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.authorization, and we plan to file for renewal during 2022.
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.
Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Without prejudice to the law on the protection of industrial and commercial property, some marketing authorizations benefit from an “8+2(+1)” year period of regulatory protection. During the first eight years from the grant of the innovator company’s marketing authorization, data exclusivity applies. If granted, the data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. After the eight years have expired, a generic company can make use of the preclinical and clinical trial data of the originator in their regulatory applications but still cannot market their product until the end of 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.
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 enforcesmonitors compliance with its cGMPGMP 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 UnionEU 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 cGMPEU GMP and equivalent Israeli cGMP. Certification of the conformity of each batch to its specifications by either the importer or the manufacturer established in Israel or in the European UnionEU shall be recognized by the other party without re‑control at import from one party to the other.
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.and subject to laws concerning promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. The applicable legislation aims to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the applicable national authority of the authorizing member state. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each member state and can differ from one country to another. Failure to comply with these requirements can result in adverse publicity, warning letters, mandated corrective advertising and potential civil and criminal penalties.
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 drugs and biologics under the FDCAFederal, Food, Drug and implementing regulations and other laws, includingCosmetic Act (“FDCA”), the Public Health Service Act.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.
The process required by the FDA prior to marketing and distributing a biologic in the United States generally involves the following:
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 involve the administration of an investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their website, ClinicalTrials.gov.
| Phase 3: | The druginvestigational 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 (PDUFA), as amended, applicants are required to pay user fees to the FDA for reviewing a BLA. These user fees, as well as the annual program fees required for approved products, can be substantial. Each BLA submitted to the FDA for approval is typically reviewed for administrative completeness and reviewability within 60 days following submission of the application. If found complete, the FDA will “file” the BLA, which triggers a full review of the application. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission. The FDA’s established goals are to review and act on 90% ofstandard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority original BLA applicationsreview, six months after the FDA accepts the application for filing. In both standard and priority original efficacy supplements within six months ofreviews, the 60‑day filing date and receipt date, respectively. The FDA’s established goals are to review and act on 90% of original BLA applications and standard original efficacy supplements with 10 months of the 60‑day filing date and receipt date, respectively.process is often significantly extended by FDA requests for additional information or clarification. The FDA however,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 not be ableconvene an advisory committee to approve a biologic within these established goals, and itsprovide clinical insight on application review goals are subject to change from time to time. Further, the outcome of the review, even if generally favorable, may not be an actual approval but rather an “action letter” that describes additional work that must be completed before the application can be approved.questions.
Before approving a BLA, the FDA generally inspects the facilities at which the product is manufactured or facilities that are significantly involved in the product development and distribution process, and will not approve the product unless cGMP compliance is satisfactory. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification.
The FDA may deny approval of a BLA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. FDA approval of any application may include many delays or may never be granted. If a product is approved, the approval will impose limitations on the indicated uses for which the product may be marketed, will require that warning statements be included in the product labeling, may impose additional warnings to be specifically highlighted in the labeling (e.g., a Black Box Warning), which can significantly affect promotion and sales of the product, may require that additional studies be conducted following approval as a condition of the approval and may impose restrictions and conditions on product distribution, prescribing or dispensing. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use. A REMS program may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate healthcare providers of the drug’s risks, or other elements to assure safe use, such as limitations on who may prescribe or dispense the drug, dispensing inonly under certain circumstances, special monitoring and the formuse of a risk management plan, or impose other limitations.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 drug or biologic products for which we receive FDA approvals are subject to pervasive continuing regulation by the FDA. Certain requirements include, among other things, record‑keeping requirements, reporting adverse experiences with the product, providing the FDA with updated safety and efficacy information annually or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct‑to‑consumer advertising, prohibitions against promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling, known as “off‑label use,” and other promotional activities, such as those considered to be false or misleading. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies. Although physicians may prescribe legally available drugs for off‑label uses, manufacturers may not encourage, market or promote such off‑label uses. As a result, “off‑label promotion” has formed the basis for litigation under the Federal False Claims Act, violations of which are subject to significant civil fines and penalties.
The manufacturing of NexoBrid, EscharEx and our pipeline product candidates isare 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. Drug and biologicBiologic 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 requirement,requirements, such as reporting of certain adverse events. Such reports can present liability exposure, as well as increase regulatory scrutiny that could lead to additional inspections, labeling restrictions or other corrective action to minimize further patient risk. Discovery of problems with a product after approval may result in serious and extensive restrictions on the product, manufacturer or holder of an approved BLA, as well as lead to potential market disruptions. These restrictions may include recalls, fines, warning letters, or untitled letters, clinical holds on clinical studies, refusal of the FDA to approve pending applicants or supplements to approved applications, product seizure or detention, or refusal to permit the import or export of products, suspension or revocation of a product license approval until the FDA is assured that quality standards can be met, and continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
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 risk minimization action plans andREMS 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 statusdesignation 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, (generally 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).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 entitles a party to seven years of market exclusivity following drug or biological product approval, but 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 indicationdisease or condition for seven years, except in certain limited circumstances.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.
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. With enactment of the Food and Drug Administration Safety and Innovation Act (the “FDASIA”) in 2012, sponsorsSponsors 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.
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 and,which, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including theother non‑patent and orphan exclusivity. This six‑month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written requestthe 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,’’“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
As part of the The Patient Protection and Affordable Care Act, ofas amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), which was signed into law in 2010, Public Law No. 111‑148 (the “Affordable Care Act”), underincludes a subtitle called the subtitle of Biologics Price Competition and Innovation Act of 2009 (“BPCI”BPCIA”), a statutorywhich created an abbreviated approval pathway has been created for licensure, or approval, of biological products that are biosimilar to or interchangeable with an FDA‑licensedFDA-approved reference biological product. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.
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 approval of a biologic product biosimilar to NexoBrid could have a materially adverse impact on our business, may be significantly less costly to bring to the market and may be priced significantly lower than NexoBrid, but such approval may only occur after our 12‑year exclusivity period.
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 UnionEU 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, EMAEuropean Commission or National Ministries of Health. Third‑party payors are increasingly challenging the price and examining the medical necessity and cost‑effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‑effectiveness of NexoBrid, in addition to the costs required to obtain the FDA or other Ministry of Health approvals. Additionally, NexoBrid may not be considered medically necessary or cost‑effective. A payor’s decision to provide coverage for a drug product does not guarantee that an adequate reimbursement rate will be approved. Adequate third‑party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In the United States, the Affordable Care ActACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly impacted the pharmaceutical industry. The Affordable Care ActACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse provisions, which will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program. Additionally, the ACA:
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increases the minimum level of Medicaid rebates payable by manufacturers of brand‑name drugs from 15.1% to 23.1%;
Additionally, the Affordable Care Act:requires collection of rebates for drugs paid by Medicaid managed care organizations; and
| · | increases the minimum level of Medicaid rebates payable by manufacturers of brand‑name drugs from 15.1% to 23.1%; |
imposes a non‑deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs.
| · | 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 “branded prescription drugs” to specified federal government programs. |
ThereSince its enactment, there have been judicial, executive and congressional challenges to certain aspects of the Affordable Care Act, and we expectACA. On June 17, 2021, the current U.S. presidential administrationSupreme Court dismissed the most recent judicial challenge to continue to seek amendments to or repealthe ACA brought by several states without specifically ruling on the constitutionality of the Affordable Care Act. While CongressACA. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace from February 15, 2021 through August 15, 2021. The executive order instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
There has notbeen 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. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures. At the state level, legislatures have increasingly passed repeal legislation 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 Actimplemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain individuals who failproduct access and marketing cost disclosure and transparency measures, and, in some cases, designed 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 criticalencourage importation from other countries 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. While the Trump Administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this 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.bulk purchasing.
In the European Union,EU, 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 UnionEU 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 RegulationRegulation; 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, state and stateforeign 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; |
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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, 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, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
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 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;
| · | 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, 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
| · | 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 |
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).
| · | 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 on 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. Further, the California Privacy Rights Act (CPRA), recently passed in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
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, 2022.2025. The facilities consist of approximately 32,300 square feet of space, and the yearly lease fee is approximately $385 thousands.$469,000. These facilities house our administrative headquarters, our research and development laboratories and our manufacturing plant. The sub-lease agreement includeincludes an option to extend the lease period for additional 3 years at our sole discretion.
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 €2,800 (or $3,100) per month. These facilities house our European headquarters.
Legal Proceedings
From time to time, we may be party to litigation or subject to claims incident to the ordinary course of business.
On September 15, 2014, a statement of claim was filed against the company by certain shareholders of PolyHeal. The plaintiffs allege that the company is obligated to pay them a total amount of approximately $1.3 million plus applicable interest (totaled in $1.5 million as of the ruling date) in exchange for their respective portion of PolyHeal’s shares, following the milestone occurrence under the 2010 PolyHeal Agreement. This claim arose out of a dispute with Teva under the 2010 PolyHeal Agreement. On December 14, 2014, the company filed a petition for a right to defend with the Tel Aviv‑Jaffa District Court, in which the company: (i) rejected the arguments raised against it in the statement of claim; (ii) emphasized that its obligation under the 2010 PolyHeal Agreement to purchase the 7.5% of PolyHeal’s shares is subject to the consumption of the deferred closing, as defined in the 2010 PolyHeal Agreement, including the receipt of the funds from Teva on a “back to back” basis; and (iii) stated that since no such payment has been made by Teva, the company is not subject to any obligation to purchase PolyHeal shares and/or make any payments to PolyHeal’s shareholders.
On November 13, 2017, the Tel Aviv‑Jaffa District Court issued a ruling in favor of the plaintiffs. The court ruled that the we are obligated to purchase PolyHeal’s shares for approximately $6.75 plus applicable interest (totaled in $7.5 million as of the ruling date) million plus applicable interest, which represents the purchase price for the total number of shares that the PolyHeal Agreements contemplate would be acquired by the Company from all the shareholders of PolyHeal. The Court ordered that we are obligated to purchase shares in PolyHeal from the plaintiffs, on the basis of their actual share holdings in PolyHeal as of January 15, 2013, for approximately $1.5 million, within 15 days from the date of the Court’s ruling. On December 27, 2017, we filed an appeal to the Supreme Court over the said ruling, alleging, among other things, that the agreement according to which the ruling was granted was misinterpreted by the District Court. We further alleged that both the wording of the agreement and the conduct of the parties thereunder prove that our obligation to purchase PolyHeal’s shares was subject to the prior receipt of funds, which were never received, from Teva. On January 30, 2018, certain PolyHeal shareholders filed a cross appeal, alleging that they are entitled to receive from us a full repayment of their counsel’s fees in a sum equal to 12.5% of the consideration to be paid for their shares.
Accordingly, a full provision for the purchase price of the shares plus the accrued interest, totaling $7.5 million, was recorded within the loss from discontinued operations in respect of this claim, of which approximately $1.5 million was paid to plaintiffs in consideration for PolyHeal’s shares.
On March 24, 2019, we entered into a settlement agreement and mutual general release (the "PolyHeal Settlement Agreement") with the plaintiffs, which contingent upon the Israeli Supreme Court's approval of this settlement agreement, settles any and all debts, obligations or liabilities that we and the plaintiffs had, has or may have to the other party under, in connection with or arising out of the transactions described above. Pursuant to the terms of this PolyHeal Settlement Agreement, the plaintiffs will repay to the company a non-material portion of the amount that was ruled in their favor under the 2017 Ruling, and the Israeli Supreme Court will approve and accept the appeal that was filed by us on December, 2017, cancel the 2017 Ruling that was issued by the District Court against us, and reject the Cross-Appeal. However, if the Israeli Supreme Court does not approve of the PolyHeal Settlement Agreement or refuses to take the actions requested from the court in the PolyHeal Settlement Agreement, these matters may result in the continuation of the existing litigation or new litigation or arbitration proceedings, any of which would materially increase our expenses and may disrupt our management’s focus on our business.
See “ITEM 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings” and “ITEM 3.D. Risk Factors- We may have liabilities under our former agreements with PolyHeal Ltd.”
On March 24, 2019, we entered into a settlement agreement and mutual general release (the “Teva Settlement Agreement”) with Teva, which contingent upon the Supreme Court’s approval of the PolyHeal Settlement Agreement, which settles any and all debts, obligations or liabilities that each party or any of its controlled affiliates had or has to the other party or any of its controlled affiliates under, in connection with or arising out of certain transactions and agreements entered into between us and Teva from 2007 to 2012 (collectively, the “Collaboration Agreements”), which have terminated effective as of December 31, 2012 and September 2, 2013, as applicable, and which related to NexoBrid, and PolyHeal, including the above PolyHeal milestone and certain payments, which are primarily reimbursement for development and manufacturing costs, that we believed were to be borne by Teva through the effective date of termination of such Collaboration Agreements in December 2012.
Pursuant to the terms of the Teva Settlement Agreement, Teva has agreed to pay us $4.0 million in cash, and to reduce the contingent consideration that is payable to Teva pursuant to the our repurchase of our shares from Teva in 2013, so that we will be obligated to pay Teva annual payments at a reduced rate of 15% of its recognized revenues from the sale or license of NexoBrid after January 1, 2019, up to a reduced aggregate amount of $10.2 million. In addition, we also agreed to indemnify, defend and hold harmless Teva and its controlled affiliates from and against claims relating to a certain milestone related to PolyHeal under an agreement associated with the Collaboration Agreements, up to an amount of $10 million, if a notice of such claim has been received by us prior to December 31, 2023.
C. Organizational Structure
The legal name of our company is MediWound Ltd. and we are organized under the laws of the State of Israel. Our corporate structure consists of MediWound Ltd., our Israeli parent company, (i) MediWound Germany GmbH, our active wholly‑owned subsidiary, which was incorporated on April 16, 2013 under the laws of the Federal Republic of Germany (ii) MediWound US, Inc., which was incorporated on December 8, 2020 under the laws of the State of Delaware and (ii)(iii) 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 8% 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.”Production” and “ITEM 4.B. Business Overview—Environmental, Health and Safety Matters”.
Item 4A. UNRESOLVED STAFF COMMENTS
None.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The information contained in this section should be read in conjunction with our consolidated financial statements for the year ended December 31, 20182021 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 that develops, manufactures and commercializes novel, cost effective, bio-therapeutic solutions for tissue repair and regeneration. Our strategy is centered around our validated enzymatic platform technology, focused on developing, manufacturingnext-generation protein-based therapies for burn and commercializing novel therapeutics products to address unmet needs in the fields of severe burns, chronicwound care, and other hard‑to‑heal wounds, connectivefor tissue disorders and other indications. repair.
Our first innovative biopharmaceutical product, NexoBrid, received marketing authorization from the EMAEuropean Commission and the Israeli, Argentinean, South Korean, Russian, Ukrainian, Eurasian economic union (Armenia, Kyrgyzstan, Belarus, Kazakhstan), Peruvian, Chilean, Taiwanese and RussianUnited Arab Emirates 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,In September 2020, the FDA accepted for review our BLA, which iswas based on acute data, including primary, secondary and safety endpoints, as well as 12-month safety follow-up data derived from our patentedPhase 3 pivotal study. In June 2021, we received a Complete Response letter from the FDA stating that our BLA was not approved. We had a Type A meeting with the FDA in October 2021 to discuss a path forward for resubmission, in which we gained clarity on a path forward for resubmission of the BLA, and we plan to resubmit our BLA for NexoBrid in mid-2022. NexoBrid, a concentrated mixture of proteolytic enzyme technology,enzymes enriched in bromelain, represents a new paradigm in burn care management and our clinical trials have demonstrated, with statistical significance, its ability to non‑surgically and rapidly remove the eschar earlier relative to existing standard of care upon patient admission, without harming viable tissues.
We established a commercial organization for the marketing,commercialize NexoBrid globally via multiple sales and distribution of NexoBrid, including European headquarters in Germany and sales and marketing teams throughout Europe.channels. We sell NexoBrid to burn centers in Europe and Israel, primarily through our commercial organization,sales force, focusing on leading 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. In the United States, we have launchedentered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in ArgentinaNorth America upon FDA’s approval. For additional information on the commercialization of NexoBrid See ITEM 4.B. “Information on the Company - Marketing, Sales and South Korea, through our local distributor. Distribution.”
We are conducting an on‑goingexpanded access treatment protocol (NEXT) for NexoBrid to treat burn patients with deep partial- and full-thickness burns in the U.S. Phase 3 pivotal study, which is funded by BARDA and which will continue to supporttake place during the review of our upcoming BLA by the FDA. We are also conducting a BLA submission to the FDA and a European pediatric study to broaden the approved indication of NexoBrid, both of which areis also being funded by BARDA. BARDA, in which we reported positive topline results in July 2021.
An additional product candidate is EscharEx, a topical bioactive drug candidate designed to enzymatically debride chronic and other hard-to-heal wounds.
In January 2022 we announced positive topline results from our ongoing Phase 2 study for the treatment of VLUs. These topline results suggest that the study met its primary endpoint, demonstrating that patients treated with EscharEx had a statistically significant higher incidence of complete debridement compared to the gel vehicle, with a p-value of 0.004.
Our third innovative product candidate, MW005, is a topically applied biological drug candidate for the treatment of non-melanoma skin cancers, based on the same active substance of NexoBrid and EscharEx products, a concentrated mixture of proteolytic enzymes enriched in bromelain.
We manufacture NexoBrid and our product candidates in our state‑of‑the‑art, EMA‑certified, cGMP‑compliant, sterile pharmaceutical products manufacturing facility at our headquarters in Yavne, Israel.
The Company's Our securities are listed for trading on NASDAQNasdaq 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 revenue was $1.6 million, $2.5 million and $3.4 million in 2016, 2017 and 2018, respectively. 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 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. However, our net operating losses were $20.2 million, $13.7 million and $4.0 million for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2018,2021, we had cash and cash equivalents of $11.0 million. Our revenues were $21.8 million and $23.8 million in 2020 and 2021, respectively. Our net operating loss was $8.8 million and $11.2 million in 2020 and 2021, respectively. We had an accumulated deficit of $130.7 million.$148.5 million as of December 31, 2021. We expect to continue to incur significant expenses and operating losses for the foreseeable future, as Researchresearch and Developmentdevelopment activities are central to our operation.operations, which will offset by cash inflows from NexoBrid.
We expect to continue to invest in our research and development efforts, including continuingin respect of our NexoBrid ongoing clinical trials which are fully funded by BARDA, as well as the clinical development and trials of EscharEx, MW005 and our other pipeline product candidates. In addition, we expect to continue to advance NexoBrid as a standard of care, expendand expand its commercial reach to additional importantin international markets, and itsincluding for potential use by countries for preparedness foras a medical countermeasure during mass casualty events.
Key Components of Statements of Operations
Revenues
Sources of revenues. We derive revenues from direct and indirect 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. Therefore, ouragreements we have in place, which also include revenues from licenses. We generate revenues from BARDA procurement of NexoBrid for emergency stockpile pursuant to BARDA contract.
We generate revenues from development services provided to BARDA. Our ability to generate additional, more significant revenues will depend on the successful commercialization of NexoBrid.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, includingincluding: the cost of raw materials,materials; employee‑related expenses, including salaries, equity based‑compensation and other benefits and related expenses, rental fees, utilities andlease payments, utility payments, depreciation, changes in inventory of finished products, royalties and other manufacturing expenses. These expenses which isare partially offsetreduced by an allotment of manufacturing costs associated with research and development activities to research and development expenses.
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 from sale of products will continue to increase as we expand the sale of NexoBrid throughout the European Union, the United States and internationally. We expect that our cost of revenues as a percentage of our total revenues will decrease to the extent that our sales from NexoBrid increase.other international markets.
Operating Expenses
Research and Development Expenses gross
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’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, and benefits and related expenses, clinical trials, contract research organization sub‑contractors, expenses, development materials, external advisors and the allotted cost of our manufacturing facility for research and development purposes.
Since 2016, we have cumulatively spent approximately $47.3 million on research and development primarily of NexoBrid and EscharEx, of which $30.7 million was funded by participation by BARDA funds and the Israeli government grants. Our total research and development expenses, net of participations, were approximately $7.1 million, $5.5 million and $4.1 million in 2016, 2017 and 2018, respectively. Our research and development expenses related 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 remainder of 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; |
| · | 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.
Participation by Third Parties
Our research and development expenses are net of the following participations by third parties:
Participation by the IIA. We receive 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, royalties of 3% on the revenues derived from sales of products or services developed 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 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 as of December 31, 2018, totaled approximately $13.7 million and the amortized cost (using the effective interest method) of the liability as of that date totaled approximately $7.7 million. As of December 31, 2018, we had accrued and paid royalties to the IIA totaling $0.3 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 – We 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 valued up to $112 million for the advancement of the development and manufacturing, as well as the procurement, of NexoBrid in the United States. On July 17, 2017, we entered into an amendment to our contract with BARDA that increased its potential value to a maximum of $132 million. See “ITEM 4.B. Business Overview—BARDA Contract.” Pursuant to the contract, BARDA has committed to fund all development costs of NexoBrid required for achieving marketing authorization by the FDA, either directly or indirectly by reimbursing actual costs incurred by us. In September 2018, we were awarded a new contract to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of BARDA 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.
As of December 31, 2018, we have recorded $28.2 million in funding from BARDA out of the $68 million of committed funds provided for 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, advertising,marketing, market access, medical, and sales and distribution activities. These expenses also include costs related to the maintenance of our officessubsidiary in Germany, which is focused primarily on marketing NexoBrid, and cost related to maintain marketing authorization holder related costs.authorization.
General and Administrative Expenses
General and administrative expenses consist principally of compensation for employees in executive and administrative functions, including salaries, equity‑based compensation, benefits and other related expenses, professional consulting services, including legal and audit fees, as well as costs of office and overhead. We expect general and administrative expenses to remain stable.
Financial Income/Financial Expense
Financial income includes interest income, revaluation of financial instruments and exchange rate differences. Financial expense consists primarily of revaluation of financial instruments, financial expenses in respect of deferred revenue, revaluation of lease liabilities and exchange rate differences. The market interest due on government grants received from the IIA is also considered a financial expense, and is recognized beginning on the date we receive the grant until the date on which the grant is expected to be repaid as part of the revaluation to fair value of liabilities in respect of government grants.
Discontinued Operation
Following the expiration of our PolyHeal license in 2013, 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 operations of the development, manufacturing and sales of PolyHeal, including impairments of inventories, our exclusive global license of the PolyHeal product and other assets, and any legal process profit or loss are reported separately as a discontinued operation in our statement of operations for the periods presented below, as well as for all historical periods to be presented in future quarterly and annual releases of our results of operations.below.
Taxes on Income
The standard corporate tax rate in Israel was 25% and 24%, in the years 2016 and 2017 tax years, respectively 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 $133$148 million as of December 31, 2018.2021. 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 athe 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 followingbelow table sets forthand the below discussion provides data for each of the years ended December 31, 2020 and 2021. The below discussion of our results of operations in dollarsomits a comparison of our results for the periods indicated:
| | Years Ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | |
Consolidated statements of operations data: | | | | | | | | | |
Revenues | | | 1,558 | | | $ | 2,496 | | | $ | 3,401 | |
Cost of revenues | | | 2,158 | | | | 1,578 | | | | 2,088 | |
Gross (loss) profit | | | (600 | ) | | | 918 | | | | 1,313 | |
Operating expenses: | | | | | | | | | | | | |
Research and development, gross | | | 14,779 | | | | 14,625 | | | | 17,915 | |
Participation by BARDA and IIA | | | (7,711 | ) | | | (9,163 | ) | | | (13,843 | ) |
Research and development, net of participations | | | 7,068 | | | | 5,462 | | | | 4,072 | |
Selling and marketing | | | 8,403 | | | | 5,362 | | | | 4,188 | |
General and administrative | | | 4,084 | | | | 3,781 | | | | 3,799 | |
Other income from settlement agreement | | | | | | | | | | | (7,537 | ) |
Other expenses | | | - | | | | - | | | | 751 | |
Operating loss | | | (20,155 | ) | | | (13,687 | ) | | | (3,960 | ) |
Financial income | | | 2,166 | | | | 406 | | | | 412 | |
Financial expense | | | (896 | ) | | | (1,252 | ) | | | (2,117 | ) |
Loss from continuing operations | | | (18,885 | ) | | | (14,533 | ) | | | (5,665 | ) |
Profit (loss) from discontinued operation | | | - | | | | (7,616 | ) | | | 4,608 | |
Net loss | | | (18,885 | ) | | $ | (22,149 | ) | | $ | (1,057 | ) |
years ended December 31, 2019 and 2020. 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, 20172019 Compared to Year Ended December 31, 20182020” in our Annual Report on Form 20-F for the year ended December 31, 2020, which we filed with the SEC on February 25, 2021.
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
condensed statements of operations data: | | | | | | | | |
Revenues | | $ | 21,763 | | | $ | 23,763 | |
Cost of revenues | | | 14,218 | | | | 14,992 | |
Gross profit | | | 7,545 | | | | 8,771 | |
Operating expenses: | | | | | | | | |
Research and development | | | 7,698 | | | | 10,256 | |
Selling and marketing | | | 3,228 | | | | 3,388 | |
General and administrative | | | 5,459 | | | | 6,348 | |
Operating loss | | | (8,840 | ) | | | (11,221 | ) |
Financial expenses, net | | | (436 | ) | | | (2,303 | ) |
Loss from continuing operations | | | (9,276 | ) | | | (13,524 | ) |
Profit from discontinued operation | | | 80 | | | | - | |
Tax expenses | | | - | | | | (27 | ) |
Net loss | | $ | (9,196 | ) | | $ | (13,551 | ) |
Year Ended December 31, 2020 Compared to Year Ended December 31, 2021
Revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
| | | |
Revenues from sale of products | | $ | 7,445 | | | $ | 9,613 | |
Revenues from development services | | | 13,935 | | | | 12,372 | |
Revenues from license agreements | | | 383 | | | | 1,778 | |
| | | 21,763 | | | | 23,763 | |
We generated total revenues of approximately $23.8 million for the year ended December 31, 2021 compared to approximately $21.8 million for the year ended December 31, 2020. The increase in total revenues was a result of an increase in sale of products of $2.1 mainly derived from BARDA emergency stockpile procurement of $1.6 million and an increase in license sales of $1.4 million, partially offset by a decrease in development services to BARDA of $1.6 million.
Revenues from sale of products
Revenues from sales of products in 2021 increased $2.2 million, or 29%, in comparison to 2020, primarily as a result of BARDA’s procurement of NexoBrid in 2017for emergency stockpile of approximately $2.5$5.5 million net in 2021, versus approximately $3.8 million net during 2020. Revenues from BARDA’s procurement were recognized net of Vericel’s share pursuant to gross profit split.
Revenues from development services
Revenues from development services decreased 11% from $13.9 million in 2020 to $12.4 million in 2021, as a result of completion of NexoBrid clinical studies.
Revenues from license agreement
In 2021, we recognized $1.8 million, of license revenues, driven by new distribution agreements and achieving certain milestones with current distributors agreements, compared to approximately $3.4$0.4 million in revenues from the sale of NexoBrid in 2018. 2020.
Our revenues, as reported in our consolidated financial statements, are based on the location of the customers, as shown in the below table:
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
International (excluding U.S.) | | $ | 3,733 | | | $ | 5,649 | |
U.S. | | | 18,030 | | | | 18,069 | |
| | | 21,763 | | | | 23,718 | |
BARDA contributed 83% and 76% of our total revenues in 2020 and 2021, respectively.
Costs and Expenses
Cost of revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Cost of revenues from sales of products | | $ | 3,151 | | | $ | 4,983 | |
Cost of revenues from development services | | | 11,067 | | | | 9,907 | |
Cost of revenues from license agreements | | | - | | | | 102 | |
| | | 14,218 | | | | 14,992 | |
Cost of revenues as a percentage of total revenues decreased from 65% for 2020 to 63% for 2021.
Cost of revenues from sales of products as a percentage of revenues from sales of products increased to approximately 63%52% for the year ended December 31, 2021 from approximately 42% in the year ended December 31, 2017 to2020. The increase of cost of revenues from sales of product is primarily driven by BARDA procurement for emergency response preparedness.
Cost of revenues from development services as a percentage of revenues from development services was approximately 61%80% in the year ended December 31, 2018.2021 compared to approximately 79% in the year ended December 31, 2020.
AllotmentCost of manufacturingrevenues from license agreements as a percentage of revenues from license agreements were 6% in the year ended December 31, 2021, due to costs associated with the support of our distributors to researchachieve their marketing authorizations.
Research and development expenses,
Research and development expenses, increased $0.6by 34% from approximately $7.7 million in the year ended December 31, 2018, primarily due2020 to the development activities of NexoBrid and EscharEx in 2018. Change in inventory of finished products increased from $(1.0) million in 2017 to $0.3 in 2018
Research and development expenses, net of participations
Research and development expenses, gross, increase 22% from approximately $14.6$10.3 million in the year ended December 31, 2017 to approximately $17.9 million in the year ended December 31, 2018.2021. The expensesincrease was primarily related to development of NexoBrid, which was predominantly funded by BARDA participation, and EscharEx. The increase resulted primarily from an increase in subcontractors costs and in the allotment cost of manufacturing for research and development purposes related to NexoBrid and EscharEx.
Salary and related expenses remained stable in the years ended December 31, 2017 and 2018. Subcontracting costs increased $2.6 million in the year ended December 31, 2018 primarily due toEscharEx clinical development activity of NexoBrid.
Allotment of manufacturing costs for research and development purposes increased $0.6 million in the year ended December 31, 2018 primarily due to development activities of NexoBrid and EscharEx.
Moreover, participation from BARDA and the Israeli Innovation Authority increased by approximately $4.6 million from $9.2 million in the year ended December 31, 2017 to $13.8 in the year ended December 31, 2018, primarily due to increase of BARDA funds.
Selling and marketing expenses
Selling and marketing expenses decreased 22%,increased by 6% in 2021 compared to 2020, from approximately $5.4$3.2 million in the year ended December 31, 20172020 to approximately $4.2$3.4 million in the year ended December 31, 2018. The decrease was primarily due to a decrease in marketing activities associated with the launch of NexoBrid in the E.U. and a decrease of headcount of employees focused on selling and marketing.2021.
General and administrative expenses
General and administrative expenses remained stable at $3.8 millionincreased 15% in the years ended December 31, 2017 and 2018.
Financial income
Financial income remained in the same level of about $0.42021 compared to 2020 from approximately $5.5 million in the year ended December 31, 20172020 to approximately $6.3 million in the year ended December 31, 2021. The increase in general and 2018.administrative expenses was primarily due to rent and maintenance allocation and legal consultation.
Financial income, net | | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Financial income | | $ | 843 | | | $ | 11 | |
Financial expenses | | | (1,279 | ) | | | (2,314 | ) |
| | | (436 | ) | | | (2,303 | ) |
Financial income
Financial income decreased from $0.8 million in the year ended December 31, 2020 to $0 million in the year ended December 31, 2021. The decrease was primarily driven by the Teva contingent liability revaluation and interest on deposits.
Financial expense
Financial expense increased from approximately $1.3 million in the year ended December 31, 20172020 to approximately $2.1$2.3 million in the year ended December 31, 2018.2021. The increase in financial expenses in 2018 included $0.4 million due to2021 was primarily driven by the Teva contingent liability revaluation, described below under “Application of contingent considerationCritical Accounting Policies and Estimates - Contingent Consideration for purchasePurchase of shares, $0.2 million ofShares”, the Israeli innovation authority grant interest, currency exchange differencesfluctuations and $0.2 million of finance expenses in respect of deferred revenues.
lease revaluations.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2017Profit from Discontinued operations
Revenues
We generated revenuesProfit from sales of NexoBrid in 2016 of approximately $1.6discontinued operations was $0 million compared to approximately $2.5 million in revenues from the sale of NexoBrid in 2017. The increase was primarily due to an increase in the volume of sales in the EU.
Costs and Expenses
Cost of revenues
Cost of revenues decreased 27% from approximately $2.2 million infor the year ended December 31, 2016 to approximately $1.62021 compared with $0.1 million infor the year ended December 31, 2017.
2020. The costprofit from discontinued operations in 2020 was as a result of revenues consisted primarilythe Polyheal settlement of employee related expenses, including salariesthe litigation with certain PolyHeal Ltd.'s ("PolyHeal") shareholders. See “ITEM 8.A. Consolidated Statements and benefit and equity‑based compensation, cost of materials, changes in inventory of finished products and other manufacturing expenses, which is partially offset by an allotment of manufacturing costs associated with research and development activities to research and development expenses. Allotment of manufacturing costs to research and development decreased $1.0 million in the year ended December 31, 2017, primarily due to a reduction in the development activities of EscharEx in 2017. Change in inventory of finished products decreased $1.8 million from $0.8 million in 2016 to $(1.0) in 2017.
Research and development expenses, net of participations
Research and development expenses, gross, decreased 1% from approximately $14.8 million in the year ended December 31, 2016 to approximately $14.6 million in the year ended December 31, 2017. The expenses primarily related to development of NexoBrid, which was predominantly funded by BARDA participation, and EscharEx. The decrease resulted primarily from a decrease in the allotment of cost of manufacturing for research and development purposes related to NexoBrid and EscharEx.
Salary and related expenses increased $0.6 million in the year ended December 31, 2017 due to an increased headcount of employees focused on research and development. Subcontracting costs increased $0.2 million in the year ended December 31, 2017 primarily due to clinical development activity of NexoBrid.
Allotment of manufacturing costs for research and development purposes decreased $1.0 million in the year ended December 31, 2017 primarily due to reduction in the development activities of EscharEx.
Moreover, participation from BARDA and the Israeli Innovation Authority increased by approximately $1.5 million from $7.7 million in the year ended December 31, 2016 to $9.2 in the year ended December 31, 2017.
Selling and marketing expenses
Selling and marketing expenses decreased 36%, from approximately $8.4 million in the year ended December 31, 2016 to approximately $5.4 million in the year ended December 31, 2017. The decrease was primarily due to a decrease in marketing activities associated with the launch of NexoBrid in the E.U. and a decrease of headcount of employees focused on selling and marketing.
General and administrative expenses
General and administrative expenses decreased 7% from approximately $4.1 million in the year ended December 31, 2016 to approximately $3.8 million in the year ended December 31, 2017.
Other Financial income
Financial income decreased from approximately $2.2 million in the year ended December 31, 2016 to approximately $0.4 million in the year ended December 31, 2017. Financial income in 2016 included $1.6 million due to revaluation of contingent consideration for purchase of shares.
Financial expense
Financial expense increased from approximately $0.9 million in the year ended December 31, 2016 to approximately $1.3 million in the year ended December 31, 2017. Financial expenses in 2017 included $0.4 million due to the revaluation of contingent consideration for the purchase of shares.Information—Legal Proceedings”.
B. Liquidity and Capital Resources
Our primary uses of cash are to fund working capital requirements, manufacturing costs, research and development expenses of NexoBridEscharEx and EscharEx andother products candidates, as well as 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 is currently valued at up to $132 million, for the advancement of the development and manufacturing, as well as the procurement, of NexoBrid in the United States. In addition, we were recently awarded a new contract to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of BARDA 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 Contract.” Since we expect a significant portion of the funding for our NexoBrid development plan will be funded by BARDA, we intend to use a portion of our proceeds raised during our IPO initially intended for the development of NexoBrid to further advance the development of EscharEx. Furthermore, on March 7, 2016, the SEC declared our shelf registration statement on Form F‑3 effective. Under this shelf registration statement, we could 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. In September 2017, we
We completed an underwritten publicfollow-on offering ofin September 2017, whereby we issued and sold 5,037,664 ordinary shares and received net proceeds of approximately $22.7 million after(after deducting the underwriting discount and offering expenses payable by us.us), pursuant to our previous shelf registration statement on Form F‑3. We currently intendwill continue to use the net proceeds from the sale of securities offered by us pursuant to our registration statement on Form F‑3that 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. In February 2020, we entered into an Open Market Sales Agreement with Jefferies LLC to issue and sell our ordinary shares with gross sales proceeds of up to $15 million, from time to time, through an at the market offering under which Jefferies LLC will act as our sales agent. As of the date hereof, we have not issued or sold any ordinary shares pursuant to the Open Market Sales Agreement.
The table below summarizes our sources of financing for the periods presented.
| | Issuance of Ordinary Shares and Warrants | | | Government Grants and BARDA Funding, net | | | Total | |
| | (in thousands) | |
Year ended December 31, 2018 | | $ | - | | | $ | 13,784 | | | $ | 13,784 | |
Year ended December 31, 2017 | | $ | 22,665 | | | $ | 8,895 | | | $ | 31,560 | |
Year ended December 31, 2016 | | $ | 7 | | | $ | 6,466 | | | $ | 6,473 | |
Our sources of financing in the year ended December 31, 2018 totaled $13.3 million and consisted primarily of fundingFunding under the BARDA contract totaling $13.2 million and the IIA government grants, net of repayments totaling $0.1 million.
contracts is classified under cash use for continuing operating activities.
Our sources of financing in the year ended December 31, 2017 totaled $31.6 million and consisted primarily of the underwritten public offering proceeds of $22.7 million, IIA government grants totaling $0.3 million and funding under the BARDA contract totaling $8.6 million.
Our sources of financing in the year ended December 31, 2016 totaled $6.5 million and consisted primarily of IIA government grants totaling $0.9 million and funding under the BARDA contract totaling $5.6 million.
As of December 31, 2018,2021, we had $23.6$11.0 million of cash, cash equivalents and short-term deposits. Our net operating losses were $20.2 million. $13.7loss was $8.8 million and $4.0$11.2 million for the years ended December 31, 2016, 2017,2020 and 20182021, respectively. As of December 31, 2018,2021, we had an accumulated deficit of $130.7$148.5 million. We expect to continue 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 2016, 2017,2020 and 20182021 amounted to $0.7 million, $1.0$0.9 million and $0.5 million, respectively. Capital expenditures consist primarily of investments in manufacturing equipment and laboratory equipment.leasehold improvements.
In March 2022, we entered into an underwriting agreement with Oppenheimer & Co., Inc., a representative of the several underwriters (the “Underwriters”), relating to the issuance and sale of an aggregate of 5,208,333 of our ordinary shares at a price per share equal to $1.92. Total gross proceeds of the offering was approximately $10.0 million. The offering closed on March 7, 2022 and we received approximately $8.7 million in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Certain entities affiliated with CBI purchased approximately $2.8 million of ordinary shares in the offering at the public offering price. The Underwriters received the same underwriting discount on the shares purchased by these entities as they will on any other shares sold to the public in this offering. The securities purchased by these entities are subject to lock-up agreements with the Underwriters. We also granted the underwriters a 30-day option to purchase up to an additional 781,249 ordinary shares at the public offering price, less underwriting discounts and commissions.
Our future capital requirements will depend on many factors, including our revenue growth, timing of milestone payments, the timing and extent of our spending on research and development efforts, and international expansion. We may also seek to invest in or acquire complementary businesses or technologies. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funding through debt and equity financing. Additional funds may not be available on favorable terms or at all. We believe our existing cash, cash equivalents and short‑term bank deposits will be sufficient to satisfy our liquidity requirements for at least the next 1224 months.
Cash FlowsResearch and Development Expenses
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later‑stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as EscharEx progresses in its clinical program in the U.S. and our other pipeline product candidates' progress in clinical trials. However, we do not believe that it is possible at this time to accurately project total program‑specific expenses to reach commercialization. There are numerous factors associated with the successful development of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans. Our actual spending could differ as our plans change and we invest in other drugs or potentially reduce our anticipated funding on research for existing products.
Research and development expenses consist primarily of compensation for employees engaged in research and development activities, including salaries, equity‑based compensation, benefits and related expenses, clinical trials, contract research organization sub‑contractors, development materials, external advisors and the allotted cost of our manufacturing facility for research and development purposes.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of compensation expenses for personnel engaged in sales and marketing, including salaries, equity based‑compensation and benefits and related expenses, as well as promotion, marketing, market access, medical, and sales and distribution activities. These expenses also include costs related to our subsidiary in Germany, which is focused primarily on marketing NexoBrid, and cost related to maintain marketing authorization.
General and Administrative Expenses
General and administrative expenses consist principally of compensation for employees in executive and administrative functions, including salaries, equity‑based compensation, benefits and other related expenses, professional consulting services, including legal and audit fees, as well as costs of office and overhead. We expect general and administrative expenses to remain stable.
Financial Income/Financial Expense
Financial income includes interest income, revaluation of financial instruments and exchange rate differences. Financial expense consists primarily of revaluation of financial instruments, financial expenses in respect of deferred revenue, revaluation of lease liabilities and exchange rate differences. The market interest due on government grants received from the IIA is also considered a financial expense, and is recognized beginning on the date we receive the grant until the date on which the grant is expected to be repaid as part of the revaluation to fair value of liabilities in respect of government grants.
Discontinued Operation
Following the expiration of our PolyHeal license in 2013, 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 following table summarizes our consolidated statement of cash flows for the periods presented:standard corporate tax rate in Israel is 23%.
| | Year Ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | (in thousands) | |
Net cash provided by (used in): | | | | | | | | | |
Continuing operating activities | | $ | (16,445 | ) | | $ | (14,892 | ) | | $ | (12,154 | ) |
Continuing investing activities | | | 1,816 | | | | 437 | | | | (17,040 | ) |
Continuing financing activities | | | 907 | | | | 22,995 | | | | 46 | |
Discontinued operating activities | | | — | | | | (1,563 | ) | | | - | |
We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $148 million as of December 31, 2021. 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.
Net cash used in continuing operating activities
The useComparison of cash in all periods resulted primarily from our net losses adjusted for non‑cash charges and measurements and changes in componentsPeriod to Period Results of working capital. Adjustments to net income for non‑cash items include depreciation and amortization, equity‑based compensation, revaluation of contingent liabilities and changes in assets and liabilities items.Operations
Net cash usedWe are providing within this section a supplemental discussion that compares our historical statement of operations data in continuing operating activitiesaccordance with IFRS, as issued by the IASB. The below table and the below discussion provides data for each of the years ended December 31, 2020 and 2021. The below discussion of our results of operations omits a comparison of our results for the years ended December 31, 2019 and 2020. 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, 2019 Compared to Year Ended December 31, 2020” in our Annual Report on Form 20-F for the year ended December 31, 2020, which we filed with the SEC on February 25, 2021.
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
condensed statements of operations data: | | | | | | | | |
Revenues | | $ | 21,763 | | | $ | 23,763 | |
Cost of revenues | | | 14,218 | | | | 14,992 | |
Gross profit | | | 7,545 | | | | 8,771 | |
Operating expenses: | | | | | | | | |
Research and development | | | 7,698 | | | | 10,256 | |
Selling and marketing | | | 3,228 | | | | 3,388 | |
General and administrative | | | 5,459 | | | | 6,348 | |
Operating loss | | | (8,840 | ) | | | (11,221 | ) |
Financial expenses, net | | | (436 | ) | | | (2,303 | ) |
Loss from continuing operations | | | (9,276 | ) | | | (13,524 | ) |
Profit from discontinued operation | | | 80 | | | | - | |
Tax expenses | | | - | | | | (27 | ) |
Net loss | | $ | (9,196 | ) | | $ | (13,551 | ) |
Year Ended December 31, 2020 Compared to Year Ended December 31, 2021
Revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
| | | |
Revenues from sale of products | | $ | 7,445 | | | $ | 9,613 | |
Revenues from development services | | | 13,935 | | | | 12,372 | |
Revenues from license agreements | | | 383 | | | | 1,778 | |
| | | 21,763 | | | | 23,763 | |
We generated total revenues of approximately $23.8 million for the year ended December 31, 2021 compared to approximately $21.8 million for the year ended December 31, 2020. The increase in total revenues was a result of an increase in sale of products of $2.1 mainly derived from BARDA emergency stockpile procurement of $1.6 million and an increase in license sales of $1.4 million, partially offset by a decrease in development services to BARDA of $1.6 million.
Revenues from sale of products
Revenues from sales of products in 2021 increased $2.2 million, or 29%, in comparison to 2020, primarily as a result of BARDA’s procurement of NexoBrid for emergency stockpile of approximately $5.5 million net in 2021, versus approximately $3.8 million net during 2020. Revenues from BARDA’s procurement were recognized net of Vericel’s share pursuant to gross profit split.
Revenues from development services
Revenues from development services decreased 11% from $13.9 million in 2020 to $12.4 million in 2021, as a result of completion of NexoBrid clinical studies.
Revenues from license agreement
In 2021, we recognized $1.8 million, of license revenues, driven by new distribution agreements and achieving certain milestones with current distributors agreements, compared to $0.4 million in 2020.
Our revenues, as reported in our consolidated financial statements, are based on the location of the customers, as shown in the below table:
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
International (excluding U.S.) | | $ | 3,733 | | | $ | 5,649 | |
U.S. | | | 18,030 | | | | 18,069 | |
| | | 21,763 | | | | 23,718 | |
BARDA contributed 83% and 76% of our total revenues in 2020 and 2021, respectively.
Costs and Expenses
Cost of revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Cost of revenues from sales of products | | $ | 3,151 | | | $ | 4,983 | |
Cost of revenues from development services | | | 11,067 | | | | 9,907 | |
Cost of revenues from license agreements | | | - | | | | 102 | |
| | | 14,218 | | | | 14,992 | |
Cost of revenues as a percentage of total revenues decreased from 65% for 2020 to 63% for 2021.
Cost of revenues from sales of products as a percentage of revenues from sales of products increased to approximately 52% for the year ended December 31, 2021 from approximately 42% in the year ended December 31, 2020. The increase of cost of revenues from sales of product is primarily driven by BARDA procurement for emergency response preparedness.
Cost of revenues from development services as a percentage of revenues from development services was approximately $14.980% in the year ended December 31, 2021 compared to approximately 79% in the year ended December 31, 2020.
Cost of revenues from license agreements as a percentage of revenues from license agreements were 6% in the year ended December 31, 2021, due to costs associated with the support of our distributors to achieve their marketing authorizations.
Research and development expenses,
Research and development expenses, increased by 34% from approximately $7.7 million in the year ended December 31, 2017 compared2020 to approximately $12.2$10.3 million in the year ended December 31, 2018.2021. The decreaseincrease was attributed primarily related to the decrease in operating loss as a result of BARDA support and a decrease in change of working capital assets, net.EscharEx clinical development program.
Net cash usedSelling and marketing expenses
Selling and marketing expenses increased by 6% in continuing operating activities was2021 compared to 2020, from approximately $16.4$3.2 million in the year ended December 31, 2016 compared2020 to approximately $14.9$3.4 million in the year ended December 31, 2017. The decrease was attributed primarily to the decrease in operating loss, which was partially offset by an increase in change of working capital assets, net.2021.
Net cash used in discontinued operating activitiesGeneral and administrative expenses
Net cash usedGeneral and administrative expenses increased 15% in discontinued operating activities was2021 compared to 2020 from approximately $1.6$5.5 million in the year ended December 31, 2017, attributed2020 to approximately $6.3 million in the year ended December 31, 2021. The increase in general and administrative expenses was primarily due to rent and maintenance allocation and legal consultation.
Financial income, net | | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Financial income | | $ | 843 | | | $ | 11 | |
Financial expenses | | | (1,279 | ) | | | (2,314 | ) |
| | | (436 | ) | | | (2,303 | ) |
Financial income
Financial income decreased from $0.8 million in the consideration paidyear ended December 31, 2020 to PolyHeal’s shareholders following$0 million in the district court ruling.year ended December 31, 2021. The decrease was primarily driven by the Teva contingent liability revaluation and interest on deposits.
Financial expense
Financial expense increased from approximately $1.3 million in the year ended December 31, 2020 to approximately $2.3 million in the year ended December 31, 2021. The increase in financial expenses in 2021 was primarily driven by the Teva contingent liability revaluation, described below under “Application of Critical Accounting Policies and Estimates - Contingent Consideration for Purchase of Shares”, the Israeli innovation authority grant interest, currency exchange fluctuations and lease revaluations.
Profit from Discontinued operations
Profit from discontinued operations was $0 million for the year ended December 31, 2021 compared with $0.1 million for the year ended December 31, 2020. The profit from discontinued operations in 2020 was as a result of the Polyheal settlement of the litigation with certain PolyHeal Ltd.'s ("PolyHeal") shareholders. See “ITEM 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings” and “ITEM 3.D. Risk Factors—We may have continuing obligations or liabilities under our former agreements with Teva Pharmaceutical Industries Ltd. and PolyHeal Ltd..
Net cash provided by (used in) continuing investing activities
The use of cash in continuing investing activities has historically been primarily related to investments in short‑term banks depositsB. Liquidity and purchases of property and equipment. Net cash provided by investing activities was $0.4 million during the year ended December 31, 2017 compared to cash used by investing activities of $17.0 million during the year ended December 31, 2018. The decrease was attributable primarily to $16.6 million investment in short-term bank deposits and a decrease in purchase of property and equipment.
Net cash provided by investing activities was $1.8 million during the year ended December 31, 2016 compared to cash provided by investing activities of $0.4 million during the year ended December 31, 2017. The decrease was attributable primarily to decrease of proceeds from short-term bank deposits and an increase in purchase of property and equipment.
Net cash provided by continuing financing activities
Net cash provided by continuing financing activities was $23.0 million during the year ended December 31, 2017 compared to $0 million during the year ended December 31, 2018. The decrease was attributed primarily to our receipt of $22.7 million net proceeds from our underwritten public offering in 2017.
Net cash provided by continuing financing activities was $0.9 million during the year ended December 31, 2016 compared to $23.0 million during the year ended December 31, 2017. The increase was attributed primarily to our receipt of $22.7 million net proceeds from our underwritten public offering in 2017.
Application of Critical Accounting Policies and EstimatesCapital Resources
Our accounting policiesprimary uses of cash are to fund working capital requirements, manufacturing costs, research and their effect on our financial conditiondevelopment expenses of EscharEx 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,other products candidates, as well as sales and marketing activities associated with 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 discussioncommercialization of the possible risks which may affect these estimates.
While our significant accounting policies are more fully describedNexoBrid 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 RecognitionEurope.
We currently generate revenues from directcompleted an underwritten follow-on offering in September 2017, whereby we issued and indirect salessold 5,037,664 ordinary shares and received net proceeds of NexoBridapproximately $22.7 million (after deducting the underwriting discount and offering expenses payable by us), pursuant to burn centers and hospital burn units in Europe and Israel as well asour previous shelf registration statement on Form F‑3. We will continue to local distributors in other countries. Revenues are recognized touse 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.
Revenuesproceeds from the sale of products are recognized when allsecurities offered by us pursuant to that follow-on offering to fund our research and development activities, primarily the significant risksclinical development of EscharEx, and rewardsthe remainder, if any, for working capital and other general corporate purposes. The timing and amount of ownershipour 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. In February 2020, we entered into an Open Market Sales Agreement with Jefferies LLC to issue and sell our ordinary shares with gross sales proceeds of up to $15 million, from time to time, through an at the market offering under which Jefferies LLC will act as our sales agent. As of the productsdate hereof, we have passednot issued or sold any ordinary shares pursuant 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 to the buyer.Open Market Sales Agreement.
Revenues from distributor’s agreements which are comprised of multiple elements and 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 servicesFunding under the contract.BARDA contracts is classified under cash use for continuing operating activities.
Deferred revenues include unearned amounts receivedAs of December 31, 2021, we had $11.0 million of cash, cash equivalents and short-term deposits. Our net operating loss was $8.8 million and $11.2 million for the years ended December 31, 2020 and 2021, respectively. As of December 31, 2021, we had an accumulated deficit of $148.5 million. We expect to incur significant expenses and operating losses for the foreseeable future. The net losses we will incur may fluctuate from customers not yet recognized as revenues.quarter to quarter.
Our capital expenditures for fiscal years 2020 and 2021 amounted to $0.9 million and $0.5 million, respectively. Capital expenditures consist primarily of investments in manufacturing equipment and leasehold improvements.
In May 2014, IFRS 15, “Revenue from ContractsMarch 2022, we entered into an underwriting agreement with Customers” (“Oppenheimer & Co., Inc., a representative of the new Standard”several underwriters (the “Underwriters”), relating to the issuance and sale of an aggregate of 5,208,333 of our ordinary shares at a price per share equal to $1.92. Total gross proceeds of the offering was issuedapproximately $10.0 million. The offering closed on March 7, 2022 and we received approximately $8.7 million in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Certain entities affiliated with CBI purchased approximately $2.8 million of ordinary shares in the offering at the public offering price. The Underwriters received the same underwriting discount on the shares purchased by these entities as they will on any other shares sold to the IASB.public in this offering. The new Standard introducessecurities purchased by these entities are subject to lock-up agreements with the Underwriters. We also granted the underwriters a five-step model that will apply30-day option to revenue earned from contracts with customerspurchase up to an additional 781,249 ordinary shares at the public offering price, less underwriting discounts and is effective for the Company beginning January 1, 2018.commissions.
The new Standard allows77
Our future capital requirements will depend on many factors, including our revenue growth, timing of milestone payments, the optiontiming and extent of modified retrospective adoption. Under this option,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 Company is requiredextent that existing cash and cash from operations are insufficient to recognizefund 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 cumulative effect of the initial adoption of the new Standard as an adjustment to the opening balance of retained earnings as of the date of initial application. According to the new Standard, when long-term advances (exceeding one year) are received for a future service, the Company is required to accrue interest and recognize finance expense on the advances over the period of the contract.next 24 months.
We adopted this 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 thousands and increase of accumulated deficit by $249 thousands.
Research and Development Expenses
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later‑stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as EscharEx progresses in its clinical program in the U.S. and our other pipeline product candidates' progress in clinical trials. However, we do not believe that it is possible at this time to accurately project total program‑specific expenses to reach commercialization. There are numerous factors associated with the successful development of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans. Our actual spending could differ as our plans change and we invest in other drugs or potentially reduce our anticipated funding on research for existing products.
Research and development expenses consist primarily of compensation for employees engaged in research and development activities, including salaries, equity‑based compensation, benefits and related expenses, clinical trials, contract research organization sub‑contractors, development materials, external advisors and the allotted cost of our manufacturing facility for research and development purposes.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of compensation expenses for personnel engaged in sales and marketing, including salaries, equity based‑compensation and benefits and related expenses, as well as promotion, marketing, market access, medical, and sales and distribution activities. These expenses also include costs related to our subsidiary in Germany, which is focused primarily on marketing NexoBrid, and cost related to maintain marketing authorization.
General and Administrative Expenses
General and administrative expenses consist principally of compensation for employees in executive and administrative functions, including salaries, equity‑based compensation, benefits and other related expenses, professional consulting services, including legal and audit fees, as well as costs of office and overhead. We expect general and administrative expenses to remain stable.
Financial Income/Financial Expense
Financial income includes interest income, revaluation of financial instruments and exchange rate differences. Financial expense consists primarily of revaluation of financial instruments, financial expenses in respect of deferred revenue, revaluation of lease liabilities and exchange rate differences. The market interest due on government grants received from the IIA is also considered a financial expense, and is recognized beginning on the date we receive the grant until the date on which the grant is expected to be repaid as part of the revaluation to fair value of liabilities in respect of government grants.
Discontinued Operation
Following the expiration of our PolyHeal license in 2013, 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 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 $148 million as of December 31, 2021. 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, 2020 and 2021. The below discussion of our results of operations omits a comparison of our results for the years ended December 31, 2019 and 2020. 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, 2019 Compared to Year Ended December 31, 2020” in our Annual Report on Form 20-F for the year ended December 31, 2020, which we filed with the SEC on February 25, 2021.
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
condensed statements of operations data: | | | | | | | | |
Revenues | | $ | 21,763 | | | $ | 23,763 | |
Cost of revenues | | | 14,218 | | | | 14,992 | |
Gross profit | | | 7,545 | | | | 8,771 | |
Operating expenses: | | | | | | | | |
Research and development | | | 7,698 | | | | 10,256 | |
Selling and marketing | | | 3,228 | | | | 3,388 | |
General and administrative | | | 5,459 | | | | 6,348 | |
Operating loss | | | (8,840 | ) | | | (11,221 | ) |
Financial expenses, net | | | (436 | ) | | | (2,303 | ) |
Loss from continuing operations | | | (9,276 | ) | | | (13,524 | ) |
Profit from discontinued operation | | | 80 | | | | - | |
Tax expenses | | | - | | | | (27 | ) |
Net loss | | $ | (9,196 | ) | | $ | (13,551 | ) |
Year Ended December 31, 2020 Compared to Year Ended December 31, 2021
Revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
| | | |
Revenues from sale of products | | $ | 7,445 | | | $ | 9,613 | |
Revenues from development services | | | 13,935 | | | | 12,372 | |
Revenues from license agreements | | | 383 | | | | 1,778 | |
| | | 21,763 | | | | 23,763 | |
We generated total revenues of approximately $23.8 million for the year ended December 31, 2021 compared to approximately $21.8 million for the year ended December 31, 2020. The increase in total revenues was a result of an increase in sale of products of $2.1 mainly derived from BARDA emergency stockpile procurement of $1.6 million and an increase in license sales of $1.4 million, partially offset by a decrease in development services to BARDA of $1.6 million.
Revenues from sale of products
Revenues from sales of products in 2021 increased $2.2 million, or 29%, in comparison to 2020, primarily as a result of BARDA’s procurement of NexoBrid for emergency stockpile of approximately $5.5 million net in 2021, versus approximately $3.8 million net during 2020. Revenues from BARDA’s procurement were recognized net of Vericel’s share pursuant to gross profit split.
Revenues from development services
Revenues from development services decreased 11% from $13.9 million in 2020 to $12.4 million in 2021, as a result of completion of NexoBrid clinical studies.
Revenues from license agreement
In 2021, we recognized $1.8 million, of license revenues, driven by new distribution agreements and achieving certain milestones with current distributors agreements, compared to $0.4 million in 2020.
Our revenues, as reported in our consolidated financial statements, are based on the location of the customers, as shown in the below table:
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
International (excluding U.S.) | | $ | 3,733 | | | $ | 5,649 | |
U.S. | | | 18,030 | | | | 18,069 | |
| | | 21,763 | | | | 23,718 | |
BARDA contributed 83% and 76% of our total revenues in 2020 and 2021, respectively.
Costs and Expenses
Cost of revenues
| | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Cost of revenues from sales of products | | $ | 3,151 | | | $ | 4,983 | |
Cost of revenues from development services | | | 11,067 | | | | 9,907 | |
Cost of revenues from license agreements | | | - | | | | 102 | |
| | | 14,218 | | | | 14,992 | |
Cost of revenues as a percentage of total revenues decreased from 65% for 2020 to 63% for 2021.
Cost of revenues from sales of products as a percentage of revenues from sales of products increased to approximately 52% for the year ended December 31, 2021 from approximately 42% in the year ended December 31, 2020. The increase of cost of revenues from sales of product is primarily driven by BARDA procurement for emergency response preparedness.
Cost of revenues from development services as a percentage of revenues from development services was approximately 80% in the year ended December 31, 2021 compared to approximately 79% in the year ended December 31, 2020.
Cost of revenues from license agreements as a percentage of revenues from license agreements were 6% in the year ended December 31, 2021, due to costs associated with the support of our distributors to achieve their marketing authorizations.
Research and development expenses,
Research and development expenses, when incurred. Costs incurredincreased by 34% from approximately $7.7 million in the year ended December 31, 2020 to approximately $10.3 million in the year ended December 31, 2021. The increase was primarily related to EscharEx clinical development program.
Selling and marketing expenses
Selling and marketing expenses increased by 6% in 2021 compared to 2020, from approximately $3.2 million in the year ended December 31, 2020 to approximately $3.4 million in the year ended December 31, 2021.
General and administrative expenses
General and administrative expenses increased 15% in 2021 compared to 2020 from approximately $5.5 million in the year ended December 31, 2020 to approximately $6.3 million in the year ended December 31, 2021. The increase in general and administrative expenses was primarily due to rent and maintenance allocation and legal consultation.
Financial income, net | | Years Ended December 31, | |
| | 2020 | | | 2021 | |
| | (in thousands) | |
Financial income | | $ | 843 | | | $ | 11 | |
Financial expenses | | | (1,279 | ) | | | (2,314 | ) |
| | | (436 | ) | | | (2,303 | ) |
Financial income
Financial income decreased from $0.8 million in the year ended December 31, 2020 to $0 million in the year ended December 31, 2021. The decrease was primarily driven by the Teva contingent liability revaluation and interest on deposits.
Financial expense
Financial expense increased from approximately $1.3 million in the year ended December 31, 2020 to approximately $2.3 million in the year ended December 31, 2021. The increase in financial expenses in 2021 was primarily driven by the Teva contingent liability revaluation, described below under “Application of Critical Accounting Policies and Estimates - Contingent Consideration for Purchase of Shares”, the Israeli innovation authority grant interest, currency exchange fluctuations and lease revaluations.
Profit from Discontinued operations
Profit from discontinued operations was $0 million for the year ended December 31, 2021 compared with $0.1 million for the year ended December 31, 2020. The profit from discontinued operations in 2020 was as a result of the Polyheal settlement of the litigation with certain PolyHeal Ltd.'s ("PolyHeal") shareholders. See “ITEM 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings”.
B. Liquidity and Capital Resources
Our primary uses of cash are to fund working capital requirements, manufacturing costs, research and development projects are recognizedexpenses of EscharEx and other products candidates, as intangible assetswell as sales and marketing activities associated with the commercialization of NexoBrid in Europe.
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. In February 2020, we entered into an Open Market Sales Agreement with Jefferies LLC to issue and sell our ordinary shares with gross sales proceeds of up to $15 million, from time to time, through an at the market offering under which Jefferies LLC will act as our sales agent. As of the date hereof, we have not issued or sold any ordinary shares pursuant to the Open Market Sales Agreement.
Funding under the BARDA contracts is classified under cash use for continuing operating activities.
As of December 31, 2021, we had $11.0 million of cash, cash equivalents and short-term deposits. Our net operating loss was $8.8 million and $11.2 million for the years ended December 31, 2020 and 2021, respectively. As of December 31, 2021, we had an accumulated deficit of $148.5 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 2020 and 2021 amounted to $0.9 million and $0.5 million, respectively. Capital expenditures consist primarily of investments in manufacturing equipment and leasehold improvements.
In March 2022, we entered into an underwriting agreement with Oppenheimer & Co., Inc., a representative of the several underwriters (the “Underwriters”), relating to the issuance and sale of an aggregate of 5,208,333 of our ordinary shares at a price per share equal to $1.92. Total gross proceeds of the offering was approximately $10.0 million. The offering closed on March 7, 2022 and we received approximately $8.7 million in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Certain entities affiliated with CBI purchased approximately $2.8 million of ordinary shares in the offering at the public offering price. The Underwriters received the same underwriting discount on the shares purchased by these entities as they will on any other shares sold to the public in this offering. The securities purchased by these entities are subject to lock-up agreements with the Underwriters. We also granted the underwriters a 30-day option to purchase up to an additional 781,249 ordinary shares at the public offering price, less underwriting discounts and commissions.
Our future capital requirements will depend on many factors, including our revenue growth, timing of milestone payments, the timing and extent of our spending on research and development efforts, and international expansion. We may also seek to invest in or acquire complementary businesses or technologies. To the extent that existing cash and cash from operations are insufficient to fund our future activities, we may need to raise additional funding through debt and equity financing. Additional funds may not be available on favorable terms or at all. We believe our existing cash, cash equivalents and short‑term bank deposits will be sufficient to satisfy our liquidity requirements for at least the next 24 months.
Cash Flows
The following table summarizes our consolidated statement of cash flows for the periods presented. The below discussion beneath the table omits a description of our cash flows for the year ended December 31, 2019. 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, 2020, which it can be established that it is probable that future economic benefitswe filed with the SEC on February 25, 2021:
| | Year Ended December 31, | |
| | 2020 | | | 2021 | |
| | | | | | |
Net cash provided by (used in): | | | | | | |
Continuing operating activities | | $ | (6,700 | ) | | $ | (8,916 | ) |
Continuing investing activities | | | 17,385 | | | | 3,548 | |
Continuing financing activities | | | (629 | ) | | | (1,050 | ) |
Discontinued operating activities | | | (195 | ) | | | - | |
Net cash used in continuing operating activities
Net cash used in all periods resulted primarily from our net loss adjusted for non‑cash charges and measurements and changes in components of working capital. Adjustments for non‑cash items include depreciation and amortization, equity‑based compensation, revaluation of contingent liabilities and lease liability, and changes in assets and liabilities items.
Net cash used in continuing operating activities increased to approximately $8.9 million in the year ended December 31, 2021 compared to net cash used by continuing operating activities of approximately $6.7 million in the year ended December 31, 2020, primarily as a result of the operational net loss, partially offset by various non-cash items such as depreciation, shared based compensation and revaluation of contingent consideration for the purchase of shares.
Net cash used in discontinued operating activities
Net cash used in discontinued operating activities was $0 million in the year ended December 31, 2021, compared to approximately $0.2 million in the year ended December 31, 2020. The cash used in 2020 was primarily attributable to the asset will flowconsideration 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 provided by continuing investing activities
Net cash provided by continuing investing activities primarily resulted from proceeds of investments in short‑term banks deposits offset by purchases of property and equipment. Net cash provided by investing activities was $3.5 million in the year ended December 31, 2021, compared to $17.4 million provided during the year ended December 31, 2020.
Net cash used in continuing financing activities
Net cash provided by continuing financing activities primarily resulted from payments of lease liabilities and repayment to IIA. Net cash used in continuing financing activities was $1.1 million during the year ended December 31, 2021 compared to $0.6 million during the year ended December 31, 2020.
Israeli Corporate-Level Tax Considerations and Government Programs
The following is a brief summary of the material Israeli tax laws applicable to us, consideringand certain Israeli Government programs that benefit us and therefore impact our results of operations and financial condition. To the extent that the discussion is based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
General Corporate Tax Structure in Israel
Generally, Israeli companies are subject to a corporate tax on their taxable income. Effective January 1, 2018 and thereafter, the corporate tax rate is 23%. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Beneficiary Enterprise, a Preferred Enterprise or Technology Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing regular corporate tax rate.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969 (the “Industry Encouragement Law”), provides several tax benefits for “Industrial Companies.”
The Industry Encouragement Law defines an “Industrial Company” as an Israeli resident-company which was incorporated in Israel, of which 90% or more of its commercial feasibility. Thisincome in any tax year, other than income from certain government loans, is generally the case when regulatory approval for commercializationderived from an “Industrial Enterprise” owned by it and located in Israel. An “Industrial Enterprise” is achieved and costs can be measured reliably. Given the current stagedefined 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 of our products, no development expenditures have yet been capitalized. Intellectual property‑related costs for patents are partor advancement of the expenditure forIndustrial Enterprise, over an eight-year period, commencing on 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.year in which such rights were first exercised;
Equity‑Based Compensationunder 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 accountbelieve that we currently qualify as an Industrial Company within the meaning of the Industry Encouragement Law. However, there can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future.
Law for our equity‑based compensationthe Encouragement of Capital Investments, 5719-1959
The Investment Law provides certain incentives for employeescapital 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 IFRS 2 “Share‑based Payment,”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 requires uswe were eligible under the Investment Law.
The following is a summary of the Investment Law subsequent to measureits amendments as well as the costrelevant 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 equity‑based compensation basedapproval 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 fairdate 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 awardcompany’s production assets before the expansion.
The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Beneficiary Enterprise depends on, among other things, the geographic location in Israel of the Beneficiary Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the grant date.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).
The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things, that: unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011, a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met.
We have examined the possible effect, if any, of these provisions of the 2011 Amendment on our financial statements and have decided, at this time, not to opt to apply the new benefits under the 2011 Amendment. There can be no assurance that we will comply with the conditions required to remain eligible for benefits under the Investment Law in the future or that we will be entitled to any additional benefits thereunder.
We have selectedNew Tax benefits under 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 based2017 Amendment that became effective on the department to which the related employee reports.January 1, 2017.
The determination2017 Amendment was enacted as part of the grant date fair valueEconomic Efficiency Law that was published on December 29, 2016, and is effective as of options using an option pricing modelJanuary 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology Enterprises,” as described below, and is affected by estimates and assumptions regarding a number of complex and subjective variables. These variables includein addition to the expected volatility of our share price overother existing tax beneficial programs under the expected term of the options, share option exercise and cancellation behaviors, risk‑free interest rates and expected dividends, which are estimated as follows:Investment Law.
| · | 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.
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| · | Volatility. The expected share price volatility was based on the historical equity volatility of the ordinary shares of comparable companies that are publicly traded.
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| · | 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.
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| · | Risk‑freeThe 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. 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.
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| · | 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 used an expected dividend yield of zero.
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If any of the assumptions used12% on income that qualifies as “Preferred Technology Income,” as defined in the option pricing models change significantly, equity‑based compensationInvestment Law. The tax rate is further reduced to 7.5% for future awards may differ materially compared witha 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 awards granted previously.
Government Grantssale 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 AuthorityAuthority.
Research and development grants received from the IIA are recognized upon receiptThe 2017 Amendment further provides that a technology company satisfying certain conditions will qualify as a liability if future economic benefits are expected from the project that“Special Preferred Technology Enterprise” and will result in royalty‑bearing sales. The amountthereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless of the liability for the loan is first measured at fair value usingcompany’s geographic location within Israel. In addition, a discount rate that reflectsSpecial Preferred Technology Enterprise will enjoy a marketreduced corporate tax rate of interest that reflects the appropriate degree of risks inherent in our business. We used a discount rate of 12% based in part6% 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 are recorded as a reduction from our research and development expenses.
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 revenuesgain derived from the sale or license of NexoBrid resulting in royalty payments upcertain “Benefitted Intangible Assets” to a total amountrelated 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 $30.6 million andPreferred 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 sale or license of the PolyHeal Product resulting in royalty payments upIsraeli 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 total amount of $10.8 million. We account for this obligation asforeign company and other conditions are met, the withholding tax rate will be 4% (or a liability on our balance sheet in an amount equallower under the tax treaty, if applicable, subject to the fair valuereceipt in advance 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 amountsa valid certificate from the sale or license of the PolyHeal Product since the license to the PolyHeal Product has expired. The resulting liability as of the exercise date was estimated at approximately $19.2 million. The contingent consideration was revalued as of December 31, 2017 and 2018 to be approximately $14.4 million and $14.5 million, respectively, and we recorded financial expenses of $0.4 million and $0.8 million in 2017 and 2018 respectively.Israeli Tax Authority allowing for a reduced tax rate).
Pursuant to the terms of the Teva Settlement Agreement signed in March 2019, Teva has agreed to reduce the contingent consideration that is payable to Teva pursuant to the our repurchase of our shares from Teva in 2013, so that we will be obligated to pay Teva annual future royalty payments of 15% of our revenues from the sale or license of NexoBrid starting from January 1, 2019, up to a total amount of $10.2 million and to pay us $4.0 million in cash.
Pursuant to a Settlement Agreement with Teva, the fair value of the revised future royalty obligation to Teva was estimated at $ 6.3 million as of December 31, 2018 using a discounted cash flow model based on sales projections. In addition, a one-time net income of $7,537 was recorded as other income and a one-time income of $4,608 was recorded within the profit from discontinued operation in the fourth quarter and full year ending December 31, 2018.
Impairment of Non‑Financial Assets
The intangible assets are reviewed for impairment at each reporting date until they begin generating net cash inflows and subsequently whenever there is an indication that the asset may be impaired. 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.
C. Research and Development, Patents and Licenses, etc.
Our research and development strategy is centered on developing our patented proteolytic enzyme technology, which underlies NexoBrid and EscharEx, into additional products for high‑value indications. Our research and development team is located at our facilities in Yavne, Israel, and consists of 2425 employees as of December 31, 20182021 and is supported by highly experienced consultants in various research and development disciplines.
We have received government grants (subject to payment ofour obligation to pay royalties) as part of the NexoBrid and EscharEx research and development programs approved by the IIA (in 2017 and 2018 only for EscharEx).IIA. The total gross amount of grants actually received by us from the IIA, including accrued LIBOR interest and net of royalties actually paid, totaled approximately $13.8 million as of December 31, 2018, totaled approximately $13.7 million2021 and the amortized cost (using the interest method) of the liability totaled approximately $7.4$7.3 million and $7.7$8.1 million as of December 31, 20172020 and 2018,2021, respectively. Because the repayment of IIA grants is in the form of future royalties, the balance of the commitments to the IIA is presented as an amortized liability on our balance sheet. As of December 31, 2018,2021, we had accrued and paid royalties to the IIA totaling $0.3$1.3 million.
We received funds from BARDA in accordance with the terms of our BARDA contract.contracts. As of December 31, 20182021 we had accrued $28.2 million.$70 million of BARDA’s participation in NexoBrid’s research and development programs.
For a description of our research and development policies for the last three years, see “ITEM 4.B. Business Overview—Research and Development.”
D. Trend Information
The COVID-19 pandemic has impacted companies in Israel and around the world, and as its trajectory remains highly uncertain, we cannot predict the duration and severity of the outbreak, its containment measures or the nature, timing and strength of recovery from it. Further, we cannot predict impacts, trends and uncertainties involving the pandemic’s effects on economic activity, the size of our labor force, our third-party partners, our investments in marketable securities, and the extent to which our revenue, income, profitability, liquidity, or capital resources may be materially and adversely affected prospectively. See also “ITEM 3.D. – Risk Factors – “The coronavirus (COVID-19) outbreak could adversely impact our business, financial condition and results of operations.” and – “We depend on a sole supplier to obtain our intermediate drug substance, bromelain SP, which is necessary for the production of our products.”
Other than the foregoing and as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 20182021 to December 31, 2018the present time that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that causedwould cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. 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.
F. Contractual ObligationsCritical Accounting Estimates
Our significant contractual obligationsconsolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. The preparation of these historical financial statements in conformity with IFRS requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of December 31, 2018the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are summarizednot readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates are described in the following table:Notes 2 and 3 to our consolidated financial statements included elsewhere in this annual report.
| | Payments Due by Period | |
| | Total | | | 2019 | | | 2020 | | | 2021 and thereafter | |
| | (in thousands) | |
Operating lease obligations(1) | | $ | 1,824 | | | $ | 592 | | | $ | 476 | | | $ | 756 | |
(1) | Operating lease obligations consist of payments pursuant to lease agreements for office and laboratory facilities, as well as lease agreements for 16 vehicles, which generally run for a period of three years. |
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth the name, age and position of each of our executive officers and directors as of March 15, 2019:2022:
Name | | Age | | Position |
Executive Officers | | | | |
Gal Cohen(5) Sharon Malka | | 4650 | | President and Chief Executive Officer |
Sharon Malka(5) Boaz Gur-Lavie | | 4748 | | Chief Financial and Operations Officer |
Lior Rosenberg, M.D. | | 7376 | | Chief Medical Technology Officer |
Ety Klinger Ph.D. | | 5760 | | Chief Research and Development Officer |
Carsten Henke Yaron Meyer | | 5343 | | Chief Commercial Officer EU |
Yaron Meyer | | 40 | | Executive Vice President, General Counsel and Corporate Secretary |
| | | | |
Directors | | | | |
Stefan T.Stephen Wills(3)(5)
| | 6265 | | ActiveExecutive Chairman of the Board of Directors
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Ofer Gonen | | 4649 | | Director |
Assaf Segal | | 4750 | | Director |
Vickie R. Driver, M.D(1)(2)(3) | | 6568 | | Director |
Nissim Mashiach(1)(2)(3)(4) | | 5861 | | Director |
Sharon Kochan(1)(2)(3)(4) | | 5053 | | Director |
Samuel Moed (2)(3) | | 59 | | Director |
David Fox(3) | | 64 | | Director |
(1) | Member of our audit committee. |
(2) | Member of our compensation committee. |
(3) | Independent director under the listing rules of the Nasdaq Stock Market. |
(4) | External director under the Companies Law. |
(5) | On March 12, 2019, we announced that Gal Cohen has decided to step down as the Chief Executive Officer of the company by the end of May 2019. Following Gal Cohen’s departure from the company, Sharon Malka, the company’s Chief Financial Officer and Chief Operations Officer, will be appointed as Chief Executive Officer of the company, and Stephen T. Wills, the company’s Chairman of the board of directors, will serve as Active Chairman. |
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Executive Officers
Gal CohenSharon Malka has served as our President and Chief Executive Officer since November 2006. From 2004May 2019. Prior to 2006, Mr. Cohen served as Director of Strategic Business Planning and New Ventures at Teva, a public Israeli pharmaceutical company. He also launched Copaxone in Europe and the United States whilethat time, he served as Projects Manager for Teva’s Global Products Division from 2000 to 2004 and for its Corporate Industrial Engineering Department from 1998 to 2000. Mr. Cohen holds a B.Sc. in Industrial Engineering and Management (cum laude) from the Technion—Israel Institute of Technology and an M.B.A. (cum laude) from Tel Aviv University.
Sharon Malka has served as our Chief Financial and Operations Officer, sincebeginning 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.
Carsten HenkeYaron Meyer has served as our Chief Commercial Officer for the European organizationExecutive Vice President since October 2014March 2019 and is acting as the Managing Director of our wholly‑owned subsidiary, MediWound Germany GmbH, since July 2013. From February 2009 to December 2012, Mr. Henke served as Teva’s General Manager in Spain, and from January 2004 to January 2009, he served as Teva’s Director of Marketing and Sales in Germany. Mr. Henke holds a B.Sc. in European Management from the ESB Business School at Reutlingen University and a Graduado Superior in International Business Administration—E‑4 from Comillas Pontifical University ICAI—ICADE in Madrid, Spain.
Yaron Meyer has served 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.
Directors
StefanStephen T. Wills has served as a member of our board of directors since May 2017, and as Chairman of our board since October 2017.2017 and as Executive Chairman of our board since May 2019. Mr. Wills has served, since 1997,serves as Executive Vice President, Secretary, TreasurerChief Financial Officer (since 1997) and Chief FinancialOperating Officer (since 2011) of Palatin Technologies, Inc. (“Palatin”)(NYSE: PTN), a publicly‑held biopharmaceutical company developing targeted, receptor‑specific peptide therapeutics for the treatment of diseases with significant unmet medical need and commercial potential. He has served in various roles at Palatin since 1997, including as Executive Vice President of Operations from 2005 until June 2011 and as Chief Operating Officer and Executive Vice President from 2011 to present. Mr. Wills served as Executive Chairman and Interim Principal Executive Officerserve on the boards of Derma Sciences, Inc. (“Derma”)Gamida Cell Ltd. (Nasdaq: GMDA), a publicly‑heldleading cellular and immune therapeutics company providing advanced wound care products, from December 2015 until February 2017 when Derma was acquired by Integra Life Sciences Holding Corporation.since March 2019 (audit and finance committee member) and of Amryt Pharma, a biopharmaceutical company focused on developing and delivering treatments to help improve lives of patients with rare and orphan diseases since September 2019 (chairman of audit committee and member of the finance committee). Mr. Wills also served as the lead director and chairman of the audit committee of Derma until February 2017 and as Derma’s Chief Financial Officer from 1997 to 2000. Mr. Wills serves on the board of trustees and executive committee of The Hun School of Princeton, a college preparatory day and boarding school since 2013, and its chairman since June 2018,2018. Mr. Wills served on the board of directors of Caliper Corporation, a psychological assessment and talent development company since March 2016 and as chairman since December 2016 do December 2019, when Caliper was acquired by PSI. Mr. Wills serves as executive chairman and interim principal executive officer of Derma Sciences Inc. a provider of advanced wound care product from 1991December 2015 to February 2017, when Derma Sciences was acquired by Integra Lifesciences (Nasdaq: IART). Previously, Mr. Wills served on the Board of Derma Sciences as the lead director and chairman of the audit committee from June 2000 he wasto December 2015. Mr. Wills served as the PresidentChief Financial Officer of Derma Sciences from 1997 to 2000. Mr. Wills served as the president and Chief Operating Officer of Golomb, Wills, Owens & Company,Baker, P.C., a public accounting firm.firm from 1991 to 2000. Mr. Wills, a certified public accountant, receivedearned his B.S.Bachelor of Science in accounting from West Chester University, and an M.S.a Master of Science in taxation from Temple University.
Ofer Gonen has served as a member of our board of directors since September 2003. Mr. Gonen is also the Chief Executive Officer of Clal Biotechnology Industries Ltd. (“CBI”)(TASE: CBI) and Cactus Acquisition Corp. 1 (Nasdaq: CCTS). Mr. Gonen manages CBI’shas more than 20 years of experience in managing life science investments and business development, U.S.‑based operationscollaborations in both the US and investment support of CBI’s portfolio companies.Israel. Mr. Gonen serves as an executive chairman anda board member of several private and publicly-traded portfolio companies of CBI, including Gamida Cell Ltd.(Nasdaq: GMDA), CureTech Ltd.MediWound (Nasdaq: MDWD) and Cactus (Nasdaq: CCTS), Campus Bio L.P., Clal Life Sciences L.P. and Clal Application Center Ltd. Prior toas well as a managing partner at the Anatomy Medical Fund. Before joining CBI, Mr. Gonen was the general managerGeneral Manager of Biomedical Investments Ltd., a partner at Arte Venture Group, as well as a technology consultant to various Israeli venture capital funds and an Academic Aide to the Governor of the Bank of Israel.funds. Mr. Gonen gained extensive experience in R&D theand management in defense‑orientedof defense-oriented projects withinat the prestigious “Talpiot” program of the IsraelIsraeli Defense Forces, for which he was awarded the Israeli National Security Medal. Mr. GonenForces. He holds a B.Sc. in Physics, Mathematics and Chemistry from the Hebrew University of Jerusalem, and an M.A. in Economics and Finance from Tel Aviv University, Israel.with distinction.
Assaf Segalhas served as a member of our board of directors since October 2017. Mr. Segal has served as the Chief Financial Officer at Clal Biotechnology Industries Ltd. since July 2015. Mr. Segal serves as a board member of several companies, including Biokine therapeutics Ltd., Campus Bio L.P., Clal Life Sciences L.P. and Clal Application Center Ltd. Prior to that time, Mr. Segal was a Partner at Variance Economic Consulting Ltd., from 2004 until June 2015, where he provided in‑depth consulting for international and local clients in a wide range of industries, including telecommunications, internet, biotech, heavy industry and financial sectors. Previously, he founded a start‑up software company. Mr. Segal also previously held a managerial position at PriceWaterhouseCoopers Corporate Finance and was an Economic Department manager at the North American division of Amdocs Inc. His experience also includes risk management and house account (“Nostro”) trading at the Union Bank of Israel, and serving as an economist for capital markets in the Research Department of the Bank of Israel. Mr. Segal also has many years of experience in economic consulting and company valuations, joint ventures and financial instruments for investments, M&A, and IPOs. He has 15 years of experience in economic consulting for international and local clients in the Bio‑Tech sector as well as in Hi‑Tech, financial and other sectors. He holds a B.A. in Economics and Statistics and an M.B.A. (Finance and Information Systems) from the Hebrew University of Jerusalem.
Vickie R. Driverhas served as a member of our board of directors since May 2017. Dr. Driver is board certified in foot surgery by the American Board of Podiatric Surgery and is a Fellow at the American College of Foot and Ankle Surgeons, licensed in Rhode Island. Her career as a podiatric physician and surgeon has included a special emphasis on limb preservation and wound healing in her medical practice, as well as, research and education. Dr. Driver has been a Professor of Surgery in the Department of Orthopedics at Brown University (Clinical) since 2014. She has served for 9 years on the Board of Directors for the Association for the Advancement of Wound Care (“AAWC”AAWC”), and recently completed her tenure as President for this international organization. Dr. Driver is also the chair of Wound Care Experts and U.S. Food and Drug Administration (“FDA”FDA”) Clinical Endpoints Project. She has just been named to serve as member at large to the Board of Directors of the Wound Healing Society (“WHS”WHS”) and Board Member to the Critical Limb Ischemia (“CLI”CLI”) Global Society. In addition, she serves on multiple national and international clinical committees that focus on preventing limb loss and improving wound healing in the high‑risk population. She has served as an investigator for more than 70 important multi‑center randomized clinical trials, as well as developed and supervised multiple research fellowship training programs. She has served and chaired multiple committees for large national and international pivotal clinical trials and has authored over 120 publications and abstracts. Dr. Driver is credited with the development and directorship of multiple major multidisciplinary Limb Preservation –Preservation– Wound Healing Centers of Excellence, including Military/VA, Hospital and University based programs. Since 2015, she has served as Director, Translational Medicine, Wound Healing at the Novartis Institute for Biomedical Research. From 2011 to 2014, she was Program Director, Inaugural Educational Committee at the American College of Wound Healing and Tissue Repair at University of Illinois School of Medicine. From 2011 to 2015, she was also Scientific Director, Colorado Prevention Center, Wound Care Laboratory at the University of Colorado. From 2012 to 2015, Dr. Driver held a number of positions at the Providence Veterans Administration Medical Center in Rhode Island, including Chief, Section of Podiatric Surgery and Director, Clinical Research, Limb Preservation and Wound Healing. Prior thereto, she held various positions at multiple major multidisciplinary Limb Preservation – Wound Healing Centers of Excellence. Dr. Driver received a Doctorate of Podiatric Medicine and Surgery from the California College of Podiatric Medicine and Surgery and a Masters in Medical Education from Samuel Merritt University.
Nissim Mashiach has served as a member of our board of directors since June 2017. Mr. Mashiach served as President and Chief Executive Officer of Macrocure Ltd., a Nasdaq‑listed biotechnology company focused on the treatment of chronic and other hard‑to‑heal wounds, from June 2012 to January 2017. From 2009 to 2012, he served as General Manager at Ethicon, a Johnson & Johnson company. Prior to Ethicon, he served as President and Chief Operating Officer at Omrix Biopharmaceuticals, Inc., which was acquired by Johnson & Johnson in 2008. Prior to Omrix, Mr. Mashiach held leadership positions at several pharmaceutical companies. He holds an MBA from the University of Manchester in Manchester, England, an MPharmSc from the Hebrew University in Jerusalem, Israel, and a B.Sc, Chemical Engineering from the Technion‑Israel Institute of Technology in Haifa, Israel.
Sharon Kochan has served as a member of our board of directors since June 2017. Mr. Kochan is the CEO of Padagis LLC. a leading specialty pharma company that was curved out of Perrigo Company PLC. On July 2021. Prior to such, Mr. Kochan has served as Executive Vice President & President Rx Pharmaceuticals / International, for Perrigo Company Plc., a global, over‑the‑counter,over-the-counter, consumer goods and specialty pharmaceutical company listed on the New York Stock Exchange, since 2007,2012 and has been a member of the Perrigo Executive Committee since 2007. From March 2007 to July 2012, he served as Executive Vice President, General Manager of Prescription Pharmaceuticals for Perrigo and from 2005 to 2007, he was Senior Vice President of Business Development and Strategy for Perrigo. Mr. Kochan was Vice President, Business Development of Agis Industries (1983) Ltd. from 2001 until Perrigo acquired Agis in 2005. He completed the Senior Management Program at the Technion Institute of Management in Haifa, Israel, received a Master of Science in Operations Research & Management Science from Columbia University in New York City and received a Bachelor of Science in Industrial and Management Engineering from Tel‑AvivTel-Aviv University in Tel‑Aviv,Tel-Aviv, Israel.
Mr. Samuel Moed has served as a member of our board of directors since April 2020. Prior to joining our board, Mr. Moed served as an executive at Bristol-Myers Squibb, a global biopharma company focused on innovative therapeutics. In his most recent capacity as Senior Vice President, Corporate Strategy, Mr. Moed led the strategic planning of the company in all major business activities worldwide. Previously, Mr. Moed oversaw strategy for BMS’ Worldwide Pharmaceuticals Group, encompassing a range of global strategic initiatives, and managed a global portfolio of strategic alliances. Among other positions, he served as President of U.S. Pharmaceuticals and as President of Worldwide Consumer Healthcare. Mr. Moed received a BA in history from Columbia University in New York City.
Mr. David Fox has served as a member of our board of directors since April 2020. Mr. Fox was most recently a partner at Kirkland & Ellis LLP and served as a member of its Global Executive Management Committee until 2019. Prior to joining Kirkland, Mr. Fox was partner with Skadden, Arps, Slate, Meagher & Flom LLP, where he was a member of its top governing committee. Mr. Fox is a director of Israel Discount Bank of New York, a member of the borad of directors at the Park Avenue Armory and a member of the advisory board of New Alternatives for Children, for which he provides support to families caring for medically fragile children. In addition, Mr. Fox serves on the board of governors, and is an honorary fellow of the Hebrew University, Jerusalem. He holds an LL.B. degree from Jerusalem University, Israel.
B. Compensation
Compensation of Directors and Executive Officers
The table below reflects the compensation granted to our five most highly compensated officers during or with respect to the year ended December 31, 2018.2021. All amounts reported in the table reflect the cost to the company, as recognized in our financial statements for the year ended December 31, 2018.2021.
Name and Position | | Salary & Social Benefits(1) | | | Bonus | | | Share‑Based Payment(2) | | | Other Compensation(3) | | | Total | | | Salary & Social Benefits(1) | | | Bonus | | | Share‑Based Payment(2) | | | Other Compensation(3) | | | Total | |
| | (U.S. dollars)(4) | | | ( thousand U.S. dollars)(4) | |
Gal Cohen, President and Chief Executive Officer | | | 406,008 | | | | 145,351 | | | | 39,893 | | | | 20,982 | | | | 570,269 | | |
Sharon Malka, Chief Financial and Operations Officer | | | 286,350 | | | | 111,985 | | | | 44,28 | | | | 9,534 | | | | 452,155 | | |
| | | | | | | | | | | | | | | | |
Sharon Malka, Chief Executive Officer | | | | 427 | | | | 65 | | | | 227 | | | | 5 | | | | 724 | |
Lior Rosenberg, M.D., Chief Medical Technology Officer | | | 301,75 | | | | 92,067 | | | | 22,143 | | | | 4,106 | | | | 420,073 | | | | 334 | | | | 39 | | | | 81 | | | | 25 | | | | 479 | |
Carsten Henke, Chief Commercial Officer EU & Managing Director of MediWound Germany GmbH | | | 284,163 | | | | 73,203 | | | | 22,143 | | | | 25,596 | | | | 405,105 | | |
Ety Klinger, Chief Research & Development Officer | | | 231,549 | | | | 70,737 | | | | 53,035 | | | | 18,707 | | | | 374,028 | | | | 292 | | | | 32 | | | | 73 | | | | 20 | | | | 417 | |
Boaz Gur-Lavie, Chief Financial Officer | | | | 256 | | | | 29 | | | | 76 | | | | | | | | 385 | |
Yaron Meyer, Executive Vice President, General Counsel & Corporate Secretary | | | | 208 | (5) | | | 27 | | | | 61 | | | | 5 | | | | 301 | |
(1) | Represents the officer’s gross salary plus payment of mandatory social benefits made by the company on behalf of such officer. Such benefits may include, to the extent applicable to the executive, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life or work disability insurance) and payments for social security. |
(2) | Represents the equity‑based compensation expenses recorded in the company’s consolidated financial statements for the year ended December 31, 20182021 based on the options’ grant date fair value in accordance with accounting guidance for equity‑based compensation. |
(3) | Represents the other benefits to such officer, which includes either or both of (i) car expenses, including lease costs, gas and maintenance, provided to the officers, and (ii) vacation benefits and (iii) severance pay.benefits. |
(4) | Converted (i) from NIS into U.S. dollars at the rate of 3.58NIS3.229 = U.S.$1.00,U.S$1, based on the average representative rate of exchange between the NIS and the U.S. dollar in the year ended December 31, 2018 and (ii) from Euro into U.S. dollars at the rate of Euro 1.185 = U.S$1.00, based on the average representative rate of exchange between the Euro and the U.S. dollar2021 as reported by the Bank of Israel in the year ended December 31, 2018.2021. |
(5) | Represents only 8 months’ salary due to paternity leave. |
The aggregate compensation paid and equity‑based compensation and other payments expensed by us and our subsidiaries to our directors and executive officers with respect to the year ended December 31, 20182021 was $2.9$3.5 million. As of December 31, 2018,2021, options to purchase 1,283,0391,811,319 ordinary shares, exercisable at a weighted average exercise price of $3.86 per share, and restricted share units (“RSUs”) that may be settled for 55,002 ordinary shares, in each case granted to our directors and executive officers, were outstanding under our share option plans at a weighted average exercise price of $9.24 per share.equity incentive plans. We do not have any written agreements with any director providing for benefits upon the termination of such director’s relationship with our company or its subsidiaries.
Employment Agreements with Executive Officers
We have entered into written employment agreements with all of our executive officers, which include standard provisions for a company in our industry regarding non‑competition/solicitation, confidentiality of information and assignment of inventions. Except for Mr. Gal Cohen, our CEO and Prof. Rosenberg, our Chief Medical Technology Officer, our executive officers will not receive benefits upon the termination of their respective employment with us, other than payment of salary and benefits (and limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual. Upon termination of theirhis employment, Mr. Cohen is entitled to a one-time termination payment equal to two times our CEO’s monthly fixed compensation if our CEO’s employment as our CEO is terminated without cause, and to five times our CEO’s monthly fixed compensation if terminated as our CEO in connection with a change of control in our Company; in addition Prof. Rosenberg is entitled to a one‑time termination payment of ten months of salary.
Directors’ Service Contracts
Other than with respect to our directors that are also executive officers, there are no arrangements or understandings between us, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their service as directors of our company.
2003 Israeli Share Option Plan
In November 2003, we adopted our 2003 Israeli Share Option Plan (the “2003 Plan”). The 2003 Plan provides for the grant of options to our and our subsidiaries’ directors, employees, officers, consultants and service providers, among others.
The initial reserved pool under the 2003 Plan was 1,710,000 ordinary shares and subsequently increased to a total of 3,230,000 ordinary shares. The 2003 Plan expired on December 31, 2013. Options that remain outstanding under the 2003 Plan continue to be governed by the terms of the plan, notwithstanding that expiration. The 2003 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli law, the grantees of options, the terms of the options, including exercise prices, vesting schedules, acceleration of vesting, the type of option and the other matters necessary or desirable for, or incidental to the administration of the 2003 Plan. The 2003 Plan provides for the issuance of options under various tax regimes including, without limitation, pursuant to Sections 102 and 3(i) of the Israeli Income Tax Ordinance (New Version) 1961 (the “Ordinance”).
Section 102 of the Ordinance allows employees, directors and officers who are not controlling shareholders and who are Israeli residents to receive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, which provides the most favorable tax treatment for grantees, permits the issuance to a trustee under the “capital gains track.” In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such options and other shares received following any realization of rights with respect to such options, such as share dividends and share splits, must be registered in the name of a trustee selected by the board of directors and held in trust for the benefit of the relevant employee, director or officer. The trustee may not release these options or shares to the relevant grantee before the second anniversary of the registration of the options in the name of the trustee. However, under this track, we are not allowed to deduct an expense with respect to the issuance of the options or shares.
The 2003 Plan provides that options granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeli residents are intended to qualify for special tax treatment under the “capital gains track” provisions of Section 102(b)(2) of the Ordinance. Our Israeli non‑employee service providers and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.
Options granted under the 2003 Plan are subject to vesting schedules and generally expire ten years from approval of the option and vest over a four‑year period commencing on the date of grant, such that 25% of the granted options vest annually on each of the first, second, third and fourth anniversaries of the date of grant. Under the 2003 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested prior to termination within a period of six months after the date of termination. If a grantee’s employment or service is terminated for cause, all of the grantee’s vested and unvested options expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee may exercise his or her vested options within 90 days after the date of termination. Any expired or unvested options are returned to the pool for reissuance.
The 2003 Plan provides that in the event of a merger or consolidation of our company or a sale of all, or substantially all, of our assets, the unexercised options outstanding may be assumed, or substituted for an appropriate number of shares of each class of shares or other securities as were distributed to our shareholders in connection with such transaction and the exercise price will be appropriately adjusted. If not so assumed or substituted, all non‑vested and non‑exercised options will expire upon the closing of the transaction. Our board of directors or its designated committee, as applicable, may provide in the option agreement that if the acquirer does not agree to assume or substitute the options, vesting of the options shall be accelerated so that any unvested option or any portion thereof will vest 10 days prior to the closing of the transaction. In the event that such consideration received in the transaction is not solely in the form of ordinary shares of another company, the board of directors or the designated committee, as applicable, may, with the approval of the acquirer, provide that in lieu of the assumption or substitution of the options, the options will be substituted by another type of asset or property, including cash.
2014 Equity Incentive Plan
In March 2014, we adopted and obtained shareholder approval for our 2014 Equity Incentive Plan, which was amended as of December 18, 2018 (the “2014 Plan”). The 2014 Plan provides for the grant of options, restricted shares, restricted share unitsRSUs and other share‑based awards to our and our subsidiaries’ and affiliates’ directors, employees, officers, consultants and advisors, among others and to any other person whose services are considered valuable to us or them, to continue as service providers, to increase their efforts on our behalf or behalf of a subsidiary or affiliate and to promote the success of our business. Following the approval of the 2014 Plan by the Israeli tax authorities, we are only granting options or other equity incentive awards under the 2014 Plan, although previously‑granted options and awards will continue to be governed by our 2003 Plan and the shares underlying such options and awards will count against the reserved pool for the 2014 Plan. The initial reserved pool under the 2014 Plan was 3,032,742 ordinary shares, which will automatically increase on January 1 of each year by a number of ordinary shares equal to the lowest of (i) 2% of our outstanding shares, (ii) 600,000 shares and (iii) a number of shares determined by our board of directors, if so determined prior to January 1 of the year in which the increase will occur; provided that the pool of shares reserved under the Plan shall not exceed 15% (fifteen percent) of the then outstanding shares. ThePursuant to an “evergreen” provision in the 2014 Plan, the reserved pool was increased by 431,006, 540,955, 543,577, 544,055 and 423,577544,738 ordinary shares as of January 1, 2015, January 1, 2018, January 1, 2019, January 1, 2020 and January 1, 2019,2021 , respectively, representing 2% of our outstanding shares as of each such date. We did not increase the reserved pool in 2016 or 2017.
The 2014 Plan is administered by our board of directors or by a committee designated by the board of directors, which determine, subject to Israeli law, the grantees of awards and the terms of the grant, including exercise prices, vesting schedules, acceleration of vesting and the other matters necessary in the administration of the 2014 Plan. The 2014 Plan enables us to issue awards under various tax regimes, including, without limitation, pursuant to Sections 102 and 3(i) of the Ordinance, as discussed under “—2003 Share Incentive Plan” above, and under Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
Options granted under the 2014 Plan to U.S. residents may qualify as “incentive stock options” within the meaning of Section 422 of the Code, or may be non‑qualified. The exercise price for “incentive stock options” must not be less than the fair market value on the date on which an option is granted, or 110% of the fair market value if the option holder holds more than 10% of our share capital.
We currently intend to grant awards under the 2014 Plan under the capital gains track of Section 102(b)(2) of the Ordinance only to our employees, directors and officers who are not controlling shareholders and are considered Israeli residents.
Awards under the 2014 Plan may be granted until ten years from the date on which the 2014 Plan was approved by our board of directors.
Options granted under the 2014 Plan generally vest over three or four years commencing on the date of grant, such that 33% or 25%, respectively, vests annually on the anniversary of the date of grant. Options, other than certain incentive share options, that are not exercised within ten years from the grant date expire, unless otherwise determined by our board of directors or its designated committee, as applicable. Share options that qualify as “incentive stock options” and are granted to a person holding more than 10% of our voting power will expire within five years from the date of the grant. In the event of the death of a grantee while employed by or performing service for us or a subsidiary or within three months thereafter, or the termination of a grantee’s employment or services for reasons of disability, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested prior to termination within a period of one year from the date of disability or death. If we terminate a grantee’s employment or service for cause, all of the grantee’s vested and unvested options will expire on the date of termination. If a grantee’s employment or service is terminated for any other reason, the grantee may exercise his or her vested options within three months of the date of termination. Any expired or unvested options return to the pool for reissuance.
In the event of a merger or consolidation of our company or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then without the consent of the option holder, our board of directors or its designated committee, as applicable, may but is not required to (i) cause any outstanding award to be assumed or an equivalent award to be substituted by such successor corporation, or (ii) in case the successor corporation refuses to assume or substitute the award (a) provide the grantee with the option to exercise the award as to all or part of the shares or (b) cancel the options against payment in cash in an amount determined by the board of directors or the committee as fair in the circumstances. Notwithstanding the foregoing, our board of directors or its designated committee may upon such event amend or terminate the terms of any award, including conferring the right to purchase any other security or asset that the board of directors shall deem, in good faith, appropriate. Our board of directors or its designated committee may, in its discretion, approve that any awards granted under the 2014 Plan shall be subject to additional conditions in the case of a merger or a consolidation.
Restricted share awards are ordinary shares that are awarded to a participant subject to the satisfaction of the terms and conditions established by the board of directors or a committee designated by the board of directors. Until such time as the applicable restrictions lapse, restricted shares are subject to forfeiture and may not be sold, assigned, pledged or otherwise disposed of by the participant who holds those shares. Generally, if a grantee’s employment or service is terminated for any reason prior to the expiration of the time when the restrictions lapse, shares that are still restricted will be forfeited.
The following table provides information regarding the outstanding options to purchase our ordinary shares, and RSUs held by each of our directors and executive officers who beneficially ownowns greater than 1% of our ordinary shares (after including shares underlying options or options to purchase more than 1% of our ordinary sharesRSUs) as of March 15, 2019:2022:
Name | | Number of Options | | | Number of RSUs | | Grant Date | | Exercise Price | | | Vested Options as of March 15, 2019 | | Expiration Date | | Number of Options | | | Number of RSUs | | Grant Date | | Exercise Price | | | Vested Options/RSU's as of March 15, 2022 | | Expiration Date |
Gal Cohen, President and Chief Executive Officer | | | | | | | | | | | | | | | |
Sharon Malka, Chief Executive Officer | | | | 121,600 | | | | | 12/24/2013 | | $ | 12.89 | | | | 121,600 | | 12/23/2023 |
| | | 45,600 | | | | | 1/15/2011 | | $ | 9.82 | | | | 45,600 | | 1/14/2021 | | | 50,000 | | | | | 12/23/2015 | | $ | 9.58 | | | | 50,000 | | 12/22/2025 |
| | | 152,000 | | | | | 12/24/2013 | | $ | 12.89 | | | | 152,000 | | 12/23/2023 | | | 135,000 | | | | | 12/31/2018 | | $ | 5.15 | | | | 101,250 | | 12/30/2028 |
| | | 70,000 | | | | | 1/28/2016 | | $ | 9.58 | | | | 52,500 | | 12/22/2025 | | | | | | | 45,000 | | 12/31/2018 | | | | | | | 33,750 | | |
Sharon Malka, Chief financial and operation Officer | | | 49,172 | | | | | 1/15/2011 | | $ | 7.97 | | | | 49,172 | | 1/14/2021 | |
| | | | 40,000 | | | | | | 05/02/2019 | | $ | 4.92 | | | | 30,000 | | 5/1/2029 |
| | | 38,000 | | | | | 1/15/2011 | | $ | 9.82 | | | | 38,000 | | 1/14/2021 | | | | | | | 20,000 | | 05/02/2019 | | | | | | | 15,000 | | |
| | | 121,600 | | | | | 12/24/2013 | | $ | 12.89 | | | | 121,600 | | 12/23/2023 | | | 81,170 | | | | | | 06/29/2020 | | $ | 1.75 | | | | 20,292 | | 6/28/2030 |
| | | 50,000 | | | | | 12/23/2015 | | $ | 9.58 | | | | 37,500 | | 12/22/2025 | | | 45,692 | | | | | | 06/15/2021 | | $ | 5.36 | | | | - | | 6/14/2031 |
| | | 135,000 | | | | | 12/31/2018 | | $ | 5.15 | | | | - | | 12/30/2028 | | | | | | | 7,615 | | 06/15/2021 | | | | | | | - | | 6/14/3031 |
| | | | | | | 45,000 | | 12/31/2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lior Rosenberg, Chief Medical Technology Officer | | | 76,000 | | | | | | 12/24/2013 | | $ | 12.89 | | | | 76,000 | | 12/23/2023 | | | 76,000 | | | | | | 12/24/2013 | | $ | 12.89 | | | | 76,000 | | 12/23/2023 |
| | | 25,000 | | | | | | 12/23/2015 | | $ | 9.58 | | | | 18,750 | | 12/22/2025 | | | 25,000 | | | | | | 12/23/2015 | | $ | 9.58 | | | | 25,000 | | 12/22/2025 |
| | | 20,000 | | | | | | 12/31/2018 | | $ | 5.15 | | | | - | | 12/30/2028 | | | 20,000 | | | | | | 12/31/2018 | | $ | 5.15 | | | | 15,000 | | 12/30/2028 |
| | | | | | | 6,667 | | 12/31/2018 | | | | | | | | | | | | | | | | 6,667 | | 12/31/2018 | | | | | | | 5,000 | | |
| | | | | | | | | | | | | | | | | | | | | 43,600 | | | | | | 04/23/2020 | | $ | 1.75 | | | | 10,900 | | 4/22/2030 |
| | | | 27,953 | | | | | | 03/04/2021 | | $ | 5.36 | | | | - | | 3/3/2031 |
| | | | | | | | 4,659 | | 03/04/2021 | | | | | | | 1,165 | | 3/3/2031 |
C. Board Practices
Board of Directors
Under the Israeli Companies Law, the management of our company is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive officers are responsible for our day‑to‑day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are also appointed by our board of directors, and are subject to the terms of any applicable employment agreements that we may enter into with them.
Under our articles of association, our board of directors must consist of at least five and not more than nine directors, including at least two external directors required to be appointed under the Israeli Companies Law. At any time the minimum number of directors (other than the external directors) shall not fall below three. Other than external directors, for whom special election requirements apply under the Israeli Companies Law, as detailed below, the Israeli Companies Law and our articles of association provide that directors are elected annually at the general meeting of our shareholders by a vote of the holders of a majority of the voting power represented present and voting, in person or by proxy, at that meeting. We have only one class of directors.
In accordance with the exemption available to foreign private issuers under Nasdaq rules, we are not required to comply with the requirements of the Nasdaq rules with regard to having a majority of independent directors on our board of directors, as long as we follow Israeli law and practice, in accordance with which our board of directors includes at least two external directors. Our board of directors has determined that four of our six current directors are independent under the Nasdaq Stock Market listing rules. The definition of “independent director” under the Nasdaq Stock Market listing rules and “external director” under the Israeli Companies Law overlap to a significant degree such that we would generally expect the two directors that serve as external directors to qualify as independent under the Nasdaq Stock Market listing rules. However, it is possible for a director to qualify as an “external director” under the Israeli Companies Law without qualifying as an “independent director” under the Nasdaq Stock Market listing rules, or vice‑versa. The definition of external director under the Israeli Companies Law includes a set of statutory criteria that must be satisfied, including criteria whose aim is to ensure that there is no factor that would impair the ability of the external director to exercise independent judgment. The definition of independent director under the Nasdaq Stock Market listing rules specifies similar, although less stringent, requirements in addition to the requirement that the board of directors consider any factor which would impair the ability of the independent director to exercise independent judgment. In addition, external directors serve for a period of three years pursuant to the requirements of the Israeli Companies Law. However, external directors must be elected by a special majority of shareholders while independent directors may be elected by an ordinary majority. See “—External Directors” for a description of the requirements under the Israeli Companies Law for a director to serve as an external director.
In accordance with the exemption available to foreign private issuers under Nasdaq rules, we do not follow the requirements of the Nasdaq rules with regard to the process of nominating directors, and instead follow Israeli law and practice, in accordance with which our board of directors (or a committee thereof) is authorized to recommend to our shareholders director nominees for election.
Under the Israeli Companies Law and our articles of association, nominees for directors may also be proposed by any shareholder holding at least 1% of our outstanding voting power. However, any such shareholder may propose a nominee only if a written notice of such shareholder’s intent to propose a nominee has been given to our Secretary (or, if we have no such Secretary, our Chief Executive Officer). Pursuant to our Articles of Association, any such notice must include certain information, including, among other things, a description of all arrangements between the nominating shareholder and the proposed director nominee(s) and any other person pursuant to which the nomination(s) are to be made by the nominating shareholder, the consent of the proposed director nominee(s) to serve as our director(s) if elected and a declaration signed by the nominee(s) declaring that there is no limitation under the Israeli Companies Law preventing their election, and that all of the information that is required under the Israeli Companies Law to be provided to us in connection with such election has been provided. Under the Israeli Companies Law regulations, any such shareholder nomination must be delivered to our registered Israeli office within seven days after we publish notice of our upcoming annual general meeting of shareholders (or within 14 days after we publish a preliminary notification of an upcoming annual general meeting).
In addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors for a term of office equal to the remaining period of the term of office of the director(s) whose office(s) have been vacated. External directors are elected for an initial term of three years and may be elected for additional three‑year terms under the circumstances described below. External directors may be removed from office only under the limited circumstances set forth in the Israeli Companies Law. See “—External Directors.”
Under the Israeli Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. See “—External Directors” below. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the minimum number of directors of our company who are required to have accounting and financial expertise is one.
We are not a party to, and are not aware of, any voting agreements among our shareholders. In addition, there are no family relationships among our executive officers and directors.
Under regulations recently promulgated under the Israeli Companies Law, Israeli public companies whose shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Market, and that lack a controlling shareholder (as defined below) are exempt from the requirement to appoint external directors. Any such company is also exempt from the Israeli Companies Law requirements related to the composition of the audit and compensation committees of the Board. Eligibility for these exemptions is conditioned on compliance with U.S. stock exchange listing rules related to majority Board independence and the composition of the audit and compensation committees of the Board, as applicable to all listed domestic U.S. companies. Because we have a controlling shareholder (CBI), we are not eligible for these exemptions under the newthese regulations.
External Directors
Under the Israeli Companies Law, we areour board of directors is required to include at least two members who qualify as external directors. Our current external directors are Nissim Mashiach and Sharon Kochan, each of whom serves on our audit committee and compensation committee.
The provisions of the Israeli Companies Law set forth special approval requirements for the election of external directors. External directors must be elected by a majority vote of the shares present and voting at a meeting of shareholders, provided that either:
| · | such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or |
such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or
| · | the total number of shares voted by non‑controlling shareholders and by shareholders who do not have a personal interest in the election of the external director against the election of the external director does not exceed 2% of the aggregate voting rights in the company. |
the total number of shares voted by non‑controlling shareholders and by shareholders who do not have a personal interest in the election of the external director against the election of the external director does not exceed 2% of the aggregate voting rights in the company.
The term “controlling shareholder” as used in the Israeli Companies Law for purposes of all matters related to external directors and for certain other purposes (such as the requirements related to appointment to the audit committee or compensation committee, as described below), means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters (various related party transactions), a controlling shareholder is deemed to include a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.
The initial term of an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity for up to two additional three‑year terms, provided that either:
| (i) | his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders meeting by a disinterested majority, where the total number of shares held by non‑controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company, subject to additional restrictions set forth in the Israeli Companies Law with respect to affiliations of external director nominee; or |
| (ii) | his or her service for each such additional term is recommended by the board of directors and is approved at a meeting of shareholders by the same majority required for the initial election of an external director (as described above). |
The term of office for external directors for Israeli companies traded on certain foreign stock exchanges, including the Nasdaq Global Market, may be extended indefinitely in increments of additional three‑year terms, in each case provided that the audit committee and the board of directors of the company confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to the company, and provided that the external director is reelected subject to the same shareholder vote requirements (as described above regarding the reelection of external directors). Prior to the approval of the reelection of the external director at a general meeting of shareholders, the company’s shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of his or her term.
External directors may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal by the same shareholder vote percentage required for their election or by a court, in each case, only under limited circumstances, including ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company.
If an external directorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board of directors is required under the Israeli Companies Law to call a shareholders’ meeting as soon as practicable to appoint a replacement external director. Each committee of the board of directors that exercises the powers of the board of directors must include at least one external director, except that the audit committee and the compensation committee must include all external directors then serving on the board of directors and an external director must serve as chair thereof. Under the Israeli Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any compensation from the company other than for their services as external directors pursuant to the Israeli Companies Law and the regulations promulgated thereunder. Compensation of an external director is determined prior to his or her appointment and may not be changed during his or her term subject to certain exceptions.
The Israeli Companies Law provides that a person is not qualified to be appointed as an external director if (i) the person is a relative of a controlling shareholder of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding the date of appointment as an external director: (a) any affiliation or other disqualifying relationship with the company, with any person or entity controlling the company or a relative of such person, or with any entity controlled by or under common control with the company; or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as an external director, any affiliation or other disqualifying relationship with a person then serving as chairman of the board or chief executive officer, a holder of 5% or more of the issued share capital or voting power in the company or the most senior financial officer.
The term “relative” is defined in the Israeli Companies Law as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant; and the spouse of each of the foregoing persons. Under the Israeli Companies Law, the term “affiliation” and the similar types of disqualifying relationships include (subject to certain exceptions):
| · | an employment relationship; |
an employment relationship;
| · | a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships); |
a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
| · | service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering. |
service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering.
The term “office holder” is defined in the Israeli Companies Law as a general manager (i.e., chief executive officer), chief business manager, deputy general manager, vice general manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager directly subordinate to the general manager.
In addition, no person may serve as an external director if that person’s position or professional or other activities create, or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to serve as an external director or if the person is an employee of the Israel Securities Authority of an Israeli stock exchange. A person may furthermore not continue to serve as an external director if he or she received direct or indirect compensation from the company including amounts paid pursuant to indemnification or exculpation contracts or commitments and insurance coverage for his or her service as an external director, other than as permitted by the Israeli Companies Law and the regulations promulgated thereunder.
Following the termination of an external director’s service on a board of directors, such former external director and his or her spouse and children may not be provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholder’s control. This includes engagement as an office holder of the company or a company controlled by its controlling shareholder or employment by, or provision of services to, any such company for consideration, either directly or indirectly, including through a corporation controlled by the former external director. This restriction extends for a period of two years with regard to the former external director and his or her spouse or child and for one year with respect to other relatives of the former external director.
If at the time at which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives of controlling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender. A director of one company may not be appointed as an external director of another company if a director of the other company is acting as an external director of the first company at such time.
According to the Israeli Companies Law and regulations promulgated thereunder, a person may be appointed as an external director only if he or she has professional qualifications or if he or she has accounting and financial expertise (each, as defined below); provided that at least one of the external directors must be determined by our board of directors to have accounting and financial expertise. However, if at least one of our other directors (i) meets the independence requirements under the Exchange Act, (ii) meets the standards of the Nasdaq Stock Market listing rules for membership on the audit committee and (iii) has accounting and financial expertise as defined under the Israeli Companies Law, then neither of our external directors is required to possess accounting and financial expertise as long as each possesses the requisite professional qualifications.
A director with accounting and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and an understanding of, financial and accounting matters and financial statements, such that he or she is able to understand the financial statements of the company and initiate a discussion about the presentation of financial data. A director is deemed to have professional qualifications if he or she has any of (i) an academic degree in economics, business management, accounting, law or public administration, (ii) an academic degree or has completed another form of higher education in the primary field of business of the company or in a field which is relevant to his/her position in the company or (iii) at least five years of experience serving in one of the following capacities, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a company with a significant volume of business, (b) a senior position in the company’s primary field of business or (c) a senior position in public administration or service. The board of directors is charged with determining whether a director possesses financial and accounting expertise or professional qualifications.
Our board of directors has determined that Sharon Kochan has accounting and financial expertise and possesses professional qualifications as required under the Israeli Companies Law.Law, while Nissim Mashiach possesses professional qualifications.
Leadership Structure of the Board
In accordance with the Israeli Companies Law and our articles of association, our board of directors is required to appoint one of its members to serve as chairman of the board of directors. Our board of directors has appointed StefanStephen T. Wills to serve as executive chairman of the board of directors.
Audit Committee
Israeli Companies Law composition requirements
Under the Israeli Companies Law, we are required to have an audit committee comprised of at least three directors, including all of the external directors, one of whom must serve as chairman of the committee. The audit committee may not include the chairman of the board, a controlling shareholder of the company, a relative of a controlling shareholder, a director employed by or providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling shareholder, or a director who derives most of his or her income from a controlling shareholder. In addition, under the Israeli Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. In general, an “unaffiliated director’’ under the Israeli Companies Law is defined as either an external director or as a director who meets the following criteria:
| · | he or she meets the qualifications for being appointed as an external director, except for the requirement (i) that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed for trading outside of Israel) and (ii) for accounting and financial expertise or professional qualifications; and |
he or she meets the qualifications for being appointed as an external director, except for the requirement (i) that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed for trading outside of Israel) and (ii) for accounting and financial expertise or professional qualifications; and
| · | he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service. |
he or she has not served as a director of the company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
Each member of our audit committee (each, as identified in the second paragraph under the sub-heading “Nasdaq listing rules composition requirements” below) is an unaffiliated director under the Israeli Companies Law, thereby fulfilling the foregoing Israeli law requirement for the composition of the audit committee.
Nasdaq listing rules composition requirements
Under the Nasdaq Stock Market listing rules, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise or, ifexpertise. If we choose to follow requirements under Israeli law in lieu of those Nasdaq requirements, we must disclose that fact in this annual report.
Our audit committee consists of Sharon Kochan (chairperson),Nissim Mashiach and Vickie R.R Driver, and Nissim Mashiach, each of whom is an independent director in accordance with Rule 10A‑3(b)(1) under the Exchange Act and satisfies the independent director requirements under the Nasdaq Stock Market listing rules. All members of our audit committee meet the requirements for financial literacy under the applicable listing rules of the Nasdaq Stock Market. Our board of directors has determined that Sharon Kochan is an “audit committee financial expert,” as defined in the SEC regulations.
Audit committee role
Our board of directors has adopted an audit committee charter that sets forth the responsibilities of the audit committee consistent with the rules and regulations of the SEC and the Nasdaq Stock Market listing rules, as well as the requirements for such committee under the Israeli Companies Law, including the following:
| · | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law; |
oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
| · | recommending the engagement or termination of the person filling the office of our internal auditor; and |
recommending the engagement or termination of the person filling the office of our internal auditor; and
| · | recommending the terms of audit and non‑audit services provided by the independent registered public accounting firm for pre‑approval by our board of directors. |
recommending the terms of audit and non‑audit services provided by the independent registered public accounting firm for pre‑approval by our board of directors.
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre‑approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Under the Israeli Companies Law, our audit committee is responsible for:
| · | determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices; |
determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices;
| · | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Israeli Companies Law) (see “—Approval of Related Party Transactions Under Israeli Law”); |
determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Israeli Companies Law) (see “—Approval of Related Party Transactions Under Israeli Law”);
| · | establishing the approval process (including, potentially, the approval of the audit committee and conducting a competitive procedure supervised by the audit committee) for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest; |
establishing the approval process (including, potentially, the approval of the audit committee and conducting a competitive procedure supervised by the audit committee) for certain transactions with a controlling shareholder or in which a controlling shareholder has a personal interest;
| · | where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto; |
where the board of directors approves the working plan of the internal auditor, examining such working plan before its submission to the board of directors and proposing amendments thereto;
| · | examining our internal audit controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his responsibilities; |
examining our internal audit controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to fulfill his responsibilities;
| · | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and |
examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and
| · | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. |
establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
Our audit committee may not approve any actions requiring its approval (see “—Approval of Related Party Transactions Under Israeli Law”), unless at the time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.
Compensation Committee and Compensation Policy
Our Compensation Committee consists of Sharon Kochan (chairperson), Vickie R. Driver and Nissim Mashiach, each of whom is independent under the Nasdaq Stock Market rules.Israeli Companies Law compensation committee composition requirements
Under the Israeli Companies Law, the board of directors of a public company must appoint a compensation committee. The compensation committee generally (subject to certain exceptions that do not apply to our company) must be comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of, and include the chairperson of, the compensation committee. However, subject to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as the Nasdaq Global Market, and who do not have a controlling shareholder, do not have to meet this majority requirement so long as the compensation committee meets other Israeli Companies Law composition requirements, as well as the requirements of the jurisdiction where the company’s securities are traded. Each compensation committee member who is not an external director must be a director whose compensation does not exceed an amount that may be paid to an external director. The compensation committee is subject to the same Israeli Companies Law restrictions as the audit committee as to who may not be a member of the compensation committee. Each member of our compensation committee (each, as identified in the second paragraph under the sub-heading “Nasdaq listing rules compensation committee composition requirements” below) fulfills the foregoing Israeli law requirements related to the composition of the compensation committee.
Israeli Companies Law committee duties
The duties of the compensation committee include the recommendation to the company’s board of directors of a policy regarding the terms of engagement of office holders, which we refer to as a compensation policy. That policy must be adopted by the company’s board of directors, after considering the recommendations of the compensation committee, and must be approved by the company’s shareholders, which approval requires what we refer to as a Special Majority Approval for Compensation. A Special Majority Approval for Compensation requires shareholder approval by a majority vote of the shares present and voting at a meeting of shareholders called for such purpose, provided that either (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personalconflict of interest (referred to under the Israeli Companies Law as a “personal interest”) in such compensation arrangement or (b) the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement does not exceed 2% of the company’s aggregate voting rights.
91Compensation policy requirements
We have adopted a compensation policy, most recently at the extraordinary general meeting of shareholders held on September 23, 2019, which policy serves as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment or other benefit in respect of employment or engagement. Under the Israeli Companies Law, the compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:
| · | the knowledge, skills, expertise and accomplishments of the relevant office holder; |
the knowledge, skills, expertise and accomplishments of the relevant office holder;
| · | the office holder’s roles and responsibilities and prior compensation agreements with him or her; |
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
| · | the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies; |
the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies;
| · | the impact of disparities in salary upon work relationships in the company; |
the impact of disparities in salary upon work relationships in the company;
| · | the possibility of reducing variable compensation at the discretion of the board of directors; |
the possibility of reducing variable compensation at the discretion of the board of directors;
| · | the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and |
the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
| · | as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.
The compensation policy must also include the following principles:
| · | the link between variable compensation and long-term performance, which variable compensation shall, other than office holder who report to the CEO, be primarily based on measurable criteria; |
the link between variable compensation and long-term performance, which variable compensation shall, other than office holder who report to the CEO, be primarily based on measurable criteria;
| · | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation; |
the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
| · | the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements; |
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the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;
| · | the minimum holding or vesting period for variable, equity-based compensation; and |
the minimum holding or vesting period for variable, equity-based compensation; and
| · | maximum limits for severance compensation. |
maximum limits for severance compensation.
The compensation committee is responsible for (a) recommending the compensation policy to the company’s board of directors for its approval (and subsequent approval by its shareholders) and (b) duties related to the compensation policy and to the compensation of a company’s office holders as well as functions previously fulfilled by a company’s audit committee with respect to matters related to approval of the terms of engagement of office holders, including:
| · | recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years, other than following a company’s initial public offering, in which case such approval must occur within 5 years of the initial public offering); |
recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years, other than following a company’s initial public offering, in which case such approval must occur within 5 years of the initial public offering);
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recommending to the board of directors periodic updates to the compensation policy and assessing implementation of the compensation policy;
| · | recommending to the board of directors periodic updates to the compensation policy and assessing implementation of the compensation policy; |
approving compensation terms of executive officers, directors and employees that require approval of the compensation committee;
| · | approving compensation terms of executive officers, directors and employees that require approval of the compensation committee; |
determining whether the compensation terms of a chief executive officer nominee, which were determined pursuant to the compensation policy, will be exempt from approval of the shareholders because such approval would harm the ability to engage with such nominee; and
| · | determining whether the compensation terms of a chief executive officer nominee, which were determined pursuant to the compensation policy, will be exempt from approval of the shareholders because such approval would harm the ability to engage with such nominee; and |
determining, subject to the approval of the board and under special circumstances, whether to override a determination of the company’s shareholders regarding certain compensation related issues.
| · | determining, subject to the approval of the board and under special circumstances, whether to override a determination of the company’s shareholders regarding certain compensation related issues. |
A copy of our current compensation policy serves as an exhibit to this annual report on Form 20-F.
Nasdaq listing rules compensation committee composition requirements
Under Nasdaq corporate governance rules, we are required to maintain a wholly-independent compensation committee consisting of at least two independent directors or, if we choose to follow requirements under Israeli law, we must disclose that fact in this annual report. Each of the members of the compensation committee is required to be independent under the Nasdaq rules relating to compensation committee members and Rule 10C‑1(b)(1) under the Exchange Act, which are different fromthan the general test for independence of board and committee members. Each of the members of our
Our compensation committee consists of Nissim Mashiach (chairperson), Sharon Kochan and Samuel Moed, each of whom is an independent director under the Nasdaq Stock Market listing rules and each of whom satisfies those requirements.the above-described additional requirements for compensation committee members under the Nasdaq rules and Exchange Act.
Compensation committee charter and role
Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the compensation committee, which include:
| · | the responsibilities set forth in the compensation policy; |
the responsibilities set forth in the compensation policy;
| · | reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and |
reviewing and approving the granting of options and other incentive awards to the extent such authority is delegated by our board of directors; and
| · | reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors. |
reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
Internal Auditor
Under the Israeli Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee. An internal auditor may not be:
| · | a person (or a relative of a person) who holds 5% or more of the company’s outstanding shares or voting rights; |
a person (or a relative of a person) who holds 5% or more of the company’s outstanding shares or voting rights;
| · | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company (i.e., the chief executive officer); |
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company (i.e., the chief executive officer);
| · | an office holder (including a director) of the company (or a relative thereof); or |
an office holder (including a director) of the company (or a relative thereof); or
| · | a member of the company’s independent accounting firm, or anyone on its behalf. |
a member of the company’s independent accounting firm, or anyone on its behalf.
The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures.
The audit committee is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s work plan. Our internal auditor is Mr. Yisrael Gewirtz.
Approval of Related Party Transactions Under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Israeli Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “—Executive Officers and Directors” is an office holder under the Israeli Companies Law.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
| · | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
| · | all other important information pertaining to any such action. |
all other important information pertaining to any such action.
The duty of loyalty includes a duty to:
| · | refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs; |
refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
| · | refrain from any activity that is competitive with the business of the company; |
refrain from any activity that is competitive with the business of the company;
| · | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and |
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
| · | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder. |
disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
Disclosure of personal interests of an office holder and approval of certain transactions
The Israeli Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of and all related material information or documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction of a company, including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even if such shareholder has no personal interest in the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Israeli Companies Law, an extraordinary transaction is defined as any of the following:
| · | a transaction other than in the ordinary course of business; |
| · | a transaction that is not on market terms; or |
| · | a transaction that may have a material impact on a company’s profitability, assets or liabilities. |
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a transaction that is not on market terms; or
a transaction that may have a material impact on a company’s profitability, assets or liabilities.
If it is determined that an office holder has a personal interest in a transaction which is not an extraordinary transaction, approval by the board of directors is required for the transaction, unless the company’s articles of association provide for a different method of approval. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of his or her duty of loyalty. However, a company may not approve a transaction or action that is not in the best interest of the company or that is not performed by the office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors. The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors. If such compensation arrangement or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy, or if the office holder is the chief executive officer (apart from a number of specific exceptions), then such arrangement is further subject to a Special Majority Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances, a Special Majority Approval for Compensation.
Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors (as applicable) determines that he or she should be present in order to present the transaction that is subject to approval. If a majority of the members of the audit committee or the board of directors (as applicable) has a personal interest in the approval of a transaction, then all directors may participate in discussions of the audit committee or the board of directors (as applicable) on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure of personal interests of controlling shareholders and approval of certain transactions
Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes a shareholder who holds 25% or more of the voting rights in the company if no other shareholder holds more than 50% of the voting rights in the company. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. The approval of the audit committee or the compensation committee, the board of directors and the shareholders of the company, in that order, is required for (a) extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or his or her relative, directly or indirectly, including through a company under the control of the controlling shareholder, for the provision of services to the company, (c) the terms of engagement and compensation of a controlling shareholder or his or her relative who is an office holder or (d) the employment of a controlling shareholder or his or her relative by the company, other than as an office holder. In addition, the shareholder approval requires one of the following, which we refer to as a Special Majority:
| · | at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting approves the transaction, excluding abstentions; or |
at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting approves the transaction, excluding abstentions; or
| · | the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company. |
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the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company.
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto. Arrangements regarding the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the compensation committee, board of directors and shareholders by a Special Majority, in that order, and the terms thereof may not be inconsistent with the company’s stated compensation policy.
Pursuant to regulations promulgated under the Israeli Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the audit committee and board of directors.
As of March 15, 2019,2022, Clal Biotechnology Industries Ltd. beneficially owned or controlled, directly and indirectly, 34.7%33.8% of our issued and outstanding ordinary shares.
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shares and (assuming that no other shareholder holds more than 50% of the voting rights in our company) should therefore be deemed a “controlling shareholder” for purposes of the approval of related party transactions under the Israeli Companies Law.
Shareholder duties
Pursuant to the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:
| · | an amendment to the company’s articles of association; |
an amendment to the company’s articles of association;
| · | an increase of the company’s authorized share capital; |
an increase of the company’s authorized share capital;
| · | the approval of related party transactions and acts of office holders that require shareholder approval. |
the approval of related party transactions and acts of office holders that require shareholder approval.
A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, certain shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that he or she has the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Israeli Companies Law does not define the substance of the duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Israeli Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles of association include such a provision. A company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Israeli Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
| · | financial liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned foreseen events and amount or criteria; |
| · | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding, and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (1) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding, and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (2) in connection with a monetary sanction; and
| · | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent. |
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
Under the Israeli Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder, if and to the extent provided in the company’s articles of association:
| · | a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| · | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and |
a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and
| · | a financial liability imposed on the office holder in favor of a third party. |
a financial liability imposed on the office holder in favor of a third party.
Under the Israeli Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
| · | a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| · | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
| · | an act or omission committed with intent to derive illegal personal benefit; or |
an act or omission committed with intent to derive illegal personal benefit; or
| · | a fine or forfeit levied against the office holder. |
a fine or forfeit levied against the office holder.
Under the Israeli Companies Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders. See “—Approval of Related Party Transactions Under Israeli Law.”
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Israeli Companies Law. We have obtained directors’ and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Israeli Companies Law. In addition, we have entered into agreements with each of our directors and executive officers exculpating them from liability to us for damages caused to us as a result of a breach of duty of care and undertaking to indemnify them, in each case, to the fullest extent permitted by our articles of association and Israeli Law.
The maximum indemnification amount set forth in suchthose agreements is limited to an amount equal to the greater of (x)(i) 25% of our total shareholders’ equity based on our most recently financial statements of the time of the actual payment of the indemnification; (ii) $50 million; (iii) 40% of our total market cap (which shall mean the average closing price of the Company’s ordinary shares over the 30 trading days prior to the actual payment of indemnification multiplied by the total number of issued and outstanding shares of the Company as of the date of actual payment); and (iv) in connection with or (y) $25 million.arising out of a public offering of our securities, the aggregate amount of proceeds from the sale by us and/or any shareholder of ours securities in such offering. The maximum amount set forth in suchthose agreements is in addition to amounts actually paid, if any, under insurance policies and/or by a third-party pursuant to an indemnification arrangement.
As of December 31, 2018,2021, we had 7377 employees, 6167 of whom were based in Israel and 12 (including 1 full time service providers)10 based throughout Europe and employed by our German subsidiary. The total number of our full-time employees and the distribution of our employees according to main areas of activity is as of the end of each of the last three years, are set forthfollows: 9 employees in the following table:
| | As of December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
Department | | | | | | | | | |
Administrative | | | 7 | | | | 8 | | | | 9 | |
Research and development | | | 22 | | | | 26 | | | | 24 | |
Manufacturing | | | 23 | | | | 26 | | | | 28 | |
Sales and marketing | | | 20 | | | | 16 | | | | 12 | |
Total | | | 72 | | | | 76 | | | | 73 | |
Duringadministrative department, 25 employees in the periods covered byresearch and development department, 33 employees in the above table,manufacturing department and 10 employees in the sales and marketing department. As of December 31, 2021, we did not employ a significant number of temporary employees.
Israeli labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination, payments to the National Insurance Institute and other conditions of employment, and include equal opportunity and anti-discrimination laws. While none of our employees is party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israeli Ministry of the Economy. These provisions primarily concern pension fund benefits for all employees, insurance for work-related accidents, recuperation pay and travel expenses. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages and believe our relationships with our employees are good.
For information regarding the share ownership of our directors and executive officers, see “ITEM 6.B. Compensation—2014 Equity Incentive Plan” and “ITEM 7.A. Major Shareholders.”
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth information with respect to the beneficial ownership of our shares as of March 15, 20192022 by:
| · | each person or entity known by us to own beneficially more than 5% of our outstanding shares; |
each person or entity known by us to own beneficially more than 5% of our outstanding shares;
| · | each of our directors and executive officers individually; and |
each of our directors and executive officers individually; and
| · | all of our executive officers and directors as a group. |
all of our executive officers and directors as a group.
The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power. The percentage of shares beneficially owned is based on 27,178,83932,509,544 ordinary shares issued and outstanding as of March 15, 2019. We have deemed our ordinary2022. Ordinary shares subject tothat are issuable under stock options or RSUs that are currently exercisable or exercisable within 60 days of March 15, 20192022 are deemed to be outstanding and to be beneficially owned by the person holding the stock option for the purpose of computing the number of shares and percentage ownership of that person. We didThose shares are not deem these sharesdeemed outstanding, however, for the purpose of computing the percentage ownership of any other person. The beneficial ownership does not include a 30 –day option to purchase up to an additional 781,249 ordinary shares that we gave to the Underwriters in relation with the public offering that we had in March 2022.
All of our shareholders, including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “ITEM 10.B. Articles of Association.” None of our principal shareholders nor our directors andor executive officers will havepossesses different or special voting rights with respect to their ordinary shares. Unless otherwise noted below, each shareholder’s address is c/o MediWound Ltd., 42 Hayarkon Street, Yavne 8122745, Israel.
A description of any material relationship that our principal shareholders have had with us or any of our predecessors or affiliates within the past three years is included under “ITEM 7.B. Related Party Transactions.”
Name of Beneficial Owner | | Number of Shares Beneficially Held | | | Percentage of Class | | | Number of Shares Beneficially Held | | | Percentage of Class | |
Directors and Executive Officers | | | | | | | | | | | | |
Stefan T. Wills | | | * | | | | * | | |
Stephen T. Wills | | | | * | | | | * | |
Ofer Gonen | | | * | | | | * | | | | * | | | | * | |
Assaf Segal | | | * | | | | * | | | | * | | | | * | |
Vickie R. Driver | | | * | | | | * | | | | * | | | | * | |
Nissim Mashiach | | | * | | | | * | | | | * | | | | * | |
Sharon Kochan | | | * | | | | * | | | | * | | | | * | |
Gal Cohen(1) | | | 381,202 | | | | 1.4 | % | |
David Fox | | | | * | | | | * | |
Samuel Moed | | | | * | | | | * | |
Sharon Malka | | | * | | | | * | | | | 385,219 | | | | 1.2 | % |
Lior Rosenberg(2) | | | 1,945,322 | | | | 7.1 | % | |
Carsten Henke | | | * | | | | * | | |
Boaz Gur-Lavie | | | | * | | | | * | |
Lior Rosenberg(1) | | | | 1,983,637 | | | | 6.1 | % |
Ety Klinger | | | * | | | | * | | | | * | | | | * | |
Yaron Meyer | | | * | | | | * | | | | * | | | | * | |
All executive officers and directors as a group (11 persons)(3) | | | | | | | | % | |
Principal Shareholders | | | | | | | | | |
Clal Biotechnology Industries Ltd.(4) | | | 9,429,555 | | | | 34.7 | % | |
Wellington Management Group LLP(5) | | | 3,432,542 | | | | 12.6 | % | |
Migdal Insurance & Financial Holdings Ltd.(6) | | | 2,126,058 | | | | 7.8 | % | |
Yelin Lapidot(7) | | | 1,703,081 | | | | 6.3 | % | |
All executive officers and directors as a group (13 persons)( 2) | | | | 3,085,968 | | | | 9.2 | % |
Principal Shareholders (who are not Directors or Executive Officers) | | | | | | | | | |
Clal Biotechnology Industries Ltd.(3) | | | | 10,980,805 | | | | 33.8 | % |
(1) | Shares beneficially owned consist of: (i) 131,102 ordinary shares held directly by Gal Cohen; and (ii) 250,100 ordinary shares issuable upon exercise of outstanding options that are currently exercisable or exercisable within 60 days of March 15, 2019. |
(2) | As reported on a Schedule 13G/A filed on February 8, 2018, shares beneficially owned consist of: (i) 140,367146,532 ordinary shares held directly by Prof. Rosenberg; (ii) 94,750126,900 ordinary shares issuable upon exercise of outstanding options held directly by Prof. Rosenberg that are currently exercisable or exercisable within 60 days of March 15, 2019;2022; and (iii) 1,710,205 ordinary shares held by L.R. Research and Development Ltd. in trust for the benefit of Prof. Rosenberg. Prof. Rosenberg is the sole shareholder of L.R. Research and Development Ltd. |
(3)(2) | Shares beneficially owned consist of 1,987,1311,944,856 ordinary shares held directly or indirectly by such executive officers and directors and 874,2051,141,113 ordinary shares issuable upon exercise of outstanding options and RSU’s that are currently exercisable or exercisable within 60 days of March 15, 2019.2022. |
(4)(3) | As reported on a Schedule 13G/A filed on February 12, 2019, sharesShares beneficially owned consist of: (i) 8,208,973 ordinary shares held by Clal Life Sciences, LP, whose managing partner is Clal Application Center Ltd., a wholly-owned subsidiary of CBI; and (ii) 1,220,5822,682,665 ordinary shares held by CBI.CBI and (iii) 89,167 ordinary shares issuable upon exercise of outstanding options held directly by CBI that are currently exercisable or exercisable within 60 days of March 15, 2022. As reported on a Schedule 13G/A filed on February 14, 2019 by Access Industries Holdings LLC, Access Industries Holdings LLC indirectly owns 100% of the outstanding shares of Clal Industries Ltd., which owns 47.17% of the outstanding shares of CBI. The address of Clal Industries Ltd. is the Triangular Tower, 3 Azrieli Center, Tel Aviv 67023, Israel and the address of Access Industries Holdings LLC is c/o Access Industries Inc., 40 West 57th Street, New York, New York 10019, United States. |
(5) | As reported on a Schedule 13G/A filed on February 12, 2019, shares beneficially owned consist of 3,432,542 ordinary shares owned of record by clients of one or more investment advisers directly or indirectly owned by Wellington Management Group LLP. As reported on a Schedule 13G/A filed on February 12, 2019, of the 3,432,542 shares beneficially owned, Wellington Management Group LLP has shared voting power with respect to 3,128,149 ordinary shares and shared dispositive power with respect to all 3,432,542 ordinary shares; Wellington Group Holdings LLP has shared voting power with respect to 3,128,149 ordinary shares and shared dispositive power with respect to all 3,432,542 ordinary shares; Wellington Investment Advisors Holdings LLP has shared voting power with respect to 3,128,149 ordinary shares and shared dispositive power with respect to all 3,432,542 ordinary shares; and Wellington Management Company LLP has shared voting power with respect to 3,128,149 ordinary shares and shared dispositive power with respect to 3,326,736 ordinary shares. The address of Wellington Management Group is c/o Wellington Management Company LLP, 280 Congress Street, Boston, MA 02210. |
(6) | As reported on a Schedule 13G/A filed on February 14, 2019, shares beneficially owned consist of: (i) 1,909,112 ordinary shares held for members of the public through, among others, provident funds, mutual funds, pension funds and insurance policies, which are managed by direct and indirect subsidiaries of Migdal Insurance & Financial Holdings Ltd (“Migdal”), and (ii) 216,946 ordinary shares are beneficially held for their own account (Nostro account). Migdal is a widely held public company listed on the Tel Aviv Stock Exchange. The address of Migdal is 4 Efal Street, Petah Tikva 49512, Israel. |
(7) | As reported on a Schedule 13G/A filed on February 14, 2019, shares beneficially owned consist of: 1,423,081 ordinary shares beneficially owned by mutual funds managed by Yelin Lapidot Mutual Funds Management Ltd., and (ii): 280,000 ordinary shares beneficially owned by Yelin Lapidot Provident Funds Management Ltd., each a wholly-owned subsidiary of Yelin Lapidot Holdings Management Ltd. (“Yelin Lapidot Holdings”), for the benefit of the members of the mutual funds. As reported on a Schedule 13G/A filed on February 14, 2019, Dov Yelin and Yair Lapidot each own 24.38% of the share capital and 25% of the voting rights of Yelin Lapidot Holdings, and are responsible for the day-to-day management of Yelin Lapidot Holdings. As reported on a Schedule 13G/A filed on February 14, 2019, each of Yelin Lapidot Mutual Funds Management Ltd. and Yelin Lapidot Provident Funds Management Ltd. operates under independent management and makes its own independent voting and investment decisions. The address of Yelin Lapidot Holdings is 50 Dizengoff St., Dizengoff Center, Gate 3, Top Tower, 13th floor, Tel Aviv 64332, Israel. |
Changes in Ownership of Major Shareholders
Prior To our knowledge, other than as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage ownership held by any major shareholder since January 1, 2019. The major shareholders listed above do not have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our IPO in March 2014,ordinary shares.
Controlling Shareholder
Because CBI (and its affiliated entities, including Access Industries Holdings LLC)affiliates) beneficially owned 9,789,555, or 63.4%,controlled, directly and indirectly, 34.6% of our ordinary shares. As of March 15, 2019, primarily due to our issuance ofissued and outstanding ordinary shares CBI’s (and its affiliated entities’) ownership of our ordinary shares decreased to 34.7%.
The beneficial ownership of our ordinary shares by other current major shareholders of our company has also fluctuated over the course of the past three years. The beneficial ownership of each of Migdal, Lior Rosenberg and Wellington Management Group LLP has been reported as follows as of the end of 2016, 2017 and 2018, respectively:
| · | Migdal: 7.9%, 8.4% and 8.1% |
| · | Lior Rosenberg: 8.7%, 7.2% and 7.1% |
| · | Wellington Management Group LLP: 8.9%, 13.5% and 12.6%
|
The beneficial ownership of an additional current major shareholder—Yelin Lapidot (and its affiliated entities)—has increased over the last two years, going from 1,252,381 ordinary shares (5.7%) as of March 2017 to 1,432,381 ordinary shares (5.3%) and 1,703,081 ordinary shares (6.3%) as of the end of 2017 and 2018, respectively.
Harel Insurance Investments & Financial Services Ltd., a former 5% shareholder of our company, ceased to hold 5% over the course of 2016, having dropped to 2.9% as of December 31, 2016.2021, it is considered a “controlled shareholder” under the Israeli Companies Law.
Registered Holders
As of March 15, 2019,2022, we had one holder of record of our ordinary shares in the United States, which is Cede & Co., the nominee of The Depository Trust Company. This shareholder held in the aggregate 57.2%64% of the 17,178,83932,481,213 ordinary shares issued and outstanding as of December 31, 2018.March 15, 2022. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held by brokers or other nominees.
| B. | Related Party Transactions |
Information Rights Agreement
We have entered into an information rights agreement with CBI which provides CBI with certain information rights relating to our financial information of the company and certain other information necessary for CBI to meet Israeli Securities Law requirements. CBI is not required to reimburse us for expenses we incur in providing such information.
Registration Rights Agreement
We have entered into aare party to an amended and restated registration rights agreement, dated April 6, 2021, with certain of our shareholders (the “Registration Rights Agreement”). The Registration Rights Agreement, replaceswhich was approved by our shareholders at our 2021 annual general meeting of shareholders, replaced the shareholders’ rightregistration rights agreement, dated August 2, 2007, as amended on December 30, 2010, among us andMarch 3, 2014 (the “Original Registration Rights Agreement”), that we had entered into in connection with our initial public offering with certain of our shareholders.pre-IPO shareholders, which expired by its own terms on its seven-year anniversary. The ordinary shares held by most of our pre-IPO shareholders who were party to the Original Registration Rights Agreement were no longer entitled to registration rights under that agreement as of the time that it expired, given their ability to freely sell their shares in the open market under Rule 144 of the Securities Act. However, each of CBI and Professor Lior Rosenberg, and their affiliated entities that hold ordinary shares (consisting of Clal Life Sciences LP and L.R. Research & Development Ltd., respectively) remained entitled to registration rights as of the time of the expiration of the Original Registration Rights Agreement, and we therefore entered into the Registration Rights Agreement with them as a means of extending those rights. . The Registration Rights Agreement provides that certainto the holders of our ordinary shares havethat are party to the agreement the right to demand that we file a registration statement or request that their ordinary shares be covered by a registration statement that we are otherwise filing. OnIn March 7, 2016,2019, we filed, and the SEC declared effective, ouron April 22, 2019, a shelf registration statement on Form F-3 whichthat registered the resale of the 11,640,82711,240,827 shares subjectthat were then entitled to registration rights. Under SEC rules, shelfrights under the Original Registration Rights Agreement. That registration statement terminated uponremains in effect as of the third anniversarydate of its effectiveness.this Annual Report. The registration rights will terminate on March 24, 2021. The registration rightsunder the Registration Rights Agreement are described in more detail under “ITEM 10.B. Articles of Association.”Association” and in Exhibit 2.1 to this Annual Report, which is incorporated by reference in that ITEM 10.B.
Founders’ and Shareholders’ Agreement
In January 2001, we entered into a founders’ and shareholders’ agreement (the “Founders Agreement”), with CBI, Prof. Lior Rosenberg, our Chief Medical Technology Officer, and LR, a private company which is wholly-owned by Prof. Rosenberg. The Founders Agreement was amended in 2006. Pursuant to the Founders Agreement, in exchange for the issuance of ordinary shares and certain rights thereunder and the payment of certain fixed amounts, Prof. Rosenberg granted to us a perpetual, exclusive, non-revocable, royalty-free, sub-licensable, worldwide license for intellectual property relating to debridement using products based on our proteolytic enzyme technology. As of the date hereof, all of the payments under the Founders Agreement were paid by us to Prof. Rosenberg in accordance with the Founders Agreement. The Founders Agreement also provided for anti-dilution, pre-emptive rights, a right of first refusal on the sale of our ordinary shares and bring-along rights, all of which were subsequently terminated.
Patent Purchase Agreement
In November 2010, we entered into a patent purchase agreement (the “Patent Purchase Agreement”), with LR. In accordance with the Patent Purchase Agreement, we acquired from LR a patent family covering an occlusive dressing system for use in the treatment of burns, which is not a part of NexoBrid, EscharEx or our pipeline product candidates, in consideration of our reimbursement of his costs of filing and obtaining the patents and a one-time payment, in a total amount of $88,000, and in addition, fixed annual payments of $30,000 for every 12 months until the expiration of the patent in May 2018.
LR License Agreement
In September 2016, we signed an exclusive, perpetual, worldwide license agreement with LR for use of a certain patent and related intellectual property (the “LR License Agreement”). Under the LR License Agreement, we received an exclusive license to use LR’s patent and intellectual property to develop, manufacture, market and commercialize a wound dressing that is advantageous for application of a debrided wound bed for the treatment of burns and other wounds. The LR License Agreement may be terminated by LR or us, subject to the dispute resolution procedures contained in the LR License Agreement, as a result of a material breach by the other party when such breach has not been cured within thirty days of written notification, or the other party’s liquidation or entering into any arrangement with its creditors. We may also terminate the LR License Agreement at any time, in whole or in part, by giving LR 90 days’ written notice and we shall have no obligation to compensate LR as a result of such termination.
In consideration for the LR License Agreement, we have agreed to make a one-time payment of $64,000 within 60 days following the receipt of marketing authorization with respect to products we develop pursuant to the LR License Agreement in the US or the EU. In addition, we undertook to pay royalties of 10% from net sales of product developed pursuant to the LR License Agreement and 10% of all consideration actually received by us from sublicensing the Licensed Products. In the event that a Competitor Product, as defined in the LR License Agreement, is marketed in certain territories, the royalty payments or sublicense fees paid by us to LR in that territory will be reduced to 5%.
Sub-Lease Agreement
In January 2018, we entered into a sub-lease agreement (the “Sub-Lease Agreement”), with Clal Life Sciences, L.P. (“CLS”), a subsidiary of CBI, our indirect parent company,controlling shareholder, which was amended in February 2019. Pursuant to the Sub-Lease Agreement, we currently sublease approximately 32,300 square feet of laboratory, office and clean room space from CLS and our yearly rent is $385,000.$0.4 million. The Sub-Lease Agreement is scheduled to expire on October 30, 2022. The sub-lease agreement include an option to extend the lease period for additional 3 years at our sole discretion.2025.
Agreements with Directors and Officers
Employment Agreements
We have entered into employment agreements with each of our executive officers, which include standard provisions for a company in our industry regarding non-competition/solicitation, confidentiality of information and assignment of inventions. However, the enforceability of the non-competition provisions may be limited under applicable law. Our executive officers will not receive benefits upon the termination of their respective employment with us, other than payment of salary and benefits (and limited accrual of vacation days) during the required notice period for termination of their employment, which varies for each individual.
Options.
Since our inception, we have granted options to purchase our ordinary shares to our officersdirectors and certain of our directors.executive officers. Such option agreements may contain acceleration provisions upon certain merger, acquisition or change of control transactions. We describe our option plans under “ITEM 6.B. Compensation—2003 Israeli Share Option Plan” and “ITEM 6.B. Compensation—2014 Equity Incentive Plan.” If an executive officer is involuntarily terminated without cause or the executive officer voluntarily terminates his employment for good reason (as defined in the employment agreement), all options will immediately vest. Upon the consummation of a merger or acquisition transaction, an executive officer’s options will be assumed or substituted by the surviving company, if applicable, or, in the compensation committee’s sole discretion, will vest immediately or be amended, modified or terminated. Our compensation committee approved accelerated vesting in the case of a merger or an acquisition transaction for certain of our directors and executive officers with respect to the option grantsagreements dated December 23, 2015, June 22, 2017, January 16, 2018, and December 31, 2018.2018, May 2, 2019, April 23, 2020 and March 4, 2021.
RSUs
Under the 2014 Plan, we have granted RSUs to our executive officers and our chairman of the board. The RSU agreements generally provide for vesting of RSUs over a four-year period of continuous employment or service, with 25% of the RSUs vesting at the lapse of one year following the vesting commencement date, and the remaining 75% of the RSUs vesting in three equal installments, at the lapse of each of the following three years. Absent a specific acceleration provision, if a grantee’s service is terminated for any reason, all RSUs that have not vested will immediately terminate. RSUs that have vested but have not been settled yet for underlying ordinary shares may generally be settled within the three months following the termination of the service of the grantee, other than in the case of termination due to death or disability (in which case the grantee or his/her estate will have one year to settle the vested RSUs for underlying ordinary shares) or termination for cause (in which case all unsettled RSUs will immediately terminate). Upon the consummation of a merger or acquisition transaction, an executive officer’s or the chairman’s RSUs will be assumed or substituted by the surviving company, if applicable, or, in the compensation committee’s sole discretion, will vest immediately or be amended, modified or terminated. The RSUs that we grant may contain acceleration provisions upon certain merger, acquisition or change of control transactions, if approved by our board of directors with respect to a specific grant. The RSUs are generally subject to the further terms of the 2014 Plan, which we describe under “ITEM 6.B. Compensation—2014 Equity Incentive Plan.”
Exculpation, indemnification and insurance.
Our articles of association permit us to exculpate, indemnify and insure each of our directors and office holders to the fullest extent permitted by the Israeli Companies Law. Additionally, we have entered into indemnification agreements with each of our directors and executive officers, undertaking to indemnify them to the fullest extent permitted by Israeli law, including with respect to liabilities resulting from a public offering of our shares, to the extent that these liabilities are not covered by insurance. We have also obtained Directors and Officers insurance for each of our executive officers and directors. See “ITEM 6.C. Board Practices—Exculpation, Insurance and Indemnification of Directors and Officers.”
Family Relationships
We are not aware of any familial relationships between any of our directors and officers.
| C. | Interests of Experts and Counsel |
Not applicable.
Item 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and Other Financial Information |
Consolidated Financial Statements
We have appended our consolidated financial statements at the end of this annual report, starting at page F-2, as part of this annual report.See Item 18. “Financial Statements”.
Legal and Arbitration Proceedings
From time to time, we may be party to litigation or subject to claims incident to the ordinary course of business.
On September 15, 2014,Settlement of Litigation Involving Our Company, PolyHeal Shareholders and Teva
In March 2019, we entered into settlement agreements and mutual general releases with respect to our previously-reported litigation arising under a statementseries of claim was filed againstagreements among PolyHeal, Teva and our company that we entered into in 2010 (collectively, the company by certain shareholders“2010 PolyHeal Agreements”). For a description of PolyHeal. The plaintiffs allege that the company is obligatedhistory of the proceedings related to pay them a total amount of approximately $1.5 million in exchange for their respective portion of PolyHeal’s shares, following the milestone occurrence under the 2010 PolyHeal Agreement. This claim arises out ofAgreements and a dispute withrelated to a collaboration agreement between Teva underand our company that we entered into in 2007 (the "2007 Teva Agreement,") please see “ITEM 8. Financial Information— A. Consolidated Statements and Other Financial Information— Legal Proceedings” in our annual report on Form 20-F for the 2010 PolyHeal Agreement. Onyear ended December 14, 2014, the company31, 2018, filed a petition for a right to defend (the “Petition”) with the Tel Aviv-Jaffa District Court, in which the company: (i) rejected the arguments raised against itSEC on March 25, 2019 (the “2018 Form 20-F”).
As reported in the statement of claim; (ii) emphasized that its obligation under the 2010 PolyHeal Agreement to purchase the 7.5% of PolyHeal’s shares is subject to the consumption of the deferred closing, as defined in the 2010 PolyHeal Agreement, including the receipt of the funds from Teva2018 Form 20-F, on a “back to back” basis; and (iii) stated that since no such payment has been made by Teva, the company is not subject to any obligation to purchase PolyHeal shares and/or make any payments to PolyHeal’s shareholders.
On November 13, 2017, the Tel Aviv-Jaffa District Court issued a ruling in favor of the plaintiffs. The court ruled that we are obligated to purchase PolyHeal’s shares for approximately $6.75 million plus applicable interest (totaled in $7.5 million as of the ruling date), which represents the purchase price for the total number of shares that the PolyHeal Agreements contemplate would be acquired by the Company from the shareholders of PolyHeal. The Court ordered that we are obligated to purchase shares in PolyHeal from the plaintiffs, on the basis of their actual share holdings in PolyHeal as of January 15, 2013, for approximately $1.3 million plus applicable interest (totaled in $1.5 million as of the ruling date), within 15 days from the date of the Court’s ruling. On December 27, 2017, we filed an appeal to the Supreme Court over the said ruling, alleging, among other things, that the agreement according to which the ruling was granted was misinterpreted by the District Court. We further alleged that both the wording of the agreement and the conduct of the parties thereunder prove that our obligation to purchase PolyHeal’s shares was subject to the prior receipt of funds, which were never received, from Teva. On January 30, 2018, certain PolyHeal shareholders filed a cross appeal, alleging that they are entitled to receive from us a full repayment of their counsel’s fees in a sum equal to 12.5% of the consideration to be paid for their shares.
Accordingly, a full provision for the purchase price of the shares plus the accrued interest, totaling $7.5 million was recorded within the loss from discontinued operations in 2017 in respect of this claim, of which approximately $1.5 million was paid to plaintiffs in consideration for PolyHeal’s shares.
On March 24, 2019, we entered into the PolyHeal Settlementan initial settlement with the plaintiffs,plaintiffs— certain shareholders of PolyHeal — which contingent uponsettlement was subsequently approved by the Israeli Supreme Court’s approval of the PolyHeal Settlement Agreement, settlesCourt, which settled any and all debts, obligations or liabilities that we and the plaintiffs had has or may have to the other party under,one another in connection with or arising out of the transactions described above.under the 2010 PolyHeal Agreements. Pursuant to the terms of this PolyHeal Settlement Agreement,settlement agreement, the plaintiffs willwere to repay to the company a non-material portion of the amount that was ruled in their favor under thea November 2017 Ruling,ruling, and the Israeli Supreme Court willwas to approve and accept the appeal that was filed by us onin December, 2017, cancel the 2017 Rulingruling that was issued by the Israeli District Court against us, and reject the Cross-Appeal. However, if the Israeli Supreme Court does not approve of the PolyHeal Settlement Agreement or refuses to take the actions requested from the courtshareholders’ cross-appeal.
Also as reported in the PolyHeal Settlement Agreement, these matters may result in the continuation of the existing litigation or new litigation or arbitration proceedings, any of which would materially increase our expenses and may disrupt our management’s focus2018 Form 20-F, on our business. See “ITEM 3.D. Risk Factors—We may have liabilities under our former agreements with Teva Pharmaceutical Industries Ltd. and PolyHeal Ltd.”
On March 24, 2019, we entered into a settlement agreement and mutual general release (the “Teva Settlement Agreement”) with Teva, which was contingent upon the Supreme Court’s approval of the settlement with the PolyHeal Settlement Agreement,plaintiffs (which approval was received), which settlessettled any and all debts, obligations or liabilities that each party or any of its controlled affiliates had or has to the other party or any of its controlled affiliates under, in connection with or arising out of certain transactions and collaboration agreements entered into between us and Teva from 2007 to 2012, (collectively, the “Collaboration Agreements”), which havehad terminated effective as of December 31, 2012 and September 2, 2013, as applicable, and which had related to NexoBrid and PolyHeal, including the abovea milestone payment to PolyHeal milestone and certain additional payments, which arewere primarily intended to serve as reimbursement for development and manufacturing costs, thatwhich we had believed were to be borne by Teva through the effective date of termination of such Collaboration Agreementsthose collaboration agreements in December 2012.
Pursuant to the terms of the Teva Settlement Agreement,settlement agreement, Teva has agreed to pay us $4.0 million in cash, and to reduce the contingent consideration that is payable to Teva pursuant to the our repurchase of our shares from Teva in 2013, so that we will beare obligated to pay Teva annual payments at a reduced rate of 15% of its recognized revenues from the sale or license of NexoBrid after January 1, 2019, up to a reduced aggregate amount of $10.2 million. In addition, we also agreed to indemnify defend and hold harmless Teva and its controlled affiliates from and against claims relating to a certain milestone related to PolyHeal under an agreement associated with the Collaboration Agreements,our collaboration agreements with Teva, for up to an amount of $10$10.2 million, if a notice of such claim has been received by us prior to December 31, 2023.
On December 13, 2020, we signed an amendment to the Teva settlement agreement that replaces the revenue-based payment mechanism with a fixed payment schedule. The aggregate amount paid to Teva of up to $10.2 million and the other terms, including with respect to our indemnification obligations, in the Teva settlement agreement are unchanged. Out of the $3 million already due to Teva we paid $1 million of the on December 2020 and the balance will be paid in twelve quarterly equal installments during the period commencing on January 1, 2021 and ending on December 31, 2023. In addition, commencing on January 1, 2021, we have agreed to pay Teva an aggregate annual amount of $1 million in four quarterly equal installments, unless we do not recognize any revenues generated from the sale or license of NexoBrid in any such quarter, up to an aggregate amount equal to $7.2 million regardless of the number of quarters required for purposes of the payment of such aggregate amount.
In September 2019, we entered into a series of additional settlement agreements and mutual general releases with certain shareholders of PolyHeal, including Clal Biotechnology Industries Ltd. (CBI), our controlling shareholder, which together constitute the majority of PolyHeal's shareholders. Those additional settlement agreements settle any and all debts, obligations or liabilities that each party or any of its affiliates had or has to the other party or any of its affiliates, in connection with or arising out of the series of 2010 PolyHeal Agreements. Pursuant to these settlement agreements, we paid an aggregate amount of approximately $2.8 million and received 14,473 shares of PolyHeal.
Dividend Policy
We have never declared or paid cash dividends to our shareholders and we do not intend to pay cash dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.
No significant changes have occurred since December 31, 2018,2021, except as otherwise disclosed in this annual report.
Item 9. | THE OFFER AND LISTING |
Our ordinary shares have been tradedtrade on the Nasdaq Global Market under the symbol “MDWD”.
As of March 15, 2019, we had 9 holders of record of our ordinary shares. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Not applicable.
See “—Listing Details” above.
Not applicable.
Not applicable.
Not applicable.
Item 10. | ADDITIONAL INFORMATION |
Not applicable.
| B. | Articles of Association |
Our authorized share capital consists of 37,244,508 ordinary shares, par value NIS 0.01 per share, of which 27,178,839 shares are issued and outstanding as of March 15, 2019.
AllA copy of our outstanding ordinary shares are validly issued, fully paidamended and non-assessable. Our ordinary shares are not redeemable and do not have any preemptive rights.
Our prior articles were replaced in March 2014 by newrestated articles of association is attached as Exhibit 1.1 to this Annual Report. Other than as disclosed below, the information called for by this Item is set forth in Exhibit 2.1 to our Annual Report on Form 20-F for the year ended December 31, 2019 and at which time all of our issued and outstanding preferred shares convertedis incorporated by reference into ordinary shares. On June 2018, we amended the articles by increasing the share capital of the Company to NIS 372,445.08 divided into 37,244,508 of our ordinary shares. The description below is a summary of the material provisions of our new articles of association and of the Companies Law.
Voting rights and conversion.
All ordinary shares have identical voting and other rights in all respects.
Transfer of shares
Our fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association, unless the transfer is restricted or prohibited by another instrument, applicable law or the rules of a stock exchange on which the shares are listed for trade. The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.this Annual Report.
Election of directors
Our ordinary shares do not have cumulative voting rights for the election of directors. As a result, the holders of a majority of the voting power represented at a meeting of shareholders have the power to elect alleach of our directors, subject to the special approval requirements for external directors described under “ITEM 6.C. Board Practices—External Directors.” Under our articles of association, our board of directors must consist of at least five and not more than nine directors, including at least two external directors required to be appointed under the Israeli Companies Law. At any time the minimum number of directors (other than the external directors) shall not fall below three. Pursuant to our articles of association, each of our directors, other than the external directors, for whom special election requirements apply under the Israeli Companies Law, will be appointed by a simple majority vote of holders of our voting shares, participating and voting at an annual general meeting of our shareholders. Each director will serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal by a vote of the majority voting power of our shareholders at a general meeting of our shareholders or until his or her office expires by operation of law, in accordance with the Israeli Companies Law. In addition, ourOur articles of association allow our board of directors to appoint directors to fill vacancies on the board of directors to serve until the next annual general meeting of shareholders. External directors are elected for an initial term of three years, may be elected for additional terms of three years each under certain circumstances, and may be removed from office pursuant to the terms of the Israeli Companies Law. Under regulations recently promulgated under the Israeli Companies Law, Israeli public companies whose shares are traded on certain U.S. stock exchanges, such as the Nasdaq Global Market and that lack a controlling shareholder are exempt from the requirement to appoint external directors. See “ITEM 6.C. Board Practices—Board of Directors and External Directors.”
Dividend and liquidation rights
We may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under the Israeli Companies Law, dividend distributions are determined by the board of directors and do not require the approval of the shareholders of a company unless the company’s articles of association provide otherwise. Our articles of association do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our board of directors.
Pursuant to the Israeli Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over the previous two years, according to our then last reviewed or audited financial statements, provided that the end of the period to which the financial statements relate is not more than six months prior to the date of the distribution. If we do not meet such criteria, then we may distribute dividends only with court approval. In each case, we are only permitted to distribute a dividend if our board of directors and the court, if applicable, determines that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Exchange controls
There are currently no Israeli currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the shares or interest or other payments to non-residents of Israel, except for shareholders who are subjects of countries that are, or have been, in a state of war with Israel.
Shareholder meetings
Under Israeli law, we are required to hold an annual general meeting of our shareholders once every calendar year that must be held no later than 15 months after the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to in our articles of association as extraordinary general meetings. Our board of directors may call extraordinary general meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Israeli Companies Law provides that our board of directors is required to convene an extraordinary general meeting upon the written request of (i) any two or more of our directors or one-quarter or more of the members of our board of directors or (ii) one or more shareholders holding, in the aggregate, either (a) 5% or more of our outstanding issued shares and 1% of our outstanding voting power or (b) 5% or more of our outstanding voting power.
Subject to the provisions of the Israeli Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may generally be between four and 21 days prior to the date of the meeting and in certain circumstances, between four and 40 days prior to the date of the meeting. Furthermore, the Israeli Companies Law requires that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
| · | amendments to our articles of association; |
| · | appointment or termination of our auditors; |
| · | appointment of external directors; |
| · | approval of certain related party transactions; |
| · | increases or reductions of our authorized share capital; |
| · | the exercise of our board of director’s powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management. |
The Israeli Companies Law requires that a notice of any annual general meeting or extraordinary general meeting be provided to shareholders at least 21 days prior to the meeting and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Under the Israeli Companies Law and under our articles of association, shareholders are not permitted to take action by way of written consent in lieu of a meeting.
Voting Rights
Quorum requirements
Pursuant to our articles of association, holders of our ordinary shares are entitled to one vote for each ordinary share held on all matters submitted to a vote before the shareholders at a general meeting. As a foreign private issuer, the quorum required for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between them at least 25% of the total outstanding voting rights. A meeting adjourned for lack of a quorum is generally adjourned to the same day in the following week at the same time and place or to a later time or date if so specified in the notice of the meeting. At the reconvened meeting, any two or more shareholders present in person or by proxy shall constitute a lawful quorum.
Vote requirements
Our articles of association provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by the Israeli Companies Law or by our articles of association. Under the Israeli Companies Law, each of (i) the approval of an extraordinary transaction with a controlling shareholder and (ii) the terms of employment or other engagement of the controlling shareholder of the company or such controlling shareholder’s relative (even if such terms are not extraordinary) requires the approval described above under “ITEM 6.C. Board Practices—Approval of Related Party Transactions Under Israeli Law—Disclosure of personal interests of controlling shareholders and approval of certain transactions.” Under our articles of association, the alteration of the rights, privileges, preferences or obligations of any class of our shares requires a simple majority of the class so affected (or such other percentage of the relevant class that may be set forth in the governing documents relevant to such class), in addition to the ordinary majority vote of all classes of shares voting together as a single class at a shareholder meeting.
Further exceptions to the simple majority vote requirement are a resolution for the voluntary winding up, or an approval of a scheme of arrangement or reorganization, of the company pursuant to Section 350 of the Israeli Companies Law, which requires the approval of holders of 75% of the voting rights represented at the meeting and voting on the resolution.
Access to corporate records
Under the Israeli Companies Law, shareholders are provided access to: minutes of our general meetings; our shareholders register and principal shareholders register, articles of association and annual audited financial statements; and any document that we are required by law to file publicly with the Israeli Companies Registrar or the Israel Securities Authority. In addition, shareholders may request any document related to an action or transaction requiring shareholder approval under the related party transaction provisions of the Israeli Companies Law. We may deny this request if we believe it has not been made in good faith or if such denial is necessary to protect our interest or protect a trade secret or patent.
Modification of class rights
Under the Israeli Companies Law and our articles of association, the rights attached to any class of share, such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the shares of that class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set forth in our articles of association.
Registration rights
We have entered into the Registration Rights Agreement with certain of our shareholders. Pursuant to the Registration Rights Agreement, holders of a total of 11,640,827 of our ordinary shares have the right to require us to register these shares under the Securities Act under specified circumstances and will have incidental registration rights as described below. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. On March 7, 2016, the SEC declared effective our shelf registration statement on Form F-3, which registered the resale of the 11,640,827 shares subject to registration rights.
Demand registration rights
At any time, the holders of a majority of the registrable securities (as defined in the Registration Rights Agreement) then outstanding may request that we file a registration statement with respect to a majority of the registrable securities then outstanding (or a lesser percentage if the anticipated aggregate offering price, net of selling expenses, exceeds $5.0 million). Upon receipt of such registration request, we are obligated to file a registration statement. Currently, as we are eligible under applicable securities laws to file a registration statement on Form F-3, we may be required to effect up to two such registrations within any 12-month period.
We will not be obligated to file a registration statement at such time if in the good faith judgment of our board of directors, such registration would be materially detrimental to the company and its shareholders because such action would (i) materially interfere with a significant acquisition, corporate reorganization or other similar transaction involving us, (ii) require premature disclosure of material information that we have a bona fide business purpose for preserving as confidential or (iii) render us unable to comply with requirements under the Securities Act or Exchange Act. In addition, we have the right not to effect or take any action to effect a registration statement during the period that is 60 days (or 30 days in the case of a registration statement on Form F-3) before the date of filing our registration statement (as estimated by us in good faith), and ending on a date that is 180 days (or 90 days in the case of a registration statement on Form F-3) after the date of such filing.
Piggyback registration rights
In addition, if we register any of our ordinary shares in connection with the public offering of such securities solely for cash, the holders of all registrable securities are entitled to at least 10 days’ notice of the registration and to include all or a portion of their ordinary shares in the registration. If the public offering that we are effecting is underwritten, the right of any shareholder to include shares in the registration related thereto is conditioned upon the shareholder accepting the terms of the underwriting as agreed between us and the underwriters and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of our offering.
Other provisions
We will pay all registration expenses (other than underwriting discounts and selling commissions) and the reasonable fees and expenses of a single counsel for the selling shareholders, related to any demand or piggyback registration. The demand and piggyback registration rights described above will expire on March 24, 2021, five years after our initial public offering.
Acquisitions Under Israeli Law
Full tender offer
A person wishing to acquire shares of an Israeli public company and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued and outstanding shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will also be accepted if the shareholders who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of shares.
Upon a successful completion of such a full tender offer, any shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition an Israeli court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may include in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli court as described above.
If a tender offer is not accepted in accordance with the requirements set forth above, the acquirer may not acquire shares from shareholders who accepted the tender offer that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class.
Special tender offer
The Israeli Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of 25% or more of the voting rights in the company. This requirement does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, subject to certain exceptions. A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) the offeror acquired shares representing at least 5% of the voting power in the company and (ii) the number of shares tendered by shareholders who accept the offer exceeds the number of shares held by shareholders who object to the offer (excluding the purchaser, controlling shareholders, holders of 25% or more of the voting rights in the company or any person having a personal interest in the acceptance of the tender offer). If a special tender offer is accepted, the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
The Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Israeli Companies Law are met, by a majority vote of each party’s shareholders. In the case of the target company, approval of the merger further requires a majority vote of each class of its shares.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the votes of shares represented at the meeting of shareholders that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the voting rights or the right to appoint 25% or more of the directors of the other party, vote against the merger. If, however, the merger involves a merger with a company’s own controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same Special Majority approval that governs all extraordinary transactions with controlling shareholders (as described under “ITEM 6.C. Board Practices—Approval of Related Party Transactions Under Israeli Law—Disclosure of personal interests of controlling shareholders and approval of certain transactions.”)
If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the petition of holders of at least 25% of the voting rights of a company. For such petition to be granted, the court must find that the merger is fair and reasonable, taking into account the respective values assigned to each of the parties to the merger and the consideration offered to the shareholders of the target company. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the merging entities, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger is filed with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party.
Anti-takeover measures under Israeli law
The Israeli Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights with respect to voting, distributions or other matters and shares having preemptive rights. As of March 15, 2019, no preferred shares are authorized under our articles of association. In the future, if we do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may have the ability to frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization and designation of a class of preferred shares will require an amendment to our articles of association, which requires the prior approval of the holders of a majority of the voting power attaching to our issued and outstanding shares at a general meeting. The convening of the meeting, the shareholders entitled to participate and the majority vote required to be obtained at such a meeting will be subject to the requirements set forth in the Israeli Companies Law as described above in “—Voting Rights.”
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust Company, New York, New York.
For a description of the registration rights present inthat are subject to our Registration Rights Agreement, see “ITEM 7.B. Related Party Transactions—Registration Rights Agreement.”
For a description of our contract with the U.S. Biomedical Advanced Research and Development Authority, see “ITEM 4.B. Business Overview—Our Focus—Burn Care—BARDA Contract.”
109For a description of our exclusive license and supply agreements with Vericel, see “ITEM 4.B. Business Overview— Marketing, Sales and Distribution—Vericel License and Supply Agreements.”
For a description of our license agreement with Mark Klein, see “ITEM 4.B. Business Overview—Intellectual Property—Klein License Agreement.”
We have entered into an agreement with Challenge Bioproducts Corporation Ltd. (“CBC”), a corporation organized and existing under the laws of the Republic of China, dated January 11, 2001, as amended on February 28, 2010, pursuant to which CBC uses proprietary methods to manufacture bromelain SP and supplies us with this intermediate drug substance in bulk quantities. According to the terms of the agreement, CBC shall not, and shall not permit related companies or a third party to, manufacture, use, supply or sell the raw materials for the use or production of a product directly or indirectly competing with any of our products. Our supply agreement with CBC has no fixed expiration date and can be voluntarily terminated by us, with at least six months’ advance written notice, or by CBC, with at least 24 months’ advance written notice.
In 1998, Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and non-residents may freely deal in Israeli currency and Israeli assets. There are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
Non-residents of Israel may freely hold and trade our securities. Neither our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by non-residents, except that such restrictions may exist with respect to citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations 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. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. 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.
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.
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 Investments 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.
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).
Taxation of Our Shareholders
Capital gains taxes applicable to non‑Israeli resident shareholders
A non‑Israeli resident (whether an individual or a corporation) who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, will generally be exempt from Israeli capital gain tax so long as the shares were not held through a permanent establishment that the non‑resident maintains in Israel (and with respect to shares listed on a recognized stock exchange outside of Israel, so long as the particular capital gain is otherwise subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745‑1985. These provisions dealing with capital gain are not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. However, non‑Israeli corporations will not be entitled to the foregoing exemption if Israeli residents (i) have a controlling interest of more than 25% in such non‑Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non‑Israeli corporation, whether directly or indirectly.
Additionally, a sale of shares by a non‑Israeli resident may also be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the Convention Between the Government of the United States of America and the Government of the State of Israel with respect to Taxes on Income, as amended (the “United States‑Israel Tax Treaty”), the sale, exchange or other disposition of shares by a shareholder who is a United States resident (for purposes of the United States‑Israel Tax Treaty) holding the shares as a capital asset and is entitled to claim the benefits afforded to such a resident by the United States‑Israel Tax Treaty (a “Treaty U.S. Resident”) is generally exempt from Israeli capital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii) the capital gain arising from the such sale, exchange or disposition can be attributable to a permanent establishment of the shareholder maintained in Israel, under certain terms; (iv) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital of a company during any part of the 12‑month period preceding such sale, exchange or disposition, subject to certain conditions; or (v) such Treaty U.S. Resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable year. In each case, the sale, exchange or disposition of our ordinary shares would be subject to such Israeli tax, to the extent applicable; However, under the United States‑Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits.
In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non‑Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of non‑Israeli shareholders on receipt of dividends
Non‑Israeli residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25% unless a relief is provided in a treaty between Israel and a shareholder's country of residence (provided that a certificate from the Israeli Tax Authority allowing for a reduced withholding tax rate is obtained in advance). With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding 12 months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. Such dividends are generally subject to Israeli withholding tax at a rate of 25% so long as the shares are registered with a nominee company (whether or not the recipient is a substantial shareholder), unless relief is provided in a treaty between Israel and the shareholder’s country of residence and provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. However, a distribution of dividends to non‑Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an Approved Enterprise or a Beneficiary Enterprise and 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty, and provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. For example, under the United States‑Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a Treaty U.S. Resident is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by an Approved Enterprise or Beneficiary Enterprise, that are paid to a U.S. corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists of certain types of dividends and interest. Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise or Beneficiary Enterprise are not entitled to such reduction under the tax treaty but are subject to a withholding tax rate of 15% for such a U.S. corporation, provided that the condition related to our gross income for the previous year (as set forth in the previous sentence) is met. If the dividend is attributable partly to income derived from an Approved Enterprise, Beneficiary Enterprise or Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.
A non‑Israeli resident who receives dividends from which tax was withheld, is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not derived from a business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed and (iii) the tax payer is not obligated to pay the excess tax (as further explained below).
Excess Tax
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual income exceeding NIS 641,880 for 2018,a certain level, which amount is linked to the annual change in the Israeli consumer price index, including but not limited to, dividends, interest and capital gain. In 2019,2021, the additional tax will bewas at a rate of 3% on annual income exceeding NIS 649,560.647,640.
United States Federal Income Taxation
The following is a description of the material U.S. federal income tax consequences of the ownership and disposition of our ordinary shares by a U.S. Holder that holds the ordinary shares as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
| · | banks, financial institutions or insurance companies; |
| · | real estate investment trusts, regulated investment companies or grantor trusts; |
| · | dealers or traders in securities, commodities or currencies; |
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real estate investment trusts, regulated investment companies or grantor trusts;
| · | tax‑exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code, respectively; |
dealers or traders in securities, commodities or currencies;
| · | certain former citizens or long‑term residents of the United States; |
tax‑exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code, respectively;
| · | persons that received our shares as compensation for the performance of services; |
certain former citizens or long‑term residents of the United States;
| · | persons that holds our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes; |
persons that received our shares as compensation for the performance of services;
| · | partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass‑through entities, or holders that will hold our shares through such an entity; |
persons that holds our shares as part of a “hedging,” “integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes;
partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass‑through entities, or holders that will hold our shares through such an entity;
| · | holders that acquired ordinary shares as a result of holding or owning our preferred shares; |
holders that acquired ordinary shares as a result of holding or owning our preferred shares;
| · | U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; |
U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar;
| · | persons subject to special tax accounting rules as a result of any item of gross income with respect to the shares being taken into account in an applicable financial statement; |
persons that are residents of ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; or
| · | persons that are residents of ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States; or |
holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares.
| · | holders that own directly, indirectly or through attribution 10.0% or more of the voting power or value of our shares. |
Moreover, this description does not address the U.S. federal estate, gift or alternative minimum tax consequences, Medicare consequences, or any state, local or foreign tax consequences, of the ownership and disposition of our ordinary shares.
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as currently in effect and available. These authorities are subject to change or differing interpretation, possibly with retroactive effect. U.S. Holders should consult their own tax advisersadvisors concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of our ordinary shares in their particular circumstances.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of our ordinary shares who is, for U.S. federal income tax purposes:
| · | a citizen or individual resident of the United States; |
an individual who is a citizen or individual resident of the United States;
| · | a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; |
a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
| · | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
| · | a trust that (1) is subject to the primary supervision of a U.S. Court and one or more U.S. persons that have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. |
a trust that (1) is subject to the primary supervision of a U.S. Court and one or more U.S. persons that have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and upon the activities of the partnership. Investors who are partners in a partnership should consult their tax advisersadvisors as to the particular U.S. federal income tax consequences of owning and disposing of our ordinary shares in their particular circumstances.
A “Non‑U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.
Unless otherwise indicated, this discussion assumes that the company is not, and will not become, a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes. See “ITEM 10.E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company Considerations” below. Further, this summary does not address the U.S. federal estate and gift, state, local or non‑U.S. tax consequences to U.S. Holders of owning and disposing of our ordinary shares. Investors should consult their own tax advisors regarding the U.S. federal, state and local, as well as non‑U.S. income and other tax consequences of owning and disposing of our ordinary shares in their particular circumstances.
Distributions
If you are a U.S. Holder, the gross amount of any distribution made to you with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, generally will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be reportedtaxable as dividend income to you. Non‑corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long‑term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders.
If you are a U.S. Holder, dividends paid to you with respect to our ordinary shares will generally be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute “passive category income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.
Subject to the discussion below under “—Backup Withholding Tax and Information Reporting Requirements,” if you are a Non‑U.S. Holder, you generally will not be subject to U.S. federal income (or withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business (or, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base that such holder maintains in the United States).
Sale, Exchange or Other Taxable Disposition of Ordinary Shares
If you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other taxable disposition of our ordinary shares equal to the difference between the amount realized on such sale, exchange or other taxable disposition and your adjusted tax basis in our ordinary shares, and such gain or loss will be capital gain or loss. The initial tax basis in an ordinary share generally will be equal to the cost of such ordinary share. Except with respect to foreign currency gain or loss, if you are a non‑corporate U.S. Holder, capital gain from the sale, exchange or other taxable disposition of ordinary shares is generally eligible for a preferential rate of taxation applicable to capital gains, if your holding period for such ordinary shares exceeds one year (i.e., such gain is long‑term capital gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.
Subject to the discussion below under “—Backup Withholding Tax and Information Reporting Requirements,” if you are a Non‑U.S. Holder, you generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
| · | such gain is effectively connected with your conduct of a trade or business in the United States (or, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base that such holder maintains in the United States); or |
| · | you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met. |
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you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.
Passive Foreign Investment Company Considerations
If we were to be classified as a “passive foreign investment company,” or “PFIC,” in any taxable year, a U.S. Holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non‑U.S. company that does not distribute all of its earnings on a current basis.
A non‑U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look‑through rules with respect to the income and assets of subsidiaries, either:
| · | at least 75% of its gross income is “passive income”; or |
at least 75% of its gross income is “passive income”; or
| · | at least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income. |
at least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non‑U.S. corporation owns at least 25% by value of the stock of another corporation, the non‑U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary shares unless we cease to be a PFIC and the U.S. holder has made a “deemed sale” election under the PFIC rules.
Based on our current estimates of our gross income and the estimated fair market value of our gross assets and the nature of our business, we do not believe we were classified as a PFIC for the taxable year ending December 31, 2018.2021. However, we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years will depend on our income, assets and activities in those years. Further, because the value of our gross assets is likely to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares or an increase in the value of our passive assets (including cash and short term investments) may result in our becoming a PFIC .PFIC. There can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below) and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long‑term capital gains discussed above under “Distributions.” Certain elections may be available that would result in an alternative treatment (such as mark‑to‑market treatment) of our ordinary shares.
If a U.S. Holder makes a valid mark‑to‑market election for the first tax year in which such U.S. Holder holds (or is deemed to hold) ordinary shares in a corporation and for which such corporation is determined to be a PFIC, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the ordinary shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark‑to‑market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ordinary shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark‑to‑market election). The mark‑to‑market election is available only if we are a PFIC and our ordinary shares are “regularly traded” on a “qualified exchange.” Our ordinary shares will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the ordinary shares, are traded on a qualified exchange on at least 15 days during each calendar quarter. Nasdaq is a qualified exchange for this purpose and, consequently, if the ordinary shares are regularly traded, the mark‑to‑market election will be available to a U.S. Holder.
If we are a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any entity in which we hold equity that is also a PFIC (a "lower tier PFIC"). Because a mark‑to‑market election generally would not be available with respect to any lower‑tier PFICs, that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.such lower-tiers PFICs.
We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC. U.S. Holders should consult their tax advisors to determine whether any of these elections would be available and if so, what the consequences of the alternative treatments would be in their particular circumstances.
If we are determined to be a PFIC, the general tax treatment for U.S. Holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders in respect of any of our subsidiaries that also may be determined to be PFICs.
If a U.S. Holder owns ordinary shares during any year in which we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) or successor form with respect to the company, generally with the U.S. Holder’s federal income tax return for that year. If the company was a PFIC for a given taxable year, then you should consult your tax advisor concerning your annual filing requirements.
U.S. Holders should consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the disposition of ordinary shares. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares.
Backup Withholding Tax and Information Reporting Requirements
U.S. backup withholding tax and information reporting requirements may apply to certain payments to certain holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale, exchange or redemption of, our ordinary shares made within the United States, or by a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a payee that is not a United States person that provides an appropriate certification and certain other persons). Payments made (and sales or other dispositions effected at an office) outside the U.S. will be subject to information reporting in limited circumstances. A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements, or to report dividends required to be shown on the holder’s U.S. federal income tax returns. Back up withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against the beneficial owner’s U.S. federal income tax liability, if any, and any excess amounts withheld under the backup withholding rules may be refunded, provided that the required information is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders who are individuals and certain entities may be required to report information relating to an interest in our ordinary shares, subject to certain exceptions (including an exception for shares held in accounts maintained by certain financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our ordinary shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are currently subjectrequired to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations of these requirements by filing reportsmake certain filings with the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content ofThe SEC maintains an internet website that contains reports, 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 periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC, within 120 days after the end of each subsequent fiscal year, an annual report on Form 20‑F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent public accounting firm. We also file with the SEC reports on Form 6‑K containing quarterly unaudited financial information.
You may read and copy any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1‑800‑SEC‑0330 for further information on the public reference room. The SEC also maintains an Internet site that contains reports and other information regardingabout issuers, like us, that file electronically with the SEC. Our filings with the SEC areThe address of that site is www.sec.gov.
We also make available to the public through this web site at http://www.sec.gov. As permitted under Nasdaq Stock Market Rule 5250(d)(1)(C), we will poston our website, free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC on ourSEC. Our website at http://address is www.mediwound.com. We will not furnish hard copies of such reports to our shareholders unless we are requested to do so in writing. Upon receipt of such a request, we will provide a hard copy of such reports to such requesting shareholder free of charge. The information contained on our website is not part ofincorporated by reference in this or any other report filed with or furnished to the SEC.document.
I. Subsidiary Information
Not applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation risks to minimize any adverse effects on our business as a result of those factors.
Foreign Currency Risk
The U.S. dollar is our functional and reporting currency. A significant portion of our operating expenses are denominated in Israeli shekels, accounting for approximately 28%40%, 40%44% and 45% of our operating expenses in the years ended December 31, 2016, 20172019, 2020 and 2018,2021, respectively. We also have expenses in other non‑dollar currencies, in particular the Euro, and for the next few years, we expect that thea substantial majorityportion of our revenue, if any,revenues will be denominated in Euros from the sale of NexoBrid in the European Union.U.S dollar. A devaluation of the shekel in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or payables that are payable in shekels, unless those expenses or payables are linked to the U.S. dollar. Conversely, any increase in the value of the shekel in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked shekel expenses, which would have a negative impact on our profit margins.
Because exchange rates between the U.S. dollar and both the shekel and the Euro (as well as between the U.S. dollar and other currencies) fluctuate continuously, such fluctuations have an impact on our results and period‑to‑period comparisons of our results. The effects of foreign currency re‑measurements are reported in our consolidated financial statements of operations.
The following table presents information about the changes in the exchange rates of the shekel against the U.S. dollar and changes in the exchange rates of the Euro against the U.S. dollar:
| | Appreciation (Devaluation) of | |
Period | | Shekel against the U.S. dollar (%) | | | Euro against the U.S. dollar (%) | |
| | | | | | |
2019 | | | 7.8 | | | | (2.0 | ) |
2020 | | | 7.0 | | | | 8.0 | |
2021 | | | 3.3 | | | | (6.9 | ) |
| | Change in | | | Exchange Rate | |
Period | | Shekel against the U.S. dollar (%) | | | Euro against the U.S. dollar (%) | |
2014 | | | (12.0 | ) | | | (11.8 | ) |
2015 | | | (0.3 | ) | | | (10.4 | ) |
2016 | | | 1.5 | | | | (3.4 | ) |
2017 | | | 9.8 | | | | 13.9 | |
2018 | | | (8.1 | ) | | | (4.4 | ) |
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A 10% increase (decrease) in the value of the NIS and Euro against the U.S. dollar would have decreased (increased)increased (decreased) our net lossprofit by (loss) approximately $0.1$0.74 million in 2018.for the year ended December 31, 2021.
As we are marketing and sales ofselling NexoBrid in Europe and conducting clinical trials of NexoBrid outside the United States, we will continue to monitor exposure to currency fluctuations. We do not currently engage in currency hedging activities in order to reduce this currency exposure, but we may begin to do so in the future. Instruments that may be used to hedge future risks may include foreign currency forward and swap contracts. These instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material foreign currency fluctuations.
Other Market Risks
We do not believe that we have material exposure to interest rate risk due to the fact that we have no long‑term borrowings.debt.
We do not believe that we have any material exposure to inflationary risks. We do not believe that the rate of inflation in Israel has had a material impact on our business to date. However, our costs in Israel will increase if inflation in Israel exceeds the devaluation of the shekel against the U.S. dollar (to the extent that it devalues at all) or if the timing of such devaluation lags behind inflation in Israel.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Initial Public OfferingNone.
The effective date of the registration statement (File No. 333‑193856) for our IPO of ordinary shares, par value NIS 0.01, was March 19, 2014. The offering commenced on March 19, 2014 and was closed on March 25, 2014. In our IPO, we issued and sold a total of 5,750,000 ordinary shares at a price per share of $14.00 with aggregate gross proceeds of approximately $80.5 million. Under the terms of the offering, we incurred aggregate underwriting discounts of approximately $5.6 million and expenses of approximately $3.2 million in connection with the offering, resulting in net proceeds to us of approximately $71.7 million.
From the effective date of the registration statement and until December 31, 2018, we have used existing cash and the net proceeds from the offering, in the amount of approximately $23.2 million to expand our marketing infrastructure, $25.2 million on research and development and $28.5 million to maintain our manufacturing capabilities, for working capital and other general corporate purposes. Under the modified BARDA contract, BARDA has agreed to fund up to $56 million of the development costs of NexoBrid and we expect that almost all NexoBrid development programs, including clinical and non‑clinical development as well as regulatory submission, will be funded by BARDA. In addition, under the new BARDA contract, BARDA has agreed to fund up to $12 million of the development costs of NexoBrid for the treatment of Sulfur Mustard injuries under the Animal Rule. Therefore, we intend to use a portion of our proceeds raised during our IPO together with the net proceeds raised in our September 2017 follow‑on offering, to further advance our research and development activities, primarily the clinical development of EscharEx and the remainder, if any, for working capital and other general corporate purposes. See ITEM 4.B. Business Overview—BARDA Contract.” We may also use a portion of the net proceeds to make acquisitions or investments in complementary companies or technologies, although we do not have any agreement or understanding with respect to any such acquisition or investment at this time.
None of the net proceeds of the offering was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning 10% or more of any class of our equity securities, or to any of our affiliates, except as a compensation and general and administrative expenses.
Item 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of December 31, 2018.2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018,2021, our disclosure controls and procedures were effective.
(b) Management Annual Report on Internal Control over Financial Reporting
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act.
Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2021. In making this assessment, our management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded, based on its assessment, that our internal control over financial reporting was effective as of December 31, 2018.2021.
(d) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because the JOBS Act provides an exemption from such requirement as we qualify as an emerging growth company.
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Sharon Kochan qualifies as an “audit committee financial expert,” as defined under the U.S. federal securities laws and has the requisite financial experience defined by the Nasdaq Marketplace Rules. In addition, Sharon Kochan is independent as such term is defined in Rule 10A‑3(b)(1) under the Exchange Act and under the listing standards of the Nasdaq Global Market.
Item 16B. CODE OF ETHICS
We have adopted a code of ethicsbusiness conduct and proper business conductethics applicable to our executive officers, directors and all other employees. A copy of the code is delivered to every employee of MediWound Ltd. and its subsidiaries and is available to our investors and others on our website http://ir.mediwound.com/ or by contacting our investor relations department. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein. Any waivers of this code for executive officers or directors will be disclosed through the filing of a Form 6‑K or on our website. We granted no waivers under our code of ethics in 2018.2021.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services
We paid the following fees for professional services rendered by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, anwho was our independent registered public accounting firm until the April 28, 2021, and by Somekh Chaikin, a member firm of KPMG International Haifa, Israel, Auditor firm ID: 1057, who became our independent registered public accounting firm on June 15, 2021 for the yearsyear ended December 31, 2018 and 2017:2021:
| | 2017 | | | 2018 | | | 2020 | | | 2021 | |
Audit Fees | | $ | 290,000 | | | $ | 160,000 | | | $ | 170,000 | | | $ | 245,000 | |
Audit‑Related Fees | | | — | | | | | | | | 33,500 | | | | — | |
Tax Fees | | | — | | | | | | | | — | | | | 15,000 | |
Total | | $ | 290,000 | | | $ | 160,000 | | | $ | 203,500 | | | $ | 260,000 | |
“Audit fees” are the aggregate fees paid for the audit of our annual financial statements.statements for the year 2021. This category also includes services that generally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC, including the registration statement filed in connection with our September 2017 equity offering.SEC.
“Audit‑related fees” are the aggregate fees paid for assurance and related services that are reasonably related to the performance of the audit and are not reported under audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
“Tax fees” include fees for professional services rendered by our independent registered public accounting firm for tax compliance, transfer pricing and tax advice on actual or contemplated transactions.
The Audit Committee pre‑approves all audit and non‑audit services provided by the independent accountant.registered public accounting firm.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable. The information required by this Item 16F was previously reported in our report of foreign private issuer on Form 6‑K (File No. 001‑36349) filed with the SEC on March 2, 2022.
Item 16G. CORPORATE GOVERNANCE
As a foreign private issuer, we are permitted to comply with Israeli corporate governance practices instead of the Nasdaq Stock Market requirements, provided that we disclose those Nasdaq Stock Market requirements with which we do not comply and the equivalent Israeli requirement that we follow instead. We currently rely on this “foreign private issuer exemption” with respect to the following requirements:
| ·• | Quorum. As permitted under the Israeli Companies Law pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or by other voting instrument in accordance with the Israeli Companies Law, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, at least two shareholders), instead of 33 1/3% of the issued share capital required under the Nasdaq Stock Market listing rules. |
| ·• | Nomination of directors. With the exception of external directors and directors elected by our board of directors due to vacancy, our directors are elected by an annual meeting of our shareholders to hold office until the next annual meeting following one year from his or her election. The nominations for directors, which are presented to our shareholders by our board of directors, are generally made by the entire board of directors itself, in accordance with the provisions of our articles of association and the Israeli Companies Law. Nominations need not be made by a nominating committee of our board of directors consisting solely of independent directors or otherwise, as required under the Nasdaq Stock Market listing rules. |
| ·• | Majority of independent directors. Under the Israeli Companies Law, we are only required to appoint at least two external directors, within the meaning of the Israeli Companies Law, to our board of directors. Currently, four of our directors (of whichwhom two are external directors, within the meaning of the Israeli Companies Law) qualify as independent directors under the rules of the U.S. federal securities laws and the Nasdaq Stock Market listing rules. If at any time we no longer have a controlling shareholder, we will no longer be required to have external directors;directors, provided that we comply with the majority Board independence requirements and the audit and compensation committee composition requirements of the Nasdaq Stock Market. |
| • | Shareholder approval. We do not intend to follow Nasdaq Stock Market rules which require shareholder approval in order to enter into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of ordinary shares (or securities convertible into or exercisable for ordinary shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the ordinary shares. We will follow Israeli law with respect to any requirement to obtain shareholder approval in connection with any private placements of equity securities. |
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
124Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
[Not applicable.]
PART III
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
See pages F‑21 through F‑40F-49 of this annual report.
100101.INS | Inline XBRL Instance Document |
101.SCH | The following financial information from the Registrant’s Annual Report on Form 20‑F for the year ended December 31, 2017 formatted inInline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2016 and 2017; (ii) Consolidated Statements of Profit or Loss or Other Comprehensive Loss for the years ended December 31, 2015, 2016 and 2017; (iii) Consolidated Statements of Changes in Equity (Deficiency) for the years ended December 31, 2015, 2016 and 2017; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2016 and 2017; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. Users of this data are advised, in accordance with Rule 406T of Regulation S‑T promulgated by the SEC, that thisTaxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of(the cover page iXBRL tags are embedded within the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under those sections.Inline XBRL document) |
† | Confidential treatment previously requested and granted with respect to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. |
* | Portions of this exhibit have been omitted pursuant to a request for confidential treatment byInstruction 4(a) to Exhibits to Form 20-F because they are both (i) not material and (ii) the Securities and Exchange Commission andtype that the non-public information has been filed separately with the Securities and Exchange Commission.Registrant treats as private or confidential. |
(1) | Previously filed with the SEC on March 19, 20183, 2014 pursuant to the registrant’s Form 20-F and incorporated by reference herein. |
(2) | Previously filed with the SEC on March 14, 2014 pursuant to aRegistrant’s registration statement on Form F‑1 (File No. 333‑193856) and incorporated by reference herein. |
(2) | Previously furnished to the SEC on May 5, 2021 as Appendix B to the Registrant’s proxy statement for its 2021 annual general meeting of shareholders held on June 15, 2021, attached as Exhibit 99.1 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349) and incorporated by reference herein. |
(3) | Previously filed with the SEC on March 3,February 10, 2014 pursuant to athe Registrant’s registration statement on Form F‑1 (File No. 333‑193856) and incorporated by reference herein. |
(4) | Previously filed with the SEC on February 10, 2014 pursuant to a registration statement on Form F‑1 (File No. 333‑193856) and incorporated by reference herein. |
(5) | Previously filed with the SEC on August 5, 2014 as Annex A to Exhibit 99.1 to the Registrant’s Form 6‑K and incorporated by reference herein. |
(6) | Previously filed with the SEC on February 12, 201525, 2020 pursuant to the Registrant’s Annual Reportannual report on Form 20‑F20-F for the year ended December 31, 20142019 (File No. 001-36349) and incorporated by reference herein. |
(5) | Previously furnished to the SEC on August 14, 2019 as Appendix A to the Registrant’s proxy statement for its extraordinary general meeting of shareholders held on September 23, 2019, attached as Exhibit 99.1 to the Registrant’s report of foreign private issuer on Form 6‑K (File No. 001‑36349) and incorporated by reference herein. |
(6) | Previously filed with the SEC on February 25, 2021 pursuant to the Registrant’s annual report on Form 20-F for the year ended December 31, 2020 (File No. 001-36349) and incorporated by reference herein. |
(7) | Previously filed with the SEC on January 25, 2016 pursuantas Exhibit 4.14 to the Registrant’s Annual Reportannual report on Form 20‑F for the year ended December 31, 2015 (File No. 001‑36349) and incorporated by reference herein. |
(8) | Previously filed with the SEC on February 21, 2017 pursuantas Exhibit 4.15 to the Registrant’s Annual Reportannual report on Form 20‑F for the year ended December 31, 2016 (File No. 001‑36349) and incorporated by reference herein. |
(9) | Previously filed with the SEC on March 19, 2018 as Exhibit 4.16 to the Registrant’s annual report on Form 20‑F for the year ended December 31, 2017 (File No. 001‑36349) and incorporated by reference herein. |
(10) | Previously filed with the SEC on March 25, 2019 as Exhibit 4.17 to the Registrant’s annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein. |
(11) | Previously filed with the SEC on March 19, 2018 as Exhibit 4.17 to the Registrant’s annual report on Form 20‑F for the year ended December 31, 2017 (File No. 001‑36349) and incorporated by reference herein. |
(12) | Previously filed with the SEC on March 25, 2019 as Exhibit 4.20 to the Registrant’s annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein. |
(13) | Previously filed with the SEC on March 25, 2019 as Exhibit 4.21 to the Registrant’s annual report on Form 20‑F for the year ended December 31, 2018 (File No. 001‑36349) and incorporated by reference herein. |
(14) | Previously filed with the SEC by Vericel Corporation on August 6, 2019 as Exhibit 10.9 to its quarterly report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001‑35280) and incorporated by reference herein. |
(15) | Previously filed with the SEC by Vericel Corporation on August 6, 2019 as Exhibit 10.10 to its quarterly report on Form 10-Q for the quarter ended June 30, 2019 (File No. 001‑35280) and incorporated by reference herein |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | |
| MediWound Ltd. | |
| | |
Date: March 25, 201917, 2022 | By: /s/ Sharon MalkaBoaz Gur-Lavie | |
| Sharon MalkaBoaz Gur-Lavie | |
| Chief Financial and Operation Officer | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20182021
INDEX
| |
| |
| F-2
|
| |
| F-3F-2 – F-5
|
(Firm Name: KPMG (Somekh Chaikin) / PCAOB ID No. 1057) | |
(Firm Name: KOST FORER GABBAY & KASIERER / PCAOB ID No. 1281) | |
| |
| F-6 |
| |
| F -4 -7 |
| |
| F-5F-8
|
| |
| F-6F-9 - F-7F-10
|
| |
| FF-11 -8 - F-45
|
| Kost Forer Gabbay & Kasierer
144 Menachem Begin Rd.
Tel-Aviv 6492102, Israel
| Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com F-49
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM- - - - - - - - - - - - - - - - - - - - -
Board of Directors of
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors
MediWound Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetsstatement of financial position of MediWound Ltd. and its subsidiaries (the “Company”(hereinafter – “the Company”) as of December 31, 2017 and 2018 and2021, the related consolidated statements of comprehensive profit or loss and other comprehensive income (loss), changes in shareholders’ equity (deficit), and cash flows for each of the three years in the periodyear then ended, December 31, 2018 and the related notes (collectively, referred to as the “financial“the consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company atas of December 31, 20172021, and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the periodyear then ended, December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Critical Audit Matter
Israeli Innovation Authority grant liability
As discussed in Notes 3e and 14 to the consolidated financial statements, in previous years the Company received grants from the Israeli Innovation Authority (“IIA”) to finance its research and development efforts. These grants were recognized as a liability to the extent the Company expected to refund them through royalties on its revenues derived from sales of products or services developed in whole or in part using the grants. The amount of the liability is reexamined each period using the Company’s updated future revenue forecasts discounted to their present value. Any changes in the IIA grant liability are recognized in profit or loss. The IIA grant liability was $8,105 thousand as of December 31, 2021.
We identified the evaluation of the subsequent period end measurement of the IIA grant liability as a critical audit matter. Specifically, a high degree of subjective auditor judgment was involved in evaluating certain significant assumptions used by the Company to develop its future revenue forecasts, including the likelihood and timing of achievement of regulatory approvals and potential market demand and market share for the Company’s products, which were based on external market research. These significant assumptions were forward-looking and could be affected by future economic and market conditions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s process for measuring the IIA grant liability, including controls related to the determination of the above referenced significant assumptions used to develop future revenue forecasts. We compared the Company’s assumption of the likelihood and timing for obtaining regulatory approvals for its products, based on the specific phases of their development, to relevant data in industry research reports. We evaluated the Company’s assumption of potential market demand and market share by evaluating the relevance and reliability of the external market research upon which the Company based its future revenue forecasts. We performed sensitivity analyses over these significant assumptions to assess the impact of changes in the assumptions on the period end IIA grant liability.
Somekh Chaikin
Member Firm of KPMG International
We have served as the Company’s auditor since 2021.
Haifa, Israel
March 17, 2022
MEDIWOUND LTD. AND ITS SUBSIDIARIES
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Rd. Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of MediWound Ltd and subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of comprehensive or loss, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KOST FORER GABBAY & KASIERERCritical Audit Matter
A Member
The critical audit matter communicated below is a matter arising from the current period audit of Ernst & Young Globalthe financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | Israel Innovation Authority (IIA) grant liability |
| | |
Description of the matter
| | As described in Notes 3 and 17b to the consolidated financial statements, the Company’s research and development efforts have been financed in part through grants from the Israeli Innovation Authority (“IIA”). Grants received from the IIA are recognized as a liability if future economic benefits are expected from the research and development activity that will result in royalty-bearing sales. The Company undertook to pay royalties of 3% on the revenues derived from sales of products or services developed in whole or in part using IIA grants, up to the amount of total grants received, plus LIBOR interest. The liability to the IIA is measured at amortized cost using the effective interest method and amounted as of December 31, 2020 to $7,529 thousands.
Auditing the Company's IIA liability involved a high degree of subjectivity as it is based on assumptions about future revenue forecasts, such as long-term demand for the Company’s products and licenses and revenue growth rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. |
How we addressed the matter in our audit
| | Our substantive audit procedures included, among others, evaluating the significant assumptions and operating data used by management. For example, we compared the significant assumptions and operating data used by management to historical trends, we performed look-back analyses by comparing the Company's historical financial forecasted revenues with the actual results and we agreed future revenues to approved budgets. In addition, we considered the phases of development of the Company's products and the Company’s ability of obtaining regulatory approvals. We also tested the completeness and accuracy of the relevant data used in management's calculation, tested the mathematical accuracy of management’s calculations and performed sensitivity analyses over significant assumptions used by management related to revenue growth rates. |
| /s/ KOST FORER GABBAY & KASIERER |
Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
February 25, 2021 | A Member of Ernst & Young Global |
We have served as the Company‘sCompany's auditor since 2001.2001 to 2020
Tel-Aviv, Israel
March 25, 2019
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Consolidated Statements of Financial Positions
U.S. dollars in thousands
| | | | | December 31, | |
| | Note | | | 2017 | | | 2018 | |
CURRENT ASSETS: | | | | | | | | | |
Cash and cash equivalents | | | 5 | | | | 36,069 | | | | 6,716 | |
Short-term bank deposits | | | 6 | | | | - | | | | 16,917 | |
Trade receivables | | | | | | | 369 | | | | 560 | |
Inventories | | | 7 | | | | 1,886 | | | | 1,680 | |
Other receivables | | | 8, 22 | | | | 3,196 | | | | 6,840 | |
| | | | | | | | | | | | |
| | | | | | | 41,520 | | | | 32,713 | |
LONG-TERM ASSETS: | | | | | | | | | | | | |
Long term deposits | | | | | | | 56 | | | | 48 | |
Property, plant and equipment, net | | | 9 | | | | 1,924 | | | | 2,020 | |
Intangible assets, net | | | 10 | | | | 635 | | | | 495 | |
| | | | | | | | | | | | |
| | | | | | | 2,615 | | | | 2,563 | |
| | | | | | | | | | | | |
| | | | | | | 44,135 | | | | 35,276 | |
CURRENT LIABILITIES: | | | | | | | | | | | | |
Trade payables and accrued expenses | | | | | | | 3,251 | | | | 2,715 | |
Other payables | | | 11, 22 | | | | 2,182 | | | | 2,182 | |
| | | | | | | | | | | | |
| | | | | | | 5,433 | | | | 4,897 | |
LONG‑TERM LIABILITIES: | | | | | | | | | | | | |
Deferred revenues | | | | | | | 988 | | | | 1,158 | |
Liabilities in respect of IIA grants | | | 12,13 | | | | 7,380 | | | | 7,568 | |
Contingent consideration for purchase of shares | | | 13,15e,23b | | | | 14,381 | | | | 6,330 | |
Liability in respect of discontinued operation | | | 19 | | | | 6,003 | | | | 6,003 | |
Severance pay liability, net | | | 14 | | | | 330 | | | | 348 | |
| | | | | | | | | | | | |
| | | | | | | 29,082 | | | | 21,407 | |
SHAREHOLDERS' EQUITY: | | | 16 | | | | | | | | | |
Ordinary shares of NIS 0.01 par value: | | | | | | | | | | | | |
Authorized: 32,244,508 shares as of December 31, 2017 and 37,244,508 shares as of December 31, 2018; Issued and Outstanding 27,047,737 and 27,178,839 shares as of December 31, 2017 and 2018, respectively. | | | | | | | 75 | | | | 75 | |
Share premium | | | | | | | 138,992 | | | | 139,637 | |
Foreign currency translation adjustments | | | | | | | (38 | ) | | | (25 | ) |
Accumulated deficit | | | | | | | (129,409 | ) | | | (130,715 | ) |
| | | | | | | | | | | | |
| | | | | | | 9,620 | | | | 8,972 | |
| | | | | | | | | | | | |
| | | | | | | 44,135 | | | | 35,276 | |
| | | | | As of December 31 | |
| | Note | | | 2021 | | | 2020 | |
| | | | | | | | | |
Cash and cash equivalents | | 4 | | | | 11,046 | | | | 17,376 | |
Restricted deposits | | 5 | | | | 0 | | | | 184 | |
Short-term bank deposits | | 5 | | | | 0 | | | | 4,024 | |
Trade receivables | | 6 | | | | 1,779 | | | | 2,767 | |
Inventories | | 7 | | | | 1,200 | | | | 1,380 | |
Other receivables | | 8, 25 | | | | 927 | | | | 462 | |
Total current assets | | | | | | 14,952 | | | | 26,193 | |
| | | | | | | | | | | |
Other receivables | | 9 | | | | 469 | | | | 0 | |
Property, plant and equipment, net | | 10 | | | | 2,478 | | | | 2,630 | |
Right-of-use assets, net | | 11 | | | | 1,548 | | | | 1,884 | |
Intangible assets, net | | 12 | | | | 297 | | | | 363 | |
Total non-current assets | | | | | | 4,792 | | | | 4,877 | |
| | | | | | | | | | | |
Total assets | | | | | | 19,744 | | | | 31,070 | |
| | | | | | | | | | | |
Current maturities of long-term liabilities | | | | | | 2,408 | | | | 2,417 | |
Trade payables and accrued expenses | | | | | | 4,693 | | | | 2,992 | |
Other payables | | 13, 25 | | | | 3,620 | | | | 2,857 | |
Total current liabilities | | | | | | 10,721 | | | | 8,266 | |
| | | | | | | | | | | |
Deferred revenues | | | | | | 119 | | | | 1,234 | |
Liabilities in respect of IIA grants | | 14, 17b | | | | 7,885 | | | | 7,267 | |
Liabilities in respect of purchase of shares | | 17c | | | | 3,922 | | | | 4,998 | |
Lease liabilities | | 11 | | | | 1,391 | | | | 1,741 | |
Severance pay liability, net | | 16 | | | | 288 | | | | 292 | |
Total non-current liabilities | | | | | | 13,605 | | | | 15,532 | |
| | | | | | | | | | | |
Total liabilities | | | | | | 24,326 | | | | 23,798 | |
| | | | | | | | | | | |
Shareholders' equity: | | 19 | | | | | | | | | |
Ordinary shares of NIS 0.01 par value: | | | | | | | | | | | |
Authorized: 50,000,000 shares as of December 31, 2021 and December 31, 2020; Issued and Outstanding 27,272,818 shares as of December 31, 2021 and 27,236,752 shares as of December 31, 2020 | | | | | | 75 | | | | 75 | |
Share premium | | | | | | 143,869 | | | | 142,193 | |
Foreign currency translation reserve | | | | | | (19 | ) | | | (40 | ) |
Accumulated deficit | | | | | | (148,507 | ) | | | (134,956 | ) |
Total equity (deficit) | | | | | | (4,582 | ) | | | 7,272 | |
| | | | | | | | | | | |
Total liabilities and equity | | | | | | 19,744 | | | | 31,070 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE PROFIT OR LOSS
Consolidated Statements of Profit or Loss and Other Comprehensive Income or Loss
U.S. dollars in thousands (except of share and per share data)
| | | | | Year ended December 31, | |
| | Note | | | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | | | | |
Revenues | | | | | | 1,558 | | | | 2,496 | | | | 3,401 | |
Cost of revenues | | | 20a | | | | 2,158 | | | | 1,578 | | | | 2,088 | |
| | | | | | | | | | | | | | | | |
Gross profit (loss) | | | | | | | (600 | ) | | | 918 | | | | 1,313 | |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Research and development, gross | | | | | | | 14,779 | | | | 14,625 | | | | 17,915 | |
Participations by BARDA and IIA | | | | | | | (7,711 | ) | | | (9,163 | ) | | | (13,843 | ) |
| | | | | | | | | | | | | | | | |
Research and development, net of participations | | | 20b | | | | 7,068 | | | | 5,462 | | | | 4,072 | |
Selling and marketing | | | 20c | | | | 8,403 | | | | 5,362 | | | | 4,188 | |
General and administrative | | | 20d | | | | 4,084 | | | | 3,781 | | | | 3,799 | |
Other income from settlement agreement | | | 23 | | | | - | | | | - | | | | (7,537 | ) |
Other expenses | | | 20e | | | | - | | | | - | | | | 751 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | | | | | 19,555 | | | | 14,605 | | | | 5,273 | |
| | | | | | | | | | | | | | | | |
Operating loss | | | | | | | (20,155 | ) | | | (13,687 | ) | | | (3,960 | ) |
| | | | | | | | | | | | | | | | |
Financial income | | | 20f | | | | 2,166 | | | | 406 | | | | 412 | |
Financial expense | | | 20f | | | | (896 | ) | | | (1,252 | ) | | | (2,117 | ) |
| | | | | | | | | | | | | | | | |
Loss from continuing operations | | | | | | | (18,885 | ) | | | (14,533 | ) | | | (5,665 | ) |
Profit (loss) from discontinued operation | | | 19,23b | | | | - | | | | (7,616 | ) | | | 4,608 | |
| | | | | | | | | | | | | | | | |
Net loss | | | | | | | (18,885 | ) | | | (22,149 | ) | | | (1,057 | ) |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | |
Items to be reclassified to profit or loss in subsequent periods: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | | 7 | | | | (29 | ) | | | 13 | |
| | | | | | | | | | | | | | | | |
Total comprehensive loss | | | | | | | (18,878 | ) | | | (22,178 | ) | | | (1,044 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted net loss per share: | | | 21 | | | | | | | | | | | | | |
Basic and diluted net loss per share from continuing operations | | | | | | | (0.86 | ) | | | (0.62 | ) | | | (0.21 | ) |
Basic and diluted net profit (loss) per share from discontinued operations | | | | | | | - | | | | (0.33 | ) | | | 0.17 | |
Total Basic and diluted net loss per share | | | | | | | (0.86 | ) | | | (0.95 | ) | | | (0.04 | ) |
| | | | | | |
| | | | | Year Ended December 31 | |
| | Note | | | 2021 | | | 2020 | | | 2019 | |
Revenues from sale of products | | | | | | 9,613 | | | | 7,445 | | | | 3,393 | |
Revenues from development services | | | | | | 12,372 | | | | 13,935 | | | | 10,678 | |
Revenues from license agreements | | | | | | 1,778 | | | | 383 | | | | 17,718 | |
Total revenues | | 23a | | | | 23,763 | | | | 21,763 | | | | 31,789 | |
| | | | | | | | | | | | | | | |
Cost of revenues | | 23b | | | | 14,992 | | | | 14,218 | | | | 11,849 | |
| | | | | | | | | | | | | | | |
Gross profit | | | | | | 8,771 | | | | 7,545 | | | | 19,940 | |
| | | | | | | | | | | | | | | |
Research and development, net of participations | | 23c | | | | 10,256 | | | | 7,698 | | | | 4,969 | |
Selling and marketing | | 23d | | | | 3,388 | | | | 3,228 | | | | 4,064 | |
General and administrative | | 23e | | | | 6,348 | | | | 5,459 | | | | 5,242 | |
Other expenses | | 23f | | | | 0 | | | | 0 | | | | 1,172 | |
Total operating expenses | | | | | | 19,992 | | | | 16,385 | | | | 15,447 | |
| | | | | | | | | | | | | | | |
Operating profit (loss) | | | | | | (11,221 | ) | | | (8,840 | ) | | | 4,493 | |
| | | | | | | | | | | | | | | |
Financial income | | 23g | | | | 11 | | | | 843 | | | | 556 | |
Financial expense | | 23g | | | | (2,314 | ) | | | (1,279 | ) | | | (2,983 | ) |
Financing expenses, net | | | | | | (2,303 | ) | | | (436 | ) | | | (2,427 | ) |
| | | | | | | | | | | | | | | |
Profit (loss) before taxes on income | | | | | | (13,524 | ) | | | (9,276 | ) | | | 2,066 | |
| | | | | | | | | | | | | | | |
Taxes on income | | | | | | (27 | ) | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | |
Profit (loss) from continuing operations | | | | | | (13,551 | ) | | | (9,276 | ) | | | 2,066 | |
Profit from discontinued operations | | 17c,22 | | | | 0 | | | | 80 | | | | 2,889 | |
| | | | | | | | | | | | | | | |
Net profit (loss) for the year | | | | | | (13,551 | ) | | | (9,196 | ) | | | 4,955 | |
| | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | 21 | | | | (23 | ) | | | 8 | |
Total comprehensive income (loss) | | | | | | (13,530 | ) | | | (9,219 | ) | | | 4,963 | |
| | | | | | | | | | | | | | | |
Earning (loss) per share data | | 24 | | | | | | | | | | | | | |
Basic and diluted net profit (loss) per share from continuing operations | | | | | | (0.50 | ) | | | (0.34 | ) | | | 0.08 | |
Basic and diluted net profit per share from discontinued operations | | | | | | 0 | | | | 0 | | | | 0.10 | |
Total Basic and diluted net profit (loss) per share - USD | | | | | | (0.50 | ) | | | (0.34 | ) | | | 0.18 | |
| | | | | | | | | | | | | | | |
Number of shares used in calculating basic and diluted profit (loss) per share | | | | | | 27,244,475 | | | | 27,209,878 | | | | 27,178,839 | |
The accompanying notes are an integral part of the consolidated financial statements.
F-4F - 7
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
U.S. dollars in thousands
| | Share capital | | | Share premium | | | Foreign currency translation Adjustments | | | Accumulated deficit | | | Total Equity | |
| | | | | | | | | | | | | | | |
Balance as of January 1, 2016 | | | 60 | | | | 111,801 | | | | (16 | ) | | | (88,375 | ) | | | 23,470 | |
| | | | | | | | | | | | | | | | | | | | |
Loss for the period | | | - | | | | - | | | | - | | | | (18,885 | ) | | | (18,885 | ) |
Other comprehensive income | | | - | | | | - | | | | 7 | | | | - | | | | 7 | |
Total comprehensive (loss) income | | | - | | | | - | | | | 7 | | | | (18,885 | ) | | | (18,878 | ) |
| | | | | | | | | | | | | | | | | | | | |
Exercise of options | | | * | | | | 7 | | | | - | | | | - | | | | 7 | |
Share-based compensation | | | - | | | | 3,171 | | | | - | | | | - | | | | 3,171 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | | 60 | | | | 114,979 | | | | (9 | ) | | | (107,260 | ) | | | 7,770 | |
| | | | | | | | | | | | | | | | | | | | |
Loss for the period | | | - | | | | - | | | | - | | | | (22,149 | ) | | | (22,149 | ) |
Other comprehensive loss | | | - | | | | - | | | | (29 | ) | | | - | | | | (29 | ) |
Total comprehensive (loss) income | | | - | | | | - | | | | (29 | ) | | | (22,149 | ) | | | (22,178 | ) |
| | | | | | | | | | | | | | | | | | | | |
Exercise of options | | | * | | | | 7 | | | | - | | | | - | | | | 7 | |
Issuance of ordinary shares of NIS 0.01 par value net of issuance expenses | | | 15 | | | | 22,643 | | | | - | | | | - | | | | 22,658 | |
Share-based compensation | | | - | | | | 1,363 | | | | - | | | | - | | | | 1,363 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | | 75 | | | | 138,992 | | | | (38 | ) | | | (129,409 | ) | | | 9,620 | |
| | | | | | | | | | | | | | | | | | | | |
Accumulated effect of adopting IFRS 15 | | | - | | | | - | | | | - | | | | (249 | ) | | | (249 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2018 | | | 75 | | | | 138,992 | | | | (38 | ) | | | (129,658 | ) | | | 9,371 | |
| | | | | | | | | | | | | | | | | | | | |
Loss for the period | | | - | | | | - | | | | - | | | | (1,057 | ) | | | (1,057 | ) |
Other comprehensive income | | | - | | | | - | | | | 13 | | | | - | | | | 13 | |
Total comprehensive (loss) income | | | - | | | | - | | | | 13 | | | | (1,057 | ) | | | (1,044 | ) |
| | | | | | | | | | | | | | | | | | | | |
Exercise of options | | | * | | | | - | | | | - | | | | - | | | | * | |
Share-based compensation | | | - | | | | 645 | | | | - | | | | - | | | | 645 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2018 | | | 75 | | | | 139,637 | | | | (25 | ) | | | (130,715 | ) | | | 8,972 | |
| | Share capital | | | Share premium | | | Foreign currency translation reserve | | | Accumulated deficit | | | Total equity (deficit) | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2021 | | | 75 | | | | 142,193 | | | | (40 | ) | | | (134,956 | ) | | | 7,272 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | | 0 | | | | 0 | | | | 0 | | | | (13,551 | ) | | | (13,551 | ) |
Other comprehensive income | | | 0 | | | | 0 | | | | 21 | | | | 0 | | | | 21 | |
Total comprehensive loss | | | 0 | | | | 0 | | | | 21 | | | | (13,551 | ) | | | (13,530 | ) |
Exercise of options | | | (* | ) | | | 3 | | | | 0 | | | | 0 | | | | 3 | |
Share-based compensation | | | 0 | | | | 1,673 | | | | 0 | | | | 0 | | | | 1,673 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 75 | | | | 143,869 | | | | (19 | ) | | | (148,507 | ) | | | (4,582 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 75 | | | | 140,871 | | | | (17 | ) | | | (125,760 | ) | | | 15,169 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss | | | 0 | | | | 0 | | | | 0 | | | | (9,196 | ) | | | (9,196 | ) |
Other comprehensive loss | | | 0 | | | | 0 | | | | (23 | ) | | | 0 | | | | (23 | ) |
Total comprehensive loss | | | 0 | | | | 0 | | | | (23 | ) | | | (9,196 | ) | | | (9,219 | ) |
Exercise of options | | | (* | ) | | | (* | ) | | | 0 | | | | 0 | | | | (* | ) | | |
Share-based compensation | | | 0 | | | | 1,322 | | | | 0 | | | | 0 | | | | 1,322 | |
Balance as of December 31, 2020 | | | 75 | | | | 142,193 | | | | (40 | ) | | | (134,956 | ) | | | 7,272 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2019 | | | 75 | | | | 139,637 | | | | (25 | ) | | | (130,715 | ) | | | 8,972 | |
| | | | | | | | | | | | | | | | | | | | |
Net profit | | | 0 | | | | 0 | | | | 0 | | | | 4,955 | | | | 4,955 | |
Other comprehensive income | | | 0 | | | | 0 | | | | 8 | | | | 0 | | | | 8 | |
Total comprehensive income | | | 0 | | | | 0 | | | | 8 | | | | 4,955 | | | | 4,963 | |
Exercise of options | | | (* | ) | | | (* | ) | | | 0 | | | | 0 | | | | (* | ) | |
Share-based compensation | | | 0 | | | | 1,234 | | | | 0 | | | | 0 | | | | 1,234 | |
Balance as of December 31, 2019 | | | 75 | | | | 140,871 | | | | (17 | ) | | | (125,760 | ) | | | 15,169 | |
* Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
F-5F - 8
MEDIWOUND LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows
U.S. dollars in thousands
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Cash Flows from Operating Activities: | | | | | | | | | |
Net loss | | | (18,885 | ) | | | (22,149 | ) | | | (1,057 | ) |
| | | | | | | | | | | | |
Adjustments to reconcile net loss to net cash used in continuing operating activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Adjustments to profit and loss items: | | | | | | | | | | | | |
Loss (profit) from discontinued operation | | | - | | | | 7,616 | | | | (4,608 | ) |
Depreciation and amortization | | | 589 | | | | 567 | | | | 577 | |
Share-based compensation | | | 3,171 | | | | 1,363 | | | | 645 | |
Revaluation of liabilities in respect of IIA grants | | | (1,298 | ) | | | 229 | | | | 287 | |
Revaluation of contingent consideration for purchase of shares | | | (1,621 | ) | | | 351 | | | | 758 | |
Other income from settlement agreement | | | - | | | | - | | | | (7,537 | ) |
Increase in severance pay liability, net | | | 125 | | | | 111 | | | | 19 | |
Net financing income | | | (414 | ) | | | (349 | ) | | | (412 | ) |
Un-realized foreign currency (gain) loss | | | (94 | ) | | | (185 | ) | | | 182 | |
| | | 458 | | | | 9,703 | | | | (10,089 | ) |
Changes in asset and liability items: | | | | | | | | | | | | |
Decrease (increase) in trade receivables | | | (107 | ) | | | 28 | | | | (211 | ) |
Decrease (increase) in inventories | | | 873 | | | | (1,042 | ) | | | 206 | |
Decrease (increase) in other receivables and long term deposits | | | 33 | | | | (1,227 | ) | | | (306 | ) |
Increase (decrease) in trade payables and accrued expenses | | | 2,195 | | | | (135 | ) | | | (536 | ) |
Decrease in other payables and deferred revenues | | | (1,012 | ) | | | (70 | ) | | | (161 | ) |
| | | 1,982 | | | | (2,446 | ) | | | (1,008 | ) |
| | | | | | | | | | | | |
Net cash used in continuing operating activities | | | (16,445 | ) | | | (14,892 | ) | | | (12,154 | ) |
| | | | | | | | | | | | |
Net cash used in discontinued operating activities | | | - | | | | (1,563 | ) | | | - | |
| | | | | | | | | | | | |
Net cash used in operating activities | | | (16,445 | ) | | | (16,455 | ) | | | (12,154 | ) |
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | |
Profit (loss) for the year | | | (13,551 | ) | | | (9,196 | ) | | | 4,955 | |
| | | | | | | | | | | | |
Adjustments to reconcile net profit (loss) to net cash provided by (used in) continuing operating activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Adjustments to profit and loss items: | | | | | | | | | | | | |
Profit from discontinued operation | | | 0 | | | | (80 | ) | | | (2,889 | ) |
Depreciation and amortization | | | 1,238 | | | | 1,090 | | | | 1,149 | |
Share-based compensation | | | 1,673 | | | | 1,322 | | | | 1,234 | |
Revaluation of liabilities in respect of IIA grants | | | 919 | | | | 828 | | | | (392 | ) |
Revaluation of liabilities in respect of purchase of shares | | | 590 | | | | (433 | ) | | | 1,690 | |
Revaluation of lease liabilities | | | 188 | | | | 305 | | | | 340 | |
Increase (decrease) in severance pay liability, net | | | 13 | | | | 33 | | | | (105 | ) |
Net financing income | | | (11 | ) | | | (297 | ) | | | (434 | ) |
Un-realized foreign currency gain | | | (137 | ) | | | (211 | ) | | | (152 | ) |
| | | | | | | | | | | | |
| | | 4,473 | | | | 2,557 | | | | 441 | |
Changes in asset and liability items: | | | | | | | | | | | | |
Decrease (increase) in trade receivables | | | 929 | | | | 1,386 | | | | (3,553 | ) |
Decrease in inventories | | | 257 | | | | 141 | | | | 67 | |
Decrease (increase) in other receivables | | | (763 | ) | | | (13 | ) | | | 6,376 | |
Increase (decrease) in trade payables and accrued expenses | | | 1,723 | | | | (1,096 | ) | | | 1,355 | |
Increase (decrease) in other payables and deferred revenues | | | (1,984 | ) | | | (479 | ) | | | 247 | |
| | | | | | | | | | | | |
| | | 162 | | | | (61 | ) | | | 4,492 | |
| | | | | | | | | | | | |
Net cash provided by (used in) continuing operating activities | | | (8,916 | ) | | | (6,700 | ) | | | 9,888 | |
| | | | | | | | | | | | |
Net cash used in discontinued operating activities | | | 0 | | | | (195 | ) | | | (1,599 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | (8,916 | ) | | | (6,895 | ) | | | 8,289 | |
The accompanying notes are an integral part of the consolidated financial statements.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| | Year ended | |
| | December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
Cash Flows from Investing Activities: | | | | | | | | | |
| | | | | | | | | |
Purchase of property and equipment | | | (671 | ) | | | (1,045 | ) | | | (522 | ) |
Purchase of intangible assets | | | (30 | ) | | | (30 | ) | | | (12 | ) |
Interest received | | | 407 | | | | 349 | | | | 106 | |
Proceeds from (investments in) short term bank deposits, net | | | 2,110 | | | | 1,163 | | | | (16,612 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 1,816 | | | | 437 | | | | (17,040 | ) |
| | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Proceeds from exercise of options | | | 7 | | | | 7 | | | | * | |
Proceeds from issuance of shares, net | | | - | | | | 22,658 | | | | - | |
Proceeds from the IIA grants, net of re-payment | | | 900 | | | | 330 | | | | 46 | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 907 | | | | 22,995 | | | | 46 | |
| | | | | | | | | | | | |
Exchange rate differences on cash and cash equivalent balances | | | 86 | | | | 226 | | | | (205 | ) |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents from continuing activities | | | (13,636 | ) | | | 8,766 | | | | (29,353 | ) |
Decrease in cash and cash equivalents from discontinued activities | | | - | | | | (1,563 | ) | | | - | |
Balance of cash and cash equivalents at the beginning of the year | | | 42,502 | | | | 28,866 | | | | 36,069 | |
| | | | | | | | | | | | |
Balance of cash and cash equivalents at the end of the year | | | 28,866 | | | | 36,069 | | | | 6,716 | |
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Cash flows from investing activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Purchase of property and equipment | | | (489 | ) | | | (923 | ) | | | (792 | ) |
Interest received | | | 35 | | | | 274 | | | | 184 | |
Proceeds from (investments in) short term bank deposits, net | | | 4,002 | | | | 18,034 | | | | (5,050 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) continuing investing activities | | | 3,548 | | | | 17,385 | | | | (5,658 | ) |
| | | | | | | | | | | | |
Net cash used in discontinued investing activities | | | 0 | | | | 0 | | | | (1,239 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 3,548 | | | | 17,385 | | | | (6,897 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Repayment of leases liabilities | | | (693 | ) | | | (508 | ) | | | (630 | ) |
Proceeds from exercise of options | | | 3 | | | | (* | ) | | | (* | ) |
Repayment of IIA grants, net | | | (360 | ) | | | (121 | ) | | | (376 | ) |
| | | | | | | | | | | | |
Net cash used in continuing financing activities | | | (1,050 | ) | | | (629 | ) | | | (1,006 | ) |
| | | | | | | | | | | | |
Exchange rate differences on cash and cash equivalent balances | | | 88 | | | | 273 | | | | 140 | |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents from continuing activities | | | (6,330 | ) | | | 10,329 | | | | 3,364 | |
Decrease in cash and cash equivalents from discontinued activities | | | 0 | | | | (195 | ) | | | (2,838 | ) |
Balance of cash and cash equivalents at the beginning of the year | | | 17,376 | | | | 7,242 | | | | 6,716 | |
| | | | | | | | | | | | |
Balance of cash and cash equivalents at the end of the year | | | 11,046 | | | | 17,376 | | | | 7,242 | |
| | | | | | | | | | | | |
Supplement disclosure of Non-cash transactions: | | | | | | | | | | | | |
ROU asset, net recognized with corresponding lease liability | | | 155 | | | | 261 | | | | 209 | |
Exercise of RSU’s | | | 147 | | | | 147 | | | | 97 | |
* Represents an amount lower than $1.
The accompanying notes are an integral part of the consolidated financial statements.
| c. | The Company's securities are listed for trading on NASDAQ since March 2014. In September 2017, the Company completed a follow-on public offering. A total of 5,037,664 new ordinary shares were issued in consideration to net proceeds of $22,658, after deducting underwriter’s discounts, commissions and other offering expenses (see Note 16). |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 2: Basis of Preparation of the Consolidated Financial Statements
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIESa. | Statement of compliance with International Financial Reporting Standards |
| a. | Basis of presentation of financial statements: |
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
The Company'sThese consolidated financial statements have been preparedwere approved by the board of directors on a cost basis, except for financial instruments which are measured at fair value through profit or loss.March 17, 2022.
| bb. | Consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee. |
The financial statements of the Company and its subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all entities in the Group. Significant intercompany balances and transactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.
| c. | Functional currency, reporting currency and foreign currency: |
| 1. | Functional currency and reporting currency: |
The reporting currency of the financial statements is the U.S. dollar.
The Company determines the functional currency based on the currency in which it primarily generates and expends cash. The Company determined that its functional currency is the U.S. dollar since most of the Company's expenses are in U.S. dollars and the economic environment in which the Company operates in and performs its transactions is mostly affected by the U.S dollar. A certain portion of the Company's costs are denominated in NIS mainly due to payroll and related benefit costs incurred in Israel. To further support the Company's determination, the Company has analyzed the currency in which funds from financing activities are generated or held and the currency in which receipts from operating activities are usually retained. In this respect, funds from financing activities were principally derived from significant funds raisedraising in U.S. dollars including the public offering completed in 2014, the follow-on offering completed in 2017 and U.S governmental funds.
The Company operates and plans its activities in U.S. dollars and accordingly its periodic budgets and internal management reports are prepared and monitored using the U.S. dollar as the primary currency and provides the basis for the determination of share-based compensation.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
The functional currency of the Company's subsidiary in Germany has been determined to be its local currency - the EURO. Assets and liabilities of this subsidiary are translated at year end exchange rates and its statement of operations items are translated using the averegae exchange rates at the quarter of which those items are recognized. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.equity (deficit).
| 2. | Transactions, assets and liabilities in foreign currency: |
Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date.
Exchange differences are recognized in profit or loss.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 2: Basis of Preparation of the Consolidated Financial Statements (Cont.)
| c. | Use of estimates and judgments |
The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities and expenses.
Discussed below are the key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Company that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
| • | Determining the fair value of share based compensation to employees and directors: |
The fair value of share based compensation to employees and directors is determined using the binomial option pricing models.The assumptions used in the models include the expected volatility, early exercise factor, expected dividend and risk-free interest rate.
| • | Liabilities in respect to IIA grants: |
Government grants received from the IIA are recognized as a liability if future economic benefits are expected from the research and development activity that will result in royalty‑bearing sales. As the contingent liability is calculated based on future royalty-bearing sales, there is uncertainty regarding the estimated future cash flows and the estimated discount rate used to measure the amortized cost of the liability.
Note 3: | Significant Accounting Policies |
The accounting policies set out below have been consistently applied for all periods presented in these consolidated financial statements:
| d.a. | Basis of consolidation: |
Consolidated financial statements include the financial statements of companies that the Company controls (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee.
The financial statements of the Company and its subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all entities in the Group. Significant intercompany balances and transactions and gains or losses resulting from intercompany transactions are eliminated in full in the consolidated financial statements.
Cash equivalents are considered as highly liquid investments, including unrestricted short‑term bank deposits with an original maturity of three months or less from the date of deposit.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
| e.c. | Short-term bank deposits: |
Short-term bank deposits have a maturity of more than three months, but less than one year, from the deposit date.
Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling costs. The Company periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly.
Cost of inventories is determined as follows:
| Raw materials | - | At cost of purchase using the first-in, first-out method. |
| Finished goods | - | On the basis of average standard costs (which approximates actual cost on a weighted average basis) including materials, labor and other direct and indirect manufacturing costs based on practical capacity. |
| e. | Liability in respect of Israeli Innovation Authority ("IIA"): |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollarsGrants from the IIA in thousands (exceptrespect of share and per share data)
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| g. | Participation by governments support: |
(i) Israeli Innovation Authority grants:
Government grants are recognized when there is reasonable assurance that the grants will be received and the Company will comply with the attendant conditions.
Researchresearch and development grantsprojects are accounted for as forgivable loans according to IAS 20. Grants received from the Israeli Innovation Authority ("IIA"),IIA are recognized upon receipt as a liability ifaccording to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. If future economic benefits are expected from the project that will result in royalty-bearing sales. In that event, the royalty obligation isrevenues from sale of products it will be treated as a contingent liability in accordance with IAS 37, "Provisions, Contingent Liabilities and Contingent Assets" ("IAS 37").liability.
A liability for the grant is first measured at fair value (Level 3 of the fair value hierarchy) using a discount rate that reflects a market interest rate. 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 deduction from 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.
At the end of each reporting period, the Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid based on its best estimate of future sales and if so,any changes in the appropriatepresent value of the cash flows discounted at the original interest rate of the grant are recognized in profit or loss. The difference between the amount received and the fair value on the date of receiving the grant is recognized as a deduction of research and development expenses.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
The Company accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration.
For leases in which the Company is the lessee, the Company recognizes on the commencement date of the lease a right-of-use (“ROU”) asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Company has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, the Company has elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.
Following are the amortization periods of the ROU assets by class of underlying asset:
| | Years | |
Motor vehicles | | 3 | |
Buildings and equipment | | 5-8 | |
| | | |
The Company tests for impairment of the ROU asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
| • | Variable lease payments that depend on an index: |
On the commencement date, the Company uses the index rate prevailing on the commencement date to calculate the future lease payments.
For leases in which the Company is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the ROU assets, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments takes effect).
| • | Lease extension and termination options: |
A non-cancelable lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be exercised.
In the event of any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Company remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations. The total change is recognized in the carrying amount of the liabilityROU asset until it is derecognized against a corresponding reduction in researchreduced to zero, and development expenses.
(ii) Funding by BARDA:
Non-royalty bearing funds from BARDA for funding research and development projectsany further reductions are recognized atin profit or loss.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the time the Company is entitled to such grants on the basisConsolidated Financial Statements
U.S. dollars in thousands (except of the related costs incurredshare and recorded as a deduction from research and development expenses.per share data)
Note 3: | h. | Leases:Significant Accounting Policies (Cont.) |
The criteria for classifying leases as finance or operating leases depend onIf a lease modification does not reduce the substance of the agreements and are made at the inceptionscope of the lease and does not result in accordance witha separate lease, the following principlesCompany remeasures the lease liability based on the modified lease terms using a revised discount rate as set outof the modification date and records the change in IAS 17.the lease liability as an adjustment to the ROU asset.
If a lease modification reduces the scope of the lease, the Company recognizes a gain or loss arising from the partial or full reduction of the carrying amount of the ROU asset and the lease liability. The Company subsequently remeasures the carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the ROU asset.
Operating leases:leases:
Leases in which substantially all the risks and rewards of ownership of the leased asset are not transferred to the CompanyGroup are classified as operating leases. Lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
g. | i. | Property, plant and equipment, net: |
Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and excluding day-to-dayday-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with the plant and equipment.
Depreciation is calculated on a straight‑line basis over the useful life of the assets at annual rates as follows:
| | % | |
Office furniture | | | 6-15 | |
ElectronicManufacturing machinery and laboratorylab equipment | | | 15-20 | 15-33 |
Computers | | | 33 | |
Leasehold improvements | | See below | |
Leasehold improvements are depreciated on a straight‑line basis over the shorter of the lease term (including the renewal option held by the Company which is expected to be exercised) and the expected life of the improvement.
The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.
| j.h. | Intangible assets, net: |
Separately acquired intangible assets with finite useful life are measured on initial recognition at cost.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
Intangible assets are amortized over their useful life using the straight‑line method beginning in the period in which the intangible assets generates net cash inflows to the Company. The useful life is over the length of the patent or knowledge life. The intangible assets are reviewed for impairment at each reporting date until they begin generating net cash inflows and subsequently whenever there is an indication that the asset may be impaired.
| k.i. | RevenueRevenues recognition: |
The Company currently generates revenues from direct and indirect sales of its innovative biopharmaceutical product, NexoBrid, to burn centers and hospital burn units in Europe and Israel as well as to local distributors in other countries. Revenues are recognizedrecognizes revenue when the customer obtains control over the promised goods or services. The revenue is measured according to the extentamount of the consideration to which the Company expects to be entitled in exchange for the goods or services promised to the customer, other than amounts collected for third parties.
To determine revenue recognition for arrangements the Company evaluates the following criteria’s, which are within the scope of IFRS 15, it performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it determines that it is probable thatit will collect the economic benefits will flowconsideration it is entitled to in exchange for the goods or services it transfers to the customer.
Performance obligations are promises commitments in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises commitments in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised commitment goods or services until such combined group of promises commitments meet the requirements of a performance obligation.
The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract.
Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the revenues can be reliably measured, regardlessperformance obligation is satisfied.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
The Company records amounts as accounts receivable when the paymentright to consideration is being made. Revenuesdeemed unconditional. Amounts received, or that are measuredunconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract are recognized as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as the current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The Company’s revenue generating arrangements typically include licensing arrangements, which comprise of upfront license fees, milestone payments and/or royalties and products sale arrangements.
The promised goods or services in the Company’s licensing arrangements typically consist of a license to the Company’s intellectual property and/or research and development services. The Company may provide customers with options to additional items in such arrangements, which are accounted for separately when the customer elects to exercise such options, unless the option provides a material right to the customer.
If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the fair valuelater of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
In 2019, the Company entered into exclusive license and supply agreements with Vericel to commercialize NexoBrid in North America (the “Collaboration Agreements”) (see Note 19b). The Collaboration Agreements have multiple performance obligations, due to the contract covering multiple phases of the product lifecycle. Under the Vericel license and supply agreements, the Company identified three distinct performance obligations: (1) license rights (2) development services for BLA approval and (3) manufacturing and supply of NexoBrid.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
The Company allocated the Collaboration Agreements transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
The Company determined the license to the Intellectual Property ("IP") to be a right to use the IP, which has significant standalone functionality. Since Vericel has sublicensing rights, effective control over the development strategy in the Territory and is also entitled to generate revenues from BARDA procurement prior to BLA approval, the license is a distinct performance obligation and as such revenues are recognized at the point in time that control of the license is transferred to the customer. Since the manufacturing and development services are at market value, then the upfront payment was fully attributed to the license performance obligation. Future milestone payments are considered variable consideration received or receivable, taking into account contractually defined termsand are subject to the variable consideration constraint (i.e. will be recognized once concluded that it is “probable” that a significant reversal of payment and excluding taxes or duty and netthe cumulative revenues recognized under the contract will not occur in future periods when the uncertainty related to the variable considerations are resolved). Therefore, as the milestone payments are not probable, revenues were not recognized in respect to such milestone payments.
As royalties under this agreement are payable based on future commercial sales, which did not occur as of returns and allowances, trade discounts and volume rebates.the financial statements date, the Company did not recognize any revenues from royalties.
Revenues from the sale of products areto Vericel will be recognized when all the significant risks and rewards of ownership of the products have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date of the products is usually the date of which ownership passes.
Revenues from distribution licensing arrangements:
The Company accounts for the bundled license provided to the distributers and related high specialized services as a single performance obligation and consequently recognize revenue using the cost-to-cost method, where the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected to be incurred upon satisfying such single performance obligation. The revenues from such bundled performance obligation are included within “Revenues from license agreements”. Significant finance components related to such arrangements are recognized as finance expense.
Revenues from development services:
Revenues from development services are recognized over time, during the period the customer receives and consumes the benefits provided by the Company's performance (see Note 3k).
F-12MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
Note 3: | Significant Accounting Policies (Cont.) |
Revenues from distributors agreements which comprisedthe sale 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.products:
Deferred revenues include unearned amounts received from customers not yet recognized as revenues. As of December 31, 2018, the aggregate amount of the deffered revenue was $1,356, which is expected to be recognized over 12 years.
Effective of January 1, 2018, the Company adopted IFRS 15, "Revenue from Contracts with Customers" ("the Standard"). The Company elected to adopt the provisions of the Standard which replaces IAS 18, using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data.
The new Standard introduces a five-step model that applies to revenue earned from contracts with customers:
Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.
Step 2: Identify the distinct performance obligations in the contract.
Step 3: Determine the transaction price, including reference to variable consideration, significant financing components, non-cash consideration and any consideration payable to the customer.
Step 4: Allocate the transaction price to the distinct performance obligations on a relative stand-alone selling price basis using observable prices, if s available, or using estimates and assessments.
Step 5: Recognize revenue when a performance obligation is satisfied, either at a point in time or over time.
The Company generates revenues from direct and indirect sales of its productsinnovative biopharmaceutical product, NexoBrid, to burn centers and from license agreements with its distributors.
F-13
hospital burn units in Europe, U.S Israel and local distributors in international markets.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| 1. | Revenue from the Sale of products:
|
RevenueRevenues from sale of goods is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer, generally upon delivery of the goods to the customer.
| 2. | Revenue from distribution agreements with Multiple- element: |
According to The transaction price is the new Standard, entities need to determine whether the licenses for intellectual property is a performance obligation which is distinct from other goods and services included in the contract. An analysisamount of the Company's contracts with its distributors indicatesconsideration that in the majority of contracts, the Company grants its distributors a rightis expected to access its intellectual property as it exists throughout the license period. Accordingly, the Company recognizes revenue from the granting of licenses over the license period, which is identical to the legacy accounting treatment.
In addition, in accordance with terms of some license agreements, the Company is entitled for up-front payments which are accounted for as deferred revenues and recognized in profit and loss over the license period. According to the new Standard, when long-term advances (exceeding one year) arebe received for a future service, the Company is required to accrue interest and recognize finance expensebased on the advances over the periodcontract terms, excluding amounts collected on behalf of the contract. Under the legacy revenue recognition guidance the Company did not recognize finance expenses in respect of deferred revenue.
On January 1, 2018, the Company adopted the new standard for all its distribution agreements at the date of initial application, with the cumulative effect of applying the new guidance recognizedthird parties (such as an adjustment to the opening retained earnings balance. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The Company recorded a net increase to opening accumulated deficit of $249 as of January 1, 2018 due to the cumulative impact of adopting the new guidance and an increase of deferred revenues by $249.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table summarizes the impacts of adopting IFRS 15 on the Company’s statement of financial position as of December 31, 2018 and its consolidated statements of comprehensive loss for the period ended December 31, 2018 for each of the line items affected.
Impact on the condensed consolidated statement of financial position:
| | As reported | | | Adjustments | | | Amounts without adoption of IFRS 15 | |
| | | | | | | | | |
Deferred revenues* | | | 1,356 | | | | (369 | ) | | | 987 | |
| | | | | | | | | | | | |
Accumulated deficit | | | (130,715 | ) | | | 369 | | | | (130,346 | ) |
* Comprised of short term deferred revenues classified in other payable and long term deferred revenues.
Impact on the condensed consolidated statements of comprehensive loss for the year ended December 31, 2018:
| | As reported | | | Adjustments | | | Amounts without adoption of IFRS 15 | |
| | | | | | | | | |
Revenues | | | 3,401 | | | | (44 | ) | | | 3,357 | |
Financial expense | | | (2,117 | ) | | | 164 | | | | (1,953 | ) |
Net loss | | | (1,057 | ) | | | 120 | | | | (937 | ) |
Total Basic and diluted net loss per share | | | (0.04 | ) | | | (0.0 | ) | | | (0.04 | ) |
| l.j. | Research and development expenses: |
Research and development expenses are recognized in profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project is recognized if the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Company's intention to complete the intangible asset and use or sell it; the Company's ability to use or sell the intangible asset; how the intangible asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete the intangible asset; and the Company's ability to measure reliably the expenditure attributable to the intangible asset during its development. Since the Company's research and development projects are often subject to regulatory approval procedures and other uncertainties, the conditions for the capitalization of costs incurred before receipt of approvals are not normally satisfied and, therefore, research and development expenses are recognized in profit or loss when incurred.
F-15
Non-royalty bearing funds from BARDA for funding research and development projects were recognized at the time the Company was entitled to such grants on the basis of the related costs incurred.The participation by BARDA was classified as reimbursement (deduction) of research and development expenses. Starting May 2019, following entrance into the Vericel license and supply agreements, in which Vericel has assumed the effective control over the BARDA contracts, funding by BARDA was classified as Revenues from development services.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| m.l. | Impairment of non-financial assets: |
The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non‑financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash‑generating unit to which the asset belongs, and is calculated based on the projected cash flows that will be generated by the cash generating unit.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
An impairment loss of an asset, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, may not increase the value above the lower of (i) the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years, and (ii) its recoverable amount.
| n.m. | Financial instruments: |
Effective of January 1, 2018 the Company adoptedThe accounting policy for financial instruments in accordance with IFRS 9, "Financial Instruments" ("the Standard"), which replaced IAS 39. The Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data. is as follows:
Financial assets are classified, atmeasured upon initial recognition and subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus intransaction costs that are directly attributable to the caseacquisition of athe financial asset notassets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs.costs are recorded in profit or loss.
Receivable:The Company classifies and measures debt instruments in the financial statements based on the following criteria:
| - | The Company's business model for managing financial assets; and |
| - | The contractual cash flow terms of the financial asset. |
Impairment of financial assets:
The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss.
The Company has short-term financial assets such as trade receivables in respect of which the Company applies a simplified approach and measures the loss allowance in an amount equal to the lifetime expected credit losses.
An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset.
| a) | Financial liabilities measured at amortized cost: |
Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial assets with fixed or determinable payments that are not quotedliability.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in an active market.thousands (except of share and per share data)
Note 3: | 2. | Financial liabilities:Significant Accounting Policies (Cont.) |
Financial liabilities within the scope of IFRS 9 are initially measured at fair value.
After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows:
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
FinancialAfter initial recognition, the Company measures all financial liabilities measured at amortized cost:
Loans and other contingent liabilities are measured at amortized cost using the effective interest rate method, taking into account directly attributable transaction costs.except for Financial liabilities at fair value through profit or loss such as derivatives;
| 3.b) | Financial liabilities measured at fair value through profit or loss: |
At initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognized in profit or loss.
After initial recognition, changes in fair value are recognized in profit or loss.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
F - 23
4. Classification of financial instruments by fair value hierarchy:
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
| 4. | Classification of financial instruments by fair value hierarchy: |
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted prices included within level 1 that are observable either directly or indirectly.
Level 3 - inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:Level 1 | - | quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| | |
Level 2 | - | inputs other than quoted prices included within level 1 that are observable either directly or indirectly. |
| | |
Level 3 | - | SIGNIFICANT ACCOUNTING POLICIES (Cont.)inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). |
| 5. | Offsetting financial instruments: |
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
| 6.n. | De-recognition of financial instruments:Provisions: |
A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Company has transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor (the Company) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.
| 7. | Contingent consideration for purchase of shares: |
The contingent consideration liability for purchase of shares is measured at fair value(Level 3 of the fair value hierarchy) and initially recorded against equity. Subsequent changes in the fair value are recognized in profit or loss.
A provision in accordance with IAS 37 is recognized when the Company has a present (legal or constructive) obligation as a result of a past event, it is expected to require the use of economic resources to clear the obligation and a reliable estimate has been made.
The Company accounts for this obligation as a liability on the balance sheet in an amount equal to the fair value of the future royalty payments. In order to determine the fair value, the Company estimated the amount and timing of the future payments based on our projected results of operations.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
o. | p. | Short-term employee benefits and severance pay liability, net: |
The Company has several employee benefit plans:
| 1. | Short-term employee benefits: |
Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus is recognized when the Company has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.
| 2. | Post-employment benefits: |
The Company has liabilities for severance pay for its employees in several of EU jurisdictions and in Israel.
Post-employment benefit plans in Israel are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans. The Company has defined contribution plans for Israeli employees pursuant to the Severance Pay Law into which the Company pays fixed contributions and has no legal or constructive obligation to pay further contributions on account of severance pay if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in current and prior periods.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
ContributionsNotes to the defined contribution planConsolidated Financial Statements
U.S. dollars in respectthousands (except of share and per share data)
Note 3: | Significant Accounting Policies (Cont.) |
The Company recognizes liability for severance or retirement pay are recognized as an expense when contributed concurrently with performance of the employee's services.due to its employees in EU in accordancewith local laws.
| q.p. | Share-based compensation: |
Certain Company employees and directors are entitled to remuneration in the form of equity-settled share-based compensation.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured at the fair value of their equity instruments granted at grant date. The fair value is determined using the binomial option pricing model.
The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data) | q. | Discontinued operation: |
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| r. | Discontinued operation: |
A discontinued operation is a component of the Company that either has been disposed of or is classified as held for sale. Disposal group to be abandoned meets the criteria for being a discontinued operation at the date of which it ceases to be used. The operating results relating to the discontinued operation are separately presented in the consolidated statements of comprehensive profitincome or loss.
| s.r. | Profit / Loss per share: |
LossProfit/loss per share is calculated by dividing the profit/loss attributable to Company shareholders by the weighted average number of outstanding ordinary shares during the period. Potential ordinary shares are only included when their conversion decreases income per share or increases loss per share from continuing operation.
Furthermore, potential ordinary shares converted during the period are included in diluted loss per share only until the conversion date and from that date in basic loss per share.
NOTE 3:- | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS |
The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities and expenses.
Discussed below are the key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Company that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Determining the fair value of share based compensation to employees and directors:
The fair value of share based compensation to employees and directors is determined using the binomial option pricing models.
The assumptions used in the models include the expected volatility, early exercise factor, expected dividend and risk-free interest rate.
Liabilities in respect to IIA grants:
Government grants received from the IIA are recognized as a liability if future economic benefits are expected from the research and development activity that will result in royalty‑bearing sales. As the contingent liability is calculated based on future royalty-bearing sales, there is uncertainty regarding the estimated future cash flows and the estimated discount rate used to measure the amortized cost of the liability.
Certain amounts previously reported in the consolidated financial statements have been reclassified to conform to current year presentation. Such reclassifications did not affect net loss, Changes in Stockholders' Equity or cash flows.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 4: Cash and Cash Equivalents
NOTE 3:- | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS (Cont.) |
Contingent consideration for the purchase of shares:
Contingent consideration for the purchase of shares was first measured at fair value. After initial recognition, the liability is measured at amortized cost using the effective interest method. As the contingent consideration is calculated based on future royalty‑bearing sales, there is uncertainty regarding the estimated future cash flows and the estimated discount rate used to measure the fair value of this liability.
Legal claims: | | December 31 | |
| | 2021 | | | 2020 | |
| | | | | | |
Balance in USD | | | 7,735 | | | | 13,067 | |
Balance in other currencies | | | 3,311 | | | | 4,309 | |
| | | | | | | | |
| | | 11,046 | | | | 17,376 | |
Note 5: Short-Term Bank Deposits
In estimating the likelihood of outcome of legal claims filed against the Company and its investees, the companies rely on the opinion of their legal counsel. These estimates are based on the legal counsel's best professional judgment, taking into account the stage of proceedings and legal precedents in respect of the different issues. Since the outcome of the claims will be determined in courts, the results could differ from these estimates.
NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION |
IFRS 16, "Leases": | | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
USD bank deposits (1) | | | 0 | | | | 4,024 | |
Restricted bank deposits (2) | | | 0 | | | | 184 | |
| | | | | | | | |
| | | 0 | | | | 4,208 | |
In January 2016, (1) The USD deposits bear annual interest of 1.12% for the IASB issued IFRS 16, "Leases" ("the new Standard"). According to the new Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange282 days for consideration.2020.
The effects of (2)Restricted bank deposits which are primarily used as security for the adoption of the new Standard are as follows:
| · | According to the new Standard, lessees are required to recognize all leases in the statement of financial position (excluding certain exceptions, see below). Lessees will recognize a liability for lease payments with a corresponding right-of-use asset, similar to the accounting treatment for finance leases under the existing standard, IAS 17, "Leases". Lessees will also recognize interest expense and depreciation expense separately. |
| · | Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based on performance or use are recognized as an expense by the lessees as incurred and recognized as income by the lessors as earned. |
| · | In the event of change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease liability and record the effect of the remeasurement as an adjustment to the carrying amount of the right-of-use asset. |
| · | The accounting treatment by lessors remains substantially unchanged from the existing standard, namely classification of a lease as a finance lease or an operating lease. |
F-21
Company’s office leases.
Note 6: Trade Receivables
| | December 31 | |
| | 2021 | | | 2020 | |
| | | | | | |
BARDA (see also Note 18a) | | | 1,085 | | | | 2,189 | |
| | | | | | | | |
Other trade receivables | | | 696 | | | | 578 | |
Less provision for impairment | | | (2 | ) | | | 0 | |
| | | 694 | | | | 578 | |
| | | | | | | | |
| | | 1,779 | | | | 2,767 | |
| | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Raw materials | | | 694 | | | | 631 | |
Finished goods | | | 506 | | | | 749 | |
| | | | | | | | |
| | | 1,200 | | | | 1,380 | |
Note 8: Other Receivables- Short Term | | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Government authorities | | | 141 | | | | 73 | |
Contract asset related to BARDA | | | 347 | | | | 0 | |
Prepaid expenses and other | | | 439 | | | | 389 | |
| | | | | | | | |
| | | 927 | | | | 462 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 9: | Other Receivables- Long Term |
| | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Income receivables | | | 280 | | | | 0 | |
Restricted bank deposits (1) | | | 189 | | | | 0 | |
| | | | | | | | |
| | | 469 | | | | 0 | |
NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)(1) | Restricted bank deposits which are primarily used as security for the Company’s office leases. |
| · | The new Standard includes two exceptions which allow lessees to account for leases based on the existing accounting treatment for operating leases - leases for which the underlying asset is of low financial value and short-term leases (up to one year). |
Note 10: Property, Plant And Equipment, Net
| | Office furniture | | | Manufacturing machinery and lab equipment | | | Computers | | | Leasehold improvements | | | Total | |
Cost | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2021 | | | 332 | | | | 4,775 | | | | 169 | | | | 2,904 | | | | 8,180 | |
Additions | | | 18 | | | | 193 | | | | 45 | | | | 233 | | | | 489 | |
Disposals | | | (89 | ) | | | (205 | ) | | | (36 | ) | | | 0 | | | | (330 | ) |
Foreign currency translation | | | (4 | ) | | | 1 | | | | (2 | ) | | | 0 | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 257 | | | | 4,764 | | | | 176 | | | | 3,137 | | | | 8,334 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 301 | | | | 4,534 | | | | 124 | | | | 2,315 | | | | 7,274 | |
Additions | | | 20 | | | | 241 | | | | 73 | | | | 445 | | | | 779 | |
Disposals | | | 0 | | | | 0 | | | | (29 | ) | | | 0 | | | | (29 | ) |
Re-classified from RSU assets | | | 0 | | | | 0 | | | | 0 | | | | 144 | | | | 144 | |
Foreign currency translation | | | 11 | | | | 0 | | | | 1 | | | | 0 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 332 | | | | 4,775 | | | | 169 | | | | 2,904 | | | | 8,180 | |
| | | | | | | | | | | | | | | | | | | | |
Accumulated Depreciation | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2021 | | | 204 | | | | 3,092 | | | | 76 | | | | 2,178 | | | | 5,550 | |
Additions | | | 22 | | | | 483 | | | | 55 | | | | 81 | | | | 641 | |
Disposals | | | (89 | ) | | | (204 | ) | | | (35 | ) | | | 0 | | | | (328 | ) |
Foreign currency translation | | | (4 | ) | | | (1 | ) | | | (2 | ) | | | 0 | | | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 133 | | | | 3,370 | | | | 94 | | | | 2,259 | | | | 5,856 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 175 | | | | 2,606 | | | | 60 | | | | 2,129 | | | | 4,970 | |
Additions | | | 18 | | | | 486 | | | | 44 | | | | 49 | | | | 597 | |
Disposals | | | 0 | | | | 0 | | | | (29 | ) | | | 0 | | | | (29 | ) |
Foreign currency translation | | | 11 | | | | 0 | | | | 1 | | | | 0 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 204 | | | | 3,092 | | | | 76 | | | | 2,178 | | | | 5,550 | |
| | | | | | | | | | | | | | | | | | | | |
Carrying amounts of all fixed asset items | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | | | 124 | | | | 1,394 | | | | 82 | | | | 878 | | | | 2,478 | |
December 31, 2020 | | | 128 | | | | 1,683 | | | | 93 | | | | 726 | | | | 2,630 | |
The new Standard is effective for annual periods beginning on or after January 1, 2019.
The new Standard permits lessees to use one of the following approaches:
| 1. | Full retrospective approach - according to this approach, a right-of-use asset and the corresponding liability will be presented in the statement of financial position as if they had always been measured according to the provisions of the new Standard. Accordingly, the effect of the adoption of the new Standard at the beginning of the earliest period presented will be recorded in equity. Also, the Company will restate the comparative data in its financial statements. Under this approach, the balance of the liability as of the date of initial application of the new Standard will be calculated using the interest rate implicit in the lease, unless this rate cannot be easily determined in which case the lessee's incremental borrowing rate of interest on the commencement date of the lease will be used. |
| 2. | Modified retrospective approach - this approach does not require restatement of comparative data. The balance of the liability as of the date of initial application of the new Standard will be calculated using the lessee's incremental borrowing rate of interest on the date of initial application of the new Standard. As for the measurement of the right-of-use asset, the Company may choose, on a lease-by-lease basis, to apply one of the two following alternatives: |
| · | Recognize an asset in an amount equal to the lease liability, with certain adjustments. |
| · | Recognize an asset as if the new Standard had always been applied. |
Any difference arising on the date of first-time recorded in equity.
The Company believes that it will apply the modified retrospective approach upon the initial adoption of the new Standard by measuring the right-of-use asset at an amount equal to the lease liability, as measured on the transition date.
The Company has a substantial number of lease contracts, mainly leases of Vehicles and laboratory, office and clean room spaces (see also Note 15g). In assessing the impact of the new Standard on the financial statements, the Company is evaluating the following matters:
| · | Options to extend the lease- according to the new Standard, the non-cancellable period of a lease includes periods that are covered by options to extend the lease if the lessee is reasonably certain to exercise the option. The Company is reviewing whether such options exist in its lease agreements and whether it is reasonably certain that it will exercise the options. As part of its assessment, the Company is evaluating all relevant facts and circumstances that create an economic incentive to exercise the option, including significant leasehold improvements that have been or are expected to be undertaken, the importance of the underlying asset to the Company's operations and past experience in connection with the exercise of such options. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
a. Lease Agreements:
The Company's offices and its production facility in Israel are located in a building that the Company leases from its Parent Company (see Note 25a), in accordance with a sub-lease agreement. The Company subleases approximately 3,000 square meters of laboratory, office and clean room space at a monthly rent fee of NIS 119 (approximately $38) and NIS 125 starting November 2022 (approximately $40). This sub-lease agreement was amended on October 2021, to extand the priod up to October 2025 which was included in the calculation of the lease liability and RoU asset.
In addition the Company and its subsidiary have lease agreements for 13 vehicles for a period of three years. b.Amounts recognized in profit or loss and in the statement of cash flows
NOTE 4:- | DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.) | Year ended December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Interest expense on lease liabilities | | | 120 | | | | 144 | |
Depreciation expenses relating to short-term leases | | | 531 | | | | 427 | |
Cash outflow for leases (1) | | | 693 | | | | 652 | |
(1) For the year ended December 31,2020 the cash flow for leases includes $144 which were capitalized to Leasehold improvements.
| · | Separation of lease components - according to the new Standard, all lease components within a contract should be accounted for separately from non-lease components. A lessee is allowed a practical expedient according to which it can elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for them as a single lease component. The Company is reviewing whether such non-lease components, such as management and maintenance services, exist in its current lease contracts and whether the above practical expedient should be applied to each class of underlying asset. |
| · | Incremental interest rate - the Company estimates the incremental interest rate to be used for measuring the lease liability and right-of-use asset on the date of initial adoption of the new Standard, based on the lease term and nature of the leased asset. |
The Company is also evaluatingwas assisted by external third party valuation expert in determining the needappropriate interest rate for making adjustments todiscounting its information systems, internal control, policies and procedures that will be necessary in order to applyleases based on: credit risk, the provisionsweighted average term of the new Standard. The Company estimates thatleases and other economic variables. A weighted average incremental borrowing in a range of 1% to 6.7% was used to discount future lease payments in the effectcalculation of the lease liability on the date of initial adoptionapplication of the new Standard as of January 1, 2019, is expected to result in an increase in the Company's total assets and liabilities of approximately $ 2,500 and no change in its equity.standard (IFRS 16).
Moreover, the effect of the initial adoption of the new Standard in 2019 is expected to result in a decrease in the Company's lease expenses of approximately $ 590 and an increase in the Company's depreciation and finance expenses of approximately $ 530 and $ 150, respectively. The total effect of the initial adoption of the new Standard in 2019 is expected to result in a decrease of approximately $ 60 in operating expenses and a increase of approximately $ 90 in net loss.
In addition, as a result of the adoption of the new Standard, in 2019, the Company's cash flows from operating activities are expected to decrease by approximately $ 590 and its cash flows from financing activities are expected to increase by approximately $ 590.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
NOTE 5:-Note 11: | CASH AND CASH EQUIVALENTSLeases (Cont.) |
| | December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
USD cash for immediate withdrawal | | | 26,700 | | | | 5,336 | |
Non-USD cash for immediate withdrawal | | | 9,369 | | | | 1,380 | |
| | | | | | | | |
| | | 36,069 | | | | 6,716 | |
NOTE 6:- | SHORT-TERM BANK DEPOSITS |
c.Disclosures in respect of Right- of- Use assets: | | December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
USD bank deposits (1) | | | - | | | | 16,828 | |
IL restricted bank deposits (2) | | | - | | | | 89 | |
| | | | | | | | |
| | | - | | | | 16,917 | |
| (1) | The USD deposits bear annual interestBuildings | | | Motor vehicles | | | Total | |
Cost | | | | | | | | | | | | |
Balance as of 2.34%-2.60%January 1, 2021 | | | 2,225 | | | | 512 | | | | 2,737 | |
| | | | | | | | | | | | |
New leases | | | 0 | | | | 162 | | | | 162 | |
Adjustments for the period of 148-328 days for 2018.indexation | | | 42 | | | | 7 | | | | 49 | |
Disposals | (2) | As | 0 | | | | (27 | ) | | | (27 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2018, the Company had an amount2021 | | | 2,267 | | | | 654 | | | | 2,921 | |
| | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | |
Balance as of $ 89 that was restricted by the bankJanuary 1, 2021 | | | 698 | | | | 155 | | | | 853 | |
Depreciation and may be used only when certain conditions are met.amortization | | | 330 | | | | 201 | | | | 531 | |
Disposals | | | 0 | | | | (11 | ) | | | (11 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 1,028 | | | | 345 | | | | 1,373 | |
| | | | | | | | | | | | |
Depreciated cost | | | | | | | | | | | | |
Balance as of December 31, 2021 | | | 1,239 | | | | 309 | | | | 1,548 | |
| | Buildings | | | Motor vehicles | | | Total | |
Cost | | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 2,362 | | | | 442 | | | | 2,804 | |
New leases | | | 0 | | | | 305 | | | | 305 | |
Adjustments for indexation | | | (17 | ) | | | (18 | ) | | | (35 | ) |
Disposals | | | (76 | ) | | | (217 | ) | | | (293 | ) |
Termination of leases | | | (44 | ) | | | 0 | | | | (44 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 2,225 | | | | 512 | | | | 2,737 | |
| | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 381 | | | | 194 | | | | 575 | |
Depreciation and amortization | | | 249 | | | | 178 | | | | 427 | |
Capitalized to Leasehold improvements (1) | | | 144 | | | | 0 | | | | 144 | |
Disposals | | | (76 | ) | | | (217 | ) | | | (293 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 698 | | | | 155 | | | | 853 | |
| | | | | | | | | | | | |
Depreciated cost | | | | | | | | | | | | |
Balance as of December 31, 2020 | | | 1,527 | | | | 357 | | | | 1,884 | |
(1) As of the year ended December 31,2020 the cash flow for leases includes $144 which were capitalized to Leasehold improvements.
| | Year ended December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
Raw materials | | | 339 | | | | 432 | |
Finished goods | | | 1,547 | | | | 1,248 | |
| | | | | | | | |
| | | 1,886 | | | | 1,680 | |
NOTE 8:- | OTHER RECEIVABLES |
| | Year ended December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
Government authorities | | | 226 | | | | 126 | |
BARDA funds | | | 2,175 | | | | 2,524 | |
Prepaid expenses and other | | | 129 | | | | 132 | |
Former shareholder, net (see Note 15e) * | | | 666 | | | | 4,000 | |
Related parties | | | - | | | | 58 | |
| | | | | | | | |
| | | 3,196 | | | | 6,840 | |
* The 2018 balance includes $1,517 receivable in respect of discouninued operation ( see Note 23b).
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
d. Disclosures of the Company's lease liabilities :
NOTE 9:- | PROPERTY, PLANT AND EQUIPMENT, NET | Buildings | | | Motor vehicles | | | Total | |
| | | | | | | | | | | | |
Balance as of January 1, 2021 | | | 1,953 | | | | 354 | | | | 2,307 | |
Repayment of leases liabilities | | | (477 | ) | | | (216 | ) | | | (693 | ) |
Effect of changes in exchange rates | | | 55 | | | | 13 | | | | 68 | |
New finance lease obligation recognized | | | 0 | | | | 155 | | | | 155 | |
Adjustments for indexation | | | 42 | | | | 7 | | | | 49 | |
Interest | | | 118 | | | | 2 | | | | 120 | |
Disposals-Termination of leases | | | 0 | | | | (16 | ) | | | (16 | ) |
Balance as of December 31, 2021 | | | 1,691 | | | | 299 | | | | 1,990 | |
| | | | | | | | | | | | |
Current maturities of long-term leases | | | (403 | ) | | | (196 | ) | | | (599 | ) |
Lease liability Balance as of December 31, 2021 | | | 1,288 | | | | 103 | | | | 1,391 | |
| | Buildings | | | Motor vehicles | | | Total | |
| | | | | | | | | | | | |
Balance as of January 1, 2020 | | | 2,225 | | | | 225 | | | | 2,450 | |
Repayment of leases liabilities | | | (479 | ) | | | (173 | ) | | | (652 | ) |
Effect of changes in exchange rates | | | 134 | | | | 28 | | | | 162 | |
New finance lease obligation recognized | | | 0 | | | | 283 | | | | 283 | |
Adjustments for indexation | | | (17 | ) | | | (18 | ) | | | (35 | ) |
Interest | | | 134 | | | | 10 | | | | 144 | |
Disposals-Termination of leases | | | (44 | ) | | | (1 | ) | | | (45 | ) |
Balance as of December 31, 2020 | | | 1,953 | | | | 354 | | | | 2,307 | |
| | | | | | | | | | | | |
Current maturities of long-term leases | | | (396 | ) | | | (170 | ) | | | (566 | ) |
Lease liability Balance as of December 31, 2020 | | | 1,557 | | | | 184 | | | | 1,741 | |
Balance as of December 31, 2018:
| | Office furniture | | | Electronic machinery and laboratory equipment | | | Computers | | | Leasehold improvements | | | Total | |
Cost | | | | | | | | | | | | | | | |
Balance as of January 1, 2018 | | | 248 | | | | 3,561 | | | | 139 | | | | 2,120 | | | | 6,068 | |
Disposals | | | (7 | ) | | | - | | | | (55 | ) | | | - | | | | (62 | ) |
Additions | | | 7 | | | | 493 | | | | 19 | | | | 3 | | | | 522 | |
Foreign currency translation | | | (5 | ) | | | - | | | | (1 | ) | | | - | | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2018 | | | 243 | | | | 4,054 | | | | 102 | | | | 2,123 | | | | 6,522 | |
| | | | | | | | | | | | | | | | | | | | |
Accumulated Depreciation | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2018 | | | 154 | | | | 1,802 | | | | 93 | | | | 2,095 | | | | 4,144 | |
Disposals | | | (7 | ) | | | - | | | | (55 | ) | | | - | | | | (62 | ) |
Additions | | | 18 | | | | 351 | | | | 33 | | | | 23 | | | | 425 | |
Foreign currency translation | | | (4 | ) | | | - | | | | (1 | ) | | | - | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2018 | | | 161 | | | | 2,153 | | | | 70 | | | | 2,118 | | | | 4,502 | |
| | | | | | | | | | | | | | | | | | | | |
Depreciated cost as of December 31, 2018 | | | 82 | | | | 1,901 | | | | 32 | | | | 5 | | | | 2,020 | |
Balance as of December 31, 2017:
| | Office furniture | | | Electronic machinery and laboratory equipment | | | Computers | | | Leasehold improvements | | | Total | |
Cost | | | | | | | | | | | | | | | |
Balance as of January 1, 2017 | | | 227 | | | | 2,551 | | | | 185 | | | | 2,120 | | | | 5,083 | |
Disposals | | | - | | | | - | | | | (74 | ) | | | - | | | | (74 | ) |
Additions | | | 9 | | | | 1,010 | | | | 26 | | | | - | | | | 1,045 | |
Foreign currency translation | | | 12 | | | | - | | | | 2 | | | | - | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | | 248 | | | | 3,561 | | | | 139 | | | | 2,120 | | | | 6,068 | |
| | | | | | | | | | | | | | | | | | | | |
Accumulated Depreciation | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2017 | | | 126 | | | | 1,508 | | | | 118 | | | | 2,057 | | | | 3,809 | |
Disposals | | | - | | | | - | | | | (74 | ) | | | - | | | | (74 | ) |
Additions | | | 20 | | | | 294 | | | | 47 | | | | 38 | | | | 399 | |
Foreign currency translation | | | 8 | | | | - | | | | 2 | | | | - | | | | 10 | |
| | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | | 154 | | | | 1,802 | | | | 93 | | | | 2,095 | | | | 4,144 | |
| | | | | | | | | | | | | | | | | | | | |
Depreciated cost as of December 31, 2017 | | | 94 | | | | 1,759 | | | | 46 | | | | 25 | | | | 1,924 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 12: Intangible Assets, Net
NOTE 10:- INTANGIBLE ASSETS, NET | | License and Knowhow | |
| | 2021 | | | 2020 | |
Cost | | | | | | |
Balance as of January 1, | | | 1,538 | | | | 1,538 | |
Additions | | | 0 | | | | 0 | |
Balance as of December 31, | | | 1,538 | | | | 1,538 | |
Accumulated Amortization | | | | | | | | |
Balance as of January 1, | | | 1,175 | | | | 1,109 | |
Additions | | | 66 | | | | 66 | |
Balance as of December 31, | | | 1,241 | | | | 1,175 | |
Amortized cost | | | | | | | | |
Balance as of December 31, | | | 297 | | | | 363 | |
Balance as of December 31, 2018
| | License and
Knowhow
| |
Cost | | | |
Balance as of January 1, 2018 | | | 1,526 | |
Additions | | | 12 | |
Balance as of December 31, 2018 | | | 1,538 | |
| | | | |
Accumulated Amortization | | | | |
Balance as of January 1, 2018 | | | 891 | |
Additions | | | 152 | |
Balance as of December 31, 2018 | | | 1,043 | |
| | | | |
Amortized cost | | | | |
Balance as of December 31, 2018 | | | 495 | |
Balance as of December 31, 2017
| | License and
Knowhow
| |
Cost | | | |
Balance as of January 1, 2017 | | | 1,496 | |
Additions | | | 30 | |
Balance as of December 31, 2017 | | | 1,526 | |
| | | | |
Accumulated Amortization | | | | |
Balance as of January 1, 2017 | | | 723 | |
Additions | | | 168 | |
Balance as of December 31, 2017 | | | 891 | |
| | | | |
Amortized cost | | | | |
Balance as of December 31, 2017 | | | 635 | |
Intangible assets include exclusive licenses to use patents, know-how and intellectual property for the development, manufacturing and marketing of products related to burn treatments and other products in the field of wound care. These licenses were purchased from third parties and from one of the Company's shareholders (see Note 15c).
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 11:- | OTHER PAYABLESIntangible assets include exclusive licenses to use patents, know-how and intellectual property for the development, manufacturing and marketing of products related to burn treatments and other products in the field of wound care. These licenses were purchased from third parties and from one of the Company's shareholders. |
Note 13: Other Payables
| | Year ended December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
Employees and payroll accruals | | | 1,621 | | | | 1,532 | |
Current maturities of IIA grants | | | 57 | | | | 146 | |
Related parties | | | 324 | | | | 227 | |
Deferred revenues | | | 131 | | | | 198 | |
Other | | | 49 | | | | 79 | |
| | | | | | | | |
| | | 2,182 | | | | 2,182 | |
| | December 31 | |
| | 2021 | | | 2020 | |
| | | | | | |
Employees and payroll accruals | | | 1,639 | | | | 1,910 | |
Liability in respect of purchase of shares (see Note 17c)* | | | 417 | | | | 0 | |
Related parties | | | 241 | | | | 225 | |
Deferred revenues | | | 543 | | | | 462 | |
Other | | | 780 | | | | 260 | |
| | | | | | | | |
| | | 3,620 | | | | 2,857 | |
NOTE 12:-• | LIABILITIES IN RESPECT OF IIA GRANTSAn amount of $667 was classified from Liability in respect of purchase of shares to current maturities for the year ended 31, December 2020. |
Note 14: Liabilities in Respect of IIA Grants
| | Year ended December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
Balance as of January 1 | | | 6,888 | | | | 7,437 | |
Grants received | | | 401 | | | | 93 | |
Royalties | | | (81 | ) | | | (103 | ) |
Amounts carried to Profit or Loss | | | 229 | | | | 287 | |
Balance as of Decmber 31 | | | 7,437 | | | | 7,714 | |
| | | | | | | | |
Current maturities | | | (57 | ) | | | (146 | ) |
| | | | | | | | |
Long term liabilities in respect of IIA grants | | | 7,380 | | | | 7,568 | |
| | December 31 | |
| | 2021 | | | 2020 | |
| | | | | | |
Balance as of January 1, | | | 7,528 | | | | 6,935 | |
Royalties | | | (342 | ) | | | (235 | ) |
Amounts carried to Profit or Loss | | | 919 | | | | 828 | |
Balance as of December 31, | | | 8,105 | | | | 7,528 | |
| | | | | | | | |
Current maturities | | | (220 | ) | | | (261 | ) |
Long term liabilities in respect of IIA grants | | | 7,885 | | | | 7,267 | |
The Company is committed to pay royalties to the IIA up to the total grants received plus the applicable accrued interest. The total amount of grants actually received by the Company from the IIA including accrued LIBOR interest, net of royalties as of December 31, 20182021 is approximately $ 13,692,$13,681, while the amortized cost of this liability as of that date is $ 7,714,8,105, using the interest method.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
NOTE 13:-Note 15: | FINANCIAL INSTRUMENTSFinancial Instruments |
| a. | Financial risk factors:Risk management: |
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Company’s risk management practice was formulated to identify and analyze the risks that the Company faces, to set appropriate limits for the risks and controls, and to monitor the risks and their compliance within the limits. The risk policy and risk management methods are reviewed regularly to reflect changes in market conditions and in the Company’s operations.
The Company Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
The Company's activities expose it to various financial market risks (mainlymainly foreign currency risk, and interest rate risk). The Company's Board of Directors has provided guidelines for risk management and specific policies for various risk exposures.liquidity risk.
Foreign currency risk
The Company operates primarily in an international environment and is exposed to foreign exchange risk resulting from the fact that a certain portion of the Company's costs are denominated in NIS and EURO, mainly due to payroll and related benefit costs incurred in Israel and in Europe, and additionally due to marketing expenses incurred in Europe.
| b.2. | Fair value:Sensitivity tests relating to changes in market factors: |
The Company operates in an international environment and is exposed to foreign exchange risk resulting from the exposure to different currencies, mainly NIS and EURO. Foreign exchange risks arise from recognized assets and liabilities denominated in a foreign currency other than the functional currency.
| | December 31 | |
| | 2021 | | | 2020 | |
Gain (loss) from change: | | | | | | |
5% increase in NIS and EURO exchange rate | | $ | 3 | | | $ | 76 | |
5% decrease in NIS and EURO exchange rate | | $ | (3 | ) | | $ | (76 | ) |
The Company has performed sensitivity tests of principal market risk factors that may affect its reported operating results or financial position.
The sensitivity tests present the profit or loss for the relevant risk variables chosen as of each reporting date. MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 15: | Financial Instruments (Cont.) |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to timely meet its liabilities, under both normal and stressed conditions, without incurring unwanted losses.
The Company manages the liquidity risk by holding cash balances, short-term deposits and secured bank credit facilities.
| | December 31, 2021 | |
| | Carrying | | | 12 months | | | | | | | |
| | | | | | | | | | | | |
Non-derivative financial liabilities | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Current maturities of long-term liabilities | | | 3,024 | | | | 3,024 | | | | | | | |
Trade payables and accrued expenses | | | 4,693 | | | | 4,693 | | | | | | | |
Other payables | | | 3,620 | | | | 3,620 | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | |
Liabilities in respect of IIA grants | | | 15,286 | | | | | | | | 369 | | | | 14,917 | |
Liabilities in respect of purchase of shares | | | 5,867 | | | | | | | | 1,667 | | | | 4,200 | |
Lease liabilities | | | 1,522 | | | | | | | | 589 | | | | 933 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 15: | Financial Instruments (Cont.) |
The carrying amount of cash and cash equivalents, short‑term bank deposits, trade and other receivables and trade and other payables approximates their fair value due to the short‑term maturities of such instruments.
The fair value of liabilities in respect to IIA grants with fixed interest is based on a calculation of the present value of the cash flows at the interest rate for a loan with similar terms. The Company used a discount rate of 12% based in part of the Company's estimation at the time of the Company's recognition of the IIA grants which approximates the fair value at the respective balance sheet date.
The fair value of the contingent consideration for purchase of shares as presented in balance sheet is based on a calculation of the present value of future royalty payments using a discount rate that reflectspayments. The expected cash flows already reflect assumptions about the applicable market rate of interest atuncertainty in future defaults, and therefore the date of the initial recognition. The Company used a discount rate of 16% based in part on14% that is commensurate with the Company's estimation, at the time of the Company's initial recognition of the contingent consideration. The amount and timing of the future royalty payments are based on the Company's projected revenues.
| c. | Sensitivity tests relating to changes in market factors: |
The Company operates in an international environment and is exposed to foreign exchange risk resulting from the exposure to different currencies, mainly NIS and EURO. Foreign exchange risks arise from recognized assets and liabilities denominated in a foreign currency other than the functional currency.
| | December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Sensitivity test to changes in NIS and EURO exchange rates | |
Gain (loss) from change: | | | | | | | | | |
5% increase in exchange rate | | $ | 11 | | | $ | 346 | | | $ | 31 | |
5% decrease in exchange rate | | $ | (11 | ) | | $ | (346 | ) | | $ | (31 | ) |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 13:- | FINANCIAL INSTRUMENTS (Cont.) |
Sensitivity tests and principal work assumptions:
The selected changesinherent in the relevant risk variables were determined based on management's estimate as to reasonable possible changes in these risk variables.expected cash flows.
Note 16: Severance Pay Liabilty, Net
The Company has performed sensitivity tests of principal market risk factors that may affect its reported operating results or financial position.
The sensitivity tests present the profit or loss for the relevant risk variables chosen as of each reporting date.
NOTE 14:- | SEVERANCE PAY LIABILTY, NET |
The Company has liabilities for severance pay for its employees in Israel and in several EU jurisdictions. The Company's liability for employee benefits is based on local laws, valid labor agreements, the employee's salary and the applicable terms of employment, which together generate a right to severance compensation. Post‑employment employee benefits are partially financed by deposits with defined contribution plans, as detailed below.
The Israeli Severance Pay Law, 1963 ("Severance Pay Law"), specifies that Israeli employees are entitled to severance payment, following the termination of their employment. Under the Severance Pay Law, the severance payment is calculated as one month salary for each year of employment, or a portion thereof. Under Section 14 of the Severance Pay Law ("Section 14"), employees are entitled to have monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf to their insurance funds.
Payments in accordance with Section 14 release the Company from the liability for any future severance payments in respect of those employees.
The majority of the Company's liability for severance pay is covered by Section 14. Acordingly, the Company does not recognize any liability for severance pay due to these employees and the deposits under Section 14 are not recorded as an asset in the Company's balance sheet. These contributions for compensation represent defined contribution plans. The Company recognizes liability for severance pay due to its employees in EU in accordance with local laws and its Israeli employees which are not under Section 14.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 17: Contingent Liabilities and Commitments
NOTE 15:- | CONTINGENT LIABILITIES AND COMMITMENTS |
a. | a. | In 2000, the Company signed an exclusive license agreement (as amended in 2007) with a third party with regard to its patents and intellectual property. Pursuant to the agreement, the Company received an exclusive license to use the third party's patents and intellectual property, for the purpose of developing, manufacturing, marketing, and commercializing products for treatment of burns and other wounds. |
In consideration for this exclusive license, the Company paid an aggregate amount of $ 950 following the achievement of certain development milestones as set forth in the agreement. In addition, the Company undertook to pay royalties of 1.5% to 2.5% from future revenues from sales of products which are based on this patent for a period ranging between 10 to 15 years from the first commercial delivery in a major country, and thereafter the Company will have a fully paid-up royalty-free license for these patents. In addition, royalties will be paid at the rate of 10% - 20% from sub-licensing of such patents.patents and for lump sum amounts paid to the Company by a third party, the Company will pay 2% of the proceeds up to $1,000 and 4% of the proceeds above this amount. Moreover, the Company agreed to pay a one-time lump-sum amount of $ 1,500 when the aggregate revenues based on these patents reach $ 100,000. The amount of royalty payments for the years 2016, 20172020 and 20182021 amounted to $ 57, $ 48$42 and $ 72,$149 respectively.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 15:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) |
b. | b. | Under the Research and Development Law, (the "R&D Law") the Company undertook to pay royalties of 3% on the revenues derived from sales of products or services developed in whole or in part using IIA grants. The maximum aggregate royalties paid generally cannot exceed 100% of the grants received by the Company, plus annual interest generally equal to the 12-month LIBOR applicable to dollar deposits, as published on the first business day of each calendar year. The royalty(see also Note 14).The total royalties amount payable by the Companypaid as of December 31, 20182021 is approximately $ 13,692, which represents the total amount of grants actually received by$1,303. |
| c. | Beginning in 2007, the Company fromentered into a number of agreements with Teva Pharmaceutical Industries Limited (“Teva”) related to collaboration in the IIA including accrued interest, netdevelopment, manufacturing and commercialization of royalties actually paid bysolutions for the Companyburn and chronic wound care markets. In consideration for these agreements, Teva made investments in the Company's ordinary shares and agreed to fund certain research and development expenses and manufacturing costs and perform all marketing activities for both NexoBrid, under the 2007 Teva Agreement, and the PolyHeal Product, under the 2010 PolyHeal Agreements (see also Note 12)22). |
| c. | On November 24, 2010, the Company signed an agreement with one of its shareholders, to purchase a patent for the production and sale of related products for the treatment of burns. In consideration for the transfer and assignment of all rights and title relating to the patent, the Company paid a one-time payment in the amount of $ 88 and undertook to pay annual fixed payments in the amount of $ 30 as long as the patent is valid in the US and/or in any EU member country. The patent expired in May 2018. |
| d. | The Company has a contract with BARDA, which was modified in July 2017, 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 modified contract includes approximately $ 56,000 of funding to support development activities to complete the U.S. Food and Drug Administration (FDA) approval process for NexoBrid for use in thermal burn injuries, as well as approximately $ 16,500 for procurement of NexoBrid, which is contingent upon FDA Emergency Use Authorization (EUA) and/or FDA marketing authorization for NexoBrid. In addition, the contract includes options for further funding of up to approximately $ 10,000 for expanding NexoBrid’s indications and of up to approximately $ 50,000 for additional procurement of NexoBrid. |
As of December 31, 2018 the Company recorded accumulated $ 28,032 in funding from BARDA under this contract.
In September 2018, the Company has awarded additional contract with BARDA to develop NexoBrid for the treatment of Sulfur Mustard injuries as a medical countermeasure as part of BARDA preparedness for mass casualty events.
The contract provides approximately $ 12,000 of funding to support research and development activities up to pivotal studies in animals under the U.S. Food and Drug Administration (FDA) Animal Rule. The contract also contains options for additional funding of up to approximately $31,000 for additional development activities, animal pivotal studies, and the FDA Biologics License Application (BLA) submission for approval of NexoBrid for the treatment of Sulfur Mustard injuries
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 15:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) |
| | As of December 31, 2018 the Company recorded accumulated $ 137 in funding from BARDA under this contract.2012, all of these agreements were terminated. |
| e. | Contingent consideration for purchase of shares: |
Beginning in 2007, the Company entered into a number of agreements with Teva Pharmaceutical Industries Limited (“Teva”) related to collaboration in the development, manufacturing and commercialization of solutions for the burn and chronic wound care markets. In consideration for these agreements, Teva made investments in the Company's ordinary shares and agreed to fund certain research and development expenses and manufacturing costs and perform all marketing activities for both NexoBrid, under the 2007 Teva Agreement, and the PolyHeal Product, under the 2010 PolyHeal Agreements (see also Note 19a). As of December 31, 2012, all of these agreements were terminated.
On September 2, 2013, in accordance with the terms of the Teva Shareholders’ Rights Agreement, the Company exercised its rights to repurchase all of its shares held by Teva, and purchased 755,492 ordinary shares, in consideration for an obligation to pay Teva future royalty payments.
Pursuant to a Settlement Agreement signed on March 2019, Teva agreed to reduce the contingent consideration that is payable to Teva pursuant to the Company's repurchase of its shares from Teva in 2013 and to paid the Company $4,000 in cash. As a result, the Company is obligated to pay Teva annual payments at a reduced rate of 20%15% of the Company’sits recognized revenues from the sale or license of NexoBrid after January 1, 2019, up to a totalreduced aggregate amount of $ 30,600$10,200. MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 17: | Contingent Liabilities and Commitments (Cont.) |
In addition, the Company also agreed to indemnify, defend and hold harmless Teva and its directors, officers, agents and employees from and against claims relating to a certain milestone related to PolyHeal under an agreement associated with the sale or license of the PolyHeal ProductCollaboration Agreements, up to a totalan amount of $ 10,800. The obligation$10,200, if a notice of such claim has been received by the Company prior to December 31, 2023.
In December 2020, Teva has agreed to revise the Settlement Agreement from March 2019. Under the new settlement the Company paid $1,000 in cash and became obligated to pay Teva future royalty payments no longer includes amounts from the sale or licensean amount of the PolyHeal Product since the license$2,000 over three years, in addition to a modified contingent consideration up to the PolyHeal Product has expired.
The total amortized costamount of the future royalty obligation$7,200 in quarterly fixed payments starting 2021 subject to Tevarevenues generated from sales of NexoBrid. Total liabilities recorded as of December 31, 2021 and 2020 were initially accounted at their estimated fair value at the exercise date on September 2, 2013, using a discounted cash flow model based on sales projections. Subsequent changes in this liability areapproximately$ 5,928 and $6,587, respectively, and financial expenses (income) of $590 and ($433), respectively, were recorded in profit or loss within financial income of financial expenses.
Note 18: Materials Agreements
Accordingly,a.BARDAContracts
In September 2015, the liabilityCompany was remeasuredawarded the First BARDA Contract for treatment of thermal burn injuries, which was valued at up to $ 14,381 and $ 14,460 as of December 31,$112,000. In July 2017 and 2018, respectivaly, as a result of a revaluation in theMay 2019, BARDA expanded its commitment by an aggregate supplemental amount of $ 351$41,000. In March 2020, BARDA further expanded its commitment by additional $5,500 to support emergency readiness for NexoBrid deployment upon request of use of NexoBrid in mass casualty situations and $ 758, in 2017February 2022 BARDA has expanded its awarded contract providing supplemental funding of $9,000 to support the NexoBrid BLA resubmission to the FDA and 2018, respectivaly, which was recorded within financial expenses.
Pursuantthe continuous expanded access program (collectively the "First BARDA Contract").Under the First BARDA Contract, BARDA provided technical assistance and a total of up to a Settlement Agreement with Teva entered$91,000 in March 2019,funding for NexoBrid development activities needed to request U.S. marketing approval from the fair valueFDA. In January 2020, BARDA committed an additional $16,500 to procure NexoBrid as part of the revised future royalty obligationHHS mission to Teva was estimatedbuild national preparedness for public health medical emergencies. The contract further includes a $10,000 option to fund development of other potential NexoBrid indications and an option to procure additional NexoBrid valued at $ 6,330up to $50,000.
In September 2018, the Company were awarded the second BARDA contract (the "Second BARDA Contract"), which is an additional, separate contract to develop NexoBrid for the treatment of Sulfur Mustard injuries as part of December 31, 2018 using a discounted cash flow model based on sales projections.
As a resultBARDA’s preparedness for mass casualty events. The Second BARDA Contract provides approximately $12,000 of Teva Settlement Agreement, a one-time net incomefunding 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 $ 7,537 was recorded as other income from settlement agreement and a one-time income of $ 4,608 was recorded within the profit from discontinued operation in the fourth quarterup to $31,000 for additional development activities, animal pivotal studies, and the year ending December 31, 2018 (see Note 23b).
| f. | In December 2010, the Company, Teva and PolyHeal, entered into a series of agreements to collaborate in the development, manufacturing and commercialization of PolyHeal's wound care product, or the PolyHeal Product (see also Note 19). |
BLA submission for licensure of NexoBrid for the treatment of Sulfur Mustard injuries.F-31MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 18: Materials Agreements (Cont.)NOTE 15:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) |
On September 15, 2014, a StatementThe total aggregate value awarded by BARDA Contracts is up to $211,000 comprised of Claim was filed against the Company by some shareholders of Polyheal (the "Plaintiffs"). The Plaintiffs allege that the Company is obligated$144,500 to pay them a total amount of $1,475 in exchangesupport research and development activities and $66,500 to procure NexoBrid for their respective portion of PolyHeal's shares, following the commencement of a feasibility study for the next generation of the PolyHeal Product in November 15, 2012, which constituted a milestone under a buyout option agreementU.S. emergency preparedness (which will be splited between the Company PolyHeal and its shareholders.Vericel following Vericel agreement (see Note 18b)).
On November 12, 2017, the Tel Aviv District Court issued its ruling accepting the plaintiffs’ claim and ruled thatAs of December 31, 2021, the Company is obligated to purchase PolyHeal’s shareshas received approximately $69,400 in funding in the aggregate, from BARDA under the two contracts, and an additional of approximately $14,600 for procurement of NexoBrid for U.S. emergency preparedness which were recorded at the net amount of approximately $6,750 plus applicable interest, which represents$9,300 following the purchase pricesplit of gross profit agreement with Vericel for the total number of shares that the 2010 PolyHeal Agreements contemplate would be acquired by the Company from all the shareholders of PolyHeal. The Court ordered that the Company is obligated to purchase shares of PolyHeal from the plaintiffs, on the basis of their actual share holdings in PolyHeal as of January 15, 2013, for approximately $1,500, within 15 days from the date of the Court's ruling.
Accordingly, on Novemeber 12, 2017 a full provision for the shares purchase price plus the accrued interest, totaled $7,500 was recorded within the loss from discontinued operation in respect of this claim, of which approximately $1,497 was paid in December 2017 to plaintiffs in consideration for PolyHeal's shares. In addition, the Company born legal expenses totaled $116 for the year ended on December 31, 2017.
On December 27, 2017, the Company filed an appeal with the Israeli supreme court, in which it: (i) rejected the arguments raised against it in the Statement of Claim; (ii) emphasized that its obligation under the 2010 PolyHeal Agreement to purchase the 7.5% of PolyHeal’s shares is subject to the consumption of the deferred closing, as defined in the buyout agreement, including the receipt of the funds from Teva on a “back to back” basis; and (iii) stated that since no such payment has been made by Teva, the Company is not subject to any obligation to purchase PolyHeal shares and/or make any payments to PolyHeal’s shareholders.
In March b. Vericel Agreement:
On May 6, 2019, the Company entered into a Settlement Agreementexclusive license and supply agreements with Vericel to commercialize NexoBrid in North America (the “Collaboration Agreements”). Pursuant to the plaintiffs,Collaboration Agreements, Vericel will obtain the authority over and control of the development, regulatory approval and commercialization of licensed products in the North America territory. MediWound will be responsible for the development of the product through BLA approval, supported and funded by BARDA, as well as the manufacture and supply of NexoBrid. In addition, MediWound retains the commercial rights to NexoBrid in non-North American territory.
Under the terms of the license agreement, Vericel has made an upfront payment to MediWound of $17,500 which was recorded as revenues from license agreements in 2019 and agreed to make an additional $7,500 payment contingent upon BLA approval and up to $125,000 in payments contingent upon meeting certain annual sales milestones. Vericel has also agreed to pay MediWound tiered royalties on net sales ranging from high single-digit to teen-digit percentages, a split of gross profit on committed BARDA procurement orders and a teen-digits royalty on any additional future BARDA purchases of NexoBrid. Under the Israeli Supreme Court's approvalterms of the settlementsupply agreement, Vericel will result in the acceptanceprocure NexoBrid from MediWound at a transfer price of our appeal by the Supreme Court and the cancellationcost plus a fixed margin percentage.
As of the 2017 ruling that was issued byfinancial statements date, the District Court against MediWound (see also Note 23a).
| g. | Operating Lease Agreements: |
| 1. | The Company's offices and its production facility in Israel are located in a building that the Company leases from its Parent Company, in accordance with a sub-lease agreement. The Company subleases approximately 3,000 square meters of laboratory, office and clean room space at a monthly rent fee of NIS 116,000 (approximately $31). This sub-lease agreement which was amended on January 1, 2019, expires in October 2022 and provides with 3 years extantion period at the sole discretion of the Company. |
Company did not recognize any revenues from royalties.
F-32MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
| | December 31 | |
| | 2021 | | | 2020 | |
| | | | | | |
Authorized number of shares | | | 50,000,000 | | | | 50,000,000 | |
Issued and outstanding number of shares | | | 27,272,818 | | | | 27,236,752 | |
b.Rights attached to shares:
An ordinary share confers upon its holder(s) a right to vote at the general meeting, a right to participate in distribution of dividends, and a right to participate in the distribution of surplus assets upon liquidation of the Company.
c.Movement in share capital:
��During 2019, the authorized number of shares was increased by 12,755,492 shares which has a nominal value of $40.
•On December 31, 2019, the Company issued additional 23,956 ordinary shares upon vesting of outstanding RSU’s.
•During 2020 and 2021 the Company issued additional 33,958 ordinary shares for each year upon vesting of outstanding RSU’s.
Note 20: Share‑Based Compensation
a.Expense recognized in the financial statements:
The expenses recognized for services received from employees and directors is as follows:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
Cost of revenues | | | 153 | | | | 115 | | | | 226 | |
Research and development | | | 333 | | | | 179 | | | | 375 | |
Selling and marketing | | | 0 | | | | 3 | | | | 40 | |
General and administrative | | | 1,187 | | | | 1,025 | | | | 593 | |
| | | | | | | | | | | | |
Total share-based compensation | | | 1,673 | | | | 1,322 | | | | 1,234 | |
b. Share-based payment plan for employees and directors:
NOTE 15:- | CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) |
The Company's subsidiary offices are located in Germany. The monthly rent fee is currently €2,800 (approximately $3)Company has granted options and the lease agreement expires on April 30, 2022.
| 2. | The Company and its subsidiary have operating lease agreements for 16 vehicles for a period of three years. As of December 31, 2018, the Company deposited $ 39 in respect of the vehicles operating leases. |
| 3. | Minimum future lease fees for both agreements as of December 31, 2018 are as follows: |
2019 | | | 592 | |
2020 | | | 476 | |
2021 | | | 426 | |
2022 | | | 330 | |
| | | 1,824 | |
restricted stock units ("RSUs") for total of 3,863,089 ordinary shares.
| | Year ended December 31, | |
| | 2017 | | | 2018 | |
| | | | | | |
Authorized number of shares | | | 32,244,508 | | | | 37,244,508 | |
| | | | | | | | |
Issued and outstanding number of shares | | | 27,047,737 | | | | 27,178,839 | |
| b. | Rights attached to shares: |
| | An ordinary share confers upon its holder(s) a right to vote at the general meeting, a right to participate in distribution of dividends, and a right to participate in the distribution of surplus assets upon liquidation of the Company. |
| c. | In March 2014, the Company completed its IPO, and its securities are listed for trading on NASDAQ. |
| d. | On September 21, 2017, the Company completed a follow-on public offering. A total of 4,400,000 new ordinary shares were issued in consideration to offering price of $5.00 per share. On September 29, 2017, the underwriters partially exercised their ‘green shoe’ option and purchased 637,664 additional ordinary shares. The net proceeds, including the underwriters' option, were $22,658, after deducting underwriter’s discounts, commissions and other offering expenses. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
NOTE 17:- | SHARE‑BASED COMPENSATIONNote 20: Share‑Based Compensation (Cont.) |
| a. | Expense recognized in the financial statements: |
The expenses that was recognized for services received from employees and directors is as follows:
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
Cost of revenues | | | 504 | | | | 188 | | | | 71 | |
Research and development | | | 752 | | | | 488 | | | | 181 | |
Selling and marketing | | | 765 | | | | 204 | | | | 63 | |
General and administrative | | | 1,150 | | | | 483 | | | | 330 | |
| | | | | | | | | | | | |
Total share-based compensation | | | 3,171 | | | | 1,363 | | | | 645 | |
| b. | Share-based payment plan for employees and directors: |
The Company has reserved for issuance stock options and restricted stock units ("RSUs") at total of 2,988,617 ordinary shares. As of December 31, 2018, 579,5352021, 490,927 ordinary shares of the Company were still available for future grant.
Any options or RSUs, which are forfeited or not exercised before expiration, become available for future grants.
Options granted under the Company's 2003 Israeli Share Option Plan ("Plan") are exercisable in accordance with the terms of the Plan, within 5-10 years from the date of grant, against payment of an exercise price or cashless exercise. The options generally vest over a period of 3-4 years.
In March 2014, the Company adopted and obtained shareholder approval for its 2014 Equity Incentive Plan (the “2014 Plan”).
Options and RSU's granted under the Company's 2014 Plan are exercisable in accordance with the terms of the Plan. Options are exercisable within 5-10 years from the date of grant, against payment of an exercise price or cashless exercise and share units are granted immediately upon vesting of the RSU's. The options and the RSU's generally vest over a period of 3-41-4 years.
c.Share options activity:
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 17:- | SHARE‑BASED COMPENSATION (Cont.) |
| c. | Share options activity: |
The following table lists the number of share options, the weighted average exercise prices of share options and changes that were made in the option plan to employees and directors
| | 2016 | | | 2017 | | | 2018 | |
| | Number of options | | | Weighted Average Exercise price | | | Number of options | | | Weighted Average Exercise price | | | Number of options | | | Weighted Average Exercise price | |
| | | | | | | | | | | | | | | | | | |
Outstanding Options at beginning of year | | | 2,313,224 | | | | 9.35 | | | | 2,181,075 | | | | 9.62 | | | | 1,934,735 | | | | 10.02 | |
Option's Granted | | | 47,500 | | | | 8.56 | | | | 40,000 | | | | 6.72 | | | | 665,000 | | | | 5.12 | |
Option's Exercised | | | (80,149 | ) | | | 0.09 | | | | (79,624 | ) | | | 0.09 | | | | (208,332 | ) | | | 2.63 | |
Option's Forfeited | | | (99,500 | ) | | | 10.80 | | | | (206,716 | ) | | | 8.93 | | | | (78,154 | ) | | | 9.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding options and at end of year | | | 2,181,075 | | | | 9.62 | | | | 1,934,735 | | | | 10.02 | | | | 2,313,249 | | | | 9.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Option's Exercisable at end of year | | | 1,401,866 | | | | 9.35 | | | | 1,562,235 | | | | 10.25 | | | | 1,475,451 | | | | 11.23 | |
| | 2021 | | | 2020 | | | 2019 | |
| | Number of options | | | Weighted Average Exercise price | | | Number of options | | | Weighted Average Exercise price | | | Number of options | | | Weighted Average Exercise price | |
| | | | | | | | | | | | | | | | | | |
Outstanding Options at beginning of year | | | 3,597,811 | | | | 6.55 | | | | 2,334,432 | | | | 9.18 | | | | 2,313,249 | | | | 9.31 | |
Options Granted | | | 377,790 | | | | 5.36 | | | | 1,274,379 | | | | 1.43 | | | | 95,000 | | | | 4.45 | |
Options Exercised | | | (3,750 | ) | | | 2.88 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Options Forfeited and/or expired | | | (210,833 | ) | | | 8.13 | | | | (11,000 | ) | | | 7.19 | | | | (73,817 | ) | | | 5.17 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding options and at end of year | | | 3,761,018 | | | | 6.35 | | | | 3,597,811 | | | | 6.55 | | | | 2,334,432 | | | | 9.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Option's Exercisable at end of year | | | 2,335,325 | | | | 8.34 | | | | 1,952,014 | | | | 9.98 | | | | 1,753,803 | | | | 4.76 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 20: Share‑Based Compensation (Cont.) |
The following table summarizes information about share options outstanding as of December 31, 2018:2021:
| | Options and outstanding as of December 31, 2018 | |
Range of exercise prices ($ ) | | Number of options | | | Weighted Average Remaining contractual life | | | Weighted average exercise price | |
| | | | | | | | | |
4.63 ‑ 5.15 | | | 665,000 | | | | 9.65 | | | | 5.12 | |
7.26 ‑ 9.82 | | | 829,349 | | | | 5.69 | | | | 9.08 | |
12.89 ‑ 13.76 | | | 818,900 | | | | 4.92 | | | | 12.94 | |
Total | | | 2,313,249 | | | | 6.56 | | | | 9.31 | |
The following table summarizes information about RSU's outstanding as of December 31, 2018:
| | RSU'sOptions outstanding as of
2018December 31, 2021
| |
Range of exercise prices ($ ) | | Number of options | | | |
Outstanding at beginning of yearWeighted Average Remaining contractual life | | | - | |
Granted | | | 95,833 | |
Forfeited | | | - | |
Vested | | | -Weighted average exercise price | |
| | | | |
Outstanding at the end of the period | | | 95,833 | |
| | | | |
RSU's Exercisable at end of year | | | 2,307,469 | | | | 6.19 | | | | 3.29 | |
6.02- 9.58 | | | 642,249 | | | | 3.68 | | | | 9.01 | |
12.89 - 13.76 | | | 811,300 | | | | 1.92 | | | | 12.93 | |
Total | | | 3,761,018 | | | | 4.84 | | | | 6.35 | |
F-35
The following table summarizes information about RSU's outstanding:
| | RSU's 2021 | | | RSU's 2020 | | | RSU's 2019 | |
| | | | | | | | | |
Outstanding at beginning of year | | | 74,587 | | | | 108,544 | | | | 95,833 | |
Granted | | | 62,947 | | | | 0 | | | | 36,667 | |
Forfeited | | | (1,505 | ) | | | 0 | | | | 0 | |
Vested | | | (33,958 | ) | | | (33,958 | ) | | | (23,956 | ) |
| | | | | | | | | | | | |
Outstanding at the end of the period | | | 102,071 | | | | 74,587 | | | | 108,544 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 17:- | SHARE‑BASED COMPENSATION (Cont.) |
The fair value of the options and RSU's granted to employees and directors at the grant date for the years endsended December 31, 2016, 20172019, 2020 and 20182021 was $193, $172$441 ,$1,819 and $1,650,$1,392 respectively.
The options and RSU’s of the Company are managed by a trustee.
| 1. | On June 9, 2016,March 24, 2019, the shareholders'Company granted to its incoming CEO and chairman of the board 60,000 options (40,000 and 20,000 respectively) to purchase ordinary shares, for an exercise price of $ 4.92 per share, and 30,000 RSU's (20,000 and 10,000 respectively), under the "2014 Share Incentive Plan". The options are exercisable in accordance with the terms of the plan and will vest over three-four years. The fair value of the options and RSU's granted, as of the grant date, was estimated at approximately $164 and $158, respectively. On May 2, 2019, the general meeting of the Company approved to extend the exercise period of certain options previouslyabovementioned grants. |
| 2. | On June 6, 2019, the Company granted to its incoming CFO 40,000 options to purchase ordinary shares, for an exercise price of $ 3.84 per share, and 6,667 RSU's, under the CEO."2014 Share Incentive Plan". The Fair Valueoptions are exercisable in accordance with the terms of the extensionplan and will vest over four years. The fair value of the Options,options and RSU's granted, as of the modificationgrant date, was estimated at approximately $39.$93 and $26, respectively. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 20: Share‑Based Compensation (Cont.) |
| 2.3. | On June 22, 2017,April 23, 2020, the Company's Board of Directors approved the grant of 40,0001,274,379 options to purchase ordinary shares under the Plan,"2014 Share Incentive Plan", for an exercise price of $ 6.721.75 per share to certain new Boardits employees, managments and board members of the Company. The fair value of the options granted, as of the grant date, was estimated at approximately $172.$1,819. |
| 3.4. | On February 22, 2018, the general meeting of the Company approved to extend the exercise period of 208,332 options previously granted to CEO and in addition approved the grant of 40,000 options to purchase the Company's ordinary shares, for an exercise price of $ 4.63 per share, to certain of its directors. The fair value of the extended options was estimated at approximately $98 and the new options granted, as of the grant date, was estimated at approximately $76. |
| 4. | On June 27, 2018, a total of 208,332 options which were previously granted to the Company's CEO were exercised into 131,102 ordinary shares using cashless exercise mechanism. |
| 5. | On December 31, 2018,March 4, 2021, the Company's Board of Directors approved the grant of 625,000of: (a) 238,090 options to purchase ordinary shares and 39,682 RSU's under the "2014 Share Incentive Plan" to its CEO, officers and board members of the Company at a fair value of $663 and $196, respectively, and (b) 139,700 options to purchase ordinary shares and 23,265 RSU's under the "2014 Share Incentive Plan" to its employees at a fair value of $417 and $116, respectively. The options are exercisable for an exercise price of $ 5.155.36 per share, and the grant of 95,833 RSU's to its employees. The fair value of the options and RSU's granted, as of the grant date, was estimated at approximately $1,261 and $389, respectivaly.share. |
d. The fair value of the Company's share options granted to employees and directors for the years ended December 31, 2019, 2020 and 2021 was estimated using the binomial option pricing models using the following assumptions:
| | December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Dividend yield (%) | | | 0 | | | | 0 | | | | 0 | |
Expected volatility of the share prices (%) | | | 55-78 | | | | 51-71 | | | | 41-53 | |
Risk-free interest rate (%) | | | 0.1-1.5 | | | | 0.2-0.9 | | | | 1.85-2.45 | |
Early exercise factor (%) | | | 100-150 | | | | 100-150 | | | | 150 | |
Weighted average share prices (Dollar) | | | 2.88 | | | | 2.43 | | | | 4.83 | |
| d. | The fair value of the Company's share options granted to employees and directors for the years ended December 31, 2016, 2017 and 2018 was estimated using the binomial option pricing models using the following assumptions: |
Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on the weighted average volatility of the Company’s shares, over the expected term of the options), expected term of the options (based on general option holder behavior and expected share price), expected dividends, and the risk-free interest rate (based on government debentures).
Note 21: Income Tax
| | December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Dividend yield (%) | | | 0 | | | | 0 | | | | 0 | |
Expected volatility of the share prices (%) | | | 72 | | | | 63 | | | | 44-54 | |
Risk‑free interest rate (%) | | | 0.28-2.0 | | | | 1.22-2.15 | | | | 1.63-2.69 | |
Early exercise factor (%) | | | 100-150 | | | | 150 | | | | 100-150 | |
Weighted average share prices (Dollar) | | | 8.56 | | | | 7.80 | | | | 4.07 | |
a.The Company operates in two main tax jurisdictions: Israel and Germany. As such, the Company is subject to the applicable tax rates in the jurisdictions in which it conducts its business..
b. Corporate tax rate in Israel:
The expected share price volatilitytax rates relevant to the Company in the years 2019-2021 is based on23%.
c. Benefits under the historical equity volatility of the share prices of comparable companies that are publicly traded, as there is no sufficient historical trading dataLaw for the Company.Encouragement of Capital Investments:
Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 (the "Investment Law"):
F-36MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 21: Income Tax (Cont.)
| a. | The Company operates in two main tax jurisdictions: Israel and Germany. As such, the Company is subject to the applicable tax rates in the jurisdictions in which it conducts its business. |
| b. | Corporate tax rates in Israel: |
| · | The Israeli corporate income tax rate was 23% in 2018, 24% in 2017 and 25% in 2016. |
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.
| · | Tax benefits under the Israel Law for the Encouragement of Capital Investments, 1959 (the "Investment Law"): |
Under the Investment Law, the Company has been granted "Beneficiary Enterprise" status which provides certain benefits, including tax exemptions and reduced tax rates. Income not eligible for Beneficiary Enterprise benefits is taxed at a regular rate.
During the benefit period, the Company will be tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%- 25% for an additional period of five to eight years (depending on the percentage of foreign investments in the Company) of the benefit period. The benefit entitlement period starts from the first year that the Beneficiary Enterprise first earned taxable income, and is limited to 12 years from the year in which the Company requested to have tax benefits apply. In the event of distribution of dividends from the said tax exempt income, the amount distributed will be subject to corporate tax at the reduced rate ordinarily applicable to the Beneficiary Enterprise's income.
Tax exempt income generated under the Company's "Beneficiary Enterprise" program will be subject to taxes upon dividend distribution or complete liquidation. The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the Investment Law and regulations published thereunder. Should the Company fail to meet such requirements in the future, income attributable to its Beneficiary Enterprise programs could be subject to the statutory Israeli corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such programs.
d.The principal tax rates applicable to the subsidiary whose place of incorporation is outside of Israel is:
| c. | Corporate tax rate in Germany: |
The statutory corporate tax rate in Germany was 29.79% in 2018, 30.53% in 20172021, 2020 and 29.72% in 2016.2019.
e.Final tax assessments:
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 18:- | TAXES ON INCOME (Cont.) |
The Company has finalized its tax assessments through the 20122015 tax year.year.
The Company's subsidiary has not received a final tax assessment since its incorporation.
| e. | Net operating carryforward losses for tax purposes and other temporary differences: |
f.Net operating carryforward losses for tax purposes and other temporary differences:
As of December 31, 2018,2021, the Company had carryforward losses and other temporary differences mainly from R&D expenses together amounting to approximately $133,000.$148,000.
The Company did not recognize deferred tax assets for carryforward losses and other temporary differences at the amount of approximately $9,500 because their utilization in the foreseeable future is not probable.
| g. | Current taxes on income: |
h.Current taxes on income:
The Company did not record any current taxes for the years ended December 31, 2016, 20172019, 2020 and 20182021 as a result of its carryforward losses.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 21: Income Tax (Cont.)
i. Theoretical tax:
The reconciliation between the tax expense, assuming that all the income and expenses, gains and losses in the statement of income were taxed at the statutory tax rate and the taxes on income recorded in profit or loss, does not provide significant information and therefore was not presented (the main reconciliation item is due to operating losses and other temporary differences for which deferred tax assets were not recognized).
NOTE 19:- | DISCONTINUED OPERATION |
| a. | In December 2010, the Company, Teva and PolyHeal, entered into a series of agreements to collaborate in the development, manufacturing and commercialization of PolyHeal's wound care product, or the PolyHeal Product (“2010 PolyHeal Agreement”). Under the 2010 PolyHeal Agreement, PolyHeal granted the Company an exclusive global license to manufacture, develop and commercialize all the Polyheal Products in consideration for royalty payments. Concurrently, the Company granted Teva an exclusive global sub license to commercialize the Polyheal Products in consideration for certain royalties and milestone payments. In addition, Teva undertook to finance the Company's future development of the Polyheal Product and all of its manufacturing costs. Under the 2010 PolyHeal Agreement, Teva initially invested $ 6,750 in the Company, and undertook to invest an additional $ 6,750 in the Company subject to the achievement of a development milestone. Concurrent with Teva's investment in the Company, the Company purchased shares of PolyHeal for total consideration of $ 6,750. Additionally, the Company undertook to purchase additional shares of PolyHeal for the same amount, subject to the achievement of the same abovementioned development milestone. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Note 22: Discontinued Operation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 19:- | DISCONTINUED OPERATION (Cont.) |
| b. | The Company has accounted this transaction as an acquisition of a group of assets since the assets acquired did not constitute a business as defined in IFRS 3. The Company allocated the consideration paid for the group of assets acquired based on their fair value to two identifiable assets: the license for the Polyheal Products in the amount of $ 6,333 and royalty rights arising from the Company's ownership of shares of PolyHeal in the amount of $ 417. |
| c. | Following the termination of the Company's collaborations with Teva under the 2010 PolyHeal Agreement, the Company's exclusive license for the PolyHeal Product expired in September 2013. As a result of the expiration of the PolyHeal license, the Company accounted for the operation related to PolyHeal as a discontinued operation in accordance with IFRS accounting standard 5, “Non-current Assets Held for Sale and Discontinued Operations" and the Company has fully impaired the license for the PolyHeal Product. |
| d. | On November 15, 2012, the Company informed Teva of the commencement of a feasibility study for the next generation of the PolyHeal Product, which constituted a milestone under the 2010 PolyHeal Agreement. In accordance with the terms of the agreement, Upon achievement of this milestone, Teva was to invest an additional $ 6,750 in exchange of the Company's ordinary shares and the Company was to purchase, following and pending the consummation of this investment, for an identical amount, ordinary shares of PolyHeal from its existing shareholders. The Company has not received the milestone investment from Teva. |
On September 15, 2014, a Statement of Claim was filed against the Company by some shareholders of Polyheal (the "Plaintiffs") related to '2010 PolyHeal Agreement' in which PolyHeal granted the Company an exclusive global license to manufacture, develop and on November 12,commercialize all the Polyheal Products in consideration for royalty payments.
During December 2017, following the TelTel- Aviv District Court issued its ruling. During December 2017,Ruling, the Company paid the Plaintiffs approximately $1,497 in consideration for PolyHeal's shares. Since the Company believes that the carrying amount of its royalty rights arising from the Company's ownership of shares of Polyheal would not be recoverable, a full impairment of these royalty rights is included within the loss from discontinued operation for the year ended December 31, 2017. In addition, the Company born legal expenses totaled $116 for the year ended December 31, 2017.
As of December 31, 2017, the Companyand recorded a full provision of $6,003 which represents the purchase price for the residual number of shares that the 2010 PolyHeal Agreements contemplate would be acquired by the Company from the shareholders of PolyHeal plus accrued interest. On December 27, 2017 the Company filed an appeal (see Note 15f)(the “Provision”).
InOn March 24, 2019, the Company entered into a Settlement Agreementsettlement agreement and mutual general release with the plaintiffs,which, contingent upon the Israeli Supreme Court's approval of the settlement agreement, will result in the acceptance of our appeal by the Supreme Court and the cancellation of the 2017 ruling that was issued by the District Court against MediWound (see also Note 23a).
As a result of aPlaintiffs (the "Polyheal Settlement Agreement signed with the Teva in March 2019 (see also Note 23b), a one-time net income of $4,608 was recorded within the profit from discontinued operation in the fourth quarter and full year ending December 31, 2018.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 20:- | SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE PROFIT OR LOST |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Salary and benefits (including share-based compensation) | | | 2,112 | | | | 2,073 | | | | 2,212 | |
Subcontractors | | | 66 | | | | 121 | | | | 72 | |
Depreciation and amortization | | | 475 | | | | 457 | | | | 474 | |
Cost of materials | | | 410 | | | | 535 | | | | 468 | |
Other manufacturing expenses | | | 892 | | | | 989 | | | | 783 | |
Decrease (increase) in inventory of finished products | | | 780 | | | | (999 | ) | | | 299 | |
Allotment of manufacturing costs to R&D | | | (2,577 | ) | | | (1,598 | ) | | | (2,220 | ) |
| | | | | | | | | | | | |
| | | 2,158 | | | | 1,578 | | | | 2,088 | |
| b. | Research and development expenses, net of participations: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Salary and benefits (including share-based compensation) | | | 3,171 | | | | 3,840 | | | | 3,703 | |
Subcontractors | | | 8,517 | | | | 8,780 | | | | 11,423 | |
Depreciation and amortization | | | 28 | | | | 42 | | | | 51 | |
Cost of materials | | | 351 | | | | 223 | | | | 309 | |
Allotment of manufacturing costs | | | 2,577 | | | | 1,598 | | | | 2,220 | |
Other research and development expenses | | | 135 | | | | 142 | | | | 209 | |
| | | | | | | | | | | | |
Research and development, gross | | | 14,779 | | | | 14,625 | | | | 17,915 | |
| | | | | | | | | | | | |
Participations: | | | | | | | | | | | | |
BARDA funds | | | (5,566 | ) | | | (8,565 | ) | | | (13,238 | ) |
Revaluation of liabilities in respect of IIA grants | | | (2,145 | ) | | | (598 | ) | | | (605 | ) |
| | | | | | | | | | | | |
| | | 7,068 | | | | 5,462 | | | | 4,072 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 20:- | SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF COMPREHENSIVE INCOME (Cont.) |
| c. | Selling and marketing expenses: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Salary and benefits (including share based compensation) | | | 5,438 | | | | 3,062 | | | | 2,343 | |
Marketing and medical support | | | 2,444 | | | | 1,628 | | | | 1,055 | |
Depreciation and amortization | | | 18 | | | | 12 | | | | 9 | |
Shipping and delivery | | | 111 | | | | 236 | | | | 192 | |
Registration and marketing license fees | | | 392 | | | | 424 | | | | 589 | |
| | | | | | | | | | | | |
| | | 8,403 | | | | 5,362 | | | | 4,188 | |
| d. | General and administrative expenses: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Salary and benefits (including share‑based compensation) | | | 2,361 | | | | 2,032 | | | | 2,035 | |
Professional fees | | | 1,241 | | | | 1,224 | | | | 1,361 | |
Depreciation and amortization | | | 66 | | | | 56 | | | | 43 | |
Other | | | 416 | | | | 469 | | | | 360 | |
| | | | | | | | | | | | |
| | | 4,084 | | | | 3,781 | | | | 3,799 | |
Other one-time expenses associated with the review of potential strategic transactions.
| f. | Financial income and expense: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
Financial income: | | | | | | | | | |
Interest income | | | 414 | | | | 349 | | | | 412 | |
Revaluation of contingent consideration for the purchase of shares | | | 1,621 | | | | - | | | | - | |
Exchange differences, net | | | 131 | | | | 57 | | | | - | |
| | | | | | | | | | | | |
| | | 2,166 | | | | 406 | | | | 412 | |
Financial expense: | | | | | | | | | | | | |
Interest in respect of IIA grants | | | 847 | | | | 827 | | | | 892 | |
Revaluation of contingent consideration for the purchase of shares | | | - | | | | 351 | | | | 758 | |
Exchange differences, net | | | - | | | | - | | | | 219 | |
Finance expenses in respect of deferred revenue | | | - | | | | - | | | | 164 | |
Other | | | 49 | | | | 74 | | | | 84 | |
| | | | | | | | | | | | |
| | | 896 | | | | 1,252 | | | | 2,117 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 21:- | NET LOSS PER SHARE |
| a. | Details of the number of shares and loss used in the computation of loss per share from continuing operations: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Loss | |
| | | | | | | | | | | | | | | | | | |
Basic and diluted loss | | | 21,862,169 | | | | (18,885 | ) | | | 23,341,040 | | | | (14,533 | ) | | | 27,113,617 | | | | (5,665 | ) |
| b. | Details of the number of shares and profit (loss) used in the computation of profit or (loss) per share from discontinued operation: |
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Profit | |
| | | | | | | | | | | | | | | | | | |
Basic and diluted profit ( loss) | | | - | | | | - | | | | 23,341,040 | | | | (7,616 | ) | | | 27,113,617 | | | | 4,608 | |
c. Net profit (loss) per share from continuing and discontinued operations:
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
Basic and Diluted loss per share: | | | | | | | | | |
Net loss from continuing operations | | | (0.86 | ) | | | (0.62 | ) | | | (0.21 | ) |
| | | | | | | | | | | | |
Profit (loss) from discontinued operation | | | - | | | | (0.33 | ) | | | 0.17 | |
| | | | | | | | | | | | |
Net loss per share | | | (0.86 | ) | | | (0.95 | ) | | | (0.04 | ) |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 22:- | BALANCES AND TRANSACTIONS WITH RELATED PARTIES AND KEY OFFICERS |
| a. | Related parties consist of: |
| · | Clal Biotechnologies Industries Ltd.- Parent Company. |
| · | Directors of the Company. |
| · | CureTech Ltd.-Sister Company |
| b. | Balances of related parties: |
| | Payables | | | Recievable | |
Parent Company (1): | | | | | | |
| | | | | | |
As of December 31, 2017 | | | 238 | | | | - | |
As of December 31, 2018 | | | 186 | | | | - | |
| | | | | | | | |
Other related parties: | | | | | | | | |
| | | | | | | | |
As of December 31, 2017 | | | 86 | | | | - | |
As of December 31, 2018 | | | 41 | | | | 58 | |
| (1) | The Company leases office space and a production facility from the Parent Company in accordance with a sublease agreement (see Note 15 (g)). |
| c. | Transactions with related parties: |
| | Professional Fee (1) | | | Rent expenses and other | |
Parent company: | | | | | | |
2016 | | | 27 | | | | 804 | |
2017 | | | 35 | | | | 817 | |
2018 | | | 44 | | | | 292 | |
| | | | | | | | |
Other related parties: | | | | | | | | |
2016 | | | 159 | | | | - | |
2017 | | | 225 | | | | - | |
2018 (2) | | | 162 | | | | (246 | ) |
| (1) | Professional fees do not include short-term employee benefits and share-based compensation to one of the Company's shareholders, who is a key officer, in the amounts of $420, $691 and $537 for the years 2016, 2017 and 2018, respectively, as well as payment for the purchasing of a patent in amount of $30, $30 and $12 for the years 2016, 2017 and 2018, respectively (see note 15c). |
| (2) | Comprise of participation in building maintenance on amount of $246. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except of share and per share data)
NOTE 22:- | BALANCES AND TRANSACTIONS WITH RELATED PARTIES AND KEY OFFICERS (Cont.) |
| d. | Compensation of officers of the Company: |
The following amounts disclosed in the table are recognized as an expense during the reporting period related to officers:
| | Year ended December 31, | |
| | 2016 | | | 2017 | | | 2018 | |
| | | | | | | | | |
Short-term employee benefits | | | 2,108 | | | | 2,324 | | | | 2,304 | |
Share-based compensation | | | 1,445 | | | | 731 | | | | 276 | |
| | | | | | | | | | | | |
| | | 3,553 | | | | 3,055 | | | | 2,580 | |
| | | | | | | | | | | | |
Number of officers | | | 7 | | | | 6 | | | | 6 | |
In December 2007, the Company's board of directors approved one‑time bonus payments to the Chief Executive Officer and Chief Medical Officer in the amounts of $ 120 each, to be paid upon achieving marketing approval in the United States.
NOTE 23:- | SUBSEQUENT EVENTS |
a. | On March 24, 2019, the Company entered into a settlement agreement and mutual general release with the Plaintiffs (the "Polyheal Settlement Agreement"), which settles any and all debts, obligations or liabilities that the Plaintiffs and MediWound had, has or may have to the other party in connection with the agreements among MediWound, Teva, PolyHeal, the Plaintiffs and other shareholders of PolyHeal. |
Agreement"). Pursuant to the terms of Polyheal Settlement Agreement, the Plaintiffs repaid to MediWound a portion of the amount that was ruled in their favor under the Tel Aviv District Court Ruling, and contingent upon the Israeli Supreme Court approval of this Polyheal Settlement Agreement, it will result in the acceptance of the Company's appeal that was filed on December, 2017, andresulted the cancellation of the 2017 Ruling that was issued by the District Court against MediWound.
In addition,September 2019, the Company also agreed to indemnify, defend and hold harmless Teva and its directors, officers, agents and employees from and against claims relating toentered a certain milestone related tonew series of settlement agreements (the "New PolyHeal under an agreement associatedSettlement Agreements") with the Collaborationmajority of the shareholders of Polyheal, including Clal Biotechnology Industries Ltd., its controlling shareholder. Pursuant to the terms of New PolyHeal Settlement Agreements, up tothe Company paid an aggregate amount of USD 10 million, ifapproximately $2,800 and received 14,473 shares of PolyHeal, which was classified as royalty rights arising from the Company’s ownership of shares of Polyheal.
As a noticeresult of such claim has been received bythe New PolyHeal Settlement Agreements, the Company prior torecognized one-time profit from discontinued operation of $2,889, following the decrease of the provision which was offset by an impairment of the royalty rights and settlement fees.
In 2020 the Company finalized PolyHeal Settlement Agreements and paid $195 for 1,558 shares of PolyHeal. As of December 31, 2023.
2020, the provision for liability in respect of discontinued operation, was fully offset.
| b. | On March 24, 2019, the Company entered into a settlement agreement and mutual general release with Teva (the “Teva Settlement Agreement”), which settles any and all debts, obligations or liabilities that each party or any of its controlled affiliates had or has to the other party or any of its controlled affiliates under, in connection with or arising out of certain transactions and agreements entered into between Teva and the Company from 2007 to 2012 (collectively, the “Collaboration Agreements”), which have terminated effective as of December 31, 2012 and September 2, 2013, as applicable, and which related to the Company's product, NexoBrid, and to PolyHeal Ltd. product, PolyHeal.
|
MEDIWOUND LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 23: Supplementary Information to the Statements of Comprehensive Profit or Loss
a. Additional information on Revenues:
Major customers:
BARDA contributed 76% of the Company’s total revenues in 2021, 83% in 2020, and 34% in 2019. Verical contributed 55% in 2019. (see also Note 18b).
No other customer contributed 10% or more of the Company’s revenues in 2021, 2020 and 2019.
Revenue Re-classification:
Revenues in the amount of $383 from distributions agreements were classified from revenues from sale of products for the year ended 31, December 2020.
Geographic information:,
The revenues reported in the financial statements are based on the location of the customers, as follows:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
USA ( see also Note 18a, 18b) | | | 18,102 | | | | 18,030 | | | | 28,504 | |
EU and other international markets | | | 5,661 | | | | 3,733 | | | | 3,285 | |
| | | | | | | | | | | | |
| | | 23,763 | | | | 21,763 | | | | 31,789 | |
1. Cost of Revenues from sale of products
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits (including share-based compensation) | | | 2,201 | | | | 2,139 | | | | 1,916 | |
Subcontractors | | | 204 | | | | 153 | | | | 89 | |
Depreciation and amortization | | | 603 | | | | 554 | | | | 512 | |
Cost of materials | | | 1,091 | | | | 704 | | | | 456 | |
Other manufacturing expenses | | | 953 | | | | 840 | | | | 657 | |
Decrease in inventory of finished products | | | 242 | | | | 155 | | | | 344 | |
Allotment of manufacturing costs to R&D | | | (311 | ) | | | (1,394 | ) | | | (1,621 | ) |
| | | | | | | | | | | | |
| | | 4,983 | | | | 3,151 | | | | 2,353 | |
2. Cost of Revenues from development services
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits | | | 2,003 | | | | 2,320 | | | | 1,404 | |
Subcontractors | | | 7,904 | | | | 8,747 | | | | 7,412 | |
| | | | | | | | | | | | |
| | | 9,907 | | | | 11,067 | | | | 8,816 | |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 23: Supplementary Information to the Statements of Comprehensive Profit or Loss (Cont.)
3. Cost of Revenues from license agreements
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits | | | 102 | | | | 0 | | | | 0 | |
Royalties payments | | | 0 | | | | 0 | | | | 680 | |
| | | | | | | | | | | | |
| | | 102 | | | | 0 | | | | 680 | |
| | | | | | | | | | | | |
Total Cost of Revenues | | | 14,992 | | | | 14,218 | | | | 11,849 | |
c. Research and development expenses, net of participations:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits (including share-based compensation) | | | 2,811 | | | | 2,094 | | | | 2,965 | |
Subcontractors | | | 6,309 | | | | 3,173 | | | | 4,694 | |
Depreciation and amortization | | | 352 | | | | 346 | | | | 342 | |
Cost of materials | | | 295 | | | | 517 | | | | 311 | |
Allotment of manufacturing costs | | | 209 | | | | 1,394 | | | | 1,621 | |
Other research and development expenses | | | 280 | | | | 174 | | | | 137 | |
| | | | | | | | | | | | |
Research and development, gross | | | 10,256 | | | | 7,698 | | | | 10,070 | |
| | | | | | | | | | | | |
Participations: | | | | | | | | | | | | |
BARDA funds | | | 0 | | | | 0 | | | | (3,785 | ) |
Revaluation of liabilities in respect of IIA grants | | | 0 | | | | 0 | | | | (1,316 | ) |
| | | | | | | | | | | | |
| | | 10,256 | | | | 7,698 | | | | 4,969 | |
d. Selling and marketing expenses: | | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits (including share based compensation) (1) | | | 1,643 | | | | 1,700 | | | | 2,028 | |
Marketing and medical support | | | 627 | | | | 740 | | | | 1,298 | |
Depreciation and amortization | | | 44 | | | | 82 | | | | 49 | |
Shipping and delivery | | | 490 | | | | 282 | | | | 200 | |
Registration and marketing license fees | | | 584 | | | | 424 | | | | 489 | |
| | | | | | | | | | | | |
| | | 3,388 | | | | 3,228 | | | | 4,064 | |
(1) The salary costs for the year ended December 31,2020 includes one time payment of $243 derived from restructuring astrategy at the EU Subsidiary.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 23: Supplementary Information to the Statements of Comprehensive Profit or Loss (Cont.)
e. General and administrative expenses:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Salary and benefits (including share-based compensation) | | | 2,905 | | | | 2,784 | | | | 2,621 | |
Professional fees | | | 2,480 | | | | 2,267 | | | | 1,628 | |
Depreciation and amortization | | | 239 | | | | 108 | | | | 247 | |
Other | | | 724 | | | | 300 | | | | 746 | |
| | | | | | | | | | | | |
| | | 6,348 | | | | 5,459 | | | | 5,242 | |
The other one-time expenses amounted $1,172 for the year ended December 31, 2019, are associated with the review and assessment of the strategic deal with Vericel ( see Note 18b).
g. Financial income and expense:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
Financial income: | | | | | | | | | |
| | | | | | | | | | | | |
Interest income | | | 11 | | | | 297 | | | | 434 | |
Revaluation of liabilities in respect of the purchase of shares | | | 0 | | | | 433 | | | | 0 | |
Exchange differences, net | | | 0 | | | | 113 | | | | 122 | |
| | | | | | | | | | | | |
| | | 11 | | | | 843 | | | | 556 | |
Financial expense: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Interest in respect of IIA grants | | | 903 | | | | 832 | | | | 925 | |
Revaluation of liabilities in respect of IFRS16 | | | 120 | | | | 144 | | | | 140 | |
Finance expenses in respect of deferred revenues | | | 143 | | | | 247 | | | | 161 | |
Revaluation of liabilities in respect of the purchase of shares | | | 590 | | | | 0 | | | | 1,690 | |
Exchange differences, net | | | 511 | | | | 0 | | | | 0 | |
Other | | | 47 | | | | 56 | | | | 67 | |
| | | | | | | | | | | | |
| | | 2,314 | | | | 1,279 | | | | 2,983 | |
| | | | | | | | | | | | |
Financial expenses, net | | | (2,303 | ) | | | (436 | ) | | | (2,427 | ) |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 24: Net Profit (Loss) Per Share
a. Details of the number of shares and loss used in the computation of loss per share from continuing operations:
Year ended December 31 | |
2021 | | | 2020 | | | 2019 | |
Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Loss | | | Weighted average number of shares | | | Profit | |
| | | | | | | | | | | | | | | | |
| 27,244,475 | | | | (13,551 | ) | | | 27,209,878 | | | | (9,276 | ) | | | 27,178,839 | | | | 2,066 | |
b. Details of the number of shares and profit (loss) used in the computation of profit or (loss) per share from discontinued operation:
Year ended December 31 | |
2021 | | | 2020 | | | 2019 | |
Weighted average number of shares | | | Profit | | | Weighted average number of shares | | | Profit | | | Weighted average number of shares | | | Profit | |
| | | | | | | | | | | | | | | | |
| 0 | | | | 0 | | | | 27,209,878 | | | | 80 | | | | 27,178,839 | | | | 2,889 | |
c. Net profit (loss) per share from continuing and discontinued operations:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
Basic and Diluted loss per share: | | | | | | | | | |
Profit (loss) from from continuing operations | | | (0.50 | ) | | | (0.34 | ) | | | 0.08 | |
| | | | | | | | | | | | |
Profit from discontinued operation | | | 0 | | | | 0 | | | | 0.10 | |
| | | | | | | | | | | | |
Profit (loss) per share | | | (0.50 | ) | | | (0.34 | ) | | | 0.18 | |
Note 25: Balances and Transactions With Related Parties and Key Officer
a. Related parties consist of:
• Clal Biotechnologies Industries Ltd.- Parent Company.
•Directors of the Company.
•CureTech Ltd.-Sister Company.
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 25: Balances and Transactions With Related Parties and Key Officers (Cont.) |
1. Balances of related parties:
NOTE 23:- | SUBSEQUENT EVENTS( Cont.) | Other Payables | |
Parent Company (1): | | | |
| | | |
As of December 31, 2020 | | | 138 | |
As of December 31, 2021 | | | 144 | |
| | | | |
| | | | |
| | | | |
As of December 31, 2020 | | | 86 | |
As of December 31, 2021 | | | 96 | |
2. Transactions with related parties:
Rental fee:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Parent Company | | | 469 | | | | 446 | | | | 415 | |
Sister Company | | | 0 | | | | 0 | | | | (59 | ) |
During
Professional fee:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Directors | | | 375 | | | | 272 | | | | 249 | |
Parent Company | | | 85 | | | | 54 | | | | 52 | |
| | | 460 | | | | 326 | | | | 301 | |
Number of Directors | | | 8 | | | | 8 | | | | 6 | |
| • Not included share based compensation detailed in Note 20. |
MEDIWOUND LTD. AND ITS SUBSIDIARIES
Notes to the recent years,Consolidated Financial Statements
U.S. dollars in thousands (except of share and per share data)
Note 25: Balances and Transactions With Related Parties and Key Officers (Cont.)
| 1. | Balances of Key Officers of the Company |
| | Other Payables | |
Key Officers of the Company | | | |
| | | |
As of December 31, 2021 | | | 353 | |
Represents the officer’s gross salary, bonuses and vacation provisions.
2. Compensation of Key Officers of the Company:
The following amounts disclosed in the table are recognized as an expense during the reporting period related to officers:
| | Year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
Short-term employee benefits (*) | | | 1,788 | | | | 1,993 | | | | 2,533 | |
Share-based compensation | | | 518 | | | | 467 | | | | 565 | |
| | | | | | | | | | | | |
| | | 2,306 | | | | 2,460 | | | | 3,098 | |
Number of officers | | | 5 | | | | 5 | | | | 7 | |
(*) The amount for 2019 includes one-time payments for previous-CEO on the amount of $196.
In December 2007, the Company's board of directors approved one‑time bonus payments to the Chief Medical Officer in the amounts of $ 120, to be paid upon achieving marketing approval in the United States.
Note 26:Subsiquents events:
On March 7, 2022, the Company has been engagedcompleted a follow-on public offering. A total of 5,208,333 new ordinary shares were issued in discussionsconsideration to offering price of $1.92 per share. The net proceeds, were $8,662, after deducting commissions and other offering expenses. MediWound also granted the underwriters a 30-day option to purchase up to an additional 781,249 ordinary shares at the public offering price, less underwriting discounts and commissions at an additional net proceeds of $1,388.In addition, certain entities affiliated with Teva regarding paymentsCBI purchased 1,458,333 of ordinary shares in the Company believes Teva was obligated to make toobove-mentioned offering at the Company pursuant to these Collaboration Agreements.public offering price.
Pursuant to the terms of the Teva Settlement Agreement, Teva has agreed to pay the Company $ 4,000 in cash, and to reduce the contingent consideration that is payable to Teva pursuant to the Company's repurchase of its shares from Teva in 2013, so that the Company will be obligated to pay Teva annual payments at a reduced rate of 15% of its recognized revenues from the sale or license of NexoBrid after January 1, 2019, up to a reduced aggregate amount of $10,200.
As a result of Teva Settlement Agreement, a one-time net income from settlement agreement of $7,537 was recorded as other income and a one-time income of $4,608 was recorded within the profit from discontinued operation in the fourth quarter and the year ending December 31, 2018.
F-45
F - 49