Securities registered or to be registered pursuant
to Section 12(b) of the Act.
Securities registered or to be registered pursuant to Section 12(g)
of the Act. None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act. None
Indicate the number of outstanding shares of
each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large
accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its
financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of
the Exchange Act. ☐
† The term “new or revised financial
accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification
after April 5, 2012.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in response
to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PART I
Item 1. Identity of Directors, Senior Management
and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business, liquidity,
financial condition, and results of operations could be adversely affected, and even materially so, if any of the risks described below
occur. As a result, the trading price of our securities could decline, and investors could lose all or part of their investment. This
Annual Report including the consolidated financial statements contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially and adversely from those anticipated, as a result of certain factors, including the risks
facing the Company as described below and elsewhere in the Annual Report. You should carefully consider the risks and uncertainties included
herewith. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware
of, or that we currently believe are not material, may also become important factors that adversely affect our business. Material risks
that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:
|
● |
Our business is currently highly concentrated on our two leading
products, CYTOGAM and KEDRAB, as well as on royalty income generated from GLASSIA sales by Takeda. Any adverse market event with
respect to such products and income would have a material adverse effect on our business and financial condition. |
|
● |
A significant portion of our net revenue has been and will continue
to be driven from sales of our proprietary products, and in our largest geographic region, the United States. Any adverse market
event with respect to some of our proprietary products or the United States would have a material adverse effect on our business. |
|
● |
Our ability to maintain and expand sales of our commercial products
portfolio in the U.S. and ex-U.S. markets is critical to our profitability and financial stability |
|
● |
We have excess manufacturing plant
capacity in our manufacturing facility, which may result in reduction in operating profits, if not effectively managed. |
|
● |
We recently established our U.S. plasma collection operations and
have invested and intend to continue to invest in expanding this activity in order to reduce our dependency on third-party suppliers
in terms of plasma supply needs as well as to generate sales from commercialization of collected normal source plasma, and our ability
to successfully expand this operation is important to support our future growth and profitability. |
|
● |
We have several product development candidates, including our Inhaled
AAT for AATD, as well as several other early-stage development projects. There can be no assurance that the development activities
associated with these products will materialize and result in the FDA, EMA or any other relevant agencies granting us marketing authorization
for any of these products. |
|
● |
In our Proprietary Products segment, continued availability
of CYTOGAM is dependent on FDA approval of the technology transfer of its manufacturing to our manufacturing facility in Beit Kama,
Israel as well as our ability to maintain continuous plasma supply. |
|
● |
In our Proprietary Products segment, we rely on Kedrion for the
sales of our KEDRAB product in the United States, and any disruption to our relationships with Kedrion would have an adverse effect
on our future results of operations and profitability. |
|
● |
We rely in large part on third parties for the sale, distribution
and delivery of our products, and any disruption to our relationships with these third-party distributors would have an adverse effect
on our future results of operations and profitability. |
|
● |
In our Proprietary Product segment, we rely on Contract Manufacturing
Organizations (“CMO”) to manufacture some of our products and any disruption to our relationship with such manufacturers
would have an adverse effect on the availability of products, our future results of operations and profitability. |
|
● |
Our Proprietary Product segment operates in a highly
competitive market. |
|
● |
We would become supply-constrained and our financial performance
would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products
that meet the regulatory requirement of the FDA, EMA, Health Canada or the regulatory authorities in Israel, or if our suppliers
were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives were
to raise significantly. |
|
● |
Our Distribution segment is dependent on a few suppliers, and any
disruption to our relationship with these suppliers, or their inability to supply us with the products we sell, in a timely manner,
in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and
results of operations. |
|
● |
Laws and regulations governing the conduct of international operations
may negatively impact our development, manufacture and sale of products outside of the United States and require us to develop and
implement costly compliance programs. |
|
● |
If our manufacturing facility in Beit Kama, Israel were to suffer
a serious accident, contamination, force majeure event (including, but not limited to, a war, terrorist attack, earthquake, major
fire or explosion etc.) materially affecting our ability to operate and produce saleable plasma-derived protein therapeutics, all
of our manufacturing capacity could be shut down for an extended period. |
|
● |
Our business and operations would suffer in the event of computer
system failures, cyber-attacks on our systems or deficiency in our cyber security measures. |
|
● |
Our success depends in part on our ability to obtain and maintain
protection in the United States and other countries for the intellectual property relating to or incorporated into our technology
and products, including the patents protecting our manufacturing process. |
|
● |
We have incurred significant losses since our inception and while
we were profitable in the three years ended December 31, 2020, we incurred operating losses in the last two fiscal years and may
not be able to achieve or sustain profitability. |
|
● |
Our business requires substantial capital, including potential investments
in large capital projects, to operate and grow and to achieve our strategy of realizing increased operating leverage. Despite our
indebtedness, we may still incur significantly more debt. |
|
● |
Our share price may be volatile. |
|
● |
Conditions in Israel could adversely affect our business. |
Risks Related to Our Business
Our business is currently highly concentrated
on our two leading products, CYTOGAM and KEDRAB, as well as on royalty income generated from GLASSIA sales by Takeda. Any adverse market
event with respect to such products and income would have a material adverse effect on our business and financial condition.
Our business currently relies
on the sales of CYTOGAM, our Cytomegalovirus Immune Globulin Intravenous (Human) (CMV-IGIV), and KEDRAB, our Human Rabies Immune Globulin
(HRIG), as well as royalty income on sales of GLASSIA, our intravenous AAT product, by Takeda. Revenue from sales of these products and
royalties comprised approximately 17%, 13% and 9%, respectively (39% in total), of our total revenues for the year ended December 31,
2022.
In the event that CYTOGAM
or KEDRAB were to lose significant sales or were to be substantially or completely displaced in the market, we would lose a significant
and material source of our total revenues. Similarly, if these products were to become the subject of litigation and/or an adverse governmental
action or ruling causing us to cease the manufacturing, export or sales of these products, our business and financial condition would
be adversely affected.
We are entitled to royalty
payments from Takeda on GLASSIA sales in the United States (as well as in Canada, Australia and New Zealand to the extent GLASSIA will
be approved and sales will be generated in these other markets) at a rate of 12% on net sales through August 2025, and at a rate of 6%
thereafter until 2040, with a minimum of $5 million annually, for each of the years from 2022 to 2040. For the period between March and
December 2022, we accounted for $12.2 million of sales-based royalty income from Takeda, and based on forecasted future growth, we project
receiving royalties from Takeda in the range of $10 million to $20 million per year from 2023 to 2040. However, any reduction in sales
of GLASSIA by Takeda or should Takeda reduce its manufacturing and marketing of GLASSIA for any reason (including but not limited to
inability to adequately or sufficiently manufacture GLASSIA, regulatory limitations, difficulties in marketing, reduction in market size,
or changes in corporate focus), our future expected royalty income from Takeda’s sales of GLASSIA would be adversely impacted,
which would have an adverse effect on our revenues and profitability.
A significant portion of our net revenue
has been and will continue to be driven from sales of our proprietary products, and in our largest geographic region, the United States.
Any adverse market event with respect to some of our proprietary products or the United States would have a material adverse effect on
our business.
A significant portion of
our revenues has been, and will continue to be, derived from sales of our proprietary products, including those of CYTOGAM, KEDRAB, HEPGAM
B, VARIZIG, WINRHO SDF and GLASSIA, as well as royalty income from GLASSIA sales by Takeda. Revenue from our Proprietary products comprised
approximately 79%, 73% and 76% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively. If some of our
proprietary products were to lose significant sales or were to be substantially or completely displaced in the market, we would lose
a significant and material source of our total revenues. Similarly, if these products were to become the subject of litigation and/or
an adverse governmental action or ruling causing us to cease the manufacturing, export or sales of these products, our business and financial
condition would be adversely affected.
A significant portion of
our sales and income are generated in the United States and comprised approximately 51%, 48% and 63% of our total revenues for the years
ended December 31, 2022, 2021 and 2020, respectively. If our sales or income generated in the United States were significantly impacted
by material changes to government or private payor reimbursement, other regulatory developments, competition or other factors, then our
business and financial condition would be adversely affected.
Our ability to maintain and expand sales
of our commercial products portfolio in the U.S. and ex-U.S. markets is critical to our profitability and financial stability.
Our Proprietary commercial
products portfolio, comprising of CYTOGAM, KEDRAB, WINRHO SDF, VARIZIG, HEPGAM B and GLASSIA, as well as KAMRAB, KAMRHO (D) and two types
of equine-based anti-snake venom (ASV) products, are currently distributed in the U.S. market, where we market and distribute some of
these products directly based on our sales and marketing personnel, and in approximately 30 additional ex-U.S. international markets,
including the Middle East and North Africa (“MENA”) region, where we had little to no prior sales and operational experience.
While we intend to leverage our existing strong international distribution network to grow our commercial revenue in the existing markets
in which we sell our products, we also plan to expand to geographic markets in which these products are not currently sold, and we may
not be successful in developing additional markets for these products.
Our ability to successfully
maintain and expand our recently established U.S. based commercial and distribution infrastructure, maintain and expand ex-U.S. commercialization,
is critical for our future growth, profitability and financial stability. Given our limited prior experience in some of the required
activities and responsibilities, including operation of direct sales in the U.S. market, knowledge and experience in the MENA region,
as well as other operational, technical, regulatory, financial and compliance challenges, we may not be able to continue to expand our
existing commercial operation, which may materially adversely affect the operating results of our business as well as our financial condition.
We have excess manufacturing plant capacity
in our manufacturing facility, which may result in a reduction in operating profits, if not effectively managed.
Following the transition
of GLASSIA manufacturing to Takeda in 2021, we have been and may continue to be affected by reduced efficiency of our manufacturing facility,
which resulted and may continue to result in increased manufacturing costs per vial, reduced gross profitability and potential operating
losses. We plan to utilize the excess manufacturing capacity in our manufacturing plant to manufacture our proprietary products, including
KEDRAB/KAMRAB and GLASSIA (which are currently manufactured in our facility) and CYTOGAM (subject to obtaining required regulatory approval).
We are also currently manufacturing at our plant small quantities of KAMRHO and anti-snake venom products as well as clinical lots needed
for the Inhaled AAT clinical study. We might also potentially in the future use the existing capacity for the manufacturing of HEPGAM
B, VARIZIG and WINRHO SDF, which would be subject to a technology transfer and regulatory approvals and the execution of a new revised
contract manufacturing agreement with Emergent. We may also consider utilizing our plant in the future for the manufacturing of products
for other companies as a contract manufacturing organization (CMO). While we have the knowhow and expertise to support the manufacturing
of additional products in our facility, we may not be able to complete required technology transfers or obtain required regulatory approvals
in the expected timeline, or at all. Further, while we are capable of increasing the manufacturing capacity at our facility, there is
no assurance that there will be increased market demand for these products at a profitable market price in the markets in which we distribute
our products or other markets. The manufacturing of excess quantities of products, which may not be sold due to lower demands, may result
in the need to write-down the value of inventories, which may result in significant operating losses. See also “—Manufacturing
of new plasma-derived products in our manufacturing facility requires a lengthy and challenging development project and/or technology
transfer project as well as regulatory approvals, all of which may not materialize.”
While we would expect to
implement staff reductions when needed in order to adjust to lower plant utilization, the risk of not adequately adjusting to lower plant
utilization could result in inefficiencies, reduced profitability or operating losses. Staff reductions have in the past, and may in
the future, require us to pay excess severance compensation and may lead to labor disputes and strikes, which could affect our ability
to continue to manufacture products and may lead to increased costs, reduced profitability and operating losses. For labor related risk
see “—We have entered into a collective bargaining agreement with the employees’ committee and the Histadrut (General
Federation of Labor in Israel), and we have incurred and could in the future incur labor costs or experience work stoppages or labor
strikes as a result of any disputes in connection with such agreement.”
Failure to adequately or
timely adapt our manufacturing volume or our CMOs supplies as needed may lead to an inability to supply products, may have an adverse
effect on our business and could cause substantial harm to our business reputation and result in breach of our sales agreements and the
loss of future customers and orders.
We recently established our U.S. plasma
collection operations and have invested, and intend to continue to invest, in expanding this activity in order to reduce our dependency
on third-party suppliers in terms of plasma supply needs as well as to generate sales from commercialization of collected normal source
plasma, and our ability to successfully expand this operation is important to support our future growth and profitability.
In March 2021, we acquired
the plasma collection center of B&PR in Beaumont, Texas, which primarily collects hyper-immune plasma used in the manufacture of
our KAMRHO (D). We are in the process of significantly expanding our hyperimmune plasma collection capacity in this center. We registered
with the FDA the collection of hyper-immune plasma to be used in the manufacture of KEDRAB/KAMRAB and plan to start collections of such
plasma during 2023. We also intend to leverage our experience with plasma collection to establish additional plasma collection centers
in the United States, with the intention of collecting normal source plasma, as well as hyper-immune specialty plasma required for manufacturing
of our proprietary products. To that end, during March 2023, we entered into a lease for a new plasma collection center in Uvalde, Houston,
Texas and expect to commence operations at the new center following the completion of its construction and obtaining the required regulatory
approvals.
However, given our limited
prior experience in managing plasma collection operations, the operational, technical, and regulatory challenges in establishing and
maintaining plasma collection operations, as well as the challenges in screening locations, in negotiating the lease and other third
party agreements required for the ongoing operations of the centers, the financial investment required to expand our collection capabilities
and open new collection centers and the management of an expanded scope of plasma collection operations, we may not be able to realize
our investment and the anticipated benefits of such activities. Further, we may not be able to adequately collect sufficient quantities
of plasma through our plasma collection operations to support our plasma sourcing needs, which will result in continued dependency on
third party suppliers; and even if we are successful in collection sufficient quantities, there can be no assurance that we will be able
to reduce the cost of plasma through our collection operations, as compared to costs associated with procuring plasma from third parties.
In addition, there could be no assurance that we will be able to collect adequate quantities of normal source plasma as well as secure
supply agreements with customers at adequate prices See also “—We would become supply-constrained and our financial performance
would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved
by the FDA, the EMA, Health Canada or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations
to meet regulatory requirements or if prices of the source plasma or plasma derivatives were to raise significantly”; and “—We
may in the future engage in additional strategic transactions to acquire or sell assets, businesses, products or technologies or engage
in in-license or out-license transactions of products or technologies or form collaborations that could negatively affect our operating
results, dilute our stockholders’ ownership, increase our debt, or cause us to incur significant expense.”
We have several product development candidates,
including our Inhaled AAT for AATD as well as several other early stage development projects. There can be no assurance that the development
activities associated with these products will materialize and result in the FDA, EMA or any other relevant agencies granting us marketing
authorization for any of these products.
We are engaged in research
and development activities with respect to several pharmaceutical products candidates, including Inhaled AAT for AATD, which is our lead
product development candidate.
During December 2019, the
first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial evaluating the safety and efficacy of our proprietary
Inhaled AAT therapy for the treatment of AATD. The study was initiated following extensive discussions with both the FDA and EMA regarding
the trial’s design as well a thorough analysis of a prior pivotal Phase 2/3 clinical trial for Inhaled AAT for AATD conducted in
Europe, which did not meet its primary or other pre-defined efficacy endpoints, and a prior Phase 2 clinical trial conducted in the U.S
which met its pharmacokinetic endpoint. In addition to the pivotal study and based on feedback received from the FDA regarding anti-drug
antibodies (“ADA”) to Inhaled AAT, we intend to concurrently also conduct a sub-study in North America in which approximately
30 patients will be evaluated for the effect of ADA on AAT levels in plasma with Inhaled AAT and IV AAT treatments. While a recent routine
and planned meeting of the independent Data and Safety Monitoring Board (“DSMB”) supported an expansion to the inclusion
criteria of the trial and recommended it continue without modification, there can be no assurance that we will be able to complete this
trial successfully or that the trial results will be sufficient for obtaining FDA and EMA approval. See also “As a result of
the COVID-19 pandemic we encountered delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first
study site in Europe and it impacted our ability to open additional study sites in the United States and Europe. COVID-19 may in the
future affect our ability to conduct the study.”
In addition, we are currently
engaged in the early stage development of other product candidates, including a recombinant AAT product candidate, and in 2022, we initiated
three additional early-stage development programs, all of which are associated with plasma derived product candidates. There can be no
assurance that the development activities associated with these products will materialize and result in the FDA, EMA or any other relevant
agencies granting us marketing authorization for any of these products. For additional information, see — “Item 4. Information
on the Company — Our Development Product Pipeline.”
There can be no assurance
that the development activities associated with these products will materialize and result in the FDA, EMA or any other relevant agencies
granting us marketing authorization for any of these products. See also “—Research and development efforts invested in
our pipeline of specialty and other products may not achieve expected results” and “—If we are unable to successfully
introduce new products and indications or fail to keep pace with advances in technology, our business, financial condition and results
of operations may be adversely affected.”
We may in the future engage in additional
strategic transactions to acquire or sell assets, businesses, products or technologies or engage in in-license or out-license transactions
of products or technologies or form collaborations that could negatively affect our operating results, dilute our stockholders’
ownership, increase our debt, or cause us to incur significant expense.
As part of our business development
strategy, we have in the past, and may in the future engage in strategic transactions to acquire or sell assets, businesses, or products;
or otherwise engage in in-licensing our out-licensing transactions with respect to products or technologies; or enter into other strategic
alliances or collaborations. We may not identify additional suitable transactions, or complete such transactions in a timely manner,
on a cost-effective basis, or at all. Moreover, we may devote resources to potential opportunities that are never completed, or we may
incorrectly judge the value or worth of such opportunities. Even if we successfully execute a strategic transaction, we may not be able
to realize the anticipated benefits of such transaction, may incur additional debt or assume unknown or contingent liabilities in connection
therewith, and may experience losses related to our investments or dispositions. Integration of an acquired company or assets into our
existing business or a transition of an asset to an acquirer or partner may not be successful and may disrupt ongoing operations, require
the hiring of additional personnel and the implementation of additional internal systems and infrastructure, and require management resources
that would otherwise focus on developing our existing business. Even if we are able to achieve the long-term benefits of a strategic
transaction, our expenses and short-term costs may increase materially and adversely affect our liquidity. Any of the foregoing could
have a material effect on our business, results of operations and financial condition.
The COVID-19 pandemic may continue to impact
our business, operating results and financial condition.
The outbreak of the COVID-19
pandemic in January 2020 and its spread throughout the world has led to a global health and economic crisis and had an effect on most
of the countries in the world. In response, governments around the world, including Israel, announced defensive measures such as restrictions
on travel between countries, isolation measures and limitations on gatherings and movement, lockdowns, restrictions on operating private
businesses and government and municipal services. Commencing in the second quarter of 2021, the Israeli economy showed an evident trend
of recovery from the COVID-19 crisis as a result of the high vaccination rate of the population, which made it possible to ease travel
restrictions at various destinations around the world and to return to normal business activity. The trend of recovery continued to increase,
and it appears that the effect of the COVID-19 pandemic in Israel and in many other places around the world is fading. While we maintained
ongoing operations with no material affect during the pandemic to date and believe that we will be able to continue operating normally
in the future, there is still some level of uncertainty regarding the reinstatement of restrictions as a result of the discovery of additional
coronavirus variants and fear of further spread.
The COVID-19 pandemic and
the volatile global economic conditions stemming from it may precipitate or amplify the other risks described in this “Risk Factors”
section of this Annual Report, which could materially adversely affect our business, operations and financial conditions and results
from operations.
Risks Related to Our Proprietary Products
Segment
Sales of CYTOGAM, HEPGAM
B, VARIZIG and WINRHO SDF in the U.S. market are critical in order to support future growth, future results of operations and profitability.
Sales of CYTOGAM, HEPGAM
B, VARIZIG and WINRHO SD in the U.S. market represented approximately 30% of our Proprietary Product segment sales for the year ended
December 31, 2022. Following the acquisition of these products in November 2021, we established a U.S. based commercial and sales team
which gradually assumed the U.S. commercial responsibility for these products. Such activities included hiring employees with relevant
U.S. commercial experience, engaging wholesalers, customers, and a U.S. third-party logistics (“3PL”) provider, and understanding
market landscape and trends for these products through market research and discussions with physicians and key opinion leaders, as well
as medical affairs activities which include educating physicians, supporting medical publications and collecting new clinical data associated
with these products.
However, given our limited
prior experience in directly managing U.S. commercial and medical operations and the operational, technical and regulatory challenges
in maintaining such activity, as well as the significant costs involved in such operations, we may not be able to realize the anticipated
benefits of such activities, and may not be able to adequately maintain or expand market demand and continued product sales, which may
result in significant reduction in sales, increased operating costs and reduced profitability.
See “— Our
ability to maintain and expand sales of our commercial products portfolio in the U.S. and ex-U.S. markets is critical to our profitability
and financial stability.” See also – “Item 4. Information on the Company — Proprietary Products Segment.”
Continued availability of CYTOGAM is dependent
on FDA approval of the technology transfer of its manufacturing to our manufacturing facility in Beit Kama, Israel as well as our ability
to maintain continuous plasma supply.
As part of the acquisition
of the four FDA approved plasma-derived hyperimmune commercial products from Saol, we acquired inventory of CYTOGAM which is sufficient
to meet market demand through the second part of 2023. During 2019, pursuant to an earlier engagement with Saol, we initiated technology
transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility in Beit Kama, Israel. As a result of the consummation
of the IgG portfolio acquisition, which included the acquisition of all rights relating to CYTOGAM, the previous contract manufacturing
engagement with Saol with respect to this product expired. During December 2022, we submitted a prior approval supplement (“PAS”)
to the FDA for approval to manufacture CYTOGAM at the Beit Kama facility and subject to the results of an FDA audit of our facility,
we expect to receive FDA approval for manufacturing of CYTOGAM and initiate commercial manufacturing of the product by mid-2023. A similar
application to the Canadian health authorities was submitted in January 2023, with approval expected by the third quarter of 2023. Failure
to obtain the required regulatory approvals, in a timely manner, may affect product availability, result in a decrease in sales and a
deterioration in our market position, and could have an adverse effect upon our sales, margins and profitability.
As part of the initiation
of the CYTOGAM technology transfer process, we engaged Prothya Biosolutions Belgium (“Prothya”) as a third-party contract
manufacturer to perform certain manufacturing activities required for the manufacturing of CYTOGAM. In addition, we assumed a plasma
supply agreement with CSL for the continued supply of required plasma for the manufacturing of the product. If we fail to maintain our
relationship with these entities, we could face supply shortages, which could adversely impact our ability to manufacture and supply
CYTOGAM, and could incur increased costs in finding replacement vendors. Delays in establishing a relationship with new vendors could
lead to a decrease in the product’s sales and a deterioration in our market position when compared with one or more of our competitors.
Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
In our Proprietary Products segment, we
rely on Kedrion for the sales of our KEDRAB product in the United States, and any disruption to our relationships with Kedrion would
have an adverse effect on our future results of operations and profitability.
Pursuant to the strategic
distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KEDRAB, Kedrion is
the sole distributor of KEDRAB in the United States. Sales to Kedrion accounted for approximately 13%, 12% and 14% of our total revenues
in the years ended December 31, 2022, 2021 and 2020, respectively. We are dependent on Kedrion for its marketing and sales of KEDRAB
in the United States. The term of the agreement is for six years commencing on the date by which KEDRAB U.S. launch was feasible (i.e.,
until March 2024) and Kedrion has an option to extend the term by two additional years (i.e., until March 2026).
We currently also purchase
from a subsidiary of Kedrion, KedPlasma LLC (“Kedplasma”), a large portion of the hyper-immune plasma which is used for the
production of KEDRAB/KAMRAB. See “—We would become supply-constrained, and our financial performance would suffer if we
were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA,
the EMA, Health Canada or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory
requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”
If we do not maintain the
distribution relationship with Kedrion, we would be required to assume the sales and marketing activities of KEDRAB, or we would need
to engage a replacement distributor for the product in the United States. Further, if we fail to maintain the plasma supply agreement
with KedPlasma we would need to increase supply from other available sources and/or find a replacement supplier of the hyper-immune plasma
which is used to manufacture KEDRAB/ KAMRAB. Establishing a relationship with a new distributor or supplier or internalizing those activities
could lead to a decrease in KEDRAB/ KAMRAB sales and a deterioration in our market share when compared with one or more of our competitors.
Any of the foregoing developments could have an adverse effect upon our sales, margins and profitability.
In our Proprietary Products segment, we
currently earn royalties on GLASSIA sales by Takeda in the United States (and in the future may earn royalties on GLASSIA sales by Takeda
in Canada, Australia and New Zealand, to the extent GLASSIA will be approved for sale and sales will be generated in these other markets),
and any reduction in sales of GLASSIA by Takeda would have an adverse effect on our future expected royalty income and profitability.
Commencing in March 2022,
we are entitled to royalty payments from Takeda on GLASSIA sales in the United States (and in the future we may earn royalties on GLASSIA
sales by Takeda in Canada, Australia and New Zealand, to the extent GLASSIA will be approved and sales will be generated in these other
markets) at a rate of 12% on net sales through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually,
for each of the years from 2022 to 2040. For the period between March and December 2022, we accounted for $12.2 million of sales-based
royalty income from Takeda, and based on forecasted future growth, we project receiving royalties from Takeda in the range of $10 million
to $20 million per year for 2023 to 2040. However, any reduction in sales of GLASSIA by Takeda or should Takeda reduce its manufacturing
and marketing of GLASSIA for any reason (including but not limited to inability to adequately or sufficiently manufacture GLASSIA, regulatory
limitations, difficulties in marketing, reduction in market size, or changes in corporate focus), our future expected royalty income
from Takeda’s sales of GLASSIA would be adversely impacted, which would have an adverse effect on our results of operations and
profitability.
In our Proprietary Products segment, we
rely on Contract Manufacturing Organizations to manufacture some of our products and any disruption to our relationship with such manufacturers
would have an adverse effect on the availability of products, our future results of operations and profitability.
HEPAGAM B, VARIZIG and WINRHO
SDF are currently manufactured by Emergent under a contract manufacturing agreement which was assigned to us from Saol following the
consummation of the acquisition. We are dependent on Emergent to secure the supply of adequate quantities of plasma needed to timely
manufacture these products and we rely on their manufacturing, quality and regulatory systems to ensure the manufacturing process complies
with current Good Manufacturing Practice (“cGMP”) standards and any other regulatory requirements and that each product manufactured
meets its specification and is appropriately released for human consumption.
If we fail to maintain our
relationship with Emergent, or if Emergent fails to operate in compliance with cGMP and other regulatory requirements, we could face
supply shortages and may not be able to supply these products. In addition, such failure may result in increased costs and delays in
transferring the manufacturing of the products to our plant in Beit Kama, Israel, or in finding a replacement manufacturer for these
products and we might be required to identify replacement supplier of the plasma which is used for the production of these products.
Delays in internalizing the production or establishing a relationship with a new manufacturer could lead to a decrease in these products
sales and a deterioration in our market share when compared with one or more of our competitors. Any of the foregoing developments could
have an adverse effect upon our sales, margins and profitability.
We have also engaged Prothya
as a third-party contract manufacturer to perform certain manufacturing activities required for the manufacturing of CYTOGAM. If we fail
to maintain our relationship with Prothya, or if Prothya fails to operate in compliance with cGMP and other regulatory requirements,
we could face supply shortages, which could adversely impact our ability to manufacture and supply CYTOGAM, and could incur increased
costs in finding a replacement manufacturer for this product. Delays in establishing a relationship with a new manufacturer could lead
to a decrease in this product sales and a deterioration in our market share when compared with one or more of our competitors. Any of
the foregoing developments could have an adverse effect upon our sales, margins and profitability.
Certain of our sales in our Proprietary
Products segment rely on our ability to win tender bids based on the price and availability of our products in public tender processes.
Certain of our sales in our
Proprietary Products segment rely on our ability to win tender bids in certain markets, including those of the World Health Organization
(WHO) and other similar health organizations. Our ability to win bids may be materially adversely affected by competitive conditions
in such bid process. Our existing and new competitors may also have significantly greater financial resources than us, which they could
use to promote their products and business. Greater financial resources would also enable our competitors to substantially reduce the
price of their products or services. If our competitors are able to offer prices lower than us, our ability to win tender bids during
the tender process will be materially affected and could reduce our total revenues or decrease our profit margins.
We rely in large part on third parties
for the sale, distribution and delivery of our products, and any disruption to our relationships with these third-party distributors
would have an adverse effect on our future results of operations and profitability.
We engage third party distributors
to distribute and sell our Proprietary Products in ex-U.S. markets (other than the Israeli market), including the recently acquired products
CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. Sales through such distributors accounted for approximately 25%, 17% and 10% of our total
revenues in the years ended December 31, 2022, 2021 and 2020, respectively and we expect such sales to increase in 2023 and beyond. We
are dependent on these third parties for successful marketing, distribution and sales of our products in these markets. If such third
parties were to breach, terminate or otherwise fail to perform under our agreements with them, our ability to effectively distribute
our products would be impaired and our business could be adversely affected. Moreover, circumstances outside of our control such as a
general economic decline, market saturation or increased competition may influence the successful renegotiation of our contracts or the
securing of to us favorable terms.
In addition to distribution
and sales, these third-party distributors are, in some cases, responsible for the regulatory registration of our products in the local
markets in which they operate, as well as responsible for participation in tenders for sale of our products. Failure of these third-party
distributors to obtain and maintain such regulatory approvals and/or win tenders or provide competitive prices to our products may adversely
affect our ability to sell our Proprietary Products in these markets, which in turn will negatively affect our revenues and profitability.
In addition, our inability to sell our Proprietary Products in these markets may reduce our manufacturing plant utilization and effectiveness
and may lead to additional reduction of profitability.
In the U.S. market we utilize
a 3PL provider in connection with the distribution of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, which provides complete order to cash
services. If such 3PL provider were to breach, terminate or otherwise fail to adequately perform under our agreement with it, including
inadequate inventory management, transportation delays and incorrect temperature control during storage and handling, fails to issue
invoices correctly or on a timely basis and/or fails to collect payments due to us from our U.S. customers, our ability to effectively
distribute such products would be impaired, which could negatively impact our business operations and financial performance.
Disputes with distributors
have arisen in the past and disputes may arise in the future that cause the delay or termination of the development, manufacturing, supply
or commercialization of our product candidates, or could result in costly litigation or arbitration that diverts management’s attention
and resources. In May 2022, we terminated a distribution agreement with a third-party engaged to distribute our propriety products in
Russia and Ukraine (the “Distributor”) and a power of attorney granted in connection with such distribution agreement to
an affiliate of the Distributor (the “Affiliate”). In July 2022, the Affiliate filed a request for a conciliation hearing
with the Court in Geneva relying on the terminated power of attorney and seeking damages for the alleged inability to sell the remaining
product inventory previously acquired from the Company and compensation for the lost customer base. The conciliation hearing was scheduled
for March 17, 2023, and, at this time, it is not possible to assess the prospects and scope of any claims against us and any potential
liabilities and impact on our business. See “Item 4. Information on the Company — Legal Proceedings.”
Our Proprietary Products segment operates
in a highly competitive market.
Our Proprietary Products
compete with products distributed by well-established biopharmaceutical companies, including several large competitors in the plasma
industry. These large competitors include CSL Behring Ltd. (“CSL”), Takeda, and Grifols S.A. (“Grifols”), which
acquired a previous competitor, Talecris Biotherapeutics, Inc. (“Talecris”) in 2011, Octapharma, Kedrion (other than for
KEDRAB), Biotest AG and ADMA Biologics Inc. (“ADMA”). We compete against these companies for, among other things, licenses,
expertise, clinical trial patients and investigators, consultants and third-party strategic partners. We also compete with these companies
for market share for certain products in the Proprietary Products segment. Our large competitors have advantages in the market because
of their size, financial resources, markets and the duration of their activities and experience in the relevant market, especially in
the United States and countries of the European Union. As a result, they may be able to devote more funds to research and development
and new production technologies, as well as to the promotion of their products and business. These competitors may also be able to sustain
longer periods of substantial reduction in the price of their products or services. These competitors also have an additional advantage
regarding the availability of raw materials, as they own or control multiple plasma collection centers and/or plasma fractionation facilities.
In addition, our plasma-derived
protein therapeutics face, or may face in the future, competition from existing or newly developed non-plasma products and other courses
of treatments. New treatments, such as antivirals, gene therapies, small molecules, correctors, monoclonal or recombinant products, may
also be developed for indications for which our products are now used.
Our products generally do
not benefit from patent protection and compete against similar products produced by other providers. Additionally, the development by
a competitor of a similar or superior product or increased pricing competition may result in a reduction in our net sales or a decrease
in our profit margins.
Our hyper-immune IgG products in the Proprietary
Products segment face competition from several competing plasma derived products and non-plasma derived pharmaceuticals, mainly anti-viral.
CYTOGAM. To our
knowledge, CYTOGAM is the sole plasma derived CMV IgG product approved for sale in the United States and Canada. Based on available
public information, the FDA approved the following antiviral drugs for the prevention of CMV infection and disease: Letermovir
(Prevymis), developed by Merck & Co., and for treatment of refractory/resistant infection, Maribavir (Livtencity), developed by
Takeda, which may result in the loss of market share for CYTOGAM. Currently, treatment guidelines state that combination therapy
with standard antiviral can be considered for certain solid organ transplant recipients. The most commonly used antivirals are
Ganciclovir (Cytovene-IV Roche) and Valganciclovir (Valcyte Roche). Patients treated with antiviral agents for a long time can
develop resistance and will require a second-line treatment such as Foscarnet (Foscavir Pfizer) or Cidofovir (Gilead Sciences). In
rest of the world (“ROW”) markets, Cytotec CP (Biotest), a plasma derived competing product is available.
KEDRAB/KAMRAB. We
believe that there are two main competitors for KEDRAB/KAMRAB, our anti-rabies products worldwide: Grifols, whose product we estimate
comprises approximately 70% of the anti-rabies IgG market in the United States, and CSL, which sells its anti-rabies product in Europe
and elsewhere. Sanofi Pasteur, the vaccines division of Sanofi S.A., recently exited the U.S anti-rabies IgG market as well as some additional
international markets, however, may still be competing in other markets or in the future could return to exited markets. Bio Products
Laboratories Ltd. (“BPL”), which has an anti-Rabies IgG product for the UK market, has developed it also for the U.S market,
including performing a clinical trial, but to our knowledge the program is currently paused. There are several local producers in other
countries that make anti-rabies IgG products, mostly based on equine serum. Over the past several years, several companies have made
attempts, and some are still in the process of developing monoclonal antibodies for an anti-rabies treatment. These products, if approved,
may be as effective as the currently available plasma derived anti-rabies IgG and may potentially be significantly cheaper, and as such
may result in loss of market share of KEDRAB/KAMRAB.
WINRHO SDF. In the
United States, WINRHO SDF competes with corticosteroids (oral prednisone or high-dose dexamethasone) or intravenous immune globulin (“IVIG”)
(Grifols, CSL and Takeda are the main manufacturers and suppliers in the U.S.) as first line treatment of acute ITP, with IVIG or WINRHO
SDF recommended for pediatric patients in whom corticosteroids are contraindicated. IVIG has similar efficacy to WINRHO SDF, and ITP
is its labeled indication for IVIG. Rhophylac (CSL Behring) is also approved for ITP treatment, but we believe it is mostly used for
Hemolytic Disease of the Newborn (“HDN”), due to its comparatively small vial size. For HDN indication, the market is usually
led by tenders, where key indicators are registration status and price, and the main multiple competitors in Canada and ROW countries
are RhoGAM (Kedrion), Hyper RHO (Grifols) and Rhophylac (CSL Behring) and our KAMRHO (D).
HEPAGAM B. To our
knowledge, in the United States, HEPAGAM B is the only approved HBIG with an on-label indication for Liver Transplants. To our understanding,
HEPAGAM B holds the majority market share for the indication, while another HBIG (Nabi-HB manufactured and supplied by ADMA) is being
used off-label by some medical centers for the indication. In recent years, duration of treatment has been reduced by physicians. New
generation antivirals are considered effective for preventing HBV reactivation post-transplant, hence limiting HBIG use. Post-exposure
prophylaxis (“PEP”) indication in the United States is covered almost totally by Nabi-HB (ADMA) and HyperHEP (Grifols). In
Canada, main competition in national tenders is HyperHEP. In ROW countries such as Turkey, Saudi-Arabia and Israel, HEPATECT and Zutectra
(Biotest AG) represent the primary competition.
VARIZIG. In the United
States, incidence of Varicella Zoster Virus (“VZV”) infection has decreased dramatically since the introduction of the varicella
vaccine in 1995. Two vaccines containing varicella virus are licensed for use in the United States. Varivax is the single-antigen varicella
vaccine. ProQuad is a combination measles, mumps, rubella, and varicella (MMRV) vaccine. Although the use of the vaccine has reduced
the frequency of chickenpox, the virus, has not been eradicated. Moreover, incidence of Herpes Zoster, also caused by VZV, is increasing
among adults in the United States. Suboptimal vaccination rates contribute to outbreaks and increased risk of VZV exposure. Immunocompromised
population and other patient groups are at high risk for severe varicella and complications, after being exposed to VZV. In the United
States market VARIZIG is the single FDA-approved product and recommended by the Centers for Disease Control (“CDC”) for post-exposure
prophylaxis of varicella for persons at high risk for severe disease who lack evidence of immunity to varicella. Alternative, CDC recommendations
include IVIG if VARIZIG is unavailable and some experts recommend using Acyclovir, Valacyclovir, although published data on the benefits
of acyclovir as post-exposure prophylaxis among immunocompromised people is limited. In ROW markets, several plasma derived competitor
products are available, such as VARITECT (Biotest) and others.
KAMRHO (D). We manufacture
and market KAMRHO (D) for HDN in a few markets outside of the US, mainly in Russia, Israel, Argentina and Brazil. Kedrion is one of our
competitors for KAMRHO(D) in some of those international markets. We believe there are currently two additional main suppliers of competitive
products, Grifols and CSL. There are also local producers in other countries that make similar products mostly intended for local markets.
Our market share of the AAT product could
be negatively impacted by new competitors or adoption of new methods of administration.
We believe that our two main
competitors in the AAT market are Grifols and CSL. We estimate that Grifols’ AAT by infusion product for the treatment of AATD,
Prolastin A1PI, accounts for at least 50% market share in the United States and more than 70% of sales in the worldwide market for the
treatment of AATD, which also includes sales of Prolastin in different European countries. To the best of our knowledge, since 2018,
Grifols sell Prolastin Liquid, a ready-to-infuse solution of AAT, in the United States. Apart from its sales through Talecris’
historical business, Grifols is also a local producer of the product in the Spanish market and operates in Brazil. CSL’s intravenous
AAT product, Zemaira, is mainly sold in the United States. In 2015, CSL’s intravenous AAT product, Respreeza, was granted centralized
marketing authorization in Europe and CSL has launched the product in a few European countries since 2016. There is another, smaller
local producer in the French market, LFB S.A. In addition, we estimate that each of Grifols and CSL owns more than 300 operating plasma
collection centers located across the United States.
Several of our competitors
are conducting preclinical and clinical trials for the development of gene therapy, recombinant AAT, small molecule treatment or correctors
for AATD. While these products are not yet in pivotal trial or in late stages of development, they may eventually be successfully developed
and launched, and could adversely impact our revenue and growth of sales of GLASSIA or GLASSIA-related royalties as well as affect our
ability to launch our Inhaled AAT product, if approved.
Similarly, if a new AAT formulation
or a new route of administration with significantly improved characteristics is adopted (including, for example, aerosol inhalation),
the market share of our current AAT product, GLASSIA, could be negatively impacted. While we are in the process of developing Inhaled
AAT for AATD, our competitors may also be attempting to develop similar products. For example, several of our competitors may have completed
early-stage clinical trials for the development of an inhaled formulation of AAT for different indications. While these products are
in the early stages of development, they may eventually be successfully developed and launched. Furthermore, even if we are able to commercialize
Inhaled AAT for AATD prior to the development of comparable products by our competitors, sales of Inhaled AAT for AATD, subject to approval
of such product by the applicable regulatory authorities, could adversely impact our revenue and growth of sales of GLASSIA or GLASSIA
-related royalties.
Our products involve biological intermediates
that are susceptible to contamination and the handling of such intermediates and our final products throughout the supply chain and manufacturing
process requires cold-chain handling, all of which could adversely affect our operating results.
Plasma and its derivatives
are raw materials that are susceptible to damage and contamination and may contain microorganisms that cause diseases in humans, commonly
known as human pathogens, any of which would render such materials unsuitable as raw material for further manufacturing. Almost immediately
after collection from a donor, plasma and plasma derivatives must be stored and transported at temperatures that are at least -20 degrees
Celsius (-4 degrees Fahrenheit). Improper storage or transportation of plasma or plasma derivatives by us or third-party suppliers may
require us to destroy some of our raw material. In addition, plasma and plasma derivatives are also suitable for use only for certain
periods of time once removed from storage. If unsuitable plasma or plasma derivatives are not identified and discarded prior to release
to our manufacturing processes, it may be necessary to discard intermediate or finished products made from such plasma or plasma derivatives,
or to recall any finished product released to the market, resulting in a charge to cost of goods sold and harm to our brand and reputation.
Furthermore, if we distribute plasma-derived protein therapeutics that are produced from unsuitable plasma because we have not detected
contaminants or impurities, we could be subject to product liability claims and our reputation would be adversely affected.
Despite overlapping safeguards,
including the screening of donors and other steps to remove or inactivate viruses and other infectious disease-causing agents, the risk
of transmissible disease through plasma-derived protein therapeutics cannot be entirely eliminated. If a new infectious disease was to
emerge in the human population, the regulatory and public health authorities could impose precautions to limit the transmission of the
disease that would impair our ability to manufacture our products. Such precautionary measures could be taken before there is conclusive
medical or scientific evidence that a disease poses a risk for plasma-derived protein therapeutics. In recent years, new testing and
viral inactivation methods have been developed that more effectively detect and inactivate infectious viruses in collected plasma. There
can be no assurance, however, that such new testing and inactivation methods will adequately screen for, and inactivate, infectious agents
in the plasma or plasma derivatives used in the production of our plasma-derived protein therapeutics. Additionally, this could trigger
the need for changes in our existing inactivation and production methods, including the administration of new detection tests, which
could result in delays in production until the new methods are in place, as well as increased costs that may not be readily passed on
to our customers.
Plasma and plasma derivatives
can also become contaminated through the manufacturing process itself, such as through our failure to identify and purify contaminants
through our manufacturing process or failure to maintain a high level of sterility within our manufacturing facilities.
Once we have manufactured
our plasma-derived therapeutics, they must be handled carefully and kept at appropriate temperatures. Our failure, or the failure of
third parties that supply, ship, store or distribute our products, to properly care for our plasma-derived products, may result in the
requirement that such products be destroyed.
While we expect work-in-process
inventories scraps in the ordinary course of business because of the complex nature of plasma and plasma derivatives, our processes and
our plasma-derived therapeutics, unanticipated events may lead to write-offs and other costs in amounts materially higher than our expectations.
We have, in the past, experienced situations that have caused us to write-off the value of inventories. Such write-offs and other costs
could materially adversely affect our operating results. Furthermore, contamination of our plasma-derived protein therapeutics could
cause consumers or other third parties with whom we conduct business to lose confidence in the reliability of our manufacturing procedures,
which could materially adversely affect our sales and operating results.
Our ability to continue manufacturing and
distributing our plasma-derived therapeutics depends on continued adherence by us and contract manufacturers to current Good Manufacturing
Practice regulations.
The manufacturing processes
for our products are governed by detailed written procedures and regulations that are set forth in cGMP requirements for blood products,
including plasma and plasma derivative products. Failure to adhere to established procedures or regulations, or to meet a specification
set forth in cGMP requirements, could require that a product or material be rejected and destroyed. There are relatively few opportunities
for us or contract manufacturers to rework, reprocess or salvage nonconforming materials or products. Any failure in cGMP inspection
will affect marketing in other territories, including the U.S. and Israel.
The adherence by us and our
contract manufacturers to cGMP regulations and the effectiveness of applicable quality control systems are periodically assessed through
inspections of the manufacturing facility, including our manufacturing facility in Beit Kama, Israel, by the FDA, the IMOH and regulatory
authorities of other countries. Such inspections could result in deficiency citations, which would require us or our contract manufacturers
to take action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If serious deficiencies are
noted or if we or our contract manufacturers are unable to prevent recurrences, we may have to recall products or suspend operations
until appropriate measures can be implemented. The FDA could also stop the import of products into the United States if there are potential
deficiencies. Such deficiencies may also affect our ability to obtain government contracts in the future. We are required to report certain
deviations from procedures to the FDA. Even if we determine that the deviations were not material, the FDA could require us or our contract
manufacturers to take certain measures to address the deviations. Since cGMP reflects ever-evolving standards, we regularly need to update
our manufacturing processes and procedures to comply with cGMP. These changes may cause us to incur additional costs and may adversely
impact our profitability. For example, more sensitive testing assays (if and when they become available) may be required or existing
procedures or processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing
of a product or launch of a new product.
We may face manufacturing stoppages and
other challenges associated with audits or inspections by regulatory bodies.
The regulatory authorities
may, at any time and from time to time, audit the facilities in which the product is manufactured. If any such inspection or audit of
our facilities identifies a failure to comply with applicable regulations, or if a violation of our product specifications or applicable
regulations occurs independently of such an inspection or audit, the relevant regulatory authority may require remedial measures that
may be costly or time consuming for us to implement and that may include the temporary or permanent suspension of commercial sales or
the temporary or permanent closure of a facility. Any such remedial measures imposed upon us with whom we contract could materially harm
our business.
Manufacturing of new plasma-derived products
in our manufacturing facility requires a lengthy and challenging development project and/or technology transfer project as well as regulatory
approvals, all of which may not materialize.
The manufacturing of newly
marketed or investigational plasma-derived products in our plant, including our Proprietary Products currently manufactured by third
parties, requires a lengthy and challenging development project and/or technology transfer project through which we transfer the know-how
and capabilities to manufacture the new product. Such projects are usually complex and involve investment of significant time (approximately
three to four years) and resources. There is no assurance that such development and/or technology transfer projects will be successful
and will allow us to manufacture the new product according to its required specifications.
Such development and/or technology
transfer projects require regulatory approval by the FDA and/or EMA and/or Health Canada or other relevant regulatory agencies. Obtaining
such regulatory approval may require activities such as the manufacturing of comparable batches and/or performing comparability non-clinical
and/or clinical studies between the product manufactured by its existing manufacturer and the product manufactured at our manufacturing
facility. There is no assurance that we will be able to provide supporting comparability results that meet all regulatory requirements
needed to obtain the regulatory approval required to be able to commence commercial manufacturing of new plasma-derived products in our
manufacturing plant.
If we are unable to adequately
complete the required development and/or technology transfer projects or subsequently obtain the required regulatory approvals, we will
not be able to meet commercial demand, utilize the excess capacity of our manufacturing plant, incur additional costs and may suffer
reduced profitability or operating losses.
We would become supply-constrained and
our financial performance would suffer if we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty
ancillary products that meet the regulatory requirement of the FDA, EMA, Health Canada or the regulatory authorities in Israel, or if
our suppliers were to fail to modify their operations to meet regulatory requirements or if prices of the source plasma or plasma derivatives
were to raise significantly.
Our proprietary products
depend on our access to U.S., European or other territories’ hyper-immune plasma or plasma derivatives, such as fraction IV. We
purchase these plasma products from third-party licensed suppliers, some of which are also responsible for the plasma fractionation process,
pursuant to multiple purchase agreements. We have entered into (and with respect to the recently acquired four FDA approved products,
we assumed) a number of plasma supply agreements with various third parties in the United States and Europe. These agreements contain
various termination provisions, including upon a material breach of either party, force majeure and, with respect to supply agreements
with strategic partners, the failure or delay on the part of either party to obtain the applicable regulatory approvals or the termination
of the principal strategic relationship. If we are unable to obtain adequate quantities of source plasma or fraction IV plasma that meet
the regulatory requirements of the FDA, the EMA or the regulatory authorities in Israel from these providers, we may be unable to find
an alternative cost-effective source.
In order for plasma and fraction
IV plasma to be used in the manufacturing of our plasma-derived protein therapeutics, the individual centers at which the plasma is collected
must be registered with and meet the regulatory requirements of the relevant regulatory authorities, such as the FDA and EMA. When a
new plasma collection center is opened, and on an ongoing basis after its registration, it must be inspected by the FDA, the EMA or the
regulatory authorities in Israel for compliance with cGMP and other regulatory requirements. An unsatisfactory inspection could prevent
a new center from being established or lead to the suspension or revocation of an existing registration. If relevant regulatory authorities
determine that a plasma collection center did not comply with cGMP in collecting plasma, we may be unable to use and may ultimately destroy
plasma collected from that center, which may impact on our ability to timely meet our manufacturing and supply obligations. Additionally,
if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant plasma from
other sources, entire plasma pools, in-process intermediate materials and final products could be impacted, such as through product destruction
or rework. Consequently, we could experience significant inventory impairment provisions and write-offs, which could adversely affect
our business and financial results.
In addition, the plasma supplier’s
fractionation process must also meet standards of the FDA, the EMA or the regulatory authorities in Israel. If a plasma supplier is unable
to meet such standards, we will not be able to use the plasma derivatives provided by such supplier, which may impact on our ability
to timely meet our manufacturing and supply obligations.
If we were unable to obtain
adequate quantities of source plasma or plasma derivatives that meet the regulatory standards of the FDA, the EMA or the regulatory authorities
in Israel, we would be limited in our ability to maintain or increase current manufacturing levels of our plasma derivative products,
as well as in our ability to conduct the research required to maintain our product pipeline. As a result, we could experience a substantial
decrease in total revenues or profit margins, a potential breach of distribution agreements, a loss of customers, a negative effect on
our reputation as a reliable supplier of plasma derivative products or a substantial delay in our production and strategic growth plans.
The ability to increase plasma
collections may be limited, our supply of plasma and plasma derivatives could be disrupted or the cost of plasma and plasma derivatives
could increase substantially, as a result of numerous factors, including a reduction in the donor pool, increased regulatory requirements,
decreased number of plasma supply sources due to consolidation and new indications for plasma-derived protein therapeutics, which could
increase demand for plasma and plasma derivatives and lead to shortages.
The plasma collection process
is dependent on donors arriving in plasma collection centers and agreeing to donate plasma. Factors such as changes in reimbursement
rates, competition for donors, and declining donor loyalty may lead to a decrease in the number of donors, which may negatively impact
our ability to obtain adequate quantities of plasma. During major healthcare events, such as the recent COVID-19 pandemic, the number
of donors attending plasma collection centers decreases, which may adversely affect the availability of plasma and its derivatives. A
significant shortage in plasma supply may adversely affect our ability to continue manufacturing our products, may result in shortages
in our products in the market, and may result in reduced sales and profitability.
We are also dependent on
a number of suppliers who supply specialty ancillary products used in the production process, such as specific gels and filters. Each
of these specialty ancillary products is provided by a single, exclusive supplier. If these suppliers were unable to provide us with
these specialty ancillary products, if our relationships with these suppliers deteriorate, if these suppliers fail to meet our vendors
qualification processes, or these suppliers’ operations are negatively affected by regulatory enforcement due to noncompliance,
the manufacture and distribution of our products would be materially adversely affected, which would adversely affect our sales and results
of operations. See “—If we experience equipment difficulties or if the suppliers of our equipment or disposable goods
fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales
could suffer.”
Some of our required specialty
ancillary products and other materials used in the manufacturing process are commonly used in the healthcare industry world-wide. If
the global demand for these products increases due to healthcare issues, epidemics or pandemics, such as the coronavirus (COVID-19) pandemic,
our ability to secure adequate supply at reasonable cost of such products may be negatively affected, which would materially adversely
affect our ability to manufacture and distribute our products, which would adversely affect our sales and results of operations.
In addition, regulatory requirements,
including cGMP regulations, continually evolve. Failure of our plasma suppliers to adjust their operations to conform to new standards
as established and interpreted by applicable regulatory authorities would create a compliance risk that could impair our ability to sustain
normal operations.
In addition, if the purchase
prices of the source plasma or plasma derivatives that we use to manufacture our proprietary products were to rise significantly, we
may not be able to pass along these increased plasma and plasma-derivative prices to our customers. Prices in many of our principal markets
are subject to local regulation and certain pharmaceutical products, such as plasma-derived protein therapeutics, are subject to price
controls. Any inability to pass costs on to our customers due to these factors or others would reduce our profit margins. In addition,
most of our competitors have the ability to collect their own source plasma or produce their own plasma derivatives, and therefore their
products’ prices would not be impacted by such a price rise, and as a result any pricing changes by us in order to pass higher
costs on to our customers could render our products noncompetitive in certain territories.
Disruption of the operations of our current
or any future plasma collection center due to regulatory impediments or otherwise would cause us to become supply constrained and our
financial performance would suffer.
In March 2021, we completed
the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont,
Texas, which currently specializes in the collection of hyper-immune plasma used in the manufacture KAMRHO(D). We are in the process
of significantly expanding our hyperimmune plasma collection capacity in this center. We registered the collection of hyper-immune plasma
to be used in the manufacture of KEDRAB with the FDA and plan to start collections of such plasma during 2023. We also intend to leverage
our experience with plasma collection to establish additional plasma collection centers in the United States, with the intention of collecting
normal source plasma, as well as hyper-immune specialty plasma required for manufacturing of our Proprietary Products. To that end, during
March 2023, we entered into a lease for a new plasma collection center in Uvalde, Houston, Texas and expect to commence operations at
the new center following the completion of its construction and obtaining the required regulatory approvals.
In order for plasma to be
used in the manufacturing of our products, the individual centers at which the plasma is collected must be registered with and meet the
regulatory requirements of the regulatory authorities, such as the FDA and the EMA, of those countries in which we sell our products.
When a new plasma collection center is opened, it must be inspected on an ongoing basis after its approval by the FDA and the EMA for
compliance with cGMP and other regulatory requirements, and these regulatory requirements are subject to change. An unsatisfactory inspection
could prevent a new center from being established or risk the suspension or revocation of an existing registration. In order for a plasma
collection center to maintain its governmental registration, its operations must continue to conform to cGMP and other regulatory requirements
or recommendations which may be applicable from time to time (e.g., in January 2022, the FDA issued guidance providing recommendations
to blood establishments on collection of convalescent plasma during the public health emergency).
If it would be determined
that our plasma collection center did not comply with cGMP, or other regulatory requirements in collecting plasma, we may be unable to
use and may ultimately be required to destroy plasma collected from that center, which would be recorded as a charge to cost of goods.
Additionally, if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant
plasma from other sources, entire plasma pools, in-process intermediate materials and final products could be impacted. Consequently,
we could experience significant inventory impairment provisions and write-offs if it was determined that our plasma collection center
did not comply with cGMP in collecting plasma.
We plan to increase our supplies
of plasma for use in our manufacturing processes through collections at our existing plasma collection center and through the establishment
of new plasma collection centers. This strategy is dependent upon our ability to successfully establish and register new centers, to
maintain compliance with all FDA and other regulatory requirements in all centers and to attract donors to our centers.
Our ability to increase and
improve the efficiency of plasma collection at our current or any future plasma collection center may be affected by: (i) changes in
the economic environment and population in selected regions where we operate plasma collection centers; (ii) the entry of competitive
centers into regions where we operate; (iii) our misjudging the demographic potential of individual regions where we expect to increase
production and attract new donors; (iv) unexpected facility related challenges; (v) unexpected management challenges at select plasma
collection centers; or (vi) changes to regulatory requirements.
The biologic properties of plasma and plasma
derivatives are variable, which may impact our ability to consistently manufacture our products in accordance with the approved specifications.
While our manufacturing processes
were developed to meet certain product specifications, variations in the biologic properties of the plasma or plasma derivatives as well
as the manufacturing processes themselves may result in out of specification results during the manufacturing of our products. While
we expect certain work-in-process inventories scraps in the ordinary course of business because of the complex nature of plasma and plasma
derivatives, our processes and our plasma-derived protein therapeutics, unanticipated events may lead to write-offs and other costs in
amounts that are materially higher than our expectations. We have, in the past, experienced situations that have caused us to write-off
the value of our products. Such write-offs and other costs could materially adversely affect our operating results.
The biologic properties of plasma and plasma
derivatives are variable, which may adversely impact our levels of product yield from our plasma or plasma derivative supply.
Due to the nature of plasma,
there will be variations in the biologic properties of the plasma or plasma derivatives we purchase that may result in fluctuations in
the obtainable yield of desired fractions, even if cGMP is followed. Lower yields may limit production of our plasma-derived protein
therapeutics because of capacity constraints. If these batches of plasma with lower yields impact production for extended periods, we
may not be able to fulfill orders on a timely basis and the total capacity of product that we are able to market could decline and our
cost of goods sold could increase, thus reducing our profitability.
Usage of our products may lead to serious
and unexpected side effects, which could materially adversely affect our business and may, among other factors, lead to our products
being recalled and our reputation being harmed, resulting in an adverse effect on our operating results.
The use of our plasma-derived
protein therapeutics may produce undesirable side effects or adverse reactions or events. For the most part, these side effects are known,
are expected to occur at some frequency and are described in the products’ labeling. Known side effects of several plasma-derived
therapeutics include headache, nausea and additional common protein infusion related events, such as flu-like symptoms, dizziness and
hypertension. The occurrence of known side effects on a large scale could adversely affect our reputation and public image, and hence
also our operating results.
In addition, the use of our
plasma-derived protein therapeutics may be associated with serious and unexpected side effects, or with less serious reactions at a greater
than expected frequency. This may be especially true when our products are used in critically ill patient populations. When these unexpected
events are reported to us, we typically make a thorough investigation to determine causality and implications for product safety. These
events must also be specifically reported to the applicable regulatory authorities, and in some cases, also to the public by media channels.
If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with one of our products,
we would be obligated to withdraw the impacted lot or lots of that product or, in certain cases, to withdraw the product entirely. Furthermore,
it is possible that an unexpected side effect caused by a product could be recognized only after extensive use of the product, which
could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation.
We are subject to several existing laws
and regulations in multiple jurisdictions, non-compliance with which could adversely affect our business, financial condition and results
of operations, and we are susceptible to a changing regulatory environment, which could increase our compliance costs or reduce profit
margins.
Any new product must undergo
lengthy and rigorous testing and other extensive, costly, and time-consuming procedures mandated by the FDA and similar authorities in
other jurisdictions, including the EMA and the regulatory authorities in Israel. Our facilities and those of our contract manufacturers
must be approved and licensed prior to production and remain subject to inspection from time to time thereafter. Failure to comply with
the requirements of the FDA or similar authorities in other jurisdictions, including a failed inspection or a failure in our reporting
system for adverse effects of our products experienced by the users of our products, or any other non-compliance, could result in warning
letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or
criminal sanctions, import or export restrictions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions
on operations or withdrawal of existing approvals and licenses. Furthermore, we may experience delays or additional costs in obtaining
new approvals or licenses, or extensions of existing approvals and licenses, from a regulatory authority due to reasons that are beyond
our control such as changes in regulations or a shutdown of the U.S. federal government, including the FDA, or similar governing bodies
or authorities in other jurisdictions. In addition, while we recently entered the U.S. plasma collection market with our recent acquisition
of a plasma collection center in the United States, we continue to rely on, Kedrion, CSL, Emergent, Takeda and additional plasma suppliers,
for plasma collection required for the manufacturing of KEDRAB, CYTOGAM, HEPGAM B, VARIZIG, WINRHO SDF, GLASSIA and other Proprietary
products, and in the case of Kedrion and Takeda, for the distribution of these products in the United States (and in the case of Takeda,
also potentially in Canada, Australia and New Zealand). In performing such services for us, these plasma suppliers are required to comply
with certain regulatory requirements. Any failure by these plasma suppliers to properly advise us regarding, or properly perform tasks
related to, regulatory compliance requirements, could adversely affect us. Any of these actions could cause direct liabilities, a loss
in our ability to market each of KEDRAB, CYTOGAM, HEPGAM B, VARIZIG,WINRHO SDF, GLASSIA and/or other Proprietary products, or a loss
of customer confidence in us or in GLASSIA and/or KEDRAB and/or other Proprietary products, which could materially adversely affect our
sales, future revenues, reputation, and results of operations. Similarly, we rely on other third-party vendors, for example, in
the testing, handling, and distributions of our products. If any of these companies incur enforcement action from regulatory authorities
due to noncompliance, this could negatively affect product sales, our reputation and results of operations. In addition, we rely on other
distributors of our other proprietary products, for purposes of our distribution related regulatory compliance for the products they
distribute in the territories in which they operate. Any failure by such distributors to properly advise us regarding, or properly perform
tasks related to, regulatory compliance requirements, could adversely affect our sales, future revenues, reputation and results of operations.
Changes in our production
processes for our products may require supplemental submissions or prior approval by FDA and/or similar authorities in other jurisdictions.
Failure to comply with any requirements as to production process changes dictated by the FDA or similar authorities in other jurisdictions
could also result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution
of products, civil or criminal sanctions, refusal or delay of a regulatory authority to grant approvals or licenses, restrictions on
operations or withdrawal of existing approvals and licenses.
Pursuant to the amendment
to the GLASSIA license agreement with Takeda, entered into in March 2021, we agreed to transfer the BLA to Takeda. Following the effectiveness
of such transfer, we will rely on Takeda to share with us any relevant information with respect to changes in the manufacturing of the
product or its usage which may be applicable in order to update the products registration file in certain ROW markets in which it is
currently registered and/or distributed or may be registered and/or distributed in the future.
In addition, changes in the
regulation of our activities, such as increased regulation affecting quality or safety requirements or new regulations such as limitations
on the prices charged to customers in the United States, Israel or other jurisdictions in which we operate, could materially adversely
affect our business. In addition, the requirements of different jurisdictions in which we operate may become less uniform, creating a
greater administrative burden and generating additional compliance costs, which would have a material adverse effect on our profit margins.
See also – “Regulatory approval for our products is limited by the FDA, EMA, the IMOH and similar authorities in other
jurisdictions to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, and the prescription
or promotion of off-label uses could adversely affect our business.”; and “—Laws and regulations governing the
conduct of international operations may negatively impact our development, manufacture, and sale of products outside of the United States
and require us to develop and implement costly compliance programs.” and “—Uncertainty surrounding and future
changes to healthcare law in the United States and other United States Government related mandates may adversely affect our business.”
If we experience equipment difficulties
or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing
ability would be impaired, and our product sales could suffer.
For certain equipment and
supplies, we depend on a limited number of companies that supply and maintain our equipment and provide supplies such as chromatography
resins, filter media, glass bottles and stoppers used in the manufacture of our plasma-derived protein therapeutics. If our equipment
were to malfunction, or if our suppliers stop manufacturing or supplying such machinery, equipment or any key component parts, the repair
or replacement of the machinery may require substantial time and cost and could disrupt our production and other operations. Alternative
sources for key component parts or disposable goods may not be immediately available. In addition, any new equipment or change in supplied
materials may require revalidation by us or review and approval by the FDA, the EMA, the IMOH or other regulatory authorities, which
may be time-consuming and require additional capital and other resources. We may not be able to find an adequate alternative supplier
in a reasonable time period, or on commercially acceptable terms, if at all. As a result, shipments of affected products may be limited
or delayed. Our inability to obtain our key source supplies for the manufacture of products may require us to delay shipments of products,
harm customer relationships and force us to curtail operations.
We have been required to conduct post-approval
clinical trials of GLASSIA and KEDRAB as a commitment to continuing marketing such products in the United States, and we may be required
to conduct post-approval clinical trials as a condition to licensing or distributing other products.
When a new product is approved,
the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase 4 clinical trials. For example,
the FDA has required that we conduct Phase 4 clinical trials of GLASSIA and for KEDRAB. Such Phase 4 clinical trials are aimed at collecting
additional safety data, such as the immune response in the body of a human or animal, commonly referred to as immunogenicity, viral transmission,
levels of the protein in the lung, or epithelial lining fluid, and certain efficacy endpoints requested by the FDA. If the results of
such trials are unfavorable and demonstrate a previously undetected risk or provide new information that puts patients at risk, or if
we fail to complete such trials as instructed by the FDA, this could result in receiving a warning letter from the FDA and the loss of
the approval to market the product in the United States and other countries, or the imposition of restrictions, such as additional labeling,
with a resulting loss of sales. Furthermore, there can be no assurance that the FDA will accept the results of any post-marketing commitment
study, such as the results of the KEDRAB study, and under certain circumstances the FDA may require a subsequent study. Other products
we develop may face similar requirements, which would require additional resources and which may not be successful. We may also receive
approval that is conditioned on successful additional data or clinical development, and failure in such further development may require
similar changes to our product label or result in revocation of our marketing authorization.
The nature of producing and developing
plasma-derived protein therapeutics may prevent us from responding in a timely manner to market forces and effectively managing our production
capacity.
The production of plasma-derived
protein therapeutics is a lengthy and complex process. Our ability to match our production of plasma-derived protein therapeutics to
market demand is imprecise and may result in a failure to meet the market demand for our plasma-derived protein therapeutics or potentially
in an oversupply of inventory. Failure to meet market demand for our plasma-derived protein therapeutics may result in customers transitioning
to available competitive products, resulting in a loss of segment share or distributor or customer confidence. In the event of an oversupply
in the market, we may be forced to lower the prices we charge for some of our plasma-derived protein therapeutics, record asset impairment
charges or take other action which may adversely affect our business, financial condition and results of operations.
Risks Related to Our Distribution Segment
Our Distribution segment is dependent on
a few suppliers, and any disruption to our relationship with these suppliers, or their inability to supply us with the products we sell,
in a timely manner, in adequate quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial
condition and results of operations.
Sales of products supplied
by Biotest A.G., Kedrion, Chiesi Farmaceutici S.p.A, BPL and Valneva SE, which are sold in our Distribution segment, together represented
approximately 20%, 26% and 24% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively. While we have
distribution agreements with each of our suppliers, these agreements do not obligate these suppliers to provide us with minimum amounts
of our Distribution segment products. Purchases of our Distribution segment products from our suppliers are typically on a purchase order
basis. We work closely with our suppliers to develop annual forecasts, but these forecasts are not obligations or commitments. However,
if we fail to submit purchase orders that meet our annual forecasts or if we fail to meet our minimum purchase obligations, we could
lose exclusivity or, in certain cases, the distribution agreement could be terminated.
These suppliers may experience
capacity constraints that result in their being unable to supply us with products in a timely manner, in adequate quantities and/or at
a reasonable cost. Contributing factors to supplier capacity constraints may include, among other things, industry or customer demands
in excess of machine capacity, labor shortages, changes in raw material flows or shortages in raw materials which may result from different
market conditions including, but not limited to, shortages resulting from increased global demand for these raw materials due to global
healthcare issues, epidemics and pandemics, such as the COVID-19 pandemic. These suppliers may also choose not to supply us with products
at their discretion or raise prices to a level that would render our products noncompetitive. Any significant interruption in the supply
of these products could result in us being unable to meet the demands of our customers, which would have a material adverse effect on
our business, financial condition and results of operations as a result of being required to pay of fines or penalties, be subject to
claims of reach of contract, loss of reputation or even termination of agreement.
If our relationship with
either distributor deteriorated, our distribution sales could be adversely affected. If we fail to maintain our existing relationships
with these suppliers, we could face significant costs in finding a replacement supplier, and delays in establishing a relationship with
a new supplier could lead to a decrease in our sales and a deterioration in our market share when compared with one or more of our competitors.
Additionally, our future
growth in the Distribution segment is dependent on our ability to successfully engage other manufacturers for distribution in Israel
of other products. Failure to engage new suppliers may have an adverse effect on our revenue growth and profitability.
Certain of our sales in our Distribution
segment rely on our ability to win tender bids based on the price and availability of our products in annual public tender processes.
Certain of our sales in our
Distribution segment rely on our ability to win tender bids during the annual tender process in Israel, as well as on sales made to Health
Maintenance Organizations (HMOs), hospitals and to the IMOH. Our ability to win bids may be materially adversely affected by competitive
conditions in such bid process. Our existing and new competitors may also have significantly greater financial resources than us, which
they could use to promote their products and business. Greater financial resources would also enable our competitors to substantially
reduce the price of their products or services. If our competitors are able to offer prices lower than us, our ability to win tender
bids during the annual tender process will be materially affected and could reduce our total revenues or decrease our profit margins.
Certain of our products in
both segments have historically been subject to price fluctuations as a result of changes in the production capacity available in the
industry, the availability and pricing of plasma, development of competing products and the availability of alternative therapies. Higher
prices for plasma-derived protein therapeutics have traditionally spurred increases in plasma production and collection capacity, resulting
over time in increased product supply and lower prices. As demand continues to grow, if plasma supply and manufacturing capacity do not
commensurately expand, prices tend to increase. Additionally, consolidation in plasma companies has led to a decrease in the number of
plasma suppliers in the world, as either manufacturers of plasma-based pharmaceuticals purchase plasma suppliers or plasma suppliers
are shut down in response to the number of manufacturers of plasma-based pharmaceuticals decreasing, which may lead to increased prices.
We may not be able to pass along these increased plasma and plasma-derivative prices to our customers, which would reduce our profit
margins.
Sales of our Distribution
segment products are made through public tenders of Israeli hospitals and HMOs on an annual basis or in the private market based on detailing
activity made by our medical representatives. The prices we can offer, as well as the availability of products, are key factors in the
tender process. If our suppliers in the Distribution segment cannot sell us products at a competitive price or cannot guarantee sufficient
quantities of products, we may lose the tenders.
Our Distribution segment is dependent on
a few customers, and any disruption to our relationship with these customers, or our inability to supply, in a timely manner, in adequate
quantities and/or at a reasonable cost, would have a material adverse effect on our business, financial condition and results of operations.
The Israeli market for drug
products includes a relatively small number of HMOs and several hospitals. Sales to Clalit Health Services, an Israeli HMO, accounted
for approximately 46%, 42% and 41% of our Distribution segment revenues in the years ended December 31, 2022, 2021 and 2020, respectively.
If our relationship with
any of our Israeli customers deteriorated, our distribution sales could be adversely affected. Failure to maintain our existing relationships
with these customers could lead to a decrease in our revenues and profitability.
Before we may sell products in the Distribution
segment, we must register the products with the IMOH and there can be no assurance that such registration will be obtained.
Before we may sell products
in the Distribution segment in Israel, we must register the products, at our own expense, with the IMOH. We cannot predict how long the
registration process of the IMOH may take or whether any such registration ultimately will be obtained. The IMOH has substantial discretion
in the registration process and we can provide no assurance of success of registration. Our business, financial condition or results
of operations could be materially adversely affected if we fail to receive IMOH registration for the products in the Distribution segment.
Our Distribution segment is a low-margin
business and our profit margins may be sensitive to various factors, some of which are outside of our control.
Our Distribution segment
is characterized by high volume sales with relatively low profit margins. Volatility in our pricing may have a direct impact on our profitability.
Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent
we are unable to pass on all or a portion of such product cost increases to our customers. In addition, if our product mix changes, we
may face increased risks of compression of our margins, as we may be unable to achieve the same level of profit margins as we are able
to capture on our existing products. Our inability to effectively price our products or to reduce our expenses due to volatility in pricing
could have a material adverse impact on our business, financial condition or results of operations.
We may be subject to milestone payments
in connection with our Distribution segment products irrespective of whether the commercialization is successful.
Certain of our agreements
in the Distribution segment, including agreements for distribution of biosimilar product candidates, require us to make milestone payments
in advance of product launch. In some cases, we may not be able to obtain reimbursement for such payments. To the extent that we are
not ultimately able to recoup these payments, our business, financial position and results of operations may be adversely affected.
We face significant competition in our
Distribution segment from companies with greater financial resources.
In the Distribution segment,
we face competition for our distribution products that are marketed in Israel and compete for market share. We believe that there are
several companies active in the Israeli market distributing the products of several manufacturers whose comparable products compete with
the products we distribute as part of our Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda and CSL.
In other specialties and biosimilar products, we compete with products produced by some of the largest pharmaceutical manufacturers in
the world, such as, Novartis AG, AstraZeneca AB, Sanofi and GlaxoSmithKline. Each of these competitors sells its products through a local
subsidiary or a local representative in Israel. Our existing and new competitors may have significantly greater financial resources than
us, which they could use to promote their products and business or reduce the price of their products or services. If we are unable to
maintain or increase our market share, we may need to reduce prices and may suffer reduced profitability or operating losses, which could
have a material adverse impact on our business, financial condition or results of operations.
We recently entered into agreements for
future distribution in Israel of several biosimilar product candidates, and the successful future distribution of these products is dependent
upon several factors some of which are beyond our control.
Over the past several years
we entered into agreements with respect to planned distribution in Israel of certain biosimilar product candidates. Biosimilar products
are highly similar to biological products already licensed for distribution by the FDA, EMA or any other relevant regulatory agency,
notwithstanding minor differences in clinically inactive components, and that they have no clinically meaningful differences, as compared
to the marketed biological products in terms of the safety, purity and potency of the products. The similar nature of a biosimilar and
a reference product is demonstrated by comprehensive comparability studies covering quality, biological activity, safety and efficacy.
In order to launch biosimilar
products in Israel we would need to obtain IMOH marketing authorization, which will be subject to prior authorization to be obtained
by the manufacturer of the biosimilar product from the FDA or the EMA. Even if an FDA or EMA authorization is provided, there can be
no assurance that the IMOH will accept such authorization as a reference and will grant us the authorization to distribute such biosimilar
products in the Israeli market. In the event we will not be able to obtain the necessary marking authorization to launch the products,
we may not generate the expected sale and profitability from these products, which could have a material adverse impact on our business,
financial condition or results of operations. Delays in the commercialization of such biosimilar products, including due to delays in
obtaining marketing authorization, may expose us to increased competition, such as due to the entry of new competitors into the market,
which may adversely impact our potential sales and profitability from these products.
Innovative pharmaceutical
products are generally protected for a defined period by various patents (including those covering drug substance, drug product, approved
indications, methods of administration, methods of manufacturing, formulations and dosages) and/or regulatory exclusivity, which are
intended to provide their holders with exclusive rights to market the products for the life of the patent or duration of the regulatory
data protection period. Biosimilar products are intended to replace such innovative pharmaceutical upon the expiration or termination
of their exclusivity period or in such markets whereby such exclusivity does not exist. The launch of a biosimilar product may potentially
result in the infringement of certain IP rights and exclusivity and be subject to potential legal proceedings and restraining orders
effecting its potential launch. Such intellectual property threats may preclude commercialization of such biosimilar product candidates,
may result in incurring significant legal expenses and liabilities and we may not generate the expected sale and profitability from these
products, which could have a material adverse impact on our business, financial condition or results of operations.
In addition, the commercialization
of biosimilars includes the potential for steeper than anticipated price erosion due to increased competitive intensity, and lower uptake
for biosimilars due to various factors that may vary for different biosimilars (e.g., anti-competitive practices, physician reluctance
to prescribe biosimilars for existing patients taking the originator product, or misaligned financial incentives), all of which may affect
our potential sales and profitability from these products which could have a material adverse impact on our business, financial condition
or results of operations.
Risks Related to Development, Regulatory Approval
and Commercialization of Product Candidates
Drug product development including preclinical
and clinical trials is a lengthy and expensive process and may not result in receipt of regulatory approval.
Before obtaining regulatory
approval for the sale of our product candidates, including Inhaled AAT for AATD, or for the marketing of existing products for new indications,
we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical
trials to demonstrate the safety and efficacy of our product candidates in humans. We cannot predict how long the approval processes
of the FDA, the EMA, the regulatory authorities in Israel or any other applicable regulatory authority or agency for any of our product
candidates will take or whether any such approvals ultimately will be granted. The FDA, the EMA, the regulatory authorities in Israel
and other regulatory agencies have substantial discretion in the relevant drug approval process over which they have authority, and positive
results in preclinical testing or early phases of clinical studies offer no assurance of success in later phases of the approval process.
The approval process varies from country to country and the requirements governing the conduct of clinical trials, product manufacturing,
product licensing, pricing and reimbursement vary greatly from country to country.
Preclinical and clinical
testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure
of one or more of our clinical trials can occur at any stage of testing. For example, the Phase 2/3 clinical trial in Europe for Inhaled
AAT for AATD did not meet its primary or secondary endpoints and we subsequently withdrew the Marketing Authorization Application (“MAA”)
in Europe for our Inhaled AAT for AATD.
As a result of the COVID-19 pandemic we
encountered delays in patient recruitment into our pivotal Phase 3 InnovAAT clinical study conducted at a first study site in Europe
and it impacted our ability to open additional study sites in the United States and Europe. COVID-19 may in the future affect our ability
to conduct the study.
During December 2019, we
announced that the first patient was randomized in Europe into our pivotal Phase 3 InnovAATe clinical trial, a randomized, double-blind,
placebo-controlled, pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with AATD and moderate
lung disease. Under the study design, up to 220 patients will be randomized 1:1 to receive either Inhaled AAT at a dose of 80mg once
daily, or placebo, over two years of treatment. Enrolment into the trial continued through February 2020, however, thereafter was temporarily
halted due to the impact of COVID-19 pandemic on healthcare systems. Although during 2022, we resumed and accelerated patient recruitment
to the study and expanded the study to additional sites across Europe, the COVID-19 pandemic may continue to slow down the rate of recruitment,
and may cause a material delay in completing this study, or otherwise may require us to halt the study completely or reduce the overall
size of the study, which might not be acceptable by the FDA and/or EMA. These circumstances may affect our ability to complete the study
successfully or may prevent us from having sufficient information to file for and obtain regulatory approval for this product by the
FDA, EMA or any other relevant regulatory agency.
Each inhaled formulation of AAT, including
Inhaled AAT for AATD, is being developed with a specific nebulizer produced by PARI, and the occurrence of an adverse market event or
PARI’s non-compliance with its obligations would have a material adverse effect on the commercialization of any inhaled formulation
of AAT.
We are dependent upon PARI
GmbH (“PARI”) for the development and commercialization of any inhaled formulation of AAT, including our Inhaled AAT for
AATD. We have an agreement with PARI, pursuant to which it is required to obtain the appropriate clearance to market PARI’s proprietary
eFlow® device, which is a device required for the administration of inhaled formulation of AAT, from the EMA and FDA for use with
Inhaled AAT for AATD. See “Item 4. Information on the Company — Strategic Partnerships — PARI.” Failure
of PARI to achieve these authorizations, or to maintain operations in regulatory compliance, will have a material adverse effect on the
commercialization of any inhaled formulation of AAT, including Inhaled AAT for AATD, which would harm our growth strategy.
Additionally, pursuant to
the agreement, PARI is obligated to manufacture and supply all of the market demand for the eFlow device for use in conjunction with
any inhaled formulation of AAT and we are required to purchase all of our volume requirements from PARI. Any event that permanently,
or for an extended period, prevents PARI from supplying the required quantity of devices would have an adverse effect on the commercialization
of any inhaled formulation of AAT, including Inhaled AAT for AATD.
Lastly, we rely on PARI to
ensure that the eFlow device is not violating or infringing on any third party intellectual property or patents. PARI’s inability
to ensure its freedom to operate may have a significant effect on our ability to continue the development of our Inhaled AAT product
candidate as well as potentially commercializing it.
We rely on third parties to conduct our
preclinical and clinical trials. The failure of these third parties to successfully carry out their contractual duties or meet expected
deadlines could substantially harm our business because we may not obtain regulatory approval for, or commercialize, our product candidates
in a timely manner or at all.
We rely upon third-party
contractors, such as university researchers, study sites, physicians and contract research organizations (“CROs”), to conduct,
monitor and manage data for our current and future preclinical and clinical programs. We expect to continue to rely on these parties
for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible
for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards,
and our reliance on such third-party contractors does not relieve us of our regulatory responsibilities. With respect to clinical trials,
we and our CROs are required to comply with current Good Clinical Practices (“GCP”), which are regulations and guidelines
enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory
authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of
our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA
or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical
trials comply with GCP requirements.
These third-party contractors
are not our employees, we cannot effectively control whether or not they devote sufficient time and resources to our ongoing clinical,
nonclinical and preclinical programs, and except for remedies available to us under our agreements with such third-party contractors,
we may be unable to recover losses that result from any inadequate work on such programs. If such third-party contractors do not successfully
carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our development efforts
and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize
our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed,
our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify
and manage the performance of such third-party contractors in the future, our business may be adversely affected.
We have initiated the development of a
recombinant AAT product candidate; however, any continued development of this product will be dependent on our ability to attract a suitable
development/commercialization partner for this project, and we may not be able to successfully complete its development or commercialize
such product candidate for numerous reasons.
During 2020, we initiated
the development of a recombinant version of AAT, through external services of a contract development and manufacturing organization (“CDMO”).
See “Item 4. Information on the Company — Our Development Product Pipeline — Recombinant AAT.”. The main
advantage of recombinant AAT is its potentially wider availability, and ease of large-scale manufacturing. However, continued investment
in the development of this product will be subject to identifying a suitable development and commercialization partner, and we may not
be able to identify such a suitable partner or be successful in entering into an agreement with any particular partner on acceptable
terms or at all. Further, even if we are successful in entering into an arrangement with such a partner, we may not be able to successfully
develop or commercialize a recombinant product for numerous reasons.
We may encounter unforeseen events that
delay or prevent us from receiving regulatory approval for our product candidates.
We have experienced unforeseen
events that have delayed our ability to receive regulatory approval for certain of our product candidates, and may in the future experience
similar or other unforeseen events during, or as a result of, preclinical testing or the clinical trial process that could delay or prevent
our ability to receive regulatory approval or commercialize our product candidates, including the following:
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delays may occur in obtaining our clinical materials; |
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our preclinical tests or clinical trials may produce negative or inconclusive
results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or to abandon
strategic projects; |
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the number of patients required for our clinical trials may be larger
than we anticipate, enrollment in our clinical trials may be slower or more difficult than we anticipate (due to various reasons
including challenges that may be imposed as a result of events outside our control, such as the COVID-19 pandemic which resulted
in a significant slow-down in patient recruitment to our on-going Inhaled AAT Phase 3 study), or participants may withdraw from our
clinical trials at higher rates than we anticipate; |
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delays may occur in reaching agreement on acceptable clinical trial
agreement terms with prospective sites or obtaining institutional review board approval; |
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our strategic partners may not achieve their clinical development goals
and/or comply with their relevant regulatory requirements, which could affect our ability to conduct our clinical trials or obtain
marketing authorization; |
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we may be forced to suspend or terminate our clinical trials if the
participants are being exposed to unacceptable health risks or if any participant experiences an unexpected serious adverse event; |
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regulators or institutional review boards may require that we hold,
suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; |
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regulators may not authorize us to commence or conduct a clinical trial
within a country or at a prospective trial site, or according to the clinical trial outline we propose; |
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undetected or concealed fraudulent activity by a clinical researcher,
if discovered, could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive
scientific review of one or more of our marketing applications by regulatory agencies, and result in the recall of any approved product
distributed pursuant to data determined to be fraudulent; |
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the cost of our clinical and preclinical trials may be greater than
we anticipate; |
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an audit of preclinical tests or clinical studies by the FDA, the EMA,
the regulatory authorities in Israel or other regulatory authorities may reveal noncompliance with applicable regulations, which
could lead to disqualification of the results of such studies and the need to perform additional tests and studies; and |
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our product candidates may not achieve the desired clinical benefits,
or may cause undesirable side effects, or the product candidates may have other unexpected characteristics. |
If we are required to conduct
additional clinical trials or other testing of our product candidates beyond those that we contemplate, if we are unable to successfully
complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive
or if safety concerns arise, we may:
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be delayed in obtaining regulatory or marketing approval for our product
candidates; |
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be unable to obtain regulatory and marketing approval; |
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decide to halt the clinical trial or other testing; |
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be required to conduct additional trials under a conditional approval; |
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be unable to obtain reimbursement for our products in all or some countries; |
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only obtain approval for indications that are not as broad as we initially
intend; |
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have the product removed from the market after obtaining marketing
approval from the FDA, the EMA, the regulatory authorities in Israel or other regulatory authorities; and |
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be delayed in, or prevented from, the receipt of clinical milestone
payments from our strategic partners. |
Our ability to enroll patients
in our clinical trials in sufficient numbers and on a timely basis is subject to several factors, including the size of the patient population,
the time of year during which the clinical trial is commenced, the hesitance of certain patients to leave their current standard of care
for a new treatment, and the number of other ongoing clinical trials competing for patients in the same indication and eligibility criteria
for the clinical trial. For example, during 2020 and 2021, we encountered challenges to recruit patients to our ongoing pivotal Phase
3 InnovAAT clinical study as a result of the COVID-19 pandemic, resulting in significant delays in recruitment. In addition, patients
may drop out of our clinical trials at any point, which could impair the validity or statistical significance of the trials. Delays in
patient enrollment or unexpected drop-out rates may result in longer development times.
Our product development costs
will also increase if we experience delays in testing or approvals. There can be no assurance that any preclinical test or clinical trial
will begin as planned, not need to be restructured or be completed on schedule, if at all. Because we generally apply for patent protection
for our product candidates during the development stage, significant preclinical or clinical trial delays also could lead to a shorter
patent protection period during which we may have the exclusive right to commercialize our product candidates, if approved, or could
allow our competitors to bring products to market before we do, impairing our ability to commercialize our products or product candidates.
For example, in the past, we have experienced delays in the commencement of clinical trials, such as a delay in patient enrollment (including
as a result of the COVID-19 pandemic) for our clinical trials in Europe and the United States for Inhaled AAT for AATD.
Pre-clinical studies, including
studies of our product candidates in animal models of disease, may not accurately predict the result of human clinical trials of those
product candidates. In addition, product candidates studied in Phase 1 and 2 clinical trials may be found not to be safe and/or efficacious
when studied further in Phase 3 trials. To satisfy FDA or other applicable regulatory approval standards for the commercial sale of our
product candidates, we must demonstrate in adequate and controlled clinical trials that our product candidates are safe and effective.
Success in early clinical trials, including Phase 1 and 2 trials, does not ensure that later clinical trials will be successful. Initial
results from Phase 1 and 2 clinical trials also may not be confirmed by later analysis or subsequent larger clinical trials. A number
of companies in the pharmaceutical industry, including us, have suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier clinical trials.
We may not be able to commercialize our
product candidates in development for numerous reasons.
Even if preclinical and clinical
trials are successful, we still may be unable to commercialize a product because of difficulties in obtaining regulatory approval for
its production process or problems in scaling that process to commercial production. In addition, the regulatory requirements for product
approval may not be explicit, may evolve over time and may diverge among jurisdictions and our third-party contractors, such as CROs,
may fail to comply with regulatory requirements or meet their contractual obligations to us.
Even if we are successful
in our development and regulatory strategies, we cannot provide assurance that any product candidates we may seek to develop or
are currently developing, such as Inhaled AAT for AATD, will ever be successfully commercialized. We may not be able to successfully
address patient needs, persuade physicians and payors of the benefit of our product, and lead to usage and reimbursement. If such products
are not eventually commercialized, the significant expense and lack of associated revenue could materially adversely affect our business.
We may not be able to successfully
build and implement a commercial organization or commercialization program, with or without collaborating partners. The scale-up from
research and development to commercialization requires significant time, resources, and expertise, which will rely, to a large extent,
on third parties for assistance to help us in our efforts. Such assistance includes, but is not limited to, persuading physicians and
payors of the benefit of our product to lead to utilization and reimbursement, developing a healthcare compliance program, and complying
with post-marketing regulatory requirements.
Research and development efforts invested
in our pipeline of specialty and other products may not achieve expected results.
We must invest increasingly
significant resources to develop specialty products through our own efforts and through collaborations with third parties in the form
of partnerships or otherwise. The development of specialty pharmaceutical products involves high-level processes and expertise and carries
a significant risk of failure. For example, the average time from the pre-clinical phase to the commercial launch of a specialty pharmaceutical
product can be 15 years or longer, and involves multiple stages: not only intensive preclinical, clinical and post clinical testing,
but also highly complex, lengthy, and expensive regulatory approval processes as well as reimbursement proceedings, which can vary from
country to country. The longer it takes to develop a pharmaceutical product, the longer it may take for us to recover our development
costs and generate profits, and, depending on various factors, we may not be able to ever recover such costs or generate profits.
During each stage of development,
we may encounter obstacles that delay the development process and increase expenses, leading to significant risks that we will not achieve
our goals and may be forced to abandon a potential product in which we have invested substantial amounts of time and money. These obstacles
may include the following: preclinical-study failures; difficulty in enrolling patients in clinical trials; delays in completing formulation
and other work needed to support an application for approval; adverse reactions or other safety concerns arising during clinical testing;
insufficient clinical trial data to support the safety or efficacy of a product candidate; other failures to obtain, or delays in obtaining,
the required regulatory approvals for a product candidate or the facilities in which a product candidate is manufactured; regulatory
restrictions which may delay or block market penetration and the failure to obtain sufficient intellectual property rights for our products.
Accordingly, there can be
no assurance that the continued development of our Inhaled AAT and any other product candidate will be successful and will result in
an FDA and/or EMA approvable indication.
Because of the amount of
time and expense required to be invested in augmenting our pipeline of specialty and other products, including the unique know-how which
may be required for such purpose, we may seek partnerships or joint ventures with third parties from time to time, and consequently face
the risk that some or all of these third parties may fail to perform their obligations, or that the resulting arrangement may fail to
produce the levels of success that we are relying on to meet our revenue and profit goals.
We may not obtain orphan drug status for
our products, or we may lose orphan drug designations, which would have a material adverse effect on our business.
One of the incentives provided
by an orphan drug designation is market exclusivity for seven years in the United States and ten years in the European Union for the
first product in a class approved for the treatment of a rare disease. Although several of our products and product candidates, including
Inhaled AAT for AATD, have been granted the designation of an orphan drug, we may not be the first product licensed for the treatment
of particular rare diseases in the future or our approved indication may vary from that subject to the orphan designation, or our products
may not secure orphan drug exclusivity for other reasons. In such cases we would not be able to take advantage of market exclusivity
and instead another sponsor would receive such exclusivity.
Additionally, although the
marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication,
such exclusivity would not apply in the case that a subsequent sponsor could demonstrate clinical superiority or a market shortage occurs
and would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of
drugs for the same use as the orphan drug. In the event we are unable to fill demand for any orphan drug, it is possible that the FDA
or the EMA may view such unmet demand as a market shortage, which could impact our market exclusivity.
The FDA and the EMA may also,
in the future, revisit any orphan drug designation that they have respectively conferred upon a drug and retain the ability to withdraw
the relevant designation at any time. Additionally, the U.S. Congress has considered, and may consider in the future, legislation that
would restrict the duration or scope of the market exclusivity of an orphan drug, and, thus, we cannot be sure that the benefits to us
of the existing statute in the United States will remain in effect. Furthermore, some court decisions have raised questions about FDA’s
interpretation of the orphan drug exclusivity provisions, which could potentially affect our ability to secure orphan drug exclusivity.
If we lose our orphan drug
designations or fail to obtain such designations for our new products and product candidates, our ability to successfully market our
products could be significantly affected, resulting in a material adverse effect on our business and results of operations.
The commercial success of the products
that we may develop, if any, will depend upon the degree of market acceptance by physicians, patients, healthcare payors, opinion leaders,
patients’ organizations, and others in the medical community that any such product obtains.
Any products that we bring
to the market may not gain market acceptance by physicians, patients, healthcare payors, opinion leaders, patients’ organizations
and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product
revenue and we may not sustain profitability. The degree of market acceptance of our product candidates, if approved for commercial sale,
will depend on a number of factors, some of which are beyond our control, including:
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the prevalence and severity of any side effects; |
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the efficacy, potential advantages and timing of introduction to the
market of alternative treatments; |
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our ability to offer our product candidates for sale at competitive
prices; |
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relative convenience and ease of administration of our products; |
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the willingness of physicians to prescribe our products; |
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the willingness of patients to use our products; |
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the strength of marketing and distribution support; and |
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third-party coverage or reimbursement. |
If we are not successful
in achieving market acceptance for any new products that we have developed and that have been approved for commercial sale, we may be
unable to recover the large investment we will have made and have committed ourselves to making in research and development efforts and
our growth strategy will be adversely affected.
In addition, the proposal
of or issuance of recommendations by government agencies, physician or patient organizations, or other industry specialists that limit
the use or acceptance of a particular product, whether adopted or not, could result in reduced sales of a product.
Risks Related to Our Operations and Industry
Regulatory approval for our products is
limited by the FDA, EMA, the IMOH and similar authorities in other jurisdictions to those specific indications and conditions for which
clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely affect our business.
Any regulatory approval of
our Proprietary and Distribution products is limited to those specific diseases and indications for which our products have been deemed
safe and effective by the FDA, EMA, the IMOH or similar authorities in other jurisdictions. In addition to the regulatory approval required
for new formulations, any new indication for an approved product also requires regulatory approval. Once we produce a plasma-derived
therapeutic, we rely on physicians to prescribe and administer it as the product label directs and for the indications described on the
labeling. To the extent any off-label (i.e., unapproved) uses and departures from the approved administration directions become pervasive
and produce results such as reduced efficacy or other reported adverse effects, the reputation of our products in the marketplace may
suffer. In addition, to the extent off-label uses are associated with reduced efficacy or increases in reported adverse events, there
could be a decline in our revenues or potential revenues. Furthermore, the off-label use of our products may increase the risk of product
liability claims, which are expensive to defend and could divert our management’s attention, result in substantial damage awards
against us, and harm our reputation.
Furthermore, while physicians
may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved
by regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the
FDA, EMA, the IMOH or other regulators. Although regulatory authorities generally do not regulate the behavior of physicians, they do
restrict communications by manufacturers on the subject of off-label use. If our promotional activities fail to comply with these regulations
or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow FDA, EMA,
the IMOH or similar authorities in other jurisdictions rules and guidelines relating to promotion and advertising can lead to other negative
consequences that could hurt us, such as the suspension or withdrawal of an approved product from the market, enforcement letters, restrictions
on marketing or manufacturing, injunctions and corrective actions. Other regulatory authorities may separately impose penalties including,
but not limited to, fines, disgorgement of money, suspension of ongoing clinical trials, refusal to approve pending applications or supplements
to approved applications submitted by us; restrictions on our or our contract manufacturers’ operations; product seizure or detention,
refusal to permit the import or export of products or criminal prosecution.
Regulatory inspections or audits conducted
by regulatory bodies and our partners may lead to monetary losses and inability to adequately manufacture or sell our products.
The regulatory authorities,
including the FDA, EMA, the IMOH, as well as our partners may, at any time and from time to time, audit or inspect our facilities. Such
audits or inspections may lead to disruption of work, and if we fail to pass such audits or inspections, the relevant regulatory authority
or partner may require remedial measures that may be costly or time consuming for us to implement and may result in the temporary or
permanent suspension of the manufacture, sale and distribution of our products.
Laws and regulations governing the conduct
of international operations may negatively impact our development, manufacture, and sale of products outside of the United States and
require us to develop and implement costly compliance programs.
We must comply with numerous
laws and regulations in Israel and in each of the other jurisdictions in which we operate or plan to operate. The creation and implementation
of any required compliance programs is costly, and the programs are often difficult to enforce, particularly where we must rely on third
parties.
For example, the U.S. Foreign
Corrupt Practices Act (“FCPA”) prohibits any U.S. individual or business from paying, offering, authorizing payment or offering
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act
or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also requires
companies whose securities are listed in the United States to comply with certain accounting provisions. For example, such companies
must maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries,
and devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions
of the FCPA are enforced primarily by the U.S. Department of Justice, and the U.S. Securities and Exchange Commission (the “SEC”)
is involved with enforcement of the books and records provisions of the FCPA.
Compliance with the FCPA
and similar laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the
FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government,
and doctors and other hospital employees are considered as foreign officials. Additionally, pharmaceutical products are usually marketed
by the local distributors through government tenders, and the majority of pharmaceutical companies’ clients are HMOs which are
foreign government officials under the FCPA. Certain payments to hospitals in connection with clinical trials and other work, and certain
payments to HMOs have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
The failure to comply with
laws governing international business practices may result in substantial penalties, including suspension or debarment from government
contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to
suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the
FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as
a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative
impact on our operations and harm our reputation and ability to procure government contracts. Additionally, the SEC also may suspend
or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
If our manufacturing facility in Beit Kama,
Israel were to suffer a serious accident, contamination, force majeure event (including, but not limited to, a war, terrorist attack,
earthquake, major fire or explosion etc.) materially affecting our ability to operate and produce saleable plasma-derived protein therapeutics,
all of our manufacturing capacity could be shut down for an extended period.
We rely on a single manufacturing
facility in Beit Kama, which is located in southern Israel, approximately 20 miles east of the Gaza Strip. A significant part of our
revenues in our Proprietary Products segment were derived, and are expected to continue to be derived from products manufactured at this
facility and some of the products that are imported by us under our Distribution segment, are packed and stored in this manufacturing
facility. If this facility were to suffer an accident or a force majeure event such as war, terrorist attack, earthquake, major fire
or explosion, major equipment failure or power failure lasting beyond the capabilities of our backup generators or similar event, or
contamination, our revenues would be materially adversely affected. In this situation, our manufacturing capacity could be shut down
for an extended period, we could experience a loss of raw materials, work in process or finished goods and imported products inventory
and our ability to operate our business would be harmed. In addition, in any such event, the reconstruction of our manufacturing facility
and storage facilities, and the regulatory approval of the new facilities could be time-consuming. During this period, we would be unable
to manufacture our plasma-derived protein therapeutics.
Our insurance against property
damage and business interruption insurance may be insufficient to mitigate the losses from any such accident or force majeure event.
We may also be unable to recover the value of the lost plasma or work-in-process inventories, as well as the sales opportunities from
the products we would be unable to produce or distribute, or the loss of customers during such period.
If our shipping or distribution channels
were to become inaccessible due to an accident, act of terrorism, strike, epidemic or pandemic (such as the COVID-19 pandemic) or any
other force majeure event, our supply, production and distribution processes could be disrupted.
Most of our Proprietary and
Distribution products as well as most of the raw materials we utilize, including plasma and plasma derivatives, must be transported under
controlled temperature conditions, including temperature of -20 degrees Celsius (-4 degrees Fahrenheit), to ensure the preservation of
their proteins. Not all shipping or distribution channels are equipped to transport products or materials at these temperatures. If any
of our shipping or distribution channels become inaccessible because of a serious accident, act of terrorism, strike, epidemic or pandemic
(such as the COVID-19 pandemic) or any other force majeure event, we may experience disruptions in continued availability of plasma and
other raw materials, delays in our production process or a reduction in our ability to distribute our Proprietary and Distribution products
to our customers in the markets in which we operate.
Failure to maintain the security of protected
health information or compliance with security requirements could damage our reputation with customers, cause us to incur substantial
additional costs and become subject to litigation.
Pursuant to applicable privacy
laws, we must comply with comprehensive privacy and security standards with respect to the use and disclosure of protected health information
and other personal information. If we do not comply with existing or new laws and regulations related to protecting privacy and security
of personal or health information, we could be subject to litigation costs and damages, monetary fines, civil penalties, or criminal
sanctions. We may be required to comply with the data privacy and security laws of other countries in which we operate or from which
we receive data transfers.
For example, the General
Data Protection Regulation (“GDPR”) which took effect May 25, 2018, has broad application and enhanced penalties for noncompliance.
The GDPR, which is wide-ranging in scope, governs the collection and use of personal data in the European Union and imposes operational
requirements for companies that receive or process personal data of residents of the European Union. The GDPR may apply to our clinical
development operations. In addition, the Israeli Privacy Protection Regulations (Information Security), 2017, which apply to our operations
in Israel, require us to take certain security measures to secure the processing of personal data. Furthermore, U.S. federal and state
regulators continue to adopt new, or modify existing laws and regulations addressing data privacy and the collection, processing, storage,
transfer and use of data, including the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and implementing
regulations (“HIPAA”). These privacy, security and data protection laws and regulations could impose increased business operational
costs, require changes to our business, require notification to customers or workers of a security breach, or restrict our use or storage
of personal information. Our efforts to implement programs and controls that comply with applicable data protection requirements are
likely to impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in our practices
in response to new requirements or interpretations of the requirements, could have a material adverse effect on our business.
We rely upon our CROs, third
party contractors and distributors to process personal information on our behalf, and we control only certain aspects of their activities.
Nevertheless, we are responsible for ensuring that their activities are conducted in accordance with privacy regulations and our reliance
on such CROs, third-party contractors and distributors does not relieve us of our regulatory responsibilities. While we take reasonable
and prudent steps to protect personal and health information and use such information in accordance with applicable privacy laws, a compromise
in our security systems that results in personal information being obtained by unauthorized persons or our failure to comply with security
requirements for financial transactions could adversely affect our reputation with our clients and result in litigation against us or
the imposition of penalties, all of which may adversely impact our results of operations, financial condition and liquidity. In addition,
given that the privacy laws and regulations in the jurisdictions in which we operate are new and subject to further judicial review and
interpretation, it may be determined at a future time that although we take prudent measures to comply with such laws and regulations,
such measures will not be sufficient to meet future elaborations or interpretations of such laws and regulations.
If we are unable to successfully introduce
new products and indications or fail to keep pace with advances in technology, our business, financial condition, and results of operations
may be adversely affected.
Our continued growth depends,
to a certain extent, on our ability to develop and obtain regulatory approvals of new products, new enhancements and/or new indications
for our products and product candidates. Obtaining regulatory approval in any jurisdiction, including from the FDA, EMA or any other
relevant regulatory agencies involves significant uncertainty and may be time consuming and require significant expenditures. See
“—Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.”
The development of innovative
products and technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness, involve
significant technical and business risks. The success of new product offerings will depend on many factors, including our ability to
properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely basis, demonstrate
satisfactory clinical results, manufacture products in an economic and timely manner, engage qualified distributors for different territories
and establish our sales force to sell our products, and differentiate our products from those of our competitors. If we cannot successfully
introduce new products, adapt to changing technologies or anticipate changes in our current and potential customers’ requirements,
our products may become obsolete and our business could suffer.
Product liability claims or product recalls
involving our products, or products we distribute, could have a material adverse effect on our business.
Our business exposes us to
the risk of product liability claims that are inherent in the manufacturing, distribution and sale of our Proprietary and Distribution
products and other drug products. We face an inherent risk of product liability exposure related to the testing of our product candidates
in human clinical trials and an even greater risk when we commercially sell any products, including those manufactured by others that
we distribute in Israel. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries,
or if the indemnities we have negotiated do not adequately cover losses, we could incur substantial liabilities. Regardless of merit
or eventual outcome, liability claims may result in:
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decreased demand for our Proprietary and Distribution products and
any product candidates that we may develop; |
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injury to our reputation; |
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difficulties in recruitment of new participants to our future clinical
trials and withdrawal of current clinical trial participants; |
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costs to defend the related litigation; |
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substantial monetary awards to trial participants or patients; |
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difficulties in finding distributors for our products; |
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difficulties in entering into strategic partnerships with third parties; |
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diversion of management’s attention; |
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the inability to commercialize any products that we may develop; and |
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higher insurance premiums. |
Plasma is biological matter
that is capable of transmitting viruses, infections and pathogens, whether known or unknown. Therefore, plasma derivative products, if
not properly tested, inactivated, processed, manufactured, stored and transported, could cause serious disease and possibly death to
the patient. Further, even when such steps are properly affected, viral and other infections may escape detection using current testing
methods and may not be susceptible to inactivation methods. Any transmission of disease through the use of one of our products or third-party
products sold by us could result in claims against us by or on behalf of persons allegedly infected by such products.
In addition, we sell and
distribute third-party products in Israel, and the laws of Israel could also expose us to product liability claims for those products.
Furthermore, the presence of a defect (or a suspicion of a defect) in a product could require us to carry out a recall of such product.
A product liability claim or a product recall could result in substantial financial losses, negative reputational repercussions, loss
of business and an inability to retain customers. Although we maintain insurance for certain types of losses, claims made against our
insurance policies could exceed our limits of coverage or be outside our scope of coverage. Additionally, as product liability insurance
is expensive and can be difficult to obtain, a product liability claim could increase our required premiums or otherwise decrease our
access to product liability insurance on acceptable terms. In turn, we may not be able to maintain insurance coverage at a reasonable
cost and may not be able to obtain insurance coverage that will be adequate to satisfy liabilities that may arise.
Uncertainty surrounding and future changes
to healthcare law in the United States and other United States Government related mandates may adversely affect our business.
In the U.S. and in some foreign
jurisdictions there has been, and continues to be, significant legislative and regulatory changes and proposed changes regarding the
healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities,
and affect the profitable sale of product candidates. This legislation and regulatory activity have created uncertainty as to whether
the industry will continue to experience fundamental change as a result of regulatory reform or legislative reform. There is significant
interest among legislators and regulators in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. In the United States, for example, the pharmaceutical industry has been a particular focus
of these efforts and has been significantly affected and continues to face major uncertainty due to the status of legislative initiatives
surrounding healthcare reform. The Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Reconciliation
Act of 2010, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected
the pharmaceutical and healthcare industries. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed
into law. The IRA includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the
federal government. Implementation of novel and seminal provisions in the IRA related to prescription drug pricing and spending will
continue over the next several years and could impact our operations and could have an adverse impact on our ability to generate revenues
in the United States.
In the coming years, additional
changes could be made to U.S. governmental healthcare programs and U.S. healthcare laws that could significantly impact the success of
our products.
In addition, individual states
have enacted drug price transparency laws that may impact our decision-making about price increases, including the rate and frequency
of such increases. The requirements under these laws vary state-by-state and include obligating manufacturers to provide advance notice
of planned price increases, increase amounts and factors considered for those amounts, wholesale acquisition costs, as well as additional
information for new drugs. Many states may impose penalties for noncompliance with these requirements, including for failure to report
or submission of inaccurate or late reports.
We cannot predict what other
legislation relating to our business or to the health care industry may be enacted, or what effect such legislation or other regulatory
actions may have on our business, prospects, operating results and financial condition.
The COVID-19 pandemic shined
a spotlight on the supply chain for essential medical products, medical countermeasures, and critical inputs to those products and raised
legislative and regulatory interest in creating more resiliency in the supply chain, including more domestic manufacturing of essential
medical products, medical countermeasures, and critical inputs. There has been significant congressional interest in oversight of pharmaceutical
supply chain resiliency as well as a number of legislative proposals to create incentives for domestic manufacturing. There has also
been significant executive branch activity to encourage American manufacturing, which may impact FDA-related products. We expect there
will continue to be legislative and regulatory efforts to increase domestic manufacturing, including potentially efforts to expedite
drug approvals for products that could be competitors to ours, and we cannot predict what effect such legislation or regulatory actions
may have on our business, prospects, operating results and financial condition.
Our products and any future approved products
remain subject to extensive ongoing regulatory obligations and oversight, including post-approval requirements, that could result in
penalties and significant additional expenses and could negatively impact our and our collaborators' ability to commercialize our current
and any future approved products.
Any product that has received
regulatory approval remains subject to extensive ongoing obligations and continued review from applicable regulatory agencies. These
obligations include, among other things, drug safety reporting and surveillance, submission of other post-marketing information and reports,
pre-clearance of certain promotional materials, manufacturing processes and practices, product labeling, confirmatory or post-approval
clinical research, import and export requirements and record keeping. These obligations may result in significant expense and limit our
ability to commercialize our current and any future approved products. Any violation of ongoing regulatory obligations could result in
restrictions on the applicable product, including the withdrawal of the applicable product from the market.
If FDA approval is granted
via the accelerated approval pathway or a product receives conditional marketing authorization from another comparable regulatory agency,
we may be required to conduct a post-marketing confirmatory trial in support of full approval and to comply with other additional requirements.
An unsuccessful post-marketing study or failure to complete such a study with due diligence could result in the withdrawal of marketing
approval. Post-marketing studies may also suggest unfavorable safety information that could require us to update the product's prescribing
information or limit or prevent the product's widespread use. Recent legislation has given the FDA additional authority to require accountability
and enforce the post-marketing requirements and commitments associated with accelerated approval.
We and the manufacturers
of our current and any future approved products are also required, or will be required, to comply with cGMP, regulations, which include
requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation.
Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products and product
candidates, and these facilities are subject to ongoing regulatory inspections. In addition, any approved product, its manufacturer and
the manufacturer's facilities are subject to continual regulatory review and inspections, including periodic unannounced inspections.
Failure to comply with applicable FDA and other regulatory requirements may subject us to administrative or judicially imposed sanctions
and other consequences, including:
| ● | issuance
of Form FDA 483 notices or Warning Letters by the FDA or other regulatory agencies; |
| ● | imposition
of fines and other civil penalties; |
| ● | injunctions,
suspensions or revocations of regulatory approvals; |
| ● | suspension
of any ongoing clinical trials; |
| ● | total
or partial suspension of manufacturing; |
| ● | delays
in regulatory approvals and commercialization; |
| ● | refusal
by the FDA to approve pending applications or supplements to approved applications submitted
by us; |
| ● | refusals
to permit drugs to be imported into or exported from the United States; |
| ● | restrictions
on operations, including costly new manufacturing requirements; |
| ● | product
recalls or seizures or withdrawal of the affected product from the market; and |
The policies of the FDA and
other regulatory agencies may change and additional laws and regulations may be enacted that could prevent or delay regulatory approval
of our product candidates or of our products in any additional indications or territories, or further restrict or regulate post-approval
activities. Any problems with a product or any violation of ongoing regulatory obligations could result in restrictions on the applicable
product, including the withdrawal of the applicable product from the market. If we are not able to maintain regulatory compliance, we
might not be permitted to commercialize our current or any future approved products and our business would suffer.
Laws pertaining to health care fraud and
abuse could materially adversely affect our business, financial condition and results of operations.
The laws governing our conduct
in the United States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the Federal False Claims
Act (the “FCA”), the Physician Payments Sunshine Act or a provision of the U.S. Social Security Act known as the “federal
Anti-Kickback Statute,” or any regulations promulgated under their authority may result in jail sentences, fines or exclusion from
federal and state health care programs, as may be determined by the Department of Health and Human Services, the Department of Defense,
other federal and state regulatory authorities and the federal and state courts. There can be no assurance that our activities will not
come under the scrutiny of regulators and other government authorities or that our practices will not be found to violate applicable
laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws.
For example, under the federal
Anti-Kickback Statute, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume
incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, can result
in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs, if those business arrangements
are not appropriately structured. Also, a person or company need not have actual knowledge of statute or specific intent to violate certain
such laws in order to have committed a violation. Therefore, our arrangements with potential referral sources must be structured with
care to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers,
sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products for
uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed
and controlled limits to avoid the possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products
or as a reward for past prescribing. Manufacturers like us can be held liable under the False Claims Act if they are determined to have
caused the submission of false or fraudulent claims to the government for reimbursement. This can result from prohibited activities such
as off-label marketing, providing inaccurate billing or coding information to healthcare providers and other customers, or violations
of the federal Anti-Kickback Statute Significant enforcement activity has been the result of actions brought by relators, who file complaints
in the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes and can be
entitled to receive a significant portion (often as great as 30%) of total recoveries. Also, violations of the False Claims Act can result
in treble damages, and each false claim submitted can be subject to a penalty of up to $27,018 per claim. Transfers of value to certain
healthcare practitioners and institutions must be tracked and reported in accordance with the Physician Payments Sunshine Act and various
state laws. Through the Physician Payments Sunshine Act, the healthcare reform law imposes reporting and disclosure requirements for
pharmaceutical and medical device manufacturers with regard to a broad range of payments, ownership interests, and other transfers of
value made to certain physicians, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists,
certified nurse-midwives and certain teaching hospitals. A number of states have similar laws in place and often require reporting for
other categories of healthcare professionals, such as nurses. Additional and stricter prohibitions could be implemented by federal and
state authorities. Where practices have been found to involve improper incentives to use products, government investigations and assessments
of penalties against manufacturers have resulted in substantial damages and fines. Many manufacturers have been required to enter into
consent decrees, corporate integrity agreements, or orders that prescribe allowable corporate conduct. Failure to satisfy requirements
under the FDCA can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe allowable
corporate conduct. On November 16, 2020, the U.S. Health and Human Services (HHS) Office of Inspector General (OIG) issued a Special
Fraud Alert discussing the fraud and abuse risks associated with payments to physicians related to speaker programs sponsored by pharmaceutical
and medical device companies. OIG expressed skepticism regarding the educational value of these industry-sponsored speaker programs and
warned of the inherent fraud and abuse risks of these programs.
To market and sell our products
outside the United States, we must obtain and maintain regulatory approvals and comply with regulatory requirements in such jurisdictions.
The approval procedures vary among countries in complexity and timing. We may not obtain approvals from regulatory authorities outside
the United States on a timely basis, if at all, and in such case, we would be precluded from commercializing products in those markets.
In addition, some countries, particularly the countries of the European Union, regulate the pricing of prescription pharmaceuticals.
In these countries, pricing discussions with governmental authorities can take considerable time after the receipt of marketing approval
for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares
the cost-effectiveness of our product candidate to other available therapies. Such trials may be time-consuming and expensive and may
not show an advantage in cost-efficacy for our products. If reimbursement of our products is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected. Also,
under the FCPA, the United States has regulated conduct by U.S. businesses occurring outside of the United States, generally prohibiting
remuneration to foreign officials for the purpose of obtaining or retaining business. Additionally, similar to the Physician Payments
Sunshine Act, there are legal and regulatory obligations outside the United States that include reporting requirements detailing interactions
with and payments to healthcare practitioners. See — General Risks – “We are subject to risks associated with doing
business globally”.
To enhance compliance with
applicable health care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as the HHS
OIG, have recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements
of an effective compliance and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing
numbers of U.S.-based pharmaceutical companies have such programs. We are in the process of adopting U.S. healthcare compliance and ethics
programs that generally incorporate the HHS OIG’s recommendations; however, there can be no assurance that following the adoption
of such programs we will avoid any compliance issues.
In addition to the federal
fraud, waste, and abuse laws noted, there are analogous U.S. state laws and regulations, such as state anti-kickback and false claims
laws, and other state laws addressing the medical product and healthcare industries, which may apply to items or services reimbursed
by any third-party payor, including commercial insurers, and in some cases may apply regardless of payor (i.e., even if reimbursement
is not available). Some state laws are constructed in accordance with certain industry voluntary compliance guidelines (e.g., the PhRMA
or AdvaMed Codes of Ethics), or the relevant compliance program guidance promulgated by the federal government (HHS-OIG) in addition
to other requirements, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance
efforts.
Compliance efforts related
to such laws is costly, and failure to comply could subject us to enforcement action.
Finally, regulations in both
the U.S. and other countries are subject to constant change. There can be no assurance that we can meet the requirements of future regulations
or that compliance with current regulations assures future capability to distribute and sell our products.
We could be adversely affected if other
government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements for reimbursement
for the purchasers of our products.
Prices in many of our principal
markets are subject to local regulation and certain pharmaceutical products, such as our Proprietary and Distribution products, are subject
to price controls. In the United States, where reimbursement levels for our products are substantially established by third-party payors,
a reduction in the payors’ amount of reimbursement for a product may cause groups or individuals dispensing the product to discontinue
administration of the product, to administer lower doses, to substitute lower cost products or to seek additional price-related concessions.
These actions could have a negative effect on our financial results, particularly in cases where our products command a premium price
in the marketplace or where changes in reimbursement rates induce a shift in the site of treatment. The existence of direct and indirect
price controls and pressures over our products has affected, and may continue to materially adversely affect, our ability to maintain
or increase gross margins.
Also, the intended use of
a drug product by a physician can affect pricing. Physicians frequently prescribe legally available therapies for uses that are not described
in the product’s labeling and that differ from those tested in clinical studies and approved by the FDA or similar regulatory authorities
in other countries. These off-label uses are common across medical specialties, and physicians may believe such off-label uses constitute
the preferred treatment or treatment of last resort for many patients in varied circumstances. Reimbursement for such off-label uses
may not be allowed by government payors. If reimbursement for off-label uses of products is not allowed by Medicare or other third-party
payors, including those in the United States or the European Union, we could be adversely affected. For example, Centers for Medicare
and Medicaid (“CMS”) could initiate an administrative procedure known as a National Coverage Determination (“NCD”),
by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not. This
determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may
be uncertain.
If we fail to comply with our obligations
under U.S. governmental pricing programs, we could be required to reimburse government programs for underpayments and could pay penalties,
sanctions, and fines.
The issuance of regulations
and coverage expansion by various governmental agencies relating to the Medicaid rebate program will increase our costs and the complexity
of compliance and will be time-consuming. Changes to the definition of “average manufacturer price” (AMP), and the Medicaid
rebate amount under the Affordable Care Act and CMS and the issuance of final regulations implementing those changes has affected and
could further affect our 340B “ceiling price” calculations. When we participate in the Medicaid rebate program, we are required
to report “average sales price” (ASP), information to CMS for certain categories of drugs that are paid for under Part B
of the Medicare program. Future statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for our products
and the resulting Medicare payment rate and could negatively impact our results of operations.
Generally, the Medicaid rebate
program, also known as the “340B Program,” has been subject to numerous recent challenges, leading to ongoing uncertainty
in various areas. There is pending litigation regarding on what can reasonably constitute a 340B eligible patient, which could significantly
expand the covered entity patient description. Recent litigation also clarified that manufacturers have no obligation under the 340B
statute to provide 340B drugs to an unlimited number of contract pharmacy locations, as the program struggles with increasing participation
by contract pharmacies. Most notably, on June 15, 2022, after many years of ongoing litigation, the U.S. Supreme Court unanimously overturned
a substantial Medicare Part B payment reduction to many 340B Program participating hospitals related to certain outpatient prescription
drugs provided to Medicare patients in American Hospital Association v. Becerra. It is unclear how such current and pending litigation
could spur new regulations and also affect the scope and demands of the 340B Program, which could affect our products and operations
in ensuring compliance with Program requirements.
Pricing and rebate calculations
vary among products and programs, involve complex calculations and are often subject to interpretation by us, governmental or regulatory
agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and “best
price” for the quarter. If we become aware that our reporting for a prior quarter was incorrect or has changed as a result of recalculation
of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which
the data originally were due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters,
depending on the direction of the revision. Such restatements and recalculations would increase our costs for complying with the laws
and regulations governing the Medicaid rebate program. Price recalculations also may affect the “ceiling price” at which
we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B/Public Health Service
(PHS) drug pricing program.
In addition, if we are found
to have made a misrepresentation in the reporting of ASP, we are subject to civil monetary penalties for each such price misrepresentation
and for each day in which such price misrepresentation was applied. If we are found to have knowingly submitted false AMP or “best
price” information to the government, we may be liable for civil monetary penalties per item of false information. Any refusal
of a request for information or knowing provision of false information in connection with an AMP survey verification would also subject
us to civil monetary penalties. In addition, our failure to submit monthly/quarterly AMP or “best price” information on a
timely basis could result in a civil monetary penalty per day for each day the information is late beyond the due date. Such failure
also could be grounds for CMS to terminate our Medicaid drug rebate agreement, under which we participate in the Medicaid program. In
the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our
covered outpatient drugs. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation,
some of which may have implications for amounts previously estimated or paid. We cannot assure that our submissions will not be found
by CMS to be incomplete or incorrect.
In order for our products
to be reimbursed by the primary federal governmental programs, we must report certain pricing data to the USG. Compliance with reporting
and other requirements of these federal programs is a pre-condition to: (i) the availability of federal funds to pay for our products
under Medicaid and Medicare Part B; and (ii) procurement of our products by the Department of Veterans Affairs (DVA), and by covered
entities under the 340B/PHS program. The pricing data reported are used as the basis for establishing Federal Supply Schedule (FSS),
and 340B/PHS program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical
companies have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information
to the government that resulted in increased payments made by these programs. Although we maintain and follow strict procedures to ensure
the maximum possible integrity for our federal pricing calculations, the process for making the required calculations is complex, involves
some subjective judgments and the risk of errors always exists, which creates the potential for exposure under the false claims laws.
If we become subject to investigations or other inquiries concerning our compliance with price reporting laws and regulations, and our
methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to
pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business,
financial condition and results of operations.
To be eligible to have our
products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees,
we also must participate in the DVA FSS pricing program. To participate, we are required to enter into an FSS contract with the DVA,
under which we must make our innovator “covered drugs” available to the “Big Four” federal agencies-the DVA,
the DoD, the Public Health Service (including the Indian Health Service), and the Coast Guard-at pricing that is capped under a statutory
federal ceiling price (FCP) formula set forth in Section 603 of the Veterans Health Care Act of 1992 (VHCA). The FCP is based on a weighted
average wholesale price known as the Non-Federal Average Manufacturer Price (Non-FAMP), which manufacturers are required to report on
a quarterly and annual basis to the DVA. Under the VHCA, knowingly providing false information in connection with a Non-FAMP filing can
subject us to significant penalties for each item of false information. If we overcharge the government in connection with our FSS contract
or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to disclose the error and refund the difference
to the government. The failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against
us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation
or enforcement action, can be expensive and time-consuming, and could have a material adverse effect on our business, financial condition,
results of operations and growth prospects.
We are subject to extensive environmental,
health and safety, and other laws and regulations.
Our business involves the
controlled use of hazardous materials, various biological compounds and chemicals. The risk of accidental contamination or injury from
these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held
liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource
damages, the costs of which could be substantial. In addition, some of the license and permits granted to us may be suspended or revoked,
resulting in our inability to conduct our regular business activity, manufacture and/or distribute our products for an extended period
of time or until we take remedial actions. We are also subject to numerous environmental, health and workplace safety laws and regulations,
including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials and chemicals.
Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to
our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities.
Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future.
We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain
other laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs
to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities.
In addition, fines and penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations
or for the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents. We are subject
to future audits by the Environmental Health Department of the Regional Health Bureau of the IMOH and the Ministry of Environmental Protection
of Israel and may be required to perform certain actions from time to time in order to comply with these guidelines and their requirements.
We do not expect the costs of complying with these guidelines to be material to our business. See “Item 4. Information on the Company
— Environmental.”
Under the Israeli Economic
Competition Law, 5758-1988, as amended (the “Competition Law”), a company that supplies or acquires more than 50% of any
product or service in Israel in a relevant market may be deemed to be a monopoly. In addition, any company that has “significant
market power” (within the meaning of the Competition Law), even if it does not hold market share that is greater than 50%, shall
be deemed to be a monopolist under the Competition Law. A monopolist is prohibited from participating in certain business practices,
including unreasonably refusing to sell products or provide services over which a monopoly exists, charging unfair prices for such products
or services, and abusing its position in the market in a manner that might reduce business competition or harm the public. In addition,
the General Director of the Israeli Competition Authority may determine that a company is a monopoly and has the right to order such
company to change its conduct in matters that may adversely affect business competition or the public, including by imposing restrictions
on its conduct. Depending on the analysis and the definition of the different products we distribute in the markets in which we operate,
we may be deemed to be a “monopoly” under the Competition Law with respect to certain of our products. Furthermore, following
an amendment to the Competition Law that became effective in August 2015, which repealed the statutory exemption that existed under the
Competition Law for restrictive arrangements that were mutually exclusive arrangements, we may face difficulties in certain cases negotiating
distribution agreements with foreign pharmaceutical manufacturers.
We have entered into a collective bargaining
agreement with the employees’ committee and the Histadrut (General Federation of Labor in Israel), and we have incurred and could
in the future incur labor costs or experience work stoppages or labor strikes as a result of any disputes in connection with such agreement.
In December 2013, we signed
a collective bargaining agreement with the employees’ committee established by our employees at our Beit Kama production facility
in Israel and the Histadrut (General Federation of Labor in Israel) (“Histadrut”), which expired in December 2017. In November
2018, we signed a further collective bargaining agreement with the employees’ committee and the Histadrut, which expired in December
2021. In July 2022, we signed a new collective agreement with the Histadrut; while the agreement will be effective through the end of
2029, certain economic terms may be renegotiated by the parties following the lapse of the four year anniversary of the agreement. We
have experienced labor disputes and work stoppages in the past. For example, on March 3, 2022, during the course of our negotiations
with the Histadrut and the employees’ committee on the renewal of the collective bargaining agreement, the employee’s committee
declared a labor dispute, and on April 26, 2022, a strike was initiated by the employee’s committee, which continued until the
new agreement was signed in July 2022. As a result of the labor strike, in the year ended December 31, 2022, our gross profit was impacted
by a $4.3 million loss associated with the effect of the work-stoppage at the Israeli plant. In addition, in December 2020, during the
course of our negotiations with the Histadrut and the employees’ committee on severance remuneration for employees who may be laid-off
as part of the workforce down-sizing as a result of the transfer of GLASSIA manufacturing to Takeda that we implemented during 2021,
the employee’s committee declared a labor dispute, which was subsequently concluded during February 2021 following the execution
of a special collective bargaining agreement governing such severance terms. In March 2023, we entered into an additional special collective
bargaining agreement with the employees’ committee and the Histadtrut governing severance remuneration terms for employees who
may be laid-off in connection with the potential staff reductions, when needed, in order to adjust to lower plant utilization. Any future disputes with the employees’ committee and the Histadrut over the implementation or the interpretation
or the renewal of the collective bargaining agreement may lead to additional labor costs and/or work stoppages, which could adversely
affect our business operations, including through a loss of revenue and strained relationships with customers.
Following the establishment of our U.S.
commercial operations through our subsidiaries Kamada Inc. and Kamada Plasma LLC, we have entered into intercompany agreements for the
transfer of products, which require us to meet transfer pricing requirements under both Israeli and U.S. tax legislation.
Following the establishment
of our U.S. commercial operations through our subsidiaries Kamada Inc. and Kamada Plasma LLC, we have entered into intercompany agreements
for the transfer of products. Our intercompany agreements for the sale of products or provision of services are required to be made on
an arms-length basis and must comply with transfer pricing provisions of tax laws in Israel and the U.S. In order to determine the adequate
transfer pricing arrangement, we are required to perform a transfer pricing study to compare the contemplated intercompany transaction
with similar transactions entered into amongst non-related parties. There can be no assurance that the Israeli and/or tax authorities
would accept such transfer pricing study when determining our, or any of our subsidiary’s income, profitability and tax assessment.
Failure to comply with transfer pricing rules may result in increased tax expenses, penalties and legal actions against us, our subsidiaries
or our executive officer.
We may be exposed to tax reporting requirements
and tax expense in multiple jurisdictions in which our products are being distributed.
We are incorporated under
the laws of the State of Israel and some of our subsidiaries are organized under the laws of Delaware and Ireland and as a result, we
are subject to local tax requirements and potential tax expenses in these territories. We store, distribute and sell our Proprietary
products in multiple other countries in which we do not have any subsidiaries or physical presence; nevertheless, in some of these countries,
pursuant to local legislation, we may be considered as “conducting business activities” which may expose us to certain reporting
requirements and potential direct or indirect tax payments. Failure to comply with such local legislation may result in increased tax
expenses, penalties and legal actions against us, our subsidiaries or our executive officers.
Risks Related to Intellectual Property
Our success depends in part on our ability
to obtain and maintain protection in the United States and other countries for the intellectual property relating to or incorporated
into our technology and products, including the patents protecting our manufacturing process.
Our success depends in large
part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering
or incorporated into our technology and products, especially intellectual property related to our manufacturing processes. At present,
we consider our patents relating to our manufacturing process to be material to the operation of our business as a whole.
However, the patent landscape
in the biotechnology and pharmaceutical fields is highly complicated and uncertain and involves complex legal, factual and scientific
questions. Changes in either patent laws or in the interpretation of patent laws in the United States and other countries may diminish
the value and strength of our intellectual property or narrow the scope of our patent protection. In addition, we may fail to apply for
or be unable to obtain patents necessary to protect our technology or products or enforce our patents due to lack of information about
the exact use of our processes by third parties. Even if patents are issued to us or to our licensors, they may be challenged, narrowed,
invalidated, held to be unenforceable or circumvented, which could limit our ability to prevent competitors from using similar technology
or marketing similar products, or limit the length of time our technologies and products have patent protection. Additionally, many of
our patents relate to the processes we use to produce our products, not to the products themselves. In many cases, the plasma-derived
products we produce or intend to develop in the future will not, in and of themselves, be patentable. Since many of our patents relate
to processes or uses of the products obtained therefrom, if a competitor is able to utilize a process that does not rely on our protected
intellectual property, that competitor could sell a plasma-derived product similar to one we have developed or sell it without infringing
these patents.
Patent rights are territorial;
thus, any patent protections we have will only be enforceable in those countries in which we have issued patents. In addition, the laws
of certain countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and the European Union.
Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs
in countries where we have not applied for patent protection or that do not recognize or provide enforcement mechanisms for our patents.
Furthermore, it is not possible to know the scope of claims that will be allowed in pending applications or which claims of granted patents,
if any, will be deemed enforceable in a court of law.
Due to the extensive time
needed to develop, test and obtain regulatory approval for our therapeutic candidates or any product we may sell or market, any patents
that protect our therapeutic candidates or any product we may sell or market may expire early during commercialization. This may
reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition
through the entry of recombinant or generic products into the market and a subsequent decline in market share and profits.
In some cases we may rely
on our licensors or partners to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability
to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in
our therapeutic candidates and potential approved for marketing products. Any failure by our licensors or development or commercialization
partners to properly conduct patent prosecution, maintenance, enforcement, or defense could materially harm our ability to obtain suitable
patent protection covering our therapeutic candidates or products or ensure freedom to commercialize the products in view of third-party
patent rights, thereby materially reducing our potential profits.
Our patents also may not
afford us protection against competitors or other third parties with similar technology. Because patent applications worldwide are typically
not published until 18 months after their filing, and because publications of discoveries in scientific literature often lag behind actual
discoveries, neither we nor our licensors can be certain that we or they were the first to file for protection of the inventions set
forth in such patent applications. As a result, the patents we own and license may be invalidated in the future, and the patent applications
we own and license may not be granted. Moreover, in the US, during 2012, the Leahy-Smith America Invents Act (“AIA”) created
a new legal proceeding, the inter partes review petition, that allows third parties to challenge the validity of patents before
the Patent Trials and Appeals Board.
The costs of these proceedings
could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated patent position. In addition,
if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing technology or marketing
products covered by that patent. Additionally, patents and patent applications owned by third parties may prevent us from pursuing certain
opportunities such as entering into specific markets or developing or commercializing certain products or reducing the cost effectiveness
of the relevant business as a result of needing to make royalty payments or other business conciliations. Finally, we may choose to enter
into markets where certain competitors have patents or patent protection over technology that may impede our ability to compete effectively.
Our patents are due to expire
at various dates between 2024 and 2041. However, because of the extensive time required for development, testing and regulatory review
of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain
in force for only a short period following commercialization, thereby limiting advantages of the patent. Our pending and future patent
applications may not lead to the issuance of patents or, if issued, the patents may not be issued in a form that will provide us with
any competitive advantage. We also cannot guarantee that: any of our present or future patents or patent claims or other intellectual
property rights will not lapse or be invalidated, circumvented, challenged or abandoned; our intellectual property rights will provide
competitive advantages or prevent competitors from making or selling competing products; our ability to assert our intellectual property
rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;
any of our pending or future patent applications will be issued or have the coverage originally sought; our intellectual property rights
will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or we will not lose the ability
to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments.
In addition, our competitors or others may design around our patents or protected technologies. Effective protection of our intellectual
property rights may also be unavailable, limited or not applied in some countries, and even if available, we may fail to pursue or obtain
necessary intellectual property protection in such countries. In addition, the legal systems of certain countries do not favor the aggressive
enforcement of patents and other intellectual property rights, and the laws of foreign countries may not protect our rights to the same
extent as the laws of the United States. As a result, our intellectual property may not provide us with sufficient rights to exclude
others from commercializing products similar or identical to ours. In order to preserve and enforce our patent and other intellectual
property rights, we may need to make claims, apply certain patent or other regulatory procedures or file lawsuits against third parties.
Such proceedings could entail significant costs to us and divert our management’s attention from developing and commercializing
our products. Lawsuits may ultimately be unsuccessful, and may also subject us to counterclaims and cause our intellectual property rights
to be challenged, narrowed, invalidated or held to be unenforceable.
Additionally, unauthorized
use of our intellectual property may have occurred or may occur in the future, including, for example, in the production of counterfeit
versions of our products. Counterfeit products may use different and possibly contaminated sources of plasma and other raw materials,
and the purification process involved in the manufacture of counterfeit products may raise additional safety concerns, over which we
have no control. Although we have taken steps to minimize the risk of unauthorized uses of our intellectual property, including for the
production of counterfeit products, any failure to identify unauthorized use of, and otherwise adequately protect, our intellectual property
could adversely affect our business, including reducing the demand for our products. Additionally, any reported adverse events involving
counterfeit products that purported to be our products could harm our reputation and the sale of our products in particular and consumer
willingness to use plasma-derived therapeutics in general. Moreover, if we are required to commence litigation related to unauthorized
use, whether as a plaintiff or defendant, such litigation would be time-consuming, force us to incur significant costs and divert our
attention and the efforts of our management and other employees, which could, in turn, result in lower revenue and higher expenses.
In addition to patented technology, we
rely on our unpatented proprietary technology, trade secrets, processes and know-how.
We rely on proprietary information
(such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we
believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by
entering into confidentiality agreements, or consulting, services, material transfer agreements or employment agreements that contain
non-disclosure and non-use provisions, as well as ownership provisions, with our employees, consultants, service providers, contractors,
scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements
may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information,
may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary
information. We have limited control over the protection of trade secrets used by our third-party manufacturers, suppliers, other third
parties which are granted with license to use our know-how and former employees and could lose future trade secret protection if any
unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently
developed by our competitors or other third parties. To the extent that our employees, consultants, service providers, contractors, scientific
advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights
in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the
scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect
our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little
or no protection to our trade secrets.
We also rely on physical
and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures
will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize
our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information
or take appropriate and timely steps to enforce our intellectual property rights. See “—Our business and operations would
suffer in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.”
Changes in either U.S. or foreign patent
law or in the interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our
products.
Our success, like the success
of many other biotechnology companies, is heavily dependent on intellectual property and on patents in particular. The procurement and
enforcement of patents in the biotechnology industry is complex from a technological and legal standpoint, and the process is therefore
costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the AIA was signed into law. The AIA included
a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted. An important
change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system
for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the
same invention. A third party that files a patent application with the United States Patent and Trademark Office (“USPTO”)
after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before
it was made by the third party. As a result of this change of law, if we do not promptly file a patent application at the time of a new
product’s invention, and if a third party subsequently invented and patented such product, we would lose our right to patent such
invention.
The AIA also introduced new
limitations on where a patentee may file a patent infringement suit and new opportunities for third parties to challenge any issued patent
in the USPTO. Such changes apply to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary
standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in U.S. federal court, a third
party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same
evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may
attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third
party as a defendant in a district court action.
Depending on decisions by
the U.S. Congress, federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents
could change in unpredictable ways that would weaken our ability to obtain new patents and enforce our existing and future patents.
We may be subject to claims that we infringe,
misappropriate or otherwise violate the intellectual property rights of third parties.
The conduct of our business,
our Proprietary and/or Distribution products or product candidates may infringe or be accused of infringing one or more claims of an
issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and
to which we do not hold a license or other rights. For example, certain of our competitors and other third parties own patents and patent
applications in the realm of our biosimilars distribution products, or in areas relating to critical aspects of our business and technology,
including the separation and purification of plasma proteins, the composition of AAT, the use of AAT for different indications, and the
distribution or use of recombinant or biosimilar pharmaceutical products, and these competitors may in the future allege that we are
infringing on their patent rights. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other
intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us
or our strategic partners that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial
damages. Further, if such a claim were brought against us, our strategic partners or our manufacturer suppliers for Distribution products,
we or they could be forced to permanently or temporarily stop or delay manufacturing, exportation or sales of such product or product
candidate that is the subject of the dispute or suit. See also “We recently entered into agreements for future distribution
in Israel of several biosimilar product candidates, and the successful future distribution of these products is dependent upon several
factors some of which are beyond our control.”
In addition, we are a party
to certain license agreements that may impose various obligations upon us as a licensee, including the obligation to bear the cost of
maintaining the patents subject to the license and to make milestone and royalty payments. If we fail to comply with these obligations,
the licensor may terminate the license, in which event we might not be able to market any product that is covered by the licensed intellectual
property.
If we are found to be infringing,
misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in order to avoid or settle
claims, we or our strategic partners may choose or be required to seek a license, execute cross-licenses or enter into a covenant not
to sue agreement from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses
may not be available on acceptable terms, or at all. Even if we or our strategic partners were able to obtain a license, the rights may
be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented
from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened
claims, we or our strategic partners are unable to enter into licenses on acceptable terms.
There have been substantial
litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries.
In addition, to the extent that we gain greater visibility and market exposure as a public company in the United States, we face a greater
risk of being involved in such litigation. In addition to infringement claims against us, we may become a party to other patent litigation
and other proceedings, including interference, opposition, cancellation, re-examination and similar proceedings before the USPTO and
its foreign counterparts and other regulatory authorities, regarding intellectual property rights with respect to our products. The cost
to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial
resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material
adverse effect on our ability to compete in the marketplace or to conduct our business in accordance with our plans and budget, and patent
litigation and other proceedings may also absorb significant management time.
Some of our employees, consultants
and service providers, were previously employed or hired at universities, medical institutes, or other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. While we take steps to prevent them from using the proprietary information
or know-how of others in their work for us, we may be subject to claims that we or they have inadvertently or otherwise used or disclosed
intellectual property, trade secrets or other proprietary information of any such employee’s former employer or former ordering
service or that they have breached certain non-compete obligations to their former employers. Litigation may be necessary to defend against
these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our
management. If we fail to defend any such claims successfully, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel.
If we are unable to protect our trademarks
from infringement, our business prospects may be harmed.
We own trademarks that identify
certain of our products, our business name and our logo, and have registered these trademarks in certain key markets. Although we take
steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise
violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition,
our enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate
remedy. Even if trademarks are issued to us or to our licensors, they may be challenged, narrowed, cancelled, or held to be unenforceable
or circumvented.
Risks Related to Our Financial Position and
Capital Resources
We have incurred significant losses since
our inception and while we were profitable in the three years ended December 31, 2020, we incurred operating losses in the last two fiscal
years and may not be able to achieve or sustain profitability.
As of December 31, 2022, our cash and cash equivalents and short-term
investments were $34.3 million. Since inception, we have incurred significant operating losses, and while we were profitable in the three
years ended December 31, 2020, we incurred net losses of $2.3 million and $2.2 million for the years ended December 31, 2022 and 2021,
respectively. As of December 31, 2022, we had an accumulated deficit of $48.5 million.
The acquisition of the portfolio
of four FDA-approved products in November 2021 resulted in the recognition of significant balances of intangible assets as well as contingent
consideration and other long-term liabilities. The recognized value of the intangible assets is amortized over their expected useful
life, resulting in significant amortization expenses captured as costs of goods sold and sales and marketing expenses. For the year ended
December 31, 2022, such amortization expenses totaled $7.1 million. The contingent consideration and other long-term liabilities are
reevaluated at the end of each reporting period resulting in significant reevaluation cost recognized as financial expenses. For the
year ended December 31, 2022, such financial expenses totaled $6.3 million. We estimate to incur these significant depreciation and financial
expenses for the foreseeable future. For additional information, see Note 5b in our consolidated financial statements included in this
Annual Report.
While the recent acquisition
of a portfolio of four FDA-approved plasma-derived hyperimmune commercial products represented an important growth driver and revenue
source, there can be no assurance that we will be able to continue to reap the benefits of such acquisition and we may not be able to
generate or sustain profitability in future years.
Our financial position and operations may
be affected as a result of the indebtedness we incurred and the liabilities we assumed in connection with the recent acquisition of the
portfolio of four FDA-approved products.
On November 15, 2021, to
partially fund the acquisition of the portfolio of four FDA-approved products, we obtained a $40 million debt facility from Bank
Hapoalim B.M., comprised of a $20 million short-term revolving credit facility and a $20 million five-year loan. Effective as of
January 1, 2023, the financing facility was amended such that the $20 million short-term revolving credit facility was replaced with
a NIS 35 million (approximately $10 million) credit facility. The indebtedness incurred may have significant adverse consequences on
our business, including:
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limit our ability to borrow additional funds for working capital, capital
expenditures, acquisitions, or other general business purposes; |
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require the use of a substantial portion of our cash to service our
indebtedness rather than investing our cash to fund our strategic growth opportunities and plans, working capital and capital expenditures;
|
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expose us to the risk of increased interest rates as these borrowings
are subject to the Secured Overnight Financing Rate (“SOFR”), (i) in the case of the long-term loan, SOFR + 2.18%; and
(ii) in the case of the credit facility, PRIME + 0.55; |
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limit our flexibility to plan for, or react to, changes in our business
and industry; |
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increase our vulnerability to the impact of adverse economic, competitive
and industry conditions; |
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prevent us from pledging our assets as collateral, which could limit
our ability to obtain additional debt financing; |
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place us at a competitive disadvantage compared to our competitors
that have less debt, better debt servicing options or stronger debt servicing capacity; and |
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increase our cost of borrowing. |
In addition, the terms of
the loan and credit facility contain restrictive covenants that may limit our ability to engage in activities that may be in our long-term
best interest. These restrictive covenants include, among others, limitations on restructuring, the sale of purchase of assets, material
licenses, certain changes of control and the creation of floating charges over our property and assets. Under the terms of these facilities,
we are also required to maintain certain financial covenants, including minimum equity capital, maximum working capital to debt ratio
and minimum debt coverage ratio. Our failure to comply with those covenants could result in an event of default which, if not cured or
waived, could result in the acceleration of substantially all of our debt.
In addition, as part of the
acquisition of the portfolio of four FDA-approved products, we agreed to pay and assumed the following liabilities:
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Up to $50 million of contingent consideration subject to achievement
of sales thresholds through December 31, 2034. |
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A total amount of $14.2 million on account of acquired inventory which
will be paid in ten equal quarterly instalments of $1.5M each (or the remaining balance at the final instalment). |
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Future payment of royalties (some of which are perpetual) and milestone
payments to third parties subject to the achievement of corresponding CYTOGAM related net sales thresholds and milestones. |
The future payments of such
obligations may have a significant effect on our cash availability in future periods and may potentially require us to assume more debt.
For additional information, see Note 5b in our consolidated financial statements included in this Annual Report.
Our business requires substantial capital,
including potential investments in large capital projects, to operate and grow and to achieve our strategy of realizing increased operating
leverage. Despite our indebtedness, we may still incur significantly more debt.
In order to obtain and maintain
FDA, EMA and other regulatory approvals for product candidates and new indications for existing products, we may be required to enhance
the facilities and processes by which we manufacture existing products, to develop new product delivery mechanisms for existing products,
to develop innovative product additions and to conduct clinical trials. We face a number of obstacles that we will need to overcome in
order to achieve our operating goals, including but not limited to the successful development of experimental products for use in clinical
trials, the design of clinical study protocols acceptable to the FDA, the EMA and other regulatory authorities, the successful outcome
of clinical trials, scaling our manufacturing processes to produce commercial quantities or successfully transition technology, obtaining
FDA, EMA and other regulatory approvals of the resulting products or processes and successfully marketing an approved or new product
with applicable new processes. To finance these various activities, we may need to incur future debt or issue additional equity. We may
not be able to structure our debt obligations on favorable economic terms and any offering of additional equity would result in a dilution
of the equity interests of our current shareholders. To the extent that we raise additional funds to fund our activities through debt
financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting
or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we
raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable
to us. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.
In addition, our manufacturing
facility requires continued investment and upgrades. Moreover, any enhancements to our manufacturing facilities necessary to obtain FDA
or EMA approval for product candidates or new indications for existing products could require large capital projects. We may also undertake
such capital projects in order to maintain compliance with cGMP or expand capacity. Capital projects of this magnitude involve technology
and project management risks. Technologies that have worked well in a laboratory or in a pilot plant may cost more or not perform as
well, or at all, in full scale operations. Projects may run over budget or be delayed. We cannot be certain that any such project will
be completed in a timely manner or that we will maintain our compliance with cGMP, and we may need to spend additional amounts to achieve
compliance. Additionally, by the time multi-year projects are completed, market conditions may differ significantly from our initial
assumptions regarding competitors, customer demand, alternative therapies, reimbursement and public policy, and as a result capital returns
may not be realized. In addition, to fund large capital projects, we may similarly need to incur future debt or issue additional dilutive
equity. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.
Our current working capital may not be
sufficient to complete our research and development with respect to any or all of our pipeline products or to commercialize our products.
As of December 31, 2022,
we had cash and short-term investments of $34.3 million. We plan to fund our future operations through continued sale and distribution
of our proprietary and distribution products, commercialization and or out-licensing of our pipeline product candidates, and as requires
raising additional capital through the sale of equity or debt. These amounts may not be sufficient to complete the research and development
of all of our candidates, and there can be no assurances of the financial success of our commercialization activities or our ability
to access the equity and debt capital markets on terms acceptable to us, if at all. To the extent we are unable to fund our research
and development, our future product development activities could be materially adversely affected.
We are subject to foreign currency exchange
risk.
We receive payment for our
sales and make payments for resources in a number of different currencies. While our sales and expenses are primarily denominated in
U.S. dollars, our financial results may be adversely affected by fluctuations in currency exchange rates as a portion of our sales and
expenses are denominated in other currencies, including the NIS and the Euro. Market volatility and currency fluctuations may limit our
ability to cost-effectively hedge against our foreign currency exposure and, in addition, our ability to hedge our exposure to currency
fluctuations in certain emerging markets may be limited. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations
and may involve costs and risks of their own, such as devotion of management time, external costs to implement the strategies and potential
accounting implications. Foreign currency fluctuations, independent of the performance of our underlying business, could lead to materially
adverse results or could lead to positive results that are not repeated in future periods.
Events in global credit markets may impact
our ability to obtain financing or increase the cost of future financing, including interest rate fluctuations based on macroeconomic
conditions that are beyond our control.
During periods of volatility
and disruption in the U.S., European, Israeli or global credit markets, obtaining additional or replacement financing may be more difficult
and the cost of issuing new debt could be higher than the costs we incur under our current debt. The higher cost of new debt may limit
our ability to have cash on hand for working capital, capital expenditures and acquisitions on terms that are acceptable to us.
To service our indebtedness and other obligations,
we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
The capability to pay and
refinance our indebtedness and to fund working capital requirements and planned capital expenditures will depend on our ability to generate
cash in the future. A significant reduction in our operating cash flows resulting from changes in economic conditions, increased competition
or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material
adverse effect on our business, financial condition, results of operations, prospects and our ability to service our debt and other obligations.
If we are unable to service our indebtedness through sufficient cash flows from operations, we will be forced to shift to alternative
strategies, which may include the reducing of capital expenditures, the sale of assets, the restructuring or refinancing of our debt
or the seeking of additional equity. We cannot assure that these alternative strategies, if any, could be implemented on satisfactory
and commercially reasonable terms, that they would provide sufficient funds to make the required payments on our debt or to fund our
other liquidity needs.
The failure of Silicon Valley Bank and recent
turmoil in the banking industry may negatively impact our business, results of operations and financial condition.
On March 10, 2023, the California
Department of Financial Protection and Innovation closed Silicon Valley Bank (“SVB”) and appointed Federal Deposit Insurance
Corporation (the “FDIC”) receiver. On March 12, 2023, the Department of the Treasury, the Federal Reserve, and the FDIC jointly
released a statement that depositors at SVB would have access to their funds, even those in excess of the standard FDIC insurance limits,
under a systemic risk exception.
As of March 10, 2023, our wholly
owned subsidiary KI Biopharma LLC had approximately $0.6 million held at SVB, which represents approximately 3% of
our consolidated cash and cash equivalents balance as of March 10, 2023. Our subsidiary could experience payment disruptions during the
interim. Notwithstanding the situation with SVB, we believe our current cash and cash equivalents and expected future cash to be generated
by our operational activities will be sufficient to satisfy our liquidity requirements for at least the next 12 months.
Despite the measures taken
by the United States federal government, there is great uncertainty in the markets regarding the stability of regional banks and the safety
of deposits in excess of the FDIC insured deposit limits. The ultimate outcome of these events, and whether further regulatory actions
will be taken, cannot be predicted. Further, these events may make equity or debt financing more difficult to obtain, and additional
equity or debt financing might not be available on reasonable terms, if at all; difficulties obtaining equity or debt financing could
have a material adverse effect on our financial condition, as well as our ability to continue to grow our operations.
Risks Related to Our Ordinary Shares
The requirements of being a public company
in the United States, as well as in Israel, may strain our resources and distract our management, which could make it difficult to manage
our business and could have a negative effect on our results of operations and financial condition.
As a public company whose
shares are traded on Nasdaq and the Tel Aviv Stock Exchange (the “TASE”), we are required to comply with various regulatory
and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory requirements is time consuming,
and may result in increased costs to us and could have a negative effect on our business, results of operations and financial condition.
As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”). These requirements may place
a strain on our systems and resources. The Exchange Act requires that we file annual and current reports, and file or make public certain
additional information, with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls
and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and
procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. These activities
may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial
condition and results of operations. Furthermore, as our business changes and if we expand either through acquisitions or by means of
organic growth, our internal controls may become more complex and we will require significantly more resources to ensure our internal
controls remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation,
could impact our financial information and adversely affect our operating results or cause us to fail to meet our reporting obligations.
If we identify material weaknesses, the disclosure of that fact, even if quickly remediated, could require significant resources to remediate,
expose us to legal or regulatory proceedings, and reduce the market’s confidence in our financial statements and negatively affect
our share price.
Our share price may be volatile.
The market price of our ordinary
shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some of which are beyond
our control. These factors include:
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actual or anticipated fluctuations in our financial condition and operating
results; |
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overall conditions in the specialty pharmaceuticals market; |
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loss of significant customers or changes to agreements with our strategic
partners; |
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changes in laws or regulations applicable to our products; |
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actual or anticipated changes in our growth rate relative to our competitors’; |
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announcements of clinical trial results, technological
innovations, significant acquisitions, strategic alliances, joint ventures or capital commitments by us or our competitors; |
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changes in key personnel; |
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fluctuations in the valuation of companies perceived by investors to
be comparable to us; |
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the issuance of new or updated research reports by securities analysts; |
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disputes or other developments related to proprietary rights, including
patents, litigation matters and our ability to obtain intellectual property protection for our technologies; |
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announcement of, or expectation of, additional financing efforts; |
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sales of our ordinary shares by us or our shareholders; |
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share price and volume fluctuations attributable to inconsistent trading
volume levels of our shares; |
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recalls and/or adverse events associated with our products; |
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the expiration of contractual lock-up agreements with our executive
officers and directors; and |
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general political, economic and market conditions. |
Furthermore, the stock markets
have experienced extreme price and volume fluctuations that have affected and continue to affect the market price of equity securities
of many companies. Broad market and industry fluctuations, as well as general economic, political and market conditions, may negatively
impact the market price of our ordinary shares. For example, during the year ended December 31, 2022, the stock market experienced extreme
price and volume fluctuations, and our share price declined.
In the past, companies that
have experienced volatility in the market price of their shares have been subject to securities class action litigation or derivative
actions. We, as well as our directors and officers, may also be the target of these types of litigation and actions in the future. Securities
litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which
could seriously harm our business.
If securities or industry analysts do not
publish or cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations
or publish negative reports regarding our business or our shares, our share price and trading volume could be negatively impacted.
The trading market for our
ordinary shares may be influenced by the research and reports that industry or securities analysts may publish about us, our business,
our market, or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will
cover us or, if they do, provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding
our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could negatively impact our share price or trading volume.
Our shareholders may experience significant
dilution as a result of any additional financing using our equity securities or may experience a decrease in the share price due to sales
of our equity securities.
To the extent that we raise
additional funds to fund our activities through the sale of equity or securities that are convertible into or exchangeable for, or that
represent the right to receive, ordinary shares or substantially similar securities, your ownership interest will be diluted. Any additional
capital raised through the sale of equity securities will likely dilute the ownership percentage of our shareholders.
Future sales of ordinary shares by affiliates
could cause our share price to fall.
The FIMI Opportunity Funds
own 9,452,708 of our outstanding ordinary shares (representing an ownership percentage of 21.1% of the outstanding shares and 20.2% on
a fully diluted basis as of March 15, 2023). Pursuant to a registration rights agreement entered into with FIMI Opportunity
Funds on January 20, 2020, they have “demand” and “piggyback” registration rights covering the ordinary shares
of our company held by them. All shares of FIMI Opportunity Funds sold pursuant to an offering covered by a registration statement would
be freely transferable. Sales of a substantial number of shares of our ordinary shares, or the perception that the FIMI Opportunity Funds
may exercise their registration rights, could put downward pressure on the market price of our ordinary shares and could impair our future
ability to raise capital through an offering of our equity securities.
The significant share
ownership positions and board representation of the FIMI Opportunity Funds, Leon Recanati and Jonathan Hahn may limit our shareholders’
ability to influence corporate matters.
The FIMI Opportunity Funds
(three of whose partners are members of our board of directors, one of which serves as our Chairman), Leon Recanati and Jonathan Hahn,
members of our board of directors, beneficially owned, directly and indirectly, approximately 21.1%, 8.1% and 4.3% of our outstanding
ordinary shares, respectively, as of March 15, 2023. For additional information, see “Item 6. Directors, Senior Management and
Employees — Share Ownership” and “Item 7. Major Shareholders and Related Party Transactions — Major
Shareholders.” Accordingly, the FIMI Opportunity Funds, Leon Recanati, and the Hahn family through their equity ownership and
board representation, individually and collectively, have significant influence over the outcome of matters required to be submitted
to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed
acquisition, merger or consolidation of our company. Their interests may not be consistent with those of our other shareholders. In addition,
these parties’ significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely
affect the market price of our shares. On March 6, 2013, a shareholders agreement was entered into, effective March 4, 2013, pursuant
to which Mr. Recanati and any company controlled by him (collectively, the “Recanati Group”), on the one hand, and Damar
Chemicals Inc. (“Damar”), TUTEUR S.A.C.I.F.I.A (“Tuteur”) (companies controlled by the Hahn family) and their
affiliates (collectively, the “Damar Group”), on the other hand, have each agreed to vote the ordinary shares beneficially
owned by them in favor of the election of director nominees designated by the other group as follows: (i) three director nominees, so
long as the other group beneficially owns at least 7.5% of our outstanding share capital, (ii) two director nominees, so long as the
other group beneficially owns at least 5.0% (but less than 7.5%) of our outstanding share capital, and (iii) one director nominee, so
long as the other group beneficially owns at least 2.5% (but less than 5.0%) of our outstanding share capital. In addition, to the extent
that after the designation of the foregoing director nominees there are additional director vacancies, each of the Recanati Group and
Damar Group have agreed to vote the ordinary shares beneficially owned by them in favor of such additional director nominees designated
by the party who beneficially owns the larger voting rights in our company. We are not party to such agreement or bound by its terms.
As a result of such voting agreement, the Recanati Group and the Damar Group and their affiliates together have significant influence
over the election of directors of the company.
Our ordinary shares are traded on more
than one market and this may result in price variations.
Our ordinary shares have
been traded on the TASE since August 2005, and on Nasdaq since May 2013. Trading in our ordinary shares on these markets takes place
in different currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (as a result of different time zones, trading
days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ
due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a decrease in the trading price
of our ordinary shares on Nasdaq, and a decrease in the price of our ordinary shares on Nasdaq could likewise cause a decrease in the
trading price of our ordinary shares on the TASE.
Our U.S. shareholders may suffer adverse
tax consequences if we are characterized as a passive foreign investment company.
Generally, if, for any taxable
year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce
passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company (“PFIC”)
for U.S. federal income tax purposes. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including
having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential
rate applicable to dividends received on our ordinary shares, and having interest charges apply to distributions by us and the proceeds
of share sales. See “Item 10. Additional Information — E. Taxation — United States Federal Income Taxation.”
We are a “foreign private issuer”
and have disclosure obligations that are different from those of U.S. domestic reporting companies. As a result, we may not provide you
the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult
for you to evaluate our performance and prospects.
We are a foreign private
issuer and, as a result, are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject to
reporting obligations that, in certain respects, are less detailed and/or less frequent than those of U.S. domestic reporting companies.
For example, we are not required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic
reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting
companies. We also have four months after the end of each fiscal year to file our annual reports with the SEC and are not required to
file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our directors and executive officers
are not required to report equity holdings under Section 16 of the Exchange Act and are not subject to the insider short-swing profit
disclosure and recovery regime.
As a foreign private issuer,
we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups
of investors are not privy to specific information about an issuer before other investors. However, we are still subject to the anti-fraud
and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on
us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same
information about us and at the same time as the information provided by U.S. domestic reporting companies.
As we are a “foreign private issuer”
and follow certain home country corporate governance practices instead of otherwise applicable Nasdaq corporate governance requirements,
our shareholders may not have the same protections afforded to shareholders of domestic U.S. issuers that are subject to all Nasdaq corporate
governance requirements.
As a foreign private issuer,
we have the option to, and we do, follow Israeli corporate governance practices rather than certain corporate governance requirements
of Nasdaq, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements
we are not following and describe the home country practices we follow instead. We have relied on this “foreign private issuer
exemption” with respect to all the items listed under the heading “Item 16G. Corporate Governance,” including with
respect to shareholder approval requirements in respect of equity issuances and equity-based compensation plans, the requirement to have
independent oversight on our director nominations process and to adopt a formal written charter or board resolution addressing the nominations
process, the quorum requirement for meetings of our shareholders and the Nasdaq requirement to have a formal charter for the compensation
committee. We may in the future elect to follow home country practices in Israel with regard to other matters. As a result, our shareholders
may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
See “Item 16G. Corporate Governance.”
We have never paid cash dividends on our
ordinary shares and we do not anticipate paying any dividends in the foreseeable future. Consequently, any gains from an investment in
our ordinary shares will likely depend on whether the price of our ordinary shares increases, which may not occur.
We have never declared or
paid any cash dividends on our ordinary shares and do not intend to pay any cash dividends. Any agreements that we may enter into in
the future may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. In
addition, Israeli law limits our ability to declare and pay dividends and may subject our dividends to Israeli withholding taxes. We
anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes.
Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely
on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their
investments.
Risks Relating to Our Incorporation and Location
in Israel
Conditions in Israel could adversely affect
our business.
We are incorporated under
Israeli law and our principal offices and manufacturing facilities are located in Israel. Accordingly, political, economic and military
conditions in Israel and the surrounding region may directly affect our business. Since the State of Israel was established in 1948,
a number of armed conflicts have occurred between Israel and its Arab neighbors. Although Israel has entered into various agreements
with Egypt, Jordan and the Palestinian Authority, there has been terrorist activity with varying levels of severity over the years. In
the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our
facilities or the airports and seaports on which we depend to import and export our supplies and products, our ability to manufacture
and deliver products to customers could be materially adversely affected. Additionally, the operations of our Israeli suppliers and contractors
may be disrupted as a result of hostile action or hostilities, in which event our ability to deliver products to customers may be materially
adversely affected.
Our commercial insurance
does not cover losses that may occur as a result of events associated with war. Losses resulting from acts of terrorism may be partially
covered under certain circumstance. Although the Israeli government currently covers certain value of direct damages that are caused
by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently
cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
Further, in the past, the
State of Israel and Israeli companies have been subjected to economic boycotts. Several countries, principally in the Middle East, restrict
doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and
Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictions may limit
materially our ability to obtain raw materials from these countries or sell our products to companies in these countries. Any hostilities
involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn
in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our sales to decrease
and adversely affect the share price of publicly traded companies having operations in Israel, such as us.
In addition, the Israeli
Government recently proposed a broad judicial reform in Israel. In response to the foregoing developments, individuals, organizations
and institutions, both within and outside of Israel, have voiced concerns that the proposed judicial reform, if adopted, may negatively
impact the business environment in Israel including due to reluctance of foreign investors to invest or conduct business in Israel, as
well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in securities
markets, and other changes in macroeconomic conditions. Such proposed judicial reform may also adversely affect the labor market in Israel
or lead to political instability or civil unrest. Actual or perceived political or judicial instability in Israel or any negative changes
in the political environment may adversely affect the Israeli economy and financial condition and, in turn, our business, financial condition,
results of operations, growth prospects and market price of our shares, as well as on our ability to raise additional capital.
Our operations may be disrupted by the
obligations of personnel to perform military service.
As of December 31, 2022,
we had 360 employees based in Israel. Certain of our Israeli employees may be called upon to perform up to 36 days (and in some cases
more) of annual military reserve duty until they reach the age of 40 (and in some cases, up to 45 or older) and, in emergency circumstances,
could be called to active duty. In response to increased tension and hostilities, there have been occasional call-ups of military reservists,
and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant
number of our employees related to their, or their spouse’s, military service or the absence for extended periods of one or more
of our key employees for military service. Such disruption could materially adversely affect our business and results of operations.
Additionally, the absence of a significant number of the employees of our Israeli suppliers and contractors related to military service
or the absence for extended periods of one or more of their key employees for military service may disrupt their operations, in which
event our ability to deliver products to customers may be materially adversely affected.
The tax benefits under Israel tax legislation
that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could
increase our costs and taxes.
We have obtained a tax ruling
from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,”
as defined in the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”), and is also eligible
for tax benefits as a “Privileged Enterprise,” which apply to the turnover attributed to such enterprise, for a period of
up to ten years from the first year in which we generated taxable income. The tax benefits under the Privileged Enterprise status are
scheduled to expire at the end of 2023.
In order to remain eligible
for the tax benefits of a Privileged Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its
regulations, as amended, and must also comply with the conditions set forth in the tax ruling. These conditions include, among other
things, that the production, directly or through subcontractors, of all our products should be performed within certain regions of Israel.
If we do not meet these requirements, the tax benefits would be reduced or canceled and we could be required to refund any tax benefits
that we received in the past, in whole or in part, linked to the Israeli consumer price index, together with interest. Further, these
tax benefits may be reduced or discontinued in the future. If these tax benefits are canceled, our Israeli taxable income would be subject
to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies is 23% since 2018. For more information
about applicable Israeli tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax
Considerations and Government Programs.”
In the future, we may not
be eligible to receive additional tax benefits under the Investment Law if we increase certain of our activities outside of Israel. Additionally,
in the event of a distribution of a dividend from the abovementioned tax exempt income, in addition to withholding tax at a rate of 20%
(or a reduced rate under an applicable double tax treaty), we will be subject to tax on the otherwise exempt income (grossed-up to reflect
the pre-tax income that we would have had to earn in order to distribute the dividend) at the corporate tax rate applicable to our Privileged
Enterprise’s income, which would have been applied had we not enjoyed the exemption. Similarly, in the event of our liquidation
or a share buyback, we will be subject to tax on the grossed-up amount distributed or paid at the corporate tax rate which would have
been applied to our Privileged Enterprise’s income had we not enjoyed the exemption. For more information about applicable Israeli
tax regulations, see “Item 10. Additional Information — E. Taxation — Israeli Tax Considerations and Government
Programs.”
Tax matters, including changes in tax laws,
adverse determinations by taxing authorities and imposition of new taxes could adversely affect our results of operations and financial
condition. Furthermore, we may not be able to fully utilize our net operating loss carryforwards.
We are subject to the tax
laws and regulations of the State of Israel and numerous other jurisdictions in which we do business. Many judgments are required in
determining our provision for income taxes and other tax liabilities, and the applicable tax authorities may not agree with our tax positions.
In addition, our tax liabilities are subject to other significant risks and uncertainties, including those arising from potential changes
in laws and/or regulations in the State of Israel and the other countries in which we do business, the possibility of adverse determinations
with respect to the application of existing laws, changes in our business or structure and changes in the valuation of our deferred tax
assets and liabilities. As of December 31, 2022, we had net operating loss carryforwards (“NOLs”) for tax purposes of approximately
$26.5 million. If we are unable to fully utilize our NOLs to offset taxable income generated in the future, our future cash taxes could
be materially and negatively impacted. For further detail regarding our NOLs, see Note 22 in our consolidated financial statements included
in this Annual Report.
It may be difficult to enforce a U.S. judgment
against us and our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve
process on our officers and directors.
We are incorporated in Israel.
All of our directors and executive officers and the Israeli experts named in this Annual Report reside outside the United States. The
majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor,
or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities
laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United
States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original
actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the
grounds that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of
applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of
procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above.
Moreover, an Israeli court
will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli
courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel,
if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the
same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal
in Israel at the time the foreign action was brought.
Your rights and responsibilities as our
shareholder are governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S.
corporations.
Since we are incorporated
under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These
rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S.-based corporations.
In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights
and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s
articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related
party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other
shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome
of a shareholders vote, or who has the power to appoint or prevent the appointment of an office holder in the company or has other powers
towards the company, has a duty to act in fairness towards the company. However, Israeli law does not define the substance of this duty
of fairness. See “Item 6. Directors, Senior Management and Employees — Fiduciary Duties and Approval of Specified
Related Party Transactions under Israeli Law — Duties of Shareholders.” There is limited case law available to assist
us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional
obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our articles
of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.
Certain provisions of Israeli
law and our articles of association could have the effect of delaying or preventing a change in control and may make it more difficult
for a third party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would
be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.
For example, Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage
of shares in a public company are purchased. Under our articles of association, a merger shall require the approval of two-thirds of
the voting rights represented at a meeting of our shareholders and voting on the matter, in person or by proxy, and any amendment to
such provision shall require the approval of 60% of the voting rights represented at a meeting of our shareholders and voting on the
matter, in person or by proxy. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our
shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli
tax. With respect to certain mergers, while Israeli tax law permits tax deferral, the deferral is contingent on certain restrictions
on future transactions, including with respect to dispositions of shares received as consideration, for a period of two years from the
date of the merger. See Exhibit 2.1, “Description of Securities —Acquisitions Under Israeli Law,” incorporated
herein by reference.
General Risks
The loss of one or more of our key employees
could harm our business.
We depend on the continued
service and performance of our key employees, including Amir London, our Chief Executive Officer, and our other senior management staff.
We have entered into employment agreements with all of our senior management, including Mr. London, and other key employees. Either party,
however, can terminate these agreements for any reason. The loss of key members of our executive management team could disrupt our operations,
commercial and business development activities, or product development and have an adverse effect on our ability to meet our targets
and grow our business.
Our ability to attract, recruit, retain
and develop qualified employees is critical to our success and growth.
We compete in a market that
involves rapidly changing technological and regulatory developments that require a wide-ranging set of expertise and intellectual capital.
In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide
the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number of our key personnel who have
substantial experience with our operations, we must also develop and exercise our personnel to provide succession plans capable of maintaining
continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive,
and we may not succeed in recruiting additional experienced or professional personnel, retaining current personnel or effectively replacing
current personnel who depart with qualified or effective successors. Many of the companies with which we compete for experienced personnel
have greater resources than us.
Our effort to retain and
develop personnel may also result in significant additional expenses, which could adversely affect our profitability. There can be no
assurance that qualified employees will continue to be employed or that we will be able to attract and retain qualified personnel in
the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition
and results of operations.
We are subject to risks associated with
doing business globally.
Our operations are subject
to risks inherent to conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies.
These risks include fluctuations in currency exchange rates, changes in exchange controls, loss of business in government and public
tenders that are held annually in many cases, nationalization, expropriation and other governmental actions, availability of raw materials,
changes in taxation, importation limitations, export control restrictions, changes in or violations of applicable laws, including applicable
anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act of 2010, pricing restrictions, economic and political
instability, disputes between countries, personnel culture differences, diminished or insufficient protection of intellectual property,
and disruption or destruction of operations in a significant geographic region regardless of cause, including war, terrorism, riot, civil
insurrection or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect our global operations
could have an adverse effect on our business, financial condition or results of operations.
As a result of our increased global presence,
we face increasing challenges that could adversely impact our results of operations, reputation and business.
In light of our global presence,
especially following our entry into new international markets and particularly in the MENA region, we face a number of challenges in
certain jurisdictions that provide reduced legal protection, including poor protection of intellectual property, inadequate protection
against crime (including bribery, corruption and fraud) and breaches of local laws or regulations, unstable governments and economies,
governmental actions that may inhibit the flow of goods and currency, challenges relating to competition from companies that already
have a local presence in such markets and difficulties in recruiting sufficient personnel with appropriate skills and experience.
Local business practices
in jurisdictions in which we operate, and particularly in the MENA region, may be inconsistent with international regulatory requirements,
such as anti-corruption and anti-bribery laws and regulations (including the FCPA and the U.K. Bribery Act of 2010) to which we are subject.
Although we implement policies and procedures designed to ensure compliance with these laws, we cannot guarantee that none of our employees,
contractors, service providers, partners, distributors and agents, will not violate our policies or applicable law. Any such violation
could have an adverse effect on our business and reputation and may expose us to criminal or civil enforcement actions, including penalties
and fines.
Developments in the economy may adversely
impact our business.
Our operating and financial
performance may be adversely affected by a variety of factors that influence the general economy in the United States, Europe, Israel,
Russia, Latin America, Asia and other territories worldwide, including global and local economic slowdowns, challenges faced banks and
the health of markets for the sovereign debt. Many of our largest markets, including the United States, Latin America and states that
are members of the Commonwealth of Independent States previously experienced dramatic declines in the housing market, high levels of
unemployment and underemployment, and reduced earnings, or, in some cases, losses, for businesses across many industries, with reduced
investments in growth.
A recessionary economic environment
may adversely affect demand for our plasma-derived protein therapeutics. As a result of job losses, patients in the U.S. and other markets
may lose medical insurance and be unable to purchase needed medical products or may be unable to pay their share of deductibles or co-payments.
Hospitals may steer patients adversely affected by the economy to less costly therapies, resulting in a reduction in demand, or demand
may shift to public health hospitals, which purchase our products at a lower government price. A recessionary economic environment may
also lead to price pressure for reimbursement of new drugs, which may adversely affect the demand for our future plasma-derived protein
therapeutics.
A breakdown in our information technology
(IT) systems could result in a significant disruption to our business.
Our operations are highly
dependent on our information technology (IT) systems. If we were to suffer a breakdown in our systems, storage, distribution or tracing,
we could experience significant disruptions affecting all our areas of activity, including our manufacturing, research, accounting and
billing processes and potentially cause disruptions to our manufacturing process for products currently in production. We may also suffer
from partial loss of information and data due to such disruption.
Our business and operations would suffer
in the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security measures.
Despite the implementation
of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer
viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks
or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside
our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer
hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted
attacks and intrusions from around the world have increased. To the extent that any disruption or security breach results in a loss of
or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information and personal information,
we could incur liability due to lost revenues resulting from the unauthorized use or theft of sensitive business information, remediation
costs, and litigation risks including potential regulatory action by governmental authorities. In addition, any such disruption, security
breach or other incident could delay the further development of our future product candidates due to theft or corruption of our proprietary
data or other loss of information. Our business and operations could also be harmed by any reputational damage with customers, investors
or third parties with whom we work, and our competitive position could be adversely impacted.
Tax legislation in the United States may
impact our business.
Changes to the Internal Revenue
Code, the issuance of administrative rulings or court decisions could impact our business. Tax legislation enacted in recent years made
significant and wide-ranging changes to the U.S. Internal Revenue Code. Many aspects of such legislation that could affect our business
remain subject to considerable uncertainty. Further, it is impossible to predict the occurrence or timing of any additional tax legislation
or other changes in tax law that materially affect our business or investors.
Current and future accounting pronouncements
and other financial reporting standards, especially but not only concerning revenue recognition, might negatively impact our financial
results.
We regularly monitor our compliance with applicable
financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards,
changes to existing standards, including but not limited to IFRS 15 on revenue from contracts with customers that we adopted in 2018
and IFRS 16 on leases that we adopted in 2019 and changes in their interpretation, we might be required to change our accounting policies,
particularly concerning revenue recognition, to alter our operational policies so that they reflect new or amended financial reporting
standards, or to restate our published financial statements. Such changes might have an adverse effect on our reputation, business, financial
position, and profit, or cause an adverse deviation from our revenue and operating profit target.
The Russian invasion of Ukraine may have
a material adverse impact on us.
Commencing in 2021, Russian
President Vladimir Putin ordered the Russian military to begin massing thousands of military personnel and equipment near its border
with Ukraine and in Crimea, representing the largest mobilization since the illegal annexation of Crimea in 2014. President Putin has
initiated troop movements into the eastern portion of Ukraine and continues to threaten an all-out invasion of Ukraine. On February 22,
2022, the United States and several European nations announced sanctions against Russia in response to Russia’s actions. On February
24, 2022, President Putin commenced a full-scale invasion of Russia’s pre-positioned forces into Ukraine, which has had a negative
impact on supply chains and the economy and business activity globally. Furthermore, Russia’s ongoing military actions in Ukraine,
and the varying involvement of the United States and other NATO countries precludes prediction as to the ultimate adverse impact on global
economic and market conditions, and, as a result, presents material uncertainty and risk with respect to our operations and the price
of our shares.
To date, our operations have
not been materially impacted by Russia’s invasion of Ukraine, however, we may not be able to continue and supply our products to
our Russian distributor, and even if we are able to continue the supply of product, there can be no assurance that our distributor may
be able to pay us for such products given the actions by the Russian government to seize all international foreign currency payments.
Our revenues, profitability and financial condition may be affected if we are unable to continue to sell our products to the Russian
market and/or are not able to collect due proceeds from previous and/or future product sales. Additionally, the impact of higher energy
prices and higher prices for certain raw materials and goods and services resulting in higher inflation and disruptions to financial
markets and disruptions to manufacturing and supply and distribution chains for certain raw materials and goods and services across the
globe may impact our business in the future. We continue to assess and respond where appropriate to any direct or indirect impact that
the Russian invasion of Ukraine has on the availability or pricing of the raw materials for our products, manufacturing and supply and
distribution chains for our products and on the pricing and demand for our products.
Increasing scrutiny
of, and evolving expectations for, sustainability and environmental, social, and governance (“ESG”) initiatives could increase
our costs or otherwise adversely impact our business.
Public
companies are facing increasing scrutiny related to ESG practices and disclosures from certain investors, capital providers, shareholder
advocacy groups, other market participants and other stakeholder groups. Such increased scrutiny may result in increased costs, enhanced
compliance or disclosure obligations, or other adverse impacts on our business, financial condition or results of operations. While we
may at times engage in voluntary ESG initiatives, such initiatives may be costly and may not have the desired effect. If our ESG practices
and reporting do not meet investor or other stakeholder expectations, which continue to evolve, we may be subject to investor or regulator
engagement regarding such matters. In addition, new sustainability rules and regulations have been adopted and may continue to be introduced
in various states and other jurisdictions. For example, the SEC has published proposed rules that would require companies to provide
significantly expanded climate-related disclosures in their periodic reporting, which may require us to incur significant additional
costs to comply and impose increased oversight obligations on our management and board of directors. Our failure to comply with any applicable
rules or regulations could lead to penalties and adversely impact our reputation, access to capital and employee retention. Such ESG
matters may also impact our third-party contract manufacturers and other third parties on which we rely, which may augment or cause additional
impacts on our business, financial condition, or results of operations.
Item 4. Information on the Company
Corporate Information
We were incorporated under
the laws of the State of Israel on December 13, 1990, under the name Kamada Ltd. In August 2005, we successfully completed an initial
public offering on the TASE. In June 2013, we successfully completed an initial public offering in the United States on Nasdaq. The address
of our principal executive office is 2 Holzman St., Science Park, P.O. Box 4081, Rehovot 7670402, Israel, and our telephone number is
+972 8 9406472. Our website address is www.kamada.com. The reference to our website is intended to be an inactive textual reference and
the information on, or accessible through, our website is not intended to be part of this Annual Report. The SEC maintains a website
at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file
electronically with the SEC. You can also inspect the Annual Report on that website.
We have irrevocably appointed
Puglisi & Associates as our agent to receive service of process in any action against us in any United States federal or state court.
The address of Puglisi & Associates is 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.
Capital Expenditures
For a discussion of our capital
expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Business Overview
We are a commercial stage
global biopharmaceutical company with a portfolio of marketed products indicated for rare and serious conditions and a leader in the
specialty plasma-derived field focused on diseases of limited treatment alternatives. We are also advancing an innovative development
pipeline targeting areas of significant unmet medical need. Our strategy is focused on driving profitable growth from our significant
commercial catalysts as well as our manufacturing and development expertise in the plasma-derived and biopharmaceutical markets.
We operate in two segments:
(i) the Proprietary Products segment, which includes our six FDA approved plasma-derived biopharmaceutical products - CYTOGAM, KEDRAB,
WINRHO SDF, VARIZIG, HEPGAM B and GLASSIA, as well as KAMRAB, KAMRHO (D) and two types of equine-based anti-snake venom (ASV) products;
all of which we market internationally in more than 30 countries. We manufacture our proprietary products at our cGMP compliant FDA-approved
production facility located in Beit Kama, Israel, using our proprietary platform technology and know-how for the extraction and purification
of proteins and IgGs from human plasma, as well as at third party contract manufacturing facilities; and (ii) the Distribution segment,
in which we leverage our expertise and presence in the Israeli market by distributing, for use in Israel, more than 25 pharmaceutical
products supplied by international manufacturers and have recently added eleven biosimilar products to our portfolio, which, subject
to EMA and IMOH approvals, are expected to be launched in Israel through 2028.
As part of our Proprietary Products segment, we sell CYTOGAM, a Cytomegalovirus
Immune Globulin Intravenous (Human) (CMV-IGIV), indicated for prophylaxis of CMV disease associated with solid organ transplantation in
the United States and Canada. Total revenues from sales of CYTOGAM for the year ended December 31, 2022, the first full year during which
we sold the product, was $22.6 million.
We market KEDRAB, a human
rabies immune globulin (HRIG), in the United States through a strategic distribution and supply agreement with Kedrion. Our 2022 revenues
from sales of KEDRAB to Kedrion totaled $16.2 million as compared to $11.9 million and $18.3 million during 2021 and 2020, respectively.
Sales of KEDRAB by Kedrion in the United States during the years 2022, 2021 and 2020 totaled $36.2 million, $24.7 million, and $23.7
million, respectively. Based on the information provided by Kedrion, these sales represent approximately 32%, 27% and
23% share of the relevant U.S. market in each of these years, respectively. KEDRAB in-market sales by Kedrion during 2022 grew in comparison
to the pre-COVID-19 pandemic sales and we anticipate this trend to continue during 2023 and beyond.
We believe that sales of
CYTGOM and KEDRAB in the U.S. market, which generated more than 50% of gross profitability in the year ended December 31, 2022, will
continue to increase in the coming years and will be a major growth catalyst for the foreseeable future.
We sell WINRHO SDF, VARIZIG
and HEPGAM B, in the United States, Canada and several other international markets, mainly in the Middle East and North Africa (“MENA”)
regions. Total revenues from sales of these products for the year ended December 31, 2022, the first full year during which we sold these
products, was $29.5 million.
For the year ended December
31, 2022, we generated combined revenues of $52.1 million through sales of CYTOGAM, WINRHO SDF, VARIZIG and HEPGAM B, the portfolio of
four FDA-approved products that we acquired in November 2021. The 2022 revenues from this portfolio represent a 24% year over year increase
compared to the $41.9 million of total revenues generated by this portfolio during the year ended December 31, 2021.
We market GLASSIA in the
United States through a strategic partnership with Takeda. During 2021, Takeda completed the technology transfer of GLASSIA manufacturing
to its facility in Belgium and received the required FDA approval and initiated its own production of GLASSIA for the U.S. market. In
addition, during 2021, Takeda obtained a marketing authorization approval for GLASSIA from Health Canada. During the first quarter of
2022, Takeda began to pay us royalties on sales of GLASSIA manufactured by Takeda, at a rate of 12% on net sales through August 2025
and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. In 2022, we
received a total of $14.2 million from Takeda, of which $12.2 of sales-based royalty income (for the period between March and December
of 2022) and a $2.0 million one-time payment on account of the transfer, to Takeda, of the GLASSIA U.S. BLA. Based on current GLASSIA
sales in the U.S. and forecasted future growth, we expect to receive royalties from Takeda in the range of $10 million to $20 million
per year for 2023 to 2040 on GLASSIA sales. Historically, we generated revenues on sales of GLASSIA, manufactured by us, to Takeda for
further distribution in the United States. Our revenues from sales of GLASSIA to Takeda totaled $26.2 million and $64.9 million during
2021 and 2020, respectively. During 2021, we also recognized revenues of $5.0 million on account of a sales milestone associated with
GLASSIA sales by Takeda.
We also market GLASSIA in
other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2022 was $5.9 million,
as compared to $7.6 million and $5.5 million during 2021 and 2020, respectively. These ex-U.S. market sales of GLASSIA generated approximately
40% gross margin in the year ended December 31, 2022.
Our 2022 revenues from the
sales of the remaining Proprietary products, including KAMRAB (a human rabies immune globulin (HRIG) sold by us outside the U.S. market)
and KAMRHO (D) IM (for prophylaxis of hemolytic disease of newborns), as well as our anti-snake venoms, totaled $13.9 million, as compared
to $18.4 million and $11.2 million during 2021 and 2020, respectively.
We own an FDA licensed plasma collection center that we acquired in
March 2021 from the privately held B&PR based in Beaumont, Texas, which currently specializes in the collection of hyper-immune plasma
used in the manufacture of KAMRHO (D). For the year ended December 31, 2022, we generated $0.4 million in revenues from this plasma collection
center, which were included in our Proprietary Products revenues. See below “— Recent Acquisitions.” We are in
the process of significantly expanding our hyper-immune plasma collection capacity in this center. We obtained FDA approval for the collection
of hyper-immune plasma to be used in the manufacture of KEDRAB, which is plasma that contains high levels of antibodies from donors who
have been previously vaccinated by an active rabies vaccine and plan to start collections of such plasma during 2023. We also intend to
leverage our FDA license to establish additional plasma collection centers in the United States, with the intention of collecting normal
source plasma to be sold for manufacturing by third parties, as well as hyper-immune specialty plasma required for manufacturing of our
proprietary products. We believe that the expansion of our plasma collection capabilities will allow us to better support our plasma needs
as well as generate additional revenues through sales of collected normal source plasma. To that end, during March 2023, we entered into
a lease for a new plasma collection center in Uvalde, Houston, Texas and expect to commence operations at the new center following the
completion of its construction and obtaining the required regulatory approvals.
Our Distribution segment
is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Sales generated by our Distribution segment
during 2022 totaled $ 26.7 million, as compared to $28.1 million and $32.3 million during 2021 and 2020, respectively. The majority of
the revenues generated in our Distribution segment are from plasma-derived products manufactured by European companies, and its sales
represented approximately 75%, 84% and 89% of our Distribution segment revenues for the years ended December 31, 2022, 2021 and 2020,
respectively. Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma derived products,
including recently entering into an agreement with Alvotech and two additional companies for the distribution in Israel of eleven different
biosimilar products which, subject to EMA and subsequently IMOH approvals, are expected to be launched in Israel through 2028. We believe
that sales generated by the launch of the biosimilar products portfolio will become a major growth catalyst. We currently estimate the
potential aggregate peak revenues, achievable within several years of launch, generated by the distribution of all eleven biosimilar
products to be approximately $40 million annually.
In addition to our commercial
operation, we invest in research and development of new product candidates. Our leading investigational product is Inhaled AAT for AATD,
for which we are continuing to progress the InnovAATe clinical trial, a randomized, double-blind, placebo-controlled, pivotal Phase 3
trial. We have additional product candidates in early development stage. For additional information regarding our research and development
activities, see “— Our Development Product Pipeline”.
We continue to focus on driving
profitable growth through expanding our growth catalysts which include: investment in the commercialization and life cycle management
of our commercial Proprietary products, led by CYTOGAM and KEDRAB sales in the U.S. market; continued growth of our Proprietary hyper-immune
portfolio’s revenues in existing and new geographic markets through registration and launch of the products in new territories;
expanding sales of GLASSIA in ex-U.S. markets; generating royalties from GLASSIA sales by Takeda; expanding our plasma collection capabilities
in support of our growing demand for hyper-immune plasma as well as sales of normal source plasma to other plasma-derived manufacturers;
continued increase of our Distribution segment revenues specifically through launching the eleven biosimilar products in Israel; and
leveraging our FDA-approved IgG platform technology, manufacturing, research and development expertise to advance development and commercialization
of additional product candidates, including our investigational Inhaled AAT product, and identify potential commercial partners for this
product.
We currently expect to generate
total revenues for the fiscal year 2023 in the range of $138 million to $146 million and EBITDA in the range of $22 million to $26 million.
The mid- range points of the projected 2023 revenue and EBITDA forecast represent a 10% and 35% growth over fiscal year 2022, respectively.
Recent Acquisitions
Acquisition of IgG portfolio
In November 2021, we acquired
a portfolio of four FDA approved plasma-derived hyper-immune commercial products from Saol. For a description of the four products acquired
from Saol, CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF, see below “— Our Commercial Product Portfolio — Proprietary
Products Segment.” The acquisition of this portfolio furthered our core objective to become a fully integrated specialty plasma
company with strong commercial capabilities in the U.S. market, as well as to expand to new markets, mainly in the MENA region, and to
broaden our portfolio offering in existing markets. Our wholly owned U.S. subsidiary, Kamada Inc., is responsible for the commercialization
of the four products in the U.S. market, including direct sales to wholesalers and local distributers.
Under the terms of the agreement,
we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject to
the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. The first sales
threshold was achieved by the end of 2022, and a $3 million contingent consideration payment was paid to Saol during the first quarter
of 2023. Subject to certain conditions defined in the agreement between the parties, we may be entitled for up to $3.0 million credit
deductible from the contingent consideration payments due for the years 2023 through 2027. In addition, we acquired inventory valued
at $14.4 million and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million each or the remaining balance
at the final installment, of which we paid four installments of $1.5 million each to Saol during 2022.
To partially fund the acquisition
costs, we obtained a $40 million financing facility from the Israeli Bank Hapoalim B.M., comprised of a $20 million five-year loan and
a $20 million short-term revolving credit facility. Effective as of January 1, 2023, the financing facility was amended such that the
$20 million short-term revolving credit facility was replaced with a NIS 35 million (approximately $10 million) credit facility. For information
regarding the financing, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit
Facility and Loan Agreement with Bank Hapoalim B.M.”
In connection with the acquisition,
we entered into a transition services agreement (TSA) with Saol, under which Saol provided to us during 2022 certain services and support
(including, managing sales and distribution, payment collection, logistics management, price reporting, regulatory affairs, medical inquiries,
quality control complaints and pharmacovigilance), in order to secure the smooth transfer of the acquired assets and related commitments.
During the transition period to date, we have recruited staff as needed, and have gradually assumed all operational responsibilities
related to the acquired products, including distribution and sales, quality oversight, supply chain activities and finance related issues.
In addition, we assumed regulatory responsibility for all products in the United States as of September 2022 following FDA acknowledgment
of the BLAs transfer, and we assumed regulatory responsibility in Canada for CYTOGAM, WINRHO SDF and VARIZIG as of June 2022 and for
HEPAGAM B as of October 2022, following acknowledgment of the Drug Identification Number (“DIN”) transfer by Health Canada.
We continue to market inventory acquired from Saol under its label and product serial number.
Pursuant to an earlier engagement
with Saol, during 2019, we initiated technology transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility
in Beit Kama, Israel. As a result of the consummation of the IgG portfolio acquisition, which included the acquisition of all rights
relating to CYTOGAM, the previous engagement with Saol with respect to this product expired. During December 2022, we submitted a PAS
to the FDA for approval to manufacture CYTOGAM at the Beit Kama facility and FDA approval is currently expected by mid-2023. The anticipated
FDA approval will mark the successful conclusion of the technology transfer process of CYTOGAM from its previous manufacturer, CSL Behring.
A similar application to the Canadian health authorities was submitted in January 2023, with approval expected by the third quarter of
2023.
In connection with the acquisition,
we assumed a contract manufacturing agreement with Emergent for the manufacturing of HEPAGAM B, VARIZIG and WINRHO SDF. We expect to
continue manufacturing these products with Emergent in the foreseeable future and are considering the initiation of a technology transfer
for transitioning the manufacturing of these products to our manufacturing facility in Beit Kama, Israel. The initiation of such a technology
transfer would be subject to executing a new, amended manufacturing services agreement with Emergent, as currently contemplated, covering
operational aspects and the technology transfer related services and scope. We anticipate that once initiated, such a technology transfer
may be completed within four to five years.
Plasma Collection Center Acquisition
In March 2021, we completed
the acquisition of the FDA licensed plasma collection center and certain related assets from the privately held B&PR based in Beaumont,
Texas, which specializes in the collection of hyper-immune plasma used in the manufacturing of KAMRHO (D), used for prophylaxis of hemolytic
disease of newborns. This plasma collection center is one of the few FDA licensed centers in the U.S. collecting the specialty plasma
required for this product. The acquisition, for a total consideration of approximately $1.61 million, was consummated through Kamada
Plasma LLC, our wholly owned subsidiary, which operates our plasma collection activity in the United States.
Our Commercial Product Portfolio
Our commercial products portfolio
includes our proprietary plasma-derived biopharmaceutical products in our Proprietary Products segment, which are marked and sold directly
or through strategic partners and local distributers in the U.S., Canada, and additional markets worldwide, as well as licensed products,
some of which are plasma-derived, which are marketed and sold by us in our Distribution segment in Israel.
Proprietary Products Segment
Our products in the Proprietary
Products segment consist of plasma-derived protein and IgGs therapeutics derived from human plasma that are administered by injection
or infusion. We also manufacture anti-snake venom products from equine based serum.
Our Proprietary Products
segment sales totaled $102.6 million, $75.5 million and $100.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
For the years ended December 31, 2022, and 2021 (effective from November 22, 2021), revenues from sales of CYTOGAM, HEPAGAM B, VARIZIG
and WINRHO SDF totaled $52.1 million and $5.4 million, respectively. Revenues from sales of KEDRAB to Kedrion for further distribution
in the U.S. market totaled $16.2 million, $11.9 million and $18.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
In 2022, we recognized a total of $14.2 million as revenues from Takeda, of which $12.2 million of sales-based royalty income on account
of GLASSIA sales by Takeda (for the period between March and December 2022) and a $2.0 million one-time payment on account of the transfer,
to Takeda, of the GLASSIA U.S. BLA. Sales of GLASSIA to Takeda for further distribution in the U.S. were terminated during 2021; for
the years ended December 31, 2021 and 2020 revenues from the sales of GLASSIA to Takeda totaled $26.2 million and $65.1 million, respectively.
In addition, during 2021 we recognized revenues of $5.0 million on account of a sales milestone due from Takeda. Sales of GLASSIA, other
than to Takeda, for the years ended December 31, 2022, 2021 and 2020, totaled $5.9 million, $7.6 million and $5.5 million, respectively.
Sales of our other Proprietary products (including sales of our development stage Anti-SARS-CoV-2 IgG product during 2020) accounted
for the substantial balance of total revenues in the Proprietary Products segment for the years ended December 31, 2022, 2021 and 2020.
The following tables lists
our Proprietary Products:
Product |
|
Indication
|
|
Active
Ingredient |
|
Geography |
CYTOGAM |
|
Prophylaxis of Cytomegalovirus (CMV) disease in kidney, lung,
liver, pancreas, heart and heart/lung transplants
|
|
Cytomegalovirus Immune Globulin Intravenous (Human)
|
|
USA, Canada, and Qatar*** |
|
|
|
|
|
|
|
KAMRAB/
KEDRAB
|
|
Prophylaxis of rabies
disease |
|
Anti-rabies immunoglobulin
(Human) |
|
USA, Israel, India, Thailand, El Salvador, Bosnia***,
Russia*, Mexico*, Georgia*, Ukraine*, Poland***, South Korea***, Canada, Australia, Argentina***, and Brazil***. |
|
|
|
|
|
|
|
WINRHO SDF |
|
Immune thrombocytopenic purpura (ITP) and suppression
of rhesus isoimmunization (RH) |
|
Rho(D) immunoglobulin (Human) |
|
USA, Canada, Egypt, Hong Kong, Kuwait, Saudi
Arabia, South Korea, Turkey, UAE, Uruguay, and Iraq** |
|
|
|
|
|
|
|
HEPAGAM B |
|
Prevention of Hepatitis B recurrence liver transplants
and post-exposure prophylaxis |
|
Hepatitis B immunoglobulin (Human) |
|
USA, Canada, Turkey, Israel, Saudi Arabia***,
UAE, Bahrain***, Moldova*** and Kuwait* |
|
|
|
|
|
|
|
VARIZIG
|
|
Post exposure prophylaxis of Varicella in high
risk individuals |
|
Varicella Zoster Immunoglobulin (Human) |
|
USA, Canada, Belgium***, Kuwait***, Netherlands***,
Sweden***, UAE***, Norway***, Denmark***, Brazil and Estonia*** |
|
|
|
|
|
|
|
GLASSIA (or Ventia/Respikam in certain countries) |
|
Intravenous AATD |
|
Alpha-1 Antitrypsin (Human) |
|
USA, Canada**, Israel, Russia, Brazil*, Argentina,
Uruguay**, South Africa***, Colombia**, Albania**, Kazakhstan**, and Costa Rica** |
|
|
|
|
|
|
|
KamRho (D) IM |
|
Prophylaxis of hemolytic
disease of newborns |
|
Rho(D) immunoglobulin (Human) |
|
Israel, Brazil,
India*, Argentina, Paraguay, Chile, Russia, Nigeria*, Thailand*, Costa Rica** and the Palestinian Authority |
|
|
|
|
|
|
|
KamRho (D) IV |
|
Treatment of immune
thermobocytopunic purpura |
|
Rho(D) immunoglobulin (Human)
|
|
India* and Argentina*
|
|
|
|
|
|
|
|
Snake bite antiserum |
|
Treatment of snake
bites by the Vipera palaestinae and the Echis coloratus |
|
Anti-snake venom |
|
Israel |
|
* |
We have regulatory approval but did not market the product in this
country in 2022. |
|
** |
Product was registered, but we have not yet started sales. |
|
*** |
Product was marketed without registration. |
Propriety Products
CYTOGAM
CYTOGAM (Cytomegalovirus
Immune Globulin Intravenous (Human)) (CMV-IGIV) is indicated for CMV disease associated with the transplantation of the kidney, lung,
liver, pancreas and heart. CYTOGAM, approved by the FDA in 1998, is the sole FDA-approved immunoglobulin (IgG) product for this indication,
and was acquired by us from Saol in November 2021.
CYTOGAM is administered within
72 hours after transplantation and then at weeks 2, 4, 6, 8, 12 and 16 after transplantation. The precise dosage is adjusted according
to patient’s weight. CMV seroprevalence in the US is estimated at 50-80% among adults. CMV is typically passed through direct personal
contact. A seropositive status indicates exposure to the virus and development of antibodies against CMV. After initial infection, CMV
establishes lifelong latency in the host. Immunocompetent individuals possess few defenses, which protect mostly from infection and clinical
symptoms (cell-mediated immunity). Immunocompromised patients, such as transplant patients, are vulnerable to both de novo and reactivation
of CMV. In SOTs, seronegative recipients (R-) receiving seropositive organs (D+) have the highest risk of CMV infection and disease.
The occurrence of disease caused by CMV in transplanted patients without prophylaxis in patients undergoing lung or heart-lung transplantation
is 50%-75%, 9%-23% after heart transplantation, 22%-29% after liver transplantation, and 8%-32% after kidney transplantation. Investigational
studies have shown that administration of CMV-IGIV is associated with neutralization of free CMV particles, which may lead to specific
activation of the immune system, by raising relevant antibodies to levels capable of attenuating or reducing the incidence of serious
CMV disease post-transplantation.
Based on the Organ Procurement
and Transplantation Network (OPTN), in the U.S., there were more than 42,000 SOT procedures performed during 2022. The OPTN also suggests
that the number of transplants each year continues to accelerate and in each of the past 11 years, new annual records have been set in
the number of deceased donors nationwide. Transplantation has also increased as a result of greater and more successful usage of organs
from less traditional donors, including older individuals and people who have died of cardiorespiratory failure. Several available antivirals
(ganciclovir and valganciclovir) are being used and are considered standards of care for the prevention of CMV infection in high-risk
patients. As CMV infection in immunocompromised solid organ transplant patients can be severe and life-threatening, we believe that administration
of CYTOGAM together with the available antivirals may provide additional protection in preventing CMV disease for certain high-risk transplant
populations, such as lung and heart transplant. We believe there is an under-utilization of CYTOGAM as prophylaxis to CMV in high risk
populations within SOT due to lack of new data and awareness regarding the benefits of combination CYTOGAM and antiviral therapy, and
by addressing these deficits, higher usage rates can be supported.
CYTOGAM is registered and
sold in the United States and Canada. In addition, CYTOGAM is supplied on a named patient basis without registration in Qatar. We plan
to leverage our existing international distribution network to explore the opportunities to register and commercialize the product in
other territories. In addition, we are currently working with key opinion leaders (“KOLs”) in the U.S. to generate new clinical
data in support of CYTOGAM and may explore future label expansion opportunities for the use of CYTOGAM in other indications.
We obtained the approval
from Health Canada for the transfer of the DIN in June 2022. We received FDA acknowledgment for the transfer of the ownership of the
U.S. BLA for CYTOGAM in September 2022. During December 2022, we submitted an application to the FDA to manufacture CYTOGAM at the Beit
Kama facility. The application was submitted as a PAS and FDA approval is currently expected by mid-2023. The anticipated FDA approval
will mark the successful conclusion of the technology transfer process of CYTOGAM from the previous manufacturer, CSL Behring. A similar
application to the Canadian health authorities was submitted in January 2023, with approval expected by the third quarter of 2023. Our
currently available inventory of CYTOGAM is sufficient to meet market demand until the currently anticipated approval schedule.
Total revenues from sales
of CYTOGAM for the year ended December 31, 2022, the first full year during which we sold the product, was $22.6 million.
KAMRAB/KEDRAB
KAMRAB is a hyper-immune
plasma-derived therapeutic for prophylactic treatment against rabies infection that is administered to patients after exposure to an
animal suspected of being infected with rabies. KAMRAB is manufactured at our manufacturing facility in Beit Kama, Israel from plasma
that contains high levels of antibodies from donors that have been previously vaccinated by an active rabies vaccine. KAMRAB is administered
by a one-time injection, and the precise dosage is a function of the patient’s weight (20 IU/kg).
According to the WHO, rabies
is estimated to cause 59,000 human deaths annually in over 150 countries and each year more than 29 million people worldwide receive
a post-bite rabies vaccination. This is estimated to prevent hundreds of thousands of rabies deaths annually. The CDC recommends
that PEP treatment for people who have never been vaccinated against rabies previously should always include administration of both Human
Rabies Immuno Globulin (HRIG) and rabies vaccine. According to the CDC, the combination of HRIG and vaccine is recommended for both bite
and non-bite exposures, regardless of the interval between exposure and initiation of treatment.
KAMRAB has been sold by us
in various markets outside the United States through local distributors since 2003 and is currently sold in 15 countries, including Canada
where it received marketing approval in November 2018, in various South American markets through the PAHO, the specialized international
health agency for the Americas, and in Australia in which it received marketing approval in August 2021.
In July 2011, we signed a
strategic distribution and supply agreement with Kedrion for the clinical development and marketing in the United States of KAMRAB, pursuant
to which Kedrion agreed to bear all the costs required for the Phase 2/3 clinical trials. See “— Strategic Partnerships —
Kedrion (KAMRAB/KEDRAB).” The results of a phase 2/3 study demonstrated that KAMRAB was non-inferior to the comparator HRIG
product in achieving Rabies Virus Neutralizing Antibody (RVNA) levels of ≥0.5 IU/mL on day 14, when each was co-administered with
a rabies vaccine. In addition, KAMRAB was found to be well-tolerated with a safety profile similar to that of the comparator HRIG product.
Based on these results, in August 2017, we received FDA approval for the marketing of KAMRAB in the United States for PEP against rabies
infection, and in April 2018 we, together with Kedrion, launched the product in the United States under the trademark KEDRAB.
In June 2021, the FDA approved
a label update for KEDRAB, establishing the product’s safety and effectiveness in children aged 0 to 17 years. The updates to the
KEDRAB label were based on data from the KEDRAB U.S. post marketing pediatric study, the first and only clinical trial to establish pediatric
safety and effectiveness of any HRIG in the United States. The KEDRAB U.S. pediatric trial was conducted at two sites, one in Arkansas
and another in Rhode Island. The study included 30 pediatric patients (ages 0-17 years old), each of whom received KEDRAB as part of
PEP treatment following exposure or suspected exposure to an animal suspected or confirmed to be rabid, and safety follow-up was conducted
for up to 84 days. The primary objective of the study was to confirm the safety of KEDRAB in the pediatric population. Secondary objectives
included the evaluation of antibody levels and the effectiveness of KEDRAB in the prevention of rabies disease when administered with
a rabies vaccine according to the PEP recommended guidelines. No serious adverse events were observed during the study. No incidence
of rabies disease or deaths were recorded throughout the 84-day study period. According to the CDC data, no children in the United States
treated with post-exposure prophylaxis have been reported to have had rabies between 2018 and April 2021, which supports the use of KEDRAB
in children.
Our revenues from sales of
KEDRAB to Kedrion during 2022 totaled $16.2 million as compared to $11.9 million and $18.3 million during 2021 and 2020, respectively.
Sales of KEDRAB by Kedrion in the United States during the years 2022, 2021 and 2020 totaled $36.2 million, $24.7 million, and $23.7
million, respectively. Based on the information provided by Kedrion, these sales represent approximately 32%, 27% and 23% share
of the relevant U.S. market in each of these years, respectively. KEDRAB in-market sales by Kedrion during 2022 grew in comparison to
the pre-COVID-19 pandemic sales and we anticipate this trend to continue 2023 and beyond.
WINRHO SDF
WINRHO SDF is a Rho(D) Immune
Globulin Intravenous (Human) product indicated for use in clinical situations requiring an increase in platelet count to prevent excessive
hemorrhage in the treatment of non-splenectomies, for Rho(D)-positive children with chronic or acute immune thrombocytopenia (ITP), adults
with chronic ITP, and children and adults with ITP secondary to HIV infection. WINRHO SDF is also used for suppression of Rhesus (Rh)
Isoimmunization during pregnancy and other obstetric conditions in non-sensitized, Rho(D)-negative women. WINRHO SDF, approved by the
FDA in 1995, was acquired by us from Saol in November 2021.
Immune thrombocytopenic purpura
(ITP) is a blood disorder characterized by a decrease in the number of platelets – the cells that help blood clot. Recent findings
suggest that nearly 20,000 children and adults are newly diagnosed with ITP each year in the United States. Rho(D) immunoglobulin is
an effective option for rapidly increasing platelet counts in patients with symptomatic ITP.
HDN is a blood disorder in
a fetus or newborn infant. In some infants, it can be fatal. During pregnancy, Red Blood Cells (RBCs) from the unborn baby can cross
into the mother’s blood through the placenta. HDN occurs when the immune system of the mother sees a baby’s RBCs as foreign.
Antibodies then develop against the baby’s RBCs. These antibodies attack the RBCs in the baby’s blood and cause them to break
down too early. Rho(D) immunoglobulin is administered to Rh-negative pregnant women as prophylactic therapy, to prevent the disease.
The proportion of Rh-negative blood type differs from country to country and in the United States approximately 15% of people are Rh-negative.
In the U.S. market WINRHO
SDF is used almost solely as treatment of ITP, however due to an FDA black-box warning for Intravascular Hemolysis (IVH) issued in 2011,
as well as the introduction of new ITP therapies, its sales in the U.S. market dropped significantly between 2011 to 2017 and have remained
relatively flat since. The current use of WINRHO SDF in the U.S. market is for treatment of acute ITP in which it competes with corticosteroids
and high-dose IVIG. We believe that as the only Rho (D) product positioned in the U.S. for ITP, maintaining awareness of the product
will continue to support ongoing usage rates.
WINRHO SDF is currently registered
and sold in 10 territories including the United States and Canada, as well as Egypt, Hong Kong, Kuwait, Saudi Arabia, South Korea,
Turkey, the United Arab Emirates, and Uruguay. In ex-U.S. territories, the product is mainly used to treat HDN, and we are continually
evaluating with our existing international distribution network the registration and commercialization of the product in other territories.
We obtained FDA acknowledgment
for the transfer of the ownership of the BLA for WINRHO SDF in September 2022. The ownership transfer of the DIN was approved by Health
Canada in June 2022, and we are in the process of submitting requests to transfer the registration of the product in other international
countries as applicable.
WINRHO SDF is currently manufactured
by Emergent under a contract manufacturing agreement, which was assigned to us by Saol following the consummation of the acquisition.
We expect to continue manufacturing the product with Emergent in the foreseeable future, and are considering the initiation of a technology
transfer for transitioning the manufacturing of WINRHO SDF to our manufacturing facility in Beit Kama, Israel. The initiation of such
a technology transfer would be subject to executing a new revised manufacturing services agreement with Emergent, as currently contemplated
covering operational aspects and the technology transfer related services and scope. We anticipate that once initiated, such a technology
transfer may be completed within four to five years.
Our KAMRHO (D) is a comparable
product to WINRHO SDF and approved for HDN. The two products are registered and distributed in different markets.
HEPAGAM B
HEPAGAM B is a hepatitis
B Immune Globulin (Human) (HBIg) product indicated to both prevent hepatitis B virus (HBV) recurrence following liver transplantation
in hepatitis B surface antigen positive (HBsAg- positive) patients and to provide post-exposure prophylaxis treatment. HEPAGAM B, which
was approved by the FDA in 2006 for post-exposure prophylaxis and in 2007 as a prevention therapy, was acquired by us from Saol in November
2021.
Liver transplantation is
the treatment of choice for patients with liver failure secondary to chronic hepatitis B. However, liver transplantation is complicated
by the risk of recurrent hepatitis B virus infection, which significantly impairs graft and patient survival. Prevention of hepatitis
B virus (HBV) reinfection includes use of antiviral therapy, with the addition of hepatitis B immune globulin. HBIG treatment is based
upon the rationale that administered antibody will bind to and neutralize circulating virions, thereby preventing graft infection.
In the U.S. market HEPAGAM
B is mostly used for post-transplant prophylaxis in which it competes with Nabi-HB, a product of ADMA. Given the expected continued increase
in liver transplants in the ex-U.S. countries, and with our planned direct marketing efforts we believe product usage may grow.
HEPAGAM B is registered and
sold in six territories including the United States, Canada, Turkey, Israel, the United Arab Emirates and Kuwait (in which territory
sales have not yet initiated). In addition, HEPAGAM B is supplied on a named patient basis without registration in Moldova, Bahrain and
Saudi Arabia (in which the registration process is currently on going).
FDA acknowledgment of ownership
transfer of the BLA of HEPAGAM B was received in September 2022. Health Canada approval for the DIN transfer was obtained in October
2022. We are in the process of submitting requests to transfer the registration of the product in other international countries as applicable.
HEPAGAM B is currently manufactured
by Emergent under a contract manufacturing agreement which was assigned from Saol following the consummation of the acquisition. We expect
to continue manufacturing the product with Emergent in the foreseeable future, and are considering the initiation of a technology transfer
for transitioning the manufacturing of HEPAGAM B to our manufacturing facility in Beit Kama, Israel. The initiation of such a technology
transfer would be subject to executing a new, amended manufacturing services agreement with Emergent, as currently contemplated, covering
operational aspects and the technology transfer related services and scope. We anticipate that once initiated, such a technology transfer
may be completed within four to five years.
VARIZIG
VARIZIG (Varicella Zoster
Immune Globulin (Human)) is a product that contains antibodies specific for VZV, and it is indicated for post-exposure prophylaxis of
varicella (chickenpox) in high-risk patient groups, including immunocompromised children, newborns, and pregnant women. VARIZIG is intended
to reduce the severity of chickenpox infections in these patients. The CDC recommends VARIZIG for post-exposure prophylaxis of varicella
for persons at high-risk for severe disease who lack evidence of immunity to varicella. VARIZIG, approved by the FDA in 2012, is the
sole FDA-approved IgG product for this indication, and was acquired by us from Saol in November 2021.
Varicella-zoster virus (VZV)
causes varicella (chicken pox) and herpes zoster (shingles). Varicella is a common childhood illness. Herpes zoster is caused by VZV
reactivation. The incidence of herpes zoster increases with age or immunosuppression. Individuals at highest risk of developing severe
or complicated varicella include immunocompromised people, preterm infants, and pregnant women. Varicella zoster immune globulin (human)
(VARIZIG) is recommended by the CDC for post-exposure prophylaxis to prevent or attenuate varicella-zoster virus infection in high-risk
individuals. VARIZIG may help these vulnerable patients to be defended against serious disease from varicella exposure. It has been demonstrated
that post-exposure administration of VARIZIG was associated with low rates of varicella in high-risk patients.
VARIZIG is registered and
sold in the United States and Canada. In addition, VARIZIG is supplied on a named patient basis or through a tender in Belgium, Kuwait,
Netherlands, Sweden, the United Arab Emirates, Norway, Denmark, and Estonia.
In July 2022, we secured
an $11.4 million agreement to supply VARIZIG to the PAHO, which also serves as Regional Office for the WHO, for further distribution
in Latin America. The supply of the product commenced in the fourth quarter of 2022 and is expected to continue through the first half
of 2023.
FDA acknowledgment of ownership
transfer of the BLA of VARIZIG was received in September 2022. Health Canada approval for the DIN transfer was obtained in June 2022.
VARIZIG is currently manufactured
by Emergent under a contract manufacturing agreement which was assigned from Saol following the consummation of the acquisition. We expect
to continue manufacturing the product with Emergent in the foreseeable future, and are considering the initiation of a technology transfer
for transitioning the manufacturing of VARIZIG to our manufacturing facility in Beit Kama, Israel. The initiation of such a technology
transfer would be subject to executing a new, amended manufacturing services agreement with Emergent, as currently contemplated, covering
operation aspects and the technology transfer related services and scope. We anticipate that once initiated, such a technology transfer
may be completed within four to five years.
In October 2022, we were
awarded an extension of an existing tender from the Canadian Blood Services (CBS) for the supply of the four IgG products, CYTOGAM, HEPAGAM,
VARIZIG and WINRHO SDF, for an additional three years, commencing on April 1, 2023, for an approximate total value of $22 million, securing
the ongoing sales of those products in the Canadian market. CBS manages the Canadian supply of blood products for all Canadian provinces
and territories, excluding Quebec. We have an option to extend the agreement for up to two additional years. In addition, in Quebec,
we also supply CYTOGAM, HEPAGAM, VARIZIG and WINRHO SDF under the agreement with H’ema Quebec that was assigned to us from Saol.
GLASSIA
GLASSIA is an intravenous
AAT product produced from fraction IV plasma that is indicated by the FDA for chronic augmentation and maintenance therapy in adults
with emphysema due to congenital AATD. AAT is a naturally occurring protein found in a derivative of plasma known as fraction IV. AAT
regulates the activity of certain white blood cells known as neutrophils and reduces cell inflammation. Patients with genetic AATD suffer
from a chronic inflammatory state, lung tissue damage and a decrease in lung function. While GLASSIA does not cure AATD, it supplements
the patient’s insufficient physiological levels of AAT and is administered as a chronic treatment. As such, the patient must take
GLASSIA indefinitely over the course of his or her life in order to maintain the benefits provided by it. GLASSIA is administered through
a single weekly intravenous infusion.
In the United States and
Europe, we believe that AATD is currently significantly under-diagnosed and under-treated. Based on information published by the Alpha-1
Foundation, there are approximately 100,000 people with AATD in the United States and about the same number in Europe, and we estimate,
based on medical literature, that only approximately 10% of all potential cases of AATD are treated. We believe that the primary reasons
for this significant gap are the non-availability of AAT products in many countries, under diagnosis of patients suffering from AATD,
expensive and protracted registration processes required to commence sales of AAT products in new markets and the absence of insurance
reimbursement in various countries. We expect diagnosis of AATD to continue to increase going forward as awareness of AATD increases.
Based on a market analysis report from 2020, the estimated annual growth rate of currently approved AATD therapies in the U.S. and the
five largest European countries is approximately 6-8%.
According to the Centers
for Medicare and Medicaid Services, published payment allowance limits for Medicare part B, the average sale price, as of January 2023,
of 10 mg of GLASSIA is $5.099, resulting in an annual cost of between $80,000 and $120,000 per each AATD patient. In the United States,
in some of the European countries and in Israel, we believe that the majority of the cost of treatment is covered by medical insurance
programs.
GLASSIA was the first FDA-approved
liquid AAT, which is ready for infusion and does not require reconstitution and mixing before infusion, as is required from most other
competing products. Additionally, in June 2016, the FDA approved an expanded label of GLASSIA for self-infusion at home after appropriate
training. GLASSIA has a number of advantages over other intravenous AAT products, including the reduction of the risk of contamination
during the preparation and infection during the infusion, reduced potential for allergic reactions due to the absence of stabilizing
agents, simple and easy use by the patient or nurse, and the possible reduction of the nurse’s time during home visits, in the
clinic or in the hospital and the ability to self- infuse at home.
Currently, GLASSIA is registered
in 12 countries, of which it is currently being sold in the United States, Argentina, Israel and Russia. GLASSIA is also sold in South-Africa
on a non-registered named-patient basis. During 2023-2024, we expect to launch and sell GLASSIA in some of the additional countries where
it is currently registered. The majority of sales of GLASSIA are in the United States, where it obtained FDA approval in July 2010 and
sales commenced in September 2010. As part of the approval, the FDA requested that we conduct post-approval Phase 4 clinical trials,
as is common in the pharmaceutical industry, aimed at collecting additional safety and efficacy data for GLASSIA. According to our agreement
with Takeda (See “— Strategic Partnerships — Takeda (Glassia).”), the Phase 4 clinical trials are financed and
managed by Takeda, provided that if the cost of such Phase 4 clinical trials exceeds a pre-defined amount, we will participate in financing
such trial up to a certain amount by offsetting such amounts from future milestones, sales of GLASSIA or royalties from Takeda. The first
Phase 4 safety study completed enrollment of a total of 30 subject in the U.S. and Canada during 2020 and its clinical study report was
completed and was submitted to the FDA during 2022. The second Phase 4 efficacy study was initiated during 2016 and was terminated two
years after initiation based on the DSMB’s recommendation due to very low recruitment rates. During 2019, Takeda submitted a revised
Phase 4 protocol to the FDA. Following several interactions with the FDA with respect to the Phase 4 efficacy study requirements, Takeda
decided not to continue to pursue the study.
We market GLASSIA in the
United States through a strategic partnership with Takeda. During 2021, Takeda completed the technology transfer of GLASSIA manufacturing
to its facility in Belgium and received the required FDA approval and initiated its own production of GLASSIA for the U.S. market. In
addition, during 2021, Takeda obtained a marketing authorization approval for GLASSIA from Health Canada. During the first quarter of
2022, Takeda began to pay us royalties on sales of GLASSIA manufactured by Takeda, at a rate of 12% on net sales through August 2025
and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. In 2022, we
received a total of $14.2 million from Takeda, of which $12.2 of sales-based royalty income (for the period between March and December
of 2022) and a $2.0 million a one-time payment on account of the transfer, to Takeda, of the GLASSIA U.S. BLA. Based on current GLASSIA
sales in the U.S. and forecasted future growth, we expect to receive royalties on GLASSIA sales from Takeda in the range of $10 million
to $20 million per year for 2023 to 2040. Historically, we generated revenues on sales of GLASSIA, manufactured by us, to Takeda for
further distribution in the United States. Our revenues from the sale of GLASSIA to Takeda totaled $26.2 million and $64.9 million during
2021 and 2020, respectively. During 2021 we also recognized revenues of $5.0 million on account of a sales milestone associated with
GLASSIA sales by Takeda.
KAMRHO (D)
KAMRHO (D), similar to WINRHO
SDF, is indicated for the prevention of HDN, which is a blood disease that occurs where the blood type of the mother is incompatible
with the blood type of the fetus. KAMRHO (D) is produced from hyper-immune plasma and is administered through intra-muscular injection
(KAMRHO (D) IM).
We have completed the registration
process for KAMRHO (D) in several countries and we currently sell it in seven countries, including Israel, as well as countries in Latin
America, Asia, Africa and Eastern Europe.
SNAKE BITE ANTISERUM
Our snake bite antiserum
products are used for the treatment of people who have been bitten by the most common Israeli viper (Vipera palaestinae) and by
the Israeli Echis (Echis coloratus). The venom of these snakes is poisonous and causes, among other symptoms, severe immediate
pain with rapid swelling. These snake bites can lead to death if left untreated. Our snake bite antiserum products are produced from
hyper-immune serum that has been derived from horses that were immunized against Israeli viper and Israeli Echis venom. These products
are the only treatment in the Israeli market for Vipera palaestinae and Echis coloratus snake bites.
We manufacture the snake
bite antiserums pursuant to an agreement with the IMOH entered into in March 2009 and as extended and amended in November 2022. The agreement
with the IMOH was initially entered into following a tender that we won, and the extension of the agreement was under an exemption from
a tender. We completed construction of the production facilities and laboratories for the product in accordance with the agreement, and
successfully passed the IMOH inspections. We began production of our snake bite antiserums in August 2011 and commenced sales to the
IMOH in 2012. Under the agreement and subject to its terms, the IMOH has undertaken to purchase from us, and we have undertaken to supply
the IMOH, a minimum quantity of snake bite antiserums each year during the term of the agreement. The agreement with the IMOH is currently
in effect until September 2024.
Plasma Collection
As part of our strategy of
evolving into a fully integrated specialty plasma company, we established Kamada Plasma LLC, a newly formed wholly owned subsidiary,
which operates our plasma collection activity in the United States. In March 2021, we completed the acquisition of the FDA licensed plasma
collection center and certain related assets from the privately held B&PR based in Beaumont, Texas, which specializes in the collection
of hyper-immune plasma used in the manufacture of KAMRHO (D).
The acquisition of B&PR’s
plasma collection center represented our entry into the U.S. plasma collection market. We intend to leverage this acquisition to reduce
our dependency on third-party suppliers in terms of plasma supply needs as well as generate sales from commercialization of collected
normal source plasma. We are in the process of significantly expanding our hyperimmune plasma collection capacity by investing in the
acquired plasma collection center in Beaumont, Texas. We obtained FDA approval for the collection of hyper-immune plasma to be used in
the manufacture of KEDRAB, which is plasma that contains high levels of antibodies from donors who have been previously vaccinated by
an active rabies vaccine and plan to start collections of such plasma during 2023. In addition, we initiated a project to leverage our
FDA plasma collection license to establish a network of new plasma collection centers in the United States, commencing in 2023, with the
intention to collect normal source plasma for sale to other plasma-derived manufacturers, as well as hyperimmune specialty plasma required
for manufacturing of our Proprietary products. In connection with such project, during March 2023, we entered into a lease for a new plasma
collection center in Uvalde, Houston, Texas and expect to commence operations at the new center following the completion of its construction
and obtaining the required regulatory approvals.
Distribution Segment
Our Distribution segment
is comprised of marketing and sales in Israel of pharmaceutical products manufactured by third parties. We engage third party manufacturers,
register their products with the IMOH, import the products to Israel, market, sell and distribute them to local HMOs, hospitals and pharmacists.
Sales generated by our Distribution segment during 2022 totaled $26.7 million, as compared to $28.1 million and $32.3 million during
2021 and 2020, respectively, and accounted for approximately 21%, 27% and 24% of our total revenues for the years ended December 31,
2022, 2021 and 2020, respectively. Our primary products in the Distribution segment include pharmaceuticals for critical care delivered
by injection, infusion or inhalation. Currently, most of the revenues generated in our Distribution segment are from products produced
from plasma or plasma-derivatives and are manufactured by European companies. IVIG is our primary product in the Distribution segment,
comprising approximately 59%, 73% and 76% of total revenues in the Distribution segment for the years ended December 31, 2022, 2021 and
2020, respectively. The decrease in sales of IVIG during 2022 as compared to previous years was as a result of supply shortages of our
European manufacturers.
Over the past several years
we continued to extend our Distribution segment products portfolio to non-plasma derived products and in December 2019, we entered into
an agreement with Alvotech, a global biopharmaceutical company, to commercialize Alvotech’s portfolio of six biosimilar product
candidates in Israel, upon receipt of regulatory approval from the IMOH. During 2021 we added two additional products to the agreement,
bringing the total number of products in the portfolio to eight. Alvotech’s pipeline includes biosimilar product candidates aimed
at treating autoimmunity, oncology and inflammatory conditions. Subject to approval by the IMOH, we expect to launch the first of these
products, in Israel during 2023 and two others during 2024. Following receipt of the EMA marketing approval by Alvotech, and subject
to subsequent approval by the IMOH, the remaining seven products included under the agreement with Alvotech are expected to be launched
in Israel through 2028. In addition, in January 2021, we announced our entering into agreements with two undisclosed international pharmaceutical
companies to commercialize three additional biosimilar product candidates in Israel. Subject to approval by the EMA and subsequently
by the IMOH, the three products are expected to be launched in Israel through 2026. The two pharmaceutical companies will maintain development,
manufacturing and supply responsibilities for these three products.
Based on the projected list
price reduction due to the continued increase in competition as a result of the launch of additional biosimilar products and new competitors
entering the biosimilar market, and anticipated market penetration potential, we currently estimate the potential aggregate peak revenues
from the sale of all eleven products, achievable within several years of launch, to be approximately $40 million annually.
The following table sets
forth our primary products in the Distribution segment.
Product |
|
Indication |
|
Active Ingredient |
Respiratory |
|
|
|
|
|
|
|
|
|
BRAMITOB |
|
Management of chronic pulmonary infection due to pseudomonas aeruginosa in patients six years and older with cystic fibrosis |
|
Tobramycin |
|
|
|
|
|
FOSTER |
|
Regular treatment of asthma where use of a combination product (inhaled corticosteroid and long-acting beta2-agonist) is appropriate |
|
Beclomethasone dipropionate, Formoterol fumarate |
|
|
|
|
|
TRIMBOW |
|
Maintenance treatment in adult patients with moderate to severe chronic obstructive pulmonary disease (COPD)with Asthma Maintenance treatment of asthma |
|
Beclomethasone dipropionate, Formoterol fumarate, GLYCOPYRRONIUM AS BROMIDE |
|
|
|
|
|
PROVOCHOLINE |
|
Diagnosis of bronchial airway hyperactivity in subjects who do not have clinically apparent asthma |
|
Methacholine Chloride |
|
|
|
|
|
AEROBIKA |
|
OPEP device |
|
None |
|
|
|
|
|
RUPAFIN |
|
Symptomatic treatment of Allergic rhinitis and Urticaria |
|
Rupatadine |
|
|
|
|
|
RUPAFIN ORAL SOLUTION |
|
Symptomatic treatment of allergic rhinitis in children aged 2 to 11 years and urticaria in children aged 2 to 11 years |
|
Rupatadine |
|
|
|
|
|
Immunoglobulins |
|
|
|
|
|
|
|
|
|
IVIG |
|
Treatment of various immunodeficiency-related conditions |
|
Gamma globulins (IgG) (human) |
|
|
|
|
|
VARITECT |
|
Preventive treatment after exposure to the virus that causes chicken pox and zoster herpes |
|
Varicella zoster immunoglobulin (human) |
|
|
|
|
|
ZUTECTRA |
|
Prevention of hepatitis B virus (HBV) re-infection in HBV-DNA negative patients 6 months after liver transplantation for hepatitis B induced liver failure |
|
Human hepatitis B immunoglobulin |
|
|
|
|
|
HEPATECT CP |
|
Prevent contraction of Hepatitis B by adults and children older than two years |
|
Hepatitis B immunoglobulin (human) |
|
|
|
|
|
MEGALOTECT CP |
|
Contains antibodies that neutralize CMV viruses and prevent their spread in immunologically impaired patients |
|
CMV immunoglobulin (human) |
|
|
|
|
|
RUCONEST |
|
Treatment of acute angioedema attacks in adults with hereditary angioedema (HAE) due to C1 esterase inhibitor deficiency |
|
Conestat Alfa |
|
|
|
|
|
Critical Care |
|
|
|
|
|
|
|
|
|
HEPARIN SODIUM INJECTION |
|
Treatment of thrombo-embolic disorders such as deep vein thrombosis, acute arterial embolism or thrombosis, thrombophlebitis, pulmonary embolism, fat embolism. Prophylaxis of deep vein thrombosis and thromboembolic events |
|
Heparin sodium |
|
|
|
|
|
ALBUMIN and ALBUMIN |
|
Maintains a proper level in the patient’s blood plasma |
|
Human serum Albumin |
|
|
|
|
|
Coagulation Factors |
|
|
|
|
|
|
|
|
|
Factor VIII |
|
Treatment of Hemophilia Type A diseases |
|
Coagulation Factor VIII (human) |
|
|
|
|
|
Factor IX |
|
Treatment of Hemophilia Type B disease |
|
Coagulation Factor IX (human) |
|
|
|
|
|
COAGADEX |
|
Treatment specifically for hereditary factor X deficiency |
|
Coagulation factor X |
Vaccinations |
|
|
|
|
|
|
|
|
|
IXIARO |
|
Active immunization against
Japanese encephalitis in adults, adolescents, children and infants aged 2 months and older |
|
Japanese encephalitis purified inactivated vaccine |
|
|
|
VIVOTIF |
|
Immunization against disease caused by Salmonella Typhi |
|
Typhoid vaccine live oral
|
|
|
|
|
|
Metabolic Disease
|
|
|
|
|
|
|
|
|
|
PROCYSBI |
|
Nephropathic cystinosis in adults and children 1 year of age and older |
|
Cysteamine Biartrate |
|
|
|
LAMZEDE |
|
Treatment of alpha-mannosidosis |
|
Velmanase alfa |
|
|
|
|
Oncology |
|
|
|
|
|
|
ELIGARD |
|
Management of advanced prostate cancer |
|
Leuprolide acetate |
Our Development Product Pipeline
Our research and development
activities include conducting pre-clinical and clinical trials and other development activities for our Propriety pipeline products,
improving existing products and processes, conducting development work at the request of regulatory authorities and strategic partners,
as well as communicating with regulatory authorities regarding our commercial products and clinical and development programs. We incurred
approximately $13.2 million, $11.4 million and $13.6 million in research and development expenses in the years ended December 31, 2022,
2021 and 2020, respectively.
We are in various stages
of pre-clinical and clinical development of new product candidates for our Proprietary Products segment.
Inhaled Formulations of AAT for AATD
We are in the process of
clinical development of an inhaled formulation of AAT administered through the use of a nebulizer. The nebulizer was developed by PARI.
Inhaled AAT for AATD has been designated as an orphan drug for the treatment of AATD in the United States and Europe.
We have been able to leverage
our expertise gained from the production of GLASSIA to develop a stable, high-purity Inhaled AAT product candidate for the treatment
of AATD. Existing treatment for AATD require weekly intravenous infusions of AAT therapeutics. We believe that Inhaled AAT for AATD,
if approved, will increase patient convenience and reduce or replace the need for patients to use intravenous infusions of AAT products,
decreasing the need for clinic visits or nurse home visits, improving the patient’s quality of life and reducing medical costs.
If approved, Inhaled AAT for AATD is estimated to be the first AAT product that is not required to be delivered intravenously and instead
is administered non-invasively by inhalation once daily.
The current standard care
for AATD in the United States and in certain European countries, as well as in some additional international markets, is a weekly intravenous
infusion of an AAT therapeutic. We estimate that only 2% of the AAT dose reaches the lung when administered intravenously. We have conducted
a U.S. Phase 2 clinical study demonstrating that administration of an inhaled formulation of AAT through inhalation results in greater
dispersion of AAT to the target lung tissue, including the lower lobes and lung periphery. Accordingly, the inhaled formulation of AAT
requires a significantly lower therapeutic dose, and we believe it would be more effective in reducing inflammation of the lung tissue
and inhibiting the uncontrolled neutrophil elastase that causes the breakdown of the lung tissue and the emphysema.
Because of the smaller amount
of AAT dose used in Inhaled AAT for AATD (since it is applied directly to the site of action rather than administered systematically),
we believe that this product, if approved, will enable us to treat significantly more patients from the same amount of plasma and production
capacity and may be more cost effective for patients and payors and may increase our profitability.
We conducted a double-blind
randomized placebo-controlled Phase 2/3 pivotal trial, under EMA guidance, which was completed at the end of 2013. A total of 168 patients
participated in the trial in seven countries in Europe and Canada. Subjects in this trial were administered with a twice daily treatment
of Inhaled AAT or equivalent dose of placebo for 50 consecutive weeks. The primary endpoint of the trial was the time from randomization
to the first event-based exacerbation with a severity of moderate or severe. Other endpoints, which were secondary and tertiary, included
additional exacerbation measures, lung function, lung density measured by CT scan and quality of life. The trial was 80% powered based
on the number of exacerbation events collected in the study, in order to detect a difference between the two groups after 50 weeks. A
20% difference between the two groups was required to prove efficacy and was considered clinically meaningful, allowing the decision
to prescribe the treatment. An open label extension of an additional 50 weeks on active drug was offered to study participants in most
sites once they completed the initial 50-week period. Treatment in the open label extension of the trial was completed in November 2014.
This study did not meet its
primary and secondary endpoints. However, lung function parameters, including Forced Expiratory Volume in One Second (“FEV1”)
% of Slow Vital Capacity (“SVC”) and FEV1 % predicted, FEV1 (liters) which was collected to support safety endpoints, showed
concordance of a potential treatment effect in the reduction of the inflammatory injury to the lung that is known to be associated with
a reduced loss of respiratory function.
In accordance with guidance
received following the meetings conducted with the European rapporteur and co-rapporteur, we performed several post hoc analyses. Results
of the post hoc analyses indicated that after one year of daily inhalation of our Inhaled AAT, clinically and statistically significant
improvements were seen in spirometric measures of lung function, particularly in bronchial airflow measurements FEV1 (L), FEV1% predicted
and FEV1/SVC. These favorable results were even more evident when analyzing the overall treatment effect throughout the full year.
For lung function, overall
effect for one year:
|
● |
FEV1 (L) rose significantly in AAT treated patients and decreased in
placebo treated patients (+15ml for AAT vs. -27ml for placebo, a 42 ml difference, p=0.0268) |
|
● |
There was a trend towards better FEV1% predicted (0.54% for AAT vs.
-0.62% for placebo, a 1.16% difference, p=0.065) |
|
● |
FEV1/SVC% rose significantly in AAT treated patients and decreased
in placebo treated patients (0.62% for AAT vs. -0.87% for placebo, a 1.49% difference, p=0.0074) |
For lung function change
at week 50 vs. baseline:
|
● |
There was a trend towards reduced FEV1 (L)decline (-12ml for AAT vs.
-62ml for placebo, a 50 ml difference, p=0.0956) |
|
● |
There was a trend towards a reduced decline in FEV1% predicted (-0.1323%
for AAT vs. -1.6205% for placebo, a 1.4882% difference, p=0.1032) |
|
● |
FEV1/SVC% rose significantly in AAT treated patients and decreased
in placebo treated patients (0.61% for AAT vs. -1.07% for placebo, a 1.68% difference, p=0.013) |
During March 2014, we initiated
a Phase 2 trial in the United States. The trial was completed in May 2016. This trial was intended to serve as a supplementary trial
to the European Phase 2/3 trial and was designed to incorporate parameters required by the FDA. This Phase 2, double-blind, placebo-controlled
study explored the Endothelial Lining Fluid (“ELF”) and plasma concentration as well as safety of Inhaled AAT in AATD subjects.
The subjects received one of two doses of Inhaled AAT or placebo. The study involved the daily inhalation of 80 mg or 160 mg of human
AAT or placebo via the eFlow device for 12 weeks. Following the 12-week double blind period, the subjects were offered to participate
in an additional 12 weeks open label period during which they receive only Inhaled AAT therapy. In December 2015, we completed the enrollment
of patients in the study and in August 2016 we reported positive top-line results, according to which we met the primary endpoint.
AATD patients treated with
our Inhaled AAT product in such U.S. Phase 2 clinical trial, demonstrated a significant increase in ELF AAT antigenic level compared
to the placebo group (median increase 4551 nM, p-value<0.0005 (80 mg/day, n=12), and 13454 nM, p-value<0.002 (160mg/day, n=12)).
These results are more than twice the increase of ELF antigenic AAT level (+2600 nM) observed in our previously completed intravenous
AAT pivotal study (60mg/kg/week). Antigenic AAT represents the total amount of AAT in the lung, both active and inactive. The study results
also showed that our Inhaled AAT is more efficient than IV to restore ELF AAT level within the lung. In addition, ELF Anti-Neutrophil
Elastase inhibitory (“ANEC”) level also increased significantly [median increase 2766 nM, p-value<0.0005 (80mg/day) and
3557 nM, p-value<0.004 (160 mg/day)]. The increase in ELF ANEC level was also more than twice that demonstrated in our previously
completed IV AAT pivotal study. The ANEC level represents the active AAT that can counterbalance further damage by neutrophil elastase.
The updated data included
in our poster presentation of May 2017 demonstrated that ELF-AAT, neutrophil elastase (NE)-AAT and ANEC complexes concentration significantly
increased in subjects receiving the 80 mg and 160 mg doses, (median increase of 38.7 neutrophil migration (nM), p-value<0.0005 (80
mg/day, n=12), and median increase of 46.2 nM, p-value<0.002 (160 mg/day, n=10)). This is a specific measure of the anti-proteolytic
effect in the ELF and represents the amount of NE that was broken down by AAT. The increase in levels of functional AAT was six times
higher (160 mg per day) than is achievable with intravenous (IV) AAT. In addition, ELF NE decreased significantly. Also, the 80 mg data
demonstrated a significant reduction in the percentage of neutrophils. Finally, aerosolized M-specific AAT was detected in the plasma
of all subjects receiving Inhaled AAT, consistent with what was seen in the Phase 2/3 clinical trial of our Inhaled AAT conducted in
the EU.
We filed the MAA for our
Inhaled AAT for AATD during the first quarter of 2016 and in June 2017 we withdrew the MAA, as following extensive discussions with the
EMA we concluded that the EMA did not view the data submitted as sufficient, in terms of safety and efficacy, for approval of the MAA,
and that the supplementary data needed for approval required an additional clinical trial. While the post-hoc data indicated a statistically
significant and clinically meaningful improvement in lung function, the EMA was of the opinion that an overall positive conclusion on
the effect of Inhaled AAT for AATD could not be reached based on that post-hoc analysis, and that the treatment of AATD patients with
our Inhaled AAT product should be further evaluated in the clinic in order to obtain comprehensive long-term efficacy and safety data.
The EMA was of the opinion that the study failed to show sufficient beneficial effects in the population studied. In addition, there
were concerns about the tolerability and safety profile of the AAT, mainly in patients with severe lung disease. Lastly, the EMA raised
concerns about the high rate of patients with antibodies (ADA) responding to AAT, which might reduce its effects or make patients more
prone to allergic reactions, despite evidence that none of the patients with such ADA response had allergic reaction nor a lower level
of AAT in the serum.
When presented with the European
Phase 2/3 study data, the FDA expressed concerns and questions in connection with the safety and efficacy of Inhaled AAT for the treatment
of AATD and the risk/benefit balance to patients based on that data and product characteristics. Following several discussions with the
FDA and EMA, through which additional data and information were provided and we addressed both agencies’ guidance with respect
to our proposed subsequent Phase 3 pivotal study protocol, we received positive scientific advice from the Committee of Medicinal Products
for Human Use (“CHMP”) of the EMA related to the development plan for our proposed pivotal Phase 3 pivotal study for Inhaled
AAT for AATD, and in April 2019, we received a letter from the FDA stating that we had satisfactorily addressed the concerns and questions
with respect to the proposed Phase 3 clinical trial.
During December 2019, we
initiated our Phase 3 InnovAATe trial and announced the first-patient-in. InnovAATe is a randomized, double-blind, placebo-controlled,
pivotal Phase 3 trial designed to assess the efficacy and safety of Inhaled AAT in patients with AATD and moderate lung disease. Up to
220 patients will be randomized 1:1 to receive either Inhaled AAT at a dose of 80mg once daily, or placebo, over two years of treatment.
The primary endpoint of the InnovAATe trial is lung function measured by FEV1. Secondary endpoints include lung density changes as measured
by CT densitometry, as well as other parameters of disease severity, such as additional pulmonary functions, exacerbation rate and six-minute
walk test. The safety profile will be monitored continuously by a Data Monitoring Committee with predefined rules to be applied after
the first 60 subjects have completed six months of treatment. The study is led by Jan Stolk, M.D., Department of Pulmonology, Member
of European Reference Network LUNG, Leiden University Medical Center, the Netherlands.
During 2021 and 2022, enrolment
in the pivotal Phase 3 InnovAATe clinical trial was negatively affected by the impact of COVID-19 pandemic on healthcare systems. In
2022, following the moderation of the pandemic, the study was expanded to additional sites across Europe and enrollment accelerated.
By the end of February 2023, 50 patients were enrolled in the study, of whom 17 have completed the two-year study treatment period at
the initial trial site in Leiden, the Netherlands. Only one patient discontinued treatment prematurely due to airway irritation that
started during the run-in period (before introducing the drug/placebo), and no drug-related serious adverse events were reported. Additionally,
as part of routine and planned monitoring processes, and for the fourth time since study initiation, the independent DSMB recently recommended
that the trial continue without modification. Moreover, based on the encouraging safety observed to date, the DSMB supported an expansion
to the inclusion criteria to also include subjects with severe airflow limitation (40%<FEV1<80% of predicted; previously inclusion
criteria were 50%<FEV1<80%), which is expected to further expedite patient enrolment. We intend to meet with the FDA and EMA during
the first half of 2023 to discuss study progress and potential opportunities to shorten the regulatory pathway.
Prior to the initiation of
the pivotal Phase 3 InnovAATe clinical trial we completed a Human Factor Study (HFS) to support the combination product, consisting of
our Inhaled AAT and the investigational eFlow nebulizer system of PARI Pharma GmbH. Based on feedback received from the FDA, we conducted
a subsequent HFS to support an improved use regimen of the product, which was implemented in the InnovATTe study.
In addition to the pivotal
study and based on feedback received from the FDA regarding ADAs to Inhaled AAT, we intend to concurrently conduct a sub-study in North
America in which approximately 30 patients will be evaluated for the effect of ADA on AAT levels in plasma with Inhaled AAT and IV AAT
treatments. We already obtained FDA acceptance of the protocol design for the study; and its initiation is planned for 2024.
We continue to evaluate partnering
opportunities for the development and commercialization of this pipeline product.
Anti-SARS-CoV-2 IgG Product as a Potential
Treatment for COVID-19
In response to the COVID-19
outbreak, in early 2020 we initiated the development of a human plasma-derived Anti-SARS-CoV-2 polyclonal immunoglobulin (IgG) product
using our proprietary plasma derived IgG platform technology as a potential treatment for COVID-19. The development of our investigational
Anti-SARS-CoV-2 IgG product was done with full cooperation with IMOH. The product was developed in line with the requirement of Ph Eur
for IVIG product and based on our established technology platform for IgG, as approved in the United States, Israel and other international
markets.
In June 2020, our Anti-SARS-CoV-2
IgG product became available for compassionate use treatment in Israel, and in August 2020, we initiated a Phase 1/2 open-label, single-arm,
multi-center clinical trial in Israel of the product. A total of 12 eligible patients (age 34-69) were enrolled in the trial and received
our product at a single dose of 4 grams IgG within five to 10 days of initial symptoms. Patient follow-up occurred for 84 days. In March
2021, we announced top-line results for the Phase 1/2 clinical trial, according to which symptoms improvement was observed in 11 of the
12 patients within 24 to 48 hours from treatment. Seven patients were discharged from the hospital at or before day 5 post-treatment
and the remaining four patients were discharged by day 9. Following the infusion of the product anti-SARS CoV-2 IgG levels in the plasma
of all patients increased. Our Anti-SARS-CoV-2IgG product demonstrated a favorable safety profile, and there were no infusion-related
reactions or adverse events considered related to study drug. There were two serious adverse events in the study, both were considered
not related to the study drug. One patient died on day 37 post treatment due to complications from COVID-19. Another patient was diagnosed
post-discharge with pulmonary embolism on day 7 of the study. The patient was re-hospitalized, treated with anticoagulation therapy,
recovered within two days, and was subsequently discharged from the hospital.
In October 2020, we signed
an agreement with the IMOH to supply our investigational Anti-SARS-CoV-2 IgG product for the treatment of COVID-19 patients in Israel.
We manufactured the product, which was supplied to the IMOH, from convalescent plasma collected and supplied by the Israeli National
Blood Services, a division of Magen David Adom (MADA), as well as plasma collected by Kedrion in the U.S. The order, supplied during
2021, was sufficient to treat approximately 500 hospitalized patients and generated approximately $3.9 million in revenue in 2021. The
supply of the product to the IMOH was not extended beyond the initial order.
Given the increased vaccination
rate of the population as well as approvals of monoclonal antibodies for COVID-19, we discontinued this development program.
Recombinant AAT
During 2020 we initiated
the development of recombinant human Alpha 1 Antitrypsin (“rhAAT”) product. To ensure the success of this project, we developed
analytical tools (physicochemical, biochemical, and biological assays) that support the selection and characterization of the product.
We engaged Cellca a CDMO located in Germany, part of Sartorius Stedim BioTech Group, to pursue the cell line development of the rhAAT
in Chinese Hamsters Ovaries with the goal of developing high productivity and superior quality product. During 2022, we studied the clones
previously selected using in vitro and in vivo models, elucidating the immuno-modulatory properties of the protein.
We currently do not plan
to continue the development of this product and are looking to attract a strategic partner(s) to collaborate in the further development
and/or commercialization of this program.
Other early-stage development programs
During 2022, we initiated
three new early-stage development programs of plasma derived product candidates. These programs include: (i) a human plasma-based eye
drop for potential treatment of several conditions; (ii) an automated portable small scale system for extraction and purification of
hyperimmune IgG from convalescent plasma, at the hospital/blood bank setting, for immediate response to a variety of unmet medical needs,
including pandemic outbreaks, as well as possible treatment of currently neglected or untreated viral diseases; and (iii) a hyperimmune
anti-tuberculosis IgG as a potential complementary treatment to existing standard of care, the program is developed in collaboration
with the Clinical Microbiology and Immunology department of the Medicine-Sackler Faculty of Tel Aviv University and is partially funded
by the Israel Innovation Authority.
We plan to advance these
programs until completion of proof-of-concept, at which point we plan to evaluate continued internal development, partnering or out-licensing.
Strategic Partnerships
We currently have strategic
partnerships with a number of different companies regarding the distribution and/or development of our products portfolio. Certain of
the strategic partnerships relating to our Proprietary Products segment are discussed below.
Kedrion (KAMRAB/KEDRAB)
On July 18, 2011, we signed
an agreement with Kedrion, an international company that collects and fractionates blood plasma to produce and distribute plasma-derived
therapeutic products for use in treating serious diseases, disorders and conditions such as hemophilia and immune system deficiencies,
with market presence in about 100 countries. The agreement provided for exclusive cooperation on completing the clinical development,
and marketing and distribution of our anti-rabies immunoglobulin, KAMRAB, in the United States under the brand name KEDRAB, if the product
is approved. Pursuant to the agreement, Kedrion bore all the costs of the Phase 2/3 clinical trials in the United States of our product.
Pursuant to the agreement, costs related to any Phase 4 clinical trials, if required, and the FDA Prescription Drug User fee required
for all new approved drugs, will be divided equally between us and Kedrion. In October 2016, we entered into an addendum to the agreement
with respect to the performance of a safety clinical trial for the treatment of pediatric patients in the United States, pursuant to
which we and Kedrion agreed to equally share the cost of such trial. The agreement was further supplemented in October 2018 and June
2019, with regard to the determination of purchase price and payment terms under the agreement.
The agreement provides exclusive
rights to Kedrion to market and sell KEDRAB in the United States. We retain intellectual property rights to KEDRAB. Kedrion is obligated
to purchase a minimum amount of KEDRAB per year during the term of the agreement.
In April 2018, following
the receipt of an FDA marketing authorization, we launched KEDRAB in the United States. For more information about the product see above
“Item 4. Information on the Company — Proprietary Products Segment — Our Commercial Product Portfolio —
Propriety Products — KAMRAB/KEDRAB”.
The term of the agreement
is for six years commencing on the date by which KEDRAB U.S. launch was feasible (i.e., until March 2024). Kedrion has an option to extend
the term by two additional years (i.e., until March 2026). In addition to customary termination provisions (including the right of either
party to terminate the agreement if the other party fails to perform or violates any provision of the agreement in any material respect
and the failure continues unremedied for a defined period), Kedrion has the right to terminate the agreement, upon prior written notice,
(i) for any reason after receipt of FDA approval, (ii) in the event that the FDA BLA is suspended or revoked and cannot be reinstated
within a certain period of time, or (iii) a major regulatory change occurs that materially and adversely increases the clinical trial
costs. We have the right to terminate the agreement in the event that (i) a major regulatory change occurs that materially and adversely
increases the manufacturing costs of KEDRAB, (ii) a major regulatory change occurs that poses considerable difficulties on submission
of an application for FDA approval or (iii) clinical trials are not initiated within a certain time after either receipt by Kedrion of
enough product or FDA approval to begin clinical trials.
Upon termination or expiration
of the agreement, Kedrion’s exclusive rights to market and sell KEDRAB in the U.S. market will be canceled, at which point we may
elect to market and sell the product in the U.S. market on our own or otherwise engage a different distributor.
Takeda (GLASSIA)
We have a partnership arrangement
with Takeda that includes three main agreements: (1) an exclusive manufacturing, supply and distribution agreement, pursuant to which
until November 2021 we manufactured GLASSIA for sale to Takeda for further distribution in the United States, Canada, Australia and New
Zealand; (2) a technology license agreement, which grants Takeda licenses to use our knowledge and patents to produce, develop and sell
GLASSIA; and (3) a fraction IV-I paste supply agreement, pursuant to which Takeda supplies us with fraction IV plasma, a plasma derivative,
produced by Takeda, as discussed under “— Manufacturing and Supply — Raw Materials — Plasma derived Fraction
IV paste for GLASSIA manufacturing.” Other than with respect to plasma-derived AAT administration by IV, we retain all rights,
including distribution rights, to any other form of AAT administration, including Inhaled AAT for AATD.
The agreements were originally
executed with Baxter in August 2010. During 2015, Baxter assigned all its rights under the agreements to Baxalta, an independent public
company which spun-off from Baxter. In 2016, Shire completed the acquisition of Baxalta, and as a result, all of Baxalta’s rights
under the agreements were assigned to Shire. In January 2019, Takeda completed its acquisition of Shire, and all rights under the agreement
transferred to Takeda.
Exclusive Manufacturing, Supply and Distribution
Agreement
Pursuant to the exclusive
manufacturing, supply and distribution agreement, as amended from time to time, Takeda was obligated to purchase a minimum amount of
GLASSIA per year until the end of 2021. Under the agreement, Takeda is also obligated to fund required Phase 4 clinical trials related
to GLASSIA up to a specified amount, and if the costs of such clinical trials are in excess of this amount, we agreed to fund a portion
of the additional costs. We also undertook to reimburse Takeda for its GLASSIA marketing efforts up to a limited amount during the years
2017-2020.
In November 2021, pursuant
to the technology license agreement described below, Takeda completed the technology transfer of GLASSIA manufacturing, and initiated
its own production of GLASSIA for the U.S. market. Accordingly, we completed the supply of GLASSIA to Takeda and, while for a certain
period of time we are still an approved supplier of the product, we do not anticipate continuing to manufacture and supply GLASSIA to
Takeda under the exclusive manufacturing, supply and distribution agreement.
Technology License Agreement
The technology license agreement
provides an exclusive license to Takeda, with the right to sub-license to certain manufacturing parties, of our intellectual property
and know-how regarding the manufacture and additional development of GLASSIA for use in Takeda’s production and sale of GLASSIA
in the United States, Canada, Australia and New Zealand. Pursuant to the technology license agreement, we were entitled to receive payments
for the achievement of certain development-based milestones related to the transfer of technology to Takeda and sales-based milestones.
To date, we have received the total aggregate milestone payments under the agreement ($20 million).
During the fourth quarter
of 2021 Takeda received an approval from Health Canada for the marketing and distribution of GLASSIA in Canada.
Pursuant to the technology
license agreement, following the initiation of GLASSIA manufacturing by Takeda it shall pay us royalties at a rate of 12% on net sales
through August 2025, and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually, for each of the years from 2022
to 2040. During the first quarter of 2022, Takeda began to pay us royalties on sales of GLASSIA manufactured by Takeda. For the period
between March and December 2022, we accounted for $12.2 million of sales-based royalty income from Takeda.
Pursuant to an amendment
to the license agreement entered into in March 2021, upon completion of the transition of GLASSIA manufacturing to Takeda, which was
completed in November 2021, we transferred to Takeda the GLASSIA U.S. BLA, in consideration of an additional $2 million payment, which
was paid to us in March 2022, following the FDA’s acknowledgment of the BLA transfer.
Pursuant to the technology
license agreement, the intellectual property rights for any improvements on the manufacturing process or formulations belong to the party
that develops the improvements, with each party agreeing to cross-license the developed improvements to the other party. We retain an
option to license any intellectual property developed by Takeda under the agreement that is not considered an improvement on the licensed
technology. Additionally, Takeda owns any intellectual property it develops using the licensed technology for new indications for the
intravenous AAT product, for which we retain an option to license at rates to be negotiated. Any technology related to new indications
for the intravenous AAT product developed by us during the royalty payments period will be part of the licensed technology covered by
the technology license agreement.
The technology license agreement
expires in 2040. Either party may terminate the agreement, in whole or solely with respect to one or more countries covered by the distribution
agreement, pursuant to customary termination provisions. Takeda also has the right to terminate the agreement, upon prior written notice,
in the event that: (i) our manufacturing process technology for GLASSIA is determined to materially infringe upon a third party’s
intellectual property rights, and we have not obtained a license to such third party’s intellectual property or provided an alternative
non-infringing manufacturing process; (ii) there are certain decreases in GLASSIA sales in the United States unless such decreases are
due to transfers to Inhaled AAT for AATD; or (iii) the regulatory approval process in the United States has been withdrawn or rejected
as a result of our inaction or lack of diligent effort, provided such withdrawal or rejection was not primarily caused by the breach
by Takeda of its obligations. We have the right to terminate the agreement, upon prior written notice: (i) if Takeda contests or infringes
upon our intellectual property; (ii) if regulatory approval in one or more countries covered by the technology license agreement is withdrawn
or rejected and not reversed, provided it was not primarily caused by the breach by us of our obligations; or (iii) in the event that
GLASSIA produced by Takeda, other than as a result of our manufacturing process technology, is determined to materially infringe upon
a third party’s intellectual property rights, provided that the termination right is limited only to the country in which such
judgment is binding. Following any termination, other than expiration of the agreement, all licensed rights will revert to us.
Upon expiration of the agreement,
we are obligated to grant to Takeda a non-exclusive, perpetual, royalty free license.
PARI
On November 16, 2006, we
entered into a license agreement with PARI (the “Original PARI Agreement”) regarding the clinical development of an inhaled
formulation of AAT, including Inhaled AAT for AATD, using PARI’s “eFlow” nebulizer. Under the Original PARI Agreement,
we received an exclusive worldwide license, subject to certain preexisting rights, including the right to grant sub-licenses, to use
the “eFlow” nebulizer, including the associated technology and intellectual property, for the clinical development, registration,
and commercialization of inhaled formulations of AAT to treat AATD and respiratory deterioration, and to commercialize the device for
use with such inhaled formulations. The agreement also provided for PARI’s cooperation with us during the pre-clinical phase and
Phase 1 clinical trials of Inhaled AAT, where each of the parties was responsible for developing and adapting its own product and bore
the costs involved.
Pursuant to the Original
PARI Agreement, we agreed to pay PARI royalties from sales of Inhaled AAT, after certain deductions, at the rates specified in the agreement.
We have agreed to pay PARI tiered royalties ranging from the low single digits up to the high single digits based on the annual net sales
of inhaled formulations of AAT for the applicable indications. The royalties will be paid for each country separately, until the later
of (1) the expiration of the last of certain specified patents covering the “eFlow” nebulizer, or (2) 15 years following
the first commercial sale of an inhaled formulation of AAT in that country (the “PARI Royalty Period”). During the PARI Royalty
Period, PARI is obligated to pay us specified percentages of its annual sales of the “eFlow” nebulizer for use with Inhaled
AAT above a certain threshold defined in the agreement and after certain deductions.
On February 21, 2008, we
entered into an addendum to the Original PARI Agreement (together with the Original PARI Agreement, the “PARI Agreement”),
which extended the exclusive global license granted to us to use the “eFlow” nebulizer, including the associated technology
and intellectual property, for the clinical development, registration and commercialization of Inhaled AAT for two additional indications
of lung disease, namely cystic fibrosis and bronchiectasis. At present, the development of cystic fibrosis and bronchiectasis products
is suspended as we prioritize other products. Pursuant to the addendum, each party will be responsible for developing and adapting its
own product for the additional indications and will bear the costs involved. Additionally, we and PARI will supply, each at its own expense,
Inhaled AAT and the “eFlow” nebulizers, respectively, and in the quantities required for all phases of clinical studies worldwide.
In addition, PARI will provide to us, at its expense, technical and regulatory support regarding the “eFlow” nebulizer. Sales
of the inhaled formulation of AAT for the additional indications will be added to sales of the first two indications covered by the original
agreement as the basis for calculating the royalties to be paid by us to PARI.
The PARI Agreement expires
when the PARI Royalties Period ends. Either party can terminate the PARI Agreement upon customary termination provisions. Additionally,
upon the occurrence of any one of the following events, PARI has the right to negotiate with us in good faith about whether to continue
our collaboration: (i) PARI’s costs of the required clinical trials exceed a certain amount, unless we or a third party incurs
such expenses on behalf of PARI; (ii) an inhaled formulation of AAT is not successfully registered with any regulatory authorities by
2016; (iii) there are no commercial sales of inhaled formulations of AAT within a certain period after successful registration with any
regulatory authority; or (iv) we cease development of inhaled formulations of AAT for a certain period of time. If, within 180 days of
PARI’s request to negotiate, we do not agree to continue the collaboration, PARI has the option either to render the license they
grant to us non-exclusive or to terminate the agreement. We have the right to terminate the agreement, upon prior written notice, (i)
in the event that the “eFlow” nebulizer is determined to infringe upon a third party’s intellectual property rights,
(ii) an injunction barring the use of the “eFlow” nebulizer has been in place for a certain period of time, (iii) a clinical
trial for inhaled formulations of AAT fails as a result of, after a cure period, the “eFlow” nebulizer not conforming to
specifications or PARI’s inability to supply the “eFlow” nebulizer; or (iv) failure by PARI to register the “eFlow”
nebulizer within a certain period of time after receiving Phase 3 results for Inhaled AAT for AATD. Following any termination, all licensed
rights will revert to PARI, unless we terminate the agreement as a result of PARI’s bankruptcy, payment failure or material breach,
in which case we retain the license rights to the “eFlow” nebulizer as long as we continue making royalty payments.
In May 2019, we signed a
Clinical Study Supply Agreement (“CSSA”) with PARI for the supply of the required quantities of PARI’s “eTrack”
controller kits and the “PARItrack” web portal associated with PARI’s “eFlow” nebulizer required for our
pivotal Phase 3 InnovAATe clinical trial and for the FDA required HFS. The CSSA is a supplement agreement to the PARI Agreement and will
expire upon the expiration or termination of the PARI Agreement.
On February 21, 2008, we
also signed a commercialization and supply agreement with PARI that provides for the commercial supply of the “eFlow” nebulizer
and its spare parts to patients who may be treated with the inhaled formulation of AAT, if approved, either through its own distributors,
our distributors or independent distributors in countries where PARI does not have a distributor. The commercialization and supply agreement
expires upon the earlier of (1) the end of four years from (x) the end of the last PARI Royalties Period, or (y) the termination of the
PARI Agreement by one party due to the other party declaring bankruptcy, failing to make a payment after a 30-day cure period or breach
of a material provision after a 30-day cure period, or (2) the termination of the PARI Agreement pursuant to its terms, other than for
reasons as previously described, in which case the commercialization and supply agreement terminates simultaneously with the PARI Agreement
provided that PARI ensures availability of the “eFlow” nebulizer and its associated spare parts and service to anyone being
treated with the inhaled formulation of AAT at the time of such termination, for the warranty period of the device or for a longer period,
if required by the applicable law or the relevant regulatory authority.
Manufacturing and Supply
We have a production plant
located in Beit Kama, Israel. We currently manufacture five of our proprietary plasma-derived commercial products, including two FDA
approved products, in this facility: KEDRAB/KAMRAB, GLASSIA, KAMRHO (D), and two types of the snake bite antiserum product. During December
2022, we submitted an application to the FDA to manufacture CYTOGAM at the Beit Kama facility, and currently expected to obtain such
approval by mid-2023. The anticipated FDA approval will mark the successful conclusion of the technology transfer process of CYTOGAM
from the previous manufacturer, CSL Behring. Subject to receipt of the FDA approval, we plan to initiate commercial manufacturing of
CYTOGAM at the Beit Kama facility. A similar application to the Canadian health authorities was submitted in January 2023 and the approval
is expected by the third quarter of 2023. As part of the CYTOGAM technology transfer process, we engaged Prothya as a third-party contract
manufacturer to perform certain manufacturing activities required for the manufacturing of CYTOGAM. In addition, we assumed from Saol
a plasma supply agreement with CSL for continued supply of required plasma for the manufacturing of the product.
We operate our main production
facility on a campaign-basis so that at any time the facility is assigned to produce only one product. The division of facility time
among the various products is determined based on orders received, sales forecasts and development needs. During each year we conduct
routine maintenance shutdowns of our plant, which may last up to a few weeks. In addition, we periodically invest in upgrading infrastructures
and adjusting capacity needs.
Our production plant passed
various health authorities’ inspections. The plant was initially inspected by the U.S. FDA during 2010. In March 2017, the FDA completed
inspections of our facility in connection with our GLASSIA and KEDRAB products, with no critical observations. As part of the recently
submitted PAS to the FDA with respect to CYTOGAM manufacturing at our Beit Kama facility, the plant is undergoing an FDA site inspection.
The FDA approval is currently expected by mid-2023. The Israeli MOH conducted a GMP inspections in each of 2011, July 2013, February 2016,
November 2018, December 2020, and December 2022 with no critical observations. In July 2018, Health Canada completed an audit in connection
with KAMRAB registration in Canada, with no critical observations. In February 2019, the Croatian health agency completed a GMP inspection
of our facility in connection with GLASSIA and our Inhaled AAT product, with no critical observations. In March 2019, the Mexican heath
agency completed a GMP inspection of our facility in connection with our KAMRAB registration in Mexico, which concluded with no critical
observations, and with a dispute on required corrective actions. The Kazakhstan health agency also completed a GMP inspection in April
2019, with no critical observations.
Any changes in our production
processes related to our Proprietary Products must be approved by the FDA and/or similar authorities in other jurisdictions. From time
to time, we make certain required modifications to our manufacturing process and are required to make certain filings to report such
changes to the FDA and/or other similar authorities.
HEPAGAM B, VARIZIG and WINRHO
SDF, which we acquired in November 2021, are currently manufactured by Emergent under a manufacturing services agreement we assumed as
part of the acquisition of the portfolio from Saol. Under the agreement, Emergent serves as the exclusive manufacturer of the products
for distribution in certain jurisdictions. The manufacturing services are performed at Emergent’s facilities in Winnipeg, Canada.
The agreement is in effect until September 27, 2027, and may be terminated without cause by us upon at least two years advance notice
or immediately in the event of a manufacturing failure (as defined in the agreement). Emergent may terminate the agreement upon at least
three years advance notice. We expect to continue manufacturing these products with Emergent in the foreseeable future, and are considering
the initiation of a technology transfer for transitioning the manufacturing of these products to our manufacturing facility in Beit Kama,
Israel. The initiation of such a technology transfer would be subject to executing a new, amended manufacturing services agreement with
Emergent, as currently contemplated, covering operational aspects and the technology transfer related services and scope. We anticipate
that once initiated, such technology transfer may be completed within four to five years.
Raw Materials
The main raw materials in
our Proprietary Products segment are hyper-immune plasma and fraction IV derived from normal source plasma. We also use other raw materials,
including both natural and synthetic materials. We purchase raw materials from suppliers who are regulated by the FDA, EMA and other
regulatory authorities. Our suppliers are approved in their countries of origin and by the IMOH. The raw materials must comply with strict
regulatory requirements. We require our raw materials suppliers to comply with the cGMP rules, and we audit our suppliers from time to
time. We are dependent on the regular supply and availability of raw materials in our Proprietary Products segment.
We maintain relationships
with several suppliers in order to ensure availability and reduce reliance on specific suppliers. We are dependent, however, on a number
of suppliers who supply specialty ancillary products prepared for the production process, such as specific gels and filters. See “Item
3. Key Information — D. Risk Factors — We would become supply-constrained and our financial performance would suffer if
we were unable to obtain adequate quantities of source plasma or plasma derivatives or specialty ancillary products approved by the FDA,
the EMA, Health Canada or the regulatory authorities in Israel, or if our suppliers were to fail to modify their operations to meet regulatory
requirements or if prices of the source plasma or plasma derivatives were to raise significantly.”
In the years ended December
31, 2022, 2021 and 2020, we incurred $13.1 million, $16.7 million and $22.9 million of expenses for the purchase of raw materials, respectively.
Hyper-immune Plasma
We have a number of suppliers
in the United States for hyper-immune plasma with which we have long-term supply agreements. Hyper-immune plasma is used for the production
of CYTOGAM, KEDRAB/KAMRAB, WINRHO SDF, VARIZIG, HEPGAM B and KAMRHO (D). In addition to long-term supply agreements, we work to secure
availability of hyper-immune plasma on an annual basis by providing forecasts to our suppliers based on our customers’ actual and
forecasted demand. We continue to seek new long-term supply agreements for hyper-immune plasma with additional plasma-collection companies.
In January 2012, we entered
into a plasma purchase agreement with Kedplasma, a subsidiary of Kedrion, for the supply of anti-rabies hyper-immune plasma required
for the manufacturing of KAMRAB (including for manufacturing of KEDRAB for sale to Kedrion for further distribution in the U.S. market).
The agreement provides for a commitment to supply certain minimum annual quantities at predetermined prices. The agreement is being renewed
every three years, and the parties agree on quantity and pricing terms in each renewal period.
CMV hyper-immune plasma for
the manufacturing of CYTOGAM is supplied by CSL Behring under an agreement that was assigned to us from Saol in connection with the acquisition.
Emergent is currently responsible
for securing the hyper-immune plasma from different plasma suppliers for the manufacturing of HEPAGAM B, VARIZIG and WINRHO SDF, pursuant
to our manufacturing services agreement with Emergent (see above— “Manufacturing and Supply”).
Plasma derived Fraction IV paste for GLASSIA
manufacturing
On August 23, 2010, in conjunction
with the partnership arrangement with Takeda, we signed a fraction IV paste supply agreement with Takeda for the supply of fraction IV
for use in the production of GLASSIA to be sold in the United States. Under this agreement, Takeda also supplies us with fraction IV
to continue the development, pre-clinical and clinical studies of GLASSIA and other AAT derived products and for the production, sale
and distribution of GLASSIA in jurisdictions other than those which are covered under the exclusive manufacturing, supply and distribution
agreement with Takeda as well as for other AAT derived products. Takeda received no payment for the supply of fraction IV plasma used
by us for the manufacture of GLASSIA sold to Takeda through 2021. If we require fraction IV for other purposes, we are entitled to purchase
it from Takeda at a predetermined price.
The supply agreement terminates
on August 23, 2040, subject to an option for earlier termination in the event of a material breach.
We have an additional fraction
IV plasma supplier, approved for production of GLASSIA marketed in non-U.S. countries. We are in the process of negotiating long-term
supply agreements for fraction IV plasma with additional suppliers.
For information related to
our internal plasma collection capabilities, see above “Plasma Collection.”
Marketing and Distribution
We distribute our Proprietary
products in more than 30 countries world-wide including the U.S., Canada, Russia, Argentina, Israel, India, Turkey, Australia and several
other countries in Europe, Latin America, Asia, and the MENA region. We are also a supplier to the PAHO, the specialized international
health agency for the Americas. We distribute our products in these markets directly, through strategic partners (e.g., Kedrion in the
U.S. market) and local distributers. We typically receive orders for our products and receive requests for participation in tenders for
the supply of our products from our existing distributors as well as from new potential distributors.
We sell KEDRAB to Kedrion
for distribution in the U.S. market and sell KAMRAB and KAMRHO (D) to other distributers in non-U.S. countries. Through 2021, we sold
GLASSIA to Takeda for further distribution in the U.S. market and we sell the product to other distributors in non-U.S. countries. In
the Israeli market, we sell and distribute GLASSIA, KAMRAB and KAMRHO (D) independently to local HMOs and medical centers, or through
a third party logistic partner that specializes in the supply of equipment and pharmaceuticals to healthcare providers, and in addition
we sell our anti-snake venom to the IMOH.
We distribute CYTOGAM, HEPAGAM
B, VARIZIG and WINRHO SDF in the U.S. market directly to wholesalers and local distributors, through our wholly owned US subsidiary,
Kamada Inc. Through August 2022, and pursuant to the terms of the transition services agreement, we relied on Saol to manage and oversee
the U.S. distribution of these products. Commencing September 2022, we assumed all distribution responsibilities for these products in
the U.S. market and are utilizing a U.S. 3PL provider for the distribution, which provides complete order to cash services. We are also
responsible for marketing activities, price determination, provision of rebates and credits as well as mandatory pricing reporting requirements
for these products in the U.S. market. We distribute these products in non-U.S. countries, primarily Canada and the MENA region, through
engagement of local distributors.
We intend to leverage our
existing strong international distribution network to expand the sales of CYTOGAM, HEPAGAM B, VARIZIG and WINRHO SDF to existing markets
we currently operate in and furthermore, we intend to explore the expansion of sales of our products, primarily GLASSIA and KAMRAB to
the new international markets we assumed following the acquisition of the new product portfolio, primarily in the MENA region.
As part of the establishment
of our direct presence in the U.S. market, during 2022 we deployed a team of U.S. based experienced sales and medical affairs professionals
who have rapidly established our operations in this key market. The U.S. sales team is promoting our portfolio of specialty plasma-derived
IgG products to physicians and other healthcare practitioners through direct engagement and opportunities at medical conventions. The
Medical Affairs team is working to educate physicians, while addressing their scientific and clinical inquiries, including participating
in major medical conferences in the U.S. These activities represent the first time in over a decade that these hyper-immune specialty
products have been supported by field-based activity in the United States. We are encouraged by positive feedback received from key U.S.
physicians who are seeking to publish new clinical data related to our portfolio, and are conducting educational symposiums that we believe
will have a positive impact on the understanding of these products, thereby contributing to continued growth in demand.
Outside the U.S. market,
our distributors sell our products through a tender process and/or the private market. The tender process is conducted on a regular basis
by the distributors, sometimes on an annual basis. For existing distributors, our existing relationship does not guarantee additional
orders in these tenders. The decisive parameter is generally the price proposed in the tender. The distributor purchases products from
us and sells them to its customers (either directly or by means of sub-distributors). In most cases, we do not sign agreements with the
end users, and as such, we do not fix the price to the end user or its terms of payment and are not exposed to credit risks of the end
users. In the vast majority of cases, our agreements with the local distributors award the various distributors exclusivity in the distribution
of our products in the relevant country, if permitted. The distribution agreements are, usually made for a specific initial period and
are subsequently renewed for certain agreed periods, where the parties have the right to cancel or renew the agreements with prior notice
of several months. In these markets, we do not actively participate in the marketing to the end users, except for supplying marketing
assistance where the cost is negligible or in some cases, reimburse the local distributor for an agreed amount of its actual marketing
expenses.
We are establishing our footprint
in the MENA region as a leader in the specialty plasma-derived field by exploring geographical expansion opportunities and strengthening
our relationships with KOLs across the region. Furthermore, we capitalize on our strong regulatory affairs capabilities to register our
products with the relevant authorities to ensure proper and fast market access.
Most of our sales outside
of Israel are made against open credit and some in documentary credit or advance payment. Most of our sales inside Israel are made against
open credit or cash. The credit given to some of our customers abroad (except for sales in documentary credit or advanced payment) is
mostly secured by means of a credit insurance policy and in certain cases with bank guarantees.
In the Distribution segment,
we market our products in Israel to HMOs and hospitals on our own or through third party logistic associates. We sell certain of our
Distribution products through offers to participate in public tenders that occur on an annual basis or through direct orders. The public
tender process involves HMOs and hospitals soliciting bids from several potential suppliers, including us, and selecting the winning
bid based on several attributes, the primary attributes are generally price and availability. The annual public tender process is also
used by our existing customers to determine their suppliers. As a result, our existing relationship with customers in our Distribution
segment does not guarantee additional orders from such customers year over year.
To secure supply of our products
in the Distribution segment, we enter into supply and distribution agreements with the product manufacturers, pursuant to which we undertake
to register the products with the IMOH, acquire certain quantity of products and act as the product distributor in the Israeli market.
We work closely with those suppliers to develop annual forecasts, but these forecasts usually do not obligate our suppliers to provide
us with their products.
Customers
For the year ended December
31, 2022, sales to our three largest customers, Kedrion, Takeda and Clalit Health Services, an Israeli HMO, accounted for 13%, 11% and
9%, respectively, of our total revenues. For the years ended December 31, 2021 and 2020, sales to our three largest customers, Takeda,
Kedrion and Clalit Health Services, accounted for 31%, 12% and 12%, and 49%, 14% and 10%, respectively, of our total revenues.
While Kedrion, Takeda and
Clalit Health Services continue to be our major customers in the Proprietary Products segment, other key customers in the segment include
McKesson and Cardinal Health, two of the largest U.S. based wholesalers, PAHO, two Canadian customers and our distributors in Argentina,
Russia, Thailand, India, Brazil, the MENA region and other territories. These arrangements are further described above under “—
Marketing and Distribution.”
Our primary customers in
the Distribution segment in Israel are HMOs, including Clalit Health Services and Maccabi Healthcare Services, as well as local hospitals.
Competition
The worldwide market for
pharmaceuticals in general, and biopharmaceutical and plasma derived products, in particular, has, in recent years, undergone a process
of mergers and acquisitions among companies active in such markets. This trend has led to a reduction in the number of competitors in
the market and the strengthening of the remaining competitors, mainly for specific immunoglobulin products.
Proprietary Products Segment
There are a limited number
of direct competitors for each of our products in the Proprietary Products segment. These competitors include CSL Behring Ltd., Grifols
S.A. (which acquired Biotest AG during 2022), Kedrion (other than for KEDRAB) (which merged with BPL during 2022), and ADMA Biologics
Inc. Most of these entities are multi-national corporations that specialize in plasma derived protein therapeutics and are distributing
their plasma derived pharmaceutical products worldwide. We have not seen significant changes in the activities of our competitors in
recent years. Additionally, our strategic alliance with Kedrion in the United States has strengthened our KEDRAB competitive positioning
in the market. The recent acquisition of Biotest by Grifols and the merger between Kedrion and BPL might impact the market that we operate
in. In some international markets, such as India, Thailand and Russia, we also have local competitors for KAMRAB and KAMRHO.
In addition, we face potential
competition from other pharmaceutical companies that develop and market non-plasma derived products that are approved for similar indications
as our Proprietary products.
In cases of existing competition,
our competitors have advantages in the market because of their size, financial resources, markets and the duration of their activities
and experience in the relevant market, especially in the United States and countries of the European Union. Most of them have an additional
advantage regarding the availability of raw materials, as they fractionate plasma internally and own plasma collection centers and/or
companies that collect or produce raw materials such as plasma.
The following describes details
known to us about our most significant competitors for each of our main Proprietary Products segment products.
CYTOGAM. To our knowledge,
CYTOGAM is the sole plasma derived CMV IgG product approved in the United States and Canada. Based on available public information, the
FDA-approved the following antiviral drugs for the prevention of CMV infection and disease: Letermovir (Prevymis), developed by Merck
& Co., and for treatment of refractory/resistant infection or disease Maribavir (Livtencity), developed by Takeda. These products
may result in the loss of market share of CYTOGAM. Currently, treatment guidelines state that combination therapy with standard antiviral
can be considered for certain solid organ transplant recipients. The most commonly used antivirals are Ganciclovir (Cytovene-IV Roche)
and Valgnciclovir (Valcyte Roche). Patients treated with such antivirals agents for a long time can develop resistance and will require
a second-line treatment such as Foscarnet (Foscavir Pfizer) or Cidofovir (Gilead Sciences). In ROW markets, Cytotec CP (Biotest), a plasma
derived competing product, is available.
KEDRAB/KAMRAB. We
believe that there are two main competitors for this anti-rabies product worldwide: Grifols, whose product we estimate comprises of approximately
70%of the anti-rabies IgG market in the United States, and CSL, which sells its anti-rabies product in Europe and elsewhere. Sanofi Pasteur,
the vaccines division of Sanofi S.A., has recently exited the U.S anti-rabies IgG market as well as some additional international markets.
We believe that such departure creates an opportunity for us to expand KEDRAB’s U.S. market share. BPL, which has an anti-Rabies
IgG product for the UK market, has developed it also for the U.S market including performing a clinical trial, but to our knowledge the
program is currently paused. There are several local producers in other countries that make anti-rabies IgG products, mostly based on
equine serum, which we believe results in inferior products, as compared to products made from human plasma. Over the past several years,
several companies have made attempts, and some are still in the process of developing monoclonal antibodies for an anti-rabies treatment.
The first monoclonal antibody product was approved and is available in India. These products may be as effective as the currently available
plasma derived anti-rabies immunoglobulin and may potentially be significantly cheaper, and as such may result in the future loss of
market share of KEDRAB/KAMRAB.
WINRHO SDF. In the
United States, WINRHO SDF competes with corticosteroids (oral prednisone or high-dose dexamethasone) or IVIG (Grifols, CSL and Takeda
are the main IVIG manufacturers and suppliers in the U.S.) as first line treatment of acute ITP, with IVIG or WINRHO SDF recommended
for pediatric patients in whom corticosteroids are contraindicated. IVIG has similar efficacy to WINRHO SDF, and ITP is its labeled indication
for IVIG. Rhophylac (CSL Behring) is also approved for ITP treatment, but we believe it is mostly used for HDN, due to its comparatively
small vial size. For HDN indication, the market is usually led by tenders, where key indicators are registration status and price, and
the main competitors in Canada and ROW countries are RhoGAM (Kedrion), Hyper RHO (Grifols) and Rhophylac (CSL Behring). Our KAMRHO (D)
is a similar product to WINRHO SDF, however, since the two products are registered in different countries, they do not compete with each
other.
HEPAGAM B. To our
knowledge, in the United States HEPAGAM B is the only approved HBIG with an on-label indication for Liver Transplants. To our understanding,
HEPAGAM B holds the majority market share for the indication, while another HBIG (Nabi-B manufactured and supplied by ADMA) is being
used off-label by some medical centers for the indication. In recent years the duration of treatment has been reduced by physicians.
New generation antivirals are considered effective for preventing HBV reactivation post-transplant, reducing HBIG use. PEP indication
in the United States is covered almost totally by Nabi-HB (ADMA) and HyperHEP (Grifols). In Canada, the main competition in national
tenders is HypeHEP. In ROW countries, such as Turkey, Saudi Arabia and Israel, HEPATECT CP and Zutectra (Biotest AG) represent the main
competition.
VARIZIG. In the United
States, incidence of VZV infection has decreased significantly since the introduction of the varicella vaccine in 1995. Two vaccines
containing varicella virus are licensed for use in the United States. Varivax is the single-antigen varicella vaccine. ProQuad is a combination
measles, mumps, rubella, and varicella (MMRV) vaccine. Although the use of the vaccine has reduced the frequency of chickenpox, the virus
has not been eradicated. Moreover, incidence of Herpes Zoster, also caused by VZV, is increasing among adults in the United States. Suboptimal
vaccination rates contribute to outbreaks and increased risk of VZV exposure. Immunocompromised population and other patient groups are
at high risk for severe varicella and complications, after being exposed to VZV. VARIZIG is the only plasma-derived IgG product approved
in the United States and Canada for its indication. It is recommended by the CDC for post-exposure prophylaxis of varicella for persons
at high risk for severe disease who lack evidence of immunity to varicella. Alternative CDC recommendations include IVIG if VARIZIG is
unavailable and some experts recommend using Acyclovir, Valacyclovir, although published data on the benefits of acyclovir as post-exposure
prophylaxis among immunocompromised people are limited. In ROW markets, several plasma derived competitor products are available, such
as VARITECT (Biotest AG) and others.
GLASSIA. There are
several competing products to Glassia. Grifols, CSL and Takeda have competing plasma derived AAT products approved for AATD and are marketed
in the U.S. as well in some countries in the EU. We estimate that: Prolastin, Grifols’ AAT infusion product for the treatment of
AATD, accounts for at least 50% market share in the United States and more than 70% of sales worldwide. In September 2017, Grifols announced
FDA approval of a liquid formulation of Prolastin, and to the best of our knowledge, Grifols’s liquid product is only sold in the U.S.
market. Grifols is also a producer of an additional AAT product, Trypsone, which is marketed in Spain and in some Latin American countries,
including Brazil. CSL’s AAT by IV product, Zemaira, is mainly sold in the United States, and during 2015 received centralized marketing
authorization approval in the European Union. CSL launched the product in few selected EU markets during 2016 under the brand name Respreeza.
Takeda is our strategic partner for sales of GLASSIA and it also serves existing patients in the United States with its own proprietary
AAT product, Aralast. As far as we know, Takeda is selling both products in the United States, and maintaining existing patients on Aralast.
Laboratoire Français du Fractionnement et des Biotechnologies, S.A. (LFB) is a producer of an AAT product distributed in the French
market. We do not believe that new plasma derived AAT products are expected to enter the United States market in the near future.
There are several other competitors
in pre-clinical and clinical stage such as Inhibrx, Mereo, ApicBio and Vertex Pharmaceuticals, all of which have development programs
for new medications for treatment of AATD lung disease. Based on available public information, Inhibrx, a California based company, is
in clinical development of INBRX-101 a recombinantly produced AAT replacement protein specifically designed to address some limitations
of plasma derived AAT replacement therapy. The modifications introduced into INBRX-101 aim to improve the pharmacokinetic profile (PK)
and obliterate inactivation through oxidation. This could offer superior clinical activity to the current commercial plasma derived IV
AAT by providing sustained enhanced serum concentration with a less frequent dosing regimen. Mereo, a UK based company, completed phase
2 development of MPH-966 as an oral neutrophil elastase inhibitor being explored for the potential treatment of AATD. Vertex, a Boston,
MA headquartered company, is in early clinical development of a small molecule folding corrector. Vertex believes small molecule correctors
for protein misfolding could address both liver and lung disease manifestations, possibly avoiding the need for conventional augmentation
therapy, further differentiating its product candidates as a novel therapeutic approach. Clinical development of the corrector candidate
VX-864 previously discontinued, has resumed following evidence that VX-684 may clear liver polymers, although it does not increase alpha
1 antitrypsin levels sufficiently to address the lung disease. Apic Bio, a Boston, MA based company is in pre-clinical stage development
of APB-101 a “liver-sparing” gene therapy designed for treatment of Alpha-1 patients. In pre-clinical studies, APB-101 demonstrated
the ability to reduce levels of the mutant Alpha-1 protein (Z-AAT) and at the same time program liver cells to produce the correct Alpha-1
protein (M-AAT). Other companies pursuing gene therapy modalities include Intellia Therapeutics, ADARx and Wave therapeutics, which recently
secured a licensing deal with GSK. These product candidates, if approved, may have an adverse effect on the AATD market size and reduce
or eliminate the need for the currently approved plasma derived AAT augmentation therapy, and thus may affect our ability to continue
and generate revenues and earnings from our GLASSIA. In addition, these product candidates, if approved, may have a negative effect on
our ability to continue the development of our Inhaled AAT, and if approved, to market Inhaled AAT and obtain a meaningful market share.
KAMRHO(D). We manufacture
and market KAMRHO (D) for HDN in a few markets outside of the United States, mainly in Russia, Israel, Argentina and Brazil. Kedrion
is one of our competitors for KAMRHO(D) in some of those international markets. We believe there are currently two additional main suppliers
of competitive products, Grifols and CSL. There are also local producers in other countries that make similar products mostly intended
for local markets.
Distribution Segment
There are a number of companies
active in the Israeli market distributing the products of several manufacturers whose comparable products compete with the products we
distribute as part of our Distribution segment. In the plasma area, these manufacturers include Grifols, Takeda and CSL. In other specialties
and biosimilar products, we are competing with products produced by some of largest pharmaceutical manufacturers in the world, such as,
Novartis AG, AstraZeneca AB, Sanofi and GlaxoSmithKline. These competing manufacturers have advantages of size, financial resources,
market share, broad product selection and extensive experience in the market, although we believe that we have established strong expertise
in the Israeli market to support our market access efforts and take a significant market share. Each of these competitors sells its products
through a local subsidiary or a local representative in Israel.
Government Regulation
Government authorities in
the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research,
development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution,
post-approval monitoring and reporting, marketing and export and import of products such as those we sell and are developing. Except
for compassionate use or non-registered named-patient cases, any pharmaceutical candidate that we develop must be approved by the FDA
before it may be legally marketed in the United States and by the appropriate regulatory agencies of other countries before it may be
legally marketed in such other countries. In addition, any changes or modifications to a product that has received regulatory clearance
or approval that could significantly affect its safety or effectiveness or would constitute a major change in its intended use, may require
the submission of a new application in the United States and/or in other countries for pre-market approval. The process of obtaining
such approvals can be expensive, time consuming and uncertain.
U.S. Drug Development Process
In the United States, pharmaceutical
products are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of biologics,
the Public Health Service Act. All of our products for human use and product candidates in the United States, are regulated by the FDA
as biologics. Biologics require the submission of a BLA and approval or license by the FDA prior to being marketed in the United States.
Manufacturers of biologics may also be subject to state regulation. Failure to comply with regulatory requirements, both before and after
product approval, may subject us and/or our partners, contract manufacturers and suppliers to administrative or judicial sanctions, including
FDA delay or refusal to approve applications, warning letters, product recalls, product seizures, import restrictions, total or partial
suspension of production or distribution, fines and/or criminal prosecution.
The steps required before
a biologic drug may be approved for marketing for an indication in the United States generally include:
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1. |
preclinical laboratory tests and animal tests; |
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2. |
submission to the FDA of an IND application for human clinical testing,
including required CMC sections, which must become effective before human clinical trials may commence; |
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3. |
adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product; |
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4. |
submission to the FDA of a BLA or supplemental BLA, with all the required
information; |
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5. |
FDA pre-approval inspection of product manufacturers; and |
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6. |
FDA review and approval of the BLA or supplemental BLA. |
Preclinical studies include
laboratory evaluation, 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
human clinical trials may be commenced. The IND will automatically become effective 30 days after receipt by the FDA, unless the FDA
before that time raises concerns about the drug candidate or the conduct of the trials as outlined in the IND. The IND sponsor and the
FDA must resolve any outstanding concerns before clinical trials can proceed. There can be no assurance that submission of an IND will
result in FDA authorization to commence clinical trials or that, once commenced, other concerns will not arise that could lead to a delay
or a hold on the clinical trials.
Clinical trials involve the
administration of the investigational product to healthy volunteers or to patients, under the supervision of qualified principal investigators.
Each clinical study at each clinical site must be reviewed and approved by an independent institutional review board, prior to the recruitment
of subjects. Numerous requirements apply including, but not limited to, good clinical practice regulations, privacy regulations, and
requirements related to the protection of human subjects, such as informed consent.
Clinical trials are typically
conducted in three sequential phases, but the phases may overlap and different trials may be initiated with the same drug candidate within
the same phase of development in similar or differing patient populations.
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● |
Phase 1 studies may be conducted in a limited number of patients, but
are usually conducted in healthy volunteer subjects. The drug is usually tested for safety and, as appropriate, for absorption, metabolism,
distribution, excretion, pharmacodynamics and pharmacokinetics. |
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Phase 2 usually involves studies in a larger, but still limited, patient
population to evaluate preliminarily the efficacy of the drug candidate for specific, targeted indications; to determine dosage tolerance
and optimal dosage; and to identify possible short-term adverse effects and safety risks. |
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Phase 3 trials are undertaken to further evaluate clinical efficacy
of a specific endpoint and to test further for safety within an expanded patient population at geographically dispersed clinical
study sites. |
Phase 1, Phase 2 or Phase
3 testing may not be completed successfully within any specific time period, if at all, with respect to any of our product candidates.
Results from one trial are not necessarily predictive of results from later trials, the FDA may require additional testing or a larger
pool of subjects beyond what we proposed as the clinical development process proceeds, thereby requiring more time and resources to complete
the trials. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk, or may not allow the importation of the clinical trial materials if there
is non-compliance with applicable laws.
The results of the preclinical
studies and clinical trials, together with other detailed information, including information on the manufacture and composition of the
product, are submitted to the FDA as part of a BLA requesting approval to market the product candidate for a proposed indication. Under
the Prescription Drug User Fee Act, as amended, the fees payable to the FDA for reviewing a BLA, as well as annual fees for commercial
manufacturing establishments and for approved products, can be substantial. The BLA review fee alone can exceed $3,200,000, subject to
certain limited deferrals, waivers and reductions that may be available. Each BLA submitted to the FDA for approval is typically reviewed
for administrative completeness and reviewability within 45 to 60 days following submission of the application. If found complete, the
FDA will “file” the BLA, thus triggering 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% of priority
BLA applications and priority original efficacy supplements within six months of the 60-day filing date and receipt date, respectively.
The FDA’s goals are to review and act on 90% of standard BLA applications and standard original efficacy supplements within 10
months of the 60-day filing date and receipt date, respectively. The FDA, however, may not be able to approve a drug within these established
goals, and its 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 an “action letter” that describes additional work that must be done before the application
can be approved. Before approving a BLA, the FDA may inspect 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. 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 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, may impose restrictions and conditions on product distribution, prescribing
or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. To market a product for other uses,
or to make certain manufacturing or other changes requires prior FDA review and approval of a BLA Supplement or new BLA. Further post-marketing
testing and surveillance to monitor the safety or efficacy of a product is 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.
As part of the Patient Protection
and Affordable Care Act (the “healthcare reform law”), Public Law No. 111-148, under the subtitle of Biologics Price Competition
and Innovation Act of 2009 (“BPCIA”), a statutory pathway has been created for licensure, or approval, of biological products
that are biosimilar to, and possibly interchangeable with, earlier biological products approved by the FDA for sale in the United States.
Also under the BPCIA, innovator manufacturers of original reference biological products are granted 12 years of exclusive use before
biosimilars can be approved for marketing in the United States. There have been proposals to shorten this period from 12 years to seven
years. The objectives of the BPCI are conceptually similar to those of the Drug Price Competition and Patent Term Restoration Act of
1984, commonly referred to as the “Hatch-Waxman Act,” which established abbreviated pathways for the approval of drug products.
A biosimilar is defined in the statute as a biological product that is highly similar to an already approved biological product, notwithstanding
minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar
and the approved biological product in terms of the safety, purity, and potency. Under this approval pathway, biological products can
be approved based on demonstrating they are biosimilar to, or interchangeable with, a biological product that is already approved by
the FDA, which is called a reference product. If we obtain approval of a BLA, the approval of a biologic product biosimilar to one of
our products could have a significant impact on our business. The biosimilar product may be significantly less costly to bring to market
and may be priced significantly lower than our products.
Both before and after the
FDA approves a product, the manufacturer and the holder or holders of the BLA for the product are subject to comprehensive regulatory
oversight. For example, quality control and manufacturing procedures must conform, on an ongoing basis, to cGMP requirements, and the
FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to spend
time, money and effort to maintain cGMP compliance. In addition, a BLA holder must comply with post-marketing requirements, such as reporting
of certain adverse events. Such reports can present liability exposure, as well as increase regulatory scrutiny that could lead to additional
inspections, labeling restrictions, or other corrective action to minimize further patient risk.
Special Development and Review Programs
Orphan Drug Designation
The FDA may grant orphan
drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States,
or if it affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing
and making the drug for this type of disease or condition will be recovered from sales in the United States. In the United States, orphan
drug designation must be requested before submitting a BLA or supplemental BLA.
In the European Union, the
Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the
diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000
persons in the European Union community. Additionally, this designation is granted for products intended for the diagnosis, prevention
or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely
that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological
product.
We received an orphan drug
designation in the United States and Europe for multiple indications. Inhaled AAT for AATD has received an orphan drug designation in
the United States and Europe. The inhaled formulation of AAT for the treatment of cystic fibrosis has received an orphan drug designation
in the United States and Europe. The inhaled formulation of AAT for the treatment of bronchiectasis has received an orphan drug designation
in the United States. The additional indication for GLASSIA for the treatment of newly diagnosed cases of Type-1 Diabetes has received
an orphan drug designation in the United States. In addition, the indication for AAT for the treatment of Graft versus Host Disease has
received an orphan drug designation in the United States and Europe, and the indication for AAT for the treatment of Prophylactic Graft
versus Host Disease has received an orphan drug designation in the United States.
In the United States, orphan
drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages
and user-fee waivers. In addition, if a product and its active ingredients receive the first FDA approval for the indication for which
it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application
to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical
superiority over the product with orphan exclusivity. Orphan drug designation does not convey any advantage in, or shorten the duration
of, the regulatory review and approval process. In addition, the FDA may rescind orphan drug designation and, even with designation,
may decide not to grant orphan drug exclusivity even if a marketing application is approved. Furthermore, the FDA may approve a competitor
product intended for a non-orphan indication, and physicians may prescribe the drug product for off-label uses, which can undermine exclusivity
and hurt orphan drug sales. There has also been litigation that has challenged the FDA’s interpretation of the orphan drug exclusivity
regulatory provisions, which could potentially affect our ability to obtain exclusivity in the future.
In the European Union, orphan
drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity
is granted following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria
are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity
or a safer, more effective or otherwise clinically superior product is available.
In the European Union, an
application for marketing authorization can be submitted after the application for orphan drug designation has been submitted, while
the designation is still pending, but should be submitted prior to the designation application in order to obtain a fee reduction. Orphan
drug designation does not convey any advantage in, except eligibility to conditional approval process, or shorten the duration of, the
regulatory review and approval process.
Post-Approval Requirements
Any drug products for which
we receive FDA approvals are subject to continuing regulation by the FDA. Certain requirements include, among other things, record-keeping
requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information on an
annual basis 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.
We are also required to ensure that non-promotional scientific exchanges concerning our products are truthful and non-misleading. Failure
to comply with FDA requirements can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse
publicity, warning letters from or other enforcement by 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.
The manufacturing of our
product candidates is required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations.
Our product candidates are either manufactured at our production plant in Beit Kama, Israel, or, for products where we have entered into
a strategic partnership with a third party to cooperate on the development of a product candidate, at a third-party manufacturing facility.
These regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive
records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs 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. Discovery of problems with a product after approval may result in serious and extensive restrictions
on a product, manufacturer or holder of an approved new drug application (NDA) or BLA, as well as lead to potential market disruptions.
These restrictions may include suspension of a product until the FDA is assured that quality standards can be met, 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, including possible user fees.
The FDA also may require
a Boxed Warning (e.g., a specific warning in the label to address a specific risk, sometimes referred to as a “Black Box Warning”),
which has marketing restrictions, and post-marketing testing, or Phase 4 testing, as well as a Risk Evaluation and Minimization Strategy
(REMS) plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict
the distribution or use of the product.
Other U.S. Healthcare Laws and Compliance
Requirements
In the United States, our
activities are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA,
including the Centers for Medicare and Medicaid Services other divisions of the HHS OIG, the U.S. Federal Trade Commission, the U.S.
Department of Justice and individual United States Attorney’s offices within the Department of Justice, state attorneys general
and state and local governments. To the extent applicable, we must comply with the fraud and abuse provisions of the Social Security
Act, the federal Anti-Kickback Statute, the FCA, the privacy and security provisions of HIPAA, and similar state laws, each as amended.
Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the
VHCA, each as amended. Certain pricing and rebate provisions of the Inflation Reduction Act of 2022 may require additional pricing disclosure
obligations for our products. If products are made available to authorized users of the Federal Supply Schedule of the General Services
Administration, additional laws and requirements apply. Under the Veterans Health Care Act (“VHCA”), drug companies are required
to offer certain pharmaceutical products at a reduced price to a number of federal agencies, including the United States Department of
Veterans Affairs and United States Department of Defense, the Public Health Service and certain private Public Health Service-designated
entities in order to participate in other federal funding programs including Medicare and Medicaid. Legislative changes have purported
to require that discounted prices be offered for certain United States Department of Defense purchases for its TRICARE program via a
rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to
complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations.
Furthermore, the FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of
value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision
of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA presents particular
challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other
hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work
have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. The failure to comply with
laws governing international business practices may result in substantial penalties, including civil and criminal penalties.
In order to distribute products
commercially, we must comply with federal and state laws and regulations that require the registration of manufacturers and wholesale
distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors which ship products
into the state even if such manufacturers or distributors have no place of business within the state. Federal and some state laws also
impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including the
use of technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation
requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public
disclosures on sales, marketing, pricing, clinical trials and other activities, register their sales representatives, as well as prohibit
certain other sales and marketing practices. Additionally, the federal Physician Payments Sunshine Act and implementing regulations promulgated
pursuant to Section 6002 of the healthcare reform law requires the tracking and reporting of certain transfers of value made to certain
healthcare practitioners and teaching hospitals as well as ownership by a physician or a physician’s family member in a pharmaceutical
manufacturer. The Sunshine Act requirements were expanded in January 2021 to include physician assistants, nurse practitioners, clinical
nurse specialists, certified registered nurse anesthetists & anesthesiologist assistants, and certified nurse-midwives as covered
recipients. Finally, all of our activities are potentially subject to federal and state consumer protection and unfair competition laws.
These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us.
In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to
the penalty provisions of the pertinent state, and federal authorities.
Europe/Rest of World Government Regulation
In addition to regulations
in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials
and any commercial sales and distribution of our products.
Whether or not we obtain
FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before
we can commence clinical trials or marketing of the product in those countries. For example, in the European Union, a clinical trial
application (“CTA”) must be submitted to each member state’s national health authority and an independent ethics committee.
The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement of a clinical
trial in the member state. The approval process varies from country to country and the time may be longer or shorter than that required
for FDA 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.
To obtain marketing approval
of a drug under European Union regulatory systems, we may submit marketing authorization applications either under a centralized, decentralized
or national procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European
Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated
as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases, and optional
for those products that are highly innovative or for which a centralized process is in the interest of patients. For our products and
product candidates that have received or will receive orphan designation in the European Union, they will qualify for this centralized
procedure, under which each product’s marketing authorization application will be submitted to the EMA. Under the centralized procedure
in the European Union, the maximum time frame for the evaluation of a marketing authorization application is 210 days (excluding clock
stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Scientific
Advice Working Party of the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product
is expected to be of a major public health interest, defined by three cumulative criteria: the seriousness of the disease, such as heavy
disabling or life-threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach;
and anticipation of high therapeutic benefit. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150
days.
The decentralized procedure
provides possibility for approval by one or more other, or concerned, member states of an assessment of an application performed by one
member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and related
materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state
and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days
after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned
member state must decide whether to approve the assessment report and related materials. If a member state cannot approve the assessment
report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred
to the European Commission, whose decision is binding on all member states.
For other countries outside
of the European Union, such as countries in Eastern Europe, Latin America, Asia and Israel, the requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials
are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in
the Declaration of Helsinki.
If we fail to comply with
applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal prosecution.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists
as to the coverage and reimbursement status of product candidates for which we obtain regulatory approval. In the United States and markets
in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the coverage
and reimbursement decisions made by payors. In the United States, third-party payors include 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. Payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved
drug products for a particular indication. 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 our products, in addition to the costs required to obtain
the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide
coverage for a drug product does not imply 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.
Several significant laws
have been enacted in the United States which affect the pharmaceutical industry and additional federal and state laws have been proposed
in recent years. For example, the IRA includes several provisions to lower prescription drug costs for people with Medicare and reduce
drug spending by the federal government, including allowing Medicare to negotiate prices for certain prescription drugs, requiring drug
manufacturers to pay a rebate to the federal government if prices for single-source drugs and biologicals covered under Medicare Part
B and nearly all covered drugs under Part D increase faster than the rate of inflation (CPI-U), and limiting out of pocket spending for
Medicare Part D enrollees. Additionally, On October 14, 2022, President Biden signed Executive Order 14087 on “Lowering Prescription
Drug Costs for Americans.” The Executive Order specifically requests that the Center for Medicare and Medicaid Innovation consider
“models that may lead to lower cost sharing for commonly used drugs and support value-based payment that supports high-quality
care.” The implementation of the IRA, Executive Order 14087, or other legislative or regulatory reform efforts present uncertainty
around restrictions that may be imposed on pricing for our products as well as regulatory compliance issues.
Federal, state and local
governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription
drugs. Future legislation and regulation could further limit payments for pharmaceuticals such as the product candidates that we are
developing. In addition, court decisions have the potential to affect coverage and reimbursement for prescription drugs. It is unclear
whether future legislation, regulations or court decisions will affect the demand for our product candidates once commercialized.
Different pricing and reimbursement
schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their
pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers.
Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has
been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that
compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies
to fix their own prices for medicines, but monitor and control company profits. The downward pressure of healthcare costs in general,
particularly prescription drugs, has become very 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 a commercial pressure on pricing within
a country.
The marketability of any
drug candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail
to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect
will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at
any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval,
less favorable coverage policies and reimbursement rates may be implemented in the future.
Intellectual Property
Our success depends, at least
in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing or violating
the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws, know-how, intellectual
property licenses and other contractual rights (including confidentiality and invention assignment agreements) to protect our intellectual
property rights.
Patents
As of December 31, 2022,
we owned for use within our field of business eleven families of patents and patent applications, all of which are granted or pending,
respectively, in the United States, most were also filed in Europe, Canada and Israel and some were additionally filed in Russia, Turkey,
certain Latin American countries, Australia and other countries, including one PCT provisional applications. At present, one patent family
protecting our manufacturing process of GLASSIA is considered to be material to the operation of our business as a whole. Such patent
has been issued in a variety of jurisdictions, including Australia, Austria, Belgium, Canada, Denmark, Estonia, Israel, Finland, France,
Germany, Greece, Ireland, Italy, Netherlands, Slovenia, Poland, Spain, Portugal, Sweden, Switzerland, Turkey, the United Kingdom and
the United States, and is due to expire in 2024. In addition, we own a patent family protecting pulmonary delivery of Alpha 1 antitrypsin,
filed in 2007, in a variety of jurisdictions, including Canada, Germany, France, Italy, Netherlands, Ireland, Belgium, Great Britain,
Israel, Russia and Mexico. Furthermore, we own a patent family filed in 2018, protecting our manufacturing process of immunoglobulins.
This patent family includes pending applications in the U.S., Canada, Europe and Israel.
Our patents generally relate
to the separation and purification of proteins and their respective pharmaceutical compositions. Our patents and patent applications
further relate to the use of our products for a variety of clinical indications, and their delivery methods. Our patent applications
further relate to the production of recombinant AAT-1 and uses thereof for clinical indications. Our patents and patent applications
are expected to expire at various dates between 2024 and 2040. We also rely on trade secrets to protect certain aspects of our separation
and purification technology.
The patent positions of companies
like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary
position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not
know whether any of our patent applications or any patent applications that we license will result in the issuance of any patents and
there is no guarantee that patent applications that were filed with the patent offices, which are still pending, will be eventually granted
and will be registered. Additionally, our issued patents and those that may be issued in the future may be challenged, opposed, narrowed,
circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related products
or the length of term of patent protection that we may have for our products. We cannot be certain that we were the first to file the
inventions claimed in our owned patents or patent applications. In addition, our competitors or other third parties may independently
develop similar technologies that do not fall within the scope of the technology protected under our patents, or duplicate any technology
developed by us, and the rights granted under any issued patents may not provide us with any meaningful competitive advantages against
these competitors. Furthermore, because of the extensive time required for research and development, testing and regulatory review of
a potential product until authorization for marketing, it is possible that, before any of our products can be commercialized, any related
patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
Trademarks
We rely on trade names, trademarks
and service marks to protect our name brands. Our registered trademarks in several countries, such as United States and the European Union,
Israel, and certain Latin American countries, include the trademarks CYTOGAM, GLASSIA, HEPAGAM, HEPAGAM B, KAMRAB, KEDRAB, KAMADA, KAMRHO,
KAMRHO-D, KAMRHO-D IM, KR (design mark), REBINOLIN, РЕБИНОЛИН (Rebinolin in Cyrillic), RESPIKAM,
KAMADA RESPIRA, VARIZIG, VENTIA, WINRHO and WINRHO SDF. Regarding the trademarks CYTOGAM, WINRHO, HEPAGAM and VARIZIG we are in a process
of transferring these registrations in our name in several territories.
Trade Secrets and Confidential Information
We rely on, among other things,
confidentiality and invention assignment agreements to protect our proprietary know-how and other intellectual property that may not
be patentable, or that we believe is best protected by means that do not require public disclosure. For example, we require our employees,
consultants and service providers to execute confidentiality agreements in connection with their engagement with us. Under such agreement,
they are required, during the term of the commercial relationship with us and thereafter, to disclose and assign to us inventions conceived
in connection with their services to us. However, there can be no assurance that these agreements will be fulfilled or shall be enforceable,
or that these agreements will provide us with adequate protection. See “Item 3. Key Information — D. Risk Factors —
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.”
We may be unable to obtain,
maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims that we infringe
or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive summary
of the risks related to our intellectual property, see “Item 3. Key Information — D. Risk Factors.”
Property
Our production plant was
built on land that Kamada Assets (2001) Ltd. (“Kamada Assets”), our 74%-owned Israeli subsidiary, leases from the Israel
Land Administration pursuant to a capitalized long-term lease. Kamada Assets subleases the property to us. The property originally covered
an area of approximately 16,880 square meters. The initial sublease expires in 2058 and we have an option to extend the sublease for
an additional term of 49 years. On November 1, 2021, pursuant to a new area outline approved by the Israel Lands Administration, the
covered area was reduced to 14,880 square meters. The production plant includes our manufacturing facility, manufacturing support systems,
packaging, warehousing and logistics areas and laboratory facilities, as well as office buildings.
In addition, we lease approximately
2,200 square meters of office and laboratory facility at a building located in the Kiryat Weizmann Science Park in Rehovot, Israel. This
property houses our corporate office, research and development laboratory and additional departments such as clinical operations, medical,
regulatory affairs, compliance, sales and marketing and business development. We sublease approximately 500 square meters of such premises
to a third-party lessee. The current lease agreement is in effect until November 30, 2023 and we agreed to enter into a renewed lease
agreement, which shall be in effect for a period of eight years following the expiration of the current lease, i.e., until November 30,
2031.
As part of the acquisition
of the FDA registered plasma collection center and certain related assets from the privately held B&PR, during 2021, we acquired
a 237 square meters facility in Beaumont, TX, which we use as a plasma collection center.
In addition, during 2021,
and as part of the establishment of our U.S. commercial operations, we leased a two-room office facility within a shared office facility
in Hoboken, NJ.
On March 7, 2023, our U.S.
subsidiary Kamada Plasma LLC entered into a lease agreement for a 12,000 square foot premises in Uvalde, Houston, Texas to be used as
a plasma collection center. The lease will commence within approximately 90 days from the date we signed the lease agreement and
will be in effect for an initial period of ten years commencing on the earlier of (i) the 120th days from the date we receive the permits
to construct the premises and (ii) the date the premises are opened for business. We have the option to extend the lease for two
consecutive periods of five years each, upon six months prior written notice. We expect to initiate the construction of the new plasma
collection center in the coming months and subsequent to the construction completion and obtaining of the relevant regulatory approvals,
to commence plasma collection operations at this new facility.
Environmental
We believe that our operations
comply in material respects with applicable laws and regulations concerning the environment. While it is impossible to predict accurately
the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is
not expected to require significant capital expenditures and has not had, and is not expected to have, a material adverse effect on our
earnings or competitive position. For more information see “Item 3. Key Information —D. Risk Factors — Risks Related
to Our Operations and Industry – We are subject to extensive environmental, health and safety, and other laws and regulations.”
Organizational Structure
Our subsidiaries are set
forth below. All subsidiaries are either wholly-owned by us or controlled by us. All companies are incorporated and registered in the
country in which they operate as listed below:
Legal Name |
|
Jurisdiction |
KI Biopharma LLC |
|
Delaware, USA |
Kamada Inc. |
|
Delaware, USA |
Kamada Plasma LLC |
|
Delaware, USA (wholly owned by Kamada Inc.) |
Kamada Assets (2001) Ltd. |
|
Israel |
Kamada Ireland Limited |
|
Ireland |
Legal Proceedings
During May 2022, we terminated
a distribution agreement with a third-party engaged to distribute our proprietary products in Russia and Ukraine (the “Distributor”),
and a power of attorney granted, in connection with such distribution agreement, to an affiliate of the Distributor (the “Affiliate”).
On July 18, 2022, the Affiliate notified us of the filing of a request for a conciliation hearing with the Court in Geneva relying on
the terminated power of attorney and seeking damages for the alleged inability to sell the remaining product inventory previously acquired
from the Company and compensation for the lost customer base. The purpose of a conciliation hearing is to explore the possibility of
an out-of-court settlement and not to address the merits of the claims. The outcome of such hearing is not binding. The conciliation
hearing is scheduled for March 17, 2023. At this stage, it is not possible to assess the prospects and scope of any claims against us
and any potential liabilities as such conciliation request is an initial procedure and the claims are not fully substantiated. We intend
to vigorously defend ourselves against any claims if and when they arise from these matters.
In addition to the above,
we are subject to various claims and legal actions during the ordinary course of our business. We believe that there are currently no
claims or legal actions that would have a material adverse effect on our financial position, operations or potential performance.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion
of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the
related notes to those statements included elsewhere in this Annual Report. In addition to historical consolidated financial information,
the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual
results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of
many factors, including those discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual
Report.
The audited consolidated
financial statements for the years ended December 31, 2022, 2021 and 2020 in this Annual Report have been prepared in accordance with
IFRS as issued by the IASB. None of the financial information in this Annual Report has been prepared in accordance with U.S. GAAP.
Overview
We are a commercial stage
global biopharmaceutical company with a portfolio of marketed products indicated for rare and serious conditions and a leader in the
specialty plasma-derived field focused on diseases of limited treatment alternatives. We are also advancing an innovative development
pipeline targeting areas of significant unmet medical need. Our strategy is focused on driving profitable growth from our significant
commercial catalysts as well as our manufacturing and development expertise in the plasma-derived and biopharmaceutical markets.
We operate in two segments:
(i) the Proprietary Products segment, which includes our six FDA approved plasma-derived biopharmaceutical products - CYTOGAM, KEDRAB,
WINRHO SDF, VARIZIG, HEPGAM B and GLASSIA, as well as KAMRAB, KAMRHO (D) and two types of anti-snake venom derived from equine plasma
all of which we market internationally in more than 30 countries. We manufacture our proprietary products at our cGMP compliant FDA-approved
production facility located in Beit Kama, Israel, using our proprietary platform technology and know-how for the extraction and purification
of proteins and IgGs from human plasma, as well as at third party contract manufacturing facilities; and (ii) the Distribution segment,
in which we leverage our expertise and presence in the Israeli market by distributing, for use in Israel, more than 25 pharmaceutical
products manufactured by third parties and have recently added eleven biosimilar products to Israeli distribution portfolio, which, subject
to EMA and IMOH approvals, are expected to be launched in Israel through 2028.
Our Commercial Activities
As part of our Proprietary
Products segment, we sell CYTOGAM, a Cytomegalovirus Immune Globulin Intravenous (Human) (CMV-IGIV), indicated for prophylaxis of CMV
disease associated with solid organ transplantation in the United States and Canada. Total revenues from sales of CYTOGAM for the year
ended December 31, 2022, the first full year during which we sold the product, was $22.6 million.
We market KEDRAB, a human
rabies immune globulin (HRIG), in the United States through a strategic distribution and supply agreement with Kedrion. Our 2022 revenues
from sales of KEDRAB to Kedrion totaled $16.2 million as compared to $11.9 million and $18.3 million during 2021 and 2020, respectively.
Sales of KEDRAB by Kedrion in the United States during the years 2022, 2021 and 2020 totaled $36.2 million, $24.7 million, and $23.7
million, respectively. Based on the information provided by Kedrion, these sales represent approximately 32%, 27% and
23% share of the relevant U.S. market in each of these years, respectively. KEDRAB in-market sales by Kedrion during 2022 grew in comparison
to the pre-COVID-19 pandemic sales and we anticipate this trend to continue during 2023 and beyond.
We believe that sales of
CYTGOM and KEDRAB in the U.S. market, which generated more than 50% of gross profitability in the year ended December 31, 2022, will
continue to increase in the coming years and will be a major growth catalyst for the foreseeable future.
We sell WINRHO SDF, VARIZIG
and HEPGAM B, in the United States, Canada and several other international markets, mainly in the Middle East and North Africa (“MENA”)
regions. Total revenues from sales of these products for the year ended December 31, 2022, the first full year during which we sold these
products, was $29.5 million.
For the year ended December
31, 2022, we generated combined revenues of $52.1 million through sales of CYTOGAM, WINRHO SDF, VARIZIG and HEPGAM B, the portfolio of
four FDA-approved products that we acquired in November 2021. The 2022 revenues from this portfolio represent a 24% year over year increase
compared to the $41.9 million of total revenues generated by this portfolio during the year ended December 31, 2021.
We market GLASSIA in the
United States through a strategic partnership with Takeda. During 2021, Takeda completed the technology transfer of GLASSIA manufacturing
to its facility in Belgium and received the required FDA approval and initiated its own production of GLASSIA for the U.S. market. In
addition, during 2021, Takeda obtained a marketing authorization approval for GLASSIA from Health Canada. During the first quarter of
2022, Takeda began to pay us royalties on sales of GLASSIA manufactured by Takeda, at a rate of 12% on net sales through August 2025
and at a rate of 6% thereafter until 2040, with a minimum of $5 million annually for each of the years from 2022 to 2040. In 2022, we
received a total of $14.2 million from Takeda, of which $12.2 of sales-based royalty income (for the period between March and December
of 2022) and a $2.0 million one-time payment on account of the transfer, to Takeda, of the GLASSIA U.S. biologics license applications
(“BLA”). Based on current GLASSIA sales in the U.S. and forecasted future growth, we expect to receive royalties from Takeda
in the range of $10 million to $20 million per year for 2023 to 2040 on GLASSIA sales. Historically, we generated revenues on sales of
GLASSIA, manufactured by us, to Takeda for further distribution in the United States. Our revenues from sales of GLASSIA to Takeda totaled
$26.2 million and $64.9 million during 2021 and 2020, respectively. During 2021, we also recognized revenues of $5.0 million on account
of a sales milestone associated with GLASSIA sales by Takeda.
We also market GLASSIA in
other counties through local distributors. Total revenues derived from sales of GLASSIA in all other countries during 2022 was $5.9 million,
as compared to $7.6 million and $5.5 million during 2021 and 2020, respectively. These ex-U.S. market sales of GLASSIA generated approximately
40% gross margin in the year ended December 31, 2022.
Our 2022 revenues from the
sales of the remaining Proprietary products, including KAMRAB (a human rabies immune globulin (HRIG) sold by us outside the U.S. market)
and KAMRHO (D) (for prophylaxis of hemolytic disease of newborns), as well as our anti-snake venoms, totaled $13.9 million, as compared
to $18.4 million and $11.2 million during 2021 and 2020, respectively.
We own an FDA licensed plasma collection center that we acquired in
March 2021 from the privately held B&PR based in Beaumont, Texas, which currently specializes in the collection of hyper-immune plasma
used in the manufacture of KAMRHO (D) IM. For the year ended December 31, 2022, we generated $0.4 million in revenues from this plasma
collection center, which were included in our Proprietary products revenues. See below “— Recent Acquisitions.”
We are in the process of significantly expanding our hyper-immune plasma collection capacity in this center. We obtained FDA approval
for the collection of hyper-immune plasma to be used in the manufacture of KEDRAB, which is plasma that contains high levels of antibodies
from donors who have been previously vaccinated by an active rabies vaccine and plan to start collections of such plasma during 2023.
We also intend to leverage our FDA license to establish additional plasma collection centers in the United States, with the intention
of collecting normal source plasma to be sold for manufacturing by third parties, as well as hyper-immune specialty plasma required for
manufacturing of our proprietary products. We believe that the expansion of our plasma collection capabilities will allow us to better
support our plasma needs as well as generate additional revenues through sales of collected normal source plasma. To that end, during
March 2023, we entered into a lease for a new plasma collection center in Uvalde, Houston, Texas and expect to commence operations at
the new center following the completion of its construction and obtaining the required regulatory approvals.
Our Distribution segment
is comprised of sales in Israel of pharmaceutical products manufactured by third parties. Sales generated by our Distribution segment
during 2022 totaled $26.7 million, as compared to $28.1 million and $32.3 million during 2021 and 2020, respectively. Most of the revenues
generated in our Distribution segment are from plasma-derived products manufactured by European companies, and its sales represented
approximately 75%, 84% and 89% of our Distribution segment revenues for the years ended December 31, 2022, 2021 and 2020, respectively.
Over the past several years we continued to extend our Distribution segment products portfolio to non-plasma derived products, including
recently entering into an agreement with Alvotech and two additional companies for the distribution in Israel of eleven different biosimilar
products which, subject to EMA and subsequently IMOH approvals, are expected to be launched in Israel through 2028. We believe that sales
generated by the launch of the biosimilar products portfolio will become a major growth catalyst. We currently estimate the potential
aggregate peak revenues, achievable within several years of launch, generated by the distribution of all eleven biosimilar products to
be approximately $40 million annually.
In addition to our commercial
operation, we invest in research and development of new product candidates. Our leading investigational product is Inhaled AAT for AATD,
for which we are continuing to progress the InnovAATe clinical trial, a randomized, double-blind, placebo-controlled, pivotal Phase 3
trial. We have additional product candidates in early development stage. For additional information regarding our research and development
activities, see “— Our Development Product Pipeline”.
We currently expect to generate
total revenues for the fiscal year 2023 in the range of $138 million to $146 million and EBITDA in the range of $22 million to $26 million.
The mid- range points of the projected 2023 revenue and EBITDA forecast represent a 10% and 35% growth over fiscal year 2022, respectively.
COVID-19 Pandemic Effects
COVID-19 related disruption
had various effect on our business activities, commercial operation, revenues and operational expenses. However, as a result of actions
taken by us, our overall results of operations for the year ended December 31, 2022 were not materially affected. See “Item 3.Risk
Factors — The COVID-19 pandemic may continue to impact our business, operating results and financial condition.”
Key Components of Our Results of Operations
Business Combination
In November 2021, we acquired
a portfolio of the following four FDA approved plasma-derived hyperimmune commercial products from Saol: CYTOGAM, HEPAGAM B, VARIZIG
and WINRHO SDF. For the year ended December 31, 2022, the acquired portfolio contributed $52.1 million and $26.4 million in revenues
and gross profit, respectively. The 2022 revenues from this portfolio represent 40% of our total sales, as well as a 24% year over year
increase compared to the $41.9 million of total revenues generated by this portfolio during the year ended December 31, 2021.
Under the terms of the agreement,
we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject to
the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. The first sales
threshold was achieved by the end of 2022, and a $3 million contingent consideration payment is expected to be paid during the second
quarter of 2023. Subject to certain conditions defined in the agreement between the parties, we may be entitled for up to a $3.0
million credit deductible from the contingent consideration payments due for the years 2023 through 2027. In addition, we acquired inventory
valued at $14.4 million and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million each or the remaining
balance at the final installment, of which we paid four installments of $1.5 million each to Saol during 2022.
Pursuant to an earlier engagement
with Saol, during 2019, we initiated technology transfer activities for transitioning CYTOGAM manufacturing to our manufacturing facility
in Beit Kama, Israel. Through November 22, 2021, we received a total of $3.8 million in consideration from Saol with respect to the technology
transfer activities performed. As a result of the consummation of the Saol transaction, such previous engagement with Saol expired and
the received consideration was accounted for as settlement of preexisting relationship.
The following table details
the total acquisition consideration:
| |
USD in
thousands | |
| |
| |
Cash paid at closing | |
$ | 95,000 | |
Contingent consideration liability | |
| 21,705 | |
Deferred inventory consideration | |
| 13,788 | |
Settlement of preexisting relationship | |
| (3,786 | ) |
| |
| | |
Total acquisition cost | |
| 126,707 | |
The acquisition was categorized
as business combination and accounted for by applying the acquisition method, pursuant to which we identified and valued the acquired
assets and assumed liabilities. The excess amount of the acquisition cost over the net value of the acquired assets and assumed liabilities
is recorded as goodwill.
The following acquired assets,
and their respective fair value as of the acquisition date were identified Inventory: $22.8 million, Customer Relations $33.5 million,
Intellectual Property $79.1 million and Assumed Contract Manufacturing Agreement $8.5 million.
We assumed certain of Saol’s
liabilities for the future payment of royalties (some of which are perpetual) and milestone payments to a third parties subject to the
achievement of corresponding CYTOGAM related net sales thresholds and milestones. The fair value of such assumed liabilities at the acquisition
date was estimated at $47.2 million. Such assumed liabilities include:
|
● |
Royalties: 10% of the annual global net sales of CYTOGAM up to $25.0
million and 5% of net sales that are greater than $25.0 million, in perpetuity; 2% of the annual global net sales of CYTOGAM in perpetuity;
and 8% of the annual global net sales of CYTOGAM for period of six years following the completion of the technology transfer of the
manufacturing of CYTOGAM to us, subject to a maximum aggregate of $5.0 million per year and for total amount of $30.0 million throughout
the entire six years period. |
|
● |
Sales milestones: $1.5 million in the event that the annual net sales
of CYTOGAM in the United States market exceeds $18.8 million during the twelve months period ending June 30, 2022, which milestone
was met and milestone payment is expected to be paid during the second quarter of 2023; and, $1.5 million in the event that the annual
net sales of CYTOGAM in the United States market exceeds $18.4 million during the twelve months period ending June 30, 2023. |
|
● |
Milestone: $8.5 million upon the receipt of FDA approval for the manufacturing
of CYTOGAM at Company’s manufacturing facility. |
The following
table details the fair value of the identified assets and liabilities as of the acquisition date (for further details refer to Note
5 to the audited consolidated financial statements for the year ended December 31, 2022 included elsewhere in this Annual Report):
| |
Fair
value
USD
in thousands | |
| |
| |
Inventory | |
| 22,849 | |
Customer Relations | |
| 33,514 | |
Intellectual Property | |
| 79,141 | |
Assumed Contract Manufacturing Agreement | |
| 8,519 | |
Assumed liability | |
| (47,213 | ) |
Net identifiable assets | |
| 96,810 | |
| |
| | |
Goodwill arising on acquisition | |
| 29,897 | |
| |
| | |
Total acquisition cost | |
| 126,707 | |
Intangible
assets with a finite useful life are amortized on a straight-line basis over its useful life (estimated 6-20 years). During the year
ended December 31, 2022 we accounted for $7.1 of amortization expenses associated with such intangible assets. Intangible assets and
goodwill are reviewed for impairment whenever there is an indication that the asset may be impaired.
Revenues
In
our Proprietary Products segment, we generate revenues from the sale of products to wholesalers in the U.S. market, strategic partners
(specifically KEDRAB to Kedrion), local distributors in ex-U.S. markets, HMOs and local hospitals. Revenues from our Proprietary
Products segments also include royalty payments from strategic partners (specifically royalties paid by Takeda on account of their sales
of GLASSIA). In our Distribution segment, we generate revenues from the sale in Israel of imported products produced by third parties.
Revenues are presented net of any discounts and/or marketing contribution payments extended to our partners and distributors.
We
derived approximately 59%, 48% and 64% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively, from
sales in the United States and North America, approximately 25%, 35% and 27% of our total revenues for the years ended December 31, 2022,
2021 and 2020, respectively, from sales in Israel (including both sales for our Proprietary Products segment and Distribution segment),
approximately 4%, 5% and 3% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively, from sales in Europe,
approximately 4%, 3% and 1% of our total revenues for the years ended December 31, 2022, 2021and 2020, respectively, from sales in Asia
(excluding Israel), and approximately 9%, 9% and 5% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively,
from sales in Latin America.
Cost
of Revenues
Cost
of revenues in our Proprietary Products segment includes expenses related to the manufacturing of products such as raw materials (including
plasma), payroll (including bonus, equity-based compensation and other benefits), utilities, laboratory costs and depreciation. In addition,
part of the cost of revenues derived from payment on account of manufacturing services provided by third parties. Cost of revenues also
includes provisions for the costs associated with manufacturing scraps and inventory write-offs.
Cost
of revenues includes amortization expenses related to intangible assets recognized pursuant to the acquisition of CYTOGAM, HEPGAM B,
VARIZIG and WINRHO SDF. Intangible assets which amortization is accounted for in the costs of revenues include the acquired products
intellectual property and an assumed contract manufacturing agreement.
A
significant portion of our manufacturing costs are for raw materials consisting of plasma or plasma fraction. In order to ensure the
availability of plasma and plasma fraction, we secured supply agreements with multiple suppliers, including from Takeda for the manufacturing
of GLASSIA and from Kedrion for the manufacturing of KEDRAB and KAMRAB. We intend to secure long term plasma supply agreements with other
suppliers to support manufacturing needs for CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF, and we plan to leverage the recent acquisition
of our plasma collection center to expand our plasma collection capacity and to open additional plasma collection centers to support
our continued plasma needs.
Costs
of revenues in our Distribution segment consists of costs of products acquired, packaging and labeling for sales by us in Israel.
Gross
Profit
Gross
profit is the difference between total revenues and the cost of revenues. Gross profit is mainly affected by volume and mix of sales,
as well as manufacturing efficiencies, cost of raw materials and plant maintenance and overhead costs.
Our
gross margins in our Proprietary Products segment, which were 43%, 36% and 43% for the years ended December 31, 2022, 2021 and 2020,
respectively, are generally higher than in our Distribution segment, which were 9%, 11% and 14% for the years ended December 31, 2022,
2021 and 2020, respectively.
The
increase in gross profitability in our Proprietary Products segment during the year ended December 31, 2022, was mainly as a result of
a positive product sales mix, led by sales of CYOTGAM and KEDRAB in the U.S. market and GLASSIA royalties. The reduction in gross profitability
during the year ended December 31, 2021, in the Propriety Products segment was mainly as a result of changes in product sales mix, specifically
the reduction of GLASSIA sales to Takeda, as well as reduced plant utilization.
Research
and Development Expenses
The
development of pharmaceutical products, including plasma-derived protein therapeutics, is characterized by significant up-front product
development costs. Research and development expenses are incurred for the development of new products and newly revised processes for
existing products and includes expenses for pre-clinical and clinical trials, development activities in the different fields, the advanced
understanding of the mechanism of action of our products, improving existing products and processes, development work at the request
of regulatory authorities and strategic partners, as well as communication with regulatory authorities related to our commercial products
and clinical programs. In addition, such expenses include development materials, payroll for research and development personnel, including
scientists and professionals for product registration and approval, external advisors and the allotted cost of our manufacturing facility
for research and development purposes. While research and development expenses are unallocated on a segment basis, the activities generally
relate to our existing or in development proprietary products.
Product
development costs may fluctuate from period to period, as our product candidates proceed through various stages of development. We expect
to continue to incur research and development expenses related to clinical trials, as well as other ongoing, planned or future clinical
trials with regard to our product pipeline. See “Item 4. Information on the Company — Our Development Product Pipeline.”
In
order to reduce costs related to the development and regulatory approval of new protein therapeutics, in some cases we seek to share
development costs with strategic partners, such as Takeda for the required post marketing clinical trials for GLASSIA in the United States,
Kedrion for the clinical trials for KEDRAB in the United States required for product approval and post marketing commitments. See “Item
4. Information on the Company — Strategic Partnerships.” In addition, we seek grants from dedicated governmental funds for
partial funding for development projects.
Selling
and Marketing Expenses
Selling
and marketing expenses principally consist of compensation for employees and executives in sales and marketing related positions (including
payroll, bonus, equity-based compensation and other benefits), expenditures incurred for sales incentive, advertising, marketing or promotional
activities, shipping and handling costs, 3PL services fees product liability insurance and business development activities, as well as
marketing authorization fees to regulatory agencies, including the FDA.
Selling
and marketing expenses includes depreciation costs of intangible assets recognized pursuant to the acquisition of CYTOGAM, HEPGAM B,
VARIZIG and WINRHO SDF. Intangible assets which depreciation is accounted for in the selling and marketing expenses include customer
relations.
General
and Administrative Expenses
General
and administrative expenses consist of compensation for employees in executive and administrative functions (including payroll, bonus,
equity compensation and other benefits), office expenses, professional consulting services, public company related costs, directors’
and officer’s liability insurance and other insurance costs, legal, audit fees, other professional services as well as employee
welfare costs.
Financial
Income
Financial
income is comprised of interest income on amounts invested in bank deposits and short-term investments.
Income
(expense) in respect of securities measured at fair value, net
Income
(expense) in respect of securities measured at fair value, net comprised the changes in the fair value of financial assets measured at
fair value through other comprehensive income. During 2020, we realized all of our debt securities (corporate and government).
Income
(expense) in respect of currency exchange differences and derivatives instruments, net
Income
(expense) in respect of currency exchange differences and derivatives instruments, net is comprised of changes on balances in currencies
other than our functional currency. Changes in the fair value of derivatives instruments not designated as hedging instruments are reported
to profit or loss.
Income
(expense) in respect of contingent consideration and other long- term liabilities
Income
(expense) in respect of contingent consideration and other long- term liabilities is comprised of the changes in the balances of the
contingent consideration and other long-term liabilities which were accounted for as part of the acquisition of CYTOGAM, HEPGAM B, VARIZIG
and WINRHO SDF
Financial
Expenses
Financial
expenses are comprised of bank charges, changes in the time value of provisions, the portion of changes in the fair value of financial
assets or liabilities at fair value through other comprehensive income and interest and amortization of bank loans and leases.
Taxes
on Income
Since
our inception we accrued NOLs for tax purposes and as result, have not been required to pay income taxes other than tax withheld in a
foreign jurisdiction in 2012 and 2016 and a $1.3 million payment to the Israel Tax Authority in 2016 as a settlement agreement for the
tax years 2004-2006. During the year ended December 31, 2018, we accounted for a deferred tax asset on account of a portion of the loss
carryforwards for tax purposes that we estimated that we would realize in the following years, and during the years ended December 31,
2020 and 2019, due to the utilization of such loss carryforwards, we recognized tax expenses for the entire amount of such deferred tax
asset. For the years ended December 31, 2022 and 2021, we did not account for deferred tax assets nor deferred tax income/expenses.
As
of December 31, 2022, we have NOLs for tax purposes of approximately $26.5 million. The NOLs have no expiration date. Following the full
utilization of our NOLs, we expect that our effective income tax rate in Israel will reflect the tax benefits discussed below.
Our
Israeli based manufacturing facility has been granted an Approved Enterprise status pursuant to the Investment Law, which made us eligible
for a grant and certain tax benefits under that law for a certain investment program. The investment program provided us with a grant
in the amount of 24% of our approved investments, in addition to certain tax benefits, which applied to the turnover resulting from the
operation of such investment program, for a period of up to ten consecutive years from the first year in which we generated taxable income.
The tax benefits under the Approved Enterprise status expired at the end of 2017. Additionally, we have obtained a tax ruling from the
Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity,”
as defined in the Investment Law, and is also eligible for tax benefits as a Privileged Enterprise, which apply to the turnover attributed
to such enterprise, for a period of up to ten years from the first year in which we generated taxable income. The tax benefits under
the Privileged Enterprise status are scheduled to expire at the end of 2023. As of the date of this Annual Report, we have not utilized
any tax benefits under the Investment Law, other than the receipt of grants attributable to our Approved Enterprise status.
We
may be subject to withholding taxes for payments we receive from foreign countries. If certain conditions are met, these taxes may be
credited against future tax liabilities under tax treaties and Israeli tax laws. However, due to our net operating loss carryforward,
it is uncertain whether we will be able to receive such credit and therefore, we may incur tax expenses.
As
we further expand our sales into other countries, we could become subject to taxation based on such country’s statutory rates and
our effective tax rate could fluctuate accordingly.
During
the year ended December 31, 2021, following the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF and the acquisition of the plasma
collection center in Beaumont, TX, we initiated commercial operations in the U.S. through our subsidiaries Kamada Inc. and Kamada Plasma
LLC. The two entities are subject to U.S. federal and certain state income taxes and file a combined tax return. Income tax expenses
due in connection which such activities are included as part of taxes on income in our consolidated statement of operations.
Results
of Operations
The
following table sets forth certain statement of operations data:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
(U.S. Dollars in thousands) | |
Revenues from Proprietary Products segment | |
$ | 102,598 | | |
$ | 75,521 | | |
$ | 100,916 | |
Revenues from Distribution segment | |
| 26,741 | | |
| 28,121 | | |
| 32,330 | |
Total revenues | |
| 129,339 | | |
| 103,642 | | |
| 133,246 | |
Cost of revenues from Proprietary Products segment | |
| 58,229 | | |
| 48,194 | | |
| 57,750 | |
Cost of revenues from Distribution segment | |
| 24,407 | | |
| 25,120 | | |
| 27,944 | |
Total cost of revenues | |
| 82,636 | | |
| 73,314 | | |
| 85,694 | |
Gross profit | |
| 46,703 | | |
| 30,328 | | |
| 47,552 | |
Research and development expenses | |
| 13,172 | | |
| 11,357 | | |
| 13,609 | |
Selling and marketing expenses | |
| 15,284 | | |
| 6,278 | | |
| 4,518 | |
General and administrative expenses | |
| 12,803 | | |
| 12,636 | | |
| 10,139 | |
Other expense | |
| 912 | | |
| 753 | | |
| 49 | |
Operating income (loss) | |
| 4,532 | | |
| (696 | ) | |
| 19,237 | |
Financial income | |
| 91 | | |
| 295 | | |
| 1,027 | |
Income (expense) in respect of securities measured at fair value, net | |
| - | | |
| - | | |
| 102 | |
Income (expense) in respect of currency exchange differences and derivatives instruments, net | |
| 298 | | |
| (207 | ) | |
| (1,535 | ) |
Financial Income (expense) in respect of contingent consideration and other long- term liabilities | |
| (6,266 | ) | |
| (994 | ) | |
| - | |
Financial expense | |
| (914 | ) | |
| (283 | ) | |
| (266 | ) |
Income (loss) before taxes on income | |
| (2,259 | ) | |
| (1,885 | ) | |
| 18,565 | |
Taxes on income | |
| 62 | | |
| 345 | | |
| 1,425 | |
Net income (loss) | |
$ | (2,321 | ) | |
$ | (2,230 | ) | |
$ | 17,140 | |
Year
Ended December 31, 2022 Compared to Year Ended December 31, 2021
Segment
Results
| |
Change 2022 vs. 2021 | |
| |
2022 | | |
2021 | | |
Amount | | |
Percent | |
| |
(U.S. Dollars in thousands) | |
Revenues: | |
| | |
| | |
| | |
| |
Proprietary Products | |
$ | 102,598 | | |
$ | 75,521 | | |
$ | 27,077 | | |
| 35.9 | % |
Distribution | |
| 26,741 | | |
| 28,121 | | |
| (1,380 | ) | |
| (4.9 | )% |
Total | |
| 129,339 | | |
| 103,642 | | |
| 25,697 | | |
| 24.8 | % |
Cost of Revenues: | |
| | | |
| | | |
| | | |
| | |
Proprietary Products | |
| 58,229 | | |
| 48,194 | | |
| 10,035 | | |
| 20.8 | % |
Distribution | |
| 24,407 | | |
| 25,120 | | |
| (713 | ) | |
| (2.8 | )% |
Total | |
| 82,636 | | |
| 73,314 | | |
| 9,322 | | |
| 12.7 | % |
Gross Profit: | |
| | | |
| | | |
| | | |
| | |
Proprietary Products | |
$ | 44,369 | | |
$ | 27,327 | | |
$ | 17,042 | | |
| 62.4 | % |
Distribution | |
| 2,334 | | |
| 3,001 | | |
| (667 | ) | |
| (22.2 | )% |
Total | |
$ | 46,703 | | |
$ | 30,328 | | |
$ | 16,375 | | |
| 54.0 | % |
Revenues
For
the year ended December 31, 2022, we generated $129.3 million of total revenues, as compared to $103.6 million for the year ended December
31, 2021, an increase of $25.7 million, or approximately 24.8%. This increase was primarily due to sales from the portfolio of four acquired
FDA-approved IgG products that contributed $52.1 million. During the year ended December 31, 2021, this portfolio generated total sales
of $41.9 million, of which we recognized only $5.4 million which were the sales from the acquisition date of November 22, 2021, and December
31, 2021. In addition, KEDRAB sales to Kedrion for the year ended December 31, 2022, totaled $16.2 million, a $4.3 million increase compared
to the year ended December 31, 2021, which increase was a result of Kedrion’s U.S. in-market sales returning to the pre-COVID-19
pandemic sales. Lastly, for the year ended December 31, 2022, we accounted for revenues of $14.2 million from Takeda, of which $12.2
of sales-based royalty income (for the period between March and December of 2022) and a $2.0 million one-time payment on account of the
transfer, to Takeda, of the GLASSIA U.S. BLA. During the year ended December 31, 2021, we generated $26.2 million of sales of GLASSIA
to Takeda, which were our last sales of the product to Takeda prior to the completion of transition of its manufacturing to Takeda.
The decrease in revenues in the Distribution segment is primarily related
to the reduction of IVIG sales.
Cost
of Revenues
For
the year ended December 31, 2022, we incurred $82.6 million of cost of revenues, as compared to $73.3 million for the year ended December
31, 2021, an increase of $9.3 million, or approximately 12.7%. The increase in costs of revenues is mainly attributable to increased
sales. For the year ended December 31, 2022, cost of revenues included $5.4 million of intangible assets amortization costs and a $4.3
million loss related to a labor strike at our manufacturing plant at Beit-Kama, Israel which was concluded in July 2022.
Gross
Profit
Gross
profit and gross margins in our Proprietary Products segment for the year ended December 31, 2022, were $44.4 and 43.2%, respectively,
as compared to $27.3 and 36.2% for the year ended December 31, 2020, respectively, representing an increase of $17.0 million and 62%,
respectively. Such increase is primarily attributed to the sales generated by the portfolio of four acquired FDA-approved IgG products,
the increase in KEDRAB sales to Kedrion as well as the royalty income from Takeda on account of their GLASSIA sales.
Gross
profit and gross margins in our Distribution segment for the year ended December 31, 2022 were $2.3 and 8.7%, respectively, as compared
to $3.0 and 10.7% for the year ended December 31, 2021, respectively, representing a decrease of $0.7 million and 22%, respectively.
Such decrease is primarily related to the overall decrease in sales generated in this segment which were driven by reduction of IVIG
sales.
Research
and Development Expenses
For
the year ended December 31, 2022, we incurred $13.2 million of research and development expenses, as compared to $11.4 million in the
year ended December 31, 2021, an increase of $1.8 million, or approximately 16.0%. The increase was primarily due to increased costs
associated with opening of new clinical sites and accelerating recruitment for the ongoing pivotal Phase 3 clinical trial of Inhaled
AAT.
Research
and development expenses accounted for approximately 10.2% and 11.0% of total revenues for the years ended December 31, 2022 and 2021,
respectively.
Set
forth below are the research and development expenses associated with our major development programs in the years ended December 31,
2022 and 2021:
| |
Year ended December 31, | |
| |
2022 | | |
2021 | |
Inhaled AAT | |
$ | 4,986 | | |
$ | 2,562 | |
Anti-SARS-CoV-2 | |
| 32 | | |
| 180 | |
Recombinant AAT | |
| 257 | | |
| 528 | |
Other early stage development programs | |
| | | |
| | |
Unallocated salary | |
| 4,924 | | |
| 5,076 | |
Unallocated facility cost allocated to research and development | |
| 2,065 | | |
| 2,138 | |
Unallocated other expenses | |
| 909 | | |
| 873 | |
Total research and development expenses | |
$ | 13,173 | | |
$ | 11,357 | |
For
the years ended December 31, 2022 and 2021, we incurred $4.9 million and $5.1 million, respectively, of unallocated salary expenses which
represent all research and development salary expenses, $4.3 million and $2.1 million, respectively, of facility costs allocated to research
and development and $0.9 million and $0.9 million, respectively, of unallocated other expenses.
Our
current intentions with respect to our major development programs are described in “Business — Our Development Product Pipeline”.
We cannot determine with full certainty the duration and completion costs of the current or future clinical trials of our major development
programs or if, when, or to what extent we will generate revenues from the commercialization and sale of any product candidates. We or
our strategic partners may never succeed in achieving marketing approval for any product candidates. The duration, costs and timing of
clinical trials and our major development programs will depend on a variety of factors, including the uncertainties of future clinical
and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation and whether
our current or future strategic partners are committed to and make progress in programs licensed to them, if any. In addition, the probability
of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial
viability. See “Item 3. Key Information — D. Risk Factors — Risks Related to Development, Regulatory Approval and Commercialization
of Product Candidates.”
We
will determine which programs to pursue and how much to fund each program in response to the scientific, pre-clinical and clinical outcome
and results of each product candidate, as well as an assessment of each product candidate’s commercial potential. We cannot forecast
with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements
would affect our development plans or capital requirements.
Selling
and Marketing Expenses
For
the year ended December 31, 2022, we incurred $15.3 million of selling and marketing expenses, as compared to $6.3 million for the year
ended December 31, 2021, an increase of $9.0 million, or approximately 143.5%. This increase was primarily due to the establishment of
our U.S. commercial operations through our wholly owned subsidiary, Kamada Inc. which is responsible for the marketing, sale, and distribution
of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF.
In
addition, the increase in selling and marketing expenses is attributable to amortization expenses related to intangible assets recognized
pursuant to a business combination, which for the years ended December 31, 2022 and 2021, amounted to $1.7 million and $0.2 million,
respectively.
Selling
and marketing expenses accounted for approximately 11.8 % and 6.1% of total revenues for the years ended December 31, 2022 and 2021,
respectively.
General
and Administrative Expenses
For
the year ended December 31, 2021, we incurred $12.8 million of general and administrative expenses, as compared to $12.6 million for
the year ended December 31, 2020, an increase of $0.2 million, or approximately 1.3%. This increase was primarily due to increased costs
in support of our U.S. commercial operation.
General
and administrative expenses accounted for approximately 9.9% and 12.2% of total revenues for the years ended December 31, 2022 and 2021,
respectively.
Other
expenses
For
the years ended December 31, 2022 and 2021, we incurred $0.9 and $0.8 million of other expenses. For the year ended December 31, 2022
such costs includes partial recognition of an expected milestone payment which will be paid to CSL upon completion of the technology
transfer of CYTOGAM manufacturing to our manufacturing facility at Beit-Kama, Israel. For the year ended December 31, 2021, such costs
included a one-time expense of $0.7 million related to excess severance remuneration for employees who were laid-off as part of a planned
workforce downsizing undergone in connection with the transition of GLASSIA manufacturing to Takeda.
Financial
Income
For
the years ended December 31, 2022 and 2021, we generated $0.1 and $0.3 million of financial income, respectively. Financial income is
primarily comprised of interest income on bank deposits and to a limited extent short-term investments.
Income
(expense) in respect of currency exchange differences and derivatives instruments, net
For
the year ended December 31, 2022, we generated $0.3 million of income in respect of currency exchange differences on balances in other
currencies, mainly the NIS and the Euro versus the U.S. dollar, and derivatives impact, as compared to incurring $0.2 million of expenses
in respect to currency exchange differences and derivatives instruments for the year ended December 31, 2021.
Financial
Income (expense) in respect of contingent consideration and other long- term liabilities
For
the year ended December 31, 2022, we incurred $6.3 million of expenses, as compared to $1.0 million for the year ended December 31, 2021.
These expenses are in respect of reevaluation of contingent consideration and other long- term liabilities associated with the acquisition
of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF.
Financial
Expenses
For
the year ended December 31, 2022, we incurred $0.9 million of financial expenses, as compared to $0.3 million for the year ended December
31, 2021. Financial expenses in the years ended December 31, 2022 and 2021, was primarily related to interest costs on debt facility
obtained to partially fund the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. See below “Liquidity and Capital Resources.”
Taxes
on Income
For
the year ended December 31, 2022, we recorded a $0.1 million tax expense primarily related to our U.S. operations. For the year ended
December 31, 2021, we recorded a $0.3 million tax expense primarily related to excess costs tax payment due to the Israel Tax Authority
and current taxes on account of our U.S commercial operations.
Year
Ended December 31, 2021 Compared to Year Ended December 31, 2020
Segment
Results
| |
Change 2021 vs. 2020 | |
| |
2021 | | |
2020 | | |
Amount | | |
Percent | |
| |
(U.S. Dollars in thousands) | |
Revenues: | |
| | |
| | |
| | |
| |
Proprietary Products | |
$ | 75,521 | | |
$ | 100,916 | | |
$ | (25,395 | ) | |
| (25.2 | )% |
Distribution | |
| 28,121 | | |
| 32,330 | | |
| (4,209 | ) | |
| (13.0 | )% |
Total | |
| 103,642 | | |
| 133,246 | | |
| (29,604 | ) | |
| (22.2 | )% |
Cost of Revenues: | |
| | | |
| | | |
| | | |
| | |
Proprietary Products | |
| 48,194 | | |
| 57,750 | | |
| (9,556 | ) | |
| (16.5 | )% |
Distribution | |
| 25,120 | | |
| 27,944 | | |
| (2,824 | ) | |
| (10.1 | )% |
Total | |
| 73,314 | | |
| 85,694 | | |
| (12,380 | ) | |
| (14.4 | )% |
Gross Profit: | |
| | | |
| | | |
| | | |
| | |
Proprietary Products | |
$ | 27,327 | | |
$ | 43,166 | | |
$ | (15,839 | ) | |
| (36.7 | )% |
Distribution | |
| 3,001 | | |
| 4,386 | | |
| (1,385 | ) | |
| (31.6 | )% |
Total | |
$ | 30,328 | | |
$ | 47,552 | | |
$ | (17,224 | ) | |
| (36.2 | )% |
Revenues
In
the year ended December 31, 2021, we generated $103.6 million of total revenues, as compared to $133.2 million in the year ended December
31, 2020, a decrease of $29.6 million, or approximately 22.2%. This decrease was primarily due to the transition of GLASSIA manufacturing
to Takeda which resulted in an overall $38.7 million year over year decrease of GLASSIA sales. In addition, KEDRAB sales to Kedrion for
the year ended December 31, 2021, totaled $11.9 million, a $6.4 million decrease compared to the year ended December 31, 2020, which
decrease was a result of relatively higher level of inventory of product at Kedrion as of December 31, 2020, which was due to reduced
KEDRAB sales by Kedrion during 2020 as a result of the effect of the COVID-19 pandemic. These decreases were partially offset by $5.4
million of revenues generated from sales of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF following their acquisition from November 22, 2021
through December 31, 2021, the recognition of $5.0 million of GLASSIA sales milestone from for Takeda and $3.9 million of revenues generated
from sales to the IMOH of our investigational Anti-SARS-CoV-2 IgG product, as well as an increase in revenues of our other Proprietary
products.
Cost
of Revenues
In
the year ended December 31, 2021, we incurred $73.3 million of cost of revenues, as compared to $85.7 million in the year ended December
31, 2020, a decrease of $12.4 million, or approximately 14.4%. The decrease in costs of revenues is mainly attributable to the decrease
in sales volume and mix.
Gross
profit
Gross
profit and gross margins in our Proprietary Products segment for the year ended December 31, 2021 were $27.3 and 36.2%, respectively,
as compared to $43.2 and 42.8% for the year ended December 31, 2020, respectively, representing a decrease of $15.9 million and 36.7%,
respectively. Such decrease is primarily attributed to the overall decrease in product sales mix, specifically the decrease in sales
of GLASSIA to Takeda and KEDRAB to Kedrion (as detailed above), which sales carry relatively higher gross margins, together with an increase
in sales of our products in several ex-U.S. markets, which carry relatively lower gross margins.
In
the wake of the transition of GLASSIA manufacturing to Takeda, we effected measures to reduce plant overhead costs, including headcount
reduction. Nevertheless, the overall reduction in manufacturing plant utilization resulted in relatively higher cost allocation per each
manufactured product. As a result, during the year ended December 31, 2021, we incurred higher impairment costs for inventories carried
at net realizable value. We account for impairment costs when the net realizable value of the inventory is lower than the cost incurred
in bringing the inventory to its present location and condition.
In
addition, for the year ended December 31, 2021, we incurred depreciation expenses in the amount of $0.6 million, related to intangible
assets recognized pursuant to a business combination, which reduced the gross profits.
Gross
profit and gross margins in our Distribution segment for the year ended December 31, 2021 were $3.0 and 10.7%, respectively, as compared
to $4.4 and 13.6% for the year ended December 31, 2020, respectively, representing a decrease of $1.4 million and 31.6%, respectively.
Such decrease is primarily related to change in product sales mix in this segment, specifically the year over year increased proportion
of sales of IVIG of overall sales in this segment. As a tender based product, sales of IVIG carry relatively lower gross margins as compared
to other products in this segment.
Research
and Development Expenses
In
the year ended December 31, 2021, we incurred $11.4 million of research and development expenses, as compared to $13.6 million in the
year ended December 31, 2020, a decrease of $2.2 million, or approximately 16.2%. The decrease was primarily due to reduction in costs
associated with our pivotal Phase 3 InnovAATe clinical trial of our Inhaled AAT for treatment of AATD. As a result of the continued effect
of the COVID-19 pandemic, we incurred delays and challenges in connection with the opening of additional study sites and recruitment
of patient participants, which resulted in the reduction of costs. In addition, during the year ended December 31, 2021, we reduced the
development of our investigational Anti-SARS-CoV-2 IgG product as a potential treatment for COVID-19. Given the increased vaccination
rate of the population as well as approvals of monoclonal antibodies for COVID-19, we are currently evaluating the market potential of
this product, and the continuation of its development program.
Research
and development expenses accounted for approximately 10.9% and 10.2% of total revenues for the years ended December 31, 2021 and 2020,
respectively.
Set
forth below are the research and development expenses associated with our major development programs in the years ended December 31,
2021 and 2020:
| |
Year ended December 31, | |
| |
2021 | | |
2020 | |
Inhaled AAT | |
$ | 2,562 | | |
$ | 3,266 | |
Anti-SARS-CoV-2 | |
| 180 | | |
| 1,110 | |
Recombinant AAT | |
| 528 | | |
| 426 | |
Unallocated salary | |
| 5,076 | | |
| 6,045 | |
Unallocated facility cost allocated to research and development | |
| 2,138 | | |
| 2,064 | |
Unallocated other expenses | |
| 873 | | |
| 698 | |
Total research and development expenses | |
$ | 11,357 | | |
$ | 13,609 | |
Unallocated
expenses are expenses that are not managed by project and are allocated between various tasks that are not always related to a major
project. In the years ended December 31, 2021 and 2020, we incurred $5.1 million and $6.0 million, respectively, of unallocated salary
expenses which represent all research and development salary expenses, $2.1 million and $2.1 million, respectively, of facility costs
allocated to research and development and $0.9 million and $0.6 million, respectively, of unallocated other expenses.
Selling
and Marketing Expenses
In
the year ended December 31, 2021, we incurred $6.3 million of selling and marketing expenses, as compared to $4.5 million in the year
ended December 31, 2020, an increase of $1.8 million, or approximately 39%. This increase was primarily due to costs related to the marketing
and distribution of newly acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF as well as costs associated with pre-launch activities of
new products in the Distribution segment that were launched during the year ended December 31, 2021 or are expected to be launched during
the beginning of 2022.
In
addition, for the year ended December 31, 2021, we incurred depreciation expenses in the amount of $0.2 million, related to intangible
assets recognized pursuant to a business combination, which reduced the gross profits.
Selling
and marketing expenses accounted for approximately 6.1% and 3.4% of total revenues for the years ended December 31, 2021 and 2020, respectively.
General
and Administrative Expenses
In
the year ended December 31, 2020, we incurred $12.6 million of general and administrative expenses, as compared to $10.1 million in the
year ended December 31, 2019, an increase of $2.5 million, or approximately 24.6%. This increase was primarily due to costs associated
with the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF (including advisory, legal and other professional fees) totaling $1.2
million as well as a $0.9 million increase in directors’ and officer’s liability insurance related costs.
General
and administrative expenses accounted for approximately 12.2% and 7.6% of total revenues for the years ended December 31, 2021 and 2020,
respectively.
Other
expenses
In
the years ended December 31, 2021 and 2020, we incurred $0.8 and $0.1 million of other expenses. In connection with the transition of
GLASSIA manufacturing to Takeda, during the second and third quarter of 2021, we implemented a planned workforce downsizing and incurred
a one-time expense of $0.7 million related to excess severance remuneration for employees who were laid-off as part of this downsizing,
which costs were accounted for in other expenses.
Financial
Income
In
the years ended December 31, 2021 and 2020, we generated $0.3 and $1.0 million of financial income, respectively. Financial income is
primarily comprised of interest income on bank deposits and to a limited extent short-term investments.
Income
(expense) in respect of securities measured at fair value, net
In
the year ended December 31, 2020, we incurred $0.1 million of income in respect of securities measured at fair value, net. During 2020
we liquidated our securities portfolio and therefore, did not incur income in respect of securities measured at fair value, net, in 2021.
Income
(expense) in respect of currency exchange differences and derivatives instruments, net
In
the year ended December 31, 2021, we incurred $0.2 million of expenses in respect of currency exchange differences on balances in other
currencies, mainly the NIS and the Euro versus the U.S. dollar, and derivatives impact, as compared to $$1.5 million in the year ended
December 31, 2020.
Financial
Expenses
In
the year ended December 31, 2021, we incurred $1.3 million of financial expenses, as compared to $0.3 million in the year ended December
31, 2020. Financial expenses in the year ended December 31, 2021, included interest costs on debt facility obtained to partially fund
the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF. See below “Liquidity and Capital Resources.”
Taxes
on Income
In
the year ended December 31, 2021, we recorded a $0.3 million tax expense primarily related to excess costs tax payment due to the Israel
Tax Authority and current taxes on account of our U.S commercial operations. In the year ended December 31, 2020, we recorded a $1.4
million tax expense relating primarily to the utilization of a deferred tax asset on account of earnings that were offset against our
net operating loss carryforward for tax purposes.
Liquidity
and Capital Resources
Our
primary uses of cash are to fund working capital requirements, research and development expenses and capital expenditures, as well as
for acquisitions of new products, product candidates and assets. Historically, we have funded our operations primarily through cash flow
from operations (including sales of our proprietary products and distribution products), payments received in connection with strategic
partnerships (including milestone payments from collaboration agreements), issuances of ordinary shares (including our 2005 initial public
offering and listing on the TASE, our 2013 initial public offering in the United States and listing on Nasdaq, our 2017 underwritten
public offering and our 2020 private placement), and the issuance of convertible debentures and warrants to purchase our ordinary shares
as well as through commercial debt financing for the funding of certain acquisitions.
The balance of cash and cash
equivalents and short-term investments as of December 31, 2022, 2021 and 2020, totaled $34.3 million, $18.6 million and $109.3
million, respectively. We plan to fund our future operations and strategic initiatives (See “Item 4. Information on the Company”)
through our financial resources, cash generated through our operational activities, which generated $28.6 million during the year ended
December 31, 2022, commercialization and or out-licensing of our pipeline product candidates, and to the extent required, raising additional
capital through the issuance of equity or debt.
Our
capital expenditures for the years ended December 31, 2022, 2021 and 2020 were $3.8 million, $3.7 million and $5.5 million, respectively.
Our capital expenditures currently relate primarily to the maintenance and improvements of our facilities. We expect our capital expenditures
to increase in the coming years mainly due to the planned expansion of our plasma collection operations as well as potentially to facilitate
the transition of manufacturing of HEPGAM B, VARIZIG and WINRHO SDF to our manufacturing facility in Beit Kama, Israel, which will require
possible upgrades to plant infrastructure as well as to upgrade manufacturing automation. To date, we have not made any material commitments
towards such planned expenditures.
In
addition to our capital expenditure, in November 2021, we acquired CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF from Saol. Under the terms
of the agreement, we paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration
subject the achievement of sales thresholds for the period commencing on the acquisition date and ending on December 31, 2034. We may
be entitled to up to a $3.0 million credit deductible from the contingent consideration payments due for the years 2023 through 2027, subject
to certain conditions as defined in the agreement between the parties. In addition, we acquired inventory and agreed to pay the consideration
to Saol in ten quarterly installments of $1.5 million each or the remaining balance at the final installment. In addition, we assumed
certain of Saol’s liabilities for the future payment of royalties (some of which are perpetual) and milestone payments to a third
parties subject to the achievement of corresponding CYTOGAM related net sales thresholds and milestones. The fair value of such assumed
liabilities at the acquisition date was estimated at $47.2 million. During the next 12 months we anticipate paying approximately $24.9 million
on account of such contingent consideration, inventory related liability and the assumed liabilities, which payments are expected to
be funded by our existing financial resources and cash to be generated through our operational activities. Payments on account of such
liabilities expected to be made beyond the next 12 months are expected to be funded from expected cash to be generated by our operating
activities, and to the extent required, raising additional capital through the issuance of equity or debt. For additional information
also see above under “Key Components of Our Results of Operations—Business Combination” and Note 18e to our
consolidated financial statements included in this Annual Report.
We
have entered into long term lease agreements with respect to office facility, storage spaces, vehicles and certain office equipment.
The terms of such lease arrangements are between 3 to 10 years. The outstanding lease obligation as of December 31, 2022 totaled $3.2
million. For additional information see Note 15 to our consolidated financial statements included in this Annual Report.
We
are also obligated to make certain severance or pension payments to our Israeli employees upon their retirement in accordance with Israeli
law. For additional information, see “Post-Employment Benefits Liabilities” and Note 2u and Note 17 to our consolidated financial
statements included in this Annual Report.
We believe our current cash and cash equivalents and expected future cash to be generated by our operational activities will be
sufficient to satisfy our liquidity requirements for at least the next 12 months.
Credit
Facility and Loan Agreement with Bank Hapoalim B.M.
In
connection with the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO SDF from Saol, on November 15, 2021, we secured a $40 million
of debt facility from Bank Hapoalim B.M., which is comprised of a $20 million five-year loan and a $20 million short-term revolving credit
facility.
The
long-term loan bears interest at a rate of SOFR + 2.18% and is repayable in 54 equal monthly installments commencing on June 16, 2022.
The credit facility was in effect for an initial period of 12 months, thereafter, on January 1, 2023, the credit facility was reduced
to NIS 35 million (equivalent to approximately $10 million) and extended for an additional period of 12 months. Borrowings under the
credit facility accrue interest at a rate of PRIME + 0.55 and are repayable no later than 12 months from the date advanced. We are required
to pay to Bank Hapoalim an annual fee of 0.275% for the credit allocation.
The
terms of the loan and credit facility include certain financial covenants, for the year ended December 31, 2022, and onwards, including
that we maintain: (i) minimum equity capital of 30% of the balance sheet and no less than $120 million, examined on a quarterly basis,
(ii) a maximum working capital to debt ratio of 0.8, examined on a quarterly basis, and (iii) a minimum debt coverage ratio of 1.1 during
2022-2024 and 1.25 in 2025 and onwards, examined on an annual basis. In addition, the terms of the loan and credit facility contain certain
restrictive covenants including, among others, limitations on restructuring, the sale of purchase of assets, material licenses, certain
changes of control and the creation of floating charges over our property and assets. In addition, we undertook not to create any first
ranking floating charge over all or materially all of our property and assets in favor of any third party unless certain conditions,
as defined in the loan agreement, have been satisfied. See “Item 3. Key Information — D. Risk Factors —Risks Related
to Our Financial Position and Capital Resources — Our financial position and operations may be affected as a result of the indebtedness
we incurred and the liabilities we assumed in connection with the recent acquisition of the portfolio of four FDA-approved products.”
Cash
Flows from Operating Activities
Net
cash provided by operating activities was $28.6 million for the year ended December 31, 2022. This net cash provided by operating activities
was generated through the sales of our commercial products, mainly CYTOGAM and KEDRAB, as well as cash generated for royalties payable
by Takeda on account of their GLASSIA sales, net of our operational costs.
Net
cash used in operating activities was $8.8 million for the year ended December 31, 2021. This net cash used in operating activities reflects
net loss of $2.2 million, $7.7 million for non-cash income and expenses, $14.4 million increase in assets, net of liabilities, and $0.1
million of interest income, net of interest and tax expenses paid in cash.
Net
cash provided by operating activities was $19.1 million for the year ended December 31, 2020. This net cash provided by operating activities
reflects net income of $17.1 million, $8.1 million of non-cash expenses and a decrease in inventories of $1.2 million, a decrease in
trade receivables of $1.3 million and a decrease in trade payables of $9.5 million.
Cash
Flows from Investing Activities
Net
cash used in investing activities was $3.8 million for the year ended December 31, 2022, which comprises of capital expenditures.
Net
cash used in investing activities was $61.1 million for the year ended December 31, 2021, which comprises of $96.4 million related to
the Saol and B&PR acquisitions, $39.1 million gained from disposition of short-terms investment and $3.7 million of capital expenditures.
Net
cash used in investing activities was $13.1 million for the year ended December 31, 2020, which comprises of investment in short term
investment and bank deposits of $7.6 million and purchase of property, plant and equipment of $5.5 million.
Cash
Flows from Financing Activities
Net
cash used in financing activities was $9.3 million for the year ended December 31, 2022, and is mainly related to payments made on account
of the inventory related liability and assumed liabilities both generated by the acquisition of CYTOGAM, HEPGAM B, VARIZIG and WINRHO
SDF as well as principal repayments on the long-term loan from Bank Hapoalim.
Net
cash provided by financing activities was $18.6 million for the year ended December 31, 2021 and is mainly related to the receipt of
the long-term loan from Bank Hapoalim.
Net
cash provided by financing activities was $23.3 million for the year ended December 31, 2020, mainly due to proceeds from our January
2020 private placement to the FIMI Funds of an aggregate 4,166,667 ordinary shares at a price of $6.00 per share, for an aggregate $25
million gross proceeds.
Seasonality
We
have experienced in the past, and expect to continue to experience, certain fluctuations in our quarterly revenues. See “Item 5.
Operating and Financial Review and Prospects - Quarterly Results of Operations”.
Critical
Accounting Policies and Estimates
This
discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires management to make estimates that
affect the reported amounts of our assets, liabilities, revenues and expenses. Significant accounting policies employed by us, including
the use of estimates, are presented in the notes to the consolidated financial statements included elsewhere in this Annual Report. We
periodically evaluate our estimates, which are based on historical experience and on various other assumptions that management believes
to be reasonable under the circumstances. Critical accounting policies are those that are most important to the portrayal of our financial
condition and results of operations and require management’s subjective or complex judgments, resulting in the need for management
to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical experience
or if the underlying assumptions were to change, our financial condition and results of operations may be materially impacted. In addition,
some accounting policies require significant judgment to apply complex principles of accounting to certain transactions, such as acquisitions,
in determining the most appropriate accounting treatment.
A detailed description of
our accounting policies is provided in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report. The
following provides an overview of certain accounting policies that we believe are the most critical for understanding and evaluating our
financial condition and results of operations.
Revenue
Recognition
Revenues
are recognized when the customer obtains control over the promised goods or services. In determining the amount of revenue from contracts
with customers, we evaluate whether it is a principal or an agent in the arrangement. We are a principal when we control the promised
goods or services before transferring them to the customer. In these circumstances, we recognize revenue for the gross amount of the
consideration.
On
the contract’s inception date, we assess the goods or services promised in the contract with the customer and identify the performance
obligations. Revenues are recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer.
We
include variable consideration, such as milestone payments or volume rebates, in the transaction price, only when it is highly probable
that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved.
For contracts that consist of more than one performance obligation, at contract inception we allocate the contract transaction price
to each performance obligation identified in the contract on a relative stand-alone selling price basis.
Following the acquisition
of CYTOGAM, WINRHO SDF, VARIZIG and HEPGAM B during November 2021, we, through our wholly owned subsidiary Kamada Inc., sell these products
in the U.S. market to wholesalers/distributors for redistribution/sale of these products to other parties, such as hospitals and pharmacies.
Revenue recognition occurs at a point in time when control of the product is transferred to the wholesalers/distributors, generally on
delivery of the goods.
Our
gross sales are subject to various deductions, which are primarily composed of rebates and discounts to group purchasing organizations,
government agencies, wholesalers, health insurance companies and managed healthcare organizations. These deductions represent estimates
of the related obligations, requiring the use of judgment when estimating the effect of these sales deductions on gross sales for a reporting
period. These adjustments are deducted from gross sales to arrive at net sales. We monitor the obligation for these deductions on at
least a quarterly basis and record adjustments when rebate trends, rebate programs and contract terms, legislative changes, or other
significant events indicate that a change in the obligation is appropriate.
The
following summarizes the nature of the most significant adjustments to revenues generated from the sales of these products in the U.S.
market:
Wholesaler
chargebacks:
We have arrangements with
certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the
difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Provisions for
estimating chargebacks are calculated based on historical experience and product demand. The provision for chargebacks is recorded as
a deduction from trade receivables on the consolidated statements of financial position.
Fees
for service:
Consists
of wholesaler/distributor fees associated with the redistribution of the products to hospitals and pharmacies. These fees are outlined
in each wholesaler/distributor contract. The fees are invoiced on a monthly or quarterly basis by the wholesaler/distributor. The provisions
for fees for service are recorded in the same period that the corresponding revenues are recognized.
For
most contracts, revenue recognition occurs at a point in time when control of the asset is transferred to the customer, generally on
delivery of the goods. For agreements with a strategic partner, performance obligations are generally satisfied over time, given that
the customer either simultaneously receives or consumes the benefits provided by us, or receives assets with no alternative use, for
which we have an enforceable right to payment for performance completed to date.
We
also generate revenue in the form of royalty payments, due from the grant of a license for the use of our IP, knowhow and patents. Royalty
revenue is recognized when the underlying sales have occurred.
Business
combinations and goodwill
Upon
consummation of an acquisition, and for the purpose of determining the appropriate accounting treatment, the acquirer examines whether
the transaction constitutes an acquisition of a business or assets. In determining whether a particular set of activities and assets
is a business, we assess whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and
whether the acquired set has the ability to produce outputs.
We
have an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities
and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired
is concentrated in a single identifiable asset or group of similar identifiable assets.
Transactions
in which the acquired is considered a business acquisition are accounted for as a business combination as described below. Conversely,
transactions not considered as business acquisition are accounted for as acquisition of assets and liabilities. In such transactions,
the cost of acquisition, which includes transaction costs, is allocated proportionately to the acquired identifiable assets and liabilities,
based on their proportionate fair value on the acquisition date. In an assets acquisition, no goodwill is recognized, and no deferred
taxes are recognized in respect of the temporary differences existing on the acquisition date.
Business
combinations are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration
transferred on the acquisition date.
Costs
associated with the acquisition that were incurred by the acquirer in the business combination such as: finder’s fees, advisory,
legal, valuation and other professional or consulting fees, other than those associated with an issue of debt or equity instruments connected
to the business combination, are expensed in the period the services are received.
Contingent
consideration is recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance with
IFRS 9. Subsequent changes in the fair value of the contingent consideration are recognized in profit or loss as finance income or finance
expense. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date
without subsequent remeasurement.
The
fair value of an acquiree’s previously recognized contingent consideration assumed in connection a business combination is recognized
as financial liability on the acquisition date. Subsequently, the financial liability is measured at amortized cost, per IFRS 9. Remeasurement
of the financial liability is recognized as finance income or expense in the statement of operations.
Goodwill
is initially measured at cost which represents the excess of the acquisition consideration over the net identifiable assets acquired
and liabilities assumed.
On
March 1, 2021, we acquired the plasma collection center and certain related rights and assets from the privately held B&PR of Beaumont,
TX, USA. For more information see Note 5a to our consolidated financial statements included in this Annual Report for more details.
On
November 22, 2021, we entered into an asset purchase agreement with Saol for the acquisition of a portfolio of four FDA-approved plasma-derived
hyperimmune commercial products. See Note 2d and Note 5b to our consolidated financial statements included in this Annual Report for
additional information.
Clinical
Trial Accruals and Related Expenses
We
incurred costs for clinical trial activities performed by third parties (or CROs), based upon estimates made as of the reporting date
of the work completed over the life of the respective study in accordance with agreements established with the CRO. We determine the
estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside
service providers as to the progress or stage of completion of trials or services, as of the end of each reporting period, pursuant to
contracts with numerous clinical trial centers and CROs and the agreed upon fee to be paid for such services.
To
date, we have not experienced significant changes in our estimates of clinical trial accruals after a reporting period. However, due
to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional
information about the status or conduct of our clinical trials.
Inventories
Inventories
are measured at the lower of cost and net realizable value. The cost of inventories is comprised of costs required to purchase raw materials
and other indirect costs required to manufacture the product (including salaries), in addition, such costs may include the costs of purchase
and shipping and handling. 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.
We
determine a standard manufacturing capacity for each quarter. To the extent the actual manufacturing capacity in a given quarter is lower
than the predetermined standard, then a portion of the indirect costs which is equal to the product of the overall quarterly indirect
costs multiplied by the quarterly manufacturing shortfall rate is recognized as costs of revenues. The determination of the standard
manufacturing capacity is subject to significant assumptions such as expected demand for our products, expected industry sales growth
and manufacturing schedules. Management’s determination of deviations from quality standards is based on qualitative assessment,
historical data and our past experience.
We
periodically evaluate the condition and age of inventories and make provisions for slow-moving inventories accordingly. Unfavorable changes
in market conditions may result in a need for additional inventory reserves that could adversely impact our gross margins. Conversely,
favorable changes in demand could result in higher gross margins when we sell products.
We
periodically assess the potential effect on inventory in cases of deviations from quality standards in the manufacturing process to identify
potential required inventory write offs. Such assessment is subject to our professional judgment.
Inventory
that is produced following a change in manufacturing process prior to final approval of regulatory authorities is subject to our estimates
as to the probability of receipt of such approval. We periodically reassess the probability of such approval and the remaining shelf
life of such inventory. If regulatory approval is not granted, the cost of this inventory will be charged to research and development
expenses.
Impairment
of Non-financial Assets
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 is the higher of fair value less costs of sale and value in
use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific
to the asset. 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. Impairment losses are recognized in profit or loss.
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, will not be
increased above the lower of 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 its recoverable amount. The reversal of impairment loss of an asset presented at
cost is recognized in profit or loss.
We
had no impairment of non-financial assets in 2022.
Goodwill
impairment
We
review goodwill for impairment once a year, on December 31, or more frequently if events or changes in circumstances indicate that there
is an impairment.
Goodwill
is tested for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which
the goodwill has been allocated. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of
cash-generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating unit (or group of
cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognized for goodwill cannot be reversed
in subsequent periods.
The goodwill is attributed
to the Proprietary Products segment, which represents the lowest level within the Company at which goodwill is monitored for internal
management purposes.
As of December 31, 2022, we
performed an assessment for goodwill impairment for our Proprietary Products segment, which is the level at which goodwill is monitored
for internal management purposes, and concluded that the fair value of the Proprietary Products segment exceeds the carrying amount by
approximately 20%. The carrying amount of goodwill assigned to this segment is $30.3 million.
When evaluating the fair value
of the Proprietary Products segment, the Company used a discounted cash flow model which utilized Level 3 measures that represent unobservable
inputs. Key assumptions used to determine the estimated fair value include: (a) internal cash flows forecasts for five years following
the assessment date, including expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an
estimated terminal value using a terminal year long-term future growth rate of -5.0% determined based on the long-term expected prospects
of the reporting unit; and (c) a discount rate (post-tax) of 12.1 % which reflects the weighted-average cost of capital adjusted for the
relevant risk associated with the Proprietary Products segment’s operations.
Actual
results may differ from those assumed in our valuation method. It is reasonably possible that our assumptions described above could change
in future periods. If any of these were to vary materially from our plans, we may record impairment of goodwill allocated to the Proprietary
Products segment reporting unit in the future. A hypothetical decrease in the growth rate of 1% or an increase of 1% to the discount
rate would have reduced the fair value of the Proprietary Products segment reporting unit by approximately $4.0 million and $19.0 million,
respectively. Based on our assessment as of December 31, 2022, no goodwill was determined to be impaired. For more information see Note
11 to our consolidated financial statements included in this Annual Report for more details.
Share-based
Payment Transactions
Our
employees and directors are entitled to remuneration in the form of equity-settled share-based payment transactions (options and restricted
share units).
The
cost of equity-settled transactions is measured at the fair value of the equity instruments granted at grant date. We use the binomial
model when estimating the grant date fair value of equity settled share options. We selected the binomial option pricing model as the
most appropriate method for determining the estimated fair value of our share-based awards without market conditions. We use the share
price at the grant date when estimating the grant date fair value of equity settled restricted share units.
The
determination of the grant date fair value of options using an option pricing model is affected by estimates and assumptions regarding
a number of complex and subjective variables. These variables include the expected volatility of our share price over the expected term
of the options, share option exercise and cancellation behaviors, expected exercise multiple, risk-free interest rates, expected dividends
and the price of our ordinary shares on the TASE (or Nasdaq for persons who are subject to U.S. federal income tax), which are estimated
as follows:
| ● | Expected
Life. The expected life of the share options is based on historical data, and is not necessarily indicative of the exercise patterns
of share options that may occur in the future. |
| ● | Volatility.
The expected volatility of the share prices reflects the assumption that the historical volatility of the share prices on the TASE is
reasonably indicative of expected future trends. |
| ● | Risk-free
interest rate. The risk-free interest rate is based on the yields of non-index-linked Bank of Israel treasury bonds with maturities
similar to the expected term of the options for each option group. |
| ● | Expected
forfeiture rate. The post-vesting forfeiture rate is based on the weighted average historical forfeiture rate. |
| ● | Dividend
yield and expected dividends. We have not recently declared or paid any cash dividends on our ordinary shares and do not intend to
pay any cash dividends. We have therefore assumed a dividend yield and expected dividends of zero. |
| ● | Share
price. The price of our ordinary shares on the TASE (or Nasdaq for persons who are subject to U.S. federal income tax) used in determining
the grant date fair value of options is based on the price on the grant date. |
If
any of the assumptions used in the binomial model change significantly, share-based compensation for future awards may differ materially
compared with the awards granted previously.
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 and/or service conditions are to be satisfied, ending on the date on which the relevant grantee become fully entitled
to the award. The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting
date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will
ultimately vest. The expense or income recognized in profit or loss represents the change between the cumulative expense recognized at
the end of the reporting period and the cumulative expense recognized at the end of the previous reporting period.
No
expense is recognized for awards that do not ultimately vest.
If
we modify the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases
the total fair value of the share-based payment arrangement or is otherwise beneficial to the grantee at the modification date.
If
a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet
recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement
grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.
Post-employment
Benefits Liabilities
Our
post-retirement benefit plans are normally financed by contributions to insurance companies and classified as defined contribution plans
or as defined benefit plans.
We
operate a defined benefit plan in respect of severance pay pursuant to the Israeli Severance Pay Law, 1963. See Note 2u and Note 17 to
our consolidated financial statements included in this Annual Report for more details.
The
present value of our severance pay depends on a number of factors that are determined on an actuarial basis using a number of assumptions.
The assumptions used in determining the net cost or income for severance pay and plan assets include a discount rate. Any changes in
these assumptions will impact the carrying amount of severance pay and plan assets.
Other
key assumptions inherent to the valuation include employee turnover, inflation, expected long term returns on plan assets and future
payroll increases. The expected return on plan assets is determined by considering the expected returns available on assets underlying
the current investments policy. These assumptions are given a weighted average and are based on independent actuarial advice and are
updated on an annual basis. Actual circumstances may vary from these assumptions, giving rise to a different severance pay liability.
A
sensitivity analyses was performed based on reasonably possible changes of the principal assumptions (discount rate and future salary
increases) underlying the defined benefit plan.
In the event that the discount
rate would be one percent higher or lower, and all other assumptions were held constant, the defined benefit obligation would decrease
by $110,000 or increase by $165,000, respectively.
In the event that the expected
salary growth would increase or decrease by one percent, and all other assumptions were held constant, the defined benefit obligation
would increase by $158,000 or decrease by $105,000, respectively.
As of August 2022, Kamada
Inc, our U.S. wholly owned subsidiary has a 401(k) defined contribution plan covering certain employees in the U.S. All eligible employees
may elect to contribute up to 100%, but generally not greater than $20,500 per year (for certain employees over 50 years
of age the maximum contribution is $27,000 per year), of their annual compensation to the plan through salary deferrals, subject
to Internal Revenue Service limits. The U.S. Subsidiary matches 3% of employee contributions up to the plan with no limitation.
Accounting
for Income Taxes
At
the end of each reporting period, we are required to estimate our income taxes. There are transactions and calculations for which the
ultimate tax determination is uncertain during the ordinary course of business, determined according to complex tax laws and regulations.
Where the effect of these laws and regulations is unclear, we use estimates in determining the liability for the tax to be paid on our
past profits, which we recognize in our financial statements. We believe the estimates, assumptions and judgments are reasonable, but
this can involve complex issues which may take a number of years to resolve. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the
period in which such determination is made. In addition, at the end of each reporting period, we estimate our ability to utilize our
carryforward losses and accordingly account for the relevant amount of deferred taxes. When calculating the deferred tax asset, we estimate
the effective tax rate to be applied for the years in which we expect the carryforward loss to be utilized, considering the impact of
the Investment Law and rulings that we received from the Israel Tax Authority.
We
follow IFRIC 23, “Uncertainty over Income Tax Treatments” (the “Interpretation”) issued by the IASB, The Interpretation
clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, “Income
Taxes”, in situations of uncertainty involving income taxes. The Interpretation provides guidance on: (i) considering whether some
tax treatments should be considered collectively; (ii) measurement of the effects of uncertainty involving income taxes on the financial
statements; and (iii) accounting for changes in facts and circumstances in respect of the uncertainty.
As
of December 31, 2022, 2021 and 2020, the application of IFRIC 23 did not have a material effect on the financial statements.
Leases
We account for a contract
as a lease according to IFRS 16, “Leases” (“Lease Standard”), when the contract terms convey the right to control
the use of an identified asset for a period of time in exchange for consideration.
On
the inception date of the lease, we determine whether the arrangement is a lease or contains a lease, while examining if it conveys the
right to control the use of an identified asset for a period of time in exchange for consideration. In our assessment of whether an arrangement
conveys the right to control the use of an identified asset, we assess whether we have the following two rights throughout the lease
term:
|
(a) |
The
right to obtain substantially all the economic benefits from use of the identified asset; and |
|
(b) |
The
right to direct the identified asset’s use. |
For
leases in which we are the lessee, we recognize on the commencement date of the lease a right-of-use asset and a lease liability, excluding
leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, we have 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, we have elected to apply the practical expedient in IFRS 16 and do not separate the lease components from the non-lease components
(such as management and maintenance services, etc.) included in a single contract.
On
the commencement date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease,
if that rate can be readily determined, or otherwise using our incremental borrowing rate. After the commencement date, we measure the
lease liability using the effective interest rate method.
On
the commencement date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made
on or before the commencement date and initial direct costs incurred less any lease incentives received. The right-of-use asset is measured
applying the cost model and depreciated over the shorter of its useful life or the lease term. We test for impairment of the right-of-use
asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
For
additional information, see Note 2m and Note 15 to our consolidated financial statements included in this Annual Report.
Government
grants
We
record government grants when there is reasonable assurance that the grants will be received, and we will comply with the attached conditions.
Government
grants received from the Israel Innovation Authority (formerly the Office of the Chief Scientist of the Israel Ministry of Economy) are
recognized upon receipt as a liability if future economic benefits are expected from the research project that will result in royalty-bearing
sales.
A
liability for royalties is first measured at fair value using a discount rate that reflects a market rate of interest. 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.
Item
6. Directors, Senior Management and Employees
Executive
Officers and Directors
The
following table sets forth certain information relating to our executive officers and directors as of March 15, 2023.
Name |
|
Age |
|
Position |
Executive
Officers: |
|
|
|
|
Amir
London |
|
54 |
|
Chief
Executive Officer |
Chaime
Orlev |
|
52 |
|
Chief
Financial Officer |
Eran
Nir |
|
50
|
|
Chief
Operating Officer |
Yael
Brenner |
|
59 |
|
Vice
President, Quality |
Hanni
Neheman |
|
53 |
|
Vice
President, Marketing & Sales |
Yifat
Philip |
|
46 |
|
Vice
President, General Counsel and Corporate Secretary |
Orit
Pinchuk |
|
57 |
|
Vice
President, Regulatory Affairs and PVG |
Liron
Reshef |
|
52 |
|
Vice
President, Human Resources |
Jon
Knight |
|
57 |
|
Vice
President, US Commercial Operations |
Shavit
Beladev |
|
52 |
|
Vice
President, Plasma Operations |
Boris
Gorelik |
|
42 |
|
Vice
President, Business Development and Strategic Programs |
|
|
|
|
|
Directors: |
|
|
|
|
Lilach
Asher Topilsky* |
|
52 |
|
Chairman
of the Board of Directors |
Uri
Botzer * |
|
34 |
|
Director |
Ishay
Davidi* |
|
61 |
|
Director |
Karnit
Goldwasser* |
|
46 |
|
Director
|
Jonathan
Hahn |
|
40 |
|
Director,
Chairman of Strategy Committee |
Lilach
Payorski* |
|
49 |
|
Director,
Chairman of Audit Committee |
Leon
Recanati* |
|
74 |
|
Director,
Chairman of Compensation Committee |
Prof.
Ari Shamiss, MD* |
|
64 |
|
Director
|
David
Tsur* |
|
72 |
|
Director
|
* |
Independent
director under the Nasdaq listing requirements. |
Executive
Officers
Amir
London has served as our Chief Executive Officer since July 2015. Prior to that, Mr. London served as our Senior Vice President,
Business Development from December 2013. Mr. London brings with him over 25 years of senior management and international business development
experience. From 2011 to 2013, Mr. London served as the Chief Operating Officer of Fidelis Diagnostics, a U.S.-based provider of innovative
in-office medical diagnostic services. Earlier in his career, from 2009 to 2011, Mr. London was the Chief Executive Officer of Promedico,
an Israeli-based $350 million healthcare distribution company, and from 2006 to 2009 he was the General Manager of Cure Medical, providing
contract manufacturing services for clinical studies, as well as home-care solutions. From 1995 to 2006, Mr. London was a Partner with
Tefen, an international publicly-traded operations management consulting firm, responsible for the firm’s global biopharma practice.
Mr. London holds a B.Sc. degree in Industrial and Management Engineering from the Technion – Israel Institute of Technology.
Chaime
Orlev has served as our Chief Financial Officer since December 2017 and he will be transitioning out of this role to pursue other
opportunities, following the filing of this Annual Report. Prior to that, Mr. Orlev had served in senior finance roles for more than
20 years, with approximately 12 years spent in the life sciences industry. Previously, from September 2016 to November 2017, Mr. Orlev
served as Chief Financial Officer and Vice President Finance and Administration at Bioblast Pharma Ltd. (Nasdaq: ORPN), a clinical-stage,
biotechnology company. Prior to that, from 2010, Mr. Orlev served as Vice President Finance and Administration at Chiasma (Nasdaq: CHMA),
a clinical stage biopharmaceutical company, in which role Mr. Orlev led the company’s initial public offering and listing on Nasdaq.
Mr. Orlev is a certified public accountant in Israel, holds an MBA degree from the Recanati Graduate School of Business Administration
at the Tel Aviv University and a BA degree in Business Administration from the College of Management in Israel.
Eran
Nir has served as our Chief Operating Officer since March 2022, overseeing our operations and research and development activities.
Prior to that Mr. Nir served as our Vice President, Operations since November, 2016. Mr. Nir has over 20 years of operations management
experience in the pharmaceutical and medical industries. Mr. Nir’s previous roles include management of Teva Pharmaceutical Industries’
plant in Jerusalem from 2002 to 2011, VP Operations of Amelia Cosmetics from 2014 to 2015 and management of a medical equipment plant
of Philips Medical Systems from 2015 to 2016. Mr. Nir’s experience spans across the management of large-scale FDA and EMA- approved
manufacturing facilities, tech-transfer of new products from development to production and the implementation of operational excellence
systems. Mr. Nir holds a B.Sc. degree in Industrial and Management Engineering and an MBA degree, both from Ben-Gurion University.
Yael
Brenner has served as our Vice President, Quality since March 2015. Ms. Brenner has more than 25 years of experience in Quality Management,
including Quality Assurance and Quality Control managerial positions in the pharmaceutical industry. Prior to joining Kamada, from 2007
to 2015, Ms. Brenner was at Teva Pharmaceuticals Industries, lastly as Senior Director Quality Operations of Teva’s Kfar Sava Site,
managing over 400 employees in Quality Assurance, Quality Control and Regulatory Affairs. Ms. Brenner holds B.Sc. and M.Sc. degrees in
Chemistry from the Technion - Israel Institute of Technology, and she is a Certified Quality Engineer (CQE) from the American and Israeli
Societies for Quality.
Hanni
Neheman has served as our Vice President, Marketing & Sales since January 2020. Ms. Neheman joined us in August 2014 and served
as Head of Business Operations, Israel. Ms. Neheman has more than 20 years of experience in different positions in the field of marketing
and sales in the pharmaceutical industry. Prior to joining us, Ms. Neheman served as a Commercial Manager at Neopharm Israel. Ms. Neheman
holds a B.A. degree in Occupational Therapy from the Technion Israel Institute of Technology and Executive M.B.A degree from the Derby
University.
Yifat
Philip has served as our VP General Counsel and Corporate Secretary since October 2020 and she will be transitioning out of this
role to pursue other opportunities, following the filing of this Annual Report. Ms. Philip has been practicing law for more than 15 years,
with an experience of over a decade in the BioMed industry. Prior to joining Kamada, Ms. Philip served as VP Legal Affairs and Compliance
Officer of OPKO Biologics, a subsidiary of OPKO Health, Inc. (NASDAQ:OPK), responsible for the company’s legal matters and commercial
agreements. Ms. Philip has vast experience from leading law firms on international biotech deals. Prior to that, Ms. Philip worked at
the Israel Securities Authority, the Department of Economics and Fiscal Law of the State Attorney, Israel. Ms. Philip is a member of
the Israel Bar Association and holds an LLB degree and a BA degree in Economics, both from Haifa University; an MA degree in Law and
Economics from Erasmus University in the Netherlands in collaboration with Berkeley University, USA; and an MBA degree from the Technion-Israel
Institute of Technology, Israel. Ms. Philip also serves as a member of the board of directors of the Israeli Association of Corporate
Counsels and head of the ACC BioMed Forum.
Orit
Pinchuk has served as our Vice President, Regulatory Affairs and PVG since October 2014. Ms. Pinchuk has experience of more than
25 years in the pharmaceutical industry in key positions that cover, among others, disciplines of Regulatory Affairs and Compliance.
Prior to joining Kamada, from 1993 to 2014, Ms. Pinchuk was at Teva Pharmaceuticals Industries, where she served as Director of Compliance
and Regulatory Affairs, Operation Israel and Senior Director Regulatory Affairs, Research and Development and Operation Israel. Ms. Pinchuk
has experience working with the FDA, EMA and the Canadian Health Authorities. Ms. Pinchuk holds a B.Tech degree in Textile Chemistry
from Shenkar College for Engineering and Design and M.Sc. degree in Applied Chemistry from the Hebrew University of Jerusalem.
Liron
Reshef joined us as our Vice President, Human Resources in January 2023. Ms. Reshef has over 20 years of experience in the field
of human resources in senior Human Resources positions of global companies in different industries. From 2018 to 2021, Ms. Reshef
served as EVP Human Resources of TAT Technologies and from 2014 to 2018, she served as VP Human Resources of Evogene. Earlier in her
career, Ms. Reshef worked in senior HR positions for Frutarom, Solbar Industries, Comverse Technology and TICI Software Systems. Ms.
Reshef is a certified Coach, specialized in personal coaching, career development and managers’ coaching. Ms. Reshef holds a
B.A degree. in Economics and Political Science from Bar-Ilan University and MBA degree, with specialization in Behavioral
Sciences, from Ben-Gurion University.
Jon
Knight has served as our Vice President of US Commercial Operations since March 2022. Mr. Knight has 25 years of Life Sciences
experience, primarily focusing on commercializing innovative specialty plasma-products. Prior to joining us, Mr. Knight served in a variety
of commercial leadership positions. Previously Mr. Knight was responsible for Trade Relations at TherapeuticsMD launching three
innovative products into the U.S. market. Mr. Knight’s professional background also includes leadership positions at Prometic Life
Sciences, CIS by Deloitte, Cardinal Health, Cangene BioPharma and Nabi Biopharmaceuticals. Mr. Knight received an MBA from Colorado State
University and a B.A. in Biology from Colorado Mesa University.
Shavit
Beladev has served as our Vice President, Plasma Operations since June 2022. Ms. Beladev has been with us for over 20 years in increasingly
senior positions, most recently as Director of Business Development. Ms. Beladev previously served in management roles responsible
for International Sales, Key Accounts Management and Plasma Procurement. Since the establishment of Kamada Plasma in early 2021, Ms.
Beladev’s extended responsibilities also included overseeing the operation of the Company’s plasma collection center in Beaumont,
Texas, and the advance towards the opening of new centers. Ms. Beladev holds a BA degree in Economics and Business Administration from
Ben-Gurion University, Israel.
Boris
Gorelik has served as our Vice President, Business Development and Strategic Programs since June 2022. Prior to that, Mr. Gorelik
served as our Director of Business Development from April 2020. Mr. Gorelik has over 14 years of Business Development and M&A experience,
most of it in the pharmaceutical industry. Prior to joining us, Mr. Gorelik was Senior Director of Global Business Development and Strategy
with Teva Pharmaceutical Industries, Ltd. Prior to his tenure at Teva, Mr. Gorelik served in various legal, M&A, and transaction
services-related roles in the Israeli law office of Goldfarb Seligman, as well as KPMG and Deloitte Israeli offices. Mr. Gorelik holds
a L.L.B degree, B.A. degree in Accounting and MBA degree, all from Tel Aviv University.
Directors
Lilach
Asher Topilsky has served as a member of our board of directors since December 2019, as the Chairman of our board of directors since
August 2020, and serves as a member of our Compensation Committee and Strategy Committee. Mrs. Asher Topilsky has been a Senior Partner
in the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since December 2019. Mrs. Asher Topilsky currently
serves as the chairman of G1 Security Systems Ltd. (TASE), Rimoni Industries Ltd. (TASE), SOS Ltd. Elyakim Ben Ari Group Ltd. and Amal
and beyond Ltd. and as a director at Amiad Water Systems Ltd. (AIM), Ashot Ashkelon Industries Ltd. (TASE) and Tel Aviv University. Prior
to joining FIMI, Mrs. Asher Topilsky served as the President and CEO of Israel Discount Bank (TASE), one of the leading banking groups
in Israel, as the Chairman at IDBNY BANKCORP and as a director at IDB Bank New York from 2014 -2019. Mrs. Asher Topilsky also served
as the Chairman of Mercantile Bank from 2014-2016. Before that, Mrs. Asher Topilsky served as a member of the management of Bank Hapoalim
(TASE) as Deputy CEO & Head of Retail Banking Division (2009-2013) & Head of Strategy & Planning Division (2007-2009). Mrs.
Asher Topilsky served as a Strategy Consultant at The Boston Consulting Group (BCG, Chicago 1997-1998) and at Shaldor Strategy Consulting
(Israel 1995-1996). Mrs. Asher Topilsky holds an M.B.A. degree from Kellogg School of Management, Northwestern University, Chicago, USA
(1997), and a B.A. degree in Management and Economics from Tel Aviv University, Israel (Magna Cum Laude, 1994).
Uri
Botzer has served as a member of our board of directors since December 2022. Mr. Botzer has been a Junior Partner in the FIMI Opportunity
Funds, Israel’s largest group of private equity funds, since 2019. Prior to joining FIMI, Mr. Botzer served as a lawyer at FISCHER
(FBC & Co.). Mr. Botzer holds a B.A. degree in Business Administration and a LL.B. (Bachelor of Law), Cum Laude, from Reichman University,
Herzliya.
Ishay
Davidi has served on our board of directors since December 2019. Mr. Davidi is the Founder and has served as Chief Executive Officer
of the FIMI Opportunity Funds, Israel’s largest group of private equity funds, since 1996. Mr. Davidi currently serves as the Chairman
of the Board of Directors of Infinya Ltd. (TASE), Polyram Plastic Industries Ltd (TASE) and Ashot Ashkelon Industries Ltd. (TASE). Mr.
Davidi also serves as a director of Bet Shemesh Engines Ltd. (TASE), C. Mer Industries Ltd. (TASE), G1 Security Systems Ltd. (TASE),
PCB Technologies Ltd. (TASE), Rekah Pharmaceutical Industries (TASE), SOS Ltd., GreenStream Ltd., Amiad Water Systems Ltd (AIM), Rimoni
Industries Ltd. (TASE), Elyakim Ben-Ari Group Ltd. and Amal and beyond Ltd. Mr. Davidi previously served as the Chairman of the board
of directors of Inrom, Retalix (previously traded on NASDAQ and TASE) and Tefron Ltd. (NYSE and TASE) and as a director of Gilat Satellite
Networks Ltd. (NASDAQ and TASE), Pharm Up Ltd (TASE), Ham-Let Ltd. (TASE), Ormat Industries Ltd. (previously traded on TASE), Lipman
Electronic Engineering Ltd. (NASDAQ and TASE), Merhav Ceramic and Building Materials Center Ltd. (NASDAQ and TASE), Orian C.M. Ltd. (TASE),
Ophir Optronics Ltd., Overseas Commerce Ltd. (TASE), Scope Metals Group Ltd. (TASE), Tadir-Gan (Precision Products) 1993 Ltd. (TASE)
and Formula Systems Ltd. (NASDAQ and TASE). Prior to establishing FIMI, from 1993 until 1996, Mr. Davidi was the Founder and Chief Executive
Officer of Tikvah Fund, a private Israeli investment fund. From 1992 until 1993 Mr. Davidi served as the Chief Executive Officer of Zer
Science Industries Ltd. Mr. Davidi holds an M.B.A. degree from Bar Ilan University, Israel, and a B.Sc. degree, with honors, in Industrial
Engineering from the Tel Aviv University, Israel.
Karnit
Goldwasser has served on our board of directors since December 2019 and serves as a member of our Audit Committee and Compensation
Committee. Ms. Goldwasser serves as an independent consultant and environmental engineer for various agencies and organizations. Ms.
Goldwasser is a director at Delek San Recycling Ltd. (since December 2016). Ms. Goldwasser previously served as a director at ELA Recycling
Corporation (2015-September 2021), Orian DB Schenker (2017-2020) and at the government-owned Environmental Services Company Ltd., as
chair of the Safety Committee (2010-2016), and as a member of the Tel Aviv-Jaffa City Council, holding the environmental portfolio (2013-2016).
Ms. Goldwasser also served as a director in several Tel Aviv-Jaffa municipality corporations: Dan Municipal Sanitation Association, as
chair of the audit committee; Tel Aviv-Jaffa Economic Development Authority; and Ganei Yehoshua Co. Ltd. Ms. Goldwasser holds a B.Sc.
degree in Environmental Engineering, focusing on chemistry, mathematics and environmental engineering, a M.Sc. degree in Civil Engineering,
specializing in Hydrodynamics and Water Resources, both from the Technion – Israel Institute of Technology, and a M.A. degree in
Public Policy and Administration from the Lauder School of Government, Diplomacy and Strategy, IDC Herzliya. Ms. Goldwasser also completed
the Directors Program at LAHAV, School of Management, Tel Aviv University.
Jonathan
Hahn has served on our board of directors since March 2010, and serves as the Chairman of our Strategy Committee. Mr. Hahn serves
as the President and a director of Tuteur SACIFIA, where he has been since 2013. Prior to that, Mr. Hahn served as Strategic Planning
Manager at Tuteur and held a business development position at Forest Laboratories, Inc., based in New York. Mr. Hahn holds a B.A. degree
from San Andrés University and a M.B.A. degree from New York University — Stern School of Business, with specializations
in Finance and Entrepreneurship.
Lilach
Payorski has served on our board of directors since December 2021, and serves as the Chairman of our Audit Committee. Ms.
Payorski has served as the Chief Financial Officer of Tyto Care Ltd. since November 2022. Prior to that, Ms. Payorski served as the
Chief Financial Officer of Stratasys Ltd (NASDAQ: SSYS), a developer and manufacturer of 3D printers and additive solutions, from
January 2017 to February 2022. From December 2012 until December 2016, Ms. Payorski served as Senior Vice President, Corporate
Finance at Stratasys. From December 2009 to December 2012, Ms. Payorski served as Head of Finance at PMC-Sierra (NASDAQ: PMCS), a
company operating in the semiconductors industry, which was subsequently acquired by Microsemi Corporation. Prior to that, from
March 2005 to December 2009, Ms. Payorski served as Compliance Controller at Check Point Software Technologies Ltd. (NASDAQ: CHKP),
a security company. Ms. Payorski also served as corporate controller at Wind River Systems (NASDAQ: WIND), a software company, which
was subsequently acquired by Intel Corporation, from June 2003 to March 2005. Earlier in her career, from March 1997 to June 2003,
Ms. Payorski worked as a chartered public accountant at Ernst & Young LLP, both in Israel and later in Palo Alto, CA. Ms.
Payorski currently serves as the chairman of the audit committee of Scodix Ltd. (TASE: SCDX) and ODDITY Ltd. Ms. Payorski holds a
B.A. degree in Accounting and Economics from Tel Aviv University. Ms. Payorski also completed the Board of Directors and Senior
Corporate Officers Program at LAHAV, School of Management, Tel Aviv University.
Leon Recanati has served
on our board of directors since May 2005, as the Chairman of our board of directors from March 2013 to August 2020, and serves as the
Chairman of our Compensation Committee. Mr. Recanati currently serves as a board member of Evogene Ltd., a plant genomics company listed
on the TASE and New York Stock Exchange. Mr. Recanati is also a board member of the following private companies: GlenRock Israel Ltd.,
Gov, RelTech Holdings Ltd., Legov Ltd., Insight Capital Ltd., Shavit Capital Funds and Ofil Ltd. Mr. Recanati currently serves as the
Chairman and Chief Executive Officer of GlenRock. Previously, Mr. Recanati was Chief Executive Officer and/or Chairman of IDB Holding
Corporation Ltd., Clal Industries Ltd., Azorim Investment Development and Construction Co Ltd., Delek Israel Fuel Corporation and Super-Sol
Ltd. Mr. Recanati also founded Clal Biotechnologies Industries Ltd., a biotechnology investment company operating in Israel. Mr. Recanati
holds an M.B.A. degree from the Hebrew University of Jerusalem and Honorary Doctorates from the Technion – Israel Institute of Technology
and Tel Aviv University.
Prof.
Ari Shamiss has served on our board of directors since August 2020 and serves as a member of our Audit Committee. Prof. Shamiss is
the Founder, General Partner and Chairman of the Investment Committee at Assuta Life Sciences Ventures, a life sciences-focused venture
capital entity. Prior to that, from September 2016 to June 2020, Prof. Shamiss served as CEO of Assuta Medical Centers, the largest private
hospital network in Israel, which includes eight hospitals and medical centers, with over $600 million in annual revenue. From July 2005
to 2016, Prof. Shamiss was the chief executive officer of Sheba General Hospital, the largest hospital in Israel. Prof. Shamiss also
served as Vice Dean at Ben Gurion University School of Medicine from January 2017 to June 2020 and remains a Professor at the institution.
Prof. Shamiss is a past Surgeon General of the Israel Air Force, Colonel (Retired).
David
Tsur has served on our board of directors since our inception and serves as a member of our Strategy Committee. Mr. Tsur served as
the Active Deputy Chairman on a half-time basis from July 2015 until December 31, 2019. Mr. Tsur served as our Chief Executive Officer
from our inception until July 2015. Mr. Tsur currently serves as the Chairman of the Board of Directors of Kanabo Ltd. (LSE) and as a
director of BioHarvest Sciences Inc. (CSE). Prior to co-founding Kamada in 1990, Mr. Tsur served as Chief Executive Officer of Arad Systems
and RAD Chemicals Inc. Mr. Tsur previously served as the Chairman of the Board of Directors of CollPlant Ltd., a company listed on the
TASE and OTC market. Mr. Tsur has also held various positions in the Israeli Ministry of Economy and Industry (formerly named the Ministry
of Industry and Trade), including Chief Economist and Commercial Attaché in Argentina and Iran. Mr. Tsur holds a B.A. degree in
Economics and International Relations and an M.B.A. degree in Business Management, both from the Hebrew University of Jerusalem.
Under
a shareholders’ agreement entered into on March 6, 2013, the Recanati Group, on the one hand, and the Damar Group, on the other
hand, have each agreed to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated
by the other group as follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding
share capital, (ii) two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of our outstanding
share capital, and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but less than 5.0%) of our
outstanding share capital. In addition, to the extent that after the designation of the foregoing director nominees there are additional
director vacancies, each of the Recanati Group and Damar Group have agreed to vote the ordinary shares beneficially owned by them in
favor of such additional director nominees designated by the party who beneficially owns the larger voting rights in our company. See
“Item 7. Major Shareholders and Related Party Transactions — Related Party Transactions — Shareholder Agreement.”
Board
of Directors
Under
our articles of association, the number of directors on our board of directors must be no less than five and no more than 11. Our board
of directors currently consists of nine directors, eight of whom qualify as “independent directors” under the Nasdaq listing
requirements, such that we comply with the Nasdaq Listing Rule that requires that a majority of our board of directors be comprised of
independent directors, within the meaning of Nasdaq Listing Rules.
Our
directors are elected by the vote of a majority of the ordinary shares present, in person or by proxy, and voting at a shareholders’
meeting. Each director holds office until the first annual general meeting of shareholders following his or her appointment, unless the
tenure of such director expires earlier pursuant to the Israeli Companies Law, 1999 (the “Israeli Companies Law”) or unless
he or she is removed from office as described below.
Vacancies
on our board of directors, including vacancies resulting from there being fewer than the maximum number of directors permitted by our
articles of association, may generally be filled by a vote of a simple majority of the directors then in office.
A
general meeting of our shareholders may remove a director from office prior to the expiration of his or her term in office by a resolution
adopted by holders of a majority of our shares voting on the proposed removal, provided that the director being removed from office is
given a reasonable opportunity to present his or her case before the general meeting.
External
Directors
Under
the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” must appoint
at least two external directors who meet the qualification requirements in the Companies Law.
However,
according to regulations promulgated under the Israel Companies Law, a company whose shares are traded on certain stock exchanges outside
Israel (including the Nasdaq Global Select Market, such as our company) that does not have a controlling shareholder and that complies
with the requirements of the laws of the foreign jurisdiction where the company’s shares are listed, as they apply to domestic
issuers, with respect to the appointment of independent directors and the composition of the audit committee and compensation committee,
may elect to exempt itself from the requirements of Israeli law with respect to the requirement to appoint external directors and related
rules concerning the composition of the audit committee and compensation committee of the board of directors. If a company has elected
to avail itself from the requirement to appoint external directors and at the time a director is appointed all members of the board of
directors are of the same gender, a director of the other gender must be appointed.
On
January 30, 2017, following analysis of our qualification to rely on the exemption, our board of directors determined to adopt the exemption.
If in the future we were to have a controlling shareholder, we would again be required to comply with the requirements relating to external
directors and the composition of the audit committee and compensation committee under Israeli law.
Audit
Committee
We
have an audit committee consisting of Ms. Lilach Payorski, Ms. Karnit Goldwasser and Prof. Ari Shamiss. Ms. Lilach Payorski serves as
the chairman of the audit committee.
In
accordance with regulations promulgated under the Companies Law described above, we elected to “opt out” from the Companies
Law requirement to appoint external directors and related rules concerning the composition of the audit committee and compensation committee.
Under such exemption, among other things, the composition of our audit committee must comply with the requirements of SEC and Nasdaq
rules.
Under
the Exchange Act and Nasdaq listing requirements, 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. Our board of
directors has affirmatively determined that each member of our audit committee qualifies as an “independent director” for
purposes of serving on an audit committee under the Exchange Act and Nasdaq listing requirements. Our board of directors has determined
that Lilach Payorski qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K.
All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC
and Nasdaq.
Audit
Committee Role
Our
audit committee generally provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters
involving our accounting, auditing, financial reporting and internal control functions by reviewing the services of 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. Our audit committee also acts as a corporate governance compliance committee
and oversees the implementation and amendment, from time to time, of our policies for compliance with Israeli and U.S. securities laws
and applicable Nasdaq corporate governance requirements, including non-use of inside information, reporting requirements, our engagement
with related parties, whistleblower complaints and protection, and is also responsible for the handling of any incidents that may arise
in violation of our policies or applicable securities laws. Our board of directors has adopted an audit committee charter setting forth
the specific responsibilities of the audit committee consistent with the Companies Law, and the rules and regulations of the SEC and
the Nasdaq listing requirements, which include:
| ● | oversight
of our independent auditors and recommending the engagement, compensation or termination of engagement of our independent auditors to
the board of directors or shareholders for their approval, as applicable, in accordance with the requirements of the Companies Law; |
|
● |
pre-approval
of audit and non-audit services to be provided by the independent auditors; |
|
● |
reviewing
and recommending to the board of directors approval of our quarterly and annual financial reports; and |
|
● |
overseeing
the implementation and amendment of our policies for compliance with Israeli and U.S. securities laws and applicable Nasdaq corporate
governance requirements. |
Additionally,
under the Companies Law, the role of the audit committee includes: (1) determining whether there are delinquencies in the business management
practices of our company, including in consultation with our internal auditor or our independent auditor, and making recommendations
to the board of directors to improve such practices; (2) determining whether to approve certain related party transactions (including
transactions in which an office holder has a personal interest) and whether any such transaction is an extraordinary or material transaction
under the Companies Law; (3) determining whether a competitive process must be implemented for the approval of certain transactions with
controlling shareholders or in which a controlling shareholder has a personal interest (whether or not the transaction is an extraordinary
transaction), under the supervision of the audit committee or other party determined by the audit committee and in accordance with standards
determined by the audit committee, or whether a different process determined by the audit committee should be implemented for the approval
of such transactions; (4) determining the process for the approval of certain transactions with controlling shareholders that the audit
committee has determined are not extraordinary transactions but are not immaterial transactions; (5) where the board of directors approves
the work plan of the internal auditor, examining such work plan before its submission to the board of directors and proposing amendments
thereto; (6) examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient
resources and tools to dispose of its responsibilities; (7) examining the scope of our auditor’s work and compensation and submitting
its recommendation with respect thereto to the corporate body considering the appointment thereof (either the board of directors or the
shareholders at the general meeting); and (8) establishing procedures for the handling of employees’ complaints as to the management
of our business and the protection to be provided to such employees.
Compensation
Committee
We
have a compensation committee consisting of Mr. Leon Recanati, Mrs. Lilach Asher-Topilsky, Ms. Karnit Goldwasser and Ms. Lilach Payorski.
Mr. Recanati serves as the chairman of the compensation committee.
In
accordance with regulations promulgated under the Companies Law described above, we elected to “opt out” from the Companies
Law requirement to appoint external directors and related rules concerning the composition of the audit committee and compensation committee.
Under such exemption, among other things, the composition of our compensation committee must comply with the requirements of Nasdaq rules.
Under
Nasdaq listing requirements, we are required to maintain a compensation committee consisting of at least two members, each of whom is
an “independent director” under the Nasdaq listing requirements. Our board of directors has affirmatively determined that
each member of our compensation committee qualifies as an “independent director” under the Nasdaq listing requirements.
Compensation
Committee Role
In
accordance with the Companies Law, the roles of the compensation committee are, among others, as follows:
|
● |
recommending
to the board of directors with respect to the approval of the compensation policy for office holders and, once every three years,
regarding any extensions to a compensation policy that was adopted for a period of more than three years; |
|
● |
reviewing
the implementation of the compensation policy and periodically recommending to the board of directors with respect to any amendments
or updates of the compensation policy; |
|
● |
resolving
whether or not to approve arrangements with respect to the terms of office and employment of office holders; and |
|
● |
exempting,
under certain circumstances, a transaction with our Chief Executive Officer from the approval of the general meeting of our shareholders. |
We
rely on the “foreign private issuer exemption” with respect to the Nasdaq requirement to have a formal charter for the compensation
committee.
Strategy
Committee
Our
strategy committee currently consists of Mr. Jonathan Hahn, Ms. Lilach Asher-Topilsky, Mr. David Tsur and Mr. Uri Botzer. Mr. Jonathan
Hahn serves as the chairman of the strategy committee.
The
roles of our strategy committee are (among others): (1) reviewing periodically and making recommendations to the board of directors with
respect to our strategic plan and overall strategy, our research and development plan, annual work plan and budget, strategy with respect
to mergers and acquisitions, and any strategic initiatives identified our board of directors or management from time to time, including
the exit from existing lines of business and entry into newlines of business, joint ventures, acquisitions, investments, dispositions
of business and assets and business expansions; (2) guiding management in the development of our strategy, including reviewing and discussing
with management our strategic direction and initiatives and the risks and opportunities associated with our strategy; (3) reviewing with
management the process for development, approval and modification of the strategy and strategic plan; (4) assisting management with identifying
key issues, options and external developments impacting our strategy; (5) reviewing management’s progress in implementing our global
strategy; and (6) ensuring the board of directors is regularly apprised of the progress with respect to implementation of any approved
strategy.
Internal
Auditor
Under
the Companies Law, the board of directors of a public company must appoint an internal auditor recommended by the audit committee. The
role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly
business procedure. Under the Companies Law, the internal auditor may not be an “interested party” or an office holder, or
a relative of an interested party or of an office holder, nor may the internal auditor be the company’s independent accounting
firm or anyone acting on its behalf. An “interested party” is defined in the Companies Law as (i) a holder of 5% or more
of the company’s outstanding shares or voting rights, (ii) any person or entity (or relative of such person) who has the right
to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director
or as a chief executive officer of the company. Linur Dloomy of Brightman Almagor Zohar & Co. (a Firm in the Deloitte Global Network)
serves as our internal auditor.
Fiduciary
Duties and Approval of Specified Related Party Transactions under Israeli Law
Fiduciary
Duties of Office Holders
The
Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Management
— Executive Officers and Directors” is an office holder under the 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 care includes, among other things, a duty to use reasonable means, in light of the circumstances, to obtain:
|
● |
information
on the advisability of a given action brought for his or her approval or performed by the director in his or her capacity as a director;
and |
|
● |
all
other important information pertaining to such action. |
The
duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes, among other things,
the duty to:
|
● |
refrain
from any act involving a conflict of interests 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 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. |
We
may approve an act specified above which would otherwise constitute a breach of the office holder’s duty of loyalty provided that
the office holder acted in good faith, the act or its approval does not harm the company and the office holder discloses his or her personal
interest a sufficient amount of time before the date for discussion of approval of such act.
Disclosure
of Personal Interests of an Office Holder and Approval of Transactions
The
Companies Law requires that an office holder promptly disclose to the company any “personal interest” that he or she may
have, and all related material information or documents relating to any existing or proposed transaction by the company. A “personal
interest” is defined under the Companies Law as the personal interest of a person in an action or in a transaction of the company,
including the personal interest of such person’s relative or of any other corporate entity in which such person and/or such person’s
relative is a director, general manager or chief executive officer, a holder of 5% or more of the outstanding shares or voting rights,
or has the right to appoint at least one director or the general manager, but excluding a personal interest arising solely from ownership
of shares in the company. A personal interest includes the personal interest of a person for whom the office holder holds a voting proxy
and the personal interest of a person voting as a proxy, even when the person granting such proxy has no personal interest. An interested
office holder’s disclosure must be made promptly and no later than the first meeting of the board of directors at which the transaction
is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely
from the personal interest of his or her relative in a transaction that is not considered as an “extraordinary transaction.”
An
“extraordinary transaction” is defined under the Companies Law 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 is likely to have a material impact on the company’s profitability, assets or liabilities. |
Under
the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder or with a third
party in which the office holder has a personal interest, and which is not an extraordinary transaction, requires approval by the board
of directors. Our articles of association do not provide for a different method of approval. If the transaction is an extraordinary transaction
with an office holder or third party in which the office holder has a personal interest, then audit committee approval is required prior
to approval by the board of directors. The audit committee determines whether any such transaction is an “extraordinary transaction”
(within the meaning of the Companies Law). For the approval of compensation arrangements with directors and officers who are controlling
shareholders, see “— Disclosures of Personal Interests of a Controlling Shareholder and Approval of Certain Transactions,”
for the approval of compensation arrangements with directors, see “— Compensation of Directors” and for the approval
of compensation arrangements with office holders who are not directors, see “— Compensation of Executive Officers.”
Subject
to certain exceptions, any person who has a personal interest in the approval of a transaction that is brought before a meeting of the
board of directors or the audit committee may not be present at the meeting, unless such person is an office holder and invited by the
chairman of the board of directors or of the audit committee, as applicable, to present the matter being considered, and may not vote
on the matter. In addition, a director who has a personal interest in the approval of a transaction may be present at the meeting and
vote on the matter if a majority of the directors or members of the audit committee, as applicable, have a personal interest in the transaction.
In such case, shareholder approval is also required.
Disclosure
of Personal Interests of a Controlling Shareholder and Approval of Certain Transactions
Pursuant
to the Companies Law, the disclosure requirements regarding personal interests that apply to office holders also apply to a controlling
shareholder of a public company. For this purpose, a controlling shareholder is a shareholder who has the ability to direct the activities
of a company, including a shareholder who owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting
rights. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.
Extraordinary
transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, the terms of services provided
by a controlling shareholder or his or her relative, directly or indirectly (including through a corporation controlled by a controlling
shareholder), the terms of employment of a controlling shareholder or his or her relative who is employed by the company and who is not
an office holder and the terms of service and employment, including exculpation, indemnification or insurance, of a controlling shareholder
or his or her relative who is an office holder, require the approval of each of the audit committee or the compensation committee with
respect to terms of service and employment by the company as an office holder, employee or service provider, the board of directors and
the shareholders, in that order. In addition, the shareholder approval must fulfill one of the following requirements:
|
● |
at
least a majority of the shares held by shareholders who have no personal interest in the transaction and who are present and voting
at the meeting on the matter are voted in favor of approving the transaction, excluding abstentions; or |
|
● |
the
shares voted against the transaction by shareholders who have no personal interest in the transaction who are present and voting
at the meeting represent no more than 2% of the voting rights in the company. |
Each
shareholder voting on the approval of an extraordinary transaction with a controlling shareholder must inform the company prior to voting
whether or not he or she has a personal interest in the approval of the transaction, otherwise, the shareholder is not eligible to vote
on the proposal and his or her vote will not be counted for purposes of the proposal.
Any
extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of
more than three years requires approval every three years, unless the audit committee determines that the duration of the transaction
is reasonable given the circumstances related thereto.
Pursuant
to regulations promulgated under the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with
directors, relating to terms of service or employment, that would otherwise require approval of the shareholders may be exempt from shareholder
approval upon certain determinations of the audit committee and board of directors.
Duties
of Shareholders
Under
the Companies Law, a shareholder has a duty to refrain from abusing his or her power in the company and to act in good faith and in a
customary manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other
things, when voting at meetings of shareholders on the following matters:
|
● |
an
amendment to the company’s articles of association; |
|
● |
an
increase in the company’s authorized share capital; |
|
● |
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 to act with fairness towards the company. These shareholders include any controlling shareholder,
any shareholder who knows that his or her vote can determine the outcome of a shareholder vote, and any shareholder that, under a company’s
articles of association, has the power to appoint or prevent the appointment of an office holder or has another power with respect to
the company. The Companies Law does not define the substance of this duty 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.
Approval
of Significant Private Placements
Under
the Companies Law, a significant private placement of securities requires approval by the board of directors and the shareholders by
a simple majority. A private placement is considered a significant private placement if it will cause a person to become a controlling
shareholder or if all of the following conditions are met:
|
● |
the
securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance; |
|
● |
some
or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
|
● |
the
transaction will increase the relative holdings of a shareholder who holds 5% or more of the company’s outstanding share capital
or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s
outstanding share capital or voting rights. |
Compensation of Directors and Executive Officers
Aggregate
Compensation of Directors and Officers
The aggregate compensation
incurred by us in relation to our executive officers and directors, including share-based compensation, for the year ended December 31,
2022, was approximately $3.8 million. This amount includes approximately $0.25 million set aside or accrued to provide pension, severance,
retirement or similar benefits or expenses, but does not include business travel, professional and business association dues and expenses
reimbursed to executive officers, and other benefits commonly reimbursed or paid by companies in Israel.
From time to time, we grant
options to our officers and directors and, in the past, granted restricted share units to our officers. We granted options to purchase
an aggregate 1,318,100 of our ordinary shares to our officers and directors as a group during the year ended December 31, 2022. As of
December 31, 2022, options to purchase 2,007,584 of our ordinary shares granted to our officers and directors as a group were outstanding,
of which options to purchase 556,000 of our ordinary shares were vested, with a weighted average exercise price of NIS 556,000 per ordinary
share. In addition, as of December 31, 2022, 110,121 restricted share units granted to our officers as a group were outstanding. For details
regarding the beneficial ownership of our shares by our officers and directors, see “Item 6. Directors, Senior Management and Employees
— Share Ownership.”
Compensation
of Directors
We pay our directors an annual
fee and per-meeting fees in the maximum amounts payable from time to time for such fees by us under the Second and Third Addendums, respectively
(or, to the extent any director is determined to have financial and accounting expertise and is deemed an expert director (in each case,
within the meaning of the Companies Law and the regulations thereunder), under the Fourth Addendum) to the Israeli Companies Regulations
(Rules Regarding Compensation and Expense Reimbursement of External Directors), 2000, or the Compensation Regulations. In accordance with
the Compensation Regulations, we currently pay our directors an annual fee of NIS 87,842 (approximately $26,962) as well as a fee of NIS
3,385 (approximately $962) for each board or committee meeting attended in person, NIS 2,031 (approximately $578) for each board or committee
meeting attended via telephone or videoconference and NIS 1,692 (approximately $480) for participation by written consent.
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.
To
our knowledge, there are no agreements and arrangements between any director and any third party relating to compensation or other payment
in connection with their candidacy or service on our Board of Directors.
Compensation
of Covered Executives
The
following table presents information regarding compensation accrued in our financial statements for our five most highly compensated
office holders (within the meaning of the Companies Law), namely our Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, Vice President, Regulatory Affairs and PVG and Vice President, Business Development during or with respect to the year ended
December 31, 2022. Each such office holder was covered by our directors’ and officers’ liability insurance policy and was
entitled to indemnification and exculpation in accordance with indemnification and exculpation agreements, our articles of association
and applicable law.
Name and Position | |
Salary(1) | | |
Bonus(2) | | |
Value of Options Granted(3) | | |
Other(4) | | |
Total | |
| |
(in thousands) | |
Amir
London
Chief Executive Officer | |
$ | 410 | | |
$ | 175 | | |
$ | 65 | | |
$ | 34 | | |
$ | 684 | |
Chaime
Orlev
Chief Financial Officer | |
$ | 287 | | |
$ | 94 | | |
$ | 76 | | |
$ | 15 | | |
$ | 472 | |
Eran
Nir
Chief Operating Officer | |
$ | 275 | | |
$ | 66 | | |
$ | 76 | | |
$ | 30 | | |
$ | 447 | |
Boris
Gorelik
Vice President, Business Development and Strategic Programs | |
$ | 265 | | |
$ | 57 | | |
$ | 25 | | |
$ | 15 | | |
$ | 362 | |
Orit
Pinchuk
Vice President, Regulatory Affairs and PVG | |
$ | 237 | | |
$ | 35 | | |
$ | 54 | | |
$ | 23 | | |
$ | 349 | |
(1) | Salary
includes gross salary and fringe benefits. |
(2) | Bonuses
includes annual bonuses. The annual bonus is subject to the fulfillment of certain targets determined for each year by the compensation
committee and board of directors. |
(3) | The
value of options is the expense recorded in our financial statements for the period ended December 31, 2022 with respect to all options
granted to such executive officer. |
(4) | Cost
of use of company car. |
Agreements
with Five Most Highly Compensated Office Holders
We
have entered into agreements with each of our five most highly compensated office holders (within the meaning of the Companies Law),
listed below. The terms of employment or service of such office holders are directed by our compensation policy. See below “—
Compensation Policy.” Each of these agreements contains provisions regarding non-competition, confidentiality of information and
assignment of inventions. The non-competition provision applies for a period that is generally 12 months following termination of employment.
The enforceability of covenants not to compete in Israel and the United States is subject to limitations. Such office holders are entitled
to an annual bonus subject to the fulfillment of certain targets determined for each year by the compensation committee and board of
directors. In addition, our Israeli based executive officers are entitled to a company car, as well as sick pay, convalescence pay, manager’s
insurance and a study fund (“keren hishtalmut”) and annual leave, all in accordance with Israeli law and our compensation
policy for executive officers, and our U.S.-based executive officers are entitled to benefits customary to U.S. executives such as medical
benefits and 401(k) plan, and in certain cases to relocation related remuneration.
Amir
London, Chief Executive Officer. Mr. London has served as our Chief Executive Officer since July 2015. Prior to that and effective
as of December 1, 2013, Mr. London served as our Vice President, Business Development. Mr. London’s engagement terms as our Chief
Executive Officer have been approved by our Compensation Committee, Board of Directors and shareholders. According to the terms of the
agreement, either party may terminate the agreement at any time upon three months’ prior written notice to the other party, and
we may terminate the agreement immediately for cause in accordance with Israeli law.
Chaime
Orlev, Chief Financial Officer. Effective as of October 1, 2017, we entered into an employment agreement with Mr. Chaime Orlev with
respect to his employment as our Chief Financial Officer. Either party may terminate the agreement at any time upon three months’
prior written notice to the other party, and we may terminate the agreement immediately for cause in accordance with Israeli law.
Eran
Nir, Chief Operating Officer. Mr. Eran Nir has served our Chief Operating Officer since March 1, 2022. Prior to that and effective
as of November 1, 2016, Mr. Nir served as our Vice President, Operations. According to the terms of his employment agreement, either
party may terminate the agreement at any time upon two months’ prior written notice to the other party, and we may terminate the
agreement immediately for cause in accordance with Israeli law.
Boris
Gorelik, Vice President, Business Development and Strategic Programs. Effective as of June 2022, we entered into a three-year employment
agreement with Mr. Boris Gorelik in connection with his relocation to the U.S. and his employment as our Vice President of Business Development.
Prior to that Mr. Gorelik served as our Director of Business Development from April 2020. Either party may terminate the agreement at
any time upon three months’ prior written notice to the other party, and we may terminate the agreement immediately for cause in
accordance with U.S. law.
Orit
Pinchuk, Vice President, Regulatory Affairs and PVG. Effective as of January 1, 2014, we entered into an employment agreement with
Ms. Orit Pinchuk with respect to her employment as our Vice President, Regulatory Affairs and PVG. Either party may terminate the agreement
at any time upon three months’ prior written notice to the other party, and we may terminate the agreement immediately for cause
in accordance with Israeli law.
Other
Executive Officers
We
have entered into written employment agreements with the rest of our executive officers. The terms of employment of our executive office
holders are directed by our compensation policy. See “— Compensation Policy.” Each of these agreements contains provisions
regarding non-competition, confidentiality of information and assignment of inventions. The non-competition provision applies for a period
that is generally 12 months following termination of employment. The enforceability of covenants not to compete in Israel and the United
States is subject to limitations. In addition, we are required to provide up to three months’ notice prior to terminating the employment
of such executive officers, other than in the case of a termination for cause. Each of our employment agreements with such executive
officers provides for annual bonuses, which are subject to the fulfillment of certain targets determined for each year, and the executive
officers may be also entitled to special bonuses upon the achievement of certain company milestones.
Compensation
of Directors and Executive Officers
Compensation
Policy.
Under
the Companies Law, a public company is required to adopt a compensation policy, which sets forth the terms of service and employment
of office holders, including the grant of any benefit, payment or undertaking to provide payment, any exemption from liability, insurance
or indemnification, and any severance payment or benefit. Such compensation policy must comply with the requirements of the Companies
Law. The compensation policy must be approved at least once every three years, first, by our board of directors, upon recommendation
of our compensation committee, and second, by the shareholders by a special majority. Our current compensation policy for executive officers
and compensation policy for directors were each approved by our shareholders on December 22, 2022.
Compensation
of Directors
Under
the Companies Law, the compensation (including insurance, indemnification, exculpation and compensation) of our directors requires the
approval of our compensation committee, the subsequent approval of the board of directors and, unless exempted under the regulations
promulgated under the Companies Law, the approval of the shareholders at a general meeting. The approval of the compensation committee
and board of directors must be in accordance with the compensation policy. In special circumstances, the compensation committee and board
of directors may approve a compensation arrangement that is inconsistent with the company’s compensation policy, provided that
they have considered the same considerations and matters required for the approval of a compensation policy in accordance with the Companies
Law, in which case the approval of the company’s shareholders must be by a special majority (referred to as the “Special
Majority for Compensation”) that requires that either:
|
● |
a
majority of the shares held by shareholders who are not controlling shareholders and shareholders who do not have a personal interest
in such matter and who are present and voting at the meeting, are voted in favor of approving the compensation package, excluding
abstentions; or |
|
● |
the
total number of shares voted by non-controlling shareholders and shareholders who do not have a personal interest in such matter
that are voted against the compensation package does not exceed 2% of the aggregate voting rights in the company. |
Where
the director is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply, as
described above under “— Disclosure of Personal Interests of a Controlling Shareholder and Approval of Certain Transactions.”
Compensation
of Officers Other than the Chief Executive Officer
Pursuant
to the Companies Law, the compensation (including insurance, indemnification and exculpation) of a public company’s office holders
(other than directors, which is described above, and the chief executive officer, which is described below) generally requires approval
first by the compensation committee and second by the company’s board of directors, according to the company’s compensation
policy. In special circumstances the compensation committee and board of directors may approve a compensation arrangement that is inconsistent
with the company’s compensation policy, provided that they have considered the same considerations and matters required for the
approval of a compensation policy in accordance with the Companies Law and such arrangement must be approved by the company’s shareholders
by the Special Majority for Compensation. However, if the shareholders of the company do not approve a compensation arrangement with
an executive officer that is inconsistent with the company’s compensation policy, the compensation committee and board of directors
may, in special circumstances, override the shareholders’ decision, subject to certain conditions.
Under
the Companies Law, an amendment to an existing arrangement with an office holder (other than the chief executive officer, which is described
below) who is not a director requires only the approval of the compensation committee, if the compensation committee determines that
the amendment is not material in comparison to the existing arrangement. However, according to regulations promulgated under the Companies
Law, an amendment to an existing arrangement with an office holder (who is not a director) who is subordinate to the chief executive
officer shall not require the approval of the compensation committee, if (i) the amendment is approved by the chief executive officer
and the company’s compensation policy determines that a non-material amendment to the terms of service of an office holder (other
than the chief executive officer) will be approved by the chief executive officer and (ii) the engagement terms are consistent with the
company’s compensation policy. Under our compensation policy for executive officers and subject to applicable law, our chief executive
officer may approve an immaterial amendment of up to 10% of the existing terms of office and engagement (as compared to those approved
by the compensation committee) of an executive who is subordinate to the chief executive officer (who is not a director).
Compensation
of Chief Executive Officer
The
compensation (including insurance, indemnification and exculpation) of a public company’s chief executive officer generally requires
the approval of first, the company’s compensation committee; second, the company’s board of directors; and third (except
for limited exceptions), the company’s shareholders by the Special Majority for Compensation. If the shareholders of the company
do not approve the compensation arrangement with the chief executive officer, the compensation committee and board of directors may override
the shareholders’ decision, subject to certain conditions. The compensation committee and board of directors approval should be
in accordance with the company’s compensation policy; however, in special circumstances, they may approve compensation terms of
a chief executive officer that are inconsistent with such policy provided that they have considered the same considerations and matters
required for the approval of a compensation policy in accordance with the Companies Law and that shareholder approval was obtained by
the Special Majority for Compensation. Under certain circumstances, the compensation committee and board of directors may waive the shareholder
approval requirement in respect of the compensation arrangements with a candidate for chief executive officer if they determine that
the compensation arrangements are consistent with the company’s stated compensation policy.
However,
an amendment to an existing arrangement with an executive officer (who is not a director) requires only the approval of the compensation
committee, if the compensation committee determines that the amendment is not material in comparison to the existing arrangement. Furthermore,
according to regulations promulgated under the Companies Law, the renewal or extension of an existing arrangement with a chief executive
officer shall not require shareholder approval if (i) the renewal or extension is not beneficial to the chief executive officer as compared
to the prior arrangement or there is no substantial change in the terms and other relevant circumstances; and (ii) the engagement terms
are consistent with the company’s compensation policy and the prior arrangement was approved by the shareholders by the Special
Majority for Compensation.
Where
the office holder is also a controlling shareholder, the requirements for approval of transactions with controlling shareholders apply,
as described above under “— Disclosure of Personal Interests of a Controlling Shareholders and Approval of Certain Transactions.”
Exculpation,
Insurance and Indemnification of Office Holders
Under
the 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 the company’s articles
of association. Our articles of association include such a provision. However, we may not exculpate an office holder for an action or
transaction in which a controlling shareholder or any other office holder (including an office holder who is not the office holder we
have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law). We may also not exculpate in advance
a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under
the Companies Law, a company may indemnify an office holder for the following liabilities, payments and expenses incurred for acts performed
by him or her, as an office holder, either pursuant to an undertaking given by the company in advance of the act or following the act,
provided its articles of association authorize such indemnification:
|
● |
a
monetary 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. Such undertaking shall detail the foreseen events and amount or
criteria mentioned above; |
|
● |
reasonable
litigation expenses, including reasonable 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 (mens
rea); 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 (mens rea). |
In addition, under the 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,
to the extent provided in the company’s articles of association:
|
● |
a breach of a 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 monetary liability imposed on the office holder in favor of a third
party. |
Under the 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 care committed intentionally or recklessly,
excluding a breach arising out of the negligent conduct of the office holder; |
|
● |
an act or omission committed with intent to derive illegal personal
benefit; or |
|
● |
a fine or penalty levied against the office holder. |
For the approval of exculpation,
indemnification and insurance of office holders who are directors, see “— Compensation of Directors,” for the approval
of exculpation, indemnification and insurance of office holders who are not directors, see “—Compensation of Executive Officers”
and for the approval of exculpation, indemnification and insurance of office holders who are controlling shareholders, see “—
Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law — Disclosure of Personal Interests of a
Controlling Shareholder and Approval of Certain Transactions.”
Our articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted under the Companies Law (other than indemnification
for litigation expenses in connection with a monetary sanction); provided that we may not exculpate an office holder for an action or
transaction in which a controlling shareholder or any other office holder (including an office holder who is not the office holder we
have undertaken to exculpate) has a personal interest (within the meaning of the Companies Law).
We have entered into indemnification
and exculpation agreements with each of our current office holders exculpating them from a breach of their duty of care to us to the
fullest extent permitted by the Companies Law (provided that we may not exculpate an office holder for an action or transaction in which
a controlling shareholder or any other office holder (including an office holder who is not the office holder we have undertaken to exculpate)
has a personal interest (within the meaning of the Companies Law)) and undertaking to indemnify them to the fullest extent permitted
by the Companies Law (other than indemnification for litigation expenses in connection with a monetary sanction), to the extent that
these liabilities are not covered by insurance. This indemnification is limited to events determined as foreseeable by our board of directors
based on our activities, as set forth in the indemnification agreements. Under such agreements, the maximum aggregate amount of indemnification
that we may pay to all of our office holders together is (i) for office holders who joined our company before May 31, 2013, the greater
of 30% of the shareholders equity according to our most recent financial statements (audited or reviewed) at the time of payment and
NIS 20 million, and (ii) for office holders who joined our company after May 31, 2013, 25% of the shareholders equity according to our
most recent financial statements (audited or reviewed) at the time of payment.
We are not aware of any pending
or threatened litigation or proceeding involving any of our office holders as to which indemnification is being sought, nor are we aware
of any pending or threatened litigation that may result in claims for indemnification by any office holder.
Employees
As of December 31, 2022,
we employed 380 employees, of whom 360 were located in Israel, 18 were located in the United States and 2 were located in other
countries. The individuals were employed in the following division : 160 in Operations, 89 in Quality, 13 in Research and
Development, 19 in Regulation, 2 in Business Development, 6 in Medical & Clinical, 21 in Sales & Marketing, 13 in Human
Resources & Administration, 33 in Finance, 4 in Legal, 8 in U.S. commercial operations and 10 in our plasma collection
center . As of December 31, 2021, we employed 364 employees, of whom 355 were located in Israel and 9 were located in the
United States. The individuals were employed in the following division: 173 in Operations, 90 in Quality, 14 in Research and
Development, 17 in Regulation, 2 in Business Development, 5 in Medical & Clinical, 19 in sales for Israel, 13 in Human Resources
& Administration, 18 in Finance, 4 in Legal, and 9 in our U.S. commercial operations and plasma collection center. As of
December 31, 2020, we employed 408 employees, all of whom in Israel, according to the following division: 211 in Operations, 102 in
Quality, 16 in Research and Development, 17 in Regulation, 2 in Business Development, 8 in Medical & Clinical, 13 in sales,
Israel, 15 in Human Resources & Administration, 21 in Finance and 2 in Legal.
We signed a collective bargaining
agreement with the Histadrut (General Federation of Labor in Israel) and the employees’ committee established by our employees
at our Beit Kama facility in December 2013, which expired in December 2017. In November 2018, we signed a further collective bargaining
agreement with the employees’ committee and the Histadrut, which expired in December 2021. In July 2022, we signed a new collective
agreement with the employee's committee and the Histadrut; while the agreement will be effective through the end of 2029, certain economic
terms may be renegotiated by the parties following the four-year anniversary of the agreement. The collective bargaining agreement governs
certain aspects of our employee-employer relations, such as: firing procedures, annual salary raise, and eligibility for certain compensation
terms and welfare. Approximately 195 of our employees, all of whom are located at our Beit Kama facility, currently work under the collective
bargaining agreement signed in July 2022. We have experienced labor disputes and work stoppages in the past. For example, on March 3,
2022, during the course our negotiations with the Histadrut and the employees’ committee on the renewal of the collective bargaining
agreement, the employee’s committee declared a labor dispute, and on April 26, 2022, a strike was initiated by the employees’
committee, which continued until signed agreement was signed in July 2022, at which time the unionized employees returned to work at
the Beit Kama facility. In addition, in December 2020, during the course of our negotiations with the Histadrut and the employees’
committee on severance remuneration for employees who may be laid-off as part of the workforce down-sizing as a result of the transfer
of GLASSIA manufacturing to Takeda, the employee’s committee declared a labor dispute, which was subsequently concluded during
February 2021 following the execution of a special collective bargaining agreement governing such severance terms. In March 2023, we
entered into an additional special collective bargaining agreement with the employees’ committee and the Histadtrut governing severance
remuneration terms for employees who may be laid-off in connection with the potential staff reductions, when needed, in order to adjust
to lower plant utilization.
Israeli labor laws govern
the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay,
annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions
of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement, death or dismissal of
an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social
Security Administration. Our employees have defined benefit pension plans that comply with the applicable Israeli legal requirements.
Extension orders issued by
the Ministry of Labor, Social Affairs, and Social Services apply to us and affect matters such as cost of living adjustments to payroll,
length of working hours and week, recuperation pay, travel expenses, and pension rights.
Share Ownership
The following table sets
forth information with respect to the beneficial ownership of our ordinary shares by each of our directors and executive officers and
all of current directors and executive officers as a group.
The percentage of beneficial
ownership of our ordinary shares is based on 44,832,843 ordinary shares outstanding as of March 15, 2023. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting power or investment power with respect to securities. All ordinary
shares subject to options exercisable into ordinary shares and restricted share units that will become vested, as applicable, within 60
days of the date of the table are deemed to be outstanding and beneficially owned by the shareholder holding such options and restricted
share units for the purpose of computing the number of shares beneficially owned by such shareholder. They are not, however, deemed to
be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other shareholder.
| |
Ordinary Shares Beneficially Owned | |
Name | |
Number | | |
Percentage | |
Executive Officers | |
| | |
| |
Amir London (1) | |
| 249,750 | | |
| * | |
Chaime Orlev (2) | |
| 68,099 | | |
| * | |
Eran Nir (3) | |
| 62,364 | | |
| * | |
Yael Brenner (4) | |
| 31,532 | | |
| * | |
Hanni Neheman (5) | |
| 28,366 | | |
| * | |
Yifat Philip (6) | |
| 30,625 | | |
| * | |
Orit Pinchuk (7) | |
| 62,599 | | |
| * | |
Ariella Raban (8) | |
| 52,999 | | |
| * | |
Jon Knight (9) | |
| 15,000 | | |
| * | |
Shavit Beladev (10) | |
| 28,366 | | |
| * | |
Boris Gorelik (11) | |
| - | | |
| - | |
| |
| | | |
| | |
Directors | |
| | | |
| | |
Lilach Asher Topilsky (12) | |
| 19,875 | | |
| * | |
Uri Botzer (13) | |
| - | | |
| - | |
Ishay Davidi (14) | |
| 9,472,583 | | |
| 21.12 | % |
Karnit Goldwasser (15) | |
| 19,875 | | |
| * | |
Jonathan Hahn (16) | |
| 1,948,393 | | |
| 4.34 | % |
Lilach Payorski (17) | |
| - | | |
| - | |
Leon Recanati (18) | |
| 3,622,998 | | |
| 8.07 | % |
Ari Shamiss (19) | |
| 5,625 | | |
| * | |
David Tsur (20) | |
| 657,804 | | |
| 1.47 | % |
Directors and executive officers as a group (20 persons) (21) | |
| 16,376,854 | | |
| 36.50 | % |
| * | Less than 1% of our ordinary
shares. |
| (1) | Includes (i) 52,500 ordinary
shares (ii) 3,750 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 193,500 ordinary
shares exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 19.70 (or $5.63) per share, which
expire between March 2, 2023 and September 25, 2026. Does not include unvested options to purchase 422,500 ordinary shares and 7,500
restricted share units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (2) | Includes (i) 11,165 ordinary shares, (ii) 234 restricted share units
that vest within 60 days of the date of the table and (iii) options to purchase 56,700 ordinary shares exercisable within 60 days of the
date of the table, at a weighted average exercise price of NIS 19.30 (or $5.51) per share, which expire between May 12, 2024 and December
20, 2025. Does not include unvested options to purchase 68,200 ordinary shares and 234 restricted share units that are not exercisable
or do no vest, as applicable, within 60 days of the date of the table. |
| (3) | Includes (i) 9,930 ordinary
shares, (ii) 234 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 52,200 ordinary
shares exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 20.06 (or $5.73) per share, which
expire between May 24, 2023 and December 20, 2025. Does not include unvested options to purchase 68,200 ordinary shares and 234restricted
share units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (4) | Includes (i) 5,798 ordinary
shares, (ii) 234 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 25,500 ordinary
shares exercisable within 60 days of the date of the table, at exercise price of NIS 20.17 (or $5.76) per share, which expire between
January 12, 2023 and December 20, 2025. Does not include unvested options to purchase 45,700 ordinary shares and 234 restricted share
units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (5) | Includes (i) 3,268 ordinary
shares, (ii) 75 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 25,023 ordinary
shares exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 19.80 (or $5.57) per share, which
expire between January 31, 2024 and December 20, 2025. Does not include unvested options to purchase 45,227 ordinary shares and 75 restricted
share units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (6) | Subject to options to purchase
30,625 ordinary shares exercisable within 60 days of the date of the table, at an exercise price of NIS 24.49 (or $7.00 per share), which
expire between April 15, 2027 and August 8, 2028. Does not include unvested options to purchase 54,375 ordinary shares that are not exercisable
within 60 days of the date of the table. |
| (7) | Includes (i) 11,665 ordinary
shares, (ii) 234 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 50,700 ordinary
shares exercisable within 60 days of the date of this Annual Report, at an exercise price of NIS 19.60 (or $5.60) per share, which expire
between January 12, 2023 and December 20, 2025. Does not include unvested options to purchase 45,700 ordinary shares and 234 restricted
share units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (8) | Includes (i) 9,265 ordinary
shares, (ii) 234 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 43,500 ordinary
shares exercisable within 60 days of the date of the table, at an exercise price of NIS 19.80 (or $5.66) per share, which expire between
January 1, 2023 and December 20, 2025. Does not include unvested options to purchase 45,700 ordinary shares and 234 restricted share
units that are not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (9) | Subject to options to purchase
15,000 ordinary shares exercisable within 60 days of the date of the table, at an exercise price of NIS 20.58 (or 5.088) per share, which
expire on September 9, 2028. Does not include unvested options to purchase 45,000 ordinary shares that are not exercisable within 60
days of the date of the table. |
| (10) | Includes (i) 3,268 ordinary
shares, (ii) 75 restricted share units that vest within 60 days of the date of the table and (iii) options to purchase 25,023 ordinary
shares exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 19.49 (or $5.57) per share, which
expire on August 28, 2028. Does not include unvested options to purchase 45,227 ordinary shares and 75 restricted share units that are
not exercisable or do no vest, as applicable, within 60 days of the date of the table. |
| (11) | Does not include options to
purchase 60,000 ordinary shares that are not exercisable within 60 days of the date of the table. |
| (12) | Subject to options to purchase
19,875 ordinary shares exercisable within 60 days of the date of the table, at an exercise price of NIS 23.67 (or 6.76) per share, which
expire between September 25, 2026 and June 22, 2029. Does not include unvested options to purchase 36,625 ordinary shares that are not
exercisable within 60 days of the date of the table. |
| (13) | Does not include unvested options
to purchase 30,000 ordinary shares held by Mr. Uri Botzer that are not exercisable within 60 days of the date of the table. |
| (14) | Includes (i) 9,452,708 shares
indirectly beneficially owned through FIMI Opportunity Fund 6, L.P. and FIMI Israel Opportunity Fund 6, Limited Partnership. See footnote
(1) to table under “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”; and (ii) 19,875
ordinary shares subject to options held directly held by Mr. Ishay Davidi that are currently exercisable or exercisable within 60 days
of the date of the table, at a weighted average exercise price of NIS 23.67 (or $6.76) per share, which expire between September 25,
2026 and June 22, 2029. Does not include unvested options to purchase 36,625 ordinary shares held by Mr. Ishay Davidi that are not exercisable
within 60 days of the date of the table. |
| (15) | Subject to options to purchase
19,875 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the table, at a weighted average exercise
price of NIS 23.67 (or $6.76) per share, which expire between September 25, 2026 and June 22, 2029. Does not include unvested options
to purchase 36,625 ordinary shares that are not exercisable within 60 days of the date of the table. |
| (16) | Mr. Hahn holds 25% of the shares
of Sinara, which holds 100% of the shares of Damar, which directly holds 1,903,518 ordinary shares. In addition, includes options to
purchase 44,875 ordinary shares directly held by Mr. Jonathan Hahn that are currently exercisable or exercisable within 60 days of the
date of the table, at a weighted average exercise price of NIS 21.76 (or $6.22) per share, which expire between March 2, 2023 and September
25, 2026. Does not include unvested options to purchase 36,625 ordinary shares held by Mr. Jonathan Hahn that are not exercisable within
60 days of the date of the table. |
| (17) | Does not include options to
purchase 30,000 ordinary shares that are not exercisable within 60 days of the date of the table. |
| (18) | Mr. Recanati holds 677,479
ordinary shares directly and 2,895,644 ordinary shares indirectly through Gov Financial Holdings Ltd., a company organized under the
laws of the State of Israel (“Gov”). Gov is wholly-owned by Mr. Recanati, a director, who exercises sole voting and
investment power over the shares held by Gov. In addition, includes options to purchase 49,875 ordinary shares directly held by Mr. Recanati
that are currently exercisable or exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 21.10
(or $6.03) per share, which expire between March 2, 2023 and June 22, 2029. Does not include unvested options to purchase
36,625 ordinary shares that are not exercisable within 60 days of the date of the table. |
| (19) | Subject to options to purchase
5,625 ordinary shares that are currently exercisable or exercisable within 60 days of the date of the table, at a weighted average exercise
price of NIS 29.68 (or $8.48) per share, which expire between June 10, 2027 and June 22, 2029. Does not include unvested options
to purchase 34,375 ordinary shares that are not exercisable within 60 days of the date of the table. |
| (20) | Mr. David Tsur directly holds
607,929 ordinary shares. In addition, includes options to purchase 49,875 ordinary shares directly held by Mr. Tsur that are currently
exercisable or exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 21.10 (or $6.03) per
share, which expire between March 2, 2023 and June 22, 2029. Does not include unvested options to purchase 36,625 ordinary shares that
are not exercisable within 60 days of the date of the table. |
| (21) | See footnotes (1)-(20) for
certain information regarding beneficial ownership. |
Equity Compensation Plan
In July 2011, we adopted
our 2011 Israeli Share Option Plan and in September 2016, we amended and renamed it as the 2011 Israeli Share Award Plan (the “2011
Plan”). The 2011 Plan expired in July 2021 and in August 2021, we extended the 2011 Plan by an additional ten years, until August
9, 2031, and adopted a few additional amendments to the 2011 Plan and the 2011 Plan was further amended in October 2022. References below
to the “2011 Plan” refer to the 2011 Plan as amended in August 2021 and October 2022. Under the 2011 Plan, we are authorized
to grant options and restricted share units to directors, officers, employees, consultants and service providers of our company and subsidiaries.
The 2011 Plan is intended to enhance our ability to attract and retain desirable individuals by increasing their ownership interests
in us. The 2011 Plan is designed to reflect the provisions of the Israeli Tax Ordinance, which affords certain tax advantages to Israeli
employees, officers and directors that are granted options in accordance with its terms. The 2011 Plan may be administered by our board
of directors either directly or upon the recommendation of the compensation committee.
In February 2022, the Board
of Directors adopted the U.S. Taxpayer Appendix to the 2011 Plan (the “US Appendix”), which provides for the grant of options
and restricted shares to persons who are subject to U.S. federal income tax. The Appendix provides for the grant to U.S. employees of
options that qualify as incentive stock options (“ISOs”) under the U.S. Internal Revenue Code of 1986, as amended. The aggregate
maximum number of ordinary shares that may be issued upon the exercise of ISOs granted under the 2011 Plan is 500,000. The grant of ISO’s
was subject to the approval of the Appendix by our shareholders within 12 months of its approval by our Board of Directors. The US Appendix
was approved by our shareholders at the annual general meeting held in December 2022.
We have granted options to
our employees, officers and directors under the 2011 Plan. Each option granted under the 2011 Plan entitles the grantee to purchase one
of our ordinary shares. In general, the exercise price of options granted to directors and officers under the 2011 Plan prior to January
1, 2020, is generally equal to the higher of (i) the average closing price of our ordinary shares on the TASE during the 30-TASE trading
days immediately prior to board approval of the grant of such options plus 5%; and (ii) the closing price of our ordinary shares on the
TASE on the date of the approval of the grant of options. The exercise price of options granted to directors and officers under the 2011
Plan following January 1, 2020 is generally equal to the higher of (i) the average closing price of our ordinary shares on the TASE during
the 30-TASE trading days immediately prior to board approval of the grant of such options; and (ii) the closing price of our ordinary
shares on the TASE on the date of the approval of the grant of options. Options granted under the 2011 Plan are exercised by way of net
exercise and accordingly, the grantee is not required to pay the exercise price when exercising the options and instead, receives, upon
exercise and sale of such number of ordinary shares, an amount which is equal to the difference between the total market value of the
ordinary shares on the date of exercise and sale underlying the exercised options and the total exercise price for such options. The
actual number of shares issued pursuant to the net exercise of the options is equal to the number of shares subject to the option less
the number of shares tendered back to the company to pay the exercise price.
The options granted under
the 2011 Plan prior to January 1, 2020 generally vest during a four-year period following the date of the grant in 13 installments: 25%
of the options vest on the first anniversary of the grant date and 6.25% of the remaining options vest at the end of each quarter thereafter.
Options granted under the 2011 Plan following January 1, 2020 generally vest in four equal installments, 25% each on each of the four
anniversaries of the date of grant. Options granted under the 2011 Plan are generally exercisable for 6.5 years following the date of
grant and all unexercised options will expire immediately thereafter. Options that have vested prior to the end of a grantee’s
employment or services agreement with us may generally be exercised within 90 days from the end of such grantee’s employment or
services with us, unless such relationship was terminated for cause. Options which are not exercised during such 90-day period expire
at the end of the period, unless upon termination of such 90-day period there is an ongoing black-out period during which time the options
may not be exercised, in which case our Chief Executive Officer or Chief Financial Officer is entitled to extend the exercise period
for specified limited periods. Options that have not vested on the date of the end of a grantee’s employment or services agreement
with us, and, in the event of termination of employment or services for cause, all unexercised options (whether vested or not), expire
immediately upon termination.
We have also granted restricted
share units to our officers. The restricted share units awarded under the 2011 Plan generally vest over a period of four years in 13
installments: 25% of the restricted share units vest on the first anniversary of the grant date and 6.25% of the remaining restricted
share units vest at the end of each quarter thereafter.
In the event of certain transactions,
such as our being acquired, or a merger or reorganization or a sale of all or substantially all of our shares or assets, the board or
compensation committee may take one of the following actions: (i) provide that awards then outstanding under the 2011 Plan shall be assumed
or substituted for shares or other securities of the surviving or acquiring entity, under such terms and conditions determined by the
board or the compensation committee; (ii) provide for the acceleration of vesting of all a part of any awards then outstanding under
the 2011 Plan, under such terms and conditions as the Board or the compensation committee shall determine; or (iii) provide for the cancellation
of any award without any consideration, if the fair market value per share on the date of the transaction does not exceed the purchase
price of any such award or if such award would not otherwise be exercisable or vested, even in the event that the fair market value per
share on the date of the transaction, exceeds the purchase price of any such award. The board or the compensation committee may determine
that the terms of certain awards under the 2011 Plan include a provision that their vesting schedules will be accelerated such that they
will be exercisable prior to the closing of such a transaction, if the awards are not assumed or substituted by the successor company.
Options and restricted share
units granted to our employees and Israeli directors under the 2011 Plan were granted pursuant to the provisions of Section 102 of the
Israeli Income Tax Ordinance, under the capital gains alternative. In order to comply with the capital gains alternative, all such options
and restricted share units under the 2011 Plan are granted or issued to a trustee and are to be held by the trustee for at least two
years from the date of grant. Under the capital gains alternative, we are not allowed an Israeli tax deduction for the grant of the options
or issuance of the shares issuable thereunder.
As of December 31, 2022, an
aggregate of 966,405 ordinary shares were reserved for future issuance under the 2011 Plan (subject to certain adjustments specified in
the 2011 Plan), and options to purchase 3,247,814 ordinary shares were outstanding under the 2011 Plan, of which options to purchase 1,049,329
ordinary shares were vested as of such date, and 14,105 restricted share units were outstanding under the 2011 Plan. Any ordinary shares
underlying options that expire prior to exercise or restricted share units that are forfeited under the 2011 Plan will become again available
for issuance under the 2011 Plan. See Note 21 to our consolidated financial statements included in this Annual Report for information
regarding awards to directors, executive officers and employees subsequent to December 31, 2022.
Item 7. Major Shareholders and Related Party
Transactions
Major Shareholders
The following table sets
forth information with respect to the beneficial ownership of our ordinary shares by each person known to us to own beneficially more
than 5% of our ordinary shares.
The percentage of beneficial
ownership of our ordinary shares is based on 44,832,843 ordinary shares outstanding as of March 15, 2023. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting power or investment power with respect to securities. All ordinary
shares subject to options exercisable into ordinary shares within 60 days of the date of the table are deemed to be outstanding and beneficially
owned by the shareholder holding such options for the purpose of computing the number of shares beneficially owned by such shareholder.
Such shares are also deemed outstanding for purposes of computing the percentage ownership of the person holding the options. They are
not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other shareholder.
Except as described in the
footnotes below, we believe each shareholder has voting and investment power with respect to the ordinary shares indicated in the table
as beneficially owned.
Name | |
Number | | |
Percentage | |
FIMI Funds(1) | |
| 9,452,708 | | |
| 21.08 | % |
Leon Recanati(2) | |
| 3,622,998 | | |
| 8.07 | % |
The Phoenix Holdings Ltd.(3) | |
| 3,606,511 | | |
| 8.04 | % |
(1) |
Based solely upon, and qualified in its entirety with reference to,
Amendment No. 2 to Schedule 13D filed with the SEC on May 20, 2020 and information provided to the Company. According to the Statement,
(i) includes 4,421,909 shares directly owned by FIMI Opportunity Fund 6, L.P. and 5,030,799 shares directly owned by FIMI Israel
Opportunity Fund 6, Limited Partnership (together, the “FIMI Funds”) and (ii) the ordinary shares held by the
FIMI Funds are indirectly beneficially owned by (A) FIMI 6 2016 Ltd. (“FIMI 6”), which serves as the managing
general partner of the FIMI Funds, (B) Mr. Ishay Davidi, Chief Executive Officer of FIMI 6, and (C) Or Adiv Ltd., a company controlled
by Mr. Ishay Davidi, which controls FIMI 6. Information included in this footnote does not include 13,250 ordinary shares subject
to options held directly by Mr. Davidi’s that are currently exercisable or exercisable within 60 days of the date of the table.
See Footnote (13) to the table under “Item 6. Directors, Senior Management and Employees — Share Ownership.” |
(2) |
Mr. Recanati holds 677,479 ordinary shares directly and 2,895,644 ordinary shares indirectly through Gov Financial Holdings Ltd., a company organized under the laws of the State of Israel (“Gov”). Gov is wholly-owned by Mr. Recanati, a director, who exercises sole voting and investment power over the shares held by Gov. In addition, includes options to purchase 49,875 ordinary shares directly held by Mr. Recanati that are exercisable within 60 days of the date of the table, at a weighted average exercise price of NIS 21.10 (or $6.03) per share, which expire between March 2, 2023 and June 22, 2029. Does not include unvested options to purchase 36,625 ordinary shares that are not exercisable within 60 days of the date of the table. |
(3) |
Based solely upon, and qualified in its entirety with reference to a notice provided to the Company dated January 2, 2023, reporting its holdings as of December 31, 2022. |
To our knowledge, based on
information provided to us by our transfer agent in the United States, as of March 10, 2023, we had one shareholder of record registered
with an address in the United States, holding approximately 22.87% of our outstanding ordinary shares. Such number is not representative
of the portion of our shares held in the United States nor is it representative of the number of beneficial holders residing in the United
States, since such ordinary shares were held of record by one U.S. nominee company, CEDE & Co.
To our knowledge, other than
as disclosed in the table above, our other filings with the SEC and this Annual Report, there has been no significant change in the percentage
ownership held by any major shareholder since January 1, 2020.
None of our shareholders
has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company.
Related Party Transactions
Tuteur S.A.C.I.F.I.A.
In August 2011, we entered
into a distribution agreement with Tuteur that amended and restated a distribution agreement we entered into in November 2001, as amended
on August 19, 2014, January 25, 2017, and January 21, 2019, under which Tuteur acted as the exclusive distributor of GLASSIA and KAMRHO(D)
in Argentina, Paraguay and Bolivia. Tuteur is a company organized under the laws of Argentina and was formerly controlled by Mr. Ralf
Hahn, the former Chairman of our board of directors. Mr. Hahn’s son, Mr. Jonathan Hahn, a director, is currently the President
and a director of Tuteur. The distribution agreement, as amended, expired on December 31, 2019, and pending the execution of a new distribution
agreement, the parties continued to act in accordance with the expired distribution agreement.
In May 2020, we entered into
a new distribution agreement with Tuteur, which supersedes the former agreement in its entirety, pursuant to which Tuteur serves as the
exclusive distributor of GLASSIA and KAMRHO(D) in Argentina, Paraguay, Bolivia and Uruguay. Under the new distribution agreement, Tuteur
is responsible, at its own expense, for obtaining marketing authorization and/or registration for each of the products in the foregoing
territories that is not already approved and registered. If Tuteur fails to register any product in any territory within 12 months after
receipt of our approval of all relevant documents, we shall be entitled to terminate the agreement with respect to such product or terminate
the exclusivity granted to Tuteur with respect to such product. The agreement includes minimum annual purchase commitments by Tuteur,
with respect to sales of any products in territories where registration has been completed, commencing as of the effective date of the
agreement, and with respect to sale of any products in the other territories, commencing the first year following the registration of
any such product in the applicable territory; and the parties agreed to negotiate in good faith the minimum quantities to be purchased
by Tuteur in each following marketing year. If Tuteur fails to purchase and pay for the minimum quantity for any product in any marketing
year, we are entitled to (i) terminate the agreement on a product-by-product basis and/or (ii) terminate the exclusivity and/or narrow
the scope of the territories, if applicable, on a product-by-product basis. The price per product per territory payable by Tuteur pursuant
to the agreement will be the higher of 50% of such product’s net price sold by Tuteur in the territory or a minimum supply price
as defined in the agreement.
In addition, Tuteur has undertaken
to issue a guarantee (from a U.S., Israeli or a western Europe bank) for every new order of product, in the value of each order, which
must be provided prior to the shipment of the product and extended through the complete payment of the amount due on any such order or
shipment; such guarantee may not be required to the extent we are able to obtain adequate credit insurance covering the value of each
order through its complete payment. We retain ownership of all relevant intellectual property in the products. The agreement is in effect
for a period of five years, and thereafter shall automatically renew for additional periods of one year each, unless either party notifies
the other party of its desire to terminate the agreement by prior written notice of at least 12 months before the expiration of any of
the additional periods. We are entitled to terminate the agreement with respect to all or certain territories in the event of a change
of control of Tuteur, its failure to register the products and obtain all marketing approvals within the period set forth above, its
failure to purchase and pay for the minimum quantities for two consecutive years (provided that Tuteur will be obligated, during the
second marketing year, to purchase the minimum quantity for the preceding marketing year on a product-by-product basis) or if Tuteur
discontinues selling the products, after completing registration and obtaining required approvals, for longer than 45 days or 90 days
or more in the event such discontinuation is caused due to a force majeure event. The agreement includes a mutual indemnification undertaking,
standard confidentiality obligations and obligations of Tuteur to comply with anti-corruption and privacy laws. The agreement includes
a non-compete undertaking of Tuteur during the term of the agreement and for a period of 12 months thereunder (other than in the event
the agreement is terminated for cause by Tuteur due to our breach of the agreement).
On July 4, 2022, we and Tuteur
entered into a supplemental letter agreement to the distribution agreement, pursuant to which Tuteur undertook to be responsible for
an investigator-initiated targeted screening program for AATD in Uruguay in patients diagnosed with obtrusive pulmonary disease, with
the purpose of identifying patients suitable for treatment with GLASSIA, to be conducted at Sociedad Uruguaya de Neumologia, Montevideo,
Uruguay. We undertook to support the funding of the study up to $30,000, inclusive of all applicable taxes. Tuteur undertook to provide
us all collected data, information, results and reports generated or derived as a result of the study, and to obtain in advance all necessary
approvals for the study. According to the terms of the agreement, we shall not be responsible for or bear any liability arising from
or in connection with the study.
In September 2022, following
a decrease in the market price of KAMRHO(D) in Argentina mainly due to the COVID-19 pandemic affect and recent changes to treatment protocols
that reduced overall consumption of the product, the Board of Directors approved the reduction of the minimum supply price (as defined
in the distribution agreement) of the product in Argentina and Paraguay for the 2022 supplies. In February 2023, we and Tuteur entered
into an amendment to the distribution agreement, pursuant to which KAMRHO(D)’s price for the territories of Argentina and Paraguay
payable by Tuteur pursuant to the agreement, will be the higher of 60% of KAMRHO(D)’s net price sold by Tuteur in these territories
or a minimum supply price as defined in the amendment to the distribution agreement.
In March 2023, the Board
of Directors approved a one-time amendment to the payment terms under the distribution agreement with respect to two shipments of GLASSIA
and KAMRHO(D) to be supplied to Tuteur by the end of the first quarter of 2023.
Indemnification Agreements
We have entered into indemnification
and exculpation agreements with each of our current officers and directors, exculpating them from a breach of their duty of care to us
to the fullest extent permitted by the Companies Law (provided that we may not exculpate an office holder for an action or transaction
in which a controlling shareholder or any other office holder (including an office holder who is not the office holder we have undertaken
to exculpate) has a personal interest (within the meaning of the Companies Law)) and undertaking to indemnify them to the fullest extent
permitted by the Companies Law (other than indemnification for litigation expenses in connection with a monetary sanction), including
with respect to liabilities resulting from our initial public offering in the United States, to the extent such liabilities are not covered
by insurance. See “Item 6. Directors, Senior Management and Employees — Exculpation, Insurance and Indemnification of Office
Holders.”
Employment Agreements
We have entered into employment
agreements with our executive officers and key employees, which are terminable by either party for any reason. The employment agreements
contain standard provisions, including assignment of invention provisions and non-competition clauses. See “Item 6. Directors,
Senior Management and Employees — Employment Agreements with Executive Officers.”
Shareholders’ Agreement
Under a shareholders’
agreement entered into on March 4, 2013, the Recanati Group, on the one hand, and the Damar Group, on the other hand, have each agreed
to vote the ordinary shares beneficially owned by them in favor of the election of director nominees designated by the other group as
follows: (i) three director nominees, so long as the other group beneficially owns at least 7.5% of our outstanding share capital, (ii)
two director nominees, so long as the other group beneficially owns at least 5.0% (but less than 7.5%) of our outstanding share capital,
and (iii) one director nominee, so long as the other group beneficially owns at least 2.5% (but less than 5.0%) of our outstanding share
capital. In addition, to the extent that after the designation of the foregoing director nominees there are additional director vacancies,
each of the Recanati Group and Damar Group have agreed to vote the ordinary shares beneficially owned by them in favor of such additional
director nominees designated by the party who beneficially owns the larger voting rights in our company.
FIMI Private Placement
On January 20, 2020, we entered
into a securities purchase agreement with the FIMI Funds to purchase an aggregate of 4,166,667 ordinary shares at a price of $6.00 per
share, for an aggregate $25 million gross proceeds. Concurrently, we entered into a registration rights agreement with the FIMI Funds,
pursuant to which the FIMI Funds are entitled to customary demand registration rights (effective six months following the closing of
the transaction) and piggyback registration rights with respect to our shares held by them. Upon the closing of the private placement,
the beneficial ownership of the FIMI Funds increased from approximately 12.15% to 21.13%. Lilach Asher Topilsky, the Chairman of our
board of directors, Ishay Davidi and Amiram Boehm, members of our board of directors, are partners of the FIMI Funds. For details regarding
the beneficial ownership of the FIMI Funds and Messrs. Davidi and Boehm and Ms. Asher Topilsky see “Item 7. Major Shareholders
and Related Party Transactions — Major Shareholders” and “Item 6. Directors, Senior Management and Employees —
Share Ownership.”
Engagements with Suppliers and Service
Providers Affiliated with the FIMI Funds
We have entered into certain
agreements in the ordinary course of our business for the purchase of certain products and services (such as security services, office
equipment and recycling services) from entities controlled by or affiliated with the FIMI Funds, all of which were originally entered
into prior to the FIMI Funds becoming a shareholder of our company and on an arm’s length basis, one of which was subsequently
superseded by a new agreement entered into between the parties. These agreements include customary terms and conditions as applicable
to the type of supplied product or services.
Item 8. Financial Information
Consolidated financial statements
are set forth under Item 18.
Item 9. The Offer and Listing
Our ordinary shares are quoted
on the Nasdaq Global Select Market and the TASE under the symbol “KMDA.”
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of our amended and
restated articles of association is attached as Exhibit 1.1 to this Annual Report. Other than as set forth below, the information called
for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference into this Annual Report.
Establishment and Purposes of the Company
We were incorporated under
the laws of the State of Israel on December 13, 1990 under the name Kamada Ltd. We are registered with the Israeli Registrar of Companies
in Jerusalem. Our registration number is 51-152460-5. Our purpose as set forth in our amended articles of association is to engage in
any lawful business.
Shareholder Meetings
Under the Companies Law,
we are required to convene an annual general meeting of our shareholders at least once every calendar year and within a period of not
more than 15 months following the preceding annual general meeting. In addition, the Companies Law provides that our board of directors
may convene a special general meeting of our shareholders whenever it sees fit and is required to do so upon the written request of (i)
two directors or one quarter of the serving members of our board of directors, or (ii) one or more holders of 5% or more of our outstanding
share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting power.
Subject to the provisions
of the 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, as a company listed on an exchange outside Israel,
may be between four and 40 days prior to the date of the meeting. The Companies Law requires that resolutions regarding the following
matters (among others) be approved by our shareholders at a general meeting: amendments to our articles of association; appointment,
terms of service and termination of service of our auditors; election of external directors (if applicable); approval of certain related
party transactions; increases or reductions of our authorized share capital; mergers; and 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 essential
for our proper management.
The chairman of our board
of directors presides over our general meetings. However, if at any general meeting the chairman is not present within 15 minutes after
the appointed time or is unwilling to act as chairman of such meeting, then the shareholders present will choose any other person present
to be chairman of the meeting. Subject to the provisions of the 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, as company listed also on an exchange outside of Israel, may be between four and 40 days prior to the date of the meeting.
Israeli law requires that
a notice of any annual general meeting or special general meeting be provided to shareholders at least 21 days prior to the meeting and
if the agenda of the meeting includes, among other things, the appointment or removal of directors, the approval of transactions with
office holders or interested or related parties, an approval of a merger or the approval of the compensation policy, notice must be provided
at least 35 days prior to the meeting.
Borrowing powers
Pursuant to the Companies
Law and our amended and restated articles of association, our board of directors may exercise all powers and take all actions that are
not required under law or under our amended and restated articles of association to be exercised or taken by our shareholders, including
the power to borrow money for company purposes.
C. Material Contracts
We have not entered into
any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on
the Company” or elsewhere in this Annual Report.
D. Exchange Controls
There are currently no Israeli
currency control restrictions on remittances of dividends on our ordinary shares, proceeds from the sale of the ordinary 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.
Non-residents of Israel who
hold our ordinary shares are able to repatriate any dividends (if any), any amounts received upon the dissolution, liquidation and winding
up of our affairs and proceeds of any sale of our ordinary shares, into non-Israeli currency at the rate of exchange prevailing at the
time of conversion, provided that any applicable Israeli income tax has been paid or withheld on these amounts. In addition, the statutory
framework for the potential imposition of exchange controls has not been eliminated, and may be restored at any time by administrative
action.
E. Taxation
The following description
is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our
ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any
tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations and Government
Programs
The following is a brief
summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs benefiting us. This section also contains
a discussion of material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares. This summary does
not discuss all 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, such as traders in securities, who are subject to special treatment under Israeli law. The discussion
below is subject to amendment under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law,
which could affect the tax consequences described below.
The discussion below does
not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other
tax consequences of the purchase, ownership and disposition of our ordinary shares, including in particular, the effect of any foreign,
state or local taxes.
General Corporate Tax Structure in Israel
Israeli companies are generally
subject to corporate tax, which has decreased in recent years, from a rate of 25% in 2016 to 24% in 2017 and further decreased to 23%
in 2018 and thereafter. However, the effective corporate tax rate payable by a company that derives income from an Approved Enterprise,
a Privileged Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital gains generated by an Israeli
company are generally subject to tax at the corporate tax rate.
Law for the Encouragement of Industry (Taxes),
1969
The Law for the Encouragement
of Industry (Taxes), 1969 (the “Encouragement of Industry Law”), provides several tax benefits to “Industrial Companies.”
Pursuant to the Encouragement of Industry Law, a company qualifies as an Industrial Company if it is a resident of Israel and at least
90% of its income in any tax year (exclusive of income from certain defense loans) is generated from an “Industrial Enterprise”
that it owns and is located in Israel or in the “Area”, in accordance with its definition under section 3A of the Israeli
Income Tax Ordinance. An Industrial Enterprise is defined as an enterprise whose principal activity, in a given tax year, is industrial
activity.
An Industrial Company is
entitled to certain tax benefits, including: (i) a deduction of the cost of purchases of patents and know-how and the right to use patents
and know-how used for the development or promotion of the Industrial Enterprise in equal amounts over a period of eight years, beginning
from the year in which such rights were first used, (ii) the right to elect to file consolidated tax returns, under certain conditions,
with additional Israeli Industrial Companies controlled by it, and (iii) the right to deduct expenses related to public offerings in
equal amounts over a period of three years beginning from the year of the offering.
Eligibility for benefits
under the Encouragement of Industry Law is not contingent upon the approval of any governmental authority.
We believe that we may qualify
as an Industrial Company within the meaning of the Encouragement of Industry Law; however, there is no assurance that we qualify or will
continue to qualify as an Industrial Company or that the benefits described above will be available in the future.
To date, we have not utilized
any tax benefits under the Encouragement of Industry Law.
Law for the Encouragement of Capital Investments,
1959
Our facilities in Israel
were granted Approved Enterprise status under the Law for the Encouragement of Capital Investments, 1959, commonly referred to as the
“Investment Law”. The Investment Law provides that a capital investment in eligible production facilities (or other eligible
assets) may, upon application to the Investment Center, be designated as an “Approved Enterprise.” Each certificate of approval
for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its sources of
capital, and by its physical characteristics, for example, the equipment to be purchased and utilized pursuant to the program. The tax
benefits generated from any such certificate of approval relate only to taxable income attributable to the specific Approved Enterprise.
In recent years the Investment
Law has undergone major reforms and several amendments which were intended to provide expanded tax benefits and to simplify the bureaucratic
process relating to the approval of investments qualifying under the Investment Law. The different benefits under the Investment Law
depend on the specific year in which the enterprise received approval from the Investment Center or the year it was eligible for Approved/Privileged/Preferred
Enterprise status under the Investment Law, and the benefits available at that time. Below is a short description of the different benefits
available to us under the Investment Law:
Approved Enterprise
One of our facilities was
granted Approved Enterprise status by the Investment Center, which made us eligible for a grant and certain tax benefits under the “Grant
Track.” The approved investment program provided us with a grant in the amount of 24% of our approved investments, in addition to
certain tax benefits, which applied to our turnover resulting from the operation of such investment program, for a period of up to ten
consecutive years from the first year in which we generated taxable income. The tax benefits under the Grant Track include accelerated
depreciation and amortization for tax purposes as well as a tax exemption for the first two years of the benefit period and the taxation
of income generated from an Approved Enterprise at a reduced corporate tax rate of 10%-25% (depending on the level of foreign investment
in each year), for a certain period of time. The benefit period is ordinarily seven to ten years commencing with the year in which the
Approved Enterprise first generates taxable income. The benefit period is limited to 12 years from the earlier of the operational year
as determined by the Investment Center or 14 years from the date of approval of the Approved Enterprise.
The Company’s benefit
period ended by 2017.
Privileged Enterprise
We obtained a tax ruling
from the Israel Tax Authority according to which, among other things, our activity has been qualified as an “industrial activity”,
as defined in the Investment Law and is also eligible to tax benefits as a Privileged Enterprise under the “Tax Benefit Track,”
which apply to the turnover attributed to such enterprise, for a period of up to ten years from the first year in which we generated
taxable income.
On April 1, 2005, an amendment
to the Investment Law came into effect (the “2005 Amendment”), which revised the criteria for investments qualified to receive
tax benefits. An eligible investment program under the 2005 Amendment will qualify for benefits as a “Privileged Enterprise”
(rather than the previous terminology of Approved Enterprise). Pursuant to the 2005 Amendment, a company whose facilities meet certain
criteria set forth in the 2005 Amendment may claim certain tax benefits offered by the Investment Law (as further described below) directly
in its tax returns, without the need to obtain prior approval. In order to receive the tax benefits, the company must make an investment
in the Privileged Enterprise which meets all of the conditions, including exceeding a certain percentage or a minimum amount, specified
in the Investment Law. Such investment must be made over a period of no more than three years ending at the end of the year in which
the company requested to have the tax benefits apply to the Privileged Enterprise (the “Year of Election”). According to
the tax ruling mentioned above, our Year of Election is 2009. We also subsequently elected 2012 as a Year of Election. The
duration of tax benefits is subject to a limitation of the earlier of seven to ten years from the first year in which the company generated
taxable income (at or after the Year of Election), or 12 years from the first day of the Year of Election. Therefore, the tax benefits
under our Privileged Enterprise are scheduled to expire at the end of 2023.
The term “Privileged
Enterprise” means an industrial enterprise which is “competitive” and contributes to the gross domestic product, and
for which a minimum entitling investment was made in order to establish it (as explained above). For this purpose, an industrial enterprise
is deemed to be competitive and contributing to the gross domestic product if it meets one of the following conditions: (1) its main
activity is in the field of biotechnology or nanotechnology, as certified by the Director of the Industrial Research and Development
Administration before the project was approved; or (2) its income during a tax year from sales to a certain market does not exceed 75%
of its total income from sales in that tax year; or (3) 25% or more of its total income from sales in the tax year is from sales to a
certain market with at least 14,000,000 inhabitants.
A corporate taxpayer owning
a Privileged Enterprise may be entitled to an exemption from corporate tax on undistributed income for a period of two to ten years,
depending on the location of the Privileged Enterprise within Israel, as well as a reduced corporate tax rate of 10% to 25% for the remainder
of the benefit period, depending on the level of foreign investment in each year. In addition, the Privileged Enterprise is entitled
to claim accelerated depreciation for manufacturing assets used by the Privileged Enterprise.
However, a company that pays
a dividend out of income generated during the tax exemption period from the Privileged/Approved Enterprise is subject to deferred corporate
tax with respect to the otherwise exempt income (grossed-up to reflect the pre-tax income that we would have had to earn in order to
distribute the dividend) at the corporate tax rate which would have applied if the company had not enjoyed the exemption (i.e. at a tax
rate between 10% and 25%, depending on the level of foreign investment). A company is generally required to withhold tax on such distribution
at a rate of 15% (or a reduced rate under an applicable double tax treaty, subject to the approval by the Israel Tax Authority).
Preferred Enterprise
An amendment to the Investment
Law that became effective on January 1, 2011 (“Amendment No. 68”) changed the benefit alternatives available to companies
under the Investment Law and introduced new benefits for income generated by a “Preferred Company” through its “Preferred
Enterprises” (as such terms are defined in the Investment Law). The definition of a Preferred Company includes a company incorporated
in Israel that is not wholly owned by a governmental entity, and that, among other things, owns a Preferred Enterprise and is controlled
and managed from Israel. The tax benefits granted to a Preferred Company are determined depending on the location of its Preferred Enterprise
within Israel. Amendment No. 68 imposes a reduced flat corporate tax rate which is not program-dependent and applies to the Preferred
Company’s “preferred income” which is generated by its Preferred Enterprise.
According to the Investment
Law, a Preferred Company is subject to reduced corporate tax rate of 10% for preferred income attributed to Preferred Enterprises located
in areas in Israel designated as Development Zone A and 15% for those located elsewhere in Israel in the tax years 2011-2012, and 7%
for Development Zone A and 12.5% for the rest of Israel in the tax year 2013, and 9% for Development Zone A and 16% for the rest of Israel
in the tax years 2014 until 2016. Under an amendment to the Investment Law that became effective on January 1, 2017, the corporate tax
rate applying to income attributed to Preferred Enterprise located in Development Zone A was reduced to 7.5% while the reduced corporate
tax rate for the rest of Israel remains 16%. Income derived by 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 further reduced tax rates
of 5% if the Special Preferred Enterprise is located in Development Zone A, or 8% if the Special Preferred Enterprise is located elsewhere
in Israel.
The tax benefits under
Amendment No. 68 also include accelerated depreciation and amortization for tax purposes during the first five-year period for productive
assets that the Preferred Enterprise uses pursuant to the rates prescribed in the Investment Law. Preferred Enterprises located in specific
locations within Israel (Development Zone A) are eligible for grants and/or loans approved by the Israeli Investment Center, as well
as tax benefits. Our facility in Beit-Kama, Israel, is located in Development Zone A.
A dividend distributed
from income which is attributed to a Preferred Enterprise/Special Preferred Enterprise will generally be subject to withholding tax at
source at the following rates: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual – 20% (iii) non-Israeli
resident – 20% subject to a reduced tax rate under the provisions of an applicable double tax treaty.
The provisions of Amendment
No. 68 do not apply to existing Privileged Enterprises or Approved Enterprises, which will continue to be entitled to the tax benefits
under the Investment Law as in effect prior to Amendment No. 68. Nevertheless, a company owning such enterprises may choose to apply
Amendment No. 68 to its existing enterprises while waiving benefits provided under the Investment Law as in effect prior to Amendment
No. 68. Once a company elects to be classified as a Preferred Enterprise under the provisions of Amendment No. 68, the election cannot
be rescinded and such company will no longer enjoy the tax benefits of its Approved/Privileged Enterprises.
To date, we have not elected
to be classified as a Preferred Enterprise under Amendment No. 68.
Tax benefits under the 2017 Amendment that
became effective on January 1, 2017
An amendment to the Investment
Law was enacted as part of the Economic Efficiency Law that was published on December 29, 2016 and became effective as of January 1,
2017 (the “2017 Amendment”). 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 National
Authority for Technological Innovation (“NATI”).
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 the Special Preferred Technology Enterprise or acquired from a foreign company on or after
January 1, 2017, and the sale received prior approval from NATI. 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 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, generally 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 generally be 4%.
To date, we have not elected
to be classified as a Preferred Technology Enterprise under the 2017 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, including under
our tax ruling with respect to our Privileged Enterprise, or that we will be entitled to any additional benefits thereunder. If we do
not fulfill these conditions in whole or in part, the benefits can be canceled and we may be required to refund the amount of the benefits,
linked to the Israeli consumer price index, with interest.
Tax benefits under the 2021 Amendment that
became effective on August 15, 2021
Israel’s 2021-2022
Budget Law published on November 15, 2021 (the “2021 Amendment”), introduced a new dividend distribution ordering rule according
to which in the event of a dividend distribution, earnings that were tax exempt under the historical Approved or Beneficial Enterprise
regimes, and that were accrued or derived until December 31, 2020, referred to as “trapped earnings,” must be distributed
on a pro-rata basis from any dividend distribution, commencing August 15, 2021 and onwards.
The 2021 Amendment
also includes a temporary order, which was in force for one year from its enactment on November 15, 2021, to enhance the release of such
trapped earnings under the historical Approved and Beneficial Enterprise regimes, that are generally subject to a claw-back of the corporate
tax rate that was not paid on such earnings upon their distribution, according to which Israeli companies that have trapped earnings
were able, during such one year period, to distribute such earnings with up to a 60% “discount” of the applicable corporate
tax rate, but not less than a 6% corporate tax rate. The applicable corporate tax rate is determined based on a formula that considers
the ratio of the “released” earnings out of the trapped earnings and the historical corporate tax rate the company was exempt
from, and allows the maximum benefit if the entire amount of trapped earnings is to be released.
To date, we have not utilized
any tax benefits under the Investment Law and therefore, we do not have “trapped earnings.”
The Encouragement of Industrial Research,
Development and Technological Innovation in the Industry Law, 5744-1984 (formerly known as The Encouragement of Industrial Research and
Development Law, 5744-1984)
We have received grants
from the Government of the State of Israel through the Israel Innovation Authority of the Israeli Ministry of Economy and Industry (the
“IIA”) (formerly known as the Office of the Chief Scientist of the Israeli Ministry of Economy (the “OCS”)), for
the financing of a portion of our research and development expenditures pursuant to the Encouragement of Research, Development and Technological
Innovation in the Industry Law 5744-1984 (formerly known as the Encouragement of Industrial and Development Law, 5744-1984) (the “Research
Law”) and related regulations. We previously received funding from the IIA for six research and development programs, in the aggregate
amount of approximately $2.2 million as of December 31, 2022, which amount has accrued aggregate interest of approximately $8,252 as of
such date, and we had paid aggregate royalties to the IIA for these programs in the amount of approximately $1.0 million and had a contingent
liability to the IIA in the amount of approximately $1.2 million (excluding any interest thereon) as of December 31, 2022.
Under the Research Law,
research and development programs which meet specified criteria and are approved by the IIA (formerly the OCS) are eligible for grants.
Under the Research Law, as currently in effect, the grants awarded are typically up to 50% of the project’s expenditures. The grantee
is required to pay royalties to the State of Israel from the sale of products developed under the program. Regulations under the Research
Law, as currently in effect, generally provide for the payment of royalties of 3% to 5% on sales of products and services based on technology
developed using grants, until 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grant
is repaid, with interest at the rate of 12-month LIBOR. The terms of the IIA grants generally require that products developed with such
grants be manufactured in Israel and that the technology developed thereunder may not be transferred outside of Israel, unless approval
is received from the IIA and additional payments are made to the State of Israel. However, this does not restrict the export of products
that incorporate the funded technology. The royalty repayment ceiling can reach up to three times the amount of the grant received if
manufacturing is moved outside of Israel, and if the funded technology itself is transferred outside of Israel, the royalty ceiling can
reach up to six times the amount of grants (plus interest). Even following the full repayment of any IIA grants, we must nevertheless
continue to comply with the requirements of the Research Law. If we fail to comply with any of the conditions and restrictions imposed
by the Research Law, or by the specific terms under which we received the grants, we may be required to refund any grants previously
received together with interest and penalties, and, in certain circumstances, may be subject to criminal charges.
Taxation of Our Shareholders
The Israeli Income Tax Ordinance
applies Israeli income tax on a worldwide basis with respect to Israeli residents, and on an Israeli source income, with respect to non-Israeli
residents. Dividends distributed (or deemed distributed) by an Israeli resident company to a holder in respect of its securities and
consideration received by a holder (or deemed received) in connection with the sale or other disposition of securities of an Israeli
resident company are considered to be an Israeli source income.
Capital Gains
Under present Israeli tax
legislation, the tax rate applicable to real capital gain derived by Israeli resident corporations from the sale of shares of an Israeli
company is the general corporate tax rate (currently, 23%).
Generally, as of January
1, 2006, the tax rate applicable to real capital gain derived by Israeli individuals from the sale of shares which had been purchased
on or after January 1, 2003, whether or not listed on a stock exchange, is 25%, unless such shareholder claims a deduction for interest
and linkage differences expenses in connection with the purchase and holding of such shares. Additionally, if such a shareholder is considered
a “Substantial Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10%
or more of any of the company’s “means of control” (including, among other things, the right to receive profits of
the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint a director)) at the
time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. Individual shareholders
dealing in securities in Israel are taxed at their marginal tax rates applicable to business income (up to 47% from 2017).
Notwithstanding the foregoing,
capital gains generated from the sale of shares by a non-Israeli shareholder may be exempt from Israeli taxes provided that, in general,
both the following conditions are met: (i) the seller of the shares does not have a permanent establishment in Israel to which the generated
capital gain is attributed and (ii) if the seller is a corporation, less than 25% of its means of control are held, directly and indirectly,
by Israeli residents or Israeli residents that are the beneficiaries or are eligible to less than 25% of the seller’s income or
profits from the sale. In addition, the sale of the shares may be exempt from Israeli capital gain tax under the provisions of an applicable
tax treaty. For example, the Convention between the Government of the United States of America and the Government of Israel with respect
to Taxes on Income, or the “Israel-U.S.A. Double Tax Treaty,” generally exempts U.S. residents from Israeli capital gains
tax in connection with such sale, provided that (i) the U.S. resident owned, directly or indirectly, less than 10% of the Israeli resident
company’s voting power at any time within the 12-month period preceding such sale; (ii) the seller, if an individual, has been
present in Israel for less than 183 days (in the aggregate) during the taxable year; and (iii) the capital gain from the sale was not
generated through a permanent establishment of the U.S. resident in Israel.
The purchaser of the shares,
the stockbrokers who effected the transaction or the financial institution holding the shares through which payment to the seller is
made are obligated, subject to the above-referenced exemptions if certain conditions are met, to withhold tax on the real capital gain
resulting from a sale of shares at the rate of 25%.
A detailed return, including
a computation of the tax due, must be filed and an advance payment must be paid on January 31 and July 31 of each tax year for sales
of shares traded on a stock exchange made within the six months preceding the month of the report. However, if the seller is exempt from
tax or all tax due was withheld at the source according to applicable provisions of the Israeli Income Tax Ordinance and the regulations
promulgated thereunder, the return does not need to be filed and an advance payment does not need to be made. Taxable capital gains are
also reportable on an annual income tax return if applicable.
Dividends
Our company is obligated
to withhold tax, at the rate of 15%, upon the distribution of a dividend attributed to a Privileged Enterprise’s income, subject
to a reduced tax rate under the provisions of an applicable double tax treaty, provided that a certificate from the Israel Tax Authority
allowing for a reduced withholding tax rate is obtained in advance. If the dividend is distributed from income not attributed to a Privileged
Enterprise, the following withholding tax rates will generally apply: (i) Israeli resident corporations — 0%, (ii) Israeli resident
individuals — 25% (or 30% in the case of a Substantial Shareholder) and (iii) non-Israeli residents (whether an individual or a
corporation), so long as the shares are registered with a nominee company — 25%, subject to a reduced tax rate under the provisions
of an applicable double tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax
rate is obtained in advance. Generally, unless the recipient of the dividend is a U.S. corporate resident which holds at least 10% of
the share capital of the Company, the withholding rate will not be reduced under the Israel-U.S.A. Double Tax Treaty.
Excess Tax
An additional tax liability
at the rate of 3% in 2017 onwards is added to the applicable tax rate on the annual taxable income of individuals (whether any such individual
is an Israeli resident or non-Israeli resident) exceeding NIS 647,640 in 2021, NIS 663,240 in 2022 and NIS 698,280 in 2023.
Estate and gift tax
Israeli law presently does
not impose estate or gift taxes.
United States Federal Income Taxation
The following is a description
of the material U.S. federal income tax consequences to a U.S. Holder (as defined below) of the acquisition, ownership and disposition
of our ordinary shares. This description addresses only the U.S. federal income tax consequences to holders of our ordinary shares in
the United States that will hold our ordinary shares as capital assets for U.S. federal income tax purposes. This description does not
address many of the tax considerations applicable to holders that may be subject to special tax rules, including, without limitation:
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banks, certain financial institutions or insurance companies; |
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real estate investment trusts, regulated investment companies or grantor
trusts; |
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dealers or traders in securities, commodities or currencies; |
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certain former citizens or long-term residents of the United States; |
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persons that received our shares as compensation for the performance
of services; |
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persons that will hold our shares as part of a “hedging,”
“integrated” or “conversion” transaction or as a position in a “straddle” for U.S. federal income
tax purposes; |
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partnerships (including entities classified as partnerships for U.S.
federal income tax purposes) or other pass-through entities, or holders that will hold our shares through such an entity; |
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persons whose “functional currency” is not the U.S. Dollar; |
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persons that own directly, indirectly or through attribution 10% or
more of the voting power or value of our shares; or |
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persons holding our ordinary shares in connection with a trade or business
conducted outside the United States. |
Moreover, this description
does not address the U.S. federal estate, gift or alternative minimum tax consequences, or any state, local or foreign tax consequences,
of the acquisition, ownership and disposition of our ordinary shares.
This description is based
on the U.S. Internal Revenue Code of 1986, as amended, (the “Code”), existing, proposed and temporary U.S. Treasury Regulations
and judicial and administrative interpretations thereof, in each case as in effect on the date hereof. All of the foregoing is subject
to change, which change could apply retroactively and could affect the tax consequences described below. There can be no assurance that
the U.S. Internal Revenue Service (“IRS”) will not take a different position concerning the tax consequences of the acquisition,
ownership and disposition of our ordinary shares or that the IRS’s position would not be sustained.
For purposes of this description,
a “U.S. Holder” is a beneficial owner of our ordinary shares that, for U.S. federal income tax purposes, is:
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a citizen or resident of the United States; |
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a corporation (or other entity treated as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the United States or any jurisdiction thereof; or |
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a trust or estate the income of which is subject to United States federal
income taxation regardless of its source. |
Holders should consult their
tax advisors with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary
shares.
Distributions
Subject to the discussion
below under “Passive Foreign Investment Company Considerations,” the gross amount of any distribution made to a U.S. Holder
with respect to our ordinary shares before reduction for any Israeli taxes withheld therefrom, other than certain pro rata distributions
of our ordinary shares to all our shareholders, generally will be includible in the U.S. Holder’s income as dividend income to
the extent the distribution is paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax
principles. Subject to the discussion below under “Passive Foreign Investment Company Considerations,” 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, dividends on our ordinary shares will not
be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under “Passive
Foreign Investment Company Considerations,” to the extent that the amount of any distribution by us exceeds our current and accumulated
earnings and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of tax basis
in our ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under U.S.
federal income tax principles and, therefore, U.S. Holders should expect that the entire amount of any distribution generally will be
reported as dividend income.
Dividends paid to U.S. Holders
with respect to our ordinary shares will be treated as foreign source income, which may be relevant in calculating a U.S. Holder’s
foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from
taxable income or credited against U.S. federal income tax liability. An election to deduct foreign taxes instead of claiming foreign
tax credits applies to all foreign taxes paid or accrued in the taxable year. 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,” or, in the case of certain U.S. Holders, “general category income.” A foreign tax
credit for foreign taxes imposed on distributions may be denied if certain minimum holding period requirements are not satisfied. The
rules relating to the determination of the foreign tax credit are complex, and U.S. Holders should consult their tax advisors to determine
whether and to what extent they will be entitled to this credit.
Sale, Exchange or Other Disposition of
Ordinary Shares
Subject to the discussion
below under “Passive Foreign Investment Company Considerations,” U.S. Holders generally will recognize gain or loss on the
sale, exchange or other disposition of our ordinary shares equal to the difference between the amount realized on the sale, exchange
or other disposition and the holder’s tax basis in our ordinary shares, and any gain or loss will be capital gain or loss. The
tax basis in an ordinary share generally will be equal to the cost of the ordinary share. For non-corporate U.S. Holders, capital gain
from the sale, exchange or other disposition of ordinary shares is generally eligible for a preferential rate of taxation in the case
of long-term capital gain. The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the
Code. Any 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.
Passive Foreign Investment Company Considerations
If we were to be classified
as a “passive foreign investment company” (“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 U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules,
either
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at least 75% of its gross income is “passive income”, or |
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at least 50% of the average quarterly value of its gross assets 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 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 directly receiving 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 generally will continue to be treated as a PFIC with respect to that
U.S. Holder in all succeeding years during which the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet
the tests described above.
However, our PFIC status
for each taxable year may be determined only after the end of such year and will depend on the composition of our income and assets,
our activities and the value of our assets (which may be determined in large part by reference to the market value of our ordinary shares,
which may be volatile) from time to time. If we are a PFIC then unless a U.S. Holder makes one of the elections described below, a special
tax regime will apply to both (i) any “excess distribution” by us to that U.S. Holder (generally, the U.S. Holder’s
ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by the holder in
the shorter of the three preceding years or its holding period for our ordinary shares) and (ii) 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 (i) the excess distribution or gain
had been realized ratably over the U.S. Holder’s holding period, (ii) 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 that year (other than income allocated to the current period
or any taxable period before we became a PFIC, which will be subject to tax at the U.S. Holder’s regular ordinary income rate for
the current year and will not be subject to the interest charge discussed below), and (iii) 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 a U.S. Holder 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.
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 paragraph 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.
In addition, all U.S. Holders
may be required to file tax returns (including on IRS Form 8621) containing such information as the U.S. Treasury may require. For example,
if a U.S. Holder owns ordinary shares during any year in which we are classified as a PFIC and the U.S. Holder recognizes gain on a disposition
of our ordinary shares or receives distributions with respect to our ordinary shares, the U.S. Holder generally will be required to file
an IRS Form 8621 with respect to the company, generally with the U.S. Holder’s federal income tax return for that year. The failure
to file this form when required could result in substantial penalties.
Based on the financial information
currently available to us and the nature of our business, we do not expect that we will be classified as a PFIC for the taxable year
ended December 31, 2022. However, this determination could be subject to change. If, contrary to our expectations, we were to be classified
as a PFIC, U.S. Holders of ordinary shares may be required to file form 8621 with respect to their ownership of our ordinary shares in
the year in which we were a PFIC. U.S. Holders of our ordinary shares should consult their tax advisors in this regard.
Backup Withholding and Information Reporting
Requirements
U.S. backup withholding and
information reporting requirements may apply to payments to holders of our ordinary shares. Information reporting generally will apply
to payments of dividends on, and to proceeds from the sale of, our ordinary shares made within the United States, or by a U.S. payor
or U.S. middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation). A payor may be required
to backup withhold from payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States,
or by a U.S. payor or U.S. middleman, to a holder, other than an exempt recipient, if the holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements. Any
amounts withheld under the backup withholding rules generally should 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.
Additional Medicare Tax
Certain U.S. Holders who
are individuals, estates or trusts may be required to pay an additional 3.8% Medicare tax on, among other things, dividends and capital
gains from the sale or other disposition of shares of common stock. For individuals, the additional Medicare tax applies to the lesser
of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000
if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the
taxpayer’s gross investment income reduced by the deductions that are allocable to such income. U.S. Holders will likely not be
able to credit foreign taxes against the 3.8% Medicare tax.
Foreign Asset Reporting
Certain U.S. Holders who
are individuals (and certain domestic 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 U.S. financial institutions). 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.
The above description
is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary
shares. Holders should consult their tax advisors concerning the tax consequences of their particular situations.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain
of the reporting requirements of Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the
Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F
and reports on Form 6-K. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants like us that file electronically with the SEC. You can also inspect the Annual Report on that website.
Our SEC filings are also generally available to the public via the Israel Securities Authority’s Magna website at www.magna.isa.gov.il,
and the TASE website at http://www.maya.tase.co.il.
A copy of each document (or
a translation thereof to the extent not in English) concerning our company that is referred to in this Annual Report is available for
public view (subject to confidential treatment of certain agreements pursuant to applicable law) at our principal executive offices.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures
About Market Risk
Interest Rate Risk
We are exposed to changes
in interest as our financial debt bears floating and fixed interest rates. In addition, our exposure is also related to cash balance
invested in interest-bearing deposits.
Foreign Currency Risk
Fluctuations in exchange
rates, especially the NIS against the U.S. dollar, may affect our results, as part of our assets is linked to NIS, as are part of our
liabilities. Changes in exchange rates may also affect the prices of products purchased by us and designated for marketing in Israel
in cases where these product prices are not linked to the U.S. dollar and during the period after these products are sold to our customers
in NIS. In addition, the fluctuation in the NIS exchange rate against the U.S. dollar may impact our results, as a portion of our manufacturing
cost is NIS denominated.
For the years ended December
31, 2022, 2021 and 2020, we have witnessed high volatility in the U.S. dollar exchange rate. This fact impacts our revenues from the
Distribution segment, where prices are denominated in or linked to the NIS upon delivery of product while our expenses for the purchase
of raw materials and imported goods in the Distribution segment are in U.S. dollars and part of our development and marketing expenses
are paid in NIS.
We attempt to mitigate our
currency exposure by matching assets denominated in NIS currency with liabilities denominated in NIS. In the Distribution segment, we
attempt to mitigate foreign currency exposure by matching Euro denominated expenses with Euro denominated revenues. Additionally, we
used, and from time to time, will continue to use, currency hedging transactions using financial derivatives and forward currency contracts.
We attempt to enter into forward currency contracts with critical terms that match those of the underlying exposure. As of December 31,
2022, we had open transactions in derivatives in the amount of approximately $12.2 million. We regularly monitor and review the need
for currency hedging transactions in accordance with trend analysis.
The following table presents
information about the changes in the exchange rates of the NIS against the U.S. dollar:
Period | |
Change in Average Exchange Rate of the NIS against the U.S. Dollar (%) | |
Year ended December 31, 2020 | |
| (7.0 | ) |
Year ended December 31, 2021 | |
| (3.3 | ) |
Year ended December 31, 2022 | |
| 13.2 | |
As of December 31, 2022,
we had excess liabilities over assets denominated in NIS in the amount of $1.2 million. When the U.S. dollar appreciates against the
NIS, we recognize financial expenses with respect to exchange rate differences. When the U.S. dollar depreciates against the NIS, we
recognize financial income.
As of December 31, 2022,
we had foreign currency exposures to currencies other than U.S. dollars (mainly in EUR) amounting to $7.7 million in excess liabilities
over assets. Most of this exposure is to the Euro.
A 10% increase (decrease)
in the value of the NIS against the U.S. dollar would have decreased (increased) our financial assets by $0.12 million, $0.06 million
and $0.4 million as of December 31, 2022, 2021 and 2020, respectively.
Item 12. Description of Securities Other Than
Equity Securities
Not applicable.
The accompanying notes are an integral part of the Consolidated Financial
Statements.
The accompanying notes are an integral part of
the Consolidated Financial Statements.
The accompanying notes are an integral part of
the Consolidated Financial Statements.
The accompanying notes are an integral part of
the Consolidated Financial Statements.
The accompanying notes are an integral part of
the Consolidated Financial Statements.
In February 2022, the Russian army invaded
Ukraine and began military operations in various areas, which resulted in civilian deaths, damage to critical infrastructures, displacement
of civilians and disruption of economic activity in Ukraine. As a result of the Russian invasion of Ukraine, various countries, including
the United States, Great Britain and EU countries, imposed significant economic sanctions on Russia (and in specific cases, also on Belarus).
The sanctions are presently aimed at certain parties, such as Russian financial institutions, gas and oil companies, public and private
entities originating from Russia, individuals connected to the Russian president, the Russian central bank, and more. As of December 31,
2022, the Company’s operations have not been materially impacted by Russia’s invasion of Ukraine, however, if additional sanctions
are imposed, the Company may not be able to continue to supply its products to its Russian distributor, and even it is able to continue
the supply of the products, there can be no assurance that its distributor will be able to pay the Company for such products given the
actions by the Russian government to seize all international foreign currency payments. The Company’s revenues, profitability and
financial condition may be affected if it is unable to continue to sell its products to the Russian market and/or is not able to collect
due proceeds from previous and/or future product sales. Additionally, the impact of higher energy prices and higher prices for certain
raw materials and goods and services resulting in higher inflation and disruptions to financial markets and disruptions to manufacturing
and supply and distribution chains for certain raw materials and goods and services across the globe may impact the Company’s business
in the future. The Company continues to assess and respond where appropriate to any direct or indirect impact that the Russian invasion
of Ukraine has on the availability or pricing of the raw materials for its products, manufacturing and supply and distribution chains
for its products and on the pricing and demand for its products.
As of December 31, 2022, 2021 and 2020,
the Company generated revenue mainly from the sale of products to strategic partners and distributors as well as from the licensing of
its technology and distribution rights.
In the majority of contracts, revenue
recognition occurs at a point in time when control of the Company’s product is transferred to the customer, generally on delivery
of the goods.
The Company determines the transaction
price separately for each contract with a customer taking into consideration variable prices, discounts, chargeback, rebates, etc. The
Company includes the estimated variable consideration in the transaction price only to the extent it is highly probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.
With regards to a certain contract with
its strategic partner the Company analyzed the following:
The Company determines the transaction
price and allocates the transaction price to the different performance obligation identified. For certain amounts of variable consideration,
the Company allocated to a certain performance obligation or to a distinct goods or services within it.
For each performance obligation identified,
the Company recognizes revenue when (or as) it satisfies the performance obligation. The performance obligations are satisfied over time,
as the customer both simultaneously receives and consumes the benefits provided by the Company, or receives assets with no alternative
use, for which the Company has an enforceable right to payment for performance completed to date. The method for measuring the progress
in performance obligations that are satisfied over time usually based upon the deliverables forming part of those performance obligations.
As of 2022, the Company also generates
revenue in the form of royalty payments, due from the grant of a license for the use of the Company’s knowledge and patents. Royalty
revenue is recognized when the underlying sales have occurred.
Following the acquisition of CYTOGAM,
WINRHO SDF, VARIZIG and HEPGAM B during November 2021, the Company, through its wholly-owned subsidiary Kamada Inc., sells these products
in the U.S. market to wholesalers/distributors that redistribute/sell these products to other parties such as hospitals and pharmacies.
Revenue recognition occurs at a point in time when control of the product is transferred to the wholesalers/distributors, generally on
delivery of the goods.
The Company’s gross sales are subject
to various deductions, which are primarily composed of rebates and discounts to group purchasing organizations, government agencies, wholesalers,
health insurance companies and managed healthcare organizations. These deductions represent estimates of the related obligations, requiring
the use of judgment when estimating the effect of these sales deductions on gross sales for a reporting period. These adjustments are
deducted from gross sales to arrive at net sales. The Company monitors the obligation for these deductions on at least a quarterly basis
and records adjustments when rebate trends, rebate programs and contract terms, legislative changes, or other significant events indicate
that a change in the obligation is appropriate.
The following summarizes the nature of
the most significant adjustments to revenues generated from the sales of these products in the U.S. market:
The Company has arrangements with certain
indirect customers whereby the customer is able to buy products from wholesalers
at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s
contractual discounted price. Provisions for estimating chargebacks are calculated based on historical experience and product demand.
The provision for chargebacks are recorded as a deduction from trade receivables on the consolidated statements of financial position.
Consists of wholesaler/distributor
fees. The wholesalers/distributors charge the Company fees for the redistribution of the products to hospitals and pharmacies. These fees
are outlined in each wholesaler/distributor contract. The fees are invoiced to the Company monthly or quarterly by the wholesaler/distributor.
The provisions for fees for service are recorded in the same period that the corresponding revenues are recognized.
Deferred revenues include unearned amounts
received from customers not yet recognized as revenues.
Government grants are recognized when
there is reasonable assurance that the grants will be received, and the Company will comply with the grant attached conditions.
Government grants received from the Israel
Innovation Authority (formerly: the Office of the Chief Scientist in Israel, “the IIA”) are recognized upon receipt as a liability
if future economic benefits are expected from the research project that will result in royalty-bearing sales.
A liability for the loan is first measured
at fair value using a discount rate that reflects a market rate of interest. 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.
Taxes on income in profit or loss comprise
of current taxes, deferred taxes and taxes in respect of prior years, which are recognized in profit or loss, except to the extent that
the tax arises from items which are recognized directly in other comprehensive income or equity.
The current tax liability is measured
using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period as well as adjustments
required in connection with the tax liability in respect of previous years.
Deferred taxes are computed in respect
of carryforward losses and temporary differences between the carrying amounts in the financial statements and the amounts attributed for
tax purposes.
Deferred taxes are measured at the tax
rates that are expected to apply when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively
enacted by the end of the reporting period.
Deferred tax assets are reviewed at
the end of each reporting period and reduced to the extent that it is not probable that they will be utilized. Deductible carryforward
losses and temporary differences for which deferred tax assets had not been recognized are reviewed at the end of each reporting period
and a respective deferred tax asset is recognized to the extent that their utilization is probable.
Deferred taxes are offset in the statement
of financial position if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred
taxes relate to the same taxpayer and the same taxation authority.
A provision for uncertain tax positions,
including additional tax and interest expenses, is recognized when it is more probable than not that the Company will have to use its
economic resources to pay the obligation.
As of December 31, 2022 and 2021, the
application of IFRIC 23 did not have a material effect on the financial statements.
The Company accounts for a contract as
a lease according to IFRS 16, “Leases” (“Lease Standard”), when the contract terms convey the right to control the
use of an identified asset for a period of time in exchange for consideration.
On the inception date of the lease, the
Company determines whether the arrangement is a lease or contains a lease, while examining if it conveys the right to control the use
of an identified asset for a period of time in exchange for consideration. In its assessment of whether an arrangement conveys the right
to control the use of an identified asset, the Company assesses whether it has the following two rights throughout the lease term:
For leases in which the Company is the
lessee, the Company recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose
term is up to 12 months and leases for which the underlying asset is of low value. 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 the Lease 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.
On the commencement date, the lease liability
includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined, or otherwise
using the Company’s incremental borrowing rate. After the commencement date, the Company measures the lease liability using the
effective interest rate method.
On the commencement date, the right-of-use
asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and
initial direct costs incurred less any lease incentives received. The right-of-use asset is measured applying the cost model and depreciated
over the shorter of its useful life or the lease term. The Company tests for impairment of the right-of-use asset whenever there are indications
of impairment pursuant to the provisions of IAS 36.
After lease commencement, a right-of-use
asset is measured on a cost basis less accumulated depreciation and accumulated impairment losses and is adjusted for re-measurements
of the lease liability. Depreciation is calculated on a straight-line basis over the useful life or contractual lease period, whichever
earlier, as follows:
A non-cancellable 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 re-measures 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 right-of-use asset until it is reduced to zero, and any further reductions are recognized
in profit or loss.
In a transaction in which the Company
is a lessee of an underlying asset (head lease) and the asset is subleased to a third party, the Company assesses whether the risks and
rewards incidental to ownership of the right-of-use asset have been transferred to the sub-lessee, among others, by evaluating the sublease
term with reference to the useful life of the right-of-use asset arising from the head lease.
When substantially all the risks and rewards
incidental to ownership of the right-of-use asset have been transferred to the sub-lessee, the Company accounts for the sublease as a
finance lease, otherwise it is accounted for as an operating lease. If the sublease is classified as a finance lease, the leased asset
is derecognized on the commencement date and a new asset, “finance lease receivable” is recognized at an amount equivalent
to the present value of the lease payments, discounted at the interest rate implicit in the lease. Any difference between the carrying
amount of the leased asset before the derecognition and the carrying amount of the finance lease receivable is recognized in profit or
loss.
If a lease modification does not reduce
the scope of the lease and does not result in a separate lease, the Company re-measures the lease liability based on the modified lease
terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the
right-of-use 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 right-of-use
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 right-of-use asset.
For additional information regarding right-of-use
assets and lease liabilities and refer to Note 16.
Property, plant and equipment are measured
at cost, including directly attributable costs, less accumulated depreciation and any related investment grants and excluding day-to-day
servicing expenses. Cost includes spare parts and auxiliary equipment that can be used only in connection with the plant and equipment.
The Company’s assets include computer
systems comprising hardware and software. Software forming an integral part of the hardware to the extent that the hardware cannot function
without the software installed on it is classified as property, plant and equipment. In contrast, software that adds functionality to
the hardware is classified as an intangible asset.
The cost of assets includes the cost of
materials, direct labor costs, as well as any costs directly attributable to bringing the asset to the location and condition necessary
for it to operate in the manner intended by management.
Depreciation is calculated on a straight-line
basis over the useful life of the assets at annual rates as follows:
The useful life, depreciation method and
residual value of an asset are reviewed at the year-end and any changes are accounted for prospectively as a change in accounting estimate.
Depreciation of an asset ceases at the
earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.
Separately acquired intangible assets
are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination
are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized
development costs, are recognized in profit or loss when incurred.
Intangible assets with a finite useful
life are amortized on a straight-line basis over its useful life and reviewed for impairment whenever there is an indication that the
asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year
end.
Intangible assets with indefinite useful
lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible asset
may be impaired. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues
to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment
from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the asset is tested for impairment.
Commencing from that date, the asset is amortized systematically over its useful life.
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 is the higher of
fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax
discount rate that reflects the risks specific to the asset. 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.
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, shall not be increased above the lower of 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 its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.
The Company reviews goodwill for impairment
once a year, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment.
Goodwill is tested for impairment by assessing the recoverable amount
of the cash-generating unit (or group of cash-generating units) to which the goodwill has been allocated. An impairment loss is recognized
if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is less
than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill.
Impairment losses recognized for goodwill cannot be reversed in subsequent periods.
Financial assets are classified at 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 transaction costs, in the case that the financial asset is not recognized at fair value through profit or
loss.
After initial recognition, the accounting
treatment of financial assets is based on their classification as follows:
Debt financial instruments are subsequently
measured at fair value through profit or loss (FVPL), amortized cost, or fair value through other comprehensive income (FVOCI). The classification
is based on two criteria: the Company’s business model for managing the assets; and whether the instruments’ contractual cash
flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’).
The classification and measurement of
the Company’s debt financial assets are as follows:
Financial assets at FVPL comprise derivative
instruments unless they are designated as effective hedging instruments.
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 distinguishes between two types of loss allowances:
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, whereas the impairment loss on debt instruments measured at fair value through other comprehensive income is recognized
in profit or loss with a corresponding loss allowance that is recorded in other comprehensive income and not as a reduction of the carrying
amount of the financial asset in the statement of financial position.
The Company applies the low credit risk
simplification in the standard, according to which the Company assumes the debt instrument’s credit risk has not increased significantly
since initial recognition if on the reporting date it is determined that the instrument has a low credit risk, for example when the instrument
has an external rating of “investment grade”.
In addition, the Company considers that
when contractual payments in respect of a debt instrument are more than 30 days past due, there has been a significant increase in credit
risk, unless there is reasonable and supportable information that demonstrates that the credit risk has not increased significantly.
The Company considers a financial asset
in default when contractual payments are more than 90 days past due. However, in certain cases, the Company considers a financial asset
to be in default when external or internal information indicates that the Company is unlikely to receive the outstanding contractual amounts
in full.
The Company considers a financial asset
that is not measured at fair value through profit or loss as credit-impaired when one or more events that have a detrimental impact on
the estimated future cash flows of that financial asset have occurred. The Company takes into consideration the following events as evidence
that a financial asset is credit impaired:
ECLs are based on the difference between
the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. For other debt
financial assets (i.e., debt securities at FVOCI), the ECL is based on the 12-month ECL. The 12-month ECL is the portion of lifetime ECLs
that results from default events on a financial instrument that are possible within 12 months after the reporting date. As of December
31, 2022 and 2021, there is no ECL allowance.
Financial liabilities within the scope
of IFRS 9 are initially measured at fair value less transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, the accounting
treatment of financial liabilities is based on their classification as follows:
Loans, assumed liabilities, including
leases, are measured based on their terms at amortized cost using the effective interest method taking into account directly attributable
transaction costs.
Derivatives are classified as fair value
through profit and loss unless they are designated as effective hedging instruments. Transaction costs are recognized in profit or loss.
After initial recognition, changes in
fair value are recognized either in profit or loss for non-hedge accounting derivatives or in other comprehensive income for hedge accounting
derivatives.
Contingent consideration is recognized
at fair value on the acquisition date and classified as a financial asset or liability in accordance with IFRS 9. Subsequent changes in
the fair value of the contingent consideration are recognized in profit or loss as finance income or finance expense.
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.
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.
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:
Financial assets and financial liabilities
are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the
recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The right of set-off must be legally
enforceable not only during the ordinary course of business of the parties to the contract but also in the event of bankruptcy or insolvency
of one of the parties. In order for the right of set-off to be currently available, it must not be contingent on a future event, there
may not be periods during which the right is not available, or there may not be any events that will cause the right to expire.
Financial assets are 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, by other financial assets, by goods or services or is legally released
from the liability.
The Company enters into contracts for
derivative financial instruments such as forward currency contracts and cylinder strategy in respect of foreign currency to hedge risks
associated with foreign exchange rates fluctuations and cash flows risk. Such derivative financial instruments are carried as financial
assets when the fair value is positive and as financial liabilities when the fair value is negative.
At the inception of a hedge relationship,
the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The hedge effectiveness is assessed at the end of each reporting period.
Any gains or losses arising from changes
in the fair value of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss.
The effective portion of the gain or loss
on the hedging instrument is recognized as other comprehensive income (loss), while any ineffective portion is recognized immediately
in profit or loss.
Amounts recognized as other comprehensive
income (loss) are reclassified to profit or loss when the hedged transaction affects profit or loss, such as when the hedged income or
expense is recognized or when a forecast payment occurs.
If the forecast transaction or firm commitment
is no longer expected to occur, amounts previously recognized in other comprehensive income are reclassified to profit or loss. If the
hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously recognized
in other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.
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 can be made of it. The expense is recognized in the statement
of profit or loss net of any reimbursement.
Short-term employee benefits include
salaries, paid annual leave, paid sick leave, recreation, and social security contributions 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.
The post-employment benefits plans 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 pursuant to Section 14 to the Israeli Severance Pay Law, 1963 (the “Israeli Severance Pay Law”) under which the Company
pays fixed contributions to certain employees under Section 14 and will have no legal or constructive obligation to pay further contributions.
Contributions to the defined contribution
plan in respect of severance or retirement pay are recognized as an expense when contributed concurrently with performance of the employee’s
services.
In addition, with respect to certain
other employees who were hired by the company prior to the establishment of the defined contribution plans pursuant to Section 14 to the
Israeli Severance Pay Law, the Company operates a defined benefit plan in respect of severance pay pursuant to the Israeli Severance Pay
Law. According to the Law, employees are entitled to severance pay upon dismissal or retirement. The liability for termination of employment
is measured using the projected unit credit method. The actuarial assumptions include expected salary increases and rates of employee’s
turnover based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount
rate determined by reference to market yields at the reporting date on high quality corporate bonds that are linked to the Consumer Price
Index with a term that is consistent with the estimated term of the severance pay obligation.
In respect of its defined benefit plan
obligation, the Company makes current deposits in pension funds and insurance companies (“plan assets”). Plan assets comprise
assets held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the Company’s
own creditors and cannot be returned directly to the Company. The liability for employee benefits shown in the statement of financial
position reflects the present value of the defined benefit obligation less the fair value of the plan assets. Re-measurements of the net
liability are recognized in other comprehensive income in the period in which they occur.
U.S. employees defined contribution
plan:
As of August 2022, the U.S. Subsidiary
has a 401(k) defined contribution plan covering certain employees in the U.S. All eligible employees may elect to contribute up to 100%,
but generally not greater than $20.5 thousands per year (for certain employees over 50 years of age the maximum contribution is $27 thousands per
year), of their annual compensation to the plan through salary deferrals, subject to Internal Revenue Service limits. The U.S. Subsidiary
matches 3% of employee contributions up to the plan with no limitation.
The Company’s employees and members
of its Board of Directors are entitled to remuneration in the form of equity-settled share-based payment transactions.
The cost of equity-settled transactions
(options and restricted share) with employees and members of the Board of Directors is measured at the fair value of the equity instruments
granted at grant date. The fair value of options is determined using a standard option pricing model. The fair value of restricted share
is determined using the share price at the grant date.
The cost of equity-settled transactions
is recognized in profit or loss together with a corresponding increase in shareholder’s equity during the period which the performance
and/or service conditions are to be satisfied ending on the date on which the relevant employees or directors become entitled to the award
(“the vesting period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period
until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number
of equity instruments that will ultimately vest.
No expense is recognized for awards that
do not ultimately vest.
In the event that the Company modifies
the conditions on which equity-instruments were granted, an additional expense is calculated and recognized over the remaining vesting
period for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the
employee or director at the modification date.
Earnings (loss) per share are calculated
by dividing the net income (loss) attributable to Company shareholders by the weighted number of ordinary shares outstanding during the
period. Ordinary shares underlying shares options or restricted shares are only included in the calculation of diluted income (loss) per
share when their impact dilutes the income (loss) per share. Furthermore, potential ordinary shares converted during the period are included
under diluted income (loss) per share only until the conversion date, and from that date on are included under basic income (loss) per
share.
Certain amounts in prior years’
financial statements have been reclassified to conform to the current year’s presentation. The reclassification had no effect on
previously reported net loss or shareholders’ equity.
In the process of applying the significant
accounting policies, the Company has made the following judgments which have the most significant effect on the amounts recognized in
the financial statements:
The fair value of share-based payment
transactions is determined upon initial recognition by an acceptable option pricing model. The inputs to the model include share price,
exercise price and assumptions regarding expected volatility, expected life of share option and expected dividend yield.
When the Company is unable to readily
determine the discount rate implicit in a lease in order to measure the lease liability, the Company uses an incremental borrowing rate.
That rate represents the rate of interest that the Company would have to pay to borrow over a similar term and with similar security,
the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment. When there are no
financing transactions that can serve as a basis, the Company determines the incremental borrowing rate based on its credit risk, the
lease term and other economic variables deriving from the lease contract’s conditions and restrictions. In certain situations, the
Company is assisted by an external valuation expert in determining the incremental borrowing rate.
In order to identify distinct performance
obligations in a contract with a customer, the Company uses judgment when it examines whether it is providing a significant service of
integrating the goods or services in the contract into one integrated outcome.
In order to determine the transaction
price, the Company estimates the amount of the variable consideration and recognizes revenue in an amount where there is a high probability
that its inclusion will not result in a significant revenue reversal in the future after the uncertainty has been resolved.
Following the acquisition of a portfolio of four FDA-approved plasma derived hyperimmune commercial products (as described under Note
5b), the Company sells its products mainly in the U.S market through its subsidiary Kamada Inc. to wholesalers/distributors. The Company’s
gross sales are subject to various deductions, which are primarily composed of rebates and discounts to group purchasing organization,
government agencies, wholesalers, health insurance companies and managed healthcare organizations. These deductions represent estimates
of the related obligations, requiring the use of judgment when estimating the effect of these sales deductions on gross sales for a reporting
period.
When assessing whether a contract includes
a significant financing component, the Company examines, inter alia, the expected length of time between the date it transfers the promised
goods or services to the customer and the date the customer pays for these goods or services, as well as the difference and the reasons
for the difference, if any, between the promised consideration and the cash selling price of the promised goods or services.
Costs incurred in fulfilling contracts
or anticipated contracts with customers are recognized as an asset when the costs generate or enhance the Company’s resources that
will be used in satisfying or continuing to satisfy the performance obligations in the future and are expected to be recovered. Costs
to fulfill a contract comprise direct identifiable costs and indirect costs that can be directly attributed to a contract based on a reasonable
allocation method. Costs to fulfill a contract are amortized on a systematic basis that is consistent with the provision of the services
under the specific contract.
When determining that control over goods
or services is transferred to the customer over time and that therefore revenue should be recognized over time, the Company relies on
legal opinions, provisions of the contract and relevant provisions of the law indicating that the Company has a right to enforce fulfillment
of the contract.
The Company assesses the criteria for
recognition of revenue related to up-front payments and milestones as outlined by IFRS 15. Judgment is necessary to determine over which
period the Company will satisfy its performance obligations related to up- front payments and milestones and whether financing component
exists. For additional information, refer to Note 18a.
Work in process and finished good including
direct and indirect costs. The allocation of indirect costs is accounted for on a quarterly basis by dividing the total quarterly indirect
manufacturing cost to the batches manufactured during that quarter based on predetermined allocation factors. The criteria for allocation
of indirect manufacturing expense to manufactured batches which eventually effect our inventory value is subject to Company judgment.
In evaluating whether it is reasonably
certain that the Company will exercise an option to extend a lease or not exercise an option to terminate a lease, the Company considers
all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend or not exercise
the option to terminate such as: significant amounts invested in leasehold improvements, the significance of the underlying asset to the
Company’s operation and whether it is a specialized asset, the Company’s past experience with similar leases, etc.
After the commencement date, the Company
reassesses the term of the lease upon the occurrence of a significant event or a significant change in circumstances that affects whether
the Company is reasonably certain to exercise an option or not exercise an option previously included in the determination of the lease
term, such as significant leasehold improvements that had not been anticipated on the lease commencement date, sublease of the underlying
asset for a period that exceeds the end of the previously determined lease period, etc.
The Company recognizes inventory produced
for commercial sale, including costs incurred prior to regulatory approval but subsequent to the filing of a regulatory request when the
Company has determined that the inventory has probable future economic benefit. Inventory is not recognized prior to completion of a phase
III clinical trial. For products with an approved indication, raw materials and purchased drug product associated with development programs
are included in inventory and charged to research and development expense when it’s designated. For products without an approved
indication, drug product is charged to research and development expense.
Deferred tax assets are recognized for
unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that
can be recognized, based upon the timing and level of future taxable profits, its source and the tax planning strategy. For information
regarding deferred taxes recognition, please refer to Note 22.
Inventories are measured at the lower
of cost and net realizable value. The cost of inventories comprises costs of purchase of raw and other materials and costs incurred in
bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary
course of business, net of selling expenses. The estimation of realizable value can affect the inventory value at the period end.
In addition, and as part of the quarterly
inventory valuation process, the Company assesses the potential effect on inventory in cases of deviations from quality standards in the
manufacturing process to identify potential required inventory write offs. Such assessment is subject to Company’s judgment.
Impairment testing for assets that cannot
be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the “CGU”).
For the purpose of goodwill impairment
testing, the Company, aggregated CGUs so that the level at which impairment testing is performed reflects the lowest level at which goodwill
is monitored for internal reporting purposes. When goodwill is not monitored for internal reporting purposes, it is allocated to operating
segments and not to a CGU (or group of CGUs) lower in level than an operating segment. Goodwill acquired in a business combination is
allocated to groups of CGUS, including CGUs existing prior to the business combination, that are expected to benefit from the synergies
of the combination. Also refer to Note 11.
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, revenues and expenses. Changes in accounting estimates are reported in the period of the change in estimate.
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 are discussed below.
The liability in respect of post-employment
defined benefit plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about, among other
things, discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of
these plans, such estimates are subject to significant uncertainty.
In estimating the likelihood of outcome
of legal claims filed against the Company, the Company relies on the opinion of its legal counsel. These estimates are based on the legal
counsel’s best professional judgment, taking into account the stage of proceedings and historical 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.
The carrying amounts of the Company’s
non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
The Company reviews goodwill for impairment
at least once a year. This requires management to make an estimate of the projected future cash flows from the continuing use of the cash-generating
unit (or a group of cash-generating units) to which the goodwill is allocated and to choose a suitable discount rate for those cash flows.
Intangible assets and property, plant
and equipment are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business
combination are measured at fair value at the acquisition date. In determining the useful life and the depreciation method, the Company
assesses the period over which an asset is expected to be available for use by the Company and the pattern in which the asset’s
future economic benefits are expected to be consumed by the Company.
The Company allocates the purchase price
based on the identifiable assets acquired and liabilities assumed at the acquisition date. The assets and the liabilities assumed are
measured at fair value on the acquisition day. Significant estimates are required to measure the fair value of the assets and liabilities
recognized as a result of the business combination including, future cash flows, discount rate, volatility rate.
The fair value of unquoted financial
assets or liability in Level 3 of the fair value hierarchy is determined using valuation techniques, generally using future cash flows
discounted at current rates applicable for items with similar terms and risk characteristics. Changes in estimated future cash flows and
estimated discount rates, after consideration of risks such as liquidity risk, credit risk and volatility, are liable to affect the fair
value of these assets of liability.
Contingent consideration is measured
at fair value. The fair value is determined using valuation techniques and method, using future cash flows discounted. This requires management
to make an estimate of the projected future cash flows. For information regarding contingent consideration, please refer to Note 5 and
Note 16.
The Amendment, together with the subsequent
amendment to IAS 1 (see hereunder) replaces certain requirements for classifying liabilities as current or non-current. According to the
Amendment, a liability will be classified as non-current when the entity has the right to defer settlement for at least 12 months after
the reporting period, and it “has substance” and is in existence at the end of the reporting period. According to the subsequent
amendment, as published in October 2022, covenants with which the entity must comply after the reporting date do not affect classification
of the liability as current or non-current. Additionally, the subsequent amendment adds disclosure requirements for liabilities subject
to covenants within 12 months after the reporting date, such as disclosure regarding the nature of the covenants, the date they need to
be complied with and facts and circumstances that indicate the entity may have difficulty complying with the covenants. Furthermore, the
Amendment clarifies that the conversion option of a liability will affect its classification as current or non-current, other than when
the conversion option is recognized as equity.
The Amendment and subsequent amendment
are effective for reporting periods beginning on or after January 1, 2024 with earlier application being permitted. The Amendment and
subsequent amendment are applicable retrospectively, including an amendment to comparative data.
The Company has not yet commenced examining
the effects of applying the Amendment on the financial statements.
According to the amendment, companies
must provide disclosure of their material accounting policies rather than their significant accounting policies. Pursuant to the amendment,
accounting policy information is material if, when considered with other information disclosed in the financial statements, it can be
reasonably be expected to influence decisions that the users of the financial statements make on the basis of those financial statements.
The amendment to IAS 1 also clarifies
that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to
understand other material information in the financial statements. The amendment also clarifies that immaterial accounting policy information
need not be disclosed.
The amendment is applicable for reporting
periods beginning on or after January 1, 2023.
The Company is examining the effects of
the amendment on the financial statements. The Company did not adopt the amendment for the financial statements for the year ended December
31, 2022.
The Amendment narrows the scope of the
exemption from recognizing deferred taxes as a result of temporary differences created at the initial recognition of assets and/or liabilities,
so that it does not apply to transactions that give rise to equal and offsetting temporary differences.
As a result, companies will need to recognize
a deferred tax asset or a deferred tax liability for these temporary differences at the initial recognition of transactions that give
rise to equal and offsetting temporary differences, such as lease transactions and provisions for decommissioning and restoration.
The Amendment is effective for annual
periods beginning on or after January 1, 2023, by amending the opening balance of the retained earnings or adjusting a different component
of equity in the period the Amendment was first adopted.
The Company does not expect the Amendment
to have a material impact on its financial statements.
On March 1, 2021, the Company entered
into an Asset Purchase Agreement with the privately held B&PR of Beaumont, TX, USA, for the acquisition of the FDA registered plasma
collection facility as well as certain related rights and assets. The plasma collection facility primarily specializes in the collection
of hyper-immune plasma used for the Anti-D immunoglobulin, which is manufactured by the Company and distributed in international markets.
The acquisition, for a total consideration of $1,614 thousand, was consummated through the Company’s wholly owned subsidiary Kamada
Plasma LLC, which operates the Company’s plasma collection activity in the U.S.
The Company accounted for the acquisition
as a business combination.
In connection with the acquisition, the
Company incurred cost of $140 thousand which included legal and other consulting fees. These costs were recorded in general and administrative
expenses in the statement of profit and loss during 2020 and the first quarter of 2021.
The fair value of the identifiable assets
and liabilities on the acquisition date:
Kamada Assets Ltd., a subsidiary of the
Company, capitalized leasing rights from the Israel Lands Administration for an area of 16,880 m² in Beit Kama, Israel, on which
the Company’s manufacturing plant and other buildings are located. As part of a new outline which were approved during 2021, the
plant area was adjusted to 14,880 m². The amount attributed to capitalized rights is presented under property, plant and equipment
and is depreciated over the leasing period, which includes the option period. During 2010, Kamada Assets signed an agreement with the
Israel Lands Administration to consolidate its leasing rights and extend the lease period to 2058; the lease also includes an extension
option allowing the parties to extend the lease for an additional 49 years following the conclusion of the initial term.
The Company performed an assessment
for goodwill impairment for its Proprietary Products segment, which is the level at which goodwill is monitored for internal management
purposes and concluded that the fair value of the Proprietary Products segment exceeds the carrying amount by approximately 20%. The carrying
amount of goodwill assigned to this segment is in the amount of $30,313 thousand.
When evaluating the fair value of
the Proprietary Products segment, the Company used a discounted cash flow model which utilized Level 3 measures that represent unobservable
inputs. Key assumptions used to determine the estimated fair value include: (a) internal cash flows forecasts for 5 years following the
assessment date, including expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated
terminal value using a terminal year long-term future growth rate of -5.0% determined based on the long-term expected prospects of the
reporting unit; and (c) a discount rate (post-tax) of 12.1 % which reflects the weighted-average cost of capital adjusted for the relevant
risk associated with the Proprietary Products segment’s operations.
Actual results may differ from those
assumed in the Company’s valuation method. It is reasonably possible that the Company’s assumptions described above could
change in future periods. If any of these were to vary materially from the Company’s plans, it may record impairment of goodwill
allocated to this reporting unit in the future. A hypothetical decrease in the growth rate of 1% or an increase of 1% to the discount
rate would have reduced the fair value of the Proprietary Products segment reporting unit by approximately $4,000 thousand and $19,000
thousands, respectively.
The Company has engaged in lease agreements
for office and storage spaces for a total of ten years, such term includes a three-year extension through November 2026.
The Company
leases vehicles for the use of certain of its employees. The lease term is mainly for three-year periods from several leasing entities.
The Company leases office equipment
(i.e., printing and photocopying machines), each for a five year period.
The Company has leases that include extension
options. These options provide flexibility in managing the leased assets and align with the Company’s business needs.
The Company exercises significant judgement
in deciding whether it is reasonably certain that the extension options will be exercised.
Office and storage spaces leases have
extension options for additional three years. The Company has reasonable certainty that the extension option will be exercised in order
to avoid a significant adverse impact to its operating activities.
The financial assets liabilities in the balance sheet are classified
by groups of financial instruments pursuant to IFRS 9:
The Company’s activities expose
it to various financial risks, such as market risk (foreign currency risk, interest rate risk and price risk), credit risk and liquidity
risk. The Company’s investment policy focuses on activities that will preserve the Company’s capital. The Company utilizes
derivatives to hedge certain exposures to risk.
Risk management is the responsibility
of the Company’s management and specifically that of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), in accordance with the policy approved by the Board of Directors. The Board of Directors provides principles for the overall risk
management.
The Company operates in an international
environment and is exposed to foreign exchange risk resulting from the exposure to different currencies, mainly the NIS and EUR. Foreign
exchange risks arise from recognized assets and liabilities denominated in a foreign currency other than the functional currency, such
as trade and other accounts receivables, trade and other accounts payables, loans and capital leases.
As of December 31, 2022 and 2021, the
Company held financial derivatives intended to hedge changes in the exchange rate of the USD vs. the NIS and the EUR (see also Note 16f.
below).
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term bank deposits, trade
receivables and foreign currency derivative contracts.
The Company holds cash, cash equivalents,
short term deposits and other financial instruments at major financial institutions in Israel and the United States. In accordance with
Company policy, evaluations of the relative strength of credit of the various financial institutions are made on an ongoing basis.
Short-term investments include short-term
deposits with low risk for a period less than one year.
The Company regularly monitors the credit
extended to its customers and their general financial condition, and, when necessary, requires collateral as security for the debt such
as letters of creditor and down payments. In addition, the Company partially insures its overseas sales with foreign trade risk insurance.
Refer to Note 7 for additional information.
The Company keeps constant track of customer
debt, and, to the extent required, accounts for an allowance for doubtful accounts that adequately reflects, in the Company’s assessment,
the loss embodied in the debts the collection of which is in doubt.
The Company’s maximum exposure to
credit risk for the components of the statement of financial position as of December 31, 2022 and 2021 is the carrying amount of trade
receivables.
The Company is exposed to foreign currency
exchange movements, primarily in USD vs. NIS and EUR. Consequently, it enters into various foreign currency exchange contracts with major
financial institutions (see also Note 16f. below).
Interest rate risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s
exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term liabilities with floating
interest.
The table below summarizes the maturity
profile of the Company’s financial liabilities based on contractual undiscounted payments:
The following table demonstrates the
carrying amount and fair value of the financial assets and liabilities presented in the financial statements not at fair value:
The fair value of the bank loans, leases
and the assumed liabilities was based on standard pricing valuation model such as a discounted cash-flow model which considers the present
value of future cash flows discounted by an interest rate that reflects market conditions (Level 3).
The carrying amount of cash and cash
equivalents, short term bank deposits, trade and other receivables, trade and other payables approximates their fair value, due to the
short-term maturities of the financial instruments.
During 2022 and 2021, there was no
transfer due to the fair value measurement of any financial instrument from Level 1 to Level 2, and furthermore, there were no transfers
to or from Level 3 due to the fair value measurement of any financial instrument.
The selected changes in the relevant
risk variables were determined based on management’s estimate as to reasonable possible changes in these risk variables.
The Company has performed sensitivity
tests of principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity
tests present the profit or loss in respect of each financial instrument for the relevant risk variable chosen for that instrument as
of each reporting date. The test of risk factors was determined based on the materiality of the exposure of the operating results or financial
condition of each risk with reference to the functional currency and assuming that all the other variables are constant.
The Company has foreign currency forward
contracts designed to protect it from exposure to fluctuations in exchange rates, mainly of NIS and EUR, in respect of its trade receivables,
trade payables. Foreign currency forward contracts are not designated as cash flow hedges, fair value or net investment in a foreign operation.
These derivatives are not considered as hedge accounting. As of December 31, 2022, the fair value of the derivative instruments not designated
as hedging was financial liability of $4 thousand. The open transactions for those derivatives were in an amount of $15,379 thousands.
As of December 31, 2022, the Company
held NIS/USD hedging contracts (cylinder contracts) designated as hedges of expected future salaries expenses and for expected future
purchases from Israeli suppliers.
The main terms of these positions were
set to match the terms of the hedged items. As of December 31, 2022, the fair value of the derivative instruments designated as hedge
accounting was an asset of $88 thousand. The open transactions for those derivatives were in an amount of $412 thousands.
Cash flow hedges of the expected salaries
and suppliers’ expenses as of December 31, 2022 were estimated as effective and accordingly a net unrecognized expense was recorded
in other comprehensive income in the amount of $141 thousand, net. The ineffective portion were allocated to finance expense.
Employee benefits consist of short-term
benefits and post-employment benefits.
According to the labor laws and Israeli
Severance Pay Law, the Company is required to pay compensation to an employee upon dismissal or retirement or to make current contributions
in defined contribution plans pursuant to Section 14 of the Israeli Severance Pay Law, as specified below. The Company’s liability
is accounted for as a post-employment benefit only for employees not under Section 14. The computation of the Company’s employee
benefit liability is made in accordance with a valid employment contract, or a collective bargaining agreement based on the employee’s
salary and employment terms which establish the entitlement to receive the compensation.
The post-employment employee benefits
are normally financed by contributions classified as defined benefit plans, as detailed below:
The Company’s agreements with
part of its employees are in accordance with Section 14 of the Israeli Severance Pay Law. Contributions made by the Company in accordance
with Section 14 release the Company from any future severance liabilities in respect of those employees. The expenses for the defined
benefit deposit in 2022, 2021 and 2020 were $873 thousands, $1,023 thousands and $1,299 thousands, respectively.
U.S. employees defined contribution
plan:
As of August 2022, the U.S. Subsidiary
has a 401(k) defined contribution plan covering certain employees in the U.S. During the year ended December 31, 2022 the U.S. Subsidiary
recorded expenses for matching contributions in amounts of $11 thousands.
The Company accounts for the payment
of compensation as a defined benefit plan for which an employee benefit liability is recognized and for which the Company deposits amounts
in a long-term employee benefit fund and in qualifying insurance policies.
Plan assets comprise assets held by
long-term employee benefit funds and qualifying insurance policies.
The sensitivity analyses below have
been determined based on reasonably possible changes of the principal assumptions underlying the defined benefit plan as mentioned above,
occurring at the end of the reporting period.
In the event that the discount rate
would be one percent higher or lower, and all other assumptions were held constant, the defined benefit obligation would decrease by
$110 thousands or increase by $165 thousands, respectively.
In the event that the expected salary
growth would increase or decrease by one percent, and all other assumptions were held constant, the defined benefit obligation would
increase by $158 thousands or decrease by $105 thousands, respectively.
The collaboration agreement consists of three main agreements (1) an
Exclusive Manufacturing, Supply and Distribution agreement for GLASSIA in the United States, Canada, Australia and New Zealand (the “Territory”
and the “Distribution Agreement”, respectively); (2) Technology License Agreement for the use of the Company’s knowhow
and patents for the production, continued development and sale of GLASSIA by Takeda (the “License Agreement”) in the Territory;
and (3) A Paste Supply Agreement for the supply by Takeda of plasma derived fraction IV-1 to be used by the Company for the production
of GLASSIA (the “Raw Materials Supply Agreement”).
Pursuant to the agreements, the Company was entitled to certain upfront
and milestone payments at a total amount of $45 million, and for a minimum commitment of Takeda to acquire GLASSIA produced by the Company
over the first five years of the term of the Distribution Agreement. In addition, upon initiation of sales of GLASSIA manufactured by
Takeda, the Company would be entitled to royalty payments at a rate of 12% on net sales of Glassia through August 2025, and at a rate
of 6% thereafter until 2040, with a minimum of $5 million annually (the “Royalty Payments”).
Through December 31, 2021, the Company
accounted for as income all of the $45 million associated with the upfront and milestone payments from Takeda pursuant to the Distribution
and License Agreements as amended.
On March 31, 2021, the Company entered into an amendment to the Technology
License Agreement with Takeda with respect to GLASSIA. Pursuant to the amendment the Company undertook to transfer to Takeda the U.S.
Biologics License Application (BLA) of the product upon completion of the transition of GLASSIA manufacturing to Takeda, in consideration
for a $2 million payment from Takeda. Such amount was paid by Takeda and accounted for as income during the first quarter of 2022.
During 2021 the Company terminated
the production and supply of GLASSIA to Takeda and Takeda initiated its own production of GLASSIA for distribution in the Territory.
Accordingly, commencing 2022, Takeda initiated royalty payments to the Company as defined above.
As of December 31, 2022 the Company accountant for a total of $12.2
million from sales-based royalty income.
Pursuant to the Distribution Agreement,
Takeda is responsible to conduct any required additional clinical studies required to obtain or maintain GLASSIA’s marketing authorization
in the Territory. Under certain condition, the Company will be required to participate in the funding of these clinical studies in a
total amount not to exceed $10 million.
Pursuant to the Raw Material Supply
Agreement Takeda undertook to provide the Company, free of charge, all quantities of plasma derived fraction IV-1 required by the Company
for manufacturing GLASSIA to be sold to Takeda for distribution in the Territory. The Company accounts for the fair value of the plasma
derived fraction IV-1 used and sold as revenues and charges the same fair value to cost of revenue. In addition, the Company has the
right to acquire from Takeda plasma derived fraction IV-1 for its continued development and for the production, sale and distribution
of GLASSIA by the Company outside the Territory.
On expiration of the royalty period,
the license will become non-exclusive, and the Company shall be entitled to use the rights granted to it pursuant to the agreement without
paying royalties or any other compensation. In addition, and according to a mechanism set in the agreement, PARI would be required to
pay royalties to the Company of the total net sales of the device exceeding a certain amount, through the later of the device patents
expiration period or 15 years from the first commercial sale of the Company’s Inhaled AAT product.
In February 2008, the parties executed
an amendment to the agreement according to which the exclusive global license granted to the Company was expanded to two additional indications.
The royalties’ obligations, mentioned above, are applicable to all indications.
In addition, the parties entered into
a commercialization and supply agreement, which ensures long-term regular supply of the device, including spare parts.
In May 2019, the Company signed a
Clinical Study Supply Agreement (“CSSA”) with PARI for the supply of the required quantities of controller kits and the web
portal associated with PARI’s device required for the Company’s continued clinical trials with respect to the Inhaled AAT
product. The CSSA is a supplement agreement to the commercialization and supply agreement and will expire upon the expiration or termination
of such agreement.
In October 2016, the parties entered into an amendment to the agreement
pursuant to which the parties agreed to conduct a required post-marketing-commitment clinical study which was initiated in March 2017
and finalized during 2020. The cost of the study was equally shared between the parties.
In April 2020, the Company entered
into a binding term sheet with Kedrion for the co-development, manufacturing and distribution of a human plasma-derived Anti-SARS-CoV-2
polyclonal immunoglobulin (IgG) product as a potential treatment for COVID-19 patients. The plasma-derived Anti-SARS-CoV-2 IgG product
was developed and manufactured utilizing the Company’s proprietary IgG platform technology. Pursuant to the agreed terms, Kedrion
provided plasma, collected at its U.S. plasma collection centers, from donors who have recovered from the virus. The Company was responsible
for product development, manufacturing, clinical development, with Kedrion’s support, and regulatory submissions. The binding term
sheet remained in effect until June 30, 2021. No definitive agreement was entered to between the parties, and the Company terminated
this product development program.
On November 22, 2021, the Company
entered into the Saol APA for the acquisition of a portfolio of four FDA-approved plasma-derived hyperimmune commercial products - CYTOGAM,
HEPAGAM B, VARIZIG AND WINRHO SDF.
Under the terms of the APA, the Company
paid Saol a $95 million upfront payment, and agreed to pay up to an additional $50 million of contingent consideration subject the achievement
of sales thresholds for the period commencing on the Acquisition Date and ending on December 31, 2034. The Company may be entitled for
up to $3 million credit deductible from the contingent consideration payments due for the years 2023 through 2027, subject to certain
conditions as defined in the agreement between the parties.
In addition, the Company acquired inventory valued at $14.2 million
and agreed to pay the consideration to Saol in ten quarterly installments of $1.5 million each or the remaining balance at the final installment.
As part of the acquisition, the Company
assumed certain of Saol’s liabilities for the future payment of royalties (some of which are perpetual) and milestone payments
to third party subject to the achievement of corresponding CYTOGAM related net sales thresholds and milestones. Such assumed liabilities
include:
To partially fund the acquisition
costs, the Company secured a $40 million financing facility from an Israeli bank which comprised of a $20 million five-year loan and
a $20 million short-term revolving credit facility. Refer to Note 14.
In connection with the acquisition, the Company entered into a transition
services agreement with Saol, which defined the services and support to be provided by Saol to the Company for a defined period.
As of December 31, 2022 and 2021, the Company recognized an asset in
respect of costs of fulfilling contracts on the amount of $ 7,577 and $ 5,561 thousands, respectively. No amortization or impairment losses
was recognized.
Voting rights at the shareholders general
meeting, rights to dividend, rights in case of liquidation of the Company and rights to nominate directors.
During 2022 and 2021, 8,325 and 28,672 share options, respectively,
were exercised, on a net exercise basis, into 1,408 and 4,293 ordinary shares of NIS 1 par value each and 31,608 and 58,328 restricted
share were vested, respectively. The total consideration from such exercise totaled $9 and $17 thousand for 2022 and 2021, respectively.
For additional information regarding options and restricted shares
granted to employees and management in 2022, refer to Note 21 below.
The Company’s goals in its capital
management are to preserve capital ratios that will ensure stability and liquidity to support business activity and create maximum value
for shareholders.
On November 21, 2019, FIMI Opportunity Fund 6, L.P. and FIMI Israel
Opportunity Fund 6, Limited Partnership (the “FIMI Funds”) acquired 5,240,956 ordinary shares at a price of $6.00, representing
ownership of approximately 13% of the Company’s outstanding shares. On February 10, 2020, the Company closed a private placement
with FIMI Opportunity Fund 6, L.P. and FIMI Israel Opportunity Fund 6, Limited Partnership (the “FIMI Funds”). Pursuant to
the private placement the Company issued 4,166,667 ordinary shares at a price of $6.00 per share, for total gross proceeds of $25,000
thousands. Upon closing of the private placement, the FIMI Funds aggregate ownership represented approximately 21% of the Company’s
outstanding shares. Concurrently, the Company entered into a registration rights agreement with the FIMI Funds, pursuant to which the
FIMI Funds are entitled to customary demand registration rights (effective six months following the closing of the transaction) and piggyback
registration rights with respect to all shares held by FIMI Funds. Mr. Ishay Davidi, Ms. Lilach Asher Topilsky and Mr. Uri Botzer, members
of our board of directors, are executives of the FIMI Funds.
On July 24, 2011, the Company’s Board of Directors approved an
unregistered share option plan. In September 2016, the Company’s Board of Directors approved an amendment to the plan, to include
issuance of restricted shares (“RS”) under the plan and named it the Israeli Share Award Plan (“2011 Plan”).
Pursuant to the 2011 Plan, granted
share options and RS generally vest over a four-year period following the date of the grant in 13 installments: 25% on the first anniversary
of the grant date and 6.25% at the end of each quarter thereafter. As of 2020, granted share options and RS vest in four equal annual
installments of 25% each.
In August 2021, the Board of Directors
approved a 10-year extension of the 2011 Plan.
In February 2022, the Board of Directors adopted the U.S. Taxpayer
Appendix to the 2011 Plan (the “U.S. Appendix”), which provides for the grant of options and restricted shares (RS) to persons
who are subject to U.S. federal income tax. The U.S. Appendix provides for the grant to U.S. employees of options that qualify as incentive
stock options (“ISOs”) under the U.S. Internal Revenue Code of 1986, as amended. The U.S. Appendix was approved by our shareholders
at the annual general meeting held in December 2022.
The share-based compensation expense that was recognized for services
received from employees and members of the Board of Directors is presented in the following table:
On February 28, 2022, the Company’s Board of Directors approved
the grant of options to purchase up to 1,327,500, 400,000 and 270,000 ordinary shares of the Company to employees and executive officers,
the CEO and Board of Directors members, respectively, under the 2011 Plan and the US Appendix.
As of December 31, 2022, the Company granted, out of the above mentioned, to employees and executive officers
the following:
On August 23, 2022, the Company’s Board of Directors approved
the grant of 79,300 options to purchase ordinary shares of the Company.
On February 27, 2023, the Company’s Board of Directors
approved the grant of 147,000 options to purchase ordinary shares of the Company.
The following table lists the number
of share options, the weighted average exercise prices of share options and changes in share options grants during the year:
The range of exercise prices for share options outstanding as of December
31, 2022 and 2021 were NIS 16.47- NIS 20.33. Exercise is by net exercise method.
The Company uses the binomial model
when estimating the grant date fair value of equity-settled share options. The measurement was made at the grant date of equity-settled
share options since the options were granted to employees and Board of Directors members.
The following table lists the inputs
to the binomial model used for the fair value measurement of equity-settled share options for the above plan.