UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 
FORM 20‑F
 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2019
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________________ to____________________          
 
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ______________
 
Commission file number 001‑36349
 
 
MEDIWOUND LTD.
(Exact name of Registrant as specified in its charter)
 
Not applicable
(Translation of Registrant’s name into English)

ISRAEL
(Jurisdiction of incorporation or organization)
 
42 Hayarkon Street
Yavne, 8122745 Israel
(Address of principal executive offices)
 
Yaron Meyer, Adv.
Executive Vice President, General Counsel and Corporate Secretary
Telephone: +972 (77) 971-4100
E‑mail: yaronm@mediwound.com
MediWound Ltd.
42 Hayarkon Street
Yavne, 8122745 Israel
(Name, telephone, e‑mail and/or facsimile number and address of company contact person)
 

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Ordinary shares, par value NIS 0.01 per share
 MDWD
Nasdaq Global Market
  
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, 2019, the registrant had 27,202,795 ordinary shares, par value NIS 0.01 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.
 
Yes ☒             No ☐
 
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 (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes ☒         No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated 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.
 
Large accelerated filer
Accelerated filer
Non‑accelerated filer
Emerging Growth Company
 
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.
 
Indicate by check mark which basis for accounting the registrant has used to prepare the financing statements included in this filing:
 
U.S. GAAP ☐
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
Other ☐
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
☐ Item 17             ☐ Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).
 
Yes ☐             No ☒
 

 
MEDIWOUND LTD.
 
 
FORM 20‑F
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
 
 
TABLE OF CONTENTS

 
i
 
i
 
   
PART I
   
 
   
 
1
 
1
 
1
 
31
 
68
 
68
 
86
 
105
 
109
  111
 
111
 
118
 
119
 
   
PART II
   
 
   
 
119
 
120
 
120
 
121
 
121
 
121
 
121
 
121
 
122
 
122
 
122
 
122
 
   
PART III
   
 
   
 
123
 
123
 
124
SIGNATURES          
 
126
 


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 trade names that we use in our business. 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.
 
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:
 

the timing and conduct of our trials of NexoBrid, EscharEx and our 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;
 

the clinical utility, potential advantages and timing or likelihood of regulatory filings and approvals of NexoBrid, EscharEx and our pipeline product candidates;
 

our plans to develop and commercialize NexoBrid, EscharEx and our pipeline product candidates;
 

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

anticipated funding under our contracts with the U.S. Biomedical Advanced Research and Development Authority;
 

our expectations regarding future growth, including our ability to develop new products;
 

our commercialization, marketing and manufacturing capabilities and strategy and the ability of our marketing team to cover regional burn centers and units;
 

our ability to maintain adequate protection of our intellectual property;
 

our estimates regarding the market opportunity for NexoBrid, EscharEx and our pipeline product candidates;
 

our expectation regarding the duration of our inventory of intermediate drug substance and products;
 

the impact of our research and development expenses as we continue developing product candidates;
 

the impact of government laws and regulations.


i

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. There are important factors that could cause our actual results, level of activity, performance or achievements, or their impact for our shareholders, to differ materially from the results, level of activity, performance or achievements, or their impact for our shareholders, expressed or implied by the forward-looking statements. 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. 

ii


PART I
 
Item 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
Item 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable. 
 
Item 3.
KEY INFORMATION
 

A.
Selected Financial Data
 
The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with “ITEM 5. Operating and Financial Review and Prospects” and our consolidated financial statements and related notes included elsewhere in this annual report.
 
The selected consolidated statements of operations data for each of the years in the three-year period ended December 31, 2017, 2018 and 2019 and the consolidated balance sheet data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements appearing elsewhere in this annual report. The consolidated statements of operations data for the years ended December 31, 2015 and 2016 and the consolidated balance sheet data as of December 31, 2015, 2016 and 2017 are derived from our audited consolidated financial statements that are not included in this annual report. The historical results set forth below are not necessarily indicative of the results to be expected in future periods. Our financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

                               
   
Year Ended December 31,
 
   
2015
   
2016
   
2017
   
2018
   
2019
 
   
(in thousands, except per share data)
 
       
Consolidated statements of operations data:
                             
Revenues          
 
$
601
   
$
1,558
   
$
2,496
   
$
3,401
   
$
31,789
 
Cost of revenues(1)          
   
2,519
     
2,158
     
1,578
     
2,088
     
11,849
 
Gross (loss) profit          
   
(1,918
)
   
(600
)
   
918
     
1,313
     
19,940
 
Operating expenses:
                                       
Research and development, gross          
   
8,139
     
14,779
     
14,625
     
17,915
     
10,070
 
Participation by BARDA and the Israeli Innovation Authority
   
(2,118
)
   
(7,711
)
   
(9,163
)
   
(13,843
)
   
(5,101
)
Research and development, net of participations(1)(2)
   
6,021
     
7,068
     
5,462
     
4,072
     
4,969
 
Selling and marketing(1)          
   
9,284
     
8,403
     
5,362
     
4,188
     
4,064
 
General and administrative(1)          
   
4,004
     
4,084
     
3,781
     
3,799
     
5,242
 
Other (income) loss, net
   
-
     
-
     
-
     
(6,786
)
   
1,172
 
Operating profit (loss)
   
(21,227
)
   
(20,155
)
   
(13,687
)
   
(3,960
)
   
4,493
 
Financial income (expense), net          
   
(444
)
   
1,270
     
(846
)
   
(1,705
)
   
(2,427
)
Profit (loss) from continuing operations
   
(21,671
)
   
(18,885
)
   
(14,533
)
   
(5,665
)
   
2,066
 
Profit (loss) from discontinued operation(1)(3)
   
(417
)
   
-
     
(7,616
)
   
4,608
     
2,889
 
Net profit (loss)          
 
$
(22,088
)
 
$
(18,885
)
 
$
(22,149
)
 
$
(1,057
)
 
$
4,955
 
Foreign currency translation adjustments
   
2
     
7
     
(29
)
   
13
     
8
 
Total comprehensive profit (loss)          
 
$
(22,086
)
 
$
(18,878
)
 
$
(22,178
)
 
$
(1,044
)
 
$
4,963
 
Basic and diluted net profit (loss) per share from continuing operations(4)
 
$
(1.00
)
 
$
(0.86
)
 
$
(0.62
)
 
$
(0.21
)
 
$
0.08
 
Basic and Diluted net profit (loss) per share from discounting operations(4)
 
$
(0.02
)
 
$
-
   
$
(0.33
)
 
$
0.17
   
$
0.10
 
                                         
Weighted average number of ordinary shares used in computing profit (loss) per ordinary share (in thousands):
                                       
Basic:          
   
21,718
     
21,862
     
23,341
     
27,114
     
27,179
 
Diluted:          
   
21,718
     
21,862
     
23,341
     
27,114
     
27,179
 

1


   
As of December 31,
 
   
2015
   
2016
   
2017
   
2018
   
2019
 
   
(in thousands)
 
Consolidated balance sheet data:
                             
Cash and cash equivalents and short-term bank deposits
 
$
45,768
   
$
30,029
   
$
36,069
   
$
23,633
   
$
29,458
 
Working capital, net(5)    
   
45,189
     
28,232
     
36,087
     
27,816
     
25,249
 
Total assets    
   
52,523
     
35,764
     
44,135
     
35,276
     
40,590
 
Total non-current liabilities        
   
23,847
     
22,614
     
29,082
     
21,407
     
15,048
 
Total shareholders’ equity          
   
23,470
     
7,770
     
9,620
     
8,972
     
15,169
 

                                       
(1)
Includes share-based compensation expense as follows:

   
Year Ended December 31,
 
   
2015
   
2016
   
2017
   
2018
   
2019
 
   
(in thousands)
 
Cost of revenues  
 
$
372
   
$
504
   
$
188
   
$
71
   
$
226
 
Research and development
   
511
     
752
     
488
     
181
     
375
 
Selling and marketing          
   
669
     
765
     
204
     
63
     
40
 
General and administrative     
   
1,107
     
1,150
     
483
     
330
     
593
 
Total share-based compensation expenses
 
$
2,659
   
$
3,171
   
$
1,363
   
$
645
   
$
1,234
 

                                       
(2)
Research and development expenses, net is presented net of participation by the U.S. Biomedical Advanced Research and Development Authority (BARDA) and net of the change in the fair value of the liability associated with government grants from the Israeli Innovation Authority (IIA). The effect of the participation by IIA totaled $1.3 million, $2.1 million, $0.6 million, $0.6 million and $1.3 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively. The effect of the participation by BARDA totaled $0.8 million, $5.6 million, $8.6 million, $13.2 million and $3.8 million for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, respectively. The participation by BARDA for the year ended December 31, 2019 in an amount of $3.8 million was classified as participation by BARDA in Research and development expenses, and BARDA participation in an amount of $10.7 million was classified as revenues from development services. See “ITEM 5.B. Liquidity and Capital Resources” for more information.

(3)
Discontinued operation consists of revenues and expenses related to our exclusive, worldwide license for the development, production and commercialization of the PolyHeal Product, which expired following the termination of our collaboration with Teva. We account for our discontinued operation in accordance with IFRS accounting standard 5, “Non-current Assets Held for Sale and Discontinued Operations.” See “ITEM 5.A. Operating Results—Discontinued operation” for more information.
 
(4)
Basic and diluted net income (loss) per ordinary share is computed based on the basic and diluted weighted average number of ordinary shares outstanding during each period. For additional information, see Note 21 to our consolidated annual financial statements included elsewhere in this report.
 
(5)
Working capital, net is defined as total current assets minus total current liabilities.

2

 

B.
Capitalization and Indebtedness
 
Not applicable.
 

C.
Reasons for the Offer and Use of Proceeds
 
Not applicable.
 

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.

Risks Related to Our Business and Our Industry
 
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 proteolytic enzyme technology for marketing authorization of NexoBrid and EscharEx in the U.S. and for new indications, such as for treatment of connective tissue disorders and other indications. 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:
 

regulators may not authorize us to conduct a clinical trial within a country or at a prospective trial site or may change the design of a study;
 

delays may occur in reaching agreement on acceptable clinical trial terms with regulatory authorities or prospective sites, or obtaining institutional review board approval;
 

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;
 

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;
 

our third-party contractors, such as a research institute, may fail to comply with regulatory requirements or meet their contractual obligations to us;
 

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;
 
3



regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
 

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;

the cost of our clinical trials may be greater than we anticipate;
 

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; and
 

delays may occur in obtaining our clinical materials.
 
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.
 
We may be unable to successfully obtain approval of NexoBrid for treatment of severe burns in the United States and other markets.
 
In the short term, we have been 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 and procurement of NexoBrid by the U.S. Biomedical Advanced Research and Development Authority (BARDA) for emergency stockpile as part of the U.S. Department of Health and Human Services’ (HHS) mission to build national preparedness for public health medical emergencies.  However, our continued growth depends, in large part, on our ability to develop and obtain marketing authorization for NexoBrid for treatment of severe burns in additional markets, especially in the United States (from the U.S. Food and Drug Administration (FDA)). We expect that receipt of marketing approval from the FDA will enable us to receive additional payments, including milestone payments, and transfer price payments, from Vericel Corporation (Nasdaq: VCEL), our U.S. commercial partner, who is responsible for commercialize NexoBrid in the United States if we receive that approval. In January 2019, we announced top-line results from the U.S. Phase 3 pivotal study to support a Biologics License Application (“BLA”) submission to the FDA, according to which the study has met its primary and all secondary endpoints. Following the pre-BLA meeting we had with the FDA, a BLA submission to the FDA is currently targeted for midyear 2020 based on the above-available acute data, including primary, secondary and safety endpoints, as well as 12-month safety follow-up data, whereas the 24-month long-term safety follow-up data from the Phase 3 pivotal study will be submitted as a safety update as part of a post-approval commitment, if our BLA is approved. We cannot predict whether the FDA will accept our BLA submission, how long the FDA may take to review and approve NexoBrid following our BLA submission, or whether any such approval in the United States will ultimately be granted. Similarly, we cannot predict how long regulatory authorities outside of the United States and Europe will take to provide NexoBrid with marketing authorization in their jurisdictions or whether such authorizations will be granted at all. A number of companies in the pharmaceutical and biotechnology industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. See “—Product development is a lengthy and expensive process, with an uncertain outcome” and “—Development and commercialization of 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.” The failure to receive such marketing authorization, especially in the United States, would have a material adverse impact on our business prospects.
 
Development and commercialization of 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 European Union, Israel, Argentina, Russia, South Korea and Peru. 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”), 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").

4

 
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 NexoBrid, EscharEx or our pipeline product candidates. 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 approval 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. For example, certain policies of the current U.S. presidential administration may impact our business and industry. Namely, this administration has taken several executive actions, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, 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 4 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 Phase 3 clinical trial of NexoBrid. We believe that our U.S. Phase 3 study will also serve to address this post-marketing commitment to EMA. If the EMA does not accept such study or is not satisfied with the study results, we will need to perform another costly study to provide such data. 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 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 approval for NexoBrid in the United States, or for our pipeline product candidates worldwide, would adversely affect our business, prospects, financial condition and results of operations.
 
We are dependent on our contract with BARDA to fund our Phase 3 pivotal studies and other development activities for NexoBrid in the United States and to procure from us (and to thereby provide us with revenues related to NexoBrid. If we do not continue to receive funding under this contract, we may need to obtain alternative sources of funding. In addition, if BARDA does not order sufficient quantities of NexoBrid, that will adversely impact our future revenues.
 
We have a contract with BARDA, valued at up to $153 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 $77 million of the development costs of NexoBrid required to obtain marketing approval in the United States.  Under the First BARDA Contract, BARDA began procuring NexoBrid from us for emergency stockpile as part of the HHS mission to build national preparedness for public health medical emergencies. The initial BARDA order is valued at $16.5 million, with the first delivery of NexoBrid expected by the end of the first quarter of 2020 and additional deliveries occurring over the subsequent five quarters. 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 from us. 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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Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval for and, If approved, commercialize our product candidates in the United States 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 our 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:
 

the market acceptance or demand for NexoBrid, EscharEx or any of our pipeline product candidates, if approved;


the ability to set a price that we believe is fair for NexoBrid, EscharEx or any of our pipeline product candidates, if approved;
 

our ability to generate revenues and achieve or maintain profitability;
 

the level of taxes that we are required to pay; and
 

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, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, a sweeping law 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 Affordable Care Act of importance to our potential product candidates are the following:
 

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;
 

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;
 

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;
 

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;
 

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;
 

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
 

a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
 

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research.

There remain judicial and congressional challenges to certain aspects of the Affordable Care Act, as well as efforts by the current U.S. presidential administration to amend or repeal of the Affordable Care Act. While Congress has not passed repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. For example, the Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well. The 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how this decision, future decision, subsequent appeals, if any, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business. Congress may consider other legislation to repeal or replace elements of the Affordable Care Act in the future. We cannot predict what legislation, if any, to repeal or replace the Affordable Care Act will become law, or what impact any such legislation may have on our product candidate.
 
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 of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments, will stay in effect through 2029 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, 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 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. At the federal level, the current U.S. presidential administration’s budget proposal for fiscal year 2020 contained further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. While some of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. 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.

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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.
 
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 regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals 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 approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
 
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 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, Israel, Argentina, South Korea and Russia, 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 Europe, Israel, Argentina, South Korea and Russia, and in other countries where we receive marketing approval, and of EscharEx and our pipeline product candidates, will depend on a number of factors, some of which are beyond our control, including:
 

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;
 

the consent of hospitals to fund/purchase NexoBrid or obtain third-party coverage or reimbursement for our products;
 

the ability to offer NexoBrid, EscharEx and our pipeline product candidates for sale at an attractive value;
 

the efficacy and potential advantages of NexoBrid, EscharEx and our pipeline product candidates relative to current standard of care;
 

the prevalence and severity of any side effects; and
 

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.

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We may be unsuccessful in commercializing our products due to unfavorable pricing regulations or third-party coverage and reimbursement policies.
 
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. Additionally, we cannot predict the pricing and reimbursement of NexoBrid, EscharEx or our pipeline product candidates. The regulations that govern marketing approvals, 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 European Union, 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 approval for a product candidate.
 
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 approval. 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.
 
If our manufacturing facility in Yavne, Israel were 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 in the event that we are unable to further manufacture NexoBrid.

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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.

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 products. We cannot guarantee that we will be able to obtain the requisite approvals, including meeting regulatory and quality requirements, or the necessary capital resources for procuring this facility, 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.
 
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 or our pipeline product candidates or in the manufacturing facilities in which NexoBrid or our pipeline product candidates are or will be made, such manufacturing facilities may need to be closed to investigate and remedy the contamination.
 
Although we have not experienced any contaminations, major equipment failures, or other similar manufacturing problems of such magnitude, any adverse developments affecting manufacturing operations for NexoBrid or our pipeline product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of NexoBrid 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 more costly manufacturing alternatives.
 
Our ability to continue manufacturing and distributing our products depends on our continued adherence to current good manufacturing practices regulations.
 
The manufacturing processes for our products are governed by detailed cGMP regulations, both for our marketed products in the EU and product candidates in clinical testing in the U.S. Failure by our manufacturing and quality operations unit to adhere to established regulations or to meet a specification or procedure set forth in cGMP requirements could require that a product or material be rejected and destroyed. Our adherence to cGMP regulations and the effectiveness of our quality control systems are periodically assessed through inspections of our manufacturing facility by regulatory authorities. We have one such periodic cGMP audit of our manufacturing facility, scheduled for 2020. 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 reflects ever-evolving standards, we need to regularly update our manufacturing processes and procedures to comply with cGMP. 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 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.
 
For the year ended December 31, 2019, we recorded a one-time profit of $5.0 million following a $17.5 million up-front payment that we received under the exclusive license that we granted to Vericel in May 2019 for the commercialization of NexoBrid in North America. Other than that one-time profit in 2019, we have not been profitable historically and have incurred significant net losses, including a net loss of $1.0 million for the year ended December 31, 2018. As of December 31, 2019, we had an accumulated deficit of $125.8 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 shareholders equity and working capital.

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Our success will depend initially on our ability to commercialize NexoBrid.
 
We are currently marketing a single product, NexoBrid, based on our patented proteolytic enzyme technology, which has been approved for marketing in all European Union member states as well as European Economic Area member states, Norway, Iceland Lichtenstein, Israel, Argentina, Russia, South Korea and Peru for the treatment of adults with deep partial- and full-thickness burns, which we refer to as severe burns. We are currently relying, for a significant portion of our revenues sales of products, on sales of NexoBrid in Europe and in other international markets for the treatment of severe burns and procurement of NexoBrid by BARDA. We launched NexoBrid in Europe in 2014, in Israel in 2015, in Argentina in 2016, and in South Korea and Russia in 2019, through our local distributors. In November 2017, the European Commission re-granted a five-year renewal of our NexoBrid marketing authorization. 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.
 
We are marketing, selling and distributing NexoBrid in Europe and in Israel through our own sales force, which consists of a marketing team of specialized and knowledgeable sales representatives in Europe, focusing in key burn centers and Key Opinion Leader (KOL) management. In order to successfully commercialize NexoBrid, we must successfully manage and operate our marketing, sales, distribution, managerial and other non-technical capabilities, which includes many challenges, such retaining talented personnel; training employees; having the appropriate system of incentives; managing headcount in Europe; and managing business units in Europe. The continued operation of our own sales infrastructure is expensive and time-consuming. Moreover, we do not have substantial experience as a company in operating a significant sales infrastructure and we cannot be certain that we will be able to do so successfully. We will have to compete with other pharmaceutical, biotechnology and wound care companies to recruit, hire, train and retain personnel for medical affairs, marketing and sales.
 
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 approval is insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.
 
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:
 

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 product candidate for the treatment of connective tissue disorders or other indications;
 

continue to operate our sales, marketing and distribution infrastructure in Europe and thereafter in other locations around the world to commercialize NexoBrid and any pipeline product candidates for which we obtain marketing approval;
 
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further scale-up the manufacturing process for NexoBrid;
 

seek regulatory and marketing approvals for NexoBrid and any pipeline product candidate that successfully completes clinical trials;
 

initiate additional preclinical, clinical or other studies for NexoBrid, EscharEx and our pipeline product candidates, and seek to identify and validate new products;
 

acquire rights to other product candidates and technologies;
 

change or add suppliers;
 

maintain, expand and protect our intellectual property portfolio;
 

attract and retain skilled personnel; and
 

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. Under our shelf registration statement on Form F-3, 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.  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.
 
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:
 

delay, scale back or discontinue the development, manufacturing scale-up or commercialization of NexoBrid, EscharEx or our pipeline product candidates;
 

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
 

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.
 
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 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, an intermediate drug substance 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. 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 novel coronavirus outbreak that surfaced in Wuhan, China in December 2019 and resulted in the declaration of a public health emergency by the World Health Organization, we may face difficulty sourcing bromelain SP which could negatively affect our revenues.  At this point in time, there is significant uncertainty relating to the potential effect of the novel coronavirus on our business. Infections may become more widespread, including to other countries where we have operations, and factory closures and travel restrictions may remain or worsen, all of which would have a negative impact on our business, financial condition and results of operations.
 
NexoBrid, EscharEx, our current pipeline product candidates or future 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 proteolytic enzyme technology, although their specific formulations or mode of applications may vary. Like most pharmaceutical products, our approval labels for NexoBrid in Europe, Israel, Argentina, South Korea, Russia and Peru 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:
 

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;


fines, warning letters or holds on clinical trials;
 

harm to our reputation, reduced demand for our products and loss of market acceptance;
 

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;
 

product seizure or detention, or refusal to permit the import or export of products; and
 

injunctions or the imposition of civil or criminal penalties.
 
Any of these events could prevent us from achieving or maintaining market acceptance of NexoBrid, our pipeline product candidates or future product candidates, which would adversely affect our business, prospects, financial condition and results of operations.

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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 approval in foreign countries based on such animal data.
 
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, 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 approval 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 debridement 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.
 
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.

Although we have received orphan drug designation for NexoBrid in the United States and the European Union, we may be unable to maintain the benefits associated with such designations, including the potential for market exclusivity.
 
In the U.S., the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drug designation in the U.S. entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax credits for certain clinical trial costs and user-fee waivers.
 
Similarly, in Europe, the European Commission grants orphan designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an application for orphan designation. Such orphan designation is available to products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been approved (or the product would be a significant benefit to those affected). Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe would be sufficient to justify the necessary investment in developing the drug. Orphan designation in the EU entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.
 
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Although NexoBrid has been designated an orphan drug in the United States, European Union and South Korea, there is no guarantee that we will obtain approval or orphan drug exclusivity in the United States or other jurisdictions, or maintain such exclusivity in Europe. Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven in the United States and ten years the Europe. While the marketing exclusivity of an orphan drug prevents other sponsors from obtaining approval of a similar medicinal product for the same indication (unless the sponsor demonstrates clinical superiority or a market shortage occurs), it would not prevent other sponsors from obtaining approval of the same compound for other indications, or obtaining approval of a different compound for the same indications as the orphan product. In addition, the FDA or the EMA may revisit any orphan drug designation and retains the ability to withdraw the designation at any time.
 
Orphan designation neither shortens the development time or regulatory review time of a product nor gives the product any advantage in the regulatory review or approval process. While we may seek additional orphan designations for applicable indications for our current and any future product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.
 
Regulatory approval for NexoBrid, EscharEx and our 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 off-label uses could adversely affect our business.
 
The marketing approval for NexoBrid in the European Union, Israel, Argentina, South Korea, Russia and Peru is limited to the treatment of deep partial- and full-thickness burns in adults. In addition, 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 EMA, the FDA or another regulatory authority and, like the EMA marketing approval for NexoBrid, would be subject to a renewal examination five years after the marketing approval was extended for an additional five years during 2017. Additionally, labeling restrictions limit the manner in which a product may be used. For example, NexoBrid’s label 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 15% of the patient’s total body surface area. 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 EMA, 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.
 
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 and expansion of our marketing and sales infrastructure. While we believe that our current manufacturing capacity is sufficient to meet the expected near-term commercial demand for NexoBrid, we are planning to scale-up the current capacity, which we estimate will be valid and qualified, subject to successful authorities’ cGMP audit, by end of 2022 and which we believe will cost approximately $8-10 million. We must also be prepared to expand our work force 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.

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 appreciated relative to the dollar by 7.8% and 9.8% in 2019 and 2017, respectively, while the shekel devalued relative to the dollar by 8.1% in 2018. 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.

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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.
 
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 are enforceable by criminal, civil and administrative penalties. 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 of up to 10 years. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid.

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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.
 
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. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health (“HITECH”) Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on covered entities and their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on their behalf, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
 
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 Affordable Care Act, 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 other healthcare professionals beginning in 2022, 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 federal government or otherwise restrict payments that may be made to healthcare providers; 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; state and local laws requiring the registration of pharmaceutical sales representatives, and state and foreign laws governing the privacy and security of health information in certain circumstances. Many of these laws differ from each other in significant ways and often are not preempted by HIPAA thus complicating compliance efforts. For example, the California Consumer Privacy Act, or CCPA, which went into effect January 1, 2020, among other things, creates new data privacy obligations for covered companies and provides new 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.

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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.
 
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.
 
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:
 

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;
 

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;
 

export and import control laws and regulations; and
 

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.

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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 the European Union, Israel, Argentina, South Korea, Russia and Peru, 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.
 
We are subject to foreign data privacy and security laws.
 
We are subject to data privacy and security laws in the E.U. as well as the EEA, including Regulation (EU) 2016/679 (General Data Protection Regulation, or GDPR) in relation to our collection, control, processing, sharing, disclosure and other use of personal data (i.e. data relating to an identifiable living individual). The GDPR is directly applicable in each E.U. and EEA Member State, however, it provides that E.U. and EEA Member States may introduce further conditions, including limitations, which could limit our ability to collect, control, process, share, disclose and otherwise use personal data (including health and medical information), and/or could cause our compliance costs to increase, ultimately having an adverse impact on our business. The GDPR imposes a strict data protection compliance regime including with regard to engaging third party processors and cross-border transfers of personal data out of the E.U. and EEA. Fines for certain breaches of the GDPR are significant: up to the greater of EUR 20 million or 4% of total global annual turnover. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/change our processing of our data, enforcement notices, assessment notices (for a compulsory audit), as well potential civil claims including class action type litigation where individuals suffer harm. Following Brexit, we will have to comply with the GDPR and separately the GDPR as implemented in the UK, each regime having the ability to fine up to the greater of €20 million/ £17 million or 4% of global turnover. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, e.g. how data transfers between EU member states and the UK will be treated. These changes may lead to additional compliance costs and could increase our overall risk. As we expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.

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.

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The United Kingdom’s impending departure from the European Union could adversely affect our business.
 
Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties.  Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if negotiations are not completed by the end of the transition period.   Brexit could materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the European Union and could require us to obtain separate approvals for our product candidates in the United Kingdom and the European Union. Any delay in obtaining, or an inability to obtain, any regulatory approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business. Brexit could adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the sterling and euro. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, results of operations, financial condition and cash flows.
 
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 patent, 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.
 
As of December 31, 2019, we had been granted a total of 119 patents and have 34 pending patent applications. The family of patents that covers NexoBrid specifically includes 35 granted patents worldwide and one pending national phase application. EscharEx is covered in 31 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 proteolytic enzyme 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.

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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.
 
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, including 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 Family 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 if granted, the expiration date of these patents would be 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:
 

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;
 

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;
 

any of our pending or future patent applications will be issued or have the coverage originally sought;
 

our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or
 

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.

We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or will provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. 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.

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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.
 
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.
 
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.

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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.

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 $14.00 per share, and our ordinary shares have subsequently traded as high as $18.16 per share and as low as $2.548 per share through February 15, 2020. 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:
 

actual or anticipated variations in our and our competitors’ results of operations and financial condition;
 

market acceptance of our products;
 

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

the mix of products that we sell and related services that we provide;
 

changes in earnings estimates or recommendations by securities analysts, if our ordinary shares continue to be covered by analysts;
 

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;
 

delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products;
 

development of technological innovations or new competitive products by others;
 

announcements of technological innovations or new products by us;
 

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;
 

developments concerning intellectual property rights, including our involvement in litigation;
 

changes in our expenditures to develop, acquire or license new products, technologies or businesses;
 

changes in our expenditures to promote our products;
 

changes in the structure of healthcare payment systems;
 

our sale or proposed sale, or the sale by our significant shareholders, of our ordinary shares or other securities in the future;
 

changes in key personnel;
 

success or failure of our research and development projects or those of our competitors; and
 

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.
 
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.
 
Future sales of our ordinary shares could reduce the market price of our ordinary shares.
 
If we or our existing shareholders, particularly certain of 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 11,240,127 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 September 2017, under our previous shelf registration statement on Form F-3, we completed an underwritten public offering of 5,037,664 of our ordinary shares. 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.

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In addition, as of February 15, 2020, 2,442,976 ordinary shares were subject to outstanding option and RSU awards granted to employees and office holders under our share incentive plans, including 1,753,804 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 3,032,742 ordinary shares issuable under our share incentive plans, which amount included 960,932 ordinary shares issuable upon the exercise of option awards previously granted under our 2003 Israeli Share Option Plan and 1,482,044 ordinary shares issuable under our 2014 Equity Incentive Plan. On January 1, 2015, 2018, 2019 and 2020, the shares available for issuance under our 2014 Equity Incentive Plan automatically increased by 431,006, 540,955, 543,577 and 544,055 shares, respectively. As of February 15, 2020, 4,022,976 shares remained available for issuance under our share incentive plans, which amount includes 1,580,000 ordinary shares subject to outstanding awards. 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.
 
The significant share ownership position of Clal Biotechnology Industries Ltd. may limit your ability to influence corporate matters.
 
As of February 15, 2020, Clal Biotechnology Industries Ltd. (“CBI”), beneficially owns or controls, directly and indirectly, 34.7% of our issued and outstanding ordinary shares. Accordingly, CBI is able to significantly influence the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of the company. CBI’s interests may not be consistent with those of our other shareholders. In addition, CBI’s significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our ordinary shares.

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.”
 
As a foreign private issuer, we are permitted, and intend, to 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 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) independent director oversight of director nominations requirement and (iii) independence requirement for the board of directors. 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, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Global Market may provide less protection to you than what is accorded to investors under the Nasdaq Stock Market rules applicable to domestic U.S. issuers. See “ITEM 16G. Corporate Governance.”

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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.
 
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. Additionally, pursuant to Section 404(b) of the Sarbanes-Oxley Act, we are required to obtain an auditor attestation of our management’s assessment of our internal control over financial reporting.
 
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.

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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.

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, 2019. 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, either 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. 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.”
 
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 and military instability in Israel and by conflicts between Israel and other 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, economic, and military instability in Israel, including hostilities between Israel and its Arab neighbors, Hezbollah (an Islamist militia and political group in Lebanon) and Hamas (an Islamist militia and political group in the Gaza strip).
 
Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability in those regions. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and have raised concerns regarding security in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons, and 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. These events and any future political, economic and military instability have the potential to interrupt our operations by damaging our facilities 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.

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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, 2019, we had 62 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.
 
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. Such actions, particularly if they become more widespread, 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, 2019, totaled approximately 13.6 million and the amortized cost (using the interest method) of the liability as of that date totaled approximately 6.9 million. As of December 31, 2019, we had accrued and paid net royalties to the IIA in an amount of 0.4 million. In 2019 we have determined that currently we will not be supported by the IIA. As a result, we did not submit applications for IIA grants in 2019 and we don’t plan to submit in 2020.

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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.
 
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.

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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.
 
Item 4.   INFORMATION ON THE COMPANY
 

A.
 History and Development of the Company 
 
Our History
 
MediWound Ltd. (“MediWound”) was founded in January 2000 with the goal of developing, manufacturing and commercializing novel products to address unmet needs in the fields of severe burns as well as chronic and other hard-to-heal wounds and connective tissue disorders. Our innovative biopharmaceutical product, NexoBrid, has received marketing authorization from the EMA and the Israeli, Argentinian, South Korean, Russian and Peruvian Ministries of Health, for removal of dead or damaged tissue in adults with severe burns.
 
We are a company limited by shares organized under the laws of the State of Israel. 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.
 
Principal Capital Expenditures
 
See “ITEM 5.B. Liquidity and Capital Resources.”
 

B.
Business Overview
 
We are a fully integrated biopharmaceutical company focused on developing, manufacturing and commercializing novel therapeutic products to address unmet medical needs in the fields of severe burns, chronic and other hard-to-heal wounds, connective tissue disorders and other indications. Our first innovative biopharmaceutical product, NexoBrid, has received marketing authorization from the EMA and the Israeli, Argentinean, South Korean, Russian and Peruvian Ministries of Health for removal of dead or damaged tissue, known as eschar, in adults with deep partial- and full-thickness thermal burns, also referred to as severe burns. NexoBrid is currently in clinical development in North America and we are now in the process of preparing our Biologics License Application (“BLA”) for the approval for NexoBrid by the U.S. Food and Drug Administration (“FDA”) for this indication. We are currently targeting the NexoBrid BLA submission for midyear 2020. NexoBrid, which is based on our patented proteolytic enzyme technology, 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 earlier relative to existing standard of care upon patient admission, without harming viable tissues.
 
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We commercialize NexoBrid through multiple sales channels. We sell NexoBrid to burn centers in the European Union, United Kingdom and Israel, primarily through our own sales force, focusing on key burn centers and Key Opinion Leaders (“KOL”) management, while establishing additional distribution channels to extend our outreach in the European Union. We have signed distribution agreements with local distributors in multiple international markets, which are responsible for obtaining local marketing authorization within the relevant territory.
 
We are also conducting a pediatric Phase 3 (CIDS) study to broaden the approved indication of NexoBrid in Europe, the United States and other countries. Each of the DETECT, NEXT and CIDS studies, and the intended BLA submission to the FDA, are supported and funded by BARDA.
 
We manufacture NexoBrid in our state-of-the-art, cGMP-compliant, sterile pharmaceutical products manufacturing facility at our headquarters in Yavne, Israel.
 
Recent Developments
 
In January 2019, we announced positive top-line results from the acute phase of the pivotal U.S. Phase 3 clinical study (DETECT) of NexoBrid in adult patients with deep partial and full-thickness thermal burns of up to 30 percent of total body surface area. The study met its primary endpoint of complete eschar removal compared to gel vehicle as well as all secondary endpoints compared to standard of care (SOC), including shorter time to eschar removal, a lower incidence of surgical eschar removal and lower blood loss during eschar removal. Safety endpoints, including the key safety endpoint of non-inferiority in time to complete wound closure compared with patients treated with SOC, were also achieved. In addition, the twelve-month follow-up safety data of cosmesis and function were found to be comparable between all arms, and no new safety signals were observed.
 
On May 6, 2019, we entered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in North America. Pursuant to these 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.
 
We had a constructive pre-BLA meeting with the FDA in July 2019 in which we received concurrence that the existing safety and efficacy data— including the two Phase 3 clinical studies and the twelve-month safety follow up data from DETECT— are adequate to allow for BLA submission and review of NexoBrid. Furthermore, the FDA concurred that additional twenty-four-month long term safety follow-up data will be submitted as a safety labeling update as part of a post-approval commitment. We are currently preparing the NexoBrid BLA submission to the FDA, currently targeted for midyear 2020.
 
 In October 2019, we initiated an expanded access treatment protocol (NEXT) to treat burn patients with deep partial- and full-thickness burns in the U.S. during the preparation and review of the NexoBrid BLA. NEXT is an open-label, single-arm treatment protocol which allows for the continued clinical use as well the use of NexoBrid for U.S. to treat patients in a burn mass casualty incident that is not a declared national emergency.
 
In January 2020, BARDA initiated the procurement of NexoBrid for emergency stockpile as part of the U.S. Department of Health and Human Services (“HHS”) mission to build national preparedness for public health medical emergencies. Inventory purchased by BARDA will be managed by MediWound under vendor-managed inventory. The initial BARDA procurement is valued at $16.5 million.

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Our Products and Product Candidates

NexoBrid is an easy to use, topically-applied product that removes eschar in four hours without harming the surrounding healthy tissues. The removal of eschar is a procedure also known as debridement. Debridement is a critical first step in the successful healing of severe burns and chronic and other hard-to-heal wounds. 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 15 countries and four continents in eight completed Phase 2, Phase 3 and post-marketing clinical studies. There have been hundreds of presentations and several award winning abstracts of NexoBrid in international and national scientific conferences, and NexoBrid has been presented in about 70 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 and our and multinational clinical development.
 
Our second innovative product candidate, EscharEx, is a topical biological product being developed for debridement of chronic and other hard-to-heal wounds and is complementary to the large number of existing wound healing products, which require a clean wound bed in order to heal the wound. EscharEx is based on the same proteolytic enzyme technology as NexoBrid, and benefits from the wealth of existing development data on NexoBrid. In two Phase 2 studies that we conducted, this technology demonstrated safety and efficacy in the debridement of chronic and other hard-to-heal wounds, in a few applications. In the U.S, we recently initiated a Phase 2 adaptive design clinical study with the second generation EscharEx, for the treatment of venous leg ulcers. The study is built on the positive data from the completed Phase 2 study of the first-generation EscharEx.  The study is designed to assess the safety and efficacy of EscharEx compared to gel vehicle (placebo control) and non-surgical standard-of-care (either enzymatic or autolytic debridement), and includes a pre-defined interim assessment for futility, with a potential sample size adjustment that is anticipated by the end of 2020.
 
Market Opportunities for Products and Product Candidates
 
The market opportunities for our patented proteolytic enzyme technology include both eschar removal of severe burns using NexoBrid and debridement of chronic and other hard-to-heal wounds using EscharEx. Approximately 100,000 patients with severe burns are hospitalized every year in the United States and Europe. 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.
 
In addition to our current marketing of NexoBrid in Europe, we have signed local distribution agreements for distribution of NexoBrid in Latin America, certain Asia-Pacific countries and members of the Commonwealth of Independent States (“CIS”), 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 mass casualty incident (“MCI”), 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 an MCI, such as terrorist attacks, natural disasters, fires and explosions. One example of an MCI 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 fast debridement without harming healthy tissues, 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 MCI is under control and the bottlenecks resolved. NexoBrid has been recognized by BARDA as a potential solution for treatment of burns in the event of a MCI. We were awarded a contract by BARDA valued at up to $153 million for the advancement of the development, manufacturing, and procurement, of NexoBrid as a medical countermeasure as part of BARDA’s preparedness for mass casualty events (the “First BARDA Contract”). Recently, BARDA has initiated the procurement of NexoBrid for emergency stockpile as part of the HHS mission to build national preparedness for public health medical emergencies. The initial BARDA procurement is valued at $16.5 million, with the first delivery of NexoBrid expected by the end of the first quarter of 2020 and additional deliveries occurring over the subsequent five quarters.

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Under a separate contract with BARDA that we were awarded in September 2018, BARDA has agreed to provide funding for the development of NexoBrid for the treatment of burns caused by Sulfur Mustard injuries, as part of BARDA’s preparedness for mass casualty events (the “Second BARDA Contract” and, together with the First BARDA Contract, the “BARDA Contracts”). The Second BARDA Contract provides approximately $12 million of funding to support research and development activities up to pivotal studies in animals under the FDA Animal Rule and contains options for additional funding of up to $31 million for additional development activities, animal pivotal studies, and the BLA submission for licensing of NexoBrid for the treatment of Sulfur Mustard injuries. The total value of funding commitments from BARDA under the two contracts is currently $196 million, in the aggregate. See “—BARDA Contracts” below.

We believe that the indication of debridement of chronic wound and other hard-to-heal-wounds with EscharEx represents a significant opportunity, having what is believed to be a total addressable patient base of more than 14 million patients in the United States and Europe alone, suffering from disorders such as venous leg ulcers (“VLUs”), diabetic foot ulcers (“DFUs”), pressure ulcers and surgical/traumatic hard-to-heal wounds.
 
We are also using our patented proteolytic enzyme technology, which underlies NexoBrid, and our wealth of data and experience gained during the NexoBrid development, to support the development of additional indications such as treatment of connective tissue disorders and scars. In ex-vivo model studies, which are laboratory studies conducted on tissues or cells extracted from a living organism, which in our case were conducted on diseased contracted cords that had been surgically removed from patients with a Dupuytren contracture, our technology confirmed with statistical significance that it could dissolve the pathological cords. We are developing an injectable formulation and conducted toxicology studies to enable initiation of clinical studies. We continue to explore additional indications as well.
 
Our Focus:
 
Burn Wounds
 
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. We believe these patients can benefit from NexoBrid’s effective and selective, non-surgical eschar removal.
 
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:
 

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.


The depth of the burn, referred to in terms of “degree” is generally classified into four categories:
 

Superficial or first degree burns. Such burns do not penetrate the basal membrane and usually heal naturally.
 

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.
 

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.
 

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.
 
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. Debridement is an essential first step in the treatment of patients with severe burns, allowing for:
 

the prevention of local infection, sepsis (a systemic inflammatory response caused by severe infection) and additional damage to surrounding viable tissue; and
 

the initiation of the body’s healing process and scar prevention.
 
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:
 

Surgical debridement
 

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.


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.
 

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
 

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.
 

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.
 
As demonstrated in our clinical trials, NexoBrid combines the advantages of surgical and non-surgical debridement modalities by providing fast and effective eschar removal while not harming viable tissues. This allows for earlier direct visual assessment of the burn wound in order to formulate proper treatment.
 
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:
 

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 updated in 2019, 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.
 

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.
 

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.
 
Currently, surgery is an effective method to debride a wound, however, sharp debridement 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 such as current enzymes, hydrogels and other topical dressings, which require numerous application sessions and a long time 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 product for the outpatient setting nursery care facilities and patients home. As documented in the Phase 2 study described above, EscharEx significantly improves the rate of complete debridement after few once-daily applications, thus potentially facilitating wound debridement without the need for surgery.
 
Other Indications
 
In addition to severe burns and chronic and other hard-to-heal wound indications, we are developing an injectable product based on our patented proteolytic enzyme technology for other potential indications, such as:
 

Dupuytren’s disease: a condition where one or more fingers are permanently flexed, caused by the formation of scar-like tissues below the palmar skin (Palmar Fascia), forming hard “cords” that freeze the fingers in non-functional flexion contraction. This condition affects approximately 6.2 million people in the United States alone.
 

Peyronie’s disease: the development of scar-like tissue, similar to Dupuytren’s cords in the shaft of the penis, causing pain and distortion on erection, preventing intercourse. Peyronie’s disease is typically caused by trauma and affects men over 50 years old. Surgical treatment may be an option in some cases, but can cause complications and may result in a shortening and even greater distortion of the penis. Approximately 3.7% to 7.1% of the male population above the age of 50 suffers from Peyronie’s disease in the United States and approximately 3.2% of such age group suffer from the disease in Europe.
 

Frozen shoulder syndrome: a disorder that causes the smooth tissues of the shoulder capsule to become thick, stiff and inflamed, affecting approximately 2% to 5% of the worldwide population and 10% to 20% of people with diabetes according to industry sources.


Excessive/unaesthetic scars: A scar is a mark on the skin which is formed due to infection, injury, surgery, inflammation of tissue, burns, and acne. Scars can be of various sizes, shapes, and colors, depending on the age of the scar, the site of the scar and family history. Scar formation is unpredictable and varies from person to person. Excessive scarring can have unpleasant physical, aesthetic, psychological and social consequences. Estimates indicate that each year around 100 million people in the developed world acquire scars following elective surgery and surgery for trauma. Of these, approximately 15% have excessive or unaesthetic scars.
 
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BARDA Contracts
 
In September 2015, BARDA awarded us the First BARDA Contract for treatment of thermal burn injuries, which is valued at up to $112 million. In July 2017 and in May 2019, BARDA expanded its commitment by an aggregate supplemental amount of $41 million, bringing potential total non-dilutive funding to a maximum of $153 million.
 
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 BARDA preparedness for mass casualty events.
 
Under the First BARDA Contract, BARDA has agreed to provide technical assistance and a total amount of $77 million in funding for NexoBrid development activities towards U.S. marketing approval from the FDA. These activities include the ongoing NexoBrid Phase 3 (DETECT) study and subsequent requirements for BLA submission, the ongoing Phase 3 pediatric (CIDS) study and the NexoBrid expanded access treatment protocol (NEXT). The contract includes a $16.5 million commitment for procurement of NexoBrid, contingent upon FDA eligibility, for use in an emergency or marketing approval. BARDA has initiated the procurement of NexoBrid for emergency stockpile as part of the HHS mission to build national preparedness for public health medical emergencies, and the first delivery is expected in the first quarter of 2020. The contract includes a $10 million option to fund development of other potential NexoBrid indications and an option to fund up to $50 million for additional NexoBrid procurement.

In September 2018, BARDA awarded us 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 $31 million 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 of funding for NexoBrid under the BARDA Contracts is up to $196 million.  As of December 31, 2019, the Company has recorded $43 million in funding, in the aggregate, from BARDA under the two contracts.
 
Each BARDA contract may be terminated by BARDA at any time at BARDA’s discretion.
 
NexoBrid and Our Clinical History
 
NexoBrid, our innovative biopharmaceutical product, has received marketing authorization from the EMA and the Israeli, Argentinean, South Korean, Russian and Peruvian Ministries of Health for the removal of eschar in adults with deep partial- and full-thickness thermal burns. The active ingredient in NexoBrid is a mixture of proteolytic enzymes enriched in bromelain prepared from an extract of pineapple plant stems. Proteolysis is a breakdown of proteins into smaller building blocks, polypeptides or amino acids. Our research and development team further developed and optimized this patented proteolytic enzyme technology, 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 100cm2.
 
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 15 countries and four continents in eight completed Phase 2 and Phase 3 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.”
 
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The following table sets forth information regarding the completed clinical trials of NexoBrid:

 
Trial 1
Trial 2
Trial 3
Trial 4
Trial 5
Trial 6
Trial 7
Trial 8
Study Type
•  Retrospective Phase 2
•  Investigator initiated
•  Dose range Phase 2
•  Prospective Phase 2
•  IND/FDA
•  Phase 2
•  IND/FDA
•  Phase 3
•  EMA
•  Phase 3b
•  EMA
•   Phase 2
•   EMA
•  Post  approval
   safety study
•  EMA
Design
•  Data collected from files of patients treated with NexoBrid
•  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
•  Parallel, controlled, open label, two-arm, randomized, multi-center
•  Parallel, controlled, blinded, two-arm, multi-center
•  Open label,
single-arm,
multi-center
•  Observational
    retrospective
    data collection
Main Objectives
•  Safety
•  Efficacy
•  Comparison of efficacy and safety
•  Safety
•  Efficacy
•  Safety
•   Safety
•   Efficacy
•  Long-term scar assessment
•  Quality of life
•  Safety and pharmacokinetics
•  Efficacy
•  Effectiveness of the
    risk minimization
    activities
Wound Types
•  Deep partial/full thickness thermal burns
•  Deep partial/full thickness thermal burns
•  Deep partial/full thickness thermal burns
•  Deep partial/full thickness thermal burns
•  Deep partial/full thickness thermal burns
•  Scar formation
•  Deep partial/full thickness thermal burns
•  Burns which were treated with NexoBrid in the market
Number of Patients
•  154
•  20
•   140
•   30
•  182
•   89
•  36
•  160
Study Length
•  1985-2000
•  2002-2005
•   2003-2004
•   2006-2007
•  2006-2009
•   2011
•   2009-2015
•   2017-2019
Location
•  Israel
•  Israel
•   International
•   United States
•  International
•   International
•   International
•   Europe
 
Trial 1: Retrospective Phase 2—Israel
 
Trial 1 evaluated the safety and efficacy of NexoBrid in hospitalized subjects between six months and 82 years of age with severe burns of up to 67% TBSA. Data from 154 subjects with complete file documentation were analyzed, including a signed informed consent form and pre- and post-eschar removal photographs. According to the trial, NexoBrid allowed early and fast debridement, reduced surgical burden and was determined to be safe locally and systemically.
 
Trial 2: Dose Range Phase 2—Israel
 
Trial 2 evaluated the efficacy and safety of three doses of NexoBrid. Twenty hospitalized adult subjects with severe burns of 1-15% TBSA were randomized and provided a one-, two- or four-gram dose of NexoBrid powder per 20 grams of a sterile gel substance (“Gel Vehicle”). The study confirmed that the use of two grams of NexoBrid mixed with 20 grams of Gel Vehicle per 100cm2 was a safe and effective dose.
 
Trial 3: Prospective Phase 2—International/Investigational New Drug (“IND”)
 
Trial 3 evaluated the safety and enzymatic eschar removal efficacy of NexoBrid as compared to the Gel Vehicle and SOC. A total of 140 hospitalized adult subjects with severe burns of 2-15% TBSA (but not more than 30% TBSA in total), were randomized in a 2:1:1 ratio to NexoBrid, Gel Vehicle and SOC treatment. The trial results showed that NexoBrid was a fast and effective enzymatic debriding agent, combining the advantage of early eschar removal with reduced surgical burden.
 
Trial 4: Prospective Phase 2—United States/IND
 
Trial 4 evaluated the safety and exploratory efficacy of NexoBrid in comparison to the Gel Vehicle and SOC in hospitalized adult subjects with severe burns of 1-5% TBSA. Thirty hospitalized subjects were randomized and provided NexoBrid, the Gel Vehicle or SOC treatment. Although this study was designed as a safety study and was conducted in a limited number of patients, the results suggest that NexoBrid provided effective debridement and may be an alternative to surgical debridement. According to the trial, NexoBrid had a similar safety profile to the Gel Vehicle and SOC and the Gel Vehicle was not shown to have any deleterious effect.
 
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Trial 5: Phase 3—EMA
 
Trial 5 evaluated the safety and efficacy of NexoBrid. The study was a prospective, controlled, two-arm, parallel, open-label, randomized, multi-center design. It included 182 enrolled patients between the ages of four and 55, who were hospitalized with severe burn wounds covering from 5-30% TBSA. The two arms consisted of patients who were treated with NexoBrid and patients who were treated with SOC, which included surgical and non-surgical eschar removal. The treatment of the study arms differed only by the studied eschar removal modalities. The co-primary endpoints were the percentage of wound area that was excised and the percentage of wound area that was autografted. The secondary endpoints included need for and extent of eschar excision, time to wound closure, time to complete eschar removal (≥ 90%) and blood loss. The study was successfully concluded when pre-planned interim analysis demonstrated a statistically significant difference in both primary endpoints between the groups.
 
The results showed that NexoBrid significantly reduced both the percentage of wounds requiring excision or autografting and the percentage of wound area requiring excision or autografting. P-value is a measure of statistical significance, with P<0.05 considered statistically significant.
 
In patients who received NexoBrid, 24.5% of wounds required excision, whereas, in patients who received SOC, 70.0% of wounds required excision (P<0.0001). With regard to the proportion of wound area excised when excision was required, patients who received NexoBrid had 13.1% of wound area excised, compared to 56.7% of wound area excised for patients receiving SOC (P<0.0001). The results were similar for autografting, although this endpoint could only be evaluated for deep partial-thickness wounds, as full-thickness wounds always require autografting due to the lack of viable dermis, regardless of the technique used to remove the eschar. In patients receiving NexoBrid, 17.9% of deep partial-thickness wounds required autografting, compared to 34.1% for patients receiving SOC (P=0.0099). With regard to the proportion of wound area autografted, patients who received NexoBrid had 8.4% of deep partial-thickness wound area autografted, compared to 21.5% for patients receiving SOC (P<0.0054).


                            
(*)
Only deep partial-thickness wounds are presented, as full-thickness wounds always require autografting due to the lack of viable dermis, regardless of the technique used to remove the eschar.
 
NexoBrid successfully removed the eschar in 96.3% of the wounds compared to 93.5% of the wounds debrided by SOC.
 
The results also showed that NexoBrid significantly reduced the time required to achieve successful eschar removal, allowing for early and direct assessment of the wound bed. For patients with successful eschar removal, defined as at least 90%, those who received NexoBrid achieved successful eschar removal in 0.8 days, compared to 6.7 days for patients receiving SOC, as measured from the time of signing informed consent (P<0.0001), which represents the time at which a patient can start being treated with an investigational product in a clinical trial setting.


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Trial 6: Phase 3b—EMA
 
Trial 6 assessed long-term scar formation and quality of life in adults and children who received NexoBrid or SOC during the Phase 3 clinical study. The follow-up was completed two to four years after injury. The study was a prospective, controlled, two-arm, parallel, blinded, multi-center design and included 89 patients. Scar quality was assessed using the Modified Vancouver Scar Scale (“MVSS”). The MVSS measures pliability, height, vascularity, and pigmentation, as well as pain and pruritus, on a scale of 0 to 18, with a higher score indicating a more severe scar. To assess quality of life, the study used the Short Form-36 questionnaire (“SF-36”) for adults and the Burn Outcome Questionnaire (“BOQ”) for children.
 
The results confirmed that based on the MVSS the quality of scars was comparable between the patients who received NexoBrid and those who were treated with SOC (3.12 and 3.38, respectively, P=0.88). However, patients who received NexoBrid experienced a significantly reduced overall quantity of scarring as compared to those who received SOC; with NexoBrid, 40% of patients had donor site scars, as compared to 68% of patients with SOC (P=0.01). Donor site scars on those who received NexoBrid were also 30% smaller than scars on those who received SOC (P=0.108). It was also confirmed that quality of life using the SF-36 and BOQ was comparable in both groups.
 
Clinical development overall safety assessment
 
The most commonly reported adverse reactions when using NexoBrid are local pain and transient pyrexia/hyperthermia. The data from its clinical development showed that the frequency of pain and pyrexia/hyperthermia was reduced through precautionary measures, including preventive analgesia as routinely practiced for extensive dressing changes in burn patients as well as antibacterial soaking of the treatment area before and after NexoBrid application. NexoBrid was not found to be associated with a significantly increased risk of serious or severe adverse events compared to SOC. Serious infections occurred with similar frequency in the SOC and NexoBrid cohorts and the incidence was low. Adverse events occurring in ≥3.0% of treated subjects (e.g. pruritus, or itching, anemia, insomnia, nausea, vomiting and skin graft failure) are common in burn patients and their rate was comparable between NexoBrid and SOC treated patients and below the rates reported in the literature. NexoBrid debridement was associated with a slightly higher rate of wound complications, general infections, wound infections/wound cultures and extent in antibiotic-use. The imbalances were small, wound infections were only mild to moderate in severity and each responded well to treatment. No detrimental effect on long-term outcome has been detected for the NexoBrid treated patients.
 
During the above mentioned completed trials, there were five deaths (four reported in the Phase 2 study) resulting from medical reasons in NexoBrid patients compared to one non-related death in the SOC group. Neither the analysis of the narratives contained in the death investigative report, nor the opinions of the physicians who treated the patients, nor the Data Safety Monitoring Board have associated NexoBrid with the deaths in patients who received the treatment. The EMA concluded that the benefit-risk of NexoBrid for the removal of eschar in adults with deep partial, mixed and full-thickness burns is positive.
 
Trial 7: Phase 2—EMA
 
Trial 7 evaluated the safety, pharmacokinetics (transcutaneous absorption) and efficacy of NexoBrid in hospitalized children and adults with thermal burns. The multicenter, open-label, single-arm study was conducted in Europe, Israel and India and included 36 patients with severe burns of 4% to 30% total body surface area (TBSA). NexoBrid was applied to burns of up to 15% TBSA in one session, and when the wound area to be treated was more than 15% TBSA, NexoBrid was applied in two separate sessions, each up to 15% TBSA. Trial results showed that the use of NexoBrid was safe and effective. Furthermore, the pharmacokinetic profile following NexoBrid’s first and second topical application was comparable, suggesting no concern with accumulation following a second topical application of NexoBrid.
 
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Trial 8: European observational retrospective data collection study
 
As part of our post-marketing commitment in Europe and as is customary for recently approved drugs, we agreed with European regulatory authorities to conduct an observational retrospective data collection study to assess risk minimization measures in burn patients who were treated with NexoBrid. The data was collected by investigators who filed the report based on medical records of patients who received NexoBrid treatment at burn centers in the first two years from product launch and signed on as informed consent form. Data was collected retrospectively from 160 burn patients who were treated with NexoBrid during the two-year period from launch date in six E.U. countries (Germany, Belgium, Sweden, Poland, Spain and Slovak Republic). The main objective of this study was to assess the effectiveness of the risk minimization activities and their effect on the incidence rate of pain and pyrexia compared to the incidence rate reported during Trial 5 (Phase 3—EMA). The study met its co-primary endpoints showing non-inferiority in incidence rates of reported events of pain and pyrexia in the NexoBrid treated patients as compared with the events reported in the clinical development of NexoBrid. This study was funded by BARDA. See “—BARDA Contract” above.
 
Ongoing clinical trials
 
U.S. Phase 3 Study – DETECT study
 
The DETECT study is a prospective, multicenter, multinational, randomized, controlled, assessor blinded Phase 3 study, performed in subjects with thermal burns, to evaluate the efficacy and safety of NexoBrid compared to Gel Vehicle and compared to SOC in 175 hospitalized patients with severe burns of up to 30% TBSA randomized in a 3:1:3 ratio, with 12-month and 24-month follow-ups. The study involves 44 burn centers. The study objectives are to evaluate the efficacy and safety of NexoBrid by removing burn eschar earlier and reducing surgical burden and related blood loss in hospitalized patients with severe burns. Complete eschar removal was the primary endpoint of the study and was tested against the Gel Vehicle control arm. The primary analysis was based on whether complete eschar removal was achieved in all target wounds of a patient. The analysis compared all randomized patients to the NexoBrid arm to all randomized patients to the Gel Vehicle control arm. Secondary endpoints included reduction in the need for surgical eschar removal (surgical burden), earlier eschar removal, and blood loss, which were tested against the SOC control arm. All secondary endpoints were analyzed and compared all patients randomized to the NexoBrid arm to all patients randomized to the SOC control arm. In January 2019, we announced positive top-line results. The study met its primary endpoint with statistical significance. Patients treated with NexoBrid demonstrated a significantly higher incidence of complete eschar removal compared with patients treated with the Gel Vehicle (NexoBrid: 93.3% (70/75) vs. Gel Vehicle: 4.0% (1/25), p<0.00011).
 
 
 


1 Fisher's exact test

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 The study included secondary endpoints that were all met with statistical significance and provided further insight on several efficacy parameters: (i) Patients treated with NexoBrid demonstrated shorter time to achieve complete eschar removal compared with patients treated with SOC (median time - NexoBrid: 1 day vs. SOC: 3.8 days, p<0.00012); (ii) Patients treated with NexoBrid demonstrated a significantly lower incidence of surgical eschar removal compared with patients treated with SOC (NexoBrid: 4.0% (3/75) vs. SOC: 72.0% (54/75), p<0.00013); (iii) and Patients treated with NexoBrid incurred significantly lower blood loss during the eschar removal procedure compared with patients treated with SOC (mean volume – NexoBrid: 14.2 ml vs. SOC: 814.5 ml, p<0.00014). In addition, Patients treated with NexoBrid had a non-inferior time to complete wound closure compared with patients treated with SOC (p=0.00035). The study Data Safety Monitoring Board ("DSMB") concluded after all patients have been treated, that the overall safety profile of NexoBrid in the study is consistent with the safety data known from previous studies.
 
 
 
The twelve-month patients’ follow-up safety data of cosmesis, function and quality of life were found to be comparable across all study arms, and no new safety signals were observed. The 24- months patients’ follow-up data collection is ongoing.
 
A BLA submission to the FDA is currently targeted for midyear 2020, based on the above-available acute primary, secondary, and safety data, as well as the 12-month safety follow-up data, whereas the 24-month safety data will be submitted as a safety labeling update as part of a post-approval commitment, if our BLA is approved, as was agreed with the FDA at a pre BLA submission meeting held at the end of July 2019.
 
The study also serves to address our post approval commitment to EMA. This study is funded by BARDA. See “—BARDA Contracts” above.
 
Pediatric investigational plan – CIDS study
 
The CIDS study is a Phase 3, 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% total body surface area (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 24-month follow-up.  Interim results with predefined stopping rules after a 12-month follow-up of all patients are expected to be available in the first half of 2022, with final results available in the first half of 2023. This study is funded by BARDA. See “—BARDA Contracts” above.

                                                               
2 Generalized Wilcoxon-Gehan test
3 Logistic regression model - Wald test
4 Wilcoxon test pooled using Rubin's rules
5 Accelerated failure time model
* Kaplan-Meier analysis
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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 150 burn patients with deep partial- and full-thickness thermal burns up to 30 percent of total body surface area. 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 mass casualty incident that is not a declared national emergency. We have submitted 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. NEXT protocol is being funded by BARDA. See “—BARDA Contracts” above.
 
EscharEx and Our 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 mean. EscharEx is based on the same patented proteolytic enzyme technology as NexoBrid but differs in other aspects, such as in formulation and presentation. During 2019, we plan to focus our resources and efforts going forward on our improved second generation EscharEx. 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. The FDA also stated that the second generation EscharEx formulation, manufacturing process and controls were sufficient to initiate dosing in Humans.
 
Completed clinical trials
 
We completed a first Phase 2 feasibility study in Israel for chronic and other hard-to-heal wound technology. In January 2017 we announced the final results of a second Phase 2 prospective study in Israel and Europe. In November 2017, we announced the final results of a second cohort of the second Phase 2 study. Based on the completed studies, we believe that our technology may be effective for debridement of chronic and other hard-to-heal wounds.
 
First Phase 2 feasibility study—Israel
 
This first Phase 2 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 DFUs, VLUs, pressure sores and trauma on diseased skin.
 
Second Phase 2 study—Israel/E.U. – First Cohort
 
This second Phase 2 prospective study was conducted in Israel and Europe to evaluate the efficacy and safety of EscharEx in comparison to the Gel Vehicle1 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. This was a prospective, controlled, assessor-blinded, randomized, multi-center Phase 2 study in Israel and Europe.

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The primary endpoint assessed incidence of complete non-viable tissue removal (debridement) at the end of the debridement period (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, as 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 applications
 
Predefined 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 DFU or VLU 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 DFUs or VLUs that were treated with EscharEx (p=0.024).

                                                               
6 Hydrogel is not a true sham placebo as it is a common and widely used treatment for the debridement of chronic wounds.

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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 2 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 over extended periods of application to further support the product’s convenient application. In this second cohort, we recruited patients from two etiologies, either DFUs or VLUs, over extended periods of application (24-72 hours) in up to eight applications, randomizing the patients to two study arms EscharEx or gel vehicle at a ratio of 2:1. The second cohort of the study included 38 patients. The primary objective was to assess safety.
 
In September 2017 we reported final results of the second cohort of 38 patients.          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.
 
Ongoing clinical trials

Following discussions with the FDA regarding the clinical program for EscharEx to treat chronic and hard-to-heal wounds, we were able to obtain FDA concurrence that complete debridement will be the primary endpoint of the pivotal studies and wound closure will be measured as a safety outcome to document that EscharEx has no deleterious effect on wound closure. This design was used in our recently reported successful second Phase 2 study as well as in our ongoing NexoBrid U.S. Phase 3 study in burns.  We had met with the FDA to discuss our EscharEx clinical development plan, received concurrence on many aspects, and suggested additional secondary efficacy endpoints by supplemental information as requested by the FDA. Following our decision to focus our resources and efforts going forward on our improved second-generation EscharEx (as detailed further above), we submitted to the FDA a protocol for a Phase 2 adaptive design clinical study and initiated it in December 2019.
 
EscharEx U.S. Phase 2 Adaptive Design Study in Venus Leg Ulcer (VLU) Patients
 
In December 2019, we initiated a U.S. Phase 2 adaptive design clinical study of EscharEx for the treatment of venous leg ulcers (VLUs). The study is designed to assess safety and efficacy of EscharEx compared to gel vehicle (placebo control) and non-surgical standard-of-care (either enzymatic or autolytic debridement), and includes a pre-defined interim assessment.

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This study is a multicenter, prospective, randomized, placebo-controlled, adaptive design study, evaluating the safety and efficacy of EscharEx in debridement of VLUs. The study is expected to enroll 174 patients at approximately 25 clinical sites, primarily in the U.S. Study participants will be randomized to either EscharEx, placebo control or non-surgical standard-of-care, at a ratio of 1:1:1, with a three month follow-up. The primary endpoint is incidence of complete debridement compared to gel vehicle placebo control. Secondary endpoints include time to achieve complete debridement, reduction of pain, reduction of wound area, granulation tissue and quality of life. Incidence and time to achieve wound closure will be assessed as safety measurements. The study includes an interim assessment for futility and potential sample size adjustment once approximately 100 patients complete treatment, which is expected by the end of 2020.
 
The development of EscharEx for 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 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.”
 
MWPC003 and Our Pre-Clinical History
 
We have performed preclinical model studies in Israel for the use of our patented proteolytic enzyme technology in treating connective tissue disorders. Our technology has shown promising results in preclinical model studies for the treatment of connective tissue pathologies. We had established in-house production capacity of the injectable formulation and completed local toxicology studies to potentially allow us to initiate the clinical development of our pipeline product candidate, MWPC003, for connective tissue disorders.
 
We have 34 patents (in the United States and in other international markets) and 2 patent applications for MWPC003. These patents provide broad protection for the specific mixture of proteolytic enzymes in the treatment of a variety of connective tissue diseases. The patents are nominally set to expire on July 19, 2032.
 
Preclinical model study—Israel
 
In preclinical model studies, excised Dupuytren cords were injected with either MWPC003 or a saline solution (control) following Starkweather’s ex-vivo validated model. MWPC003 repeatedly provided enzymatic degradation of Dupuytren cords (fasciotomy) in a tearing test model confirming with statistical significance that MWPC003 completely dissolves Dupuytren’s cords (Fisher Exact test p<0.0001). In a second ex vivo study conducted in 71 cords injected with MWPC003 in descending doses, it was demonstrated that even very small doses of MWPC003 can dissolve the pathological cord in more than 80% of cases with the Cochran-Armitage test (p=0.0021) indicating that the probability for cord dissolution increases as the dose increases. Toxicology studies conducted in two species did not indicate systemic toxicity and the intra-dermal local effect was reversible.
 
Although we have conducted preclinical trials, the development of MWPC003 for connective tissue disorder 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 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.”
 
Research and Development
 
Our research and development strategy is centered on developing our patented proteolytic enzyme technology, 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.”

Clinical Trials
 
We conduct clinical tests 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 profile. As of the date hereof, we had conducted more than 20 preclinical studies, according to the principles of Good Laboratory Practices (“GLP”), and twelve 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.

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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 29 employees as of December 31, 2019. This facility allows us to manufacture sterile biopharmaceutical products, such as NexoBrid. The facility meets current cGMP requirements, as certified by each of the EMA, the Israeli Ministry of Health and South Korean ministry of health. Our facility is subject to audits for reassessment of cGMP compliance, which are preformed periodically by regulatory authorities and is approved as cGMP-compliant. The next periodical audit for the cGMP compliance renewal is scheduled for 2020. Additionally, as we seek regulatory approval in the United States and other international jurisdictions for NexoBrid, the FDA or other regional applicable authorities may inspect our plant to confirm it meets all regulatory requirements. 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 are planning to scale-up the current capacity, which we estimate will be valid and qualified, subject to our successful authorities cGMP audit, by the end of 2022, and which we expect will cost approximately $8-10 million.
 
The intermediate drug substance used by us in the manufacturing of NexoBrid 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 gel substance by combining water for injections produced by us at our facility and additional excipients. The powder and gel are kept in separate containers in one package of NexoBrid and are simply mixed by a healthcare professional prior to use. NexoBrid comes in two sizes— in packages containing either a vial of two grams of powder and a jar of 20 grams of gel, or a vial of five grams of powder and a jar of 50 grams of gel. Once the powder and gel are mixed, NexoBrid should be applied within 15 minutes at a ratio of either 2 grams of powder and 20 grams of gel to a burn wound area of 100 cm2 or 5 grams of powder and 50 grams of gel to a burn wound area of 250 cm2, as applicable; however, under current usage, NexoBrid’s label provides that it should not be applied to more than 15% TBSA. Prior to mixture and application, NexoBrid has a shelf life of three years when stored under refrigeration.

Marketing, Sales and Distribution
 
We commercialize NexoBrid via multiple sales channels:
 
 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 key burn centers and Key Opinion Leaders (KOL) management. We have obtained national reimbursement for NexoBrid in Belgium and Italy and we continue to locally execute our market access strategy for most of Europe to obtain procurement by 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 (such as the Baltics states), 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 70 peer-reviewed papers.

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Pursuant to the First BARDA Contract, BARDA has initiated the procurement of NexoBrid, while it is at the pre-BLA stage, for emergency stockpile as part of the HHS mission to build national preparedness for public health medical emergencies. BARDA-purchased inventory will be managed by MediWound under vendor managed inventory. The initial BARDA procurement is valued at $16.5 million, with the first delivery of NexoBrid expected by the end of the first quarter of 2020 and additional deliveries occurring over the subsequent five quarters. 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” below.
 
In international markets, we sell NexoBrid through local distributors with which we have distribution agreements. We have launched NexoBrid in Argentina, South Korea and Russia, 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. We have signed local distribution agreements for distribution in Argentina, Russia, South Korea, Colombia, Peru, Chile, Ecuador, Panama, India, Bangladesh, Sri Lanka, Japan, Australia, New-Zealand, Singapore, Ukraine and Taiwan. Our distributors in Argentina, South Korea, Russia and Peru have obtained marketing authorization and launched NexoBrid. 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 2020.
 
For a breakdown of our consolidated revenues by geographic markets and by categories of operations for the years ended December 31, 2017, 2018 and 2019, please see “Item 5.A Operating and Financial Review and Prospects—Operating Results.”
 
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").

NexoBrid is currently in clinical development in the Territory, and pursuant to the terms of the License Agreement described below, we will continue to conduct all clinical activities described in the development plan to support the filing of a BLA with the FDA under the supervision of a Central Steering Committee comprised of members of each of our Company and Vericel.

License Agreement.

We entered into a license agreement (the “License Agreement”) with Vericel 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 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.

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Within 10 days of signing the License Agreement, Vericel paid us an upfront fee of $17.5 million (the “Upfront Payment”).  Vericel is obligated to pay us $7.5 million upon U.S. regulatory approval of the BLA for NexoBrid and up to $125 million upon 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 ranging from mid-high single-digit to mid-teen percentages, subject to certain customary reductions, a percentage of gross profits on committed purchases and a royalty on additional purchases by 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 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 150 days written notice to us.

Supply Agreement.
 
On May 6, 2019, concurrently with our entry into the License Agreement, we entered into a supply agreement (the “Supply Agreement”) with Vericel 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.  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.
 
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, 2019, we had been granted a total of 119 patents and have 34 pending patent applications. The family of patents that covers NexoBrid specifically includes 35 granted patents worldwide and one pending national phase application. EscharEx is covered by 31 national phase applications.

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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 family patents are nominally set to expire in 2025 in Europe and 2029 in the United States. Patents issued in other foreign jurisdictions will nominally expire in 2025. The national phase applications relating to EscharEx, if 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 enforcable 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 have expired or 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.
 
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, 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.

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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, 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 debridement 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.
 
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 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.
 
In addition to the currently available products, other products may be introduced to debride chronic and other hard‑to‑heal wounds or treat 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 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. NexoBrid has completed the EMA’s preclinical and clinical trials and other pre‑marketing approval requirements and received marketing authorization for the European Union on December 18, 2012. Our pipeline product candidates would also have to complete such steps in the European Union. Additionally, we must also complete the approval processes in the United States and other jurisdictions in order to market NexoBrid, EscharEx or our pipeline product candidates.

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European Union
 
The approval process of medicinal products in the European Union generally involves satisfactorily completing each of the following:
 

laboratory tests, animal studies and formulation studies all performed in accordance with the applicable E.U. GLP or GMP regulations;
 

submission to the relevant national authorities of a clinical trial application (“CTA”), which must be approved before human clinical trials may begin;
 

performance of adequate and well‑controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;
 

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;
 

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 cGMP;
 

potential audits of the non‑clinical and clinical trial sites that generated the data in support of the MAA; and
 

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.
 
Clinical trial approval
 
Pursuant to the Clinical Trials Directive 2001/20/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of a European Union member state in which a study is planned to be conducted. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier and additional supporting information prescribed by the Clinical Trials Directive and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.
 
Clinical drug development is often described as consisting of four temporal phases (Phase 1‑4). See, for example, the EMA’s note for guidance on general considerations for clinical trials (CPMP/ICH/291/95).
 

Phase 1 (Most typical kind of study: Human Pharmacology);
 

Phase 2 (Most typical kind of study: Therapeutic Exploratory);


Phase 3 (Most typical kind of study: Therapeutic Confirmatory); and
 

Phase 4 (Variety of Studies: Therapeutic Use).
 
Studies in Phase 4 are all studies other than routine surveillance performed after drug approval and are related to the approved indication. For example, as part of the EMA regulatory approval process, we agreed to provide further data from our post‑marketing clinical trial of NexoBrid, the U.S. Phase 3 study (DEDCET). While we believe that the EMA will accept this study to satisfy one of our post‑marketing commitments, if the EMA does not accept the study or is not satisfied by the study results, we will need to perform another costly study to provide such data.

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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.
 
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 pharmaceutical drugs 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 pharmaceutical products that were not authorized in the European Union 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, such as for diseases that only affect the elderly population.
 
Before a marketing authorization application 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:
 

medicines that have been authorized for marketing in the European Union with the results of PIP studies included in the product information are eligible for an extension of their patent protection by six months. This is the case even when the studies’ results are negative;
 

for orphan medicines, such as NexoBrid, the incentive is an additional two years of market exclusivity instead of one;
 

scientific advice and protocol assistance at the EMA are free of charge for questions relating to the development of medicines for children; and
 

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.

Marketing authorization
 
Authorization to market a product in the European Union 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 that is valid for all E.U. member states as well as the European Economic Area (“EEA”) member states, Norway, Iceland and Lichtenstein. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated as orphan medicinal products and products with a new active substance indicated for the treatment of certain diseases, and is optional for products that are highly innovative or for which a centralized process is in the interest of patients. Products that have received orphan designation in the European Union, such as NexoBrid, will qualify for this centralized procedure, under which each product’s marketing authorization application is submitted to the EMA. Under the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application 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:
 

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).
 

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.
 

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.
 
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
 
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. On November 2017, the European Commission granted a five‑year renewal of our NexoBrid marketing authorization.

Orphan designation
 
On July 31, 2002, NexoBrid received orphan drug status in the European Union, and on December 20, 2012, the EMA confirmed NexoBrid’s designation as an orphan drug for marketing authorization.
 
In the European Union, the Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life‑threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life‑threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the investment necessary to develop the drug or biological product.

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In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if 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 or a safer, more effective or otherwise clinically superior product is available.
 
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. 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 10 years. An additional one year of market exclusivity can be obtained if, during the first eight years of those 10 years, the marketing approval 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. 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.
 
Additional data protection can be applied for when an applicant has complied with all requirements as set forth in an approved PIP.
 
Data Privacy and Security Laws
 
    We are also subject to data privacy and security laws in the E.U. as well as the EEA, including Regulation (EU) 2016/679 (General Data Protection Regulation, or GDPR) in relation to our collection, control, processing, sharing, disclosure and other use of personal data (i.e. data relating to an identifiable living individual). The GDPR is directly applicable in each E.U. and EEA Member State, however, it provides that E.U. and EEA Member States may introduce further conditions, including limitations, which could limit our ability to collect, control, process, share, disclose and otherwise use personal data (including health and medical information), and/or could cause our compliance costs to increase, ultimately having an adverse impact on our business. The GDPR imposes a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that valid consent or another an appropriate legal basis is in place or otherwise exists to justify data processing activities; appointing data protection officers in certain circumstances (and there are specific local law requirements, such as those in Germany, on the same); granting strengthened rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; imposing limitations on retention of personal data; maintaining a record of data processing; defining for the first time pseudonymized (i.e., key-coded) data; and complying with principal of accountability and complying with the obligation to demonstrate compliance through policies, procedures, training and audit. We are also subject to GDPR rules with respect to cross-border transfers of personal data out of the E.U. and EEA, which are evolving (for example, the European Commission has the ability to review adequacy decisions, such as the one in place for Israel).
 
    Following Brexit, we will have to comply with the GDPR and separately the GDPR as implemented in the UK, each regime having the ability to fine up to the greater of €20 million/ £17 million or 4% of global turnover. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, e.g. how data transfers between EU member states and the UK will be treated. These changes may lead to additional compliance costs and could increase our overall risk As we expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.

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We are also subject to evolving EU data privacy laws on cookies and e-marketing. The EU is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly effective in the laws of each EU Member State. The draft e-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e. the greater of 20 million Euros or 4% of total global annual revenue). While the text of the e-Privacy Regulation is still under development, a recent European court decision and regulators’ recent guidance are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.
 
We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. There is no assurance that our own privacy and security-related safeguards and/or any contractual measures that we enter into with these providers will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.
 
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 enforces its cGMP 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 European Union 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 European Union cGMP 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 European Union 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 drugs, 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, as amended by Directive 2004/27. 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. Failure to comply with these requirements can result in adverse publicity, warning letters, mandated corrective advertising and potential civil and criminal penalties.
 
United States
 
Review and approval of biologics
 
In addition to E.U. regulations, NexoBrid is an investigational drug in the United States 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. On March 24, 2011, the FDA classified NexoBrid as a biological product. 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.

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The process required by the FDA prior to marketing and distributing a biologic in the United States generally involves the following:
 

completion of laboratory tests, animal studies and formulation studies in compliance with the FDA’s GLP and GMP regulations, as applicable; 
 

submission to the FDA of an investigational new drug application (“IND”), which must become effective before clinical trials may begin;
 

approval by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated;
 

performance of adequate and well‑controlled clinical trials in accordance with GCP to establish the safety and efficacy of the product for each indication;
 

preparation and submission to the FDA of a BLA;
 

satisfactory completion of an FDA advisory committee review, if applicable;
 

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


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.
 
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.
 
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.

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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:
 

Phase 1:
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.
 

Phase 2:
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.
 

Phase 3:
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 adequate information for the labeling of the product.
 
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 4 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 1, Phase 2 and Phase 3 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.

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, 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.

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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.
 
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.

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The manufacturing of NexoBrid, EscharEx and our pipeline product candidates is 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, suspension of a product 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.
 
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 4 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 indication 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 approval 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.

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 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 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.
 
 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.
 
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. To date, a number of biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

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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 EMA 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.
 
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, European Union 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, EMA 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.

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In the United States, the Affordable Care Act substantially changed the way healthcare is financed by both governmental and private insurers and significantly impacted the pharmaceutical industry. The Affordable Care Act 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 Affordable Care Act:
 

increases the minimum level of Medicaid rebates payable by manufacturers of brand‑name drugs from 15.1% to 23.1%;
 

requires collection of rebates for drugs paid by Medicaid managed care organizations; and
 

imposes a non‑deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs.
 
There remain judicial and congressional challenges to certain aspects of the Affordable Care Act, as well as efforts by the current U.S. presidential administration to continue to seek amendments to or repeal of the Affordable Care Act. While Congress has not passed repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. For example, the Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” The 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. Is unclear how this decision, future decisions, subsequent appeals, if any, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business. Congress may consider other legislation to repeal or replace elements of the Affordable Care Act in the future. We cannot predict what legislation, if any, to repeal or replace the Affordable Care Act will become law, or what impact any such legislation may have on our product candidate.
 
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. At the federal level, the current U.S. presidential administration’s budget proposal for fiscal year 2020 contained further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. While some of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. 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.

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In the European Union, pricing and reimbursement schemes vary widely from country to country and often within regions or provinces of countries. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed and 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 European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union 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.
 
Healthcare Law and Regulation; Data Privacy and Security Laws
 
Healthcare providers, physicians and third‑party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. 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 and state 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;
 

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;
 

HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
 

HIPAA, as amended by HITECH and its implementing regulations, also imposes obligations, including mandatory contractual terms, on covered entities and their respective business associates with respect to safeguarding the privacy, security and transmission of individually identifiable health information;


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 healthcare professionals, 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; and
 
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similar healthcare laws and regulations in the E.U. and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of personal data, including the General Data Protection Regulation (“GDPR”), which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the E.U. and EEA (including with regard to health data).
 
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. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For example, the California Consumer Privacy Act, or CCPA, which went into effect January 1, 2020, among other things, creates new data privacy obligations for covered companies and provides new 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.
 
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, 2022. The facilities consist of approximately 32,300 square feet of space, and the yearly lease fee is approximately $385,000. These facilities house our administrative headquarters, our research and development laboratories and our manufacturing plant. The sub-lease agreement include an option to extend the lease period for additional 3 years at our sole discretion.

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We also lease offices at Eisenstrasse 5, 65428 Rüsselsheim, Germany. We lease these facilities pursuant to a lease agreement with a term of three years that expires on April 30, 2022. The facilities consist of approximately 2,670 square feet of space, and lease payments are approximately €3,500 (or $3,900) per month. These facilities house our European headquarters.
 
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 and (ii) MediWound UK Limited, our inactive wholly‑owned subsidiary, which was incorporated on July 26, 2004 under the laws of England. To the best of our knowledge, we also hold approximately 10% ownership interest in Polyheal Ltd.
 
D.          Property, Plants and Equipment
 
See “ITEM 4.B. Business Overview—Properties” and “ITEM 4.B. Business Overview—Manufacturing, Supply and Production.”
 
Item 4A. UNRESOLVED STAFF COMMENTS
 
None.
 
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
Operating Results
 
             The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 2019 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 fully integrated biopharmaceutical company focused on developing, manufacturing and commercializing novel therapeutics products to address unmet medical needs in the fields of severe burns, chronic and other hard‑to‑heal wounds, connective tissue disorders and other indications. Our first innovative biopharmaceutical product, NexoBrid, received marketing authorization from the EMA and the Israeli, Argentinean, South Korean, Russian and Peruvian Ministries of Health for removal of dead or damaged tissue, known as eschar, in adults with deep partial‑ and full‑thickness thermal burns, also referred to as severe burns. NexoBrid is currently in clinical development in North America. We are in the process of preparing our BLA for the approval for NexoBrid by the FDA for those applications, and the BLA submission is currently targeted for midyear 2020. NexoBrid, which is based on our patented proteolytic enzyme technology, 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 earlier relative to existing standard of care upon patient admission, without harming viable tissues.

We commercialize NexoBrid via multiple sales channels. We sell NexoBrid to burn centers in the Europe and Israel, primarily through our own sales force, focusing on key burn centers and key opinion leader management, and are establishing additional distribution channels in the European Union to extend the product's outreach. We have signed distribution agreements with local distributors in multiple international markets, which are responsible for obtaining local marketing authorization within the relevant territory.

              Our U.S. Phase 3 pivotal study (DETECT), which is intended to support a BLA submission to the FDA, has met its primary and all secondary endpoints. In addition, twelve-month follow-up safety data of cosmesis and function were found to be comparable among all arms, and no new safety signals were observed. We have initiated an expanded access treatment protocol (NEXT) for NexoBrid to treat burn patients with deep partial- and full-thickness burns in the U.S., which is funded by BARDA and which will continue to take place during the review of our BLA by the FDA. We are also conducting a pediatric study to broaden the approved indication of NexoBrid, which is also being funded by BARDA. We manufacture NexoBrid in our state‑of‑the‑art, EMA‑certified, cGMP‑compliant, sterile pharmaceutical products manufacturing facility at our headquarters in Yavne, Israel. Our additional current product candidate— EscharEx, a topical biologic drug candidate designed to enzymatically debride chronic wounds— is undergoing a U.S. Phase 2 adaptive design study for the treatment of venous leg ulcers, which is assessing safety and efficacy and for which we expect an interim assessment by the end of 2020.

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Our securities are listed for trading on Nasdaq since March 2014 following our Initial Public Offering. In 2017, we completed an underwritten public offering of 5,037,664 ordinary shares and received net proceeds of approximately $22.7 million, after deducting the underwriting discount and offering expenses payable by us.
 
Our revenues were $2.5 million, $3.4 million and $31.8 million in 2017, 2018 and 2019, respectively. In May 2019 we entered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in North America, under which we received an up-front payment from Vericel of $17.5 million in 2019, and may be entitled to an additional $7.5 million, contingent upon approval of our BLA, and up to $125 million contingent upon NexoBrid meeting certain annual sales milestones. Vericel has also agreed to pay us tiered royalties on net sales ranging from mid-high single-digit to mid-teen percentages, an equal split of gross profit on committed BARDA procurement orders, and a double-digit royalty on any additional future BARDA purchases of NexoBrid, and Vericel will purchase NexoBrid from us exclusively for consideration of cost plus fixed margin. See ITEM 4.B.  “Information on the Company.  Vericel License and Supply Agreements.” In addition, we have signed local distribution agreements for distribution of NexoBrid in Argentina, Russia, South Korea, Mexico, Colombia, Peru, Chile, Ecuador, Panama, India, Bangladesh, Sri Lanka, Japan, Australia, New-Zealand, Singapore, Ukraine, Lithuania, Latvia, Estonia, Switzerland and Taiwan. Our future growth will depend, in part, on our ability to expand the commercialization of NexoBrid throughout Europe and receive marketing approval in the United States and other jurisdictions for NexoBrid and EscharEx. Our net operating losses were $13.7 million and $4.0 million for the years ended December 31, 2017 and 2018, respectively. We had an accumulated deficit of $125.8 million and operating income of $4.5 million as of and for the year ended December 31, 2019. We expect to incur significant expenses and operating losses for the foreseeable future, as research and development activities are central to our operations.
 
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 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 also begun to generate revenues under our exclusive license and supply agreements with Vericel, under which we received an up-front payment and may be entitled to additional payments as we progress towards commercialization of NexoBrid in North America. Starting in May 2019, following entrance into the Vericel license and supply agreements, funding by BARDA was classified as revenues from development services. As a result, we also generate revenues from development services provided to BARDA. Our ability to generate additional, more significant revenues will depend on the successful commercialization of NexoBrid, which itself will be dependent in part upon receipt of approval from the FDA.
 
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.
 
Starting in May 2019, following entrance into the Vericel license and supply agreements, cost of revenues also includes costs associated with the research and development services provided to BARDA, including salaries and related expenses, clinical trials, sub‑contractors and external advisors. We expect that our cost of revenues will increase as we expand the sale of NexoBrid throughout the European Union, the United States and other international markets.

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Operating Expenses
 
Research and Development Expenses, net
 
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.
 
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.
 
Since 2017, we have cumulatively spent approximately $42.6 million on research and development primarily of NexoBrid and EscharEx, of which $28.1 million was funded by BARDA funds and Israeli government grants. The participation by BARDA comprises $25.6 million and was classified as reimbursement of research and development expenses. Starting in May 2019, following entrance into the Vericel license and supply agreements, participation by BARDA in the amount of $10.7 million was classified as revenues from development services. Our total research and development expenses, net of participations, were approximately $5.5 million, $4.1 million and $5.0 million in the years ended December 31, 2017, 2018 and 2019, respectively. Our research and development expenses relate primarily to the development of NexoBrid and EscharEx. We charge all research and development expenses to operations as they are incurred.
 
The successful development of our patented proteolytic enzyme technology used in NexoBrid, EscharEx and additional pipeline product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our technology for additional indications. This uncertainty is due to numerous risks and uncertainties associated with developing products, including the uncertainty of:
 

the scope, rate of progress and expense of our research and development activities;
 

preclinical results;
 

clinical trial results;
 

the terms and timing of regulatory approvals;
 

the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and
 

the ability to market, commercialize and achieve market acceptance for NexoBrid or any other product candidate that we may develop in the future.
 
A change in the outcome of any of these variables with respect to the development of other products that we may develop could result in a significant change in the costs and timing associated with their development. For example, if the EMA, the FDA or other regulatory authority were to require us to conduct preclinical and clinical studies beyond those which we currently anticipate for the completion of clinical development of our product candidates or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.

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Participation by Third Parties
 
Our research and development expenses are net of the following participations by third parties:
 
Participation by the IIA. We received grants, subject to repayment through future royalty payments, as part of the NexoBrid and EscharEx research and development programs approved by the IIA. The requirements and restrictions for such grants are found in the Innovation Law. Under the Innovation Law, we undertook to pay royalties of 3% on the revenues derived from sales of products or licenses in whole or in part using IIA grants are payable to the IIA. The maximum aggregate royalties paid generally cannot exceed 100% of the grants made to us, plus annual interest generally equal to the 12‑month LIBOR (or such other interest rate that the IIA may set in the future) applicable to dollar deposits, as published on the first business day of each calendar year. The total gross amount of grants actually received by us from the IIA, including accrued LIBOR interest and net of royalties actually paid or accrued as of December 31, 2019, totaled approximately $13.6 million, and the amortized cost (using the effective interest method) of the liability as of that date totaled approximately $6.9 million. During the year ended December 31, 2019, we had accrued and paid royalties to the IIA net of grants from the IIA totaling $0.4 million.
 
In addition to paying any royalty due, we must abide by other restrictions associated with receiving such grants under the Innovation Law that continue to apply following repayment to the IIA. These restrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know‑how outside of Israel and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties and other amounts to the IIA. In addition, any change of control and any change of ownership of our ordinary shares that would make a non‑Israeli citizen or resident an “interested party,” as defined in the Innovation Law, requires prior written notice to the IIA. If we fail to comply with the Innovation Law, we may be subject to criminal charges. See “Item 3.D. Risk Factors– Risks Primarily Related to our Operations in IsraelWe 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.”
 
Research and development grants received from the IIA are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty‑bearing sales. The amount of the liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent in our business. The change in the fair value of the liability associated with grants from the IIA is reflected as an increase or decrease in our research and development expenses for the relevant period.
 
Participation by BARDA. On September 29, 2015, we were awarded a contract by BARDA, which was amended on July 17, 2017 and again on May 2019, providing supplemental funds and support. The amended contract valued up to $153 million. See “ITEM 4.B. Business Overview—BARDA Contracts.” The contract is for the advancement of the development and manufacturing, as well as the procurement of NexoBrid as a medical countermeasure as part of BARDA preparedness for mass casualty events. The contract includes $77 million of funding to support development activities to complete the FDA approval process for NexoBrid for use in thermal burn injuries, as well as procurement of NexoBrid valued at $16.5 million, which BARDA has initiated. In addition, in September 2018, we were awarded a new separate contract to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of BARDA preparedness for mass casualty events. The second 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 additional funding of up to $31 million 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 of funding for NexoBrid under the two contracts is up to $196 million.  As of December 31, 2019, we have recorded approximately $43 million in funding from BARDA under those two contracts.
 
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 also include costs related to the maintenance of our offices in Germany, which is focused primarily on marketing NexoBrid, and cost related to maintain marketing authorization.

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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 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.
 
Discontinued Operation
 
Following the expiration of our PolyHeal license, we accounted for our operation related to PolyHeal as a discontinued operation in accordance with IFRS accounting standard 5, “Non‑current Assets Held for Sale and Discontinued Operations.” Accordingly, the results of any legal process profit or loss are reported separately as a discontinued operation in our statement of operations for the periods presented below.
 
Taxes on Income
 
The standard corporate tax rate in Israel was 24% in the year 2017, and as of January 1, 2018 and thereafter, the corporate tax rate 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 $119 million as of December 31, 2019. 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.

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, 2018 and 2019. The below discussion of our results of operations omits a comparison of our results for the years ended December 31, 2017 and 2018. 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, 2017 Compared to Year Ended December 31, 2018” in our Annual Report on Form 20-F for the year ended December 31, 2018, which we filed with the SEC on March 25, 2019.

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Years Ended December 31,
 
   
2018
   
2019
 
             
Consolidated statements of operations data:
           
Revenue from sales of products          
 
$
3,225
   
$
3,393
 
Revenue from development services          
 
$
-
   
$
10,678
 
Revenue from license agreements          
 
$
176
   
$
17,718
 
Total Revenues
 
$
3,401
   
$
31,789
 
Cost of revenues          
   
2,088
     
11,849
 
Gross profit          
   
1,313
     
19,940
 
Operating expenses:
               
Research and development, gross          
   
17,915
     
10,070
 
Participation by BARDA and IIA          
   
(13,843
)
   
(5,101
)
Research and development, net of participations          
   
4,072
     
4,969
 
Selling and marketing          
   
4,188
     
4,064
 
General and administrative          
   
3,799
     
5,242
 
Other income from settlement agreement
   
(7,537
)
   
-
 
Other expenses
   
751
     
1,172
 
Operating profit (loss)          
   
(3,960
)
   
4,493
 
Financial income          
   
412
     
556
 
Financial expense          
   
(2,117
)
   
(2,983
)
Profit (loss) from continuing operations          
   
(5,665
)
   
2,066
 
Profit from discontinued operation          
   
4,608
     
2,889
 
Net profit (loss)          
 
$
(1,057
)
 
$
4,955
 
 
Year Ended December 31, 2018 Compared to Year Ended December 31, 2019
 
Revenues 
  
We generated revenues of approximately $31.8 million for the year ended December 31, 2019 from sales of products, license agreements and development services of NexoBrid, compared to approximately $3.4 million in revenues from sale of products and license agreements of NexoBrid for the year ended December 31, 2018, an increase of $28.4 million. The increase was primarily due to an up-front payment of $17.5 million from Vericel and revenues from development services. Starting in May 2019, following entrance into the Vericel license and supply agreements, participation by BARDA in the amount of $10.7 million was classified as revenues from development services. Prior to the Vericel deal, this participation by BARDA was classified as reimbursement of research and development expenses.
 
 BARDA and Vericel contributed 34% and 55% of our total revenue, respectively, in 2019.  No other customer contributed 10% or more of our revenue in 2019.

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Our revenues, as reported in our consolidated financial statements, can be broken down in accordance with the geographic location of our customers, as shown in the below table:
 
   
Years Ended December 31,
 
   
2018
   
2019
 
             
International (excluding U.S.)
 
$
3,401
   
$
3,285
 
U.S.
 
$
-
   
$
28,504
 
   
$
3,401
   
$
31,789
 
 
Costs and Expenses
 
Cost of revenues
 
Cost of revenues from sales of products as a percentage of revenues increased to approximately 69% for the year ended December 31, 2019 from approximately 65% in the year ended December 31, 2018. Allotment of manufacturing costs to research and development decreased by $0.6 million in the year ended December 31, 2019, primarily due to the development activities for NexoBrid and EscharEx in 2019. Change of inventory of finished products remained.
 
Cost of revenues from development services as a percentage of revenues was approximately 83% in the year ended December 31, 2019 compared to approximately 0% in the year ended December 31, 2018. Starting in May 2019, as a result of the Vericel license and supply agreements, all research and development expenses related to BARDA were classified as cost of revenues from development services.
 
Cost of revenues from license agreements as a percentage of revenues was approximately 4% in the year ended December 31, 2019 compared to approximately 0% in the year ended December 31, 2018, due to royalty payments pursuant to a license agreement with Mark Klein.
 
Research and development expenses, net of participations
 
Research and development expenses, gross, decreased by 44% from approximately $17.9 million in the year ended December 31, 2018 to approximately $10.1 million in the year ended December 31, 2019. The expenses are primarily related to the development of NexoBrid, which was predominantly funded by BARDA participation, and EscharEx. Participations by BARDA and IIA decreased from $13.8 million in the year ended December 31, 2018 to approximately $5.1 million in the year ended December 31, 2019. Starting in May 2019, following entrance into the Vericel license and supply agreements, participation by BARDA in the amount of $10.7 million was classified as revenues from development services and research and development expenses related to services provided to BARDA in the amount of $8.8 million was classified as cost of revenues from development services.
 
Research and development expenses, net of participations increased from approximately $4.1 million in the year ended December 31, 2018 to approximately $5.0 million in the year ended December 31, 2019.
 
The increase in research and development, net of participations, resulted primarily from an increase of $0.7 million in subcontractors costs and an increase of $0.7 million in salary and related expenses.

Allotment of manufacturing costs for research and development purposes decreased by $0.6 million in the year ended December 31, 2019, primarily due to the development activities related to NexoBrid and EscharEx.
 
Selling and marketing expenses
 
Selling and marketing expenses remained stable in 2019 compared to 2018, with a minor decrease of 3%, from approximately $4.2 million in the year ended December 31, 2018 to approximately $4.1 million in the year ended December 31, 2019.
 
General and administrative expenses
 
General and administrative expenses increased by 38% from $3.8 million in the year ended December 31, 2018 to approximately $5.2 million in the year ended December 31, 2019. The increase was primarily driven by one-time non-recurring costs associated with management changes and increase in professional fees.

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Other expenses
 
Other expenses increased by 56% from $0.8 million in the year ended December 31, 2018 to approximately $1.2 million in the year ended December 31, 2019. The increase was primarily driven by one-time expenses associated with the Vericel license and supply agreements.
 
Financial income
 
Financial income increased from $0.4 million in the year ended December 31, 2018 to $0.6 million in the year ended December 31, 2019 as a result of exchange rate differences.
 
Financial expense
 
Financial expense increased from approximately $2.1 million in the year ended December 31, 2018 to approximately $3.0 million in the year ended December 31, 2019. The increase in financial expenses in 2019 was primarily driven by $0.9 million of expense due to the revaluation of contingent consideration for the purchase of shares.
 
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 sales and marketing activities associated with the commercialization of NexoBrid in Europe.
 
In March 2014, we closed our IPO, resulting in net proceeds to us of approximately $71.7 million. In September 2015, we were awarded a contract by BARDA, which was modified in July 2017 and in May 2019, in each case in order to expand BARDA’s commitment to us, and further advancement of the development and manufacturing, as well as the procurement, of NexoBrid as a mass casualty medical countermeasure to be used in a public health emergency. The contract, as modified, provides for $77 million of funding to us. The 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 further procurement of NexoBrid from us.  In addition, we were awarded an additional contract to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of BARDA’s preparedness for mass casualty events. The 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 additional funding of up to $31 million for additional development activities, animal pivotal studies, and the BLA submission for licensure of NexoBrid for the treatment of Sulfur Mustard injuries. See “ITEM 4.B. Business Overview—BARDA Contracts.” In addition, we completed an underwritten follow-on offering in September 2017, whereby we issued and sold 5,037,664 ordinary shares and received net proceeds of approximately $22.7 million (after deducting the underwriting discount and offering expenses payable by us), pursuant to our previous shelf registration statement on Form F‑3. We will continue to use the net proceeds from the sale of securities offered by us pursuant to that follow-on offering to fund our research and development activities, primarily the clinical development of EscharEx, and the remainder, if any, for working capital and other general corporate purposes. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Under our current shelf registration statement on Form F-3 declared effective by the SEC on April 22, 2019, 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.

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The table below summarizes our sources of financing for the periods presented. The below discussion beneath the table omits a description of the sources of financing for the year ended December 31, 2017. In order to view that discussion, please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” in our Annual Report on Form 20-F for the year ended December 31, 2018, which we filed with the SEC on March 25, 2019.

   
Issuance of
Ordinary
Shares
   
Government
Grants and
BARDA
Funding,
net
   
Total
 
   
(in thousands)
 
Year ended December 31, 2019
 
$
-
   
$
14,088
   
$
14,463
 
Year ended December 31, 2018          
 
$
-
   
$
13,284
   
$
13,284
 
 
Our sources of financing in the year ended December 31, 2019 totaled $14.1 million and consisted primarily of funding under the BARDA contracts. The participation by BARDA for 2019 in an amount of $3.8 million was classified as participation by BARDA in Research and development expenses, and BARDA participation in an amount of $10.7 million was classified as revenues from development services.
 
Our sources of financing in the year ended December 31, 2018 totaled $13.3 million and consisted primarily of funding under the BARDA contracts totaling $13.2 million and the IIA government grants, net of repayments, totaling $0.1 million.
 
As of December 31, 2019, we had $29.5 million of cash, cash equivalents and short-term deposits. Our net operating loss was $4.0 million for the year ended December 31, 2018 and net profit was $4.5 million for the year ended December 31, 2019. As of December 31, 2019, we had an accumulated deficit of $125.8 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 2018 and 2019 amounted to $0.5 million and $0.8 million, respectively. Capital expenditures consist primarily of investments in manufacturing and laboratory equipment.
 
Our future capital requirements will depend on many factors, including our revenue growth, 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.
 
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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, 2017. 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, 2018, which we filed with the SEC on March 25, 2019:

   
Year Ended December 31,
 
   
2018
   
2019
 
Net cash provided by (used in):
           
Continuing operating activities          
 
$
(12,154
)
 
$
9,888
 
Continuing investing activities          
   
(17,040
)
   
(5,658
)
Continuing financing activities          
   
46
     
(1,006
)
Discontinued operating activities          
   
-
     
(1,599
)
Discontinued investing activities          
   
-
     
(1,239
)

Net cash provided by (used in) continuing operating activities
 
Net cash provided by (used in) all periods resulted primarily from our net profit (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 provided by continuing operating activities increased to approximately $9.9 million in the year ended December 31, 2019 compared to net cash used in continuing operating activities of approximately $12.2 million in the year ended December 31, 2018, which increase was the result of the upfront license payment from the Vericel license and supply agreements.
 
 Net cash used in discontinued operating activities
 
Net cash used in discontinued operating activities was approximately $1.6 million in the year ended December 31, 2019. That cash was primarily attributable to the consideration paid to PolyHeal’s shareholders following the settlement of the litigation with certain PolyHeal's shareholders. See “ITEM 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings”.
 
Net cash used in continuing investing activities
 
Our use of cash in continuing investing activities has been primarily related to investments in short‑term banks deposits and purchases of property and equipment. Net cash used in investing activities was $5.7 million in the year ended December 31, 2019, compared to $17.0 million during the year ended December 31, 2018. The decrease was primarily attributable to $11.5 million of investments by us in short-term bank deposits.
 
Net cash used in discontinued investing activities
 
Net cash used in discontinued investing activities was approximately $1.2 million in the year ended December 31, 2019. The cash was primarily attributable to the consideration paid to PolyHeal’s shareholders for purchase of PolyHeal’s shares following the settlement of the litigation with certain PolyHeal's shareholders. See “ITEM 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings”.
 
Net cash (used in) provided by continuing financing activities
 
Net cash used in continuing financing activities was $1.0 million during the year ended December 31, 2019 compared to $0 million during the year ended December 31, 2018. The increase was attributed primarily to lease liability in 2019, offset, in part, by repayment of that cash via the IIA grants that we received.
 
Application of Critical Accounting Policies and Estimates
 
Our accounting policies and their effect on our financial condition and results of operations are more fully described in our consolidated financial statements included elsewhere in this annual report. We have prepared our financial statements in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions. See “ITEM 3.D. Risk Factors” for a discussion of the possible risks which may affect these estimates.

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While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (a) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (b) changes in the estimate could have a material impact on our financial condition or results of operations.
 
Revenue Recognition

The accounting policy for revenue recognition applied from January 1, 2018, following the adoption of the new standard IFRS15, “Revenues from Contracts with Customers” (the “Standard”), is as follows:

Revenues from the sale of products:

We generate revenues from sales of our innovative biopharmaceutical product, NexoBrid, to burn centers and hospital burn units in Europe, Israel and local distributors in international markets.

Revenues from sale of products are recognized in profit or loss at the point in time when the control of the products is transferred to the customer, generally upon delivery of the products to the customer.

Revenue from development services:

Revenues from development services are recognized over time, during the period the customer receives and consumes the benefits provided by our performance. We charge our customers based on payment terms agreed upon in specific agreements. When payments are made before or after the service is performed, we recognize the resulting contract asset or liability.

Revenues from license agreements:
 
We determine whether the license to the Intellectual Property ("IP") is the right to use the IP, which has significant stand-alone functionality, or a right to access, which does not have a stand-alone value.

We recognize revenues from licensing transactions at a point in time when we provide the customer a right to use our intellectual property as it exists at the point in time at which the license is granted to the customer. We recognize revenues from licensing transactions over time when we provides the customer a right to access our intellectual property throughout the license period.

Combination of contracts:

We account for multiple contracts as a single contract when all the contracts are signed at or near the same time with the same customer or with related parties of the customer, and when one of the following criteria is met:

-
The contracts are negotiated as a package with a single commercial objective.
-
The amount of consideration to be paid in one contract depends on the consideration or performance of another contract.
-
The goods or services that we will provide according to the contracts represent a single performance obligation for us.
 
We allocate the collaboration agreements transaction price to each performance obligation using the best estimate of the stand-alone selling price of each one of them.
 
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Variable consideration:
 
We determine the transaction price separately for each contract with a customer. When exercising this judgment, we evaluate the effect of each variable amount in the contract, taking into consideration discounts, penalties, variations, claims, non-cash consideration and the nature of multiple phases of the product lifecycle. In determining the effect of the variable consideration, we use the "most likely amount" method described in the Standard. Pursuant to this method, the amount of the consideration is determined as the single most likely amount in the range of possible consideration amounts in the contract. According to the Standard, variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of revenues recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Allocating the transaction price:
 
For contracts that consist of more than one performance obligation, at contract inception we allocate the contract transaction price to each distinct performance obligation identified in the contract based on a relative stand-alone selling price basis. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The stand-alone selling price is the price at which the Company would sell the promised products or services separately to a customer.

The accounting policy for revenues recognition applied until December 31, 2017, was as follows:
 
Revenues are recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenues can be reliably measured, regardless of when the payment is being made. Revenues are measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty and net of returns and allowances, trade discounts and volume rebates.
 
Revenues from the sale of products are 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.
 
Revenues from distributors agreements which are comprised of multiple elements (including license to access the Company's intellectual property and exclusive distribution rights), provide for varying consideration terms, such as upfront payments and milestone payments, are recognized when the criteria for revenue recognition have been met and only to the extent of the consideration that is not contingent upon completion or performance of future services under the contract. The Company concluded that the components do not have "stand alone value" to the customer and accordingly they are accounted for as one unit of account. Consequently, revenues from these components are recognized on the straight line basis over the license period.

We adopted the Standard using the modified retrospective method rather than full retrospective method. The accumulated effect of implementing the new Standard as of January 1, 2018 was an increase of deferred revenues by $249,000 and an increase of accumulated deficit by $249,000.
 
Research and Development Expenses
 
Research expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets as of the date as of which it can be established that it is probable that future economic benefits attributable to the asset will flow to us, considering its commercial feasibility. This is generally the case when regulatory approval for commercialization is achieved and costs can be measured reliably. Given the current stage of the development of our products, no development expenditures have yet been capitalized. Intellectual property‑related costs for patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.
 
Equity‑Based Compensation
 
We account for our equity‑based compensation for employees in accordance with the provisions of IFRS 2 “Share‑based Payment,” which requires us to measure the cost of equity‑based compensation based on the fair value of the award on the grant date.

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We have selected the binominal pricing model as the most appropriate method for determining the estimated fair value of our equity‑based awards. The resulting cost of an equity incentive award is recognized as an expense over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over the vesting period using the accelerated method pursuant to which each vesting tranche is treated as a separate amortization period from grant date to vest date, and classify these amounts in the consolidated financial statements based on the department to which the related employee reports.
 
The determination of the grant date fair value of options using an option pricing model is affected by estimates and assumptions regarding a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term of the options, share option exercise and cancellation behaviors, risk‑free interest rates and expected dividends, which are estimated as follows:
 

Fair value of our ordinary shares. After March 20, 2014, the date our ordinary shares began trading on Nasdaq, the grant date fair value for equity‑based awards is based on the closing price of our ordinary shares on Nasdaq on the date of grant and fair value for all other purposes related to share‑based awards is the closing price of our ordinary shares on Nasdaq on the relevant date.
 

Volatility. The expected share price volatility was based on the historical equity volatility of the ordinary shares of comparable companies that are publicly traded.
 

Early exercise factor. Since adequate historical experience is not available to provide a reasonable estimate, the early exercise factor is determined based on peer group imperial studies.
 

Risk‑free rate. The risk‑free interest rate is based on the yield from U.S. Treasury zero‑coupon bonds with a term equivalent to the contractual life of the options.
 

Expected dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.
 
If any of the assumptions used in the option pricing models change significantly, equity‑based compensation for future awards may differ materially compared with awards granted previously.
 
Government Grants from the Israeli Innovation Authority
 
Research and development grants received from the IIA are recognized upon receipt as a liability if future economic benefits are expected from the project that will result in royalty‑bearing sales. The amount of the liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest that reflects the appropriate degree of risks inherent in our business. We use a discount rate of 12% based in part on our cost of capital determined by an independent valuation analysis conducted at the time of our initial recognition of IIA grants as a liability on our balance sheets. The difference between the amount of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets.”
 
At the end of each reporting period, we evaluate whether there is reasonable assurance that the liability recognized will be repaid based on our best estimate of future sales and, if not, the appropriate amount of the liability is derecognized against a corresponding reduction in research and development expenses.
 
Government Funding from BARDA
 
Non‑royalty bearing funds from BARDA for funding research and development activities of NexoBrid are recognized at the time we are entitled to such funds on the basis of the related costs incurred and were recorded as a reduction to our research and development expenses. Starting May 2019, under the Vericel license and supply agreements, where Vericel has an effective control over the BARDA agreements, participation from BARDA for funding research and development activities of NexoBrid are recognized as revenues from development services.

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Contingent Consideration for Purchase of Shares
 
On September 2, 2013, in accordance with the terms of the Teva Shareholders’ Rights Agreement entered into in 2007 and amended in 2010, we exercised our rights to repurchase all of our shares held by Teva in consideration for an obligation to pay Teva future royalty payments of 20% of our revenues from the sale or license of NexoBrid resulting in royalty payments up to a total amount of $30.6 million and from the sale or license of the PolyHeal Product resulting in royalty payments up to a total amount of $10.8 million. We account for this obligation as a liability on our balance sheet in an amount equal to the fair value of the future royalty payments. In order to determine the fair value, we estimated the amount and timing of the future payments to Teva based on our projected results of operations. The obligation to pay Teva future royalty payments no longer includes amounts from the sale or license of the PolyHeal Product since the license to the PolyHeal Product has expired. The contingent consideration was revalued as of December 31, 2018 and 2019 to be approximately $6.3 million and $4.9 million, respectively, and we recorded financial expenses of $0.8 million and $1.7 million in 2018 and 2019, respectively.
 
Pursuant to the terms of the Teva Settlement Agreement signed in March 2019 (the " Settlement Agreement with Teva"), Teva has agreed to reduce the contingent consideration that is payable to Teva pursuant to the repurchase of our shares from Teva in 2013. We became obligated to pay Teva annual future royalty payments of 15% of our revenues from products or license of NexoBrid starting from January 1, 2019, up to a total amount of $10.2 million, and Teva paid us $4.0 million in cash.
 
Pursuant to the Settlement Agreement with Teva, the fair value of the revised future royalty obligation to Teva was estimated at $4.9 million as of December 31, 2019 using a discounted cash flow model based on sales projections. In addition, one-time net income of $7.5 million was recorded as other income and one-time income of $4.6 million was recorded within profit from discontinued operations in each of the fourth quarter and full year ending December 31, 2018. No further amounts were recorded in our consolidated statements of comprehensive profit or loss in respect of that settlement in the year ended December 31, 2019.

Impairment of Non‑Financial Assets
 
Our 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. We evaluate 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, other than goodwill, 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.

Lease Assets and liabilities

The operating lease obligations consist of payments pursuant to lease agreements for office and laboratory facilities, as well as lease agreements for 13 vehicles, which generally run for a period of three years

We initially adopted IFRS 16 and elected to apply the provisions of this accounting standard using the modified retrospective method in which we account 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. We recognize on the commencement date of the lease a right-of-use 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. In measuring the lease liability, we elected to apply the practical expedient in this standard and do not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.

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On the commencement date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined, or otherwise using our incremental borrowing rate. After the commencement date, we measure the lease liability using the effective interest rate method. The lease liability was valued as $2.5 million as of December 31, 2019.

On the commencement date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the shorter of its useful life and the lease term. The right of-use was valued as $2.2 million as of December 31, 2019.
 
C.          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. In 2017 the corporate tax rate was 24%. 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. 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;
 

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.

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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.
 
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 from the end of 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.

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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 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% 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.

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 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% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). 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, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply). In 2017‑2019 dividends paid out of preferred income attributed to a Special Preferred Enterprise, directly to a foreign parent company, are subject to withholding tax at source at the rate of 5% (temporary provisions).
 
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.

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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 on or 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.

Dividends distributed by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the recipient in advance of a valid certificate from the Israeli Tax Authority allowing for reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If such dividends are distributed to a foreign 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).
 
D.          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 26 employees as of December 31, 2019 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 (in 2017 and 2018, we only received grants for EscharEx). 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, 2019 and the amortized cost (using the interest method) of the liability totaled approximately $7.7 million and $6.9 million as of December 31, 2018 and 2019, 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, 2019, we had accrued and paid royalties to the IIA totaling $0.4 million.
 
We received funds from BARDA in accordance with the terms of our BARDA contracts. As of December 31, 2019 we had accrued $42.6 million.

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For a description of our research and development policies for the last three years, see “ITEM 4.B. Business Overview—Research and Development.”
 
E.          Trend Information
 
Other than 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, 2019 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 caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
 
F.          Off‑Balance Sheet Arrangements
 
We do not currently engage in off‑balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purposes entities and other structured finance entities.

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 February 15, 2020:

Name
 
Age
 
Position
Executive Officers
       
Sharon Malka          
 
48
 
Chief Executive Officer
Boaz Gur-Lavie          
 
46
 
Chief Financial Officer
Lior Rosenberg, M.D.          
 
74
 
Chief Medical Technology Officer
Ety Klinger Ph.D.          
 
58
 
Chief Research and Development Officer
Yaron Meyer          
 
41
 
Executive Vice President, General Counsel and Corporate Secretary
         
Directors
       
Stephen T. Wills(3)(5)          
 
63
 
Active Chairman of the Board of Directors
Ofer Gonen          
 
47
 
Director
Assaf Segal          
 
48
 
Director
Vickie R. Driver M.D(1)(2)(3)          
 
66
 
Director
Nissim Mashiach(1)(2)(3)(4)          
 
59
 
Director
Sharon Kochan(1)(2)(3)(4)          
 
51
 
Director

                                         
(1)
Member of our audit committee.
 
(2)
Member of our compensation committee.
 
(3)
Independent director under the rules of the Nasdaq Stock Market.
 
(4)
External director under the Companies Law.
 
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Executive Officers

Sharon Malka has served as our Chief Executive Officer since May 2019. 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.
 
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.
 
Lior Rosenberg is one of our co‑founders and has served as our Chief Medical Technology Officer since 2001 and served as a member of our board of directors from 2001 to 2013. Since 2001, Dr. Rosenberg has headed the unit for Cleft Lip Palate and Craniofacial Deformities at Soroka University Medical Center and Meir Medical Centers in Beer Sheva and Kfar Saba, Israel, respectively. Since 1987, he has served as a Full Professor of plastic surgery at the Ben‑Gurion University Medical School in Beer Sheva, Israel. He also serves as the Chairman of the Burn Disaster Committee for the International Society of Burn Injuries and the Israeli Ministry of Health. From 1987 to 2012, Dr. Rosenberg served as the chairman of the Department of Plastic Surgery and Burn Unit at Soroka University Medical Center in Beer Sheva, Israel. He is a founding member of the Israeli Burn Association and the Mediterranean Burn Council, a member of the American Burn Association and a national representative at the European Burn Association. Dr. Rosenberg holds a M.D. degree from Tel‑Aviv University, Israel and a Professor of Plastic Surgery degree from the Ben Gurion University, Israel.
 
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 R&D 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 R&D 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 R&D 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 R&D. 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.
 
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 Clal Biotechnology Industries Ltd. (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.

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Directors
 
Stephen T. Wills has served as a member of our board of directors since May 2017, as Chairman of our board since October 2017 and as Active Chairman of our board since May 2019. Mr. Wills has served since 1997, as the Chief Financial Officer and since 2011 as the Chief Operations Officer of Palatin Technologies, Inc. (NYSE: PTN), a publicly‑held biopharmaceutical company developing targeted, receptor‑specific peptide therapeutics for the treatment of diseases with significant unmet medical need and comm