
|
At cost of purchase using the first-in, first-out method.
|
|
Finished goods
|
-
|
On the basis of average standard costs (which approximates actual cost on a weighted average basis) including materials, labor and other direct and indirect manufacturing costs based on practical capacity.
|
| e. |
Property, plant and equipment, net:
|
Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with the plant and equipment.
Depreciation is calculated on a straight‑line basis over the useful life of the assets at annual rates as follows:
|
%
|
||
|
Office furniture
|
|
|
|
Manufacturing machinery and lab equipment
|
|
|
|
Computers
|
|
|
|
Leasehold improvements
|
|
F - 15
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
Leasehold improvements are depreciated on a straight‑line basis over the shorter of the lease term (including the renewal option held by the Company which is expected to be exercised) and the expected life of the improvement.
The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.
| f. |
Intangible assets, net:
|
Separately acquired intangible assets with finite useful life are measured on initial recognition at cost.
Intangible assets are amortized over their useful life using the straight‑line method beginning in the period in which the intangible assets generates net cash inflows to the Company. The useful life is over the length of the patent or knowledge life. The intangible assets are reviewed for impairment at each reporting date until they begin generating net cash inflows and subsequently whenever there is an indication that the asset may be impaired
g. Liability in respect of Israeli Innovation Authority ("IIA"):
Grants from the IIA in respect of research and development projects are accounted for as forgivable loans according to IAS 20. Grants received from the IIA are recognized as a liability according to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. If future economic benefits are expected from the project that will result in royalty-bearing revenues from sale of products it will be treated as a contingent liability.
At the end of each reporting period, the Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid based on its best estimate of future sales and any changes in the present value of the cash flows discounted at the original interest rate of the grant are recognized in profit or loss. The difference between the amount received and the fair value on the date of receiving the grant is recognized as a deduction of research and development expenses.
| h. |
Leases:
|
The Company accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration.
For leases in which the Company is the lessee, the Company recognizes on the commencement date of the lease a right-of-use (“ROU”) asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Company has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, the Company has elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.
F - 16
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
Following are the amortization periods of the ROU assets by class of underlying asset:
|
Years
|
|
|
Motor vehicles
|
|
|
Buildings and equipment
|
|
The Company tests for impairment of the ROU asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
| • |
Variable lease payments that depend on an index:
|
On the commencement date, the Company uses the index rate prevailing on the commencement date to calculate the future lease payments.
For leases in which the Company is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the ROU assets, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments takes effect).
| • |
Lease extension and termination options:
|
A non-cancelable lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be exercised.
In the event of any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Company remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations. The total change is recognized in the carrying amount of the ROU asset until it is reduced to zero, and any further reductions are recognized in profit or loss.
| • |
Lease modifications:
|
If a lease modification does not reduce the scope of the lease and does not result in a separate lease, the Company remeasures the lease liability based on the modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the ROU asset.
If a lease modification reduces the scope of the lease, the Company recognizes a gain or loss arising from the partial or full reduction of the carrying amount of the ROU asset and the lease liability. The Company subsequently remeasures the carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the ROU asset.
F - 17
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
| i. |
Revenues recognition:
|
The Company recognizes revenue when the customer obtains control over the promised goods or services. The revenue is measured according to the amount of the consideration to which the Company expects to be entitled in exchange for the goods or services promised to the customer, other than amounts collected for third parties.
To determine revenue recognition for arrangements the Company evaluates the following criteria’s, which are within the scope of IFRS 15, it performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
Performance obligations are promises commitments in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises commitments in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised commitment goods or services until such combined group of promises commitments meet the requirements of a performance obligation.
The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract.
Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied.
The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. Amounts received, or that are unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract are recognized as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as the current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
F - 18
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
The Company’s revenue-generating arrangements typically include licensing arrangements, which comprise of upfront license fees, milestone payments and/or royalties and products sale arrangements.
The promised goods or services in the Company’s licensing arrangements typically consist of a license to the Company’s intellectual property and/or research and development services.
If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
In 2019, the Company entered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in North America (see Note 22). The Company identified three distinct performance obligations: (1) license rights (2) development services for BLA approval and (3) manufacturing and supply of NexoBrid.
Since the manufacturing and development services are at market value, then the upfront payment was fully attributed to the license performance obligation and as such revenues are recognized at the point in time that control of the license is transferred to the customer.
Future milestone payments are considered variable consideration and are subject to the variable consideration constraint, i.e. will be recognized once concluded that it is “probable” that a significant reversal of the cumulative revenues recognized under the contract will not occur in future periods when the uncertainty related to the variable considerations are resolved. (see Note 22).
Revenues from royalties under this agreement will be payable based on future commercial sales, up on an occurrence.
Revenues from the sale of products to Vericel will be recognized when all the significant risks and rewards of ownership of the products have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date of the products is usually the date of which ownership passes.
F - 19
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
Revenues from distribution licensing arrangements:
The Company accounts for the bundled license provided to the distributers and related high specialized services as a single performance obligation and consequently recognize revenue using the cost-to-cost method, where the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected to be incurred upon satisfying such single performance obligation. The revenues from such bundled performance obligation are included within “Revenues from license agreements”. Significant finance components related to such arrangements are recognized as finance expense.
Revenues from development services:
Revenues from development services are recognized over time, during the period the customer receives and consumes the benefits provided by the Company's performance.
Revenues from the sale of products:
The Company generates revenues from sales of its innovative biopharmaceutical product, NexoBrid, to burn centers and hospital burn units in Europe, U.S Israel and local international markets through its its commercial organizations and local distributors.
Revenues from sale of goods is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer, generally upon delivery of the goods to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms.
| j. |
Research and development expenses:
|
Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; the Company's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably the expenditure attributable to the intangible asset during its development. Since the Company's research and development projects are often subject to regulatory approval procedures and other uncertainties, the conditions for the capitalization of costs incurred before receipt of approvals are not normally satisfied and, therefore, research and development expenses are recognized in profit or loss when incurred.
F - 20
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
| k. |
Impairment of non-financial assets:
|
The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non‑financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash‑generating unit to which the asset belongs, and is calculated based on the projected cash flows that will be generated by the cash generating unit.
An impairment loss of an asset, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, may not increase the value above the lower of (i) the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years, and (ii) its recoverable amount.
| l. |
Financial instruments:
|
The accounting policy for financial instruments in accordance with IFRS 9, "Financial Instruments" ("the Standard") is as follows:
| 1. |
Financial assets:
|
Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.
The Company classifies and measures debt instruments in the financial statements based on the following criteria:
| - |
The Company's business model for managing financial assets; and
|
| - |
The contractual cash flow terms of the financial asset.
|
Impairment of financial assets:
The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss.
The Company has short-term financial assets such as trade receivables in respect of which the Company applies a simplified approach and measures the loss allowance in an amount equal to the lifetime expected credit losses.
An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset.
F - 21
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
| 2. |
Financial liabilities:
|
| a) |
Financial liabilities measured at amortized cost:
|
Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method, except for Financial liabilities at fair value through profit or loss such as derivatives;
| b) |
Financial liabilities measured at fair value through profit or loss:
|
At initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit or loss.
After initial recognition, changes in fair value are recognized in profit or loss.
| 3. |
Fair value:
|
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
F - 22
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
|
4.
|
Classification of financial instruments by fair value hierarchy:
|
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
|
Level 1
|
-
|
quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2
|
-
|
inputs other than quoted prices included within level 1 that are observable either directly or indirectly.
|
|
Level 3
|
-
|
inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).
|
| 5. |
Offsetting financial instruments:
|
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
| m. |
Warrants:
|
Receipts in respect of warrants are classified as equity to the extent that they confer the right to purchase a fixed number of shares for a fixed exercise price. In the event that the exercise price or the numbers of shares to be issued are not deemed to be fixed (for example, in case of net share settlement provision), or warrants redemption in cash on the occurrence of Fundamental Transaction the warrants are classified as a non-current derivative financial liability. This liability is initially recognized at its fair value on the date the contract is entered into and subsequently accounted for at fair value at each reporting date. The fair value changes are charged to non-operating income and expense on the statement of comprehensive income or loss. Issuance costs allocable to warrants are also recorded as non-operating expense on the statement of comprehensive income or loss.
| n. |
Provisions:
|
A provision in accordance with IAS 37 is recognized when the Company has a present (legal or constructive) obligation as a result of a past event, it is expected to require the use of economic resources to clear the obligation and a reliable estimate has been made.
| o. |
Short-term employee benefits and severance pay liability, net:
|
The Company has several employee benefit plans:
1. Short-term employee benefits:
Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus is recognized when the Company has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.
F - 23
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
2. Post-employment benefits:
The Company has liabilities for severance pay for its employees in several of jurisdictions and in Israel.
Post-employment benefit plans in Israel are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans. The Company has defined contribution plans for Israeli employees pursuant to the Severance Pay Law into which the Company pays fixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.
The Company recognizes liability for severance pay due to its employees in EU in accordancewith local laws.
| p. |
Share-based compensation:
|
Certain Company employees and directors are entitled to remuneration in the form of equity-settled share-based compensation.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured at the fair value of their equity instruments granted at grant date. The fair value is determined using the binomial option pricing model.
The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award.
| q. |
Discontinued operation:
|
A discontinued operation is a component of the Company that either has been disposed of or is classified as held for sale. Disposal group to be abandoned meets the criteria for being a discontinued operation at the date of which it ceases to be used. The operating results relating to the discontinued operation are separately presented in the consolidated statements of comprehensive income or loss.
F - 24
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 3: |
Significant Accounting Policies (Cont.)
|
| r. |
Profit / Loss per share:
|
The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for treasury shares. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding, after adjustment for treasury shares, for the effects of all dilutive potential ordinary shares, which comprise of warrants, share options and share options granted to employees.
| s. |
New standards, amendments to standards and interpretations not yet adopted:
|
Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current (amendment to IAS 1)
The Amendment to IAS 1 replaces certain requirements for classifying liabilities as current or non-current. According to the Amendment, a liability will be classified as non-current when the entity has the right to defer settlement for at least 12 months after the reporting period, and it "has substance" and is in existence at the end of the reporting period.
According to the subsequent amendment, as published in October 2022, covenants with which the entity must comply after the reporting date, do not affect classification of the liability as current or non-current. Additionally, the subsequent amendment adds disclosure requirements for liabilities subject to covenants within 12 months after the reporting date, such as disclosure regarding the nature of the covenants, the date they need to be complied with and facts and circumstances that indicate the entity may have difficulty complying with the covenants Furthermore, the Amendment clarifies that the conversion option of a liability will affect its classification as current or non-current, other than when the conversion option is recognized as equity.
F - 25
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 4: |
Cash and Cash Equivalents
|
|
December 31
|
||||||||
|
2022
|
2021
|
|||||||
|
Balance in USD
|
|
|
||||||
|
Balance in other currencies
|
|
|
||||||
|
|
|
|||||||
| Note 5: |
Trade Receivables
|
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Vericel (Note 17b)
|
|
|
||||||
|
BARDA (Note 17a)
|
|
|
||||||
|
Other trade receivables
|
|
|
||||||
|
Less provision for impairment
|
(
|
)
|
(
|
)
|
||||
|
|
|
|||||||
Note 6: Inventories
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Raw materials
|
|
|
||||||
|
Finished goods
|
|
|
||||||
|
|
|
|||||||
| Note 7: |
Other Receivables- Short Term
|
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Government authorities
|
|
|
||||||
|
Contract asset related to BARDA
|
|
|
||||||
|
Prepaid expenses and other
|
|
|
||||||
|
|
|
|||||||
| Note 8: |
Other Receivables- Long Term
|
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Income receivables
|
|
|
||||||
|
Restricted bank deposits (1)
|
|
|
||||||
|
|
|
|||||||
| (1) |
|
F - 26
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 9: Property, Plant And Equipment, Net
|
Cost
|
Office
furniture
|
Manufacturing
machinery
and lab
equipment
|
Computers
|
Leasehold
improvements
|
Total
|
|||||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|
|
|||||||||||||||
|
Additions
|
|
|
|
|
|
|||||||||||||||
|
Disposals
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Foreign currency translation
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||
|
Balance as of December 31, 2022
|
|
|
|
|
|
|||||||||||||||
|
Balance as of January 1, 2021
|
|
|
|
|
|
|||||||||||||||
|
Additions
|
|
|
|
|
|
|||||||||||||||
|
Disposals
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||
|
Foreign currency translation
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
||||||||||||
|
Balance as of December 31, 2021
|
|
|
|
|
|
|||||||||||||||
|
Accumulated Depreciation
|
||||||||||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|
|
|||||||||||||||
|
Additions
|
|
|
|
|
|
|||||||||||||||
|
Disposals
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||
|
Foreign currency translation
|
(
|
)
|
|
|
|
(
|
)
|
|||||||||||||
|
Balance as of December 31, 2022
|
|
|
|
|
|
|||||||||||||||
|
Balance as of January 1, 2021
|
|
|
|
|
|
|||||||||||||||
|
Additions
|
|
|
|
|
|
|||||||||||||||
|
Disposals
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||
|
Foreign currency translation
|
(
|
)
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||||
|
Balance as of December 31, 2021
|
|
|
|
|
|
|||||||||||||||
|
Carrying amounts of all fixed asset items
|
||||||||||||||||||||
|
December 31, 2022
|
|
|
|
|
|
|||||||||||||||
|
December 31, 2021
|
|
|
|
|
|
F - 27
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 10: |
Leases
|
| a. |
Lease Agreements:
|
The Company's offices and its production facility in Israel are located in a building that the Company leases from its Related party (see Note 24a), in accordance with a sub-lease agreement. The Company subleases approximately 3,000 square meters of laboratory, office and clean rooms space at a monthly rent fee NIS 125 (approximately $40 ). This sub-lease agreement was amended on October 2021, to extand the priod up to October 2025 which was included in the calculation of the lease liability and RoU asset.
In addition the Company and its subsidiary have lease agreements for 13 vehicles for a the remaining period of one year in average.
| b. |
Amounts recognized in profit or loss and in the statement of cash flows
|
|
Year ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Interest expense on lease liabilities
|
|
|
||||||
|
Depreciation expenses relating to short-term leases
|
|
|
||||||
|
Cash outflow for leases
|
|
|
||||||
The Company was assisted by external third party valuation expert in determining the appropriate interest rate for discounting its leases based on: credit risk, the weighted average term of the leases and other economic variables. A weighted average incremental borrowing in a range of 1 % to 6.7 % was used to discount future lease payments in the calculation of the lease liability on the date of initial application of the standard (IFRS 16).
F - 28
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 10: Leases (Cont.)
| c. |
Disclosures in respect of Right- of- Use assets:
|
|
Buildings
|
Motor
vehicles
|
Total
|
||||||||||
|
Cost
|
||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|||||||||
|
New leases
|
|
|
|
|||||||||
|
Adjustments for indexation
|
|
|
|
|||||||||
|
Disposals
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2022
|
|
|
|
|||||||||
|
Accumulated depreciation
|
||||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Disposals
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2022
|
|
|
|
|||||||||
|
Depreciated cost
|
||||||||||||
|
Balance as of December 31, 2022
|
|
|
|
|||||||||
|
Buildings
|
Motor
vehicles
|
Total
|
||||||||||
|
Cost
|
||||||||||||
|
Balance as of January 1, 2021
|
|
|
|
|||||||||
|
New leases
|
|
|
|
|||||||||
|
Adjustments for indexation
|
|
|
|
|||||||||
|
Disposals
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2021
|
|
|
|
|||||||||
|
Accumulated depreciation
|
||||||||||||
|
Balance as of January 1, 2021
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Disposals
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2021
|
|
|
|
|||||||||
|
Depreciated cost
|
||||||||||||
|
Balance as of December 31, 2021
|
|
|
|
|||||||||
F - 29
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 10: |
Leases (Cont.)
|
|
d.
|
Disclosures of the Company's lease liabilities :
|
|
Buildings
|
Motor
vehicles
|
Total
|
||||||||||
|
Balance as of January 1, 2022
|
|
|
|
|||||||||
|
Repayment of leases liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Effect of changes in exchange rates
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
New finance lease obligation recognized
|
|
|
|
|||||||||
|
Adjustments for indexation
|
|
|
|
|||||||||
|
Financial expenses
|
|
|
|
|||||||||
|
Disposals-Termination of leases
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2022
|
|
|
|
|||||||||
|
Current maturities of long-term leases
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Lease liability Balance as of December 31, 2022
|
|
|
|
|||||||||
|
Buildings
|
Motor
vehicles
|
Total
|
||||||||||
|
Balance as of January 1, 2021
|
|
|
|
|||||||||
|
Repayment of leases liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Effect of changes in exchange rates
|
|
|
|
|||||||||
|
New finance lease obligation recognized
|
|
|
|
|||||||||
|
Adjustments for indexation
|
|
|
|
|||||||||
|
Financial expenses
|
|
|
|
|||||||||
|
Disposals-Termination of leases
|
|
(
|
)
|
(
|
)
|
|||||||
|
Balance as of December 31, 2021
|
|
|
|
|||||||||
|
Current maturities of long-term leases
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Lease liability Balance as of December 31, 2021
|
|
|
|
|||||||||
Note 11: Intangible Assets, Net
|
License and
Knowhow
|
||||||||
|
2022
|
2021
|
|||||||
|
Cost
|
||||||||
|
Balance as of January 1,
|
|
|
||||||
|
Additions
|
|
|
||||||
|
Balance as of December 31,
|
|
|
||||||
|
Accumulated Amortization
|
||||||||
|
Balance as of January 1,
|
|
|
||||||
|
Additions
|
|
|
||||||
|
Balance as of December 31,
|
|
|
||||||
|
Amortized cost
|
||||||||
|
Balance as of December 31,
|
|
|
||||||
F - 30
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 11: Intangible Assets, Net (Cont.)
Intangible assets include exclusive licenses to use patents, know-how and intellectual property for the development, manufacturing and marketing of products related to burn treatments and other products in the field of wound care. These licenses were purchased from third parties and from one of the Company's shareholders.
Note 12: Other Payables
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Employees and payroll accruals
|
|
|
||||||
|
Liability in respect of TEVA (see Note 16c)
|
|
|
||||||
|
Related parties
|
|
|
||||||
|
Deferred revenues
|
|
|
||||||
|
Other
|
|
|
||||||
|
|
|
|||||||
Note 13: Liabilities in Respect of IIA Grants
|
December 31
|
||||||||
|
2022
|
2021
|
|||||||
|
Balance as of January 1,
|
|
|
||||||
|
Royalties
|
(
|
)
|
(
|
)
|
||||
|
Amounts carried to Profit or Loss
|
(
|
)
|
|
|||||
|
Balance as of December 31,
|
|
|
||||||
|
Current maturities
|
(
|
)
|
(
|
)
|
||||
|
Long term liabilities in respect of IIA grants
|
|
|
||||||
The Company is committed to pay royalties to the IIA up to the total grants received plus the applicable accrued interest. The total amount of grants received from IIA including accrued LIBOR interest, net of royalties as of December 31, 2022 is approximately $13,614 , while the amortized cost of this liability as of that date is $ 7,566 , using the interest method.
F - 31
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 14: |
Financial Instruments
|
| a. |
Risk management:
|
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Company’s risk management practice was formulated to identify and analyze the risks that the Company faces, to set appropriate limits for the risks and controls, and to monitor the risks and their compliance within the limits. The risk policy and risk management methods are reviewed regularly to reflect changes in market conditions and in the Company’s operations.
The Company Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
The Company's activities expose it to various financial market risks mainly foreign currency risk, interest rate risk and liquidity risk.
| 1. |
Foreign currency risk
|
The Company operates primarily in an international environment and is exposed to foreign exchange risk resulting from the fact that a certain portion of the Company's costs are denominated in NIS and EURO, mainly due to payroll and related benefit costs incurred in Israel and additionally due to marketing expenses incurred in Europe.
| 2. |
Sensitivity tests relating to changes in market factors:
|
The Company operates in an international environment and is exposed to foreign exchange risk resulting from the exposure to different currencies, mainly NIS and EURO. Foreign exchange risks arise from recognized assets and liabilities denominated in a foreign currency other than the functional currency.
|
December 31
|
||||||||
|
2022
|
2021
|
|||||||
|
Gain (loss) from change:
|
||||||||
|
5% increase in NIS and EURO exchange rate
|
$
|
|
$
|
|
||||
|
5% decrease in NIS and EURO exchange rate
|
$
|
(
|
)
|
$
|
(
|
)
|
||
The Company has performed sensitivity tests of principal market risk factors that may affect its reported operating results or financial position.
The sensitivity tests present the profit or loss for the relevant risk variables chosen as of each reporting date.
F - 32
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 14: |
Financial Instruments (Cont.)
|
| 3. |
Liquidity risk
|
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to timely meet its liabilities, under both normal and stressed conditions, without incurring unwanted losses.
The Company manages the liquidity risk by holding cash balances, short-term deposits and secured bank credit facilities.
|
December 31, 2022
|
||||||||||||||||
|
Carrying
|
12 months
|
|||||||||||||||
|
amount
|
or less
|
1-2 years
|
2-8 years
|
|||||||||||||
|
Non-derivative financial liabilities
|
||||||||||||||||
|
Current liabilities
|
||||||||||||||||
|
Current maturities of long-term liabilities
|
|
|
|
|
||||||||||||
|
Trade payables and accrued expenses
|
|
|
|
|
||||||||||||
|
Other payables
|
|
|
|
|
||||||||||||
|
Non-current liabilities
|
||||||||||||||||
|
Liabilities in respect of IIA grants
|
|
|
|
|
||||||||||||
|
Liabilities in respect of TEVA
|
|
|
|
|
||||||||||||
|
Lease liabilities
|
|
|
|
|
||||||||||||
|
December 31, 2021
|
||||||||||||||||
|
Carrying
|
12 months
|
|||||||||||||||
|
amount
|
or less
|
1-2 years
|
2-8 years
|
|||||||||||||
|
Non-derivative financial liabilities
|
||||||||||||||||
|
Current liabilities
|
||||||||||||||||
|
Current maturities of long-term liabilities
|
|
|
|
|
||||||||||||
|
Trade payables and accrued expenses
|
|
|
|
|
||||||||||||
|
Other payables
|
|
|
|
|
||||||||||||
|
Non-current liabilities
|
||||||||||||||||
|
Liabilities in respect of IIA grants
|
|
|
|
|
||||||||||||
|
Liabilities in respect of TEVA
|
|
|
|
|
||||||||||||
|
Lease liabilities
|
|
|
|
|
||||||||||||
F - 33
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 14: |
Financial Instruments (Cont.)
|
|
b.
|
Fair value:
|
| (1) |
Financial instruments measured at fair value for disclosure purposes only.
|
The carrying amounts of certain financial assets and liabilities, including cash, trade receivables, other receivables, deposits, trade and other payables are the same as or approximate to their fair value.
| (2) |
Fair value hierarchy of financial instruments measured at fair value.
|
The financial instruments measured at fair value on a temporal basis, use valuation methodology in accordance with the fair value hierarchy levelas defined in Note 3l.3. When determining the fair value of an asset or liability, the Company uses observable market data as much as possible.
Details regarding fair value measurement at Level 2
The fair value of the warrants which are classified as non-currents liabilities was measured by Black and Scholes model .The following inputs were used to determine the fair value:
Expected period of warrant– 4 years .
Expected volatility – 68 %
Risk-free interest rate (3) – 4.26 %-2.37 %.
Expected dividend yield – 0 %.
The fair value of liabilities in respect to IIA grants with fixed interest is based on a calculation of the present value of the cash flows at the interest rate for a loan with similar terms. The Company used a discount rate of 12 % based in part of the Company’s estimation at the time of the Company’s recognition of the IIA grants which approximates the fair value at the respective balance sheet date.
The liability in respect of TEVA as presented in balance sheet which is approximate its fair value, based on a calculation of the present value of future payments. The expected cash flows already reflect assumptions about the uncertainty in future defaults, and therefore the Company used a discount rate of 14 % that is commensurate with the risk inherent in the expected cash flows (Note 16).
| Note 15: |
Severance Pay Liabilty, Net
|
The Company has liabilities for severance pay for its employees in Israel and in several EU jurisdictions. The Company’s liability for employee benefits is based on local laws, valid labor agreements, the employee’s salary and the applicable terms of employment, which together generate a right to severance compensation. Post‑employment employee benefits are partially financed by deposits with defined contribution plans, as detailed below.
The Israeli Severance Pay Law, 1963 (“Severance Pay Law”), specifies that Israeli employees are entitled to severance payment, following the termination of their employment.
F - 34
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 15: |
Severance Pay Liabilty, Net (Cont.)
|
Under the Severance Pay Law, the severance payment is calculated as one month salary for each year of employment, or a portion thereof. Under Section 14 of the Severance Pay Law (“Section 14”), employees are entitled to have monthly deposits, at a rate of 8.33 % of their monthly salary, made on their behalf to their insurance funds. Payments in accordance with Section 14 release the Company from the liability for any future severance payments in respect of those employees.
The majority of the Company’s liability for severance pay is covered by Section 14. Acordingly, the Company does not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as an asset in the Company’s balance sheet. These contributions for compensation represent defined contribution plans. The Company recognizes liability for severance pay due to its employees in EU in accordance with local laws and its Israeli employees which are not under Section 14.
| Note 16: |
Liabilities and Commitments
|
| a. |
In 2000, the Company signed an exclusive license agreement (as amended in 2007) with a third party with regard to its patents and intellectual property. Pursuant to the agreement, the Company received an exclusive license to use the third party’s patents and intellectual property, for the purpose of developing, manufacturing, marketing, and commercializing products for treatment of burns and other wounds.
|
The Company paid an aggregate amount of $950 and undertook to pay royalties of 1.5% to 2.5% from future revenues from sales of products which are based on this patent for a period of 12 years from the first commercial delivery in a major country, and thereafter the Company will have a fully paid-up royalty-free license for these patents. In addition, royalties will be paid at the rate of 10% - 20% from sub-licensing of such patents and for lump sum amounts paid to the Company by a third party, the Company will pay 2 % of the proceeds up to $1,000 and 4 % above this amount. Moreover, the Company agreed to pay a one-time lump-sum amount of $1,500 when the aggregate revenues based on these patents reach $100,000 . The amount of royalty payments for the years 2021 and 2022 amounted to $149 and $363 respectively.
| b. |
Under the Research and Development Law, (the “R&D Law”) the Company undertook to pay royalties of
|
| c. |
In December 2020, Teva has agreed to revise the Settlement Agreement from March 2019, which was comprised of past agreement for collaboration in the development, manufacturing and commercialization of solutions for the burn and chronic wound care markets, as well as the Company’s repurchase of shares from Teva. Under the new settlement the Company paid $
|
F - 35
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 16: |
Liabilities and Commitments (Cont.)
|
Total liabilities recorded as of December 31, 2022 and 2021 were approximately$4,794 and $5,928 , respectively, and financial expenses of $533 and $590 , respectively, were recorded in profit or loss within financial expenses.
| Note 17: |
Materials Agreements
|
| a. |
BARDA Contracts
|
The Company was awarded the First BARDA Contract for treatment of thermal burn injuries in Sep 2015. This contract was amended multipal time to extand the total value, up to a total amount of $158,500 . In February 2022 BARDA has expanded its awarded contract providing supplemental funding of $9,000 to support the NexoBrid BLA resubmission to the FDA and the continuous expanded access study.
Under the First BARDA Contract, BARDA provided a total of up to $91,000 in funding for NexoBrid development activities towards U.S. marketing approval from the FDA, and committed to an additional $16,500 to procure NexoBrid for public health medical emergencies. The contract further includes a $10,000 option to fund development of other potential NexoBrid indications and an option to procure additional NexoBrid valued at up to $50,000 .
The Company was awarded the second BARDA contract, to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of BARDA’s preparedness for mass casualty events. The contract provides up to $12,000 of funding to support research and development activities and contains options to provide additional funding of up to $29,000 for additional development activities, animal pivotal studies, and the BLA submission for licensure of NexoBrid for the treatment of Sulfur Mustard injuries. The total aggregate value awarded by BARDA Contracts is up to $209,000 comprised of $142,500 to support research and development activities and $66,500 to procure NexoBrid for U.S. emergency preparedness (which will be splited between the Company and Vericel following Vericel agreement (see Note 17b)).
As of December 31, 2022, the Company has received approximately $82,200 in funding in the aggregate, from BARDA under the two contracts, and an additional of $16,500 for procurement of NexoBrid for U.S. emergency preparedness which were recorded at the net amount of approximately $10,500 following the split of gross profit agreement with Vericel for the initial BARDA procurement.
| b. |
Vericel Agreement:
|
On May 6, 2019, the Company entered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in North America (the “Collaboration Agreements”). Pursuant to the Collaboration Agreements, Vericel will obtain the authority over and control of the development, regulatory approval and commercialization of licensed products in the North America territory. MediWound will be responsible for the development of the product through BLA approval, supported and funded by BARDA, as well as the manufacture and supply of NexoBrid. In addition, MediWound retains the commercial rights to NexoBrid in non-North American territory.
F - 36
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 17: |
Materials Agreememts (Cont.)
|
Under the terms of the license agreement, Vericel has made an upfront payment to MediWound of $17,500 which was recorded as revenues from license agreements in 2019 as well as an additional milestone payment of $7,500 recorded as revenues from license agreements in 2022 upon BLA approval received in December 2022. Fourthermore, Vericel has also agreed to pay MediWound up to $125,000 in payments contingent upon meeting certain annual sales milestones, tiered royalties on net sales ranging from high single-digit to teen-digit percentages, a split of gross profit on committed BARDA procurement orders and a teen-digits royalty on any additional future BARDA purchases of NexoBrid. Under the terms of the supply agreement, Vericel will procure NexoBrid from MediWound at a transfer price of cost plus a fixed margin percentage.
As of the financial statements date, the Company did not recognize any revenues from royalties.
| Note 18: |
Equity
|
| a. |
Share capital:
|
|
December 31
|
||||||||
|
2022
|
2021
|
|||||||
|
Authorized number of shares
|
|
*
|
||||||
|
Issued and outstanding number of shares
|
|
*
|
||||||
*Restated o reflect 1:7 reverse ratio of shares (See note 18b)
An ordinary share confers upon its holder(s) a right to vote at the general meeting, a right to participate in distribution of dividends, and a right to participate in the distribution of surplus assets upon liquidation of the Company.
| b. |
Movement in share capital:
|
| 1. |
During 2020 and 2021 the Company issued additional
|
| 2. |
On November 28, 2022, at the Company’s extraordinary general meeting of shareholders, its shareholders approved:
|
| (a) |
An increases of the Company’s authorized share capital from NIS
|
|
(b)
|
A reverse stock split, in a range of between 1-for-5 and 1-for-10, subject to the discretion of our board of directors to implement it within 12 months.
|
Following that approval, on December 5, 2022, the Company’s board of directors approved a reverse split of 1-for-7 ratio . The reverse split went effective on December 20, 2022.
F - 37
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 18: |
Equity (Cont.)
|
No fractional shares were issued as a result of the reverse share split. Instead, such shares were rounded up to the next whole number of shares. The reverse share split affected all shareholders uniformly and did not alter any person’s percentage interest in our outstanding ordinary shares, except for negligible adjustments that may have resulted from the treatment of fractional shares.
In connection with the reverse share split, The Company also amended and reduced the authorized number of ordinary shares from 90,000,000 to 12,857,143 , which reflected a reduction at the same 1-for-7 ratio as the reduction to the number of issued and outstanding ordinary shares.
Concurrently, the par value of the Company’s ordinary shares was increased proportionately, from NIS 0.01 per share to NIS 0.07 per share, in order to maintain the same overall authorized share capital under our Amended and Restated Articles of Association.
| 3. |
During 2022 the Company issued additional
|
| c. |
Financial transactions:
|
| 1. |
On March 7, 2022, the Company completed a public offering in total of
|
As part of the above- mentioned public offering, certain entities affiliated with CBI purchased 208,334 of ordinary shares at the public offering price.
| 2. |
On September 26, 2022, the Company completed a registered direct (the “RD”) offering in an aggregate amount of $
|
The warrants issued have been classified as a non-current financial liability due to a net share settlement provision and as they can be settled in cash on the occurrence of Fundamental Transaction as determined in the agrement. This liability was initially recognized at its fair value on the date the contract was entered into and is subsequently accounted for fair value at each balance sheet date and recorded through profit and loss.
The fair value of the warrants has been evaluated with the assistance of external independed valuator and was computed based on then current price of the shares, a risk-free interest rate of 4.37 % and an average standard deviation of 68 %.
F - 38
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 18: |
Equity (Cont.)
|
The net proceeds from this offering in the amount of $11,698 have been received on September 28, 2022. The issuance expenses related to the non-current financial liability were recorded through profit and lost and the issuance expenses related to the issuance of shares recorded as a deduction from the proceed in equity.
| 3. |
Concurrently, on October 6, 2022, the Company entered into a Private Issuance Purchase Equity agreement (the “PIPE”) with several purchasers, in connection with the offering of
|
The Pre-Funded warrants and warrants issued have been classified as a non-current financial liabilities due to a net share settlement provision and as they can be reedemed in cash on the occurrence of Fundamental Transaction as determined in the agrement. The initial fair value of the financial liabilities issued in the transaction was approximately $20,788 , which comprised of: 1.The warrants which were valuated by Black and Sholtes model based on then current price of the shares and a risk-free interest rate of 4.26 %, and 2. The pre-funded warrants which were valued in an amount which is approxemate its share price upon their issuance. The consideration received from this transaction was $17,233 . As the fair value on initial recognition of the warrants differs from the transaction price, the difference, represents the First day loss at the amount of $3,555 , and has been allocated to the warrants with respect to this transaction and is amortized on a straight line basis over the term of the the warrants.
The net proceeds from this offering amounted at approximately $15,920 . The issuance expenses were recorded through profit and lost.
During December 2022, the 1,407,583 pre-funded warrants were exercised into ordinary shares..
| 4. |
Upon closing of the RD and PIPE Offerings, the Company also issued the placement agent up to
|
| 5. |
See also Note 25.1 regarding a public offering after the reporting date.
|
F - 39
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 19: Share‑Based Compensation
a. Expense recognized in the financial statements:
The expenses recognized for services received from employees and directors is as follows:
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Cost of revenues
|
|
|
|
|||||||||
|
Research and development
|
|
|
|
|||||||||
|
Selling and marketing
|
|
|
|
|||||||||
|
General and administrative
|
|
|
|
|||||||||
|
Total share-based compensation
|
|
|
|
|||||||||
b. Share-based payment plan for employees and directors:
The Company has granted options and restricted stock units ("RSUs") for total of 806,910 ordinary shares.
As of December 31, 2022,
Any options or RSUs, which are forfeited or not exercised before expiration, become available for future grants.
Options granted under the Company's 2003 Israeli Share Option Plan ("Plan") are exercisable in accordance with the terms of the Plan, within 5-10 years from the date of grant, against payment of an exercise price or cashless exercise. The options generally vest over a period of 3-4 years .
In March 2014, the Company adopted and obtained shareholder approval for its 2014 Equity Incentive Plan (the “2014 Plan”). Options and RSU's granted under the Company's 2014 Plan are exercisable in accordance with the terms of the Plan. Options are exercisable within 5-10 years from the date of grant, against payment of an exercise price or cashless exercise and share units are granted immediately upon vesting of the RSU's. The options and the RSU's generally vest over a period of 1-4 years .
F - 40
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 19: Share‑Based Compensation (Cont.) |
c. Share options activity:
The following table lists the number of share options, the weighted average exercise prices of share options and changes that were made in the option plan to employees and directors
|
2022
|
2021*
|
2020*
|
||||||||||||||||||||||
|
Number of
options
|
Weighted
Average
Exercise price
|
Number of
options
|
Weighted
Average
Exercise price
|
Number of
options
|
Weighted
Average
Exercise price
|
|||||||||||||||||||
|
Outstanding Options at beginning of year
|
|
|
|
|
|
|
||||||||||||||||||
|
Options Granted
|
|
|
|
|
|
|
||||||||||||||||||
|
Options Exercised
|
(
|
)
|
|
(
|
) |
|
|
|
||||||||||||||||
|
Options Forfeited and/or expired
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
|||||||||||||||
|
Outstanding options and at end of year
|
|
|
|
|
|
|
||||||||||||||||||
|
Option's Exercisable at end of year
|
|
|
|
|
|
|
||||||||||||||||||
*Restated o reflect 1:7 reverse ratio of shares (See note 18b)
The following table summarizes information about share options outstanding:
|
Options outstanding as of
December 31, 2022
|
||||||||||||
|
Range of exercise prices ($ )
|
Number of
options
|
Weighted
Average
Remaining
contractual
life
|
Weighted
average
exercise
price
|
|||||||||
|
12.25-14.42 |
|
|
|
|||||||||
|
26.88-37.52 |
|
|
|
|||||||||
|
42.14-67.06 |
|
|
|
|||||||||
|
90.23-96.32 |
|
|||||||||||
|
Total
|
|
|
|
|||||||||
|
|
Options outstanding as of December31, 2021* |
|||||||||||
|
Range of exercise prices ($) |
Number of options |
Weighted Average Remaining contractual life |
Weighted average exercise price |
|||||||||
|
|
||||||||||||
|
12.25-37.52 |
|
|
|
|||||||||
|
42.14-67.06 |
|
|
|
|||||||||
|
90.23-96.32 |
|
|
|
|||||||||
|
Total |
|
|
|
|||||||||
F - 41
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 19: Share‑Based Compensation (Cont.)
The following table summarizes information about RSU's outstanding:
|
RSU's
2022
|
RSU's
2021*
|
RSU's
2020*
|
||||||||||
|
Outstanding at beginning of year
|
|
|
|
|||||||||
|
Granted
|
|
|
|
|||||||||
|
Forfeited
|
(
|
) |
(
|
) |
|
|||||||
|
Vested
|
(
|
) |
(
|
)
|
(
|
)
|
||||||
|
Outstanding at the end of the period
|
|
|
|
|||||||||
*Restated o reflect 1:7 reverse ratio of shares (See note 18b)
The fair value of the options and RSU's granted to employees and directors at the grant date for the years ended December 31, 2020, 2021 and 2022 was $1,819 , $1,392 and $2,970 respectively.
The options and RSU’s of the Company are managed by a trustee.
| 1. |
On April 23, 2020, the Company's Board of Directors approved the grant of
|
| 2. | On March 4, 2021, the Company's Board of Directors approved the grant of: (a) |
|
| 3. |
Over the second quarter of 2022, the Company’s Board of Directors approved the grant of
The above-mentioned grant includes the grant of |
|
|
4. |
On July 19, 2022, the Company’s Shareholders General meeting approved the abovementioned grants (Note 3p, Note 19) to the directors and the CEO, the compensation terms of Mr. Ofer Gonen as the Company’s new Chief Executive Officer, which terms will be effective as of July 1, 2022 and the termination terms for the previous CEO. |
F - 42
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 19: Share‑Based Compensation (Cont.)
| 5. | On August 18, 2022, the Company’s Shareholders General meeting approved the compensation terms and grant of |
d. The fair value of the Company's share options granted to employees and directors for the years ended December 31, 2020, 2021 and 2022 was estimated using the binomial option pricing models using the following assumptions:
|
December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Dividend yield (%)
|
|
|
|
|||||||||
|
Expected volatility of the share prices (%)
|
|
|
|
|||||||||
|
Risk-free interest rate (%)
|
|
|
|
|||||||||
|
Early exercise factor (%)
|
|
|
|
|||||||||
|
Weighted average share prices (Dollar)
|
|
|
|
|||||||||
Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on the weighted average volatility of the Company’s shares, over the expected term of the options), expected term of the options (based on general option holder behavior and expected share price), expected dividends, and the risk-free interest rate (based on government debentures).
| Note 20: |
Income Tax
|
| a. |
The Company operates in two main tax jurisdictions: Israel and Germany. As such, the Company is subject to the applicable tax rates in the jurisdictions in which it conducts its business.
|
| b. |
Corporate tax rate in Israel:
|
The tax rates relevant to the Company in the years 2020-2022 is 23
| c. |
Benefits under the Law for the Encouragement of Capital Investments:
|
Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 (the "Investment Law"):
Under the Investment Law, the Company has been granted "Beneficiary Enterprise" status which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Beneficiary Enterprise benefits is taxed at a regular rate.
During the benefit period, the Company will be tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%- 25% for an additional period of five to eight years (depending on the percentage of foreign investments in the Company) of the benefit period. The benefit entitlement period starts from the first year that the Beneficiary Enterprise first earned taxable income, and is limited to 12 years from the year in which the Company requested to have tax benefits apply. In the event of distribution of dividends from the said tax exempt income, the amount distributed will be subject to corporate tax at the reduced rate ordinarily applicable to the Beneficiary Enterprise's income.
F - 43
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 20: |
Income Tax (Cont.)
|
Tax exempt income generated under the Company's "Beneficiary Enterprise" program will be subject to taxes upon dividend distribution or complete liquidation. The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the Investment Law and regulations published thereunder. Should the Company fail to meet such requirements in the future, income attributable to its Beneficiary Enterprise programs could be subject to the statutory Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such programs.
| d. |
The principal tax rates applicable to the subsidiary whose place of incorporation is outside of Israel is:
|
The statutory corporate tax rate in Germany was 29.79
| e. |
Final tax assessments:
|
The Company has finalized its tax assessments through the 2016 tax year.
The Company's subsidiary has not received a final tax assessment since its incorporation.
| f. |
Net operating carryforward losses for tax purposes and other temporary differences:
|
As of December 31, 2022, the Company had carryforward losses and other temporary differences mainly from R&D expenses together amounting to approximately $156,700 .
| g. |
Deferred taxes:
|
The Company did not recognize deferred tax assets for temporary differences because their utilization in the foreseeable future is not probable.
| h. |
Current taxes on income:
|
The Company did not record any current taxes for the years ended December 31, 2020, 2021 and 2022 as a result of its carryforward losses.
| i. |
Theoretical tax:
|
The reconciliation between the tax expense, assuming that all the income and expenses, gains and losses in the statement of income were taxed at the statutory tax rate and the taxes on income recorded in profit or loss, does not provide significant information and therefore was not presented (the main reconciliation item is due to operating losses and other temporary differences for which deferred tax assets were not recognized).
F - 44
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 21: Discontinued Operation
In 2020 the Company finalized PolyHeal Settlement Agreements with some shareholders of Polyheal related to '2010 PolyHeal Agreement' in which PolyHeal granted the Company an exclusive global license to manufacture, develop and commercialize all the Polyheal Products in consideration for royalty payments, and paid $195 for 1,558 shares of PolyHeal. As of December 31, 2020, the provision for liability in respect of discontinued operation, was fully offset by an impairment of the royalty rights and settlement fees.
| Note 22: |
Supplementary Information to the Statements of Comprehensive Profit or Loss
|
|
a.
|
Additional information on Revenues:
|
Major customers:
BARDA contributed 51 %, 76 % and 83 % of the Company’s total revenues in 2022, 2021, and 2020 respectively . Verical contributed 28 % in 2022. (see also Note 17b).
No other customer contributed 10% or more of the Company’s revenues in 2022, 2021 and 2020.
Geographic information:,
The revenues reported in the financial statements are based on the location of the customers, as follows:
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
USA ( see also Note 17a, 17b)
|
|
|
|
|||||||||
|
EU and other international markets
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
b.
|
Cost of Revenues:
|
| 1. |
Cost of Revenues from sale of products
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits (including share-based compensation)
|
|
|
|
|||||||||
|
Subcontractors
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Cost of materials
|
|
|
|
|||||||||
|
Other manufacturing expenses
|
|
|
|
|||||||||
|
Decrease (increase) in inventory of finished products
|
(
|
)
|
|
|
||||||||
|
|
|
|
||||||||||
F - 45
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 22: |
Supplementary Information to the Statements of Comprehensive Profit or Loss (Cont.)
|
| 2. |
Cost of Revenues from development services
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits
|
|
|
|
|||||||||
|
Subcontractors
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| 3. |
Cost of Revenues from license agreements
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits
|
|
|
|
|||||||||
|
Royalties payments
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Total Cost of Revenues
|
|
|
|
|||||||||
|
c.
|
Research and development expenses, net of participations:
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits (including share-based compensation)(1)
|
|
|
|
|||||||||
|
Subcontractors
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Cost of materials
|
|
|
|
|||||||||
|
Other research and development expenses
|
|
|
|
|||||||||
|
Total Research and development, net of participations
|
|
|
|
|||||||||
| (1) |
The salary costs for the year ended December 31,2022 includes one time payment of $
|
F - 46
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 22: Supplementary Information to the Statements of Comprehensive Profit or Loss (Cont.)
|
d.
|
Selling and marketing expenses:
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits (including share based compensation)
|
|
|
|
|||||||||
|
Marketing and medical support
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Shipping and delivery
|
|
|
|
|||||||||
|
Registration and marketing license fees
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
e.
|
General and administrative expenses:
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Salary and benefits (including share‑based compensation)
|
|
|
|
|||||||||
|
Professional fees
|
|
|
|
|||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
|
|
|
||||||||||
| f. |
Other expenses:
|
The other one-time expenses amounted $684 for the year ended December 31, 2022, are associated with the management changes and FDA milestone payment fee ( see Note 17b).
F - 47
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| Note 22: |
Supplementary Information to the Statements of Comprehensive Profit or Loss (Cont.)
|
| g. |
Financial income and expense:
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Financial income:
|
||||||||||||
|
Interest income
|
|
|
|
|||||||||
|
Revaluation of liabilities in respect of TEVA
|
|
|
|
|||||||||
|
Revaluation of liabilities in respect of IIA grants
|
|
|
|
|||||||||
|
Exchange differences, net
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Financial expense:
|
||||||||||||
|
Interest in respect of IIA grants
|
|
|
|
|||||||||
|
Revaluation of liabilities in respect of IFRS16
|
|
|
|
|||||||||
|
Finance expenses in respect of deferred revenues
|
|
|
|
|||||||||
|
Revaluation of liabilities in respect of TEVA
|
|
|
|
|||||||||
|
Exchange differences, net
|
|
|
|
|||||||||
|
Revaluation of Warrants
|
|
|
|
|||||||||
|
Issuance expenses of warrants through profit and loss
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Financial expenses, net
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Note 23: Net Profit (Loss) Per Share
| a. |
Details of the number of shares and loss used in the computation of loss per share from continuing operations:
|
|
Year ended December 31
|
||||||||||||||||||||||
|
2022
|
2021*
|
2020*
|
||||||||||||||||||||
|
Weighted
average
number of shares
|
Loss
|
Weighted
average
number of shares
|
Loss
|
Weighted
average
number of shares
|
Loss
|
|||||||||||||||||
|
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||
F - 48
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 23: Net Profit (Loss) Per Share (Cont.)
| b. |
Net profit (loss) per share :
|
|
Year ended December 31
|
||||||||||||
|
2022
|
2021*
|
|
2020*
|
|
||||||||
|
Basic and diluted loss per share:
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
* Restated to reflect 1:7 reverse ratio of shares (See note 18b)
In 2022, 2,614,288 warrants, 764,767 options and 42,013 RSU’s were excluded from the diluted weighted average number of Ordinary Shares calculation as their effect would have been anti-dilutive. In addition the impact of 1,407,583 pre-funded warrants which were exercised in December 2022, have not taken in the diluted weighted average number of Ordinary Shares calculation as their effect would have been unti-dilutive as well.
Note 24: Balances and Transactions With Related Parties and Key Officers
| a. |
Related parties consist of:
|
| • |
Clal Biotechnologies Industries Ltd.- Related party.
|
| • |
Directors of the Company.
|
| 1. |
Balances of related parties:
|
|
Other Payables
|
||||
|
Related Party:
|
||||
|
As of December 31, 2021
|
|
|||
|
As of December 31, 2022
|
|
|||
|
Directors:
|
||||
|
As of December 31, 2021
|
|
|||
|
As of December 31, 2022
|
|
|||
| 2. |
Transactions with related parties:
|
|
Rental fee:
|
Year ended December 31
|
|||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Related party
|
|
|
|
|||||||||
|
Professional fee *:
|
Year ended December 31
|
|||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Directors
|
|
|
|
|||||||||
|
Related party
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Number of Directors
|
*
|
|
|
|||||||||
| * |
Not included share based compensation detailed in Note 19.
|
| * |
During 2022 two members of the board of directors were replaced.
|
F - 49
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 24: Balances and Transactions With Related Parties and Key Officers (Cont.)
| b. |
Key Officers:
|
| 1. |
Balances of Key Officers of the Company
|
|
Other Payables
|
||||
|
Key Officers of the Company
|
||||
|
As of December 31, 2022
|
|
|||
|
As of December 31, 2021
|
|
|||
| • |
Represents the officer’s gross salary, bonuses and vacation provisions without share based compensation.
|
| 2. |
Compensation of Key Officers of the Company:
|
The following amounts disclosed in the table are recognized as an expense during the reporting period related to officers:
|
Year ended December 31
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Short-term employee benefits (*)(**)
|
|
|
|
|||||||||
|
Share-based compensation
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Number of officers
|
|
|
|
|||||||||
(*) One-time expenses amounted $309 for the year ended December 31, 2022, are associated with the management changes.
(**) In December 2007, the Company's board of directors approved one‑time bonus payments to the Chief Medical Officer in the amounts of $120 , which was recorded in profit and loss in December 2022 upon achieving marketing approval in the United States.
Note 25: Subsiquents events:
| 1. |
On February 7, 2023, the Company completed a registered direct offering. A total of
|
| 2. |
On February 15, 2023, the Company granted to employees, officers, board members, CEO and some consultants
|
F - 50
TABLE OF CONTENTS
Part IItem 1. Identity Of Directors, Senior Management and AdvisersItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on The CompanyItem 4A. Unresolved Staff CommentsItem 5. Operating and Financial Review and ProspectsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholders and Related Party TransactionsItem 8. Financial InformationItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures About Market RiskItem 12. Description Of Securities Other Than Equity SecuritiesPart IIItem 13. Defaults, Dividend Arrearages and DelinquenciesItem 14. Material Modifications To The Rights Of Security Holders and Use Of ProceedsItem 15. Controls and ProceduresItem 16. [reserved]Item 16A. Audit Committee Financial ExpertItem 16B. Code Of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Change in Registrant S Certifying AccountantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosureItem 16I. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. ExhibitsNote 1: GeneralNote 1: General (cont.)Note 2: Basis Of Preparation Of The Consolidated Financial StatementsNote 2: Basis Of Preparation Of The Consolidated Financial Statements (cont.)Note 3: Significant Accounting PoliciesNote 3: Significant Accounting Policies (cont.)Note 4: Cash and Cash EquivalentsNote 5: Trade ReceivablesNote 6: Inventories December 31, 2022 2021 Raw Materials 913 694 Finished Goods 1,050 506 1,963 1,200Note 6: InventoriesNote 7: Other Receivables- Short TermNote 8: Other Receivables- Long TermNote 9: Property, Plant and Equipment, NetNote 10: LeasesNote 10: Leases (cont.)Note 11: Intangible Assets, NetNote 11: Intangible Assets, Net (cont.)Note 12: Other PayablesNote 13: Liabilities in Respect Of Iia GrantsNote 14: Financial InstrumentsNote 14: Financial Instruments (cont.)Note 15: Severance Pay Liabilty, NetNote 15: Severance Pay Liabilty, Net (cont.)Note 16: Liabilities and CommitmentsNote 16: Liabilities and Commitments (cont.)Note 17: Materials AgreementsNote 17: Materials Agreememts (cont.)Note 18: EquityNote 18: Equity (cont.)Note 19: Share Based CompensationNote 19: Share Based Compensation (cont.)Note 20: Income TaxNote 20: Income Tax (cont.)Note 21: Discontinued OperationNote 22: Supplementary Information To The Statements Of Comprehensive Profit Or LossNote 22: Supplementary Information To The Statements Of Comprehensive Profit Or Loss (cont.)Note 23: Net Profit (loss) Per ShareNote 23: Net Profit (loss) Per Share (cont.)Note 24: Balances and Transactions with Related Parties and Key OfficersNote 24: Balances and Transactions with Related Parties and Key Officers (cont.)Note 25: Subsiquents Events: