Compugen Ltd 20-F/A for FY2021
Compugen Ltd (CGEN)
20-F/A
2022-02-28
For: 2021-12-31
View Original
Added on
August 22, 2026
About this 20-F/A
Compugen Ltd filed this 20-F/A on February 28, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6M
- up 200.0% from $2M a year earlier
- Net loss
- $34.2M
- compared with a net loss of $29.7M a year earlier
- Diluted EPS
- -$0.41
- compared with -$0.37 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report ____________
For the transition period from ____________ to ____________
Commission file number:
_________________________________________________
(Exact name of Registrant as specified in its charter)
____________________________________
(Translation of Registrant’s name into English)
___________________________________________________________
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
________________________________________________
Phone: +
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
________________________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act.
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
|
|
The (The Nasdaq Global Market) |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒
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 “accelerated filer” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
|
Non-accelerated filer ☐ |
Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|
|
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 20-F, or the Amendment, amends the Annual Report on Form 20-F of Compugen Ltd., or the Company, for the year ended December 31, 2021, which was originally filed with the Securities and Exchange Commission on February 28, 2022, or the Original Filing.
The Company is filing this Amendment solely for the purpose of updating disclosure in Item 7.A., “Major Shareholders and Related Party Transactions – Major Shareholders.” In addition, pursuant to Rule 12b-15 under the Exchange Act, the Company is filing the certifications required under the Sarbanes-Oxley Act of 2002.
Except as described above or as otherwise expressly provided by the terms of this Amendment, no other changes have been made to the Original Filing. Except as otherwise indicated herein, this Amendment continues to speak as of the date of the Original Filing, and the Company has not updated the disclosures contained therein to reflect any events that occurred subsequent to the date of the Original Filing.
TABLE OF CONTENTS
|
1 | ||
|
1 | ||
|
1 | ||
| 45 | ||
| 64 | ||
| 65 | ||
| 75 | ||
| 96 | ||
| 98 | ||
| 98 | ||
| 99 | ||
| 107 | ||
| 107 | ||
| 108 | ||
| 108 | ||
| 108 | ||
| 109 | ||
| 109 | ||
| 109 | ||
| 109 | ||
| 110 | ||
| 110 | ||
| 110 | ||
| 110 | ||
| 110 | ||
|
110 | ||
|
110 | ||
| 110 | ||
|
111 |
(i)
CAUTIONARY
STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F, or the Annual Report, includes “forward-looking
statements” within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current
beliefs, expectations and assumptions. Forward-looking statements can be identified by the use of terminology such as “will,”
“may,” “assume,” “expect,” “anticipate,” “could,” “project,” “estimate,”
“possible,” “potential,” “believe,” “suggest,” and “intend,” and similar expressions
that are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Factors that could cause our actual results to differ materially from those projected in the forward-looking statements include, without
limitation, the risk factors set forth under “Item 3. Key Information - D. Risk Factors,” the information about us set forth
under “Item 4. Information on the Company” and information related to our financial condition under “Item 5. Operating
and Financial Review and Prospects.” Any forward-looking statements represent our views only as of the date hereof and should not
be relied upon as representing its views as of any subsequent date. We do not assume any obligation to update any forward-looking statements
unless required by law.
‑‑‑‑‑‑‑‑‑‑‑‑
All references in this Annual Report on Form 20-F to “Compugen,” the “Company,”
“we,” “us,” “our,” or similar references refer to Compugen Ltd. and our wholly owned subsidiary Compugen
USA, Inc., except where the context otherwise requires or as otherwise indicated.
‑‑‑‑‑‑‑‑‑‑‑‑
We have prepared our consolidated financial statements in United States dollars and
in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. All references herein to “dollars”
or “$” are to United States dollars, and all references to “Shekels” or “NIS” are to New Israeli Shekels.
‑‑‑‑‑‑‑‑‑‑‑‑
(ii)
PART
I.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A. [RESERVED]
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
An investment in our ordinary shares involves a high
degree of risk and many factors could affect our results, financial condition, cash flows and results of operations. You should carefully
consider the following risk factors, as well as the other information in this Annual Report. If we do not, or cannot, successfully address
the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial
condition, which could include the need to limit or even discontinue our business operations, and accordingly our share price may decline,
and you could lose all or part of your investment. We can give no assurance that we will successfully address any of these risks. The
principal risks we face are described below.
Summary Risk Factors
Our business is subject to a number of risks of which you should
be aware of before making an investment decision. These risks are discussed more fully in this “Item 3. Key Information - D. Risk
Factors” section of this Annual Report. These risks include, but are not limited to, the following:
| • |
We have a history of losses and we expect to incur future losses and may never achieve or sustain profitability. |
| • |
We may need to raise additional funds in the future, and if we are unable to raise such additional funds, we may need to limit, curtail
or cease operations. To the extent any such funding is based on the sale of equity, our existing shareholders would experience dilution
of their shareholdings. |
| • |
We cannot provide assurance that our business model will succeed in generating substantial revenues. |
| • |
The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as the COVID-19
pandemic, and the governmental and societal responses thereto, may negatively impact the global economy and may also adversely affect
our business and results of operations. |
| • |
In the near term, we are highly dependent on the success of COM701 and of COM902. We may not be able to advance our internal clinical
stage programs through clinical development or manufacturing or successfully partner or commercialize them, or obtain marketing approval,
either alone or with a collaborator, or may experience significant delays in doing so. |
| • |
Clinical trials of any product candidates that we, or any current or future collaborators may conduct may fail to satisfactorily
demonstrate safety and efficacy, and we, or any collaborator, may incur additional costs or experience delays in completing, or ultimately
be unable to complete the development and commercialization of these product candidates. |
| • |
Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may encounter substantial delays or
even an inability to begin clinical trials for any specific product or may not be able to conduct or complete our trials on the timelines
we expect. |
| • |
From time to time we publicly disclose preliminary data from our ongoing clinical trials. As more patient data become available the
data and the interpretation of the data may change. |
1
| • |
We rely and expect to continue to rely on third parties to conduct our clinical trials. These third parties may not successfully
carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, and we may experience significant
delays in the conduct of our clinical trials as well as significant increased expenditures. |
| • |
Serious adverse events or undesirable side effects or lack of efficacy, may emerge in clinical trials conducted by other companies
running clinical trials investigating the same target as us, which could adversely affect our development programs or our capability to
enroll patients or partner the program for further development and commercialization. |
| • |
We are subject to certain manufacturing risks, any of which could either result in additional costs or delays in completing, or ultimately
make us unable to complete, the development and commercialization of our product candidates. |
| • |
Our current and future relationships, and/or the relationships of our collaborators through which we may market, sell, and distribute
our products, with healthcare professionals, physicians and other parties in the United States and elsewhere may be subject, directly
or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information and general
privacy and security and other healthcare laws and regulations, which could expose us to adverse consequences. |
| • |
There are risks that are inherent in the development and commercialization of new therapeutic products. |
| • |
We have limited experience in the development of therapeutic product candidates, and we may be unable to implement our business strategy.
|
| • |
Our approach to the discovery of therapeutic products is based on our predictive computational discovery capabilities that are not
yet fully proven clinically, and we do not know whether we will be able to discover and develop additional potential product candidates
or products of commercial value. |
| • |
We are focusing our discovery and therapeutic development activities on therapeutic product candidates for uses in immuno-oncology.
Our current candidates may fail, and we may fail to continue to discover and develop therapeutic product candidates of industry interest
in this field. |
| • |
We depend significantly on third parties to carry out the research, development and commercialization of our therapeutic product
candidates. If we are unable to maintain our existing agreements or to enter into additional agreements with such third parties, including
collaborators, in the future, our business will likely be materially harmed. |
| • |
We rely and expect to continue to rely completely on third parties to manufacture and supply our preclinical and clinical drug supplies.
Our business could be harmed if those third parties fail to provide us with sufficient quantities of drug product or fail to do so at
acceptable quality and quantity levels, prices or timelines. |
| • |
Our dependence on collaboration agreements with third parties presents number of risks. |
| • |
Our reliance on third parties for the performance of key activities heightens the risks faced by our business. |
| • |
Our business model is challenging to implement and to date has not yielded significant revenues. |
| • |
We operate in a highly competitive and rapidly changing industry which may result in others discovering, developing or commercializing
competing products before us or more successfully than we do. |
| • |
Given our level of managerial, operational, financial and other resources, our current activities and future growth may be limited.
|
| • |
We may be unable to hire or retain key personnel or sufficiently qualified management, clinical and scientific personnel.
|
| • |
We may be unable to safeguard the integrity, security and confidentiality of our data or third parties’ data. |
2
| • |
Our internal computer systems, or those of our contract research organizations, or CROs, or other contractors or consultants, may
fail or suffer security breaches, which could result in a material disruption of our pipeline and our business. |
| • |
Our business and operations would suffer if our information technology systems or infrastructure or data, or our vendors’ or
partners’, are or were compromised. |
| • |
We are subject to stringent and changing obligations related to data privacy and security. Failure or perceived failure to comply
with current or future obligations could lead to government enforcement actions (which could include civil or criminal penalties), private
litigation, and/or adverse publicity and could negatively affect our operating results and business. |
| • |
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability
to prevent our competitors from commercializing similar or identical product candidates would be adversely affected. |
| • |
In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available
only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that
was not anticipated. |
| • |
We, or potential collaborators and licensees, may infringe third-party rights and may become involved in litigation, which may materially
harm our business. |
| • |
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time
consuming and unsuccessful. |
| • |
Conditions in the Middle East and in Israel may adversely affect our operations. |
| • |
Our results of operations may be adversely affected by the exchange rate fluctuations between the dollar and the New Israeli Shekel.
|
| • |
Future sales of our ordinary shares or securities convertible or exchangeable for our ordinary shares may depress our share price.
|
| • |
If we sell ordinary shares in future financings, shareholders may experience immediate dilution and, as a result, our share price
may decline. |
| • |
Our share price and trading volume have been volatile and may be volatile in the future and that could limit investors’ ability
to sell our shares at a profit and could limit our ability to successfully raise funds. |
| • |
If we are a passive foreign investment company, or PFIC, our U.S. shareholders may be subject to adverse U.S. federal income tax
consequences. |
Risks Related to our Business, Financial Results and Financing Needs
We have a history of losses and we expect to
incur future losses and may never achieve or sustain profitability.
As of December 31, 2021, we had an accumulated deficit of approximately $422.1 million
and had incurred net losses of approximately $34.2 million in 2021, approximately $29.7 million in 2020 and approximately $27.3 million
in 2019, in large part due to the expenditures associated with our ongoing research
and development and limited revenues received to date. In addition, we expect to continue to incur net losses in the future due to our
anticipated costs and expenses, primarily associated with our preclinical and clinical activities. We have entered into three pipeline
program-based partnership agreements under which we have received or accrued to date a total amount of $83.2 million, including a $32.0
million investment. We cannot be certain that we will receive additional revenues under our existing collaborations or that we will enter
into additional arrangements for our programs or with respect to our predictive computational discovery capabilities, or that such additional
arrangements will provide sufficient revenues to achieve profitability. Even if we do achieve profitability, we may not be able to sustain
or increase our profitability.
3
We may need to raise additional funds in the
future, and if we are unable to raise such additional funds, we may need to limit, curtail or cease operations. To the extent any such
funding is based on the sale of equity, our existing shareholders would experience dilution of their shareholdings.
We believe that our existing cash and cash equivalents and short-term bank deposits
will be sufficient to fund our current level of operations into 2024, without considering the possible receipt of any additional funds,
such as proceeds from existing or additional licensing and/or collaborative agreements, or from financings. However, as we expand our
clinical trials and other operations and may increase our cash expenditures, our cash balances may be sufficient for a shorter period
of time. We cannot predict with any degree of certainty when, or even if, we will achieve profitability, and therefore may need additional
funds to continue financing our operations. In 2019, we received proceeds of approximately $23 million through our ATM facility. In 2020,
we received net proceeds of approximately $74 million from a public offering and approximately $34 million from warrants and option exercises.
In 2021, we received a $20 million investment pursuant to an investment from our partner, Bristol Myers Squibb Company, or Bristol Myers
Squibb. We may seek additional capital due to strategic considerations even if we believe we have sufficient funds for our current and
future operating plans.
Additional funds, including proceeds from license or collaborative agreements, or
from other financings, may not be available to us on acceptable terms, or at all. In addition, the terms of any financing may adversely
affect the holdings or the rights of our existing shareholders. For example, if we raise additional funds by issuing equity securities,
our existing shareholders will experience dilution of their shareholdings. Debt financing, if available, may involve restrictive covenants
that could limit our flexibility in conducting future business activities. If we are unable to obtain funding on a timely basis, we may
be required to significantly curtail one or more of our research or development programs or otherwise reduce our operations. We also could
be required to seek funds through arrangements with collaborators or other investors that may require us to enter into arrangements on
terms that would otherwise not be acceptable to us.
Our therapeutic programs have reached more costly stages of research and development,
including preclinical and clinical drug development. If we are not able to secure the funding or the capabilities required for such activities,
we may be required to abandon, postpone, or attempt to license out certain therapeutic product candidates at an earlier than anticipated
stage, which may adversely affect us. Any failure to raise funds as and when needed would materially harm our business, financial condition
and results of operations, and result in the inability to have some or all of such therapeutic product candidates developed to fit potential
commercialization and have a negative impact on our ability to pursue our business strategy.
We cannot provide assurance that our business
model will succeed in generating substantial revenues.
Our business model is primarily based on expected future revenues in various forms,
including upfront fees, research funding, in-kind funding, milestone payments, license fees, royalties on product sales and other revenue
sharing payments from commercialization of products by third parties, pursuant to various forms of collaborations for our novel targets
and related drug product candidates at various stages of research and development. Our primary focus in immuno-oncology utilizes our predictive
computational discovery capabilities to identify novel drug targets and develop potentially first-in-class therapeutics in the field of
cancer immunotherapy. Drug target candidates discovered by our predictive computational discovery capabilities undergo initial target
validation studies and, in selected cases, are advanced to the discovery and development of the therapeutic product candidate. Such drug
target candidates and their related therapeutic product candidates may serve as the basis for licensing and other forms of third-party
collaborations. Some of our existing third-party collaboration and licensing agreements have been entered into at early research and development
stages, each of which has an inherently high risk of failure. The inability to derive adequate revenues, or at all, from our business
model would materially harm our business, financial condition and results of operations and could result in the need to limit or even
discontinue our business operations.
The widespread outbreak of an illness or any
other communicable disease, or any other public health crisis, such as the COVID-19 pandemic, and the governmental and societal responses
thereto, may negatively impact the global economy and may also adversely affect our business and results of operations.
Our business, financial condition, and results of operations could be negatively impacted
by COVID-19 or other widespread outbreak of an illness or any other communicable disease, or any other public health crisis. The
severity, magnitude and duration of the current COVID-19 pandemic and future outbreaks is uncertain, rapidly changing and difficult to
predict. The COVID-19 pandemic has created macro-economic uncertainty and disruption in the business and financial markets. Many countries
around the world, including the United States and Israel, have taken measures designated to limit the spread of the COVID-19 virus, including
closing workplaces, restricting travel, prohibiting assembling, closing international borders and quarantining populated areas. The continued
spread of the COVID-19 virus and the uncertainty surrounding its variants have caused, and may continue to cause, continued changes in
the measures taken by different countries based on the change in the COVID-19 pandemic status. These measures have impacted, and may further
impact, our suppliers and other business partners from conducting business activities as usual (including, without limitation, the availability
and pricing of materials, manufacturing and delivery efforts, clinical trials and other aspects that may affect our business) for an unknown
period of time. In addition, we, our suppliers and other business partners may experience significant impairments of business activities
due to operational shutdowns or suspensions that may be requested or mandated by national or local governmental authorities or self-imposed
by us, our suppliers or other business partners. If measures, such as those listed above, are taken again or additional measures are required
in the event that the measures already taken prove to be insufficient or ineffective to slow the spread of COVID-19 or other global or
regional health pandemics or epidemics, we may face new and/or increasing concerns that may affect our ability to conduct our business
effectively, including, but not limited to, adverse effect on employees’ health, a slowdown and stoppage of work, slowdown or stoppage
of our clinical trials and other activities which are essential and critical for maintaining on-going business activities. Even if the
measures taken, or that will be taken, prove themselves to be useful, we, our suppliers and other business partners may recover at different
rates, which may also affect our business activities.
4
These effects could materially and adversely affect our business, financial condition,
results of operations and growth prospects. In addition, to the extent the evolving effects of the COVID-19 pandemic or such other global
or regional event adversely affect our business, financial condition, results of operations and growth prospects, they may also have the
effect of heightening many of the other risks and uncertainties described elsewhere in this “Risk Factors” section. It
is also possible that the volatility that the capital markets have experienced due to the ongoing spread of COVID-19 and its adverse effects,
including those caused as a result of government actions, shall continue and as a result, the price of our shares may be negatively impacted,
which could adversely affect our ability to raise additional capital.
We have taken precautionary measures, and may take additional measures, intended to
minimize the risks of the COVID-19 pandemic to our employees and operations. The extent of the impact of the COVID-19 pandemic on our
operational and financial performance, including our ability to execute our business strategies in the expected time frame or at all,
will depend on future developments, such as the duration and spread of the COVID-19 pandemic and long-term impact on the world’s
economy, all of which are uncertain and cannot be predicted. Furthermore, future global pandemics or other widespread outbreak of an illness
or any other communicable disease, or any other public health crisis may also materially and adversely affect our business, financial
condition, results of operations and growth prospects.
We have a limited operating
history with respect to the partnering and commercialization aspects of our business model upon which investors can base an investment
decision or upon which to predict future revenues.
Our ability to generate revenues from partnerships for our novel drug targets and
related therapeutic product candidates at various stages of research and development has been limited to date. Since we began focusing
our discovery capabilities on therapeutic pipeline establishment in 2010, we have entered into three partnership agreements with respect
to our pipeline programs under which we have received to date a total amount of $83.2 million, of which $32 million was an investment.
We recognized revenue of $6.0 million in 2021, $2.0 million in 2020 and no revenue in 2019 from our partnerships.
We cannot be certain that our focus on discovery, research and drug development in
the field of immuno-oncology, along with advancing selected programs to later drug development and clinical stages partially or fully
at our own expense, will generate a stable or significant revenue stream. Moreover, we have very limited experience with respect to the
financial arrangements and terms that may be available for our candidates at their various R&D stages. Additionally, financial terms
for agreements by other companies, to the degree disclosed, vary greatly. The inability to derive adequate revenues within our field of
focus and for our specific drug targets or product candidates would materially harm our business, financial condition and results of operations
and could result in the need to limit or even discontinue our business operations. Moreover, our operating history with respect to the
partnering and commercialization aspects of our model provides a limited basis to assess our ability to generate significant fees, research
revenues, milestone payments, royalties or other revenue sharing payments from the licensing, development and anticipated future commercialization
of our programs based on our existing and future novel drug targets and related therapeutic products and any future product candidates.
5
Our failure to establish
and maintain effective internal control over financial reporting could result in material misstatements in our financial statements or
a failure to meet our reporting obligations. This may cause investors to lose confidence in our reported financial information, which
could result in the trading price of our shares to decline.
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation
of our management, including the Chief Executive Officer and the Chief Financial Officer, we carried out an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2021, using the criteria established in “Internal Control
- Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). Based on our assessment under that framework and the criteria established therein, our management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2021, in providing reasonable assurance regarding the reliability
of the Company’s financial reporting.
However, if we conclude in the future that our internal controls over financial reporting
are not effective, we may fail to meet our future reporting obligations on a timely basis, our financial statements may contain material
misstatements, our operating results may be negatively impacted, and we may be subject to litigation and regulatory actions, causing investor
perceptions to be adversely affected and potentially resulting in a decline in the market price of our shares. Even if we conclude that
our internal controls over financial reporting are adequate, any internal control or procedure, no matter how well designed and operated,
can only provide reasonable assurance of achieving desired control objectives and cannot prevent all mistakes or intentional misconduct
or fraud.
Risks Related to Development, Manufacturing, Clinical Trials and Government Regulation
In the near term, we are
highly dependent on the success of COM701 and of COM902. We may not be able to advance our internal clinical stage programs through clinical
development or manufacturing or successfully partner or commercialize them, or obtain marketing approval, either alone or with a collaborator,
or may experience significant delays in doing so.
We currently have no products approved for sale and are investing a significant portion
of our efforts and financial resources in the clinical development of COM701 and of COM902. Our prospects are substantially dependent
on our ability, or that of any existing and future partners, to manufacture, develop, obtain marketing approval for and successfully commercialize
COM701 and COM902. We have reported preliminary signals of antitumor activity in
our ongoing Phase 1 trial with COM701 monotherapy and in combination with nivolumab. The triplet combination of COM701, nivolumab and
BMS-986207 (anti-TIGIT antibody) was well tolerated with a favorable safety and toxicity profile. We have reported preliminary signals
of antitumor activity from our Phase 1 dose escalation monotherapy trial of COM902 with a best response of stable disease. These preliminary
clinical results may not predict the final results of the on-going clinical trials or future clinical trials or otherwise be sufficient
to attract a partner or support a future drug approval. Many companies in the pharmaceutical, biopharmaceutical and biotechnology industries
have suffered significant setbacks or failures in clinical trials after achieving positive results, and we cannot be certain that we will
not face similar setbacks or failures.
Our pipeline currently consists of four clinical stage programs, which are at early
stage of clinical development. Two, COM701 and COM902 are being developed internally (COM701 under clinical collaboration with Bristol
Myers Squibb) and the other two are being developed by our collaborators. Our pipeline also consists of additional future product candidates
in early research stage and require substantial development and investment.
As we advance our clinical programs, we will need to expand our personnel and operational
capabilities to support these activities. In part because of our limited infrastructure and limited experience in conducting clinical
trials as a company and in regulatory interactions, we cannot be certain that our clinical trials will be completed on time, that our
planned clinical trials will be initiated on time, if at all, that our planned development programs and development path forward would
be acceptable to the U.S. Food and Drug Administration, or FDA, or other comparable foreign regulatory authorities, or that, even if approval
is obtained, such investigational products can be successfully commercialized.
The success of COM701 and COM902 is dependent upon several factors, including the
following:
|
• |
successful clinical trial results;
|
|
• |
ability to fund clinical trials designed
to obtain regulatory approval and to become commercially successful; |
6
|
• |
success of trials designed to allow for
a path for registration/approval by regulatory authorities; |
|
• |
our selected regulatory strategy;
|
|
• |
timely initiation, enrollment and completion
of clinical trials; |
|
• |
demographics, past therapy and other criteria
of patients enrolled, even if they meet the inclusion/exclusion enrollment criteria; |
|
• |
a safety, tolerability and efficacy profile,
alone or in combination with other approved or investigational products, that is satisfactory to the FDA or comparable foreign regulatory
authorities; |
|
• |
selection of indications; |
|
• |
selection of drug(s) for combinations;
|
|
• |
successful identification of biomarkers,
including for patient selection; |
|
• |
timely receipt of marketing approvals from
applicable regulatory authorities; |
|
• |
the performance of our current and future
collaborators, if any; |
|
• |
the extent of any required post-marketing
approval commitments to applicable regulatory authorities; |
|
• |
establishment and monitoring of manufacturing
arrangements and processes with third-party service providers and clinical manufacturing organizations for manufacturing drug substance
and drug product; |
|
• |
establishment and monitoring of arrangements
with third-party suppliers of raw materials and service for fill-finish, packaging and labeling; |
|
• |
stability of our drug substance and drug
products; |
|
• |
supply of our drugs in sufficient quantities
and quality for our clinical trials; |
|
• |
establishment of arrangements with third-party
manufacturers and processes monitoring to obtain commercial quality drug product that is appropriately packaged for sale; |
|
• |
adequate ongoing availability of raw materials
and drug product for clinical development and any commercial sales; |
|
• |
protection of our rights in our intellectual
property portfolio; |
|
• |
successful launch of commercial sales following
any marketing approval; |
|
• |
a continued acceptable safety profile following
any marketing approval; and |
|
• |
commercial acceptance by patients, the medical
community and third-party payors. |
Many of these factors are beyond our control, including clinical development by us
and our competitors, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing
and sales efforts of any current and future third party. If we are unable to develop, receive marketing approval for and successfully
commercialize COM701 and/or COM902, on our own or with any collaborator, or experience delays as a result of any of these factors or otherwise,
our business could be substantially harmed.
We depend on enrollment
of patients in our clinical trials in order to continue development of our product candidates.
We are conducting Phase 1 and Phase 1/2 clinical trials of COM701 in combinations
in patients with advanced solid tumors and clinical trials of COM902 monotherapy and in combination with COM701 in patients with advanced
malignancies. Our anticipated time to data in these trials is subject to our ability to enroll a sufficient number of eligible patients
that will need to be enrolled for observing clinical activity, if at all. There can be no assurance that we will complete enrollment or
have data from the trials when we anticipate or at all. The timely completion of clinical trials in accordance with their protocols depends,
among other things, on our ability to enroll a sufficient number of patients that are in line with our inclusions and exclusion criteria
and our ability to monitor these patients as required.
7
We may experience difficulties in patient enrollment in our clinical trials for a
variety of reasons. Patient enrollment is affected by many factors including the size and nature of the patient population, the eligibility
criteria for the trial, the design of the clinical trial, the size of the patient population required for analysis of the trial’s
primary endpoints, the proximity of patients to clinical trial sites, our ability to recruit clinical trial investigators with the appropriate
competencies and experience, the number of enrolling clinical sites, our ability to obtain and maintain patient consents, the risk that
patients enrolled in clinical trials will drop out of the trials before completion or even before any/sufficient imaging assessment, and
competing clinical trials (including other clinical trials that we are conducting or will conduct in the future) and clinicians’
and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, or
competing drugs against the same target as well as any new drugs that may be approved for the indications we are investigating.
Many pharmaceutical companies are conducting clinical trials in patients with the
disease indications that COM701, COM902 and our future potential drug products may target. Additionally, other pharmaceutical companies
may clinically investigate their own therapeutic candidates against PVRIG, the target of COM701, or against TIGIT, the target of COM902,
which may hamper the enrollment of oncology patients in our trials for COM701 or COM902. For example, in case of COM701, Surface Oncology
announced in December 2021 that the FDA has cleared the Investigational New Drug Application (IND) for its PVRIG targeting antibody, GSK4381562
(formerly SRF813), to proceed into a first-in-human clinical trial. In the case of COM902, there is a significant number of anti-TIGIT
antibodies that are currently in clinical trials such as tiragolumab by Roche, vibostolimab by Merck, ociperlimab by Beigene, domvanalimab
and AB308 by Arcus, BMS-986207 by Bristol Myers Squibb, and others (some of which are in a more advanced clinical stage than COM902).
As a result, we must compete with them for clinical sites, clinicians’ interest and the limited number of patients who fulfill the
stringent requirements for participation in clinical trials in general. Also, patient enrollment may be limited due to changes in the
regulatory landscape in the indications of interest to us. Our clinical trials may be delayed or terminated due to the inability to enroll
enough patients. The delay or inability to meet planned patient enrollment may result in increased costs and delay or termination of our
trials, which could have a harmful effect on our ability to develop products.
Clinical trials of any product
candidates that we, or any current or future collaborators may conduct may fail to satisfactorily demonstrate safety and efficacy, and
we, or any collaborator, may incur additional costs or experience delays in completing, or ultimately be unable to complete the development
and commercialization of these product candidates.
We, and any current or future collaborators, are not permitted to commercialize, market,
promote or sell any therapeutic product candidate in any jurisdiction without obtaining marketing approval from the relevant regulatory
authority, such as the FDA in case of the United States. We, and any collaborators, must complete clinical trials to demonstrate the safety
and efficacy of our therapeutic product candidates in humans before we will be able to obtain these approvals.
Clinical testing is expensive, is difficult to design and implement, can take many
years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned
or completed on schedule, if at all. The clinical development of our therapeutic product candidates is susceptible to the risk of failure
inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across population of patients,
choosing the incorrect patient population or indication, the occurrence of adverse events that are severe or medically or commercially
unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA that a therapeutic product
candidate may not continue development or is not approvable. The outcome of preclinical studies and early clinical trials may not predict
the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results. A number of companies
in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy
or unacceptable safety profiles, notwithstanding promising results in earlier trials. Despite the preliminary safety and anti-tumor activity
results reported from our ongoing Phase 1 trial for COM701 and COM902 so far, we do not know whether the clinical trials we or our partners
may conduct will demonstrate adequate efficacy and safety to result in the further advancement of clinical development or regulatory approval
to market of COM701 and/or COM902, or any other of our product candidates when they reach the clinic, in any particular jurisdiction or
jurisdictions. It is also possible that, even if one or more of our therapeutic product candidates has a beneficial effect, that effect
will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design,
measurements, conduct or analysis of our clinical trials, patient monitoring, the dosing we choose and other factors.
8
Any inability to successfully complete preclinical and clinical development could
result in additional costs to us, or any collaborators and impair our ability to generate revenues from product sales, development, regulatory
and commercialization milestones and royalties. Moreover, if we, or any collaborators, are required to conduct additional clinical trials
or repeat clinical trials or other testing of our product candidates beyond the trials and testing that we or they contemplate, if we,
or they, are unable to successfully complete clinical trials of our product candidates or other testing, or the results of these trials
or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product
candidates, we, or any collaborators, may:
• cease
the development of the product candidates;
• incur
additional unplanned costs;
• not
obtain approval to proceed to next development phase;
• be
delayed in obtaining marketing approval for our product candidates;
• not
obtain marketing approval at all;
• obtain
approval for indications or patient populations that are not as broad as intended or desired;
• obtain
approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
• be
subject to additional post-marketing testing or other requirements; or
• be
required to remove the product from the market after obtaining marketing approval.
Our failure to successfully initiate and complete clinical trials of our product candidates
and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly
harm our business, could further result in significant harm to our financial position and results of operations and could result in the
need to limit or even discontinue our business operations.
Clinical development involves a lengthy and
expensive process, with an uncertain outcome. We may encounter substantial delays or even an inability to begin clinical trials for any
specific product or may not be able to conduct or complete our trials on the timelines we expect.
Obtaining marketing approval from regulatory authorities for the
sale of any therapeutic product requires substantial preclinical development and then extensive human clinical trials to demonstrate the
safety and efficacy of such product candidates. It is impossible to predict when or if any of our programs or those of our collaborators
based on our target discoveries will yield products that will be approved for human testing, or, if such testing is proven sufficiently
safe and effective to receive regulatory approval for marketing. Preclinical and clinical testing is expensive, time consuming, and subject
to uncertainty and will require significant additional financial and management resources. As a company, we have limited experience in
conducting clinical trials and have never progressed a product candidate through to regulatory approval. In part because of this lack
of experience, our clinical trials may require more time and incur greater costs than we anticipate. We cannot guarantee that any of our
therapeutic drug candidates from our pipeline will be advanced into clinical trials or that our clinical trials will be conducted as planned
or completed on schedule, if at all. The outcome of preclinical testing and early clinical trials may not be predictive of the success
of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and
clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates
performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to continue to achieve such successes at later
stages of the clinical studies or to obtain marketing approval for such products.
9
We submitted to the FDA an Investigational New Drug application,
or IND, for COM701, which was cleared by the FDA in June 2018 and an IND for COM902, which was cleared by the FDA in October 2019. However,
there can be no assurance that we will submit additional INDs, nor if submitted, the actual timing for such submission (including amendments),
nor that such submissions will be accepted by the FDA allowing clinical trials to begin or continue. There can be no assurance that clinical
trials will begin at any predicted date or will be completed on schedule, if at all. Moreover, even if these clinical trials begin, issues
may arise that could result in the suspension of or termination of such clinical trials. A failure of one or more clinical trials can
occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
| • |
inability to generate sufficient preclinical, toxicology, or other scientific data to support the initiation of clinical trials;
|
| • |
lack of authorization from regulators or institutional review boards, or IRBs, or ethics committees to allow us or our investigators
to commence a clinical trial or conduct a clinical trial at a prospective trial site or continue such clinical trial; |
| • |
delays in sufficiently developing, characterizing, or controlling a manufacturing process suitable for clinical trials; |
| • |
inability to generate sufficient quantities or quality of our drug substance or drug product to support the initiation or continuation
of clinical trials; |
| • |
delays in reaching a consensus with collaborators or regulatory agencies on trial design; |
| • |
delays in reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
| • |
imposition of a temporary or permanent clinical hold by the FDA, or a similar delay imposed by foreign regulatory agencies for a
number of reasons, including after review of an IND, other application or amendment; (i) as a result of a new safety finding that presents
unreasonable risk to clinical trial participants; (ii) a negative finding from an inspection of our clinical trial operations or trial
sites; (iii) developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of
the technology broadly; or (iv) if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
|
| • |
clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results and we may
decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product
development programs; |
| • |
difficulty collaborating with patient groups and investigators; |
| • |
failure by our CROs, other third parties, or us to adhere to clinical trial and related regulatory requirements; |
| • |
failure to perform in accordance with the FDA’s Good Clinical Practice, or GCP, requirements, or similar applicable regulatory
guidelines in other countries; |
| • |
failure to perform in accordance with the FDA’s Good Manufacturing Practice, or GMP, requirements, or similar applicable regulatory
guidelines in other countries; |
| • |
the number of patients required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these
clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials or fail to return for post-treatment
follow-up at a higher rate than we anticipate; |
| • |
delays in having patients complete their participation in a trial or return for post-treatment follow-up; |
| • |
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; |
| • |
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; |
| • |
changes in the standard of care or in the regulatory landscape on which a
clinical development plan was based, which may require new or additional trials; |
| • |
the cost of clinical trials of our product candidates being greater than we anticipate; |
| • |
clinical trials of our product candidates producing negative or inconclusive results, or early results that will not be repeated
in larger or future cohorts, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon
product development programs; |
| • |
choosing the wrong dosing regimen and/or the wrong drug combination; |
| • |
delays or failure to secure supply agreements with suitable reagent suppliers, or any failures by suppliers to meet our quantity
or quality requirements for necessary reagents; and |
| • |
delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates
for use in clinical trials or the inability to do any of the foregoing. |
10
Our product development costs will increase if we experience delays in clinical trials
(including termination thereof) or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical
trials will begin as planned, and once begun whether will need to be restructured or will be completed on schedule, or at all. Significant
preclinical or clinical trial delays also may allow our competitors to bring products to market before we do, potentially impairing our
ability to be first-in-class or successfully commercialize our product candidates and harming our potential market share and business
and results of operations. Any delays in our preclinical or clinical development programs may harm our business, financial condition and
prospects significantly.
From time to time we publicly disclose preliminary
data from our ongoing clinical trials. As more patient data become available the data and the interpretation of the data may change.
From time to time, we publish preliminary data from our ongoing clinical trials. Preliminary
data are also subject to the risk that one or more of the clinical outcomes may materially change as time goes by and cutoff date changes,
patient enrollment continues and with further patient monitoring where more patient data become available. As a result, preliminary data
should be viewed with caution until clinical rial completion where the final data are available. Material adverse changes in the final
data could significantly harm our business prospects and eventually harm our financial condition and results of operations.
We rely and expect to continue to rely on third
parties to conduct our clinical trials. These third parties may not successfully carry out their contractual duties, comply with regulatory
requirements or meet expected deadlines, and we may experience significant delays in the conduct of our clinical trials as well as significant
increased expenditures.
We do not have the ability to independently conduct clinical trials. We rely and will
continue to rely on medical institutions, clinical investigators, contract manufacturing research organizations, contract laboratories,
outsourced preclinical and clinical service providers and other third parties, such as CROs and advisors, to conduct or otherwise support
our clinical trials. We rely heavily and will continue to rely heavily on these parties for execution of clinical trials for COM701 and
COM902 and any other future product candidates we may take to the clinic, and we control only certain aspects of their activities. Nevertheless,
we are responsible for ensuring that each of our internal clinical trials is conducted in accordance with the applicable protocol, legal
and regulatory requirements and scientific standards, and our reliance on these third parties, including our CROs, will not relieve us
of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our clinical trials, we could be
subject to untitled and warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.
If clinical investigators, CROs or other third parties do not successfully carry out
their contractual duties or obligations diligently and in a professional manner or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain and store or their data analysis are compromised due to the failure to
adhere to market standards, our clinical protocols, regulatory requirements or for other reasons, any clinical trials such clinical investigators,
CROs or other third parties are associated with may be extended, delayed or terminated. As a result, we believe that our financial results
and the commercial prospects for COM701, COM902, and any other future therapeutic product candidates we may take to the clinic, would
be harmed, our costs could materially increase and our ability to generate revenue could be significantly adversely impacted.
Serious adverse events or undesirable side
effects or lack of efficacy, may emerge in clinical trials conducted by other companies running clinical trials investigating the same
target as us, which could adversely affect our development programs or our capability to enroll patients or partner the program for further
development and commercialization.
We initiated a Phase 1 clinical trial for COM902, which targets TIGIT, in March 2020.
There are additional companies that have a program targeting TIGIT in clinical trials, such as Merck, Roche, Bristol
Myers Squibb, BeiGene, and Arcus. We have no control over their clinical trials or development program, and lack of efficacy, adverse
events or undesirable side effects experienced by subjects in their clinical trials could affect our development and regulatory path of
COM902 or the enthusiasm of clinicians recruiting patients for our clinical trials for COM902 or any other service provider, or harm its
potential to be partnered for further development and commercialization and generate revenues for the Company.
11
Furthermore, any negative results that may be reported in clinical
trials of other programs targeting TIGIT may make it difficult or impossible to recruit and retain subjects in our clinical trials of
COM902. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials,
which could prevent completion of these trials and adversely affect our ability to advance the development of COM902. Failures in planned
subject enrollment or retention may result in increased costs or program delays and could render further development impossible.
The same risk will apply to COM701 once any
anti-PVRIG antibody enters the clinic.
We are subject to certain manufacturing risks,
any of which could either result in additional costs or delays in completing, or ultimately make us unable to complete, the development
and commercialization of our product candidates.
The process of manufacturing biologics is susceptible to product loss or unavailability
due to contamination, degradation, instability, equipment failure, lack of critical reagents or disposables, improper installation or
operation of equipment, vendor or operator error leading to process deviations or any other factor. Even minor deviations from normal
manufacturing processes could result in reduced production yields, product defects and other supply disruptions up to supply termination.
If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are
made, the products may need to be manufactured again and/or such manufacturing facilities may need to be closed for an extended time to
investigate and remediate the contamination. In addition, the product manufactured may be determined at later stage to be insufficiently
stable or qualified as a therapeutic agent, even following treatment.
We have not contracted with alternate suppliers in the event we experience any problems
with our current manufacturer. If we are unable to arrange for alternative third-party manufacturing sources or are unable to reserve
another manufacturing slot with our current manufacturer, or are unable to do so on commercially reasonable terms or in a timely manner,
we may incur additional costs or be delayed in the development or delivery of our current and future product candidates, which can cause
us material harm.
It may be difficult to manufacture therapeutic products addressing
our drug target candidates.
Our therapeutic pipeline is focused mainly on monoclonal antibodies,
or mAbs, generated against our discovered targets. These types of therapeutics can be difficult to manufacture in the quantity and quality
needed for preclinical, clinical and commercial use. The production of mAbs must be conducted pursuant to a well-controlled and reproducible
process and the resulting product testing must conform to defined quality standards. Should it prove to be difficult to manufacture or
repeat manufacturing, of any therapeutics addressing our drug candidates in sufficient quantities or commercial scale, meeting the required
quality standards or in an economical manner to conduct clinical trials and to commercialize any approved therapeutic candidate, our business,
financial condition and results of operations would be materially harmed.
We or any of our collaborators, or third-party
manufacturers, may fail to comply with regulatory and legal requirements, and we or they could be subject to enforcement or other regulatory
actions.
If we or any of our collaborators or third-party manufacturers
with whom we work or with whom we may enter into agreements in the future fail to comply with applicable federal, state or foreign laws
or regulations, or other legal obligations we or they could be subject to enforcement or other regulatory actions. These actions may include:
| • |
warning letters; |
| • | clinical trial holds; |
| • |
recalls, product seizures or medical product safety alerts; |
| • |
data lock or order to destroy or not use personal data; |
| • |
restrictions on, or prohibitions against, marketing such products; |
| • |
restrictions on importation of such products; |
| • |
suspension of review or refusal to accept or approve new or pending applications; |
| • |
withdrawal of product approvals; |
12
| • |
injunctions; |
| • |
civil and criminal penalties and fines; or |
| • |
debarment or other exclusions from government programs. |
If we or our collaborators become subject to such enforcement actions, these enforcement
actions could affect the ability to successfully develop, market and sell therapeutic products based on our discoveries and could significantly
harm our financial status and/or reputation and lead to reduced acceptance of such products by the market. In addition, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement or imprisonment.
We may require companion or complimentary diagnostics
and/or biomarkers for our clinical trials, or a portion of our clinical trials, and may be required to have such to obtain marketing approval
or commercialization of our therapeutic programs. Failure to successfully discover, develop, validate and obtain regulatory clearance
or approval for such tests could harm our patients’ selection strategy and may harm our clinical outcome.
Companion or complimentary diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities and may require separate regulatory authorization prior to commercialization. We may require for our clinical
trials or for certain portions of our clinical programs, companion diagnostics and/or biomarkers to correctly identify the right patients
for the appropriate indications. We rely on access to patient tumor and blood samples for analysis of protein, DNA, and RNA biomarkers.
We may rely on third parties for the tumor and blood samples’ handling, processing, and analysis, discovery, development, and validation
of these potential biomarker candidates, biomarkers and/or companion diagnostics, as well as the application for and receipt of any required
regulatory authorization. If we, or the third parties we engage for this purpose, are unable to successfully discover, validate and/or
develop the required companion diagnostics and/or biomarkers for our clinical programs, or develop with altered specifications, or experience
delays in doing so, the development of our clinical candidates may be adversely affected and this can harm our patient selection and our
clinical outcome, as well as obtaining marketing authorization for these product candidates.
Our current and future relationships, and/or
the relationships of our collaborators through which we may market, sell, and distribute our products, with healthcare professionals,
physicians and other parties in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud
and abuse, false claims, physician payment transparency, health information and general privacy and security and other healthcare laws
and regulations, which could expose us to adverse consequences.
Our current and future business operations, and our or our collaborators’ business
and financial arrangements and relationships with healthcare providers, physicians and other parties through which we or our collaborators
may market, sell and distribute our products, once approved, may be subject to extensive U.S. federal, U.S. state and foreign healthcare
fraud and abuse, transparency, health information and general data privacy and security laws. For example, U.S. federal civil and criminal
laws and regulations prohibit, among other things: knowingly and willfully soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending or arranging for a good
or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs; knowingly presenting
or causing to be presented, a false or fraudulent claim for payment by a federal healthcare program; and knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program (including a private payor), or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for,
healthcare benefits, items or services. Many U.S. states and foreign countries have analogous prohibitions that may be broader in scope
and apply regardless of payor. In addition, we may be subject to U.S. federal, U.S. state and foreign laws that require us to report information
related to certain payments and other transfers of value to certain health care professionals, as well as ownership and investment interests
in our company held by those health care professionals and their immediate family members, and health information and general security
and privacy laws that restrict our practices with respect to the use and storage of certain health information and other data.
Efforts to ensure that our current and future business arrangements with third parties
comply with applicable healthcare laws and regulations may involve substantial costs. If we or our collaborators are found to be in violation
of any of these laws, we or our collaborators could be subject to significant civil, criminal and administrative penalties, including
damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, additional integrity oversight
and reporting obligations, contractual damages, reputational harm and the curtailment or restructuring of our operations, any of which,
whether enforced against us or our collaborators, could significantly harm our business and our royalties from any of our products, once
approved, that we license to such collaborators.
13
Risks Related to our Discovery and Development Activities
There are risks that are inherent in the development
and commercialization of new therapeutic products.
We and our collaborators face a number of risks of failure that are inherent in the
lengthy and costly process of developing and commercializing new therapeutic products. These risks, which typically result in very high
failure rates even for successful biopharmaceutical companies, include, among others, the possibility that:
| • |
our new target candidates will prove to be inappropriate for treatment of cancer; |
| • |
our new target candidates will prove to be inappropriate targets for therapeutic product candidates; |
| • |
our new target candidates will prove to be inappropriate targets for immunotherapy; |
|
• |
we will not succeed in selecting the appropriate
indication for the therapeutic product candidate; |
|
• |
we will not succeed in choosing the appropriate
mAb for these targets, or the appropriate mAb lead or the appropriate mAb isotype; |
|
• |
we will not succeed in identifying or developing
a biomarker or companion diagnostic for our therapeutic product candidates; |
| • |
we will not succeed in choosing the appropriate drug modality for these targets; |
| • |
our therapeutic product candidates will fail to progress to preclinical studies or clinical trials; |
| • |
our therapeutic product candidates will be found to be therapeutically ineffective; |
|
• |
we will not choose the right combinations
for our therapeutic product candidates; |
| • |
our therapeutic product candidates will be found to be toxic or to have other unacceptable side effects or negative consequences;
|
| • |
our therapeutic product candidates will be inferior, or not show added value, compared to competing products or the standard of care;
|
| • |
our early stage development efforts may provoke competition by others; |
| • |
our products covered by our collaborations may face internal competition from our partners’ internal pipeline; |
| • |
we or our collaborators will fail to receive required regulatory approvals; |
| • |
we or our collaborators will fail to manufacture our therapeutic product candidates in the quantity or quality needed for preclinical
studies or clinical trials on a large or commercial scale, on time or in a cost-effective manner or with the drug stability required;
|
| • |
the discovery of drug targets and the discovery, development or commercialization of our therapeutic product candidates will infringe
third-party intellectual property rights; |
| • |
the development, marketing or sale of our therapeutic product candidates will fail because of our inability or failure to protect
or maintain our own intellectual property rights; |
| • |
once a product is commercially available, there will be little or no demand for it for a number of possible reasons, including lack
of acceptance by the medical community or by patients, lack of or insufficient coverage and payment by third-party payors, inefficient
or insufficient marketing and sales activities or as a result of there being more attractive, less risky or less expensive, products available
for the same use; and |
|
• |
the product will be withdrawn from the market,
or sales limited due to side effects observed in clinical practice. |
If one or more of these risks or any similar risks should materialize, our business, financial condition
and results of operations may be materially harmed.
14
We have limited experience in the development
of therapeutic product candidates, and we may be unable to implement our business strategy.
Our experience in the development of therapeutic product candidates is limited. Therefore,
we may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business
objectives. To successfully develop and commercialize therapeutic products, we must either access such expertise via collaborations, consultants
or service providers, and/or enhance and improve our internal expertise and capabilities.
If we are not able to attract, retain and motivate necessary personnel or third party
service providers or collaborators to accomplish our business objectives or fail to have available, at the appropriate times, the required
experience and expertise for the further development and commercialization of our therapeutic product candidates, we may be unsuccessful
in these activities, or these activities may be significantly delayed and as a result we may be unable to implement our business strategy
and our business would be materially harmed.
Our computational target discovery activities
are primarily focused on the discovery of new drug target candidates and our therapeutic pipeline is based on our discovered targets.
While we believe that our drug target programs represent a compelling and unique opportunity
to generate potentially first-in-class therapeutics in the field of cancer immunotherapy,
they require significant investment in the research and validation of the drug target candidate and in the discovery and development of
the respective therapeutic product candidate and bear high risk. Our predictive computational discovery capabilities are a source for
the development of potential first-in-class therapeutics in the field of cancer immunotherapy, but the inherent lack of sufficient published
scientific and clinical data to support the potential of these new drug targets candidates to serve as therapeutic opportunities, increases
the risk of failure. Although we have built the target identification, validation and drug discovery infrastructure and capabilities that
we believe are required to scientifically validate our new drug targets and to later translate them into therapeutic antibody development
programs, we cannot be assured that our investment in such new discoveries will result in validated drug targets that will enable the
development of effective cancer immunotherapies, nor that we will realize success in product development or our ability to partner and
commercialize such opportunities and generate revenues.
Our approach to the discovery of therapeutic
products is based on our predictive computational discovery capabilities that are not yet fully proven clinically, and we do not know
whether we will be able to discover and develop additional potential product candidates or products of commercial value.
Our method of identifying novel drug targets is based on our predictive computational
discovery capabilities and involves first identifying unmet needs in the field of cancer immunotherapy, where we believe our predictive
computational discovery capabilities would be relevant or could be modified to be relevant. We focus on the discovery of drug targets
that could serve as the basis for the development of possible treatments for patients non-responsive, refractory or relapsing to existing
cancer immunotherapies. In this field, we apply our predictive computational target discovery capabilities, or develop new capabilities,
to identify novel drug targets for addressing such unmet patient need.
While we believe that applying our predictive computational discovery capabilities
to identify new drug targets may potentially enable the development of potentially first-in-class therapeutics in the field of cancer
immunotherapy, our capabilities are yet not fully proven clinically and our efforts may not result in the discovery and development of
therapeutic products, or commercially viable or successful therapeutic products. Although our approach has resulted in the discovery of
several new drug targets and their related potential first-in-class therapeutic product candidates in the field of cancer immunotherapy,
they are in early stages of research and development or in clinical stage, with COM701 and bapotulimab (formerly known as BAY1905254),
having entered the clinic in 2018, COM902 which entered the clinic in March 2020 and AZD2936 which entered the clinic in the fourth quarter
of 2021. Our approach may not result in time savings, higher success rates or reduced costs, or clinically meaningful programs and if
not, we may not attract collaborators or develop new drugs as quickly or cost effectively or at all and therefore we may not be able to
partner and commercialize our products as expected.
15
We are focusing our discovery and therapeutic
development activities on therapeutic product candidates for uses in immuno-oncology. Our current candidates may fail, and we may fail
to continue to discover and develop therapeutic product candidates of industry interest in this field.
The focus of our discovery and therapeutic development activities is on mAb therapeutics
in the field of immuno-oncology for treatment of cancer. As a result, we are not undertaking internal discovery and development activities
in other therapeutic areas or for other drug modalities, and presently we only pursue activities in our area of focus. If our current
candidates fail, or if we fail to continue to discover and develop therapeutic product candidates of medical interest in this field or
if we are unable to discover drug targets for mAb therapeutics, or if other modalities would be more successful in treating cancer patients,
our business will likely be materially harmed. With respect to cancer immunotherapies, although there have been positive clinical results
reported by others resulting in some products gaining approval by the FDA, there can be no assurance that our therapeutic product candidates
or our earlier stage immuno-oncology target candidates in our pipeline, will provide similar clinical advantages or interest, that no
long term adverse effects will be seen, or that other classes of targets or other products will not be discovered and developed with comparable
or superior attributes or clinical activity. In the event of any of these occurrences, the actual and/or perceived value of a substantial
portion of our pipeline would likely be reduced in which case our business may be materially harmed. To date, we have signed three partnership
agreements involving our product candidates. There is no assurance that we will be able to enter into additional collaborations or agreements
on reasonable terms, if at all. In addition, if we fail to continue to discover and validate drug targets or develop product candidates
of industry interest in our field of focus, our business will likely be materially harmed. There are many risks associated with our decision
to focus on immuno-oncology that include, among others:
| • |
not being able to discover new drug targets in this field; |
|
• |
our full scope of target discovery capabilities
may not be adequate; |
| • |
not having chosen the right therapeutic area; |
| • |
having chosen a therapeutic area with a very high degree of competition; |
| • |
having chosen a therapeutic area of great biological complexity and with very high failure rates in product development; |
| • |
not choosing the appropriate drug modality; |
| • |
having insufficient knowledge, expertise, personnel or capabilities in our chosen therapeutic area to identify the right unmet medical
needs, or drug targets, or to timely, properly and efficiently validate the targets and/or select the appropriate mAb for further development
as therapeutic product candidates, or to timely, properly or efficiently further them in development; and |
| • |
the inherent risk of high program failure rate throughout therapeutic development. |
In each case, our failure could be due to lack of experience and expertise, delays
in our internal research programs or applying the wrong criteria or experimental systems and procedures, or selecting an inappropriate
drug modality, or unanticipated scientific, safety, activity or efficacy issues with our selected drug targets or product candidates,
with the possible result that none of our product candidates result in licensed or marketable products. If any of these risks should materialize,
our business, financial condition and results of operations would be materially harmed.
We may focus our efforts
and resources on a particular target or therapeutic candidate or indication and fail to focus our efforts on targets or therapeutic candidates
or indications that may be more successful.
Due to our limited resources and experience and due to the early
stage of our discoveries, we prioritize our research programs and focus to programs that, we believe, based on limited and preliminary
amount of data, seem to have the highest potential. As a result, we might focus our limited resources on the wrong target or therapeutic
candidates or focus our candidates on the wrong therapeutic indication and delay in pursuing or fail to pursue candidates that might be
later proven (or never proven) as more successful.
Risks Related to Our Dependence on Third Parties
We depend significantly on third parties to
carry out the research, development and commercialization of our therapeutic product candidates. If we are unable to maintain our existing
agreements or to enter into additional agreements with such third parties, including collaborators, in the future, our business will likely
be materially harmed.
Our primary strategy for the development and commercialization
of products based on our drug target and therapeutic product candidates depends on third parties to carry out and/or finance, the research,
development and commercialization of such products, principally by pharmaceutical and biotechnology companies and other healthcare related
organizations and CROs, either on their own or in collaboration with us. To date, we have entered into three partnership agreements with
respect to our drug target candidates. We cannot be sure that any of the agreements will result in the successful development or commercialization
of any product. Further, we cannot provide assurance that we will succeed in identifying additional suitable parties or entering into
any other additional agreements on satisfactory terms or at all for the discovery, research, development and/or commercialization of our
drug target or therapeutic product candidates. If we are unable to identify such additional suitable parties or enter into new agreements
on satisfactory terms, or at all, our business will likely be materially harmed.
16
We rely and expect to continue to rely completely
on third parties to manufacture and supply our preclinical and clinical drug supplies. Our business could be harmed if those third parties
fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality and quantity levels, prices or timelines.
We do not currently have, nor do we plan to acquire, the infrastructure or capability
internally to manufacture our preclinical and clinical drug supplies for use in the conduct of pre-clinical testing and our clinical trials,
and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. In order
to develop products, apply for regulatory approvals and commercialize our products, we will need to develop, contract for, or otherwise
arrange for access to the necessary manufacturing capabilities. We rely and expect to continue to rely on contract manufacturing organizations,
or CMOs, and other third-party contractors to manufacture formulations and produce larger scale amounts and/or commercial-scale of drug
substance and drug products required for any clinical trials that we initiate and other related services. Such third parties may not be
able to deliver in a timely manner, or at all, or may fail to comply with the FDA’s current Good Manufacturing Practice, or cGMP,
to manufacture our drugs in the required quality or quantity. We have entered into manufacturing and supply agreements with third parties
for the manufacturing and respective analytics of each of COM701 and COM902, for which we have ongoing Phase 1 clinical trials. In addition,
in October 2018 we entered into a master clinical trial collaboration agreement, as amended from time to time, or the MCTC, with Bristol
Myers Squibb, to evaluate combinations of COM701 with Bristol Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo® and its
investigational antibody targeting TIGIT known as BMS-986207. Pursuant to the MCTC, Bristol Myers Squibb provides us at no cost Opdivo®
and BMS-986207. Accordingly, if any of these third parties breach, terminate or otherwise are unable to fulfill their obligations under
the agreements for drug supply, we would need to identify an appropriately qualified alternative source, which could be time consuming,
and we may not be able to do so without incurring material delays and costs in the development of our products, including COM701 and COM902.
The manufacturing process for any products based on our technologies that we or our
partners may develop is subject to the FDA regulation and foreign regulatory authority approval process, and we will need to contract
with manufacturers who can meet cGMP requirements and foreign regulatory authority requirements on an ongoing basis. In addition, if we
receive the necessary regulatory approval for any therapeutic drug candidate, we also expect to rely on third parties, to produce materials
required for commercial supply. We may experience difficulty in obtaining adequate manufacturing capacity for our needs, adequate and
sufficient material as well as difficulties and challenges in technology transfer from one manufacturer to the other, as needed. If we
are unable to obtain or maintain adequate manufacturing sources for these product candidates, or to do so on commercially reasonable terms
and adequate timeline, quality and quantity, we may not be able to successfully develop and commercialize our products.
To the extent that we enter into manufacturing or supply arrangements with third parties,
we will depend on these third parties to perform their obligations in a timely manner and consistent with regulatory requirements, including
those related to quality control and quality assurance. We are also dependent upon these third parties with respect to critical reagents
supply, supplies required for our manufacturing and quality control, packaging, labelling, storage and others. The failure of a third-party
manufacturer or supplier to perform its obligations as expected could adversely affect our business in a number of ways, including:
| • |
we may not be able to initiate or continue preclinical and clinical trials of products that are under development; |
17
| • |
we may experience significant disruption and delay to our clinical supply chain; |
| • |
we may experience significant adverse effect if we are unable to transfer the manufacturing process to a different third-party manufacturer
in a timely and efficient manner; |
| • |
we may need to repeat clinical trials or stop our clinical trials; |
| • |
we may be delayed in submitting regulatory applications, or receiving regulatory approvals, for our product candidates; |
| • |
we may lose the cooperation of our collaborators; |
| • |
we may be required to cease distribution or recall some or all batches of our products; and |
| • |
ultimately, we may not be able to meet commercial demands for our products, if approved. |
If a third-party manufacturer or supplier with whom we contract fails to perform its
obligations, we may be forced to manufacture or otherwise obtain the materials ourselves, for which we do not currently and may not in
the future have the capabilities or resources, or identify and qualify a different third-party manufacturer, which we may not be able
to do timely or on reasonable terms, if at all. In some cases, the technical skills or processes required to manufacture our product may
be unique to the original manufacturer and we may have difficulty transferring such skills or processes to a back-up or alternate manufacturer
or supplier, or we may be unable to transfer such skills or processes at all. In addition, if we are required to change manufacturers
for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards
and with all applicable regulations and guidelines. We will also be required to demonstrate that the newly manufactured material is similar
to the previously manufactured material, or we may need to repeat clinical trials with the newly manufactured material. The delays associated
with the verification of a new manufacturer could negatively affect our ability to develop product candidates or commercialize approved
products in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product
candidate that such manufacturer owns independently, which would increase our reliance on such manufacturer or require us to obtain a
license from such manufacturer in order to have another third-party manufacture our products.
Our dependence on collaboration agreements
with third parties presents number of risks.
The risks that we face in connection with our existing collaborations,
licenses and other business alliances as well as those that we may enter into in the future include, among others, the following:
| • |
we may be unable to reach mutually agreeable terms and conditions with respect to potential new collaborations; |
| • |
we or our collaborators may be unable to comply or fully comply with the obligations under collaboration agreements to which we are
(or will become) a party, and as a result, we may not generate royalties or milestone payments from such agreements, and our ability to
enter into additional agreements may be harmed; |
| • |
our obligations under existing or future collaboration agreements may harm our ability to enter into additional collaboration agreements;
|
| • |
our collaborators have significant discretion in electing whether to pursue any of the planned activities and the manner in which
it will be done, including the amount and nature of the resources to be devoted to the development and commercialization of our product
candidates; |
| • |
our collaborators have significant discretion in terminating the collaborations for scientific, clinical, business or other reasons;
|
| • |
if our collaborators breach or terminate an agreement with us, the development and commercialization of our therapeutic product candidates
could be adversely affected because at such time we may not have sufficient financial or other resources or capabilities or access to
the other partner’s data and drug(s) to successfully develop and commercialize these therapeutics on our own or find other partners
or enforce our rights under breached or terminated agreement; |
| • |
our collaborators may fail to design and implement or analyze appropriate preclinical and/or clinical trials; |
| • |
our collaborators may not have an access to the drug combination treatment required for an effective treatment; |
18
| • |
our collaborators may not be able to identify biomarkers that may be required for further product development or approval;
|
| • |
our collaborators may require us changing or adopting the trial design to fit their business priorities, standards and other objectives;
|
| • |
our collaborators may fail to manufacture our therapeutic product candidates needed for either clinical trials or for commercial
purposes on a sufficiently large scale, in the required quality and/or in a cost-effective manner; |
| • |
our collaborators may fail to develop and market products based on our discoveries due to various development hurdles or regulatory
restrictions; |
| • |
our collaborators may fail to develop and market products based on our discoveries prior to the successful marketing of competing
products by others or prior to expiry of the patents protecting such products; |
| • |
changes in a collaborator’s business strategy may negatively affect its willingness or ability to complete its obligations
under its arrangement or to continue with its collaboration with us; |
| • |
our collaborators may terminate the program or the agreement and then compete against us in the development or commercialization
of similar therapeutics; |
| • |
our collaborators may terminate the program or the agreement due to the competitive threat we may present to them with similar products;
|
| • |
ownership of the intellectual property generated under or incorporated in our collaborations may be disputed; |
| • |
our ownership of rights in any intellectual property or products that may result from our collaborations may depend on additional
investment of resources that we may not be able or willing to make; |
| • |
prospective collaborators may pursue alternative products or technologies, by internally developing them or by preferring those of
our competitors; |
| • |
disagreements between us and our collaborators may lead to delays in, or termination of, the collaboration; |
| • |
our collaborators may fail to develop or commercialize successfully any products based on our novel drug targets or therapeutic product
candidates to which they have obtained rights from us; |
| • |
we or our collaborators may not choose the right drug combinations for our therapeutic product; |
| • |
our collaborations may face internal competition by their internal pipelines; |
| • |
prospective collaborators may hesitate to pursue collaborations on novel target candidates that lack robust validation to serve as
a basis for the development of therapeutics; and |
| • |
our collaboration partners may be acquired by, acquire, or merge with, another company, and the resulting entity may have different
priorities or competitive products to the collaboration product being developed previously by our partner. |
If any of these risks should materialize, our business, financial condition and results of operations may
be materially harmed.
Our existing agreements for our drug candidates
are subject to many risks.
In August 2013, we entered into a Research and Development Collaboration and License
Agreement with Bayer Pharma AG, or Bayer, for the research, development, and commercialization of antibody-based therapeutics for cancer
immunotherapy against a novel, Compugen-discovered immune checkpoint regulator CGEN-15001T/ILDR2, for which the therapeutic antibody bapotulimab (formerly
known as BAY1905254) is currently being evaluated in a Phase 1 clinical trial. The collaboration with Bayer, or the Bayer Collaboration,
continues until Bayer is no longer required to make payments under the agreement or until otherwise terminated by either party in accordance
with the terms of the agreement. Bayer may also terminate the agreement, at any time with or without cause on a product-by-product and/or
country-by country basis, upon prior written notice. Upon any termination of the agreement, depending upon the circumstances, the parties
have varying rights and obligations with respect to the continued development and commercialization of any products and or various payment
and royalty obligations in the event of such continuation of the development and commercialization.
19
In March 2018, we entered into
an exclusive license agreement with MedImmune Limited, the global biologics research and development arm of AstraZeneca, which is currently
part of AstraZeneca, or AstraZeneca. Under the terms of the license agreement, we provided an exclusive license to AstraZeneca to use
our monospecific antibodies that bind to TIGIT, including COM902, for the development of bi-specific and multi-specific antibody products,
excluding such bi-specific and multi-specific antibodies that also bind to PVRIG, PVRL2 and/or TIGIT. In connection with such license
agreement, AstraZeneca developed AZD2936, a novel TIGIT/PD-1 bispecific antibody with a TIGIT component that is derived from our COM902.
Subject to termination rights for material breach, bankruptcy or by us for patent challenge by AstraZeneca, the term of the license agreement
continues until the expiration of the last royalty term in the territory as further specified in the license agreement. In addition, AstraZeneca
may terminate the agreement for convenience upon prior written notice.
In October 2018, we entered into a master clinical trial collaboration agreement
with Bristol Myers Squibb, or the MCTC, to evaluate the safety and tolerability of COM701 in combination with Bristol Myers Squibb’s
PD-1 immune checkpoint inhibitor Opdivo® (nivolumab), in patients with advanced solid tumors. In February 2020, the MCTC was amended
to include a clinical trial, sponsored by Compugen, to evaluate the safety, tolerability and antitumor activity of COM701 in combination
with Opdivo® (nivolumab), and Bristol Myers Squibb’s investigational antibody targeting TIGIT known as BMS-986207, in patients
with advanced solid tumors. In February 2021, such MCTC was further amended to include an expansion of the Phase 1 combination trial designed
to evaluate the dual combination of COM701 and Opdivo® in patients with advanced solid tumors and in November 2021 the MCTC was further
amended, among other things, to establish a joint steering committee (alongside the existing joint development committee which acts at
an operational level) to facilitate strategic oversight and guidance for the programs run under the collaboration. Pursuant to the terms
of the MCTC, as amended, subject to termination rights for breach, bankruptcy or a material safety issue or clinical hold, the term of
the MCTC, as amended, will continue in effect until completion by all centers or institutions participating in combined therapy trials,
the delivery of trial data to both parties and the completion of any then agreed upon protocol(s), statistical analysis and bioanalysis
plan. In the event a third-party merges with or acquires us, we are free to assign or transfer the agreement without the consent of Bristol
Myers Squibb. Such third-party must expressly assume in writing all of our rights and obligations under the MCTC, as amended.
Each of these agreements were entered into for Compugen-discovered drug candidates
and is subject to all of the risks as set forth above with respect to our dependence in general on collaboration agreements with third
parties.
If significant adverse unforeseen events occur in our collaborations or they are terminated,
particularly prior to our signing additional collaboration agreements, our business and financial condition may be materially harmed.
Our reliance on third parties for the performance
of key activities heightens the risks faced by our business.
We invest significant efforts and resources into outsourcing certain key functions
with third parties, including certain preclinical activities, drug development activities, manufacturing operations, research, validation,
discovery and others. We do not control the third parties to whom we outsourced these functions and have limited internal expertise to
appropriately manage their activities. However, we are dependent on them to undertake activities and provide services, results, our product
candidates or materials, including the production of certain biological reagents, which may be significant to us. If these third parties
fail to properly or timely perform these activities or provide us with incorrect or incomplete services or results or fail to produce
and/or provide certain materials, tests or analysis, this could lead to significant delays in the program or even program failure, along
with significant additional costs and damage. In addition, should any of these third parties fail to comply with the applicable laws and
regulations and/or research and development or manufacturing accepted standards in the course of their performance of services for us,
there is a risk that we could be held responsible for such violations of law as well. Any such failures by third parties could have a
material adverse effect on our business, financial condition or results of operations.
Moreover, we do not always independently verify the results obtained by such third
parties and in some cases, rely upon the data provided by the third-party. If we fail to identify and obtain accurate and quality data,
services and/or technologies from such third parties, or if the contractual demands of such third parties become unreasonable and we are
not able to reach satisfactory agreements with such third parties, we may lose our investment in these services, fail to receive the expected
benefits from our discoveries, and our validation and development capabilities, clinical trials or other activities or our final products,
may be significantly harmed, delayed or terminated.
20
We may need to obtain third-party drugs for
combination with our clinical programs that may not be available to us or are available only on commercially unreasonable terms, and which
may cause us to either not perform the right clinical trial, or not perform the clinical trial for the right indication, or in a more
costly manner or otherwise adverse manner that was not anticipated.
We may need to obtain certain drugs from third parties to further develop our
drug candidates to work in combinations with other drugs for selected indications in order to commercialize our drug candidates.
If we fail to obtain these drugs or license thereof, our drug candidates may not be sufficiently efficient, and we may not be able to
pursue them through development and commercialization.
Risks Related to Competition and Commercialization
Our business model is challenging to implement
and to date has not yielded significant revenues.
Our discovery and development capabilities are designed to identify and develop novel
products addressing a specific unmet need and enter into collaborations with partners with respect to such novel products. Our objective
is that under these collaborations, we will have the right to receive various forms of revenue from such products. To date, we have entered
into three partnership agreements with respect to our pipeline programs. There can be no assurance that any current or future agreements
for novel targets based on our discoveries and associated product candidates will be successful and thus provide significant revenues
to us, nor can there be any assurance that we will be able to enter into additional future agreements. If we are unable to succeed in
securing additional license agreements or other collaboration arrangements related to our discoveries, our business may be materially
harmed.
Two clinical candidates against our discovered novel targets entered Phase 1 clinical
trials in 2018, one executed by us (COM701) and the second by Bayer under the Bayer Collaboration. An additional clinical candidate (COM902)
against our discovered novel target entered into a Phase 1 clinical trial in 2020 and is pursued by us. A fourth clinical candidate pursued
by AstraZeneca (derived, among others, from COM902) entered into a Phase 1/2 clinical trial in 2021. There can be no assurance that we
will be able to establish additional collaborations for COM701 or COM902 or for our early-stage programs in the target discovery, research
and validation stage. Failure to enter into collaborations, may materially harm our business. The research and validation data generated
to date for our early-stage pipeline and the clinical data generated to date for COM701 and COM902 may not be sufficient to attract interest
from prospective collaborators and we may fail to generate data suitable to draw interest with potential partners. Furthermore, our drug
target candidates or therapeutic product candidates may not fit their corporate or clinical strategy. These companies may require more
data, including their independent testing of our early-stage therapeutic product candidate, before considering a collaboration. We are
therefore dependent on the potential fit of our programs with individual pharmaceutical company strategies and there can be no assurance
that we will be able to identify additional partners interested in our programs at their current stages. This may adversely affect our
ability to enter into additional agreements for the research, development, license or other form of collaboration or commercialization
of our therapeutic product candidates, and as a result may harm our business.
Additionally, we may not be able to demonstrate efficacy or safety, prove our preclinical
hypothesis or obtain approval for and commercialize our products as monotherapy treatments. We may be required to combine our product
candidates with other products to provide sufficient data for approval by FDA and other regulatory authorities, in all or in specific
indications (which may require our dependency on third-party drugs). As part of our business strategy, we are looking to establish clinical
collaborations with pharmaceutical and biotechnology companies to specifically test the hypothesis that there may be greater effects when
combining our products with other products. In October 2018, we entered into MCTC with Bristol Myers Squibb to evaluate the safety and
tolerability of COM701 in combination with Bristol Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo®.
Such agreement was amended several times since then and we are currently evaluating the safety, tolerability and antitumor activity of
COM701 in combination with Opdivo®,
and of COM701 in combination with Opdivo®
and with and Bristol Myers Squibb’s investigational antibody targeting TIGIT known as BMS-986207. See “Business Strategy and
Partnerships - Bristol Myers Squibb Collaboration” below. There can be no assurance that we will be able to establish additional
clinical collaborations or to maintain existing collaborations. Failure to enter into combination clinical collaborations may materially
harm our business. These potential combination products may include both marketed as well as investigational products, and as such, adverse
events resulting from combining the products or investigational agents are unknown and could be severe, including resulting in death of
the patient due to these unknown toxicities. There is an industry trend towards drug combinations in the field of cancer immunotherapy
which may result in a situation under which our therapeutic product candidates will serve in a combination product and may therefore be
entitled to only a fraction of the anticipated product revenues. These trends may adversely affect any revenues we may be entitled to
receive and as a result may harm our business.
21
We operate in a highly competitive and rapidly
changing industry which may result in others discovering, developing or commercializing competing products before us or more successfully
than we do.
The biotechnology and biopharmaceutical industries are
highly competitive, subject to consolidation, characterized by rapid and significant technological advancements, and have a strong emphasis
on proprietary products. Our success is highly dependent upon our ability to identify, develop and obtain regulatory approval for therapeutic
products based on our discovered novel drug targets. In doing so, we face and will continue to face intense competition from a variety
of businesses, including large, fully integrated, well-established pharmaceutical companies, specialty pharmaceutical and biopharmaceutical
companies, academic institutions, government agencies and other private and public companies and research institutions.
Many of the companies against which we are competing or against which we may compete
in the future have significantly greater resources and expertise in research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. These competitors and others may develop competing
products targeting the same mechanisms, the same drug targets and pathways as our products, or the same therapeutic indications and they
can leverage their resources or use different approaches than we do to receive marketing approval before our products. Additionally, these
third parties compete with us in recruiting and retaining qualified scientific, drug development and management personnel and advisors,
establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or
necessary for, our programs. Mergers and acquisitions in the biopharmaceutical industry, such as the acquisition of Celgene by Bristol
Myers Squibb in 2019 could result in even more resources being concentrated among a small number of our competitors or change in potential
acquirers’ preferences. In addition, increased industry interest and deals in the anti-TIGIT and anti-PVRIG field may further enhance
the competition for our clinical stage assets COM902 and COM701 and may include companies with significantly greater resources and capabilities
than we have. For example, in January 2022 Coherus exercised its option to Junshi Biosciences’ TIGIT-targeted antibody JS006, in
December 2021 Novartis signed an option, collaboration and license agreement with Beigene for its TIGIT inhibitor ociperlimab, in November
2021 Gilead and Taiho each exercised its option to Arcus’ anti-TIGIT antibodies domvanalimab and AB308 each pursuant to its respective
territorial rights, in June 2021 GSK and iTeos Therapeutics entered into an agreement to co-develop and co-commercialize iTeos’
anti-TIGIT antibody EOS-448, and in December 2020 GSK licensed worldwide development and commercial rights to Surface Oncology’s
preclinical program SRF813 (now GSK4381562), an antibody targeting PVRIG which has received FDA IND clearance in December 2021.
Competition may further increase as a result of advances in the commercial applicability
of technologies similar to our predictive computational discovery capabilities and greater availability of capital for investment in these
industries. Over the last several years, there has been an increase in the interest of pharmaceutical companies, the healthcare community
and the investment community in applying computational methodologies, mostly Artificial Intelligence (AI) and Machine Learning (ML) algorithms,
to the field of data-driven drug discovery/healthcare. This interest may be seen in the increase in the number of companies within the
pharmaceutical and biotech industries which focus on this area, including by way of establishing internal AI and/or ML capabilities or
receiving investments or entering into partnerships or acquisitions in furtherance thereof. Our competitors may succeed in discovering
targets and therefore also develop products that are competitive to ours.
In addition, there is a trend towards consolidation in the pharmaceutical, diagnostic
and biotechnology industry, which may result in the remaining companies having greater financial resources and discovery and technological
capabilities, thus intensifying competition in our industry. This trend may also result in fewer potential collaborators or licensees
for our therapeutic product candidates. Also, if a consolidating company is already doing business with our competitors, we may lose existing
or potential licensees or collaborators as a result of such consolidation. In addition, if a consolidating company is already doing business
with us, we may lose the interest of the consolidating parties in our discovery capabilities or individual discoveries or product candidates
as a result of a modified strategy, new priorities, competition and revised capabilities or portfolio of such consolidated entity. This
trend may adversely affect our ability to enter into agreements for the development and commercialization of our therapeutic product candidates
or to keep current collaborations in place or on-track and as a result may harm our business.
22
Established biopharmaceutical companies may invest heavily to accelerate discovery
and development of novel drug targets or therapeutic products or to in-license novel drug targets or therapeutic products that could make
our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling
advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful.
Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving FDA approval for or commercializing
drugs before we do, which would have an adverse impact on our business and results of operations.
Potential collaborators, including major pharmaceutical
companies, might be hesitant to pursue target validation and preclinical and clinical development programs based on novel targets lacking
robust experimental validation results particularly those discovered through a computational discovery approach.
There is a need for new drug targets generating new treatment options for patients
who are non-responsive or refractory to current immunotherapies. Our business model includes selectively entering into collaborations
for novel targets and related therapeutic product candidates at various stages of research and development under various revenue-sharing
arrangements. Entering into collaborations with product candidates and targets
at an early stage in the validation or drug discovery process is significantly more challenging than identifying partnerships for later-stage
products that would have a more complete data package to support its clinical and business potential. In addition, although we have demonstrated
success in validating our predictive computational discovery capabilities with product candidates in human clinical trials, major pharmaceutical
companies may be hesitant to enter into early-stage collaborations based on newly discovered targets, more so if discovered by computer,
as opposed to drug targets with human clinical trial data, or product candidates with significant published experimental validation. Therefore,
we cannot assure that our business model to enter into commercialization arrangements for our early-stage novel targets and product candidates
will be successful.
The agreement cycle for potential
collaborations is complex and long to implement and, if we are not able to establish collaborations on commercially reasonable terms,
we may expend substantial funds and management resources with no assurance of success.
In general, each potential license agreement or other form of collaboration we may
enter into will require negotiating with our potential collaborator, a large number of scientific, legal and business terms and conditions
that can vary significantly in each instance due to the specific drug target or therapeutic product candidate or candidates involved,
the potential market opportunity, the potential collaborator’s licensing, development and business operations and strategy, and
competition in the partnering and business development space. The accommodation of these requirements mandates a thorough consideration
of both the scientific and business aspects of each transaction.
Whether we reach a definitive agreement for new collaborations will depend, among
other things, upon our assessment of the collaborator’s resources, capabilities and expertise, the terms and conditions of the proposed
collaboration, the proposed collaborator’s evaluation of our business, drug targets and therapeutic product candidates, and the
competition in the business development space. We may not be successful in our efforts to establish a collaboration or other alternative
arrangements for future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort
and third parties may not view them as having the requisite potential to demonstrate safety and efficacy or may find any other development
hurdles and challenges as a limiting factor. If we are unable to do so, we will need to expend substantial funds and substantial key personnel
time and effort into these business development activities with no assurance of successfully entering into agreements with potential collaborators
and this could harm our business.
We rely on our predictive computational discovery
capabilities to identify drug targets. Our competitive position could be materially harmed if our competitors develop capabilities similar
to ours and identify and develop rival drug targets and product candidates.
We rely on know-how and other proprietary computational processes and tools to maintain
our competitive computational discovery position. We consider know-how to be our primary intellectual property with respect to our predictive
computational discovery capabilities. Know-how can be difficult to protect and enforce. In particular, we anticipate that with respect
to our capabilities, this know-how may over time be disseminated within the industry through independent development and the movement
of skilled personnel.
23
We cannot rule out that our competitors may have or obtain the knowledge necessary
to identify and develop therapeutic products based on novel drug targets that could compete with the drug targets we identify. Our competitors
may have significantly greater experience in artificial intelligence, computer sciences, algorithmic tool development and alike to identify
targets and greater experience in using translational science to develop product candidates and may also have significantly greater financial,
product development, scientific, technical and human resources than we do to discover novel drug targets and develop product candidates.
We may not be able to prohibit our competitors from using methods to identify and
develop product candidates, including such methods that are the same as or similar to our own. Since our competitors develop products
that compete with COM701 or COM902 or any future product candidates we develop, our ability to develop and commercialize these product
candidates may diminish substantially, which could have a material adverse effect on our business prospects, financial condition, and
results of operations.
The biotechnology and pharmaceutical industries
are highly competitive, and we may be unable to compete effectively.
The biotechnology and pharmaceutical industries in general, and the immuno-oncology
field in particular, are highly competitive. Numerous entities in the United States, Europe and elsewhere compete with our efforts to
discover, validate, develop and partner with licensees and/or collaborators to commercialize drug target and therapeutic products candidates.
Clinical trial failures of novel agents in the immuno-oncology field may adversely impact our ability to sign early-stage collaborations,
and as a result we may be required to advance our programs into clinical development and show clinical proof of concept before we may
attract potential collaborators. Our competitors include pharmaceutical and biotechnology companies, academic and research institutions
and governmental and other publicly funded agencies. We face, for COM701 and COM902, and expect to continue to face for our future therapeutic
product candidates, competition from these entities to the extent they develop products that have a function similar or identical to or
competing with the function of our therapeutic product candidates in the field of immuno-oncology that may attract our potential collaborators
or that may reach the market sooner. We also face, and expect to continue to face, competition from entities that seek to develop technologies
that enable the discovery of novel targets and therapeutic agents in the field of immuno-oncology. These competitors include traditional
pharmaceutical and biotechnology companies and additionally, an increasing number of new entities looking to apply computer science, bioinformatics,
AI or ML technologies to the field of target discovery. Many of our competitors have one or more of the following:
| • |
much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and
commercialization process; |
| • |
more extensive experience in computational discovery, preclinical testing, conducting clinical trials, obtaining regulatory approvals,
and in manufacturing and marketing therapeutics; |
| • |
more extensive experience in oncology and immuno-oncology and in the fields of mAb therapeutics; |
|
• |
accessibility to enhanced technologies that
may result in better products; |
| • |
access to and experience in the development of therapeutic modalities that are competitive to mAb therapeutics; |
| • |
more extensive experience in oncology and immuno-oncology and in the field of target discovery; |
| • |
more extensive experience in the research and development of biological or genetic markers to determine response of or responders
to therapeutic agents or for patient selection; |
| • |
greater accessibility to data and proprietary data from patients; |
| • |
access to internally developed, proprietary technologies for the discovery, research, development, or manufacturing of therapeutic
agents; |
| • |
greater resources and means to compete with us on target discovery and as well as in acquiring or generating technologies complementary
to, or necessary for, our programs as well as in recruiting and retaining qualified scientific and management personnel and establishing
clinical trial sites; |
24
| • |
products that have been approved or are in late stages of development; |
| • |
reduced reliance on collaborations or partnerships with third parties in order to further develop and commercialize competitive therapeutic
products; and |
| • |
collaborative arrangements in our target markets with leading companies and research institutions. |
Since we are a small company with limited human and financial resources, we are not
able to work with a large number of collaborators in parallel and/or advance a large number of drug target or therapeutic product candidates
in parallel. Our competitors may develop or commercialize products with significant advantages over any therapeutic products we, our collaborators
or third-party licensees may develop. They may also obtain patents and other intellectual property rights before us, or broader than ours,
and thereby prevent us from pursuing the development and commercialization of our discoveries. They may also develop products faster than
us and therefore limit our market share. Our competitors may therefore be more successful in developing and/or commercializing products
than we, our collaborators, or third-party licensees are, which could adversely affect our competitive position and business. If we are
unable to compete successfully against existing or potential competitors, our financial results and business may be materially harmed.
Healthcare policy is volatile and changes in
healthcare policy could increase our expenses, decrease our revenues and impact sales of, and reimbursement for, our products.
Our ability to commercialize our future therapeutic product candidates successfully,
alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for these product candidates will be
available from government health programs, such as Medicare and Medicaid in the United States, private health insurers and other third-party
payors. At present, significant changes in healthcare policy, in particular the continuing efforts of the U.S. and other governments,
insurance companies, managed care organizations and other payors to contain or reduce health care costs are being discussed, considered
and proposed. Drug prices in particular are under significant scrutiny and continue to be subject to intense political and societal
pressures, which we anticipate will continue and escalate on a global basis.
For example, in the United States, there have been several initiatives implemented
to achieve these aims. The Patient Protection and Affordable Care Act, or the PPACA, as amended by the Health Care and Education Affordability
Reconciliation Act, and collectively, the ACA, represents the biggest regulatory overhaul to the health care system in decades and substantially
changes the way health care is financed by both governmental and private insurers. However, the ACA has faced legislative, judicial, executive
and political challenges from Congress, the Trump administration, state governments, consumer groups and business organizations. For example,
on June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety
because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. It is
possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges will impact
the ACA and our business.
Additionally, there has been heightened governmental scrutiny in the United States
of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several
recent congressional inquiries, presidential executive orders and proposed and enacted federal and state legislation designed to, among
other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and
reform government program reimbursement methodologies for products. In July 2021, the Biden administration released an executive order,
“Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s
executive order, on September 9, 2021, the Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing
High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress
could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles.
In addition, Congress is considering drug pricing as part of other reform initiatives. Further, it is possible that additional governmental
action is taken in response to the COVID-19 pandemic.
25
The commercial success of our products depends
on the availability and sufficiency of third-party payor coverage and reimbursement.
Market acceptance of drug products is dependent on the extent to which coverage and
reimbursement is available from third-party payors. Significant uncertainty exists as to the coverage and reimbursement status of any
products for which we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost
therapeutic alternatives are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may
not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses,
or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless reimbursement is adequate
to cover all or a significant portion of the cost of our products.
Coverage and reimbursement policies for products can differ significantly from payor
to payor as there is no uniform policy of coverage and reimbursement for products among third-party payors in the United States. There
may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time
consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately,
with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at this time what government authorities
and third-party payors will decide with respect to coverage and reimbursement for our drug products.
Risks Related to our Operations and Other Risks
Related to our Business
Given our level of managerial, operational,
financial and other resources, our current activities and future growth may be limited.
We manage our operations, including
clinical trials and preclinical development activities of our therapeutic candidates with limited workforce and by using third parties
to provide us services that we do not possess in-house. Our personnel, systems and facilities currently in place may not be adequate to
support our current activities or future growth.
If we are unable to maintain or expand our managerial, operational, financial and
other resources to the extent required to manage our development and commercialization activities, our business may be materially adversely
affected.
We may be unable to hire or retain key personnel
or sufficiently qualified management, clinical and scientific personnel.
Our business is highly dependent upon the continued services of our senior management
and key scientific and clinical personnel. While members of our senior management and other key personnel have entered into employment
or consulting agreements and non-competition and non-disclosure agreements, they can terminate their employment agreements with us at
any time without cause. We cannot be sure that these key personnel and others will not leave us or compete with us, which could harm our
business activities and operations. It is difficult to find suitable and highly qualified personnel in certain aspects of our industry,
mainly in the field of immuno-oncology and specifically in Israel.
It can also be difficult for us to find employees with appropriate experience for
our business. We require a multidisciplinary approach and some of our researchers require an understanding in both exact and biological
sciences. In addition, we require experience in drug and clinical development and immuno-oncology, for which there is significant competition
for highly qualified personnel in these fields. As a result, we may face higher than average employee turnover or challenges in hiring
due to such competition. During 2021, we added preclinical expertise and clinical expertise, which we expect to continue to expand in
2022 and which will require significant efforts to attract the required personnel with the required expertise and experience.
The competition for qualified personnel in the pharmaceutical and biotech industry
is intense. The loss of service of any of our key personnel could harm our business. Due to our limited resources, we may not be able
to effectively retain our existing key personnel or attract and recruit additional qualified key personnel.
26
We may be unable to safeguard the integrity,
security and confidentiality of our data or third parties’ data.
We rely heavily on the use and manipulation of large amounts of
data and on the secure and continuous use of our internal computers, communication networks and software and hardware systems. We have
implemented and maintain physical and software security measures to preserve and protect our computers and communication, hardware and
software systems as well as our data and third parties’ data. However, these methods may not fully protect us against fire, storm,
flood, power loss, earthquakes, telecommunications failures, physical or software break-ins or similar events. In addition, these measures
may not be sufficient to prevent unauthorized access, use or publication of such proprietary data. A party who is able to circumvent our
security measures could misappropriate or destroy (partially or completely) proprietary information or cause interruptions in our operations.
In addition, a party, including an employee or a contractor, who obtains unauthorized access to our proprietary data or breaches a confidentiality
agreement with us could publish or transfer large portions or all of our proprietary data. Some of our proprietary data is maintained
in secured cloud services that may also be subject to security breach, including by employees of the cloud services provider. Such disclosure
of confidential or proprietary data could materially harm our intellectual property position, adversely affect third party’s confidential
and proprietary information and therefore subject us to significant financial and legal exposures and could materially harm our operations
and even cause our business to cease.
Our internal computer systems, or those of
our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our
pipeline and our business.
Our business is increasingly dependent on critical, complex and interdependent information
technology systems to support business processes as well as internal and external communications. Despite the implementation of security
measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While, to our knowledge,
we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions
in our operations, it could result in a material disruption to our programs and could materially harm our operations and even cause our
business to cease. For example, the loss of clinical trial data from the clinical trials of our therapeutic product candidate could result
in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, our systems
are potentially vulnerable to data security breaches, whether by employees or others, which may expose sensitive data to unauthorized
persons. Although we have invested in measures to reduce these risks, we cannot assure you that these measures will be successful in preventing
compromise and/or disruption of our information technology systems and related data. 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, we
could incur liability and the further development of our therapeutic candidates could be delayed.
Our business and operations would suffer if
our information technology systems or infrastructure or data, or our vendors’ or partners’, are or were compromised.
We, our vendors and our partners collect, store, use, transmit, disclose, or otherwise
process, or Process, proprietary, confidential, and sensitive data, including personal data of our employees, clinical trial patients,
and others, intellectual property and trade secrets. We, our vendors and our partners rely on information technology systems, including
those provided by third-party service providers, to keep financial records, capture laboratory data, maintain clinical trial data and
corporate records, communicate with staff and external parties and operate other critical functions. Our ability to monitor our vendors’
and partners’ information security practices is limited, and these third parties may not have adequate information security measures
in place. Our information technology systems, and those of our vendors’ and partners’, are vulnerable to a variety of evolving
threats from various sources, including traditional computer hackers, personnel (such as through theft or misuse), threat actors, sophisticated
nation states, and nation-state-supported actors. These threats include but are not limited to social-engineering attacks, malicious code
(such as viruses), malware, denial-of-service attacks, ransomware attacks, supply-chain attacks, server malfunctions, software or hardware
failures, or other disruptive events including but not limited to natural disasters. The effects of the COVID-19 pandemic have intensified
our dependence on information technology systems as many of our business activities are currently being conducted remotely and our increased
reliance on personnel working from home could increase our cybersecurity risk. If we or our vendors or partners were to suffer a security
breach or other interruption, we could experience unauthorized, unlawful, or accidental acquisition, modification, destruction, loss,
alteration, encryption, disclosure of, or access to our data or data held by us or our vendors and partners (including personally identifiable
information or personal data). Although we have implemented security measures designed to protect against security breaches and other
incidents and maintain offsite back-ups of our data, such measures may fail. Security breaches, vulnerabilities, and other inappropriate
access can be difficult to detect because such threats and techniques change frequently and are often sophisticated in nature. If we or
our vendors and partners experience (or are perceived to have experienced) a security breach or other incident or disruption, we may experience
adverse consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, and
inspections), federal, state and/or foreign data breach notification obligations, additional reporting requirements and/or oversight,
restrictions on Processing data (including clinical trial data), litigation, indemnification obligations, loss of data (including clinical
trial data) or damage to the integrity of that data, negative publicity, reputational harm, monetary fund diversions, interruptions in
our operations, financial loss, and other similar harms. Such attended consequences may interrupt our clinical trials, reduce demand for
our product candidates, and delay or negatively impact the development and commercialization of our product candidates and ability to
grow and operate our business. Furthermore, our contracts may not contain limitations of liability, and even where they do, there can
be no assurances that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related
to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect
us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available
on commercially reasonable terms or at all, or that such coverage will pay future claims. Moreover, failure to maintain effective internal
accounting controls related to data security in general could impact our ability to produce timely and accurate financial statements and
could subject us to regulatory scrutiny.
27
We are subject to stringent and changing obligations
related to data privacy and security. Failure or perceived failure to comply with current or future obligations could lead to government
enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively
affect our operating results and business.
We, our vendors and our partners Process proprietary, confidential, and sensitive
data, including personal data, data we collect about trial participants in connection with clinical trials, sensitive third-party data,
trade secrets, intellectual property, and other sensitive data. We and our vendors and partners may be subject to numerous data privacy
and security obligations, such as various federal, state, local and foreign data laws, regulations, guidance, industry standards, external
and internal privacy and security policies, contracts, and other obligations that govern the Processing of personal data by us and on
our behalf. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws,
state data breach notification laws, state health information privacy laws and federal and state consumer protection laws, that govern
the collection, use, disclosure and protection of health-related and other personal data apply to our operations or the operations of
our collaborators. For example, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act, or HITECH, imposes specific requirements relating to the privacy, security,
and transmission of individually identifiable health information. Additionally, laws in all 50 states require businesses to provide notice
to parties whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and
compliance in the event of a widespread data breach is costly. Furthermore, California enacted the California Consumer Privacy Act, or
the CCPA, which provides for civil penalties for violations, as well as a private right of action for data breaches. The California Privacy
Rights Act, or the CPRA, which will take effect in most material respects on January 1, 2023, significantly modifies the CCPA, potentially
resulting in further uncertainty. Other U.S. states have enacted or proposed data privacy laws. An increasing number of foreign data protection
laws may also apply to health-related and other personal data obtained from individuals outside of the United States. For example, the
European Union’s General Data Protection Regulation, or EU GDPR introduced new data protection requirements in the EU, as well as
potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. In addition, we are
also subject to the Israeli Privacy Protection Law 5741-1981 and the regulations promulgated thereunder, or the PPL, including
the Israeli Privacy Protection Regulations (Data Security) 2017, imposing obligations with respect to the manner personal data is processed,
maintained, transferred, disclosed, accessed and secured, as well as the guidelines of the Israeli Privacy Protection Authority. In this
respect, the PPL may require us to adjust certain data protection and data security practices, information security measures, certain
organizational procedures, applicable positions and other technical and organizational security measures. Failure to comply with the PPL
and with guidelines issued by the Israeli Privacy Protection Authority, may expose us to administrative fines, civil claims (including
class actions) and in certain cases criminal liability. Furthermore, many jurisdictions have enacted data localization laws and cross-border
personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring or
receiving personal data that originates in the European Economic Area). Existing mechanisms that may facilitate cross-border personal
data transfers may change or be invalidated. For example, absent appropriate safeguards or other circumstances, the EU GDPR regulates
transfers of personal data subject to the EU GDPR to third countries that have not been found to provide adequate protection to such personal
data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States
remains uncertain. In addition, the United Kingdom similarly restricts transfers of personal data outside of those jurisdictions to countries
such as the United States that do not provide an adequate level of personal data protection. If we cannot implement a valid compliance
mechanism for cross-border data transfers, we could experience material adverse effects. Our obligations related to privacy and security
are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally,
these obligations may be subject to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions.
Preparing for and complying with these obligations requires us to devote significant resources (including, without limitation, financial
and time-related resources). These obligations may necessitate changes to our practices and to those of any third parties that Process
personal data on our behalf. In addition, these obligations may require us to change our business model. Compliance with privacy and security
obligations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data,
or in some cases, impact our ability to operate in certain jurisdictions. Failure or perceived failure by us or our collaborators to comply
with U.S. and foreign data privacy or security obligations could result in government enforcement actions (which could include civil or
criminal penalties), private litigation, bans on Processing personal data, and/or adverse publicity and could negatively affect our operating
results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the
providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we
have violated individuals’ privacy rights, failed to comply with privacy or security obligations or breached our contractual obligations,
even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material
adverse effect on our business, financial condition, results of operations and prospects.
28
If a successful liability claim or other claim
for damages or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced
to pay substantial damage awards.
The use of any of our therapeutic product candidates in clinical trials might expose
us to liability. We have obtained clinical trial insurance coverage in amounts that we believe are reasonable and customary in our industry
based on the size and design of our clinical trials. However, there can be no assurance that such insurance coverage will fully protect
us against some or all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at
a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us,
we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought
successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to
direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.
If we fail to comply with laws regulating the
protection of the environment and health and human safety, our business could be adversely affected.
Our research and development activities involve the use of hazardous materials and
chemicals, and we maintain quantities of microbial agents, various flammable and toxic chemicals in our facilities. Although we believe
our safety and other procedures for storing, handling and disposing these materials in our facilities comply with applicable governmental
and local regulations and guidelines, the risk to our employees or others of accidental contamination or injury from these materials cannot
be eliminated. If an accident occurs, we could be held liable for resulting damages, which may exceed our financial resources and may
seriously harm our business. 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. We may be subject
to liability and may be required to comply with new or existing laws and regulations regulating pharmaceuticals or be subject to substantial
fines or penalties if we violate any of these laws or regulations.
Risks Related to Intellectual Property.
If the scope of any patent protection we obtain
is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar
or identical product candidates would be adversely affected.
We have applied for patents covering proteins, therapeutic and
diagnostic product candidates and their method of use, and the success of our business depends, to a large extent, on our ability to obtain
and maintain such patents and any additional patents covering our future product candidates. We design our patent strategy to fit the
business competitive landscape and continual legislative changes. In addition, we periodically analyze and examine our patent portfolio
to align it with our pipeline strategy and business needs. We have issued patents and pending patent applications that are related to
our product candidates in the U.S., Europe, and other territories. We plan to continue to apply for patent protection for our therapeutic
and diagnostic inventions, but we cannot be sure that any of our patent applications will be accepted, or that they will be accepted to
the extent that we seek or that they will not be challenged. Additionally, we file for patent protection in selected countries and not
in all countries of the world. Therefore, we are exposed to competition in those countries in which we have no patent protection. Also,
due to our early-stage pipeline and various business considerations, we may be required to seek patent protection at a very early-stage.
This may cause us to file with insufficient supportive data, possibly making it difficult to obtain patents in jurisdictions that do not
accept post filing evidence to support the claims, and thus enabling others to compete with us. This may also cause issuance of a patent
at an earlier stage creating a shorter commercialization period under patent protection, possibly enabling others to compete with us.
Delays in filing patents may preclude us from obtaining protection on some or all of our product candidates due to others filing ahead
of us. Patent applications filed before us, but yet unpublished, may cause us to spend significant resources in areas that due to these
previously filed patents or applications we are not able to obtain patent protection or are only able to obtain a narrower scope of protection
than contemplated.
29
Because the patent position of biopharmaceutical companies involves
complex legal and factual questions, we cannot predict the validity, scope or enforceability of patents with certainty. The issuance of
a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents may
be subject to a third party pre issuance submission of prior art to the patent authorities or become involved in opposition, derivation,
revocation, reexamination, post-grant and inter partes review, or other similar proceedings challenging
our patent rights in the United States and other jurisdictions which may result in such patents being narrowed, invalidated, or held unenforceable,
and thus could limit our ability to stop competitors from marketing related products or limit the length of the term of patent protection
that we may have for our product candidates. Such proceedings also may result in substantial cost and require our pending patent applications,
and those we may file in the future may not result in patents being issued. Furthermore, even if our patents do issue, and even if they
are unchallenged, our patents may not adequately protect all our intellectual property or prevent others from designing their products
in a way to avoid being covered by our claims. If the breadth or strength of protection provided by the patents we hold is threatened,
this could dissuade companies from collaborating with us to develop, and could threaten our ability to commercialize product candidates
and expose us to unexpected competition that could have a material adverse impact on our business.
Furthermore, changes in either the patent laws or interpretation
of the patent laws in the United States or other jurisdictions could weaken our ability to obtain new patents or to enforce our existing
patents and patents that we might obtain in the future and increase the uncertainties and costs surrounding the prosecution of patent
applications, and the enforcement or defense of our issued patents. Such changes could diminish the value of our patents and applications,
thereby impairing our ability to protect our product candidates, and could have a material adverse effect on our business, financial condition,
results of operations and prospects. For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing
the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In October
2017, in Amgen v. Sanofi, the Federal Circuit overturned the “newly characterized antigen”
test, which permitted patentees to claim a genus of antibodies by describing the structure of a corresponding antigen, on the grounds
that it failed to satisfy the written description requirement found in Section 112 of the Patent Act, 35 U.S.C. § 112. In doing so,
the Federal Circuit called into question the validity of numerous existing patents. The U.S. Supreme Court declined to hear an appeal
of the Federal Circuit’s ruling, effectively changing the landscape for antibody patents for the foreseeable future. In the current
IP environment in the U.S., we may not be able to obtain or defend broad patent protection on our antibody inventions.
Moreover, because of the extensive time required for development,
testing and regulatory review of a potential product, it is possible that, before any particular product candidate 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 protection.
The process of obtaining patents for inventions that cover our
products is uncertain for a number of reasons, including but not limited to:
| • |
the patenting of inventions involves complex legal issues relating to intellectual property laws, prosecution and enforcement of
patent claims across a number or patent jurisdictions, many of which have not yet been settled; |
30
| • |
legislative and judicial changes, or changes in the examination guidelines of governmental patent offices may negatively affect our
ability to obtain patent claims to certain biological molecules- and/or use of certain therapeutic targets; |
| • |
if we are not the first to file a patent application on one of our inventions, we may not be able to obtain a patent on our invention,
and may not be able to protect one or more of our therapeutic product candidates; |
| • |
competition from other biotechnology and pharmaceutical companies who have already sought patent protection relating to proteins
and protein based products, as well as therapeutic antibodies or other modulators specifically binding these proteins, and their utility
based discoveries that we may intend to develop and commercialize; such prior patents may negatively affect our ability to obtain patent
claims on antibodies or certain proteins or other biologic modulators, or may hinder our ability to obtain sufficiently broad patent claims
for our inventions, and/or may limit our freedom to operate; |
| • |
publication of data on gene products or proteins by non-commercial and commercial entities may hinder our ability to obtain sufficiently
broad patent claims for our inventions; |
| • |
even if we succeed in obtaining patent protection, such protection may not be sufficient to prevent third parties from circumventing
our patent claims; |
| • |
even if we succeed in obtaining patent protection, we may face freedom to operate issues; |
| • |
even if we succeed in obtaining patent claims protecting our inventions and product candidates, our patents could be subject to challenge
and litigation by our competitors, and may be partially or wholly invalidated as a result of such legal/judicial challenges and in connection
with such challenges, in October 2020, two parties filed oppositions in the European Patent Office, or EPO, requesting revocation of our
granted European patent relating to anti-PVRIG antibodies, that expires in 2036; |
| • |
significant costs that may need to be incurred in registering and filing patents; |
| • |
insufficient data to support our claims and/or may support others in strengthening their patents; |
| • |
seeking patent protection at an early stage may prevent us from providing comprehensive data supporting the patent claims and may
prevent allowance of certain patent claims or limit the scope of patent claim coverage; |
|
• |
we may not be able to supply sufficient
data to support our claims, within the legally prescribed time following our initial filing in order to support our patent claims and
this may harm our ability to get appropriate patent protection or protection at all; |
|
• |
our claims may be too broad and not have
sufficient enablement, in which case such claims might be rejected by patent offices or invalidated in court; and |
|
• |
we might fail to demonstrate a unique technical
feature for our antibodies as compared to existing prior art, in which case our claims might be rejected by the respective patent office,
requiring superiority over prior art. |
If we do not succeed in obtaining patent protection for our inventions (should it
be discoveries, drug targets candidates and product candidates) to the fullest extent for which we seek protection, or if we fail to select
the best inventions to seek such protection, our business and financial results could be materially harmed.
We may not be able to protect
our intellectual property rights throughout the world.
Patents are of national or regional effect, and filing, prosecuting and defending
patents on all of our investigational products throughout the world would be extremely expensive. Thus, we may not be able to prevent
third parties from practicing or from selling or importing products made using our inventions in all countries. Further, the legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property
protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation
of our proprietary rights generally. In addition, certain countries have compulsory licensing laws under which a patent owner may be compelled
to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if
we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This
could limit our potential revenues. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
31
The existence of third-party
intellectual property rights may prevent us from developing our discoveries or require us to expend financial and other resources to be
able to continue to do so.
In selecting a drug target or a therapeutic product candidate for
development, we take into account, among other considerations, the existence of third-party intellectual property rights that may hinder
our right to develop and commercialize that product candidate. To our knowledge, third parties, including our competitors, have been filing
patent applications covering an increasing portion of the human proteome or antibodies directed thereto. As a result of the existence
of third-party intellectual property rights, we may be further required to:
| • |
forgo the research, development and commercialization of certain drug target candidates and product candidates that we discover,
notwithstanding their promising scientific and commercial merits; or |
| • |
invest substantial management and financial resources to either challenge or in-license such third-party intellectual property, and
we cannot be sure that we will succeed in doing so on commercially reasonable terms, if at all. |
We do not always have available to us, in a timely manner, information
of the existence of third-party intellectual property rights related to our own discoveries. The content of U.S. and other patent applications
remains unavailable to the public for a period of approximately 18 months from the filing date and therefore we cannot be certain that
we were the first to file any patent application related to our product candidate. In some instances, the content of U.S. patent applications
remains unavailable to the public until the patents are issued. Moreover, when patents ultimately are issued, the claims may be substantially
different from those that were originally published and may vary from country to country. Furthermore, there may be issued patents or
pending patent applications that we are aware of, but that we think are irrelevant to our therapeutic product candidates, but which may
ultimately be found to be infringed by the manufacture, sale, or use of such product candidates. As a result, we can never be certain
that programs that we commence will be free of third-party intellectual property rights. If we become aware of the existence of third-party
intellectual property rights only after we have commenced a particular program, we may have to forgo such project after having invested
substantial resources in it or, to the extent such third-party right has not expired, obtain a license which may involve substantial financial
resources.
In the future, we may need
to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable
terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.
We may be required to license technology from third parties to
further develop or commercialize our investigational products. Should we be required to obtain licenses to any third-party technology,
such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license
required to develop or commercialize any of our products could cause us to abandon any related efforts, which could seriously harm our
business and operations.
We, or potential collaborators
and licensees, may infringe third-party rights and may become involved in litigation, which may materially harm our business.
If a third-party accuses us, our collaborator or a potential collaborator
and licensee of infringing its intellectual property rights or if a third-party commences litigation against us, our collaborator or a
potential collaborator and licensee for the infringement of patent or other intellectual property rights, we may incur significant costs
in obtaining a license or defending such action, whether or not we ultimately prevail. We are aware of U.S. and foreign issued patents
and pending patent applications controlled by third parties that may relate to the areas in which we are developing therapeutic products.
Because all issued patents are entitled to a presumption of validity in many countries, including the United States and many European
countries, issued patents held by others with claims related to products, may limit our freedom to operate unless and until these patents
expire or are declared invalid or unenforceable in a court of applicable jurisdiction, if we do not obtain a license or other right to
practice the claimed inventions. Typically, patent litigation in the pharmaceutical and biotechnology industry is expensive and prolonged.
Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property
litigation to a greater degree and for longer periods of time than we could. Costs that we may incur in defending third-party infringement
actions would also result in the diversion of management’s and technical personnel’s time. In addition, parties making claims
against us may be able to obtain injunctive or other equitable relief that could prevent us or our collaborators and licensees from further
developing our discoveries or commercializing our products.
32
In the event of a successful claim of infringement against us or
a potential collaborator and licensee, we may be required to pay damages, including treble damages and attorney’s fees if we are
found to be willfully infringing a third-party’s patent, or obtain one or more licenses from the prevailing third-party (if not
obtained prior to such litigation), which may not be available to us on commercially reasonable terms, if at all. Even if we were able
to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. If we
are not able to obtain such a license or not able to obtain such a license at a reasonable cost, we could be prevented from commercializing
a product until the relevant patents expired, or we could be forced to redesign our products, or to cease some aspect of our business
operations, and we could encounter delays in product introductions and loss of substantial resources while we attempt to develop alternative
products. Defense of any lawsuit or failure to obtain any such license could prevent us or our partners from commercializing available
products and could cause us to incur substantial expenditures and would divert management’s attention from our core business.
We may become involved in
lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe, misappropriate or otherwise violate our
patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement, misappropriation,
unauthorized use or other violations, we may be required to file legal claims, which can be expensive and time consuming and divert the
time and attention of our management and scientific personnel.
We may not be able to prevent, alone or with our licensees or any
future licensees, infringement, misappropriation or other violations of our intellectual property rights, particularly in countries where
the laws may not protect those rights as fully as in the United States. Any claims we assert against perceived infringers could provoke
these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement or opposition
proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that
we do not have the right to stop the other party from using the invention at issue. In this respect, in October 2020, two parties filed
oppositions in the EPO requesting revocation of our granted European patent relating to anti-PVRIG antibodies, that expires in 2036. We
responded to this opposition in March 2021 and are awaiting a decision on this matter by the EPO. There is also a risk that, even if the
validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right
to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome
in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors
and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these
occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert
trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against
whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced
to cease use of such trademarks.
In any infringement, misappropriation or other intellectual property
litigation, any award of monetary damages we receive may not be commercially valuable. Even if we establish infringement, the court may
decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be
an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have an adverse effect on our share price. Moreover, there can be no assurance that we will have
sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded.
Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management
and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
33
Increased progress in our scientific and technological
environment may reduce our chances of obtaining a patent.
In order to obtain a patent to protect one of our therapeutic product candidates,
we must show that the underlying invention (that is, the product candidate itself or its use) is inventive. As an increasing amount of
scientific knowledge is becoming available regarding genes, proteins, biological mechanisms, and the relevance of the genes and proteins
to various clinical indications, the bar is increasingly raised to show sufficient inventiveness, as inventiveness is judged against all
publicly available information available prior to filing of the patent application (the exact date may vary by country or due to other
circumstances). As an increasing amount of scientific knowledge is becoming available for various proteins and their potential use as
drug targets, with time we may be limited or may not be able to obtain patents for our product candidates due to the increased information
published in this area.. Our own published patent applications and other publications also serve as prior art against our new inventions
and patent applications and may prevent us from obtaining new patents.
We may become subject to claims for remuneration or royalties for
assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
We enter into assignment of invention agreements with our employees pursuant to which
such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us. A
significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the
Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee due to and during his or her employment with a company
are regarded as “service inventions”, which belong to the employer, unless the employee and employer have entered into a specific
agreement stating otherwise, except if the employer waived the service invention within six months of receipt of a notice by the employee
regarding the creation of the service invention (in accordance with provisions of the Patent Law). The Patent Law also provides that if
there is no agreement with respect to whether the employee is entitled to remuneration for his or her service invention, to what extent
and under what conditions, such entitlement and terms shall be determined by the Israeli Compensation and Royalties Committee, or the
Committee, a body constituted under the Patent Law. Decisions by the Committee and Israeli courts have created some uncertainty in this
area. Although our employees have agreed to assign to us service invention rights and have waived any rights for additional compensation
for such service inventions, we may still face claims demanding remuneration in consideration for assigned service inventions. As a consequence
of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced
to litigate such claims, which could negatively affect our business.
Obtaining and maintaining our patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. Noncompliance with these
requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the
case.
We may be subject to claims that we or our
employees or consultants have infringed, misappropriated or otherwise violated the intellectual property of a third-party, or claiming
ownership of what we regard as our own intellectual property.
We may be subject to claims that we or our employees or consultants have inadvertently
or otherwise used or disclosed confidential information of former employers, competitors or other third-parties. We may be further subject
to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing
our product candidates, resulting, among others, in disputes regarding ownership interest in our patents or other intellectual property.
Although we have implemented reasonable measures to ensure that our employees and consultants do not use the intellectual property of
others in their work for us, we may become subject to claims that we caused an employee or consultant to breach, among others, the terms
of his or her non-competition, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged proprietary
information of a former employer, competitor or other third-party.
34
While we may litigate to defend ourselves against these claims, even if we are successful,
litigation could result in substantial costs and could distract the attention of our management. If our defenses to these claims fail,
in addition to requiring us to pay monetary damages, a court could deprive our rights in such technologies or features that are essential
to our investigational products, if such technologies or features are found to incorporate or be derived from the proprietary information
of third-parties and prohibit us from using them. Moreover, any such litigation may adversely affect our ability to form strategic alliances,
engage with scientific advisors or hire employees or consultants.
In addition, while we typically require our employees, consultants and contractors
who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may
be unsuccessful in executing such an agreement with each party who in fact develops intellectual property. To the extent that we fail
to obtain such assignments, or such assignments do not contain a self-executing assignment of intellectual property rights, or such assignments
are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership
of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights. Such intellectual property rights could be awarded to a third-party, and we
could be required to obtain a license from such third-party to commercialize our technology or products. Such a license may not be available
on commercially reasonable terms or at all. Even if we are successful in prosecuting or defending against such claims, litigation could
result in substantial costs and be a distraction to our management and scientific personnel.
We may become subject to claims challenging
the inventorship or ownership of our patents.
We may be subject to claims that former employees, collaborators or other third parties
have an interest in our patents as co-inventor. The failure to name the proper inventors on a patent application can result in the patents
issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals,
the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations
of third parties involved or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary
to resolve claims challenging inventorship and/or ownership. If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such
an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are
timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions
may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates
are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Intellectual property rights do not necessarily
address all potential threats to our business.
Once granted, patents may remain open to opposition (as specified above), interference,
re-examination, post-grant review, inter partes review, nullification or derivation action in
court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can
raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent
owner may be compelled to limit the scope of the allowed or granted claims thus attacked or may lose the allowed or granted claims altogether.
In addition, the degree of future protection afforded by our intellectual property rights is uncertain because even granted intellectual
property rights have limitations and may not adequately protect our business. The following examples are illustrative:
| • |
issued patents that we may own or that we license may be held invalid or unenforceable, as a result of legal challenges; |
| • |
others may be able to make products that are similar to our products but that
are not covered by the claims of our patent rights; |
|
• |
we or our licensors or any future strategic
partners might not have been the first to file patent applications on the inventions covered by the issued patent or pending patent application
that we own or have exclusively licensed; |
35
|
• |
others may independently develop similar
or alternative technologies without infringing our intellectual property rights; |
|
• |
it is possible that our pending patent applications
will not lead to issued patents; |
|
• |
issued patents that we may own or that we
license may not provide us with any competitive advantage; |
|
• |
our competitors might conduct research and
development activities in countries where we do not have patent rights and then use the information learned from such activities to develop
competitive products for sale in our major commercial markets; |
|
• |
third parties performing manufacturing or
testing for us using our product candidates or technologies could use the intellectual property of others without obtaining a proper license;
|
|
• |
we may not develop additional proprietary
technologies that are patentable; and |
|
• |
the patents of others may have an adverse
effect on our business. |
Should any of these events occur, they could have a material adverse effect on our
business, financial condition, results of operations and prospects.
We may rely on trade secret and proprietary
know-how which can be difficult to trace and enforce.
In addition to seeking patent protection for some of our technology and investigational
products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our
competitive position. Trade secrets and know-how can be difficult to protect. Any disclosure, either intentional or unintentional, by
our employees or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities,
or misappropriation by third parties (such as through a security breach) of our trade secrets or proprietary information could enable
competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
We require our employees to enter into written employment agreements containing provisions
of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We further seek to protect
our potential trade secrets and proprietary know-how by entering into non-disclosure and confidentiality agreements with any third parties
who are given access to them, including our collaborators, contract manufacturers, consultants, advisors and other third parties. With
our consultants, contractors, and collaborators, these agreements typically include invention assignment obligations. Despite these efforts,
any of these parties may breach the agreements and disclose our proprietary information or assign our inventions to third parties, which
may be difficult to trace, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.
If we are unable to adequately protect our proprietary know-how and trade secrets,
competitors may be able to develop technologies and resulting discoveries and inventions that are identical, similar to or better than
our own discoveries and inventions, which could materially harm our business, financial condition and results of operations. Costly and
time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade
secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop
our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent
discovery.
Risks Related to Operations in Israel
Conditions in the Middle East and in Israel may adversely affect
our operations.
Our headquarters and research and development facilities are located in Israel. Accordingly,
we are directly influenced by the political, economic and military conditions affecting Israel. Specifically, we could be adversely affected
by:
|
• |
hostilities involving Israel; |
|
• |
the interruption or curtailment of trade
between Israel and its present trading partners; |
36
|
• |
a downturn in the economic or financial
condition in Israel; and |
|
• |
a full or partial mobilization of the reserve
forces of the Israeli army. |
Since its establishment in 1948, Israel has been subject to a number of armed conflicts
that have taken place between it and its Middle Eastern neighbors. While Israel has entered into peace agreements with both Egypt and
Jordan and has entered into several normalization agreements in 2020 with the United Arab Emirates, Bahrain, Sudan and Morocco, Israel
has no peace or arrangements with any other neighboring or Arab country. Further, all efforts to improve Israel’s relationship with
the Palestinians have failed to result in a permanent peaceful solution, and there have been numerous periods of hostility as well as
civil insurrection of Palestinians in the West Bank and the Gaza Strip in recent years. Israel is further engaged, from time to time,
in armed conflicts with Hamas (a militia group and political party controlling the Gaza Strip), which in some occasions resulted in missiles
being fired from the Gaza Strip against civilian targets in various parts of Israel, including areas in which our employees are located,
and negatively affected business conditions in Israel.
Also, relations between Israel and Iran continue to be hostile, due to the fact that
Iran is perceived by Israel as sponsor of Hamas and Hezbollah (a Shia Islamist political party and militant group
based in Lebanon), while maintaining a military presence in Syria and Lebanon, and with regard to Iran’s nuclear program. In
addition, the normalization agreements that Israel has recently entered into with some Arab countries in the Middle East may affect the
geo-political condition in the Middle East in general, and the relations between Israel and Iran in particular.
All of the above raise a concern as to the stability in the region which may affect
the political and security situation in Israel and therefore could adversely affect our business, financial condition and results of operations.
Furthermore, certain countries, primarily in the Middle East but also in Malaysia
and Indonesia, as well as certain companies and organizations in different parts of the world, continue to participate in a boycott of
Israeli brands and others doing business with Israel and Israeli companies. The boycott, restrictive laws, policies or practices directed
towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverse effect on our business in the future.
In addition, should the BDS Movement, the movement for boycotting, divesting and sanctioning Israel and Israeli institutions (including
universities) and products become increasingly influential in the United States and Europe, this may also adversely affect our business
and financial condition. Further deterioration of Israel’s relationship with the Palestinians or countries in the Middle East could
expand the disruption of international trading activities in Israel, may materially and negatively affect our business conditions, could
harm our results of operation and adversely affect the share price of our Company.
Our business may also be disturbed by the obligation of personnel to perform military
service. Our employees who are Israeli citizens are generally subject to a periodic obligation to perform reserve military service, until
they reach the age of 40 (or older, for reservists with certain occupations), but during military conflicts, these employees may be called
to active duty for longer periods of time. In response to the increase in violence and terrorist activity in the past years, there have
been periods of significant call-ups for military reservists and it is possible that there will be further military reserve duty call-ups
in the future. In case of further regional instability such employees who may include one or more of our key employees, may be absent
for extended periods of time which may materially adversely affect our business.
We can give no assurance that the political, economic and security situation in Israel
will not have a material adverse impact on our business in the future.
Furthermore, our Company’s insurance does not cover any loss arising of events
related to the security situation in the Middle East. While the Israeli government generally covers the reinstatement value of direct
damages caused by acts of war or terror attacks, we cannot be certain that such coverage will be maintained or that it will sufficiently
cover our damages.
Our results of operations may be adversely
affected by the exchange rate fluctuations between the dollar and the New Israeli Shekel.
We hold most of our cash, cash equivalents and short-term and long-term bank deposits
in U.S. dollars but incur a significant portion of our expenses, principally salaries and related personnel expenses and administrative
expenses for our Israeli based operations, in NIS. As a result, we are exposed to exchange rate fluctuations between the U.S. dollar and
the NIS, which may have a material adverse effect on our financial condition. In 2021, the U.S. dollar depreciated against the NIS by
3.3%, in 2020 by 7.0% and in 2019 by 7.8%. As a result of these fluctuations, our NIS denominated expenses were affected.
37
The dollar cost of our operations in Israel
will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation to the
dollar, which would harm our results of operations.
Inflation, which increased significantly during 2021, has adversely
affected us by increasing the costs of materials and labor needed to operate our business and could continue to adversely affect us in
future periods. Additionally, since a considerable portion of our expenses such as employees’ salaries are linked to an extent to
the rate of inflation in Israel, the dollar cost of our operations is influenced by the extent to which any increase in the rate of inflation
in Israel is or is not offset by the devaluation of the NIS in relation to the dollar. As a result, we are exposed to the risk that the
NIS, after adjustment for inflation in Israel, will appreciate in relation to the dollar. In that event, the dollar cost of our operations
in Israel will increase and our dollar-measured results of operations will be adversely affected. We cannot predict whether the NIS will
appreciate against the dollar or vice versa in the future. Any increase in the rate of inflation in Israel, unless the increase is offset
on a timely basis by a devaluation of the NIS in relation to the dollar, will increase labor and other costs, which will increase the
dollar cost of our operations in Israel and harm our results of operations.
We may not be entitled to certain Israeli tax
benefits.
In the future, we may be entitled to benefit from certain Israeli government programs
and enjoy certain tax benefits, particularly tax exemptions, resulting from the ‘Benefiting Enterprise’ status, or Benefiting
Enterprise, granted to us under the Israel Law for Encouragement of Capital Investments, 1959, or the Investment Law. The availability
of these tax benefits, however, is subject to us meeting certain conditions under the Investment Law, including making specified investments
in fixed assets and equipment. The tax benefits that we anticipate receiving under the “Benefiting Enterprise” program may
not be continued in the future at their current levels or at all. To date, we have not actually received any such tax benefits because
we have not yet generated any taxable income.
It may be difficult to enforce a U.S. judgment
against us, or our officers and directors or to assert U.S. securities law claims in Israel.
We are incorporated under the laws of the State of Israel. Service of process upon
our directors and officers, the majority of whom reside outside the United States, may be difficult to obtain within the United States.
Furthermore, because the majority of our assets and investments, and a majority of our directors and officers are located outside the
United States, any judgment obtained in the United States against us or any of them may not be collectible within the United States.
Furthermore, 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 reasoning that Israel is not the most appropriate forum to bring such a claim. In addition, even if
an Israeli court agrees to hear such a claim, it is not certain whether Israeli law or U.S. law will be applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming
and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that
addresses the matters described above.
Provisions of Israeli law may delay, prevent
or make undesirable an acquisition of all or a significant portion of our shares or assets.
Israeli corporate law regulates mergers and acquisitions and requires that a tender
offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to certain conditions),
which may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us. See “Item 10. Additional
Information - B. Memorandum and Articles of Association - Change of Control.” 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 mergers, Israeli tax law allows for tax deferral in certain circumstances
but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of
the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect
to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no
actual disposition of the shares has occurred. See “Item 10. Additional Information – E. Taxation – Israeli Taxation.”
38
In addition, in accordance with the Restrictive Trade Practices Law, 1988 and under
the Israeli Law for the Encouragement of Industrial Research and Development of 1984 and regulations promulgated thereunder, together,
the R&D Law, approvals regarding a change in control (such as a merger or similar transaction) may be required in certain circumstances.
For more information regarding such required approvals please see “Item 5. Operating and Financial Review and Prospects- C. Research
and Development, Patents and Licenses - The Israel Innovation Authority.” In addition, as a corporation incorporated under the laws
of the State of Israel, we are subject to the Israeli Economic Competition Law, 1988 and the regulations promulgated thereunder (formerly
known as the Israeli Antitrust Law, 1988), under which we may be required in certain circumstances to obtain the approval of the Israel
Competition Authority (formerly known as the Israel Antitrust Authority) in order to consummate a merger or a sale of all or substantially
all of our assets.
These provisions of Israeli law 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, 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.
We received grants from the IIA that may expose
us to payment of royalties and restrict the transfer of know-how that we develop.
We have received governmental grants from the Israeli Innovation
Authority, or the IIA, for the financing of a portion of our research and development expenditures. Even following full repayment of any
IIA grants, and unless agreed otherwise by the applicable authority of the IIA, we must nevertheless continue to comply with the requirements
of the R&D Law with respect to technologies which were financed by such grants, or the Financed Know-How, including an obligation
for repayment of such grants from sales of products based on the Financed Know-How, if and when such sales occur. In addition to the obligation
to pay royalties to the IIA, the R&D Law requires that products which incorporate Financed Know-How be manufactured in Israel and
prohibits the transfer of the Financed Know-How and any right derived therefrom to third parties, unless otherwise approved in advance
by the IIA; Such prior approval may be given by the IIA subject to payment of increased royalties. Although such restrictions do not apply
to the export from Israel of Company’s products developed with such Financed Know-How, they may prevent us from engaging in transactions
involving the sale, outsource or transfer of such Financed Know-How or of manufacturing activities with respect to any product or technology
based on Financed Know-How, outside of Israel, which might otherwise be beneficial to us. Furthermore, the consideration available to
our shareholders in a transaction involving the transfer outside of Israel of Financed Know-How (such as a merger or similar transaction)
may be reduced by any amounts that we are required to pay to the IIA. For more information regarding such restrictions please see “Item
5. Operating and Financial Review and Prospects- C. Research and Development, Patents and Licenses - The Israel Innovation Authority.”
Being a foreign private issuer exempts us from
certain SEC requirements and Nasdaq rules, which may result in less protection that is afforded to investors under rules applicable to
domestic issuers.
We are a “foreign private issuer” within the meaning of rules promulgated
by the SEC. As such, we are exempt from certain provisions under the Exchange Act, applicable
to U.S. public companies, including:
| • |
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K; |
| • |
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process; |
| • |
the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
|
| • |
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profits realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months). |
In addition, we may follow home country corporate governance practices
and law instead of those rules and practices otherwise required by Nasdaq for domestic issuers. For instance, we have relied on the foreign
private issuer exemption with respect to shareholder approval requirements for equity-based incentive plans for our employees. For the
list of specific exemptions that we chose to adopt, please see “Item 16G - Corporate Governance.”
39
Following our home country corporate governance practices as opposed
to the requirements that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection to investors than is afforded
to investors under the Nasdaq Listing Rules applicable to domestic issuers.
We may lose our status as
a foreign private issuer, which would increase our compliance costs and could negatively impact our operations results.
We may lose our foreign private issuer status if (a) a majority
of our outstanding voting securities are either directly or indirectly owned of record by residents of the United States and (b)(i) a
majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United
States or (iii) our business is administered principally in the United States. If we will not be a foreign private issuer, we will be
required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more extensive than
the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the
requirement to disclose, under U.S. law, more detailed information about the compensation of our senior executive officers on an individual
basis. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic
issuers. Such conversion and modifications will involve increased costs. In addition, we would lose our ability to rely upon exemptions
from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, as described in
the previous risk factor above.
Our shareholders rights
and responsibilities are governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders
of U.S. companies.
Because we are incorporated under Israeli law, the rights and responsibilities of
our shareholders are governed by our Articles of Association, as amended from time to time, or Articles, and Israeli law. These rights
and responsibilities differ in some respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular,
a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing
its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other
things, in voting at the general meeting of shareholders on certain matters, such as an amendment to a company’s articles of association,
an increase of a company’s authorized share capital, a merger of a company and approval of interested party transactions that require
shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a
controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote
or to appoint or prevent the appointment of an office holder in a company or has another power with respect to a company, has a duty to
act in fairness towards such company. Israeli law does not define the substance of this duty of fairness and 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.
Risks Related to our Ordinary Shares
Future sales of our ordinary
shares or securities convertible or exchangeable for our ordinary shares may depress our share price.
If our existing shareholders or holders of our options or warrants sell, or indicate
an intention to sell, substantial amounts of our ordinary shares in the public market, the trading price of our ordinary shares could
decline. The perception in the market that these sales may occur could also cause the trading price of our ordinary shares to decline.
As of December 31, 2021, we had a total of 86,433,432 ordinary shares outstanding.
Based on the number of shares subject to awards under our 2010 Share Incentive Plan,
as amended, or 2010 Plan, and our 2021 Employee Share Purchase Plan, or ESPP, as of December 31, 2021, 8,591,403 ordinary shares that
are either subject to outstanding options or reserved for future issuance under our 2010 Plan and ESPP were eligible for sale in the public
market, subject to, in the case of shares issued to directors, executive officers and other affiliates, the volume limitations under Rule
144 under the Securities Act. In addition, as of December 31, 2021, we had 297,469 warrants outstanding exercisable into 297,469 ordinary
shares. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the trading
price of our ordinary shares could decline.
40
In addition, our directors, executive officers and other affiliates may establish,
and certain executive officers and directors have established, programmed selling plans under Rule 10b5-1 of the Exchange Act, for the
purpose of effecting sales of our ordinary shares. Any sales of securities by these shareholders, or the perception that those sales may
occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our ordinary
shares.
If we sell ordinary shares
in future financings, shareholders may experience immediate dilution and, as a result, our share price may decline.
In order to raise additional capital, we may at any time offer additional ordinary
shares or other securities convertible into or exchangeable for our ordinary shares at prices that may not be the same as the price paid
for our ordinary shares by our shareholders. The price per share at which we sell additional ordinary shares, or securities convertible
or exchangeable into ordinary shares, in future transactions may be higher or lower than the price per share paid by our existing shareholders.
If we issue ordinary shares or securities convertible into ordinary shares, our shareholders will experience additional dilution and,
as a result, our share price may decline.
In addition, as opportunities present themselves, we may enter into financing or similar
arrangements in the future, including the issuance of debt securities or ordinary shares with or without additional securities convertible
or exchangeable into ordinary shares. Whether or not we issue additional shares at a discount, any issuance of ordinary shares will, and
any issuance of other equity securities or of options, warrants or other rights to purchase ordinary shares may, result in additional
dilution of the percentage ownership of our shareholders and could cause our share price to decline. New investors could also gain rights,
preference and privileges senior to those of our shareholders, which could cause the price of our ordinary shares to decline. Debt securities
may also contain covenants that restrict our operational flexibility or impose liens or other restrictions on our assets, which could
also cause the price of our ordinary shares to decline.
Our share price and trading
volume have been volatile and may be volatile in the future and that could limit investors’ ability to sell our shares at a profit
and could limit our ability to successfully raise funds.
During the calendar year 2021, our closing share price on Nasdaq has ranged from a
low of $4.09 to a high of $13.77 and trading volume is volatile. The volatile price of our shares and periodic volatile trading volume
may make it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time, or to plan
purchases and sales in advance. A variety of factors may affect the market price of our ordinary shares including:
| • |
global macroeconomic developments; |
| • |
clinical data disclosed by us or our competitors; |
| • |
massive sell of our shares by a large shareholder; |
| • |
our success (or lack thereof) in entering into collaboration agreements and achieving certain research and developmental milestones
thereunder; |
| • |
our need to raise additional capital and our success or failure in doing so; |
| • |
our ability (or lack thereof) to disclose key discoveries or developments due to competitive concerns or need to secure our intellectual
property position; |
| • |
achievement or denial of regulatory approvals by us or our competitors; |
| • |
announcements of technological innovations or new commercial products by our competitors; |
|
• |
trends in share price of companies in our
field or industry; |
|
• |
announcement of corporate transactions,
merger and acquisition activities or other similar events by companies in our field or industry; |
|
• |
changes and developments effecting our field
or industry; |
| • |
developments concerning material proprietary rights, including material patents; |
| • |
developments concerning our existing or new collaborations; |
| • |
regulatory developments in the United States, Israel and other countries; |
| • |
changes in the structure of healthcare payment systems; |
41
| • |
delay or failure by us or our partners in initiating, completing or analyzing preclinical or clinical trials or the unsatisfactory
design or results of such trials; |
| • |
period to period fluctuations in our results of operations; |
| • |
changes in estimates by securities analysts; |
| • |
changes in senior management or the board of directors or changes in the size or structure of the company; |
| • |
our ability (or lack thereof) to disclose the commercial terms of, or progress under, our collaborations; |
| • |
our ability (or lack thereof) to show and accurately predict revenues; and |
| • |
transactions with respect to our ordinary shares by insiders or institutional investors. |
We are not able to control many of these factors, and we believe that period-to-period
comparisons of our financial results will not necessarily be indicative of our future performance.
In addition, the stock market in general, and the market for biotechnology
companies in particular, have experienced extreme price and volume fluctuations that may be unrelated or disproportionate to the operating
performance of individual companies. These broad market and industry factors may seriously harm the market price of our ordinary shares,
regardless of our operating performance.
Furthermore, the market prices of equity securities of companies
that have a significant presence in Israel may also be affected by the changing security situation in the Middle East and particularly
in Israel. As a result, these companies may experience volatility in their stock prices and/or difficulties in raising additional financing
required to effectively operate and grow their businesses. Thus, market and industry-wide fluctuations and political, economic and military
conditions in the Middle East, but also in the US may adversely affect the trading price of our ordinary shares, regardless of our actual
operating performance.
As a result of the volatility of our share price, we could be subject
to securities litigation, which could result in substantial costs and divert management’s attention and company resources from our
business.
Our ordinary shares are traded on more than one market and this
may result in price variations.
In addition to being traded on The Nasdaq Global Market, our ordinary shares are also
traded on the Tel Aviv Stock Exchange, or TASE. Trading in our ordinary shares on these markets take place in different currencies (U.S.
dollars on Nasdaq and NIS on the TASE), and at different times (resulting from 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 one market could cause a decrease in the trading price of our ordinary shares on the
other market.
If we are a passive foreign investment company,
or PFIC, our U.S. shareholders may be subject to adverse U.S. federal income tax
consequences.
For U.S. federal income tax purposes, we generally will be classified as a PFIC for
any taxable year in which, after the application of certain look-through rules with respect to our subsidiaries, either: (i) 75% or more
of our gross income is passive income or (ii) at least 50% of the average value (determined on the basis of a weighted quarterly average)
of our total assets for the taxable year produce or are held for the production of passive income. For purposes of these tests, passive
income includes dividends, interest, and gains from the sale or exchange of investment property and certain rents and royalties (excluding
rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business). Assets that
produce or are held for the production of passive income may include cash, even if held as working capital or raised in a public offering,
marketable securities, and other assets that may produce passive income. Generally, in determining whether a non-U.S. corporation is a
PFIC, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as
holding and receiving directly its proportionate share of assets and income of such corporation.
Based on our analysis of our estimated income, estimated assets,
activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2021. However, because
the determination of whether or not we are a PFIC is a fact-intensive determination made on an annual basis and because the applicable
law is subject to varying interpretation, we cannot provide any assurance regarding our PFIC status for the past, current or any future
taxable years. Our U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year. If we are a PFIC for any taxable
year during which a U.S. shareholder holds our shares, U.S. investors may be subject to adverse tax consequences regardless of whether
we continue to qualify as a PFIC, including the treatment of gains realized on the sale of our ordinary shares as ordinary income, rather
than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are
U.S. holders, the addition of interest charges on certain taxes treated as deferred and additional reporting requirements. A U.S. shareholder
of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a “qualified electing fund”
election, or QEF, or, in some circumstances, a “mark to market” election. However, there is no assurance that we will provide
the information required by the IRS in order to enable U.S. holders to make the QEF election. Moreover, there is no assurance that we
will have timely knowledge of our status as a PFIC in the future. Accordingly, U.S. holders may be unable to make a timely QEF election
with respect to our ordinary shares.
42
For further discussion of the PFIC rules and the adverse U.S. federal
income tax consequences in the event we are classified as a PFIC, as well as certain elections that may be available to U.S. shareholders,
see “Item 10.E. Taxation - Certain Material U.S. Federal Income Tax Considerations”.
If we are a controlled foreign corporation,
there could be materially adverse U.S. federal income tax consequences to certain U.S. Holders of our ordinary shares.
Each “Ten Percent Shareholder” (as defined below) in
a non-U.S. corporation that is classified as a controlled foreign corporation, or a CFC, for U.S. federal income tax purposes generally
is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s
‘‘Subpart F income,’’ global intangible low taxed income, and investment of earnings in U.S. property, by the
CFC, regardless of whether we make any distributions. Subpart F income generally includes dividends, interest, rents, royalties, gains
from the sale of securities and income from certain transactions with related parties. In addition, a Ten Percent Shareholder that realizes
gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than capital
gain. An individual that is a Ten Percent Shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign
tax credits that would be allowed to a Ten Percent Shareholder that is a U.S. corporation. We cannot provide any assurance that we will
assist investors in determining whether we or any of our future non-U.S. subsidiaries are treated as a CFC or furnish to any U.S. holder
the information required to comply with the reporting and tax-paying obligations discussed above. Failure to comply with these reporting
obligations may subject a Ten Percent Shareholder to significant monetary penalties and may prevent the statute of limitations with respect
to such Ten Percent Shareholder’s U.S. federal income tax return for the year for which reporting was due from starting.
A non-U.S. corporation generally will be classified as a CFC for
U.S. federal income tax purposes if Ten Percent Shareholders own, directly or indirectly, more than 50% of either the total combined voting
power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten
Percent Shareholder” is a United States person (as defined by the Internal Revenue Code of 1986, as amended, or, the Code) who owns
(directly or indirectly) 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the
total value of all classes of stock of such corporation.
The determination of CFC status is complex and includes attribution
rules, the application of which is not entirely certain. In addition, changes to the attribution rules relating to the determination of
CFC status may make it difficult to determine our CFC status for any taxable year. Because our group includes at least one U.S. subsidiary
(Compugen USA, Inc.), those changes to the attribution rules may cause any non-U.S. subsidiaries that we form or acquire in the future
to be treated as controlled foreign corporations.
Each U.S. holder (as defined in Item 10.E below) should consult
its own tax advisors with respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC. If we
are classified as both a CFC and a PFIC (as defined above), we generally will not be treated as a PFIC with respect to those U.S. holders
that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.
Our ability to use net operating losses to
offset future taxable income may be subject to limitations.
As of December 31, 2021, our net operating loss, or NOL, carryforwards or other tax
attributes of our U.S. subsidiary, Compugen USA, Inc., had a federal net operating loss, or NOL, balance of $4.8 million. This NOL carryforward
could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions
under U.S. tax law. Under the Tax Act as modified by the Coronavirus Aid, Relief, and Economic Security Act, Compugen USA, Inc.’s
federal NOLs incurred in tax years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such
federal NOLs in the tax years beginning after December 31, 2020, may be limited.
43
In addition, under Section 382 of the Code and corresponding provisions of state law,
if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its
equity ownership over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes
to offset its post-change income or taxes may be limited. It is possible that Compugen USA, Inc. has in the past undergone, and in the
future may undergo, ownership changes that could result in additional limitations on its NOLs.
Consequently, Compugen USA, Inc. may not be able to utilize a material portion of its NOLs and certain
other tax attributes, which could have a material adverse effect on cash flow and results of operations.
Shareholder activism can negatively affect our business.
In recent years, shareholder activists have become involved in
numerous public companies. Shareholder activists could propose to involve themselves in the governance, strategic direction and operations
of a company. We encountered such activism prior to our 2017 annual general shareholders’ meeting, when we received a formal request
from an individual private shareholder, holding approximately 1.3% of the Company’s voting rights at that time, to add to the agenda
of the meeting the proposed appointment of two new director candidates, both of whom were not recommended by management. This proposal
was rejected by the shareholders at the meeting. Shareholder activism, including potential proxy contests, divert our management’s
and board of directors’ attention and resources from our business, could give rise to perceived uncertainties as to our future direction
and could result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel
for positions in both management and on the board level and to raise funds. If nominees advanced by activist shareholders are elected
or appointed to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement
our strategic plans or to realize long-term value from our assets. Also, we may be required to incur significant expenses including legal
fees related to activist shareholder matters. Further, our share price could be subject to significant fluctuations or otherwise be adversely
affected by the events, risks and uncertainties of any shareholder activism.
General Risks
Environmental, social and governance matters may impact our business
and reputation.
Increasingly, in addition to the importance of their financial
performance, companies are being judged by their performance on a variety of environmental, social and governance, or ESG, matters, which
are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies
on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies
that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance
of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s
efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the company’s
board of directors in supervising various sustainability issues. In addition to the topics typically considered in such assessments, in
the healthcare industry, issues of the public’s ability to access a company’s medicines are of particular importance.
In light of investors’ increased focus on ESG matters, there
can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to
our proper role. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our
business, share price, financial condition, or results of operations, including the sustainability of our business over time.
44
ITEM 4.
INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT
OF THE COMPANY
History
Our legal and commercial name is Compugen Ltd. We were incorporated on February 10,
1993, as an Israeli corporation and operate under the Israeli Companies Law, 5759-1999, as amended together with all regulations promulgated
thereunder, or the Companies Law. Our principal offices are located at 26 Harokmim Street, Holon 5885849, Israel, and our telephone number
is +972-3-765-8585. Our web address is www.cgen.com. Information contained on our website does
not constitute a part of this Annual Report. The SEC maintains an internet site, http://www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC. Neither such internet addresses are a part
of this Annual Report.
Our agent for service of process in the United States is Compugen USA, Inc., our wholly
owned U.S. subsidiary located at 395 Oyster Point Blvd., Suite 307 South San Francisco, CA 94080, which was incorporated in Delaware in
March 1997 and is qualified to do business in California. This subsidiary did not have any significant operations from 2008 to March 2012.
Principal Capital Expenditures
In the years ended December 31, 2021, 2020 and 2019, our capital expenditures were
$0.4 million, $0.1 million and $0.2 million, respectively. As of December 31, 2021, we had no significant commitments for capital expenditures.
B. BUSINESS OVERVIEW
Summary
Compugen is a clinical-stage therapeutic discovery and development company utilizing
its broadly applicable predictive computational discovery capabilities to identify novel drug targets and new biological pathways to develop
therapeutics in the field of cancer immunotherapy. Compugen’s innovative immuno-oncology pipeline consists of four clinical stage
programs, targeting immune checkpoints Compugen discovered computationally, COM701, COM902, bapotulimab (formerly known as BAY1905254)
and AZD2936. The Company’s lead product candidate, COM701, a potential first-in-class anti-PVRIG antibody, for the treatment of
solid tumors, is undergoing Phase 1 clinical trials in dual, and triple combinations under clinical collaboration with Bristol
Myers Squibb. COM902 is a potential best-in-class therapeutic antibody targeting TIGIT, developed internally and is undergoing a Phase
1 trial to evaluate it in patients with advanced malignancies as a monotherapy and in combination with COM701. Bapotulimab, an antibody
targeting ILDR2, licensed to Bayer under a research and discovery collaboration and license agreement, is also in Phase 1 trials in patients
with advanced solid tumors. AZD2936 is a novel anti-TIGIT/PD-1 bispecific antibody with a TIGIT component that is derived from Compugen’s
COM902 program and is developed by AstraZeneca pursuant to an exclusive license agreement between Compugen and AstraZeneca and is in Phase
1/2 trial in patients with advanced or metastatic non-small cell lung cancer. Compugen’s therapeutic pipeline of early-stage immuno-oncology
programs consists of programs aiming to address various mechanisms of immune resistance, including myeloid targets. The innovative immuno-oncology
pipeline, the strategic collaborations and the Company’s computational discovery engine serve as the corporate three key building
blocks. Compugen’s business model is to selectively enter into collaborations for its novel targets and related drug product candidates
at various stages of research and development under various revenue-sharing arrangements.
The Company is headquartered in Holon, Israel. Its clinical development activities
are headed from our U.S. site in South San Francisco, California.
Our Strategy
Compugen aims to transform patient lives by developing first-in-class therapeutics
in the field of cancer immunotherapy based on our computational target discovery capabilities. Our pipeline strategy for the development
of first-in-class cancer immunotherapies is differentiated in the competitive landscape of immuno-oncology. It is based on novel targets
and biological pathways discovered by our proprietary predictive computational discovery capabilities and on robust scientific rationale
that we use to guide our drug development process. Our pipeline strategy consists of the following:
| • |
targeting novel pathways, identified internally, with potential to address the unmet need of patients non-responsive to cancer immunotherapies;
|
| • |
applying a science-driven approach to identify drug combinations, through deep understanding of the biology of these novel pathways;
and |
45
| • |
using the same scientific understanding of the new pathways to design a robust biomarker strategy for patient selection. |
In our therapeutic pipeline, our most advanced programs are:
| • |
COM701 is our lead immuno-oncology
pipeline program. COM701 is a humanized antibody that binds with high affinity to PVRIG, a novel immune checkpoint target candidate discovered
by us that blocks the interaction with its ligand, PVRL2. Our data suggests that the PVRIG pathway is parallel and complementary to TIGIT,
an immune checkpoint discovered computationally by us in 2009. These two pathways intersect with DNAM-1, a costimulatory receptor on T
cells and NK cells. The PD-1 pathway also intersects with DNAM-1. In certain tumors, the blockade of both TIGIT and PVRIG may be required
to stimulate an antitumor immune response, with or without additional PD-1 pathway blockade. Phase 1 trials for COM701 were initiated
in September 2018 and are currently conducted under the collaboration with Bristol Myers Squibb (except for the COM701 and COM902 combination
trial). See below additional information regarding Bristol Myers Squibb Collaboration. |
| • |
COM902 is a high affinity, fully human
antibody developed by us, targeting TIGIT, an immune checkpoint. COM902 blocks the interaction of TIGIT with PVR, its ligand. Our preclinical
data suggests that in certain tumor indications the blockage of both TIGIT and PVRIG, two coinhibitory arms of the DNAM-1 axis, may be
required to stimulate an anti-tumor immune response with or without the blockade of the PD-1 pathway. Phase 1 trials for COM902 were initiated
in March 2020 to evaluate it as a monotherapy in patients with advanced malignancies who have exhausted all available standard therapies.
|
| • |
Bapotulimab (formerly known as BAY1905254) is targeting ILDR2, a new immune checkpoint identified by us, that is being developed
by Bayer pursuant to a research and discovery collaboration and license agreement signed in 2013. Bayer initiated its Phase 1 trial in
patients with solid tumors in September 2018, which triggered a milestone payment of $7.8 million. |
| • |
AZD2936 is a novel TIGIT/PD-1 bispecific antibody with a TIGIT component that is derived from our COM902 and is developed pursuant
to the exclusive license agreement with AstraZeneca. AstraZeneca initiated its Phase 1/2 trial in patients with advanced or metastatic
non-small cell lung cancer in September 2021, which triggered a milestone payment of $6.0 million to us. |
Research Focus - Immuno-Oncology
Our research and development efforts focus on identifying novel drug targets and developing
first-in-class therapeutics in the field of cancer immunotherapy.
Cancer immunotherapies represents a significant commercial market. Sales of therapies
targeting immune checkpoints registered approximately $36 billion worldwide in 2021. Industry analysts estimate that the cancer immunotherapy
market has a significant growth potential and annual sales’ projections of some of $144 billion by 2025.
The immune system is naturally programmed to seek out and destroy abnormal cells.
Cancer is believed to thrive, in part, because of a number of cellular mechanisms that aid in the evasion of immune response. Such mechanisms
of immune system evasion include masking or reducing the expression of tumor antigens to avoid detection, recruiting T-cell suppressor
cells or expressing inhibitory molecules that suppress immune activation, inducing conditions in the tumor microenvironment that promote
tumor cell proliferation and survival, and a number of other factors. Immuno-oncology therapies that overcome immune suppression by stimulating
responses directed to cancer cells are emerging as a powerful means of counteracting the cellular mechanisms that enable the growth and
spread of tumors. Immuno-oncology agents are expanding as a potential path to durable and long-lasting responses in certain patients.
Compugen’s discovery strategy is focused on the discovery of drug targets addressing
mechanisms of immune resistance and consequently may provide new cancer immunotherapies for patients non-responsive to current cancer
therapies.
While immunotherapy revolutionized the landscape for oncology treatments by providing
a new treatment option leading to lasting benefits for patients; the response rates to immunotherapy vary greatly across different cancer
indications, averaging only 20 to 30% across all cancer patients thereby leaving a significant unmet medical need for many patients that
may be addressed by the discovery of new biological pathways that could serve for the development of new cancer immunotherapies.
46
Therapeutic Pipeline
| • |
COM701 - a therapeutic antibody targeting PVRIG |
Pathway expression and preclinical data
COM701 is a potentially first-in-class humanized antibody that
binds with high affinity to PVRIG, a novel immune checkpoint target candidate discovered by Compugen, blocking the interaction with its
ligand, PVRL2. Blockade of PVRIG by COM701 has demonstrated potent, reproducible enhancement of T cell activation, consistent with the
desired mechanism of action of activating T cells in the tumor microenvironment to generate anti-tumor immune responses. In addition,
COM701 combined with antagonist anti-PD-1 antibodies has demonstrated synergistic effects in enhancing human T cell stimulation and inhibiting
tumor growth in murine models, indicating an intersection of the PVRIG and PD-1 inhibitory pathways and the potential of these combinations
to further enhance immune response against tumors.
PVRIG and TIGIT constitute parallel immune checkpoint pathways
that interact with DNAM-1, a costimulatory molecule on T cells and NK cells. Preclinical data for COM701 suggest that PVRIG may be a dominant
checkpoint pathway in diverse patient populations with tumors that express elevated PVRL2, the ligand of PVRIG, as compared to expression
of PVR, the ligand of TIGIT. This includes patients with breast, endometrial, and ovarian cancers. In addition, expression studies showed
that PVRIG, TIGIT, and their respective ligands, are expressed in a broad variety of tumor types, such as those noted above, as well as
lung, kidney, colorectal and head & neck cancers. In these tumors the blockade of both TIGIT and PVRIG may be required to stimulate
an anti-tumor immune response, with or without additional PD-1 pathway blockade. COM701 is in a Phase 1 clinical trial in patients with
advanced solid tumors, to evaluate in monotherapy, combination therapy with a PD-1 inhibitor and combination therapy with PD-1 inhibitor
and TIGIT inhibitor.
Clinical Development - Bristol Myers Squibb
Collaboration
In October 2018, we entered into the MCTC with Bristol Myers Squibb
to evaluate the safety and tolerability of COM701 in combination with Bristol Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo®.
In February 2020, the MCTC was amended to include a Phase 1/2 clinical trial, sponsored by Compugen, to evaluate the safety, tolerability
and antitumor activity of COM701 in combination with Opdivo® (nivolumab), and Bristol Myers Squibb’s investigational antibody
targeting TIGIT known as BMS-986207, in patients with advanced solid tumors. In February 2021, the MCTC was further amended to include
an expansion of the Phase 1 combination trial designed to evaluate the dual combination of COM701 and Opdivo® in patients with advanced
solid tumors and in November 2021 the MCTC was amended again to, among other things, establish a joint steering committee (alongside the
existing joint development committee which acts at an operational level) to facilitate strategic oversight and guidance for the programs
run under the collaboration. See “Business Strategy and Partnerships - Bristol Myers Squibb Collaboration” below. Bristol
Myers Squibb supplies Opdivo® for the dual combination portions of the trials in accordance with our collaboration through the completion
of the expansion arms of the trial, as specified below, and supplies both Opdivo® and its investigational antibody targeting TIGIT
known as BMS-986207, for the triple combination trial in accordance with our collaboration, at no cost.
COM701 Clinical Programs
In September 2018, we dosed our first patient in the Phase 1 clinical
trial of COM701.
47
A schema of the trial, patient population, key trial objectives
and biomarker strategy are summarized in the chart below:
Phase 1 Arm A
of the trial evaluated the safety and tolerability and preliminary antitumor activity of COM701 monotherapy. We completed the enrollment
to both the dose escalation and expansion cohorts.
The patient population enrolled in the dose escalation was all
comers and included patients who have failed prior therapies including other checkpoint inhibitors and have no other available approved
therapies.
To evaluate the long-term safety and efficacy of COM701 monotherapy,
following the completion of the COM701 monotherapy dose-escalation, we initiated a monotherapy expansion cohorts trial with the enrollment
of patients with relapsed or refractory disease and such tumor types that have been selected based on the preclinical data demonstrating
a high expression of PVRIG and PVRL2 and based on emerging clinical data from the dose-escalation cohorts of the trial. The indications
for the monotherapy expansion cohorts were ovarian, breast, endometrial, colorectal and NSCLC.
In November 2019 we presented initial clinical data from the COM701
monotherapy dose escalation study at the 34th Annual Meeting
of the Society for Immunotherapy of Cancer (SITC 2019), demonstrating that COM701 is well-tolerated through 10 mg/kg IV Q3 weeks with
no dose-limiting toxicities observed. Furthermore, data showed preliminary signs of anti-tumor activity in heavily pretreated patient
population (with a median of seven prior anticancer therapies (range of 2-15)), with best timepoint response of stable disease (SD)/disease
control rate reported in 9 of 13 patients (69%) and with 5 of 6 patients (83%) with CRC microsatellite stable status, with best timepoint
response of stable disease.
Phase 1 Arm B
of the trial evaluates the safety and tolerability and preliminary antitumor activity of COM701 in combination with a PD-1 inhibitor.
A patient population with the same eligibility criteria as enrolled for the dose escalation cohorts in Arm A was enrolled for this part
of the trial and enrollment was completed during 2020.
In June 2021, we announced that the first patient in the combination
expansion cohort of this Phase 1 Arm B clinical has been dosed. The indications for the combination therapy expansion cohort, ovarian,
breast, endometrial and colorectal cancers were selected based on preclinical biomarker assessments and based on emerging clinical data
from the dose-escalation cohorts of the trial.
48
In a poster (Abstract #TPS23) titled “A Phase 1 Study Evaluating
COM701 Monotherapy and in Combination with Nivolumab in Patients With Advanced Solid Malignancies,” featured at the 2020 ASCO-SITC
Clinical Immuno-Oncology Symposium in Orlando, FL, in February 2020, we reported the following: (i) enrollment in the eighth dose level
patient cohort of 20mg/kg at Q4 weekly dosing schedule is ongoing in the monotherapy dose escalation study; (ii) enrollment in the fourth
dose level patient cohort at Q4 weekly dosing schedule in the combination dose escalation study of COM701 with Opdivo® (nivolumab)
has been completed with no dose-limiting toxicities reported; and (iii) no dose limiting toxicities have been reported in lower dose level
patient cohorts in the monotherapy and combination dose escalation arms.
In April 2020 we presented updated results from our ongoing Phase
1 dose escalation study of COM701 at the 2020 American Association for Cancer Research (AACR) Virtual Annual Meeting I demonstrating that
COM701 was well-tolerated through 20 mg/kg IV Q4 weeks as a monotherapy and 10 mg/kg IV Q4 weeks in combination with Opdivo® (480
mg IV Q4 weeks) with no dose-limiting toxicities reported. Furthermore, COM701 demonstrated encouraging signals of anti-tumor activity
with high disease control rate in both the monotherapy and combination therapy arms (69% and 75%, respectively), including two confirmed
partial responses and durable responses of over six months across cohorts, in the heavily pretreated patients enrolled in the study.
In February 2021 we presented updated results from our ongoing
Phase 1 dose escalation study of COM701 as a monotherapy, and in combination with Opdivo® (nivolumab) and our monotherapy cohort
expansion.
Data highlights from the Phase 1 dose escalation studies as of
the data cutoff of December 14, 2020 included:
COM701 and Opdivo® combination dose escalation arm:
| • |
In 15 patients with a median of five prior anticancer therapies (range of 2-10), COM701 in combination with Opdivo® was well-tolerated
with no reported dose-limiting toxicities up to the fifth and final dose cohort of COM701 20 mg/kg and Opdivo® 480 mg, both IV Q4
weeks. |
| • |
The disease control rate (DCR) was 66.7% (N=10) with best responses of complete response (CR) 6.7% (N=1), partial response (PR) 6.7%
(N=1) and stable disease (SD) 53.3% (N=8). |
| • |
A patient with anal squamous cell carcinoma with confirmed SD as reported at American Association for Cancer Research (AACR) 2020,
had in the cutoff date confirmed CR and remains on treatment at 79 weeks. This patient progressed on Opdivo® prior to enrolling in
our study. |
| • |
A patient with microsatellite stable (MSS)-colorectal cancer with durable confirmed partial response previously reported at AACR
2020 remained on study treatment at 44 weeks. |
| • |
Durable responses of confirmed SD of six months or more in three patients. One patient with renal cell carcinoma remains on treatment
at 58 weeks, and one patient with non-small cell lung cancer (NSCLC) (squamous) who failed prior treatment with immune checkpoint inhibitors
remained on treatment at 36 weeks, and one patient with endometrial cancer remained on treatment at 46 weeks. |
COM701 monotherapy arm dose escalation update since AACR 2020:
| • |
The patient with primary peritoneal cancer (platinum resistant, MSS) with durable confirmed partial response remains on study treatment
at 62 weeks. |
| • |
The patient with pancreatic cancer, refractory to all three prior lines of standard of care (SOC) therapy with durable confirmed
SD was on study treatment for 31 weeks. |
49
Data highlights from the monotherapy expansion cohort as of the
data cutoff of December 14, 2020 included:
| • |
20 patients enrolled in biomarker and data informed indications; four patients of each: endometrial cancer, NSCLC, ovarian cancer,
breast cancer and colorectal cancer. |
| • |
Six of the 20 patients (30%) had best responses of SD, one patient with endometrial cancer, three patients with NSCLC and two patients
with ovarian cancer. |
| • |
Two patients with SD remain on treatment as of the data cutoff date; one patient with NSCLC who had >3 prior lines of SOC therapy;
including prior treatment with immune checkpoint inhibitors with treatment ongoing at 26 weeks, and one patient with ovarian cancer with
treatment ongoing at 20 weeks. |
| • |
Two additional patients remain on treatment as of the data cutoff date. |
| • |
No new safety findings were observed. |
In June 2021 we presented updated results from our ongoing Phase
1 study of COM701 as a monotherapy, and in combination with Opdivo® (nivolumab) in an oral presentation at the ASCO 2021 Annual Meeting.
Data highlights as of the data cutoff of April 15, 2021 included:
COM701 and Opdivo® combination arm dose escalation:
| • |
In 15 evaluable patients, COM701 in combination with Opdivo® was well-tolerated with no reported dose-limiting toxicities up
to the fifth and final dose cohort of COM701 20 mg/kg and Opdivo® 480 mg, both IV Q4 weeks. |
| • |
The disease control rate (DCR) was 66.7% (N=10) with best responses of complete response (CR) 6.7% (N=1), partial response (PR) 6.7%
(N=1) and stable disease (SD) 53.3% (N=8). |
| • |
Previously reported patient with anal squamous cell carcinoma with confirmed CR remains on treatment at 96 weeks (22 months). This
patient had three prior lines of therapy and enrolled within one month after progression on Opdivo® monotherapy. |
| • |
Previously reported patient with renal cell carcinoma with best response of SD remains on treatment at 75 weeks. |
| • |
A patient with microsatellite stable (MSS)-colorectal cancer with durable confirmed partial response previously reported at AACR
2020 remained on study treatment for 44 weeks. |
COM701 monotherapy arm:
| • |
Overall 36 patients enrolled. 16 patients, all comers in dose escalation and 20 patients in dose expansion; four patients of each:
endometrial cancer, NSCLC, ovarian cancer, breast cancer and colorectal cancer (MSS). |
| • |
The disease control rate (DCR) was 47.2% (N=17) with best responses of partial response (PR) 2.7% (N=1) and stable disease (SD) 44.4%
(N=16). |
| • |
Previously reported patient with primary peritoneal cancer (platinum resistant, MSS) with confirmed PR remains on study treatment
at 79 weeks (18 months). Patient had three prior lines of standard-of-care treatment. - Archival pre-treatment biopsy data revealed the patient was PD-L1 negative, with PVRL2 expression on tumor and endothelial cells, with an immune desert phenotype (i.e, no immune cells detected prior to treatment). - Peripheral blood assessment showed immune activation as measured by immune cell proliferation and IFNγ induction prior to tumor shrinkage. |
50
Demonstrated durable antitumor activity in extensively pretreated
population of both arms together:
| • |
Durable responses to treatment (CR, PR or SD ≥ 6 months) in 10/51 (19%) patients. |
| • |
Best responses of CR, PR, or SD were observed in 11/21 (52%) patients with prior treatment refractory disease. |
| • |
Best response of CR, PR or SD were observed in 13/18 (72%) patients with prior treatment with immune checkpoint inhibitors.
|
Preliminary biomarker results demonstrate immune activation with
COM701 treatment:
| • |
Peripheral pharmacodynamic changes were measured via immune cell proliferation and cytokine levels in peripheral blood before and
on treatment. |
| • |
After one treatment cycle, patients treated with COM701 monotherapy showed a trend of increased proliferation of effector memory
CD8+ T cells (average change 87%), an immune cell population that expresses high level of PVRIG and are critical in driving anti-tumor
immunity. Similar results were observed in the combination arm. |
| • |
Proliferation of NK-T cells, an immune cell population that expresses high level of PVRIG and plays a role in antitumor activity,
increased significantly one day after COM701 monotherapy treatment, with a similar trend observed in the combination arm. |
| • |
Levels of IFNγ, a cytokine which plays a key role in antitumor immunity,
were upregulated following combination treatment of COM701 with Opdivo®, with a dose response trend with increasing doses of COM701,
suggesting the observed activity is derived from the combination treatment and not Opdivo® alone. |
| • |
Anti-tumor activity was observed in PD-L1 low, PVRL2 positive patients, suggesting COM701 treatment may drive anti-tumor immunity
even in patients with less inflamed tumor microenvironment. |
Phase 1/2 trial
is designed to evaluate the safety, tolerability and antitumor activity of COM701 in combination with Opdivo® and BMS-986207.
The trial is designed to evaluate a safe and tolerable dose of the combination during dose escalation and antitumor activity in selected
tumor types in the expansion cohorts (ovarian cancer, endometrial cancer, head and neck and a biomarker-driven arm of tumor types with
high expression of PVRL2). Dose levels for Opdivo® and BMS-986207 combinations have already been determined through prior
testing by Bristol Myers Squibb, allowing for dose escalation of COM701 with fixed doses of Opdivo® and BMS‑986207.
In July 2021 we dosed the first patient in this trial and we are
currently enrolling patients.
In November 2021 we presented preliminary results from our ongoing
Phase 1/2 triple combination dose escalation study at the 36th Annual Meeting of the Society for Immunotherapy of Cancer (SITC).
Key findings presented as of the data cutoff of September 3, 2021 included:
| • |
The study enrolled 13 patients with a variety of advanced solid tumors cancers (all comers) who have exhausted all available standard
treatments. All the patients received escalating doses of COM701 in combination with fixed doses of nivolumab and BMS-986207. |
| • |
The study population was heavily pretreated with a median of 10 prior therapies, with a minimum of 1 and maximum of 19. |
| • |
The combination was well tolerated with no dose limiting toxicity and a favorable safety and toxicity profile. |
| • |
COM701 20 mg/kg was selected as the recommended dose for expansion in combination with nivolumab and BMS-986207 (both at 480 mg)
with all the study drugs administered IV Q4W. |
| • |
Translational assessment of peripheral blood from all patients showed a positive pharmacodynamic activation of the immune system
following treatment, including increased T and NK cell activation, memory T cell proliferation and IFNγ induction, which is supportive
of immune activation following triplet blockade. |
| • |
Best responses of stable disease were reported in 3 patients, one patient with prostate cancer remains on study beyond 100 days of
treatment. |
Phase 1 Combination of COM902 with
COM701 – For details please see information below under the header
“COM902 - a therapeutic antibody targeting TIGIT”.
51
| • |
COM902 - a therapeutic antibody targeting TIGIT |
Pathway expression and preclinical data
COM902, a high affinity, fully human and a potentially best-in-class
antibody targeting TIGIT, an immune checkpoint is developed by us. COM902 was shown to have superior binding affinity to T cells with
similar and or greater in vitro function compared to several clinical anti-TIGIT antibodies. COM902 is a mouse-cross reactive Ab and inhibited
tumor growth and increased survival when combined with anti-PVRIG or anti-PD-L1 antibodies in in-vivo studies. Preclinical data demonstrated
that TIGIT inhibition, either alone or in combination with other checkpoint inhibitors, can enhance T cell activation and increase
anti-tumor immune responses. In pre-clinical studies, parallel inhibition of TIGIT and PVRIG, two coinhibitory arms of the DNAM-1 axis,
resulted in synergistic effects on effector T cell function and tumor growth inhibition in various model systems that can be further
increased with the addition of PD-1 blockade. Based on preclinical data these combinations may be clinically important for enhancing anti-tumor
immune response and expanding the patient population responsive to checkpoint inhibition.
We discovered TIGIT in 2009 with our immune checkpoint computational
discovery capabilities through which PVRIG was also discovered. The TIGIT discovery was published by us in October 2009 in the Proceedings
of the National Academy of Sciences (PNAS).
Expression studies show that PVRIG and TIGIT, and their respective
ligands, are expressed in a broad variety of tumor types, such as breast, endometrial, ovarian, lung, kidney, and head & neck cancers.
These results indicate that within the same tumor indications there are variations with respect to the possible dominance of the two pathways,
and that in patient populations where the two pathways are operative, the blockade of both TIGIT and PVRIG may be required to sufficiently
stimulate an anti-tumor immune response.
Clinical Development
In March 2020, we dosed our first patient in the Phase 1 clinical
trial of COM902.
A schema of the trial, patient population and key trial objectives
are summarized in the chart below:
52
COM902 Clinical Programs
Phase 1 Monotherapy trial
evaluates the safety and tolerability of COM902 in patients with advanced malignancies through sequential dose escalations. The patient
population enrolled to the dose escalation cohort is all comers and includes patients who have failed prior therapies including other
checkpoint inhibitors and have no other available approved therapies.
We completed the monotherapy dose escalation trial, and we are
enrolling patients to the expansion cohort.
In November 2021 we presented preliminary results from Phase 1
dose escalation combination dose escalation study at the 36th Annual Meeting of the Society for Immunotherapy of Cancer (SITC).
Data highlights as of the data cutoff of September 3, 2021 included:
| • |
The study enrolled 18 patients with advanced solid tumors who exhausted all available standard therapies. |
| • |
The study population was heavily pretreated with the median number of prior therapies was 7, with a minimum of 2 and maximum of 16.
|
| • |
COM902 administered IV Q3W was well tolerated with a favorable safety profile. A maximum tolerated dose of COM902 was not reached. o One patient in the 0.01 mg/kg dose cohort reported a dose limiting toxicity (DLT) of Grade 2 vomiting, and one patient in the 1 mg/kg dose cohort had a DLT of Grade 3 atrial fibrillation; these were assessed by the investigator as possibly related to study treatment with COM902. o No DLTs were reported at any other COM902 doses including higher doses (3 mg/kg, 10 mg/kg). |
| • |
COM902 3 mg/kg IV Q3W has been selected as the recommended dose for expansion. |
| • |
Best response of stable disease (SD) was reported in 9 patients (50%), with 6 patients (67%) having confirmed SD and 3 patients (17%)
with SD of at least 6 months. |
| • |
No depletion of major lymphocyte populations expressing TIGIT (NK, CD4 and CD8 T cells) in the peripheral blood analysis. |
53
Phase 1 Combination of COM902 with
COM701 is designed to assess the safety, tolerability and preliminary antitumor
activity of COM902 in combination with COM701 in patients with advanced malignancies during dose escalation and in selected tumor types
in the expansion cohorts (colorectal cancer, non-small cell lung cancer and head and neck). We are now enrolling to the expansion cohorts
of this combination study.
| • |
Bapotulimab (formerly known as BAY1905254) – a therapeutic antibody targeting
CGEN-15001T/ILDR2 |
Bapotulimab (formerly known as BAY1905254, an antibody to ILDR2
(formerly CGEN-15001T), a novel immune checkpoint target discovered by Compugen, was developed with Bayer pursuant to a research and discovery
collaboration and license agreement signed in August 2013. See “Business Strategy and Partnerships - Bayer Collaboration”
below. Studies testing the immune function of ILDR2 demonstrated inhibitory effects on T cells consistent with it being an immune checkpoint
ligand. ILDR2 appears to have a unique mechanism of action relative to other immune checkpoints currently being targeted in clinical testing.
ILDR2 is expressed in lymph nodes, suggesting that bapotulimab exerts its effects on immune cell priming rather than on directly
enhancing immune cell killing effects in the tumor microenvironment.
In April 2018, Bayer disclosed bapotulimab (formerly known
as BAY1905254) a human/monkey/mouse cross-reactive antibody blocking the immunosuppressive activity of ILDR2. Bapotulimab has exhibited
anti-tumor activity as a monotherapy in various mouse models and was also shown to have additive anti-tumor effects in combination with
other cancer therapy approaches, indicating the possibility for multiple combination uses in cancer immunotherapy.
Bapotulimab is
currently being evaluated in a Phase 1 expansion trial in combination with Keytruda, in head and neck cancer that has returned or is discovered
to be metastatic and is expressing PDL1 to evaluate the combination treatment.
| • |
AZD2936 - a therapeutic TIGIT/PD-1 bispecific antibody with a TIGIT component that
is derived from our COM902 |
AZD2936 is a novel TIGIT/PD-1 bispecific antibody with a TIGIT
component that is derived from our COM902 being developed by AstraZeneca pursuant to an exclusive license between us and AstraZeneca.
In March 2018, we entered
into an exclusive license agreement with AstraZeneca, pursuant to which, we granted to AstraZeneca an exclusive license to use our monospecific
antibodies that bind to TIGIT, including COM902, for the development of bi-specific and multi-specific antibody products, excluding such
bi-specific and multi-specific antibodies that also bind to PVRIG, PVRL2 and/or TIGIT.
AZD2936 is currently being evaluated by AstraZeneca in a Phase
1/2 trial in patients with advanced or metastatic non-small cell lung cancer.
Biomarker Driven Strategy
We recognize that one of the major limitations of current immunotherapy approaches
is the lack of tools to help predict patient responses. Through the use of informed biomarker driven strategies, based on the new biological
pathways we discover, we aim to identify biomarkers that can help us predict which patients are most likely to respond to our novel therapies.
This long-term approach also seeks to improve the probability of success of our
clinical studies.
We are using three approaches in our biomarker strategy. We are computationally analyzing
omics data to identify tumor indications in which the pathway of our target is elevated. This analysis is thereafter validated experimentally,
and the validated data is used for indication selection for our clinical trials. We used this approach for COM701 to select the tumor
types for inclusion in our cohort expansion studies. Such antitumor activity further supports our biomarker-informed approach and predictive
discovery capabilities.
The second part of our biomarker strategy is the identification of biomarkers for
future patient selection. In this approach we are using different technologies and methodologies on both biopsies, liquid biopsies, and
blood samples. The different technologies include immunohistochemistry, transcriptomic and proteomic analysis. In the immunohistochemistry
analysis, we are currently evaluating the correlation between the expression of the PVRIG pathway with clinical response. The additional
technologies utilized are for other exploratory biomarker identification approaches.
54
Thirdly, we have a pharmacodynamic biomarker approach where we measure immune modulation
induced by COM701 and combinations in peripheral and tumor patient samples obtained before and during treatment. In this analysis we measure
both protein and sequence analytics, such as cytokine analysis, immune phenotyping, proteomic changes, transcriptomics analysis, and TCR
clonality.
Early-Stage Pipeline
Immuno-oncology represents a paradigm shift in the treatment of cancer, and biological
drugs blocking immune checkpoint targets have already resulted in long-term patient survival in certain cancer types. Despite their potential,
current checkpoint inhibitors are limited to a few targets and are only effective in certain patients and in certain cancers. We believe
that the identification of new drug targets and new biological pathways has the potential to broaden the reach of cancer immunotherapies
to more types of cancers and many more patients
Our early-stage programs were discovered using our discovery capabilities and consists
of drug targets with the potential to address mechanisms of immune resistance and consequently may provide new cancer immunotherapies
for patients non-responsive to current cancer therapies. These early-stage programs are addressing a range of mechanisms of immune resistance,
including myeloid biology with an aim to provide new cancer immunotherapies for patients non-responsive to current cancer therapies.
Our Predictive Computational Discovery Approach
Our target discovery is a predictive, proprietary computational process that we initiate
based on a clinical need. The unmet clinical need and the therapeutic strategy
dictate the target discovery approach, the appropriate tools and most relevant data to be employed. We have developed predictive drug
target discovery capabilities that leverage the power of computational modeling, guided by our scientific expertise and extensive public
and proprietary datasets, to identify novel drug targets and new biological pathways towards the development of new cancer immunotherapy
treatments. Our multi-omics data analysis is designed to identify first-in-class drug target candidates, which are generally difficult
to identify using traditional experimental approaches. We believe that our computational approach integrated with robust experimental
validation is a key differentiator from others employing computational discovery approaches.
Our broadly applicable predictive drug target discovery capabilities employ a suite
of cloud-based computational solutions and purpose-built algorithms to sort through both public and proprietary datasets encompassing
genomics, transcriptomics, and proteomics data. From these massive datasets, our platforms analyze characteristics, such as gene structure,
protein domains, predicted cellular localization, expression pattern, as well as other characteristics to identify potential druggable
targets and predict their biological functions. Over the past decade, we have continued to refine our analysis by incorporating new public
and in-house experimental data. While our initial focus is on discovering novel immune checkpoints, we are also working to identify myeloid
targets contributing to the immunosuppressive tumor microenvironment as well as pathways driving drug resistance.
We have demonstrated the applicability of our discovery approach in computationally
identifying multiple in-silico targets, including PVRIG, TIGIT and ILDR2, which now serve as the targets for therapeutic
antibodies currently being evaluated in the clinic by us and others. The antibodies designed to block these targets – COM701, COM902
and bapotulimab (formerly known as BAY1905254) (together with AZD2936, a novel anti-TIGIT/PD-1 bispecific antibody with a TIGIT component
that is derived from our COM902 and developed by AstraZeneca) are being tested in Phase 1 studies.
Business Strategy and Partnerships
Our business strategy includes entering into various forms of revenue-sharing collaborations
with pharmaceutical or biotechnology partners for our product candidates in our pipeline at both early and later stages of development.
Through these collaborations we seek to create, further develop and commercialize therapeutic product candidates directed to our novel
drug targets. Such collaborations or other types of partnering arrangements might include one or more of our therapeutic
pipeline programs, including our novel early-stage candidates, as well as our clinical candidates COM701 and COM902. Additionally, our
discovery capabilities are designed to allow for research and discovery collaborations aimed at harnessing our capabilities towards a
potential partner’s pipeline needs. Potential revenue sources in line with this business model could include upfront fees, research
funding, in-kind funding, milestones payments, license fees, royalties and other revenue sharing payments. We may also seek co-development
arrangements pursuant to which we would further advance partnered programs under any such partnership in order to retain higher share
from future sales revenues.
55
Bayer Collaboration
On August 5, 2013, we entered into a collaboration with Bayer, or the Bayer Collaboration,
for the research, development, and commercialization of antibody-based therapeutics against two novel Compugen-discovered immune checkpoint
regulators, CGEN 15001T/ILDR2 and CGEN 15022.
Under the terms of the Bayer Collaboration, we received an upfront payment of $10
million, and, following the return of the CGEN 15022 program to us, we are eligible to receive an aggregate of over $250 million in potential
milestone payments for bapotulimab (formerly known as BAY1905254) (an antibody against CGEN 15001T/ILDR2), not including aggregate
milestone payments of approximately $23 million received to date. Additionally, we are eligible to receive mid-to-high single digit royalties
on global net sales of any approved products under the collaboration.
In 2014, we achieved the first and second preclinical milestones and in 2015 we achieved
the third preclinical milestone with respect to bapotulimab. Pursuant to the terms of the Bayer Collaboration, this program was transferred
to Bayer’s full control for further preclinical and clinical development activities, and worldwide commercialization under milestone
and royalty bearing licenses from us. In September 2018, the program achieved the fourth milestone, following the dosing of the first
patient in the Phase 1 clinical trial of bapotulimab.
The Bayer Collaboration continues until Bayer is no longer required to make payments
under the Agreement or until otherwise terminated by either party in accordance with the terms of the Agreement. Bayer may also terminate
the Bayer Collaboration, either in whole or only with respect to one of the programs, and in each case also on a product-by-product and/or
country-by country basis, at any time without cause, upon prior written notice. Either party may also terminate the Bayer Collaboration,
either in whole or with respect to only one of the programs, if the other party is in material breach and such breach has not been cured
within the applicable cure period. Upon any termination of the Agreement, depending upon the circumstances, the parties have varying rights
and obligations with respect to the continued development and commercialization of any products and certain payment and royalty obligations.
Bristol Myers Squibb Collaboration
On October 10, 2018, we entered into a master clinical trial collaboration agreement,
or the MCTC, with Bristol Myers Squibb to evaluate the safety and tolerability of COM701 in combination with Bristol Myers Squibb’s
PD-1 immune checkpoint inhibitor Opdivo® (nivolumab), in patients with advanced solid tumors.
The collaboration was also designed to address potential future combinations, including
trials to investigate combined inhibition of checkpoint mechanisms. The clinical combination of multiple immune checkpoint inhibition
is designed to clinically test the synergistic activity demonstrated in preclinical models. The parties agreed that Bristol Myers Squibb
and Compugen will each supply the other company with its own compound for the other party’s study, and otherwise each party will
be responsible for all costs associated with the study that it is conducting. Any combination trial performed under this agreement is
referred to as a Combined Therapy Study.
On February 14, 2020, the MCTC was amended to include a triple combination clinical
trial to evaluate the safety, tolerability and antitumor activity of COM701 in combination with Opdivo® (nivolumab), and Bristol
Myers Squibb’s investigational antibody targeting TIGIT known as BMS-986207, in patients with advanced solid tumors, instead of
the planned expansion of the combined therapy study designed to evaluate the dual combination of COM701 and Opdivo®.
Pursuant to the MCTC, as amended, we sponsor the two-part Phase 1/2 trial, which evaluates
the triple combination of COM701, Opdivo® and BMS-986207, in patients with advanced solid tumors where Bristol Myers Squibb provides
Opdivo® and BMS-986207 at no cost to us.
As part of the amended MCTC, it was agreed that we will complete the dose escalation
arm of the dual combination of COM701 with Opdivo®
under the ongoing Phase 1 study and will not continue the expansion cohorts of the dual combination. However, on February 19, 2021, such
MCTC was further amended to include an expansion of the Phase 1 combination study designed to evaluate the dual combination of COM701
and Opdivo® in patients with advanced solid tumors, where we are responsible for and sponsor the expansion cohort and Bristol Myers
Squibb provides Opdivo® at no cost to us for this study. The amendment also revised the exclusivity period granted to Bristol Myers
Squibb to include a specific date for termination of the exclusivity period, so that it ends at the earlier of (i) six months after the
study completion of the triple combination and the dual combination; or (ii) December 31, 2023.
56
In November 2021 the MCTC was further amended to, among other things, establish a
joint steering committee (alongside the existing joint development committee which acts at an operational level) to facilitate strategic
oversight and guidance for the programs run under the collaboration.
Ownership of, and global commercial rights to, COM701 remain solely with us under
the MCTC (subject to the rights granted to Bristol Myers Squibb). If we wish to license the right to commercialize COM701 in any territory
during the time prior to the end of the exclusivity period specified above, we must first negotiate with Bristol Myers Squibb for a period
of three months, or the Negotiation Period, to grant an exclusive license to develop and commercialize COM701 in that territory. If we
and Bristol Myers Squibb do not reach an agreement for an exclusive license within the Negotiation Period, then Bristol Myers Squibb will
have no further first negotiation rights, and we will be free to license COM701 (subject to all other rights afforded to Bristol Myers
Squibb under the MCTC) to other parties, in such territory. After the expiration of the exclusivity period specified above, we are free
to license COM701 without any further obligation to Bristol Myers Squibb.
The MCTC also contains certain exclusivity provisions that run through the said exclusivity
period. We agreed not to conduct any preclinical or clinical research with, or grant rights to, certain restricted third parties regarding
the combination of an anti-PD-1 antagonist or anti-PD-L1 antagonist together with COM701. We remain free to conduct any preclinical or
clinical research involving such restricted combination on our own or in collaboration with academic or other non-profit entities.
Subject to termination rights for breach, bankruptcy or a material safety issue or
clinical hold, the term of the MCTC will continue in effect until completion by all centers or institutions participating in the combination
studies above, the delivery of study data to both parties and the completion of any then agreed upon protocol(s), statistical analysis
and bioanalysis plan. In the event a third-party merges with or acquires us, we are free to assign or transfer the Agreement without the
consent of Bristol Myers Squibb.
In conjunction with the signing of the MCTC in October 2018, Bristol Myers Squibb
made a $12 million investment in us, purchasing 2,424,243 of our ordinary shares at a purchase price of $4.95 per share. The share
price represented a 33% premium over the average closing price of our ordinary shares for twenty (20) Nasdaq trading days prior to the
execution of the securities purchase agreement.
In conjunction with the signing the amendment to the MCTC in November 2021, Bristol
Myers Squibb made a $20 million investment in us, purchasing 2,332,815 of our ordinary shares at a purchase price of $8.57333 per share.
The share price represented a 33% premium over the closing price of our ordinary shares on the last trading day immediately prior to the
execution of the securities purchase agreement.
Please see “Item 5. Operating and Financial Review and Prospects Finance - B.
Liquidity and Capital Resources.”
AstraZeneca License
In March 2018, we entered into an exclusive license agreement with AstraZeneca, to
enable the development of bi-specific and multi-specific immuno-oncology antibody products.
Under the terms of the license agreement, we granted an exclusive license to AstraZeneca
to use our monospecific antibodies that bind to TIGIT, including COM902, for the development of bi-specific and multi-specific antibody
products, excluding such bi-specific and multi-specific antibodies that also bind to PVRIG, PVRL2 and/or TIGIT. AstraZeneca has the right
to create multiple products under this license and will be solely responsible for all research, development and commercial activities
under the agreement. In connection with such license agreement, AstraZeneca developed AZD2936, a novel TIGIT/PD-1 bispecific antibody
with a TIGIT component that is derived from our COM902 and entered the clinic in September 2021.We received a $10 million upfront
payment and are eligible to receive up to $200 million in development, regulatory and commercial milestones for the first product as well
as tiered royalties on future product sales, out of which we accrued $2 million in 2020 as a preclinical milestone and $6 million in 2021
as a clinical milestone (triggered by the dosing of the first patient in a Phase 1/2 trial evaluating AZD2936). If additional products
are developed, additional milestones and royalties would be due to us for each product. We retained all other rights to our entire pipeline
of programs as monotherapies and in combination with other products.
57
Subject to termination rights for material breach, bankruptcy or by us for patent
challenge by AstraZeneca, the term of the license agreement continues until the expiration of the last Royalty Term in the Territory,
each as defined in the license agreement. In addition, AstraZeneca may terminate the agreement for convenience upon prior written notice.
Main Academic Collaboration
We also advance our pipeline through academic collaborations with leading researchers
and key opinion leaders in the field of immuno-oncology. Our current main academic collaboration is with Johns Hopkins University, School
of Medicine.
The collaboration focuses on the evaluation of novel T cell and myeloid checkpoint
targets identified by us for the potential treatment of cancer. The scope of the collaboration includes identifying differentiating features
of our novel targets relative to known immuno-oncology targets, and the therapeutic potential of drugs modulating the activity of those
novel drug targets. Research is conducted under the leadership of Drew Pardoll, M.D., Ph.D., Abeloff Professor of Oncology, Medicine,
Pathology, and Molecular Biology and Genetics at Johns Hopkins University, School of Medicine, and Director of the Bloomberg~Kimmel Institute
for Cancer Immunotherapy and Co-Director of the Cancer Immunology Program at the Sidney Kimmel Comprehensive Cancer Center, Johns Hopkins,
and Chairman of our Scientific Advisory Board.
In May 2021, we announced an expansion to our research collaboration with Johns Hopkins
University to include studies investigating the biology of a specific novel myeloid target that was computationally-discovered by us,
with initial preclinical studies demonstrating the potential of this target to serve as a novel myeloid immunomodulator, with significant
tumor growth inhibition observed upon genetic deletion in in-vivo studies.
The research program is expected to explore the biological function and mechanism
of this novel target, which is expressed on myeloid cells and macrophages in various cancers. The expanded research plan is intended to
further evaluate and validate the role of the target in various tumors.
Competition
The biotechnology and pharmaceutical industries are highly competitive and characterized
by the rapid evolution of new technologies and the adoption of new therapies. Additionally, the oncology therapeutic space, and in particular
the immuno-oncology or cancer immunotherapy subsector, represents the therapeutic area with, what we believe to be one of the highest
industry focus and investment. In addition, in recent years, computational approaches and systems are being integrated into multiple life
science aspects, including the formation of new companies focusing on computational drug target discovery. Our competitors include biotechnology
and pharmaceutical companies both small and large, the research and discovery groups within pharmaceutical companies, computational discovery
and development companies, academic and research institutions, newly founded companies and governmental and other publicly funded agencies.
Any product candidates that we successfully develop will compete with currently approved
therapies and new therapies that may become available in the future. We face, and expect to continue to face, ongoing competition from
entities that discover novel targets and develop novel products, and that have therapeutic product candidates or products that address
the same drug targets or act by similar, or possibly identical, mechanism of action (MOA) as well as by different mechanisms but address
the same drug target or unmet clinical need. Our potential competitors are also comprised of companies that discover and develop monoclonal
antibody therapies and/or therapeutic proteins to novel targets, and/or cell therapies for oncology diseases. Specifically, in the field
of immune checkpoints and myeloid drug targets for cancer immunotherapy, there are several leading pharmaceutical and biotechnology companies
as well as smaller biotechnology companies and academic institutions that are developing cancer immunotherapies to enhance immune response
towards tumors, some of which may be based on the same targets we have discovered. For example, there are a significant number of anti-TIGIT
antibodies that are currently in advanced clinical studies such as tiragolumab by Roche, vibostolumab by Merck, ociperlimab by Beigene,
domvanalimab and AB308 by Arcus, BMS-986207 by Bristol Myers Squibb, and others at earlier stages in development. In addition, GSK/Surface
Oncology are developing the PVRIG targeting antibody GSK4381562 (formerly SRF813) and Junshi Biosciences lists an anti-PVRIG antibody
(JS009) and a TIGITxPVRIG bispecific (JS209) in its pipeline. If approved, such cancer immunotherapy products would compete with our product
candidates for commercialization or approved products in the respective fields. If in development stage, such cancer immunotherapy products
would compete with our product candidates for entering into strategic partnerships with pharmaceutical and biotechnology companies which
form the basis of our business model.
58
Our discovery program depends, in large part, on our discovery capabilities and other
capabilities and our proprietary data to make inventions and establish intellectual property rights in protein-based products, including
proteins and antibodies. There are additional companies exploring computational approaches and systems for drug target discovery and number
of other means by which such inventions and intellectual property can be generated. We believe that our computational capabilities, and
specifically our predictive computational discovery capabilities, provide us with a competitive advantage in predicting new protein functions
and linking proteins to specific diseases, and as a result, predicting new drug targets. We believe that this advantage is made possible
by building an infrastructure for predictive discovery based on the integration of scientific understanding and predictive models as well
as our unique team of multidisciplinary research scientists, who have vast experience in computational discovery, including developing
and handling such data analysis approaches, and who over time discovered three drug targets that are now in clinical studies and have
generated dozens of peer reviewed publications of certain of our findings and capabilities in scientific journals.
Many of our potential competitors, either alone or with their collaborative partners,
have substantially greater financial, technical and human resources than we do and significantly greater experience in computational approaches
and the discovery, development and manufacturing of therapeutics, obtaining FDA and other regulatory approvals, and commercialization
of products. Accordingly, our competitors may be more successful than we may be in identifying new drug targets and product candidates,
protecting them with patent applications, developing them, accelerating their development process, obtaining FDA and other regulatory approvals
and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as advanced technologies
or new therapy modalities become available.
Intellectual Property Rights
Our intellectual property assets are our principal assets. These assets include the
intellectual property rights subsisting in our proprietary know-how and trade secrets underlying our predictive biology capabilities and
discovery capabilities, our patents and patent applications, particularly with respect to our discovered proteins, therapeutic and diagnostic
product candidates. We seek to vigorously protect our rights and interests in our intellectual property. We expect that our commercial
success will depend on, among other things, our ability to obtain commercially valuable patents, especially for our therapeutic and diagnostic
product candidates, maintain the confidentiality of our proprietary know-how and trade secrets, and otherwise protect our intellectual
property. We design our patent strategy to fit the business competitive landscape and continual legislative changes. In addition, we periodically
analyze and examine our patent portfolio to align it with our pipeline strategy and business needs. We seek patent protection for certain
promising inventions that relate to our therapeutic and diagnostic product candidates. As of February 1, 2022, we had a total of 50 issued
and allowed patents, of which 15 are U.S. patents, 10 are European patents and additional 25 patents in other territories. Our issued
and allowed patents expire between 2028 and 2037. As of February 1, 2022, we had over 179 pending patent applications that have been filed
in the United States, Europe and in other territories as well as pending patent applications that have been filed under the Patent Cooperation
Treaty for which we have not yet designated the countries of filing. The patents issued in the U.S. and Europe for COM701 and COM902 were
issued between 2017 and 2021 and should expire no earlier than 2036. These patents include issued claims directed to, among others, the
composition of these product candidates and/or methods of using the same to treat cancer by activating T cells and/or NK cells, and/or
combinations of our product candidates with other checkpoint inhibitors. Our general policy is to continue patent filings and maintenance
for our therapeutic and diagnostic product candidates, only with respect to candidates or programs that are being actively pursued internally
or with partners, or that we believe to have future commercial value. We routinely abandon patent applications and may choose to abandon
maintenance of patents supporting candidates or programs that do not meet these criteria.
We also seek protection for our proprietary know-how and trade secrets that are not
protectable or protected by patents, by way of safeguarding them against unauthorized disclosure. This is done through the extensive use
of confidentiality agreements and assignment agreements with our employees, consultants and third parties as well as by technological
means. We use license agreements both to access third-party technologies and to grant licenses to third parties to exploit our intellectual
property rights.
In October 2020, two parties filed oppositions in the EPO requesting revocation of
our granted European patent relating to anti-PVRIG antibodies, that expires in 2036. We responded to this opposition in March 2021 and
are awaiting a decision on this matter by the EPO.
59
Manufacturing
We currently rely on contract manufacturers or our collaborative partners to produce
and control materials, drug substances and drug products required for our research and development activities. We
do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our therapeutic drug
candidates. We do not have, and we do not currently plan to acquire or develop the facilities or capabilities to manufacture bulk drug
substance or filled drug product for use in human clinical trials. We rely on CMOs, advisors and third-party contractors to generate formulations
and produce small scale and larger scale amounts of GLP, cGMP clinical and commercial drug substance and the drug product required for
our clinical trials for the foreseeable future. We also contract with CMOs and third-party contractors for the labeling, packaging, storage
and distribution of investigational drug products.
We entered into agreements with certain CMOs for the manufacturing and respective
analytics of COM701 and COM902. Our manufacturing strategy is currently structured to support the current clinical development of COM701
and COM902. Although we believe the general manufacturing strategy developed for the United States will be applicable in other geographies,
specific strategies for other geographies will be developed as part of our clinical and commercial plans for such other geographies. See
“Item 3. Key Information - D. Risk Factors - Risks Related to Our Dependence on Third Parties - We rely and expect to continue to
rely completely on third parties to manufacture and supply preclinical and clinical drug supplies. Our business could be harmed if those
third parties fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality and quantity levels,
prices or timelines.”
Government Regulation
Regulation of Therapeutic Product Candidates
In the United States, the FDA regulates pharmaceutical and biologic products under
the Federal Food, Drug, and Cosmetic Act, or FDCA, the Public Health Service Act, other statutes and regulations and implementing
regulations. We anticipate that our product candidates will be regulated as biologics. The process of obtaining regulatory approvals and
the subsequent compliance with applicable federal, state and local statutes and regulations require the expenditure of substantial time
and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process,
approval process or after approval, may subject an applicant to administrative or judicial sanctions. The process required by the FDA
before a biologic may be marketed in the United States generally involves the following:
| • |
completion of preclinical laboratory tests and animal studies in compliance with the FDA’s GLP or other applicable regulations;
|
| • |
submission to the FDA of an IND, which must become effective before human clinical trials may begin; |
| • |
performance of adequate and well-controlled human clinical trials in accordance with GCPs to establish the safety and efficacy of
the product for its intended use; |
| • |
submission of annual reports to regulatory authorities; |
| • |
submission to the FDA of a biologics license application, or BLA; |
| • |
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug or biologic is produced
to assess compliance with current Good Manufacturing Practice, or cGMP, to assure that the facilities, methods and controls are adequate
to preserve the product’s identity, strength, quality and purity; and |
| • |
FDA review and approval of the BLA. |
Once a pharmaceutical candidate is identified for development it enters the preclinical
testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies.
An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, among other
information, to the FDA as part of the IND. The sponsor will also include a clinical protocol detailing, among other things, the objectives
of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated,
if the first phase lends itself to an efficacy evaluation. The IND automatically becomes effective 30 days after receipt by the FDA, unless
the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before
or during a clinical trial due to, among other things, safety concerns or non-compliance with applicable requirements.
60
All clinical trials must be conducted under the supervision of one or more qualified
investigators in accordance with GCPs. An IRB at each institution participating in the clinical trial must review and approve the study
plan for any clinical trial before it commences at that institution. An IRB considers, among other things, whether the risks to individuals
participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also reviews the information
regarding the trial, participant recruiting materials and the informed consent form that must be provided to each trial subject or his
or her legal representative before participating in the trial. In addition, the
IRB will monitor the trial until completed.
Each new clinical protocol must be submitted to the FDA, and to the IRBs. Protocols
detail, among other things, the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters
to be used to monitor subject safety and determine efficacy.
Human clinical trials are typically conducted in three sequential phases that may
overlap or be combined:
|
• |
Phase 1:
The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. In the case of some products, usually for severe
or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the
initial human testing may be conducted in patients. |
|
• |
Phase 2:
Involves studies in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate
the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage. |
|
• |
Phase 3:
Involves studies undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically
dispersed clinical trial sites. These studies are intended to establish the overall risk-benefit
ratio of the product and provide an adequate basis for product labeling and approval. |
Progress reports detailing the results of the clinical trials must be submitted at
least annually to the FDA and safety reports for serious and unexpected adverse events
must be submitted to the FDA and the investigators more frequently. The FDA or the sponsor may suspend or terminate a clinical trial at
any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted
in accordance with the applicable regulations or IRB requirements or if the drug has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies usually complete additional nonclinical
studies and must also finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the product within required specifications and,
among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the product. Additionally,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product does not undergo
unacceptable deterioration over its shelf life.
United States Review and Approval Processes
The results of product development, nonclinical studies and clinical trials, along
with descriptions of the manufacturing process, analytical tests, proposed labeling, and other relevant information are submitted to the
FDA as part of a BLA requesting approval to market the product for one or more indications. The FDA initially reviews all BLAs submitted
to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional
information rather than accept a BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review.
The FDA may refer the BLA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendation of an advisory committee.
61
The review process is lengthy, and the FDA may issue a complete response letter rather
than approve a BLA if the applicable regulatory criteria are not satisfied or may require the submission of additional clinical or other
data and information. Even if such data and information are submitted, the FDA may ultimately decide that the BLA does not satisfy the
criteria for approval.
If a product receives regulatory approval, the approval will be limited to specific
diseases and dosages or the approved indications for use may otherwise be limited, which could restrict the commercial value of the product.
In addition, the FDA may require a company to conduct post-approval testing and clinical trials, to further assess a product’s safety
and effectiveness after BLA approval and may require testing and surveillance programs to monitor the safety of approved products which
have been commercialized including Risk Evaluation and Mitigation Strategy (REMS) programs to ensure that the benefits of a product outweigh
its risks.
Post-approval Requirements
Approved biologics are subject to extensive and continuing regulation by the FDA,
including, among other things, cGMP compliance, record-keeping requirements, reporting of adverse experiences, providing the FDA with
updated safety and efficacy information, and complying with FDA promotion and advertising requirements. After an approval is granted,
the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if serious problems occur after the
product reaches the market. Biologics may be promoted for use only for the approved indication or indications and in accordance with the
provisions of the approved label. The FDA and other federal and state agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to criminal and civil
penalties. However, physicians may, in their independent medical judgment, prescribe legally
available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA
does restrict manufacturer’s communications on the subject of off-label use of their products.
Other Healthcare Laws
Our current and future business operations, including, among other things, our clinical
research activities and our business and financial arrangements and relationships with healthcare providers, physicians and other parties
through which we may market, sell and distribute our products, once approved, may be subject to extensive U.S. federal, U.S. state and
foreign healthcare fraud and abuse, transparency, and data privacy and security laws. For example, U.S. federal civil and criminal laws
and regulations prohibit, among other things: knowingly and willfully soliciting, receiving, offering or providing remuneration, directly
or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending or arranging for a good or service,
for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs; knowingly presenting or
causing to be presented, a false or fraudulent claim for payment by a federal healthcare program; and knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program (including a private payor), or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for,
healthcare benefits, items or services. Many U.S. states and foreign countries have analogous prohibitions that may be broader in scope
and apply regardless of payor. In addition, we may be subject to U.S. federal, U.S. state and foreign laws that require us to report information
related to certain payments and other transfers of value to certain health care professionals, as well as ownership and investment interests
in our company held by those health care professionals and their immediate family members, and data security and privacy laws that restrict
our practices with respect to the use and storage of certain data.
Efforts to ensure that our current and future business arrangements with third parties
comply with applicable healthcare laws and regulations may involve substantial costs. If
we are found to be in violation of any of these laws, we could be subject to significant civil, criminal and administrative penalties,
including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, additional integrity
oversight and reporting obligations, contractual damages, reputational harm and the curtailment or restructuring of our operations.
Healthcare Policy and Reform
Our ability to commercialize our future therapeutic product candidates successfully,
alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for these product candidates will be
available from government health programs, such as Medicare and Medicaid in the United States, private health insurers and other third-party
payors. At present, significant changes in healthcare policy, in particular the continuing efforts of the U.S. and other governments,
insurance companies, managed care organizations and other payors to contain or reduce health care costs are being discussed, considered
and proposed. Drug prices in particular are under significant scrutiny and continue to be subject to intense political and societal
pressures, which we anticipate will continue and escalate on a global basis.
62
For example, in the United States, there have been several initiatives implemented
to achieve these aims. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, collectively, the ACA, substantially changed the way healthcare is financed
by both governmental and private insurers and significantly affects the pharmaceutical industry. With regard to biopharmaceutical products,
the ACA has, among other things, expanded and increased industry rebates for products covered under Medicaid programs and changed the
coverage requirements under the Medicare Part D program. The Tax Act included a provision which repealed, effective January 1, 2019, the
tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for
all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package
permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health
coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. There are remaining judicial,
executive branch and Congressional challenges to certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme Court dismissed
a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the “individual
mandate” was repealed by Congress. Thus, the Affordable Care Act will remain in effect in its current form.
In addition, other legislative changes have been proposed and adopted since the ACA
was enacted. The Budget Control Act of 2011, triggered automatic reduction to several government programs, including reductions to Medicare
payments to providers, which went into effect in April 2013 and will remain in effect through 2031, unless additional congressional action
is taken. However, pursuant to COVID-19 pandemic relief legislation, these Medicare sequester reductions have been suspended from May
1, 2020 through March 31, 2022 due to the COVID-19 pandemic. Under current legislation, the actual reduction in Medicare payments will
vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. Additionally, there has been increasing legislative and enforcement
interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. Congressional
inquiries, presidential executive orders and legislation designed to, among other things, bring more transparency to drug pricing, reduce
the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government
program reimbursement methodologies for drugs. For example, in July 2021, the Biden administration released an executive order, “Promoting
Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive
order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing
reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation
or administrative actions have been finalized to implement these principles.
We cannot predict what healthcare reform initiatives may be adopted in the future.
However, we anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare
delivery and payment systems and may in the future propose and adopt legislation or policy changes or implementations effecting additional
fundamental changes in the healthcare delivery system. We also expect ongoing legislative and regulatory initiatives to increase pressure
on drug pricing. Further, it is possible that additional government action is taken in response to the COVID-19 pandemic.
Coverage and Reimbursement
Market acceptance of products is dependent on the extent to which coverage and reimbursement
is available from third-party payors. Significant uncertainty exists as to the coverage and reimbursement status of any products for which
we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives
are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may not be adequate to cover
our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments
that patients find unacceptably high. Coverage and reimbursement policies for products can differ significantly from payor to payor as
there is no uniform policy of coverage and reimbursement for products among third party payors in the United States.
Non-U.S. Regulations
In addition to regulations in the United States, biologics are subject to a variety
of foreign laws and regulations governing clinical trials and commercial sales and distribution before they may be sold outside the United
States. Whether or not we obtain FDA approval for a product, we must obtain the necessary approvals from comparable regulatory authorities
of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies
from country to country and the time may be longer or shorter than that required for FDA approval. In some countries, we will also have
to get pricing approval.
63
Environmental Regulation
Some of our research and development activities involve the controlled use of biologic
and chemical materials, a small amount of which could be considered to be hazardous. We are subject to laws and regulations in the U.S.
and Israel governing the use, storage, handling and disposal of all these materials and resulting waste products. We store relatively
small amounts of biologic and chemical materials. To our knowledge, we substantially comply with these laws and regulations. However,
the risk of accidental contamination or injury from these materials cannot be entirely eliminated. In the event of an accident, we could
be held liable for any resulting damages, and any liability could exceed our resources.
Regulation of Use of Human Tissue
We need to access and use various human or non-human tissue samples for the purpose
of research, development and or validation of some of our product candidates. Our access and use of these samples are subject to government
regulation, in the United States, Israel and elsewhere and may become subject to further regulation. The use of clinical data associated
with human tissue samples is also heavily regulated in the United States, Israel and elsewhere. United States and other governmental agencies
may also impose restrictions on the use of data derived from human or other tissue samples.
Regulations Concerning the Use of Animals in Research
We also are subject to various laws and regulations regarding laboratory practices
and the use of animals in our research. In the United States, the FDA regulations describe good laboratory practices, or GLPs, for various
types of nonclinical laboratory studies that support or are intended to support applications for research or marketing permits for products
regulated by the FDA, including INDs. Nonclinical animal studies conducted by us or third parties on our behalf may be subject to the
U.S. Animal Welfare Act, the U.S. Public Health Service Policy on Humane Animal Care and Use, U.S. Department of Agriculture regulations
for certain animal species. In Israel, the Council on Animal Experimentation has regulatory and enforcement powers, including the ability
to suspend, change or withdraw approvals, among other powers. To our knowledge, we and the third-party service providers we work with,
as applicable, substantially comply with these regulatory requirements.
Regulation of Products Developed with the Support of Research and
Development Grants
For a discussion of regulations governing products developed with research and development
grants from the Government of Israel, see “Item 5. Operating and Financial Review and Prospects - C. - Research and Development,
Patents and Licenses - The Israel Innovation Authority.”
C. ORGANIZATIONAL STRUCTURE
We were incorporated under the laws of the State of Israel on February 10, 1993, as
Compugen Ltd., which is both our legal and commercial name. Compugen USA, Inc., our wholly owned subsidiary, was incorporated in Delaware
in March 1997 and is qualified to do business in California.
D. PROPERTY, PLANTS AND EQUIPMENT
In December 2015, we moved to new facilities in Holon, Israel where we leased an aggregate
of approximately 35,250 square feet of office, biology laboratory facilities and warehouse. Following the exercise of our first option,
we lease 30,140 square feet under that lease that expires on March 14, 2026 (with an option to extend the lease for additional five-year
period). In addition, Compugen USA, Inc. currently leases 3,360 square feet of office space in South San Francisco, California, under
a lease that expires on September 30, 2022.
To our knowledge, there are no environmental issues that affect our use of the properties
that we lease.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None
64
ITEM 5. OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our operating and financial
review and prospects should be read in conjunction with our consolidated financial statements and related notes, prepared in accordance
with U.S. GAAP as of December 31, 2021, and with any other financial data included elsewhere in this Annual Report.
Background
Compugen is a clinical-stage therapeutic discovery and development company utilizing
its broadly applicable predictive computational discovery capabilities to identify novel drug targets and new biological pathways to develop
therapeutics in the field of cancer immunotherapy. Compugen’s innovative immuno-oncology pipeline consists of four clinical stage
programs, targeting immune checkpoints Compugen discovered computationally, COM701, COM902, bapotulimab (formerly known as BAY1905254)
and AZD2936. The Company’s lead product candidate, COM701, a potential first-in-class anti-PVRIG antibody, for the treatment of
solid tumors, is undergoing Phase 1 clinical studies in dual, and triple combinations under clinical collaboration with Bristol
Myers Squibb. COM902, a potential best-in-class, is a therapeutic antibody targeting TIGIT, developed internally and is undergoing a Phase
1 trial to evaluate it in patients with advanced malignancies as a monotherapy and in combination with COM701. Bapotulimab, an antibody
targeting ILDR2, licensed to Bayer under a research and discovery collaboration and license agreement, is also in Phase 1 studies in patients
with advanced solid tumors. AZD2936 is a novel anti-TIGIT/PD-1 bispecific antibody with a TIGIT component that is derived from Compugen’s
COM902 program and is developed by AstraZeneca pursuant to an exclusive license agreement between Compugen and AstraZeneca and is in Phase
1/2 trial in patients with advanced or metastatic non-small cell lung cancer. Compugen’s therapeutic pipeline of early-stage immuno-oncology
programs consists of programs aiming to address various mechanisms of immune resistance, including myeloid targets. The innovative immuno-oncology
pipeline, the strategic collaborations and the Company’s computational discovery engine serve as the corporate three key building
blocks. Compugen’s business model is to selectively enter into collaborations for its novel targets and related drug product candidates
at various stages of research and development under various revenue-sharing arrangements.
The Company is headquartered in Holon, Israel. Its clinical development activities
are headed from our U.S. site in South San Francisco, California.
A. OPERATING RESULTS
Overview
Since our inception, we have incurred significant losses and, as of December 31, 2021,
we had an accumulated deficit of $422.1 million. We expect to continue to incur net losses for the foreseeable future.
While our predictive computational discovery capabilities have potentially broad applicability
and is not limited to a certain indication or therapeutic field, we focus our predictive computational discovery efforts on the discovery
of novel drug targets and new biological pathways towards the development of new
therapeutic antibodies for cancer immunotherapy, a significant unmet medical need for cancer patients. We have discovered three new targets
through computational prediction which are being clinically evaluated with four different product candidates, supporting the power and
validity of our computational capabilities.
In 2013 we entered into our
first collaboration based on novel targets identified by us. Under the collaboration with Bayer, or the Bayer Collaboration, we jointly
worked with Bayer on the preclinical development of bapotulimab. Over the years, we have significantly increased our research activities
in the field of immuno-oncology to identify novel drug targets and develop first-in-class therapeutics in the field of cancer immunotherapy.
In 2018, we entered into two agreements with leading pharmaceutical companies - an MCTC with Bristol Myers Squibb in connection with our
lead immuno-oncology program, COM701, and an exclusive license agreement with AstraZeneca for the development of bi-specific and multi-specific
antibody products derived from our COM902. We also engage in collaborations with a leading academic research center in the United States
to advance our research and development efforts. We incurred net losses of approximately $27.3 million in 2019, approximately $29.7
million in 2020 and approximately $34.2 million in 2021. We expect to continue to incur net losses for the foreseeable future due in part
to the costs and expenses associated with our research, development and discovery activities. Our business model primarily involves establishing
collaborations for our novel targets and related therapeutic product candidates at various stages of research and development providing
us with potential milestone payments and royalties on product sales or other forms of revenue sharing payments.
65
Our research and development expenses are expected to continue to be our major operating
expense in 2022, expected to account for approximately 80% of our expected total 2022 operating expenses. Our research and development
expenditures have always comprised a significant portion of our total cash expenditures, and they are expected to increase by approximately
55% in 2022 compared to 2021 reflecting the planned expansions of our clinical trials.
We believe that we have sufficient cash and cash equivalents and short-term bank deposits
in order to sustain our operations into 2024, at the current level of annual expenditures. For a detailed description of our cash and
cash equivalents position, see “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources.”
Years Ended December 31, 2021 and 2020
Revenues.
Revenues for the year ended December 31, 2021, were $6.0 million, compared with $2.0 million in the comparable period of 2020. The revenues
for 2021 reflect a $6.0 million clinical milestone from the license agreement with AstraZeneca.
Cost of Revenues. During
the year ended December 31, 2021, the Company had approximately $0.7 million in cost of revenues compared with approximately $0.1 million
cost of revenues in the comparable period of 2020. Cost of revenues for the year ended December 31, 2021, represents milestone and royalty
payments in connection with our revenues.
Research and Development Expenses. Research
and development expenses during 2021 increased by 26% and totaled approximately $28.7 million compared with approximately $22.8 million
in 2020. The increase is mainly due to higher expenses associated with our various clinical studies, preclinical and CMC activities and
headcount related as our U.S. based clinical team continues to grow to support the expansion of our various studies. Research and development
expenses, as a percentage of total operating expenses, were 71% in 2021 compared to 68% in 2020.
Marketing and Business Development Expenses.
Marketing and business development expenses were approximately $0.8 million in 2021 compared with approximately $0.9 million in 2020.
Marketing and business development expenses, as a percentage of total operating expenses, were 2% in 2021 compared to 3% in 2020.
General and Administrative Expenses. General
and administrative expenses during 2021 increased by 11% and totaled approximately $10.9 million in 2021 compared with approximately $9.8
million in 2020. The increase during 2021 was attributed mostly to increased D&O insurance premium costs (that effected our industry)
and non-cash stock option related expenses. General and administrative expenses, as a percentage of total operating expenses, were 27%
in 2021 compared to 29% 2020.
Financial Income (loss), Net. Financial
and other income decreased to approximately $0.9 million in 2021 from approximately $1.8 million in 2020. The decrease is attributed mainly
to decreased interest income due to lower interest rates in the market and lower level of cash and deposits balances.
Years Ended December 31, 2020 and 2019
Revenues.
Revenues for the year ended December 31, 2020, were $2.0 million, compared with $0 million in the comparable period of 2019. The revenues
for 2020 reflect a $2.0 million preclinical milestone from the license agreement with AstraZeneca.
Cost of Revenues. During
the year ended December 31, 2020, the Company had $60 thousands in cost of revenues compared with no cost of revenues in the comparable
period of 2019. Cost of revenues for the year ended December 31, 2020, represents royalty expenses to the IIA in connection with our revenues.
Research and Development Expenses. Research
and development expenses during 2020 increased by 15% and totaled approximately $22.8 million compared with approximately $19.8 million
in 2019. The increase is mainly due to increases in expenses associated with our various Phase 1 clinical studies, COM701 and COM902 manufacturing,
other CMC activities and IP expenses, offset by the cost reduction measures taken by the Company in 2019. Research and development expenses,
as a percentage of total operating expenses, were 68% in 2020 compared to 69% in 2019.
Marketing and Business Development Expenses.
Marketing and business development expenses were approximately $0.9 million in 2020 compared with approximately $0.7 million in 2019.
Marketing and business development expenses, as a percentage of total operating expenses, were 3% in 2020 compared to 2% in 2019.
66
General and Administrative Expenses. General
and administrative expenses during 2020 increased by 17% and totaled approximately $9.8 million in 2020 compared with approximately $8.4
million in 2019. The increase during 2020 was attributed mostly to headcount related expenses and increased D&O insurance premium
costs (that effected the overall industry). General and administrative expenses, as a percentage of total operating expenses, were 29%
in 2020 and in 2019.
Financial Income (loss), Net. Financial
and other income increased to approximately $1.8 million in 2020 from approximately $0.8 million in 2019. The increase is attributed mainly
to increased interest income due to higher level of cash and deposits balances during 2020 following our public offering in March 2020.
Governmental Policies that Materially Affected
or Could Materially Affect Our Operations
Our income tax obligations consist of those of Compugen Ltd. in Israel and of Compugen
USA, Inc. in its taxing jurisdictions.
The corporate tax rate in Israel was 23% in 2021, 2020 and 2019.
In the future, if and when we generate taxable income, our effective tax rate may
be influenced by, among others: (a) the split of taxable income between the various tax jurisdictions; (b) the availability of tax loss
carry forwards and the extent to which valuation allowance has been recorded against deferred tax assets; (c) the portion of our income
which is entitled to tax benefits pursuant to the Investment Law; (d) the changes
in the exchange rate of the U.S. dollar to the NIS and (e) the Company’s election to submit its tax returns for 2014 and onwards
on a dollar basis, which may not be accepted by the Israeli Tax Authority. We may benefit from certain government programs and tax legislation,
particularly as a result of the Benefiting Enterprise status that resulted from our eligibility for tax benefits under the Investment
Law. To be eligible for these benefits, we need to meet certain conditions. Should we fail to meet such conditions, these benefits could
be cancelled, and we might be required to refund the amount of the benefits previously received, if any, in whole or in part, together
with interest and linkage differences to the Israeli CPI, or other monetary penalty. We also benefit from a Government of Israel program
under which we received grants from the IIA. For more information, please see “Item 5 Operating and Financial Review and Prospects
- C. Research and Development, Patents and Licenses - The Israel Innovation Authority.” There can be no assurance that these programs
and tax legislation will continue in the future or that the available benefits will not be reduced.
The termination or curtailment of these programs or the loss or reduction of benefits
under the Investment Law could have a material adverse effect on our business, financial condition and results of operations.
Currently we have one Benefiting Enterprise program under the Investment Law. The
tax benefits period with respect to this program has not yet begun as we have not yet generated any taxable income. These benefits should
result in income recognized by us being tax exempt or taxed at a lower rate for a specified period of time after we begin to report taxable
income and exhaust any net operating loss carry-forward. However, these benefits may not be applied to reduce the U.S. federal tax rate
for any income that our U.S. subsidiary may generate.
In April 2005, substantive amendments to the Investment Law came into effect. Under
these amendments, eligible investment programs of the type in which we participated prior to the amendment were eligible to qualify for
substantially similar benefits as a ‘Benefiting Enterprise’, subject to meeting certain criteria. This replaced the previous
terminology of ‘Approved Enterprise’, which required pre-approval from the Investment Center of the Ministry of the Economy
of the State of Israel. As a result of these amendments, tax-exempt income generated from Benefiting Enterprises under the provisions
of the amended law will, if distributed upon liquidation or if paid to a shareholder for the purchase of his or her shares, be deemed
distributed as a dividend and will subject the Company to the applicable corporate tax that would otherwise have been payable on such
income. Therefore, a company may be required to record deferred tax liability with respect to such tax-exempt income, which would have
an adverse effect on its results of operations.
Additional amendments to the Investment Law became effective in January 2011 and were
further amended in August 2013, or the 2011 Amendment. Under the 2011 Amendment, income derived by ‘Preferred Companies’ from
‘Preferred Enterprises’ (both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax for an
unlimited period as opposed to the incentives prior to the 2011 Amendment that were limited to income from Approved or Benefiting Enterprises
during their benefits period. According to the 2011 Amendment, the uniform tax rate on such income, referred to as ‘Preferred Income’,
would be 10% in areas in Israel that are designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%,
respectively, in 2013, and 9% and 16%, respectively, thereafter. Income derived by a Preferred Company from a ‘Special Preferred
Enterprise’ (as defined in the Investment Law) would enjoy further reduced tax rates for a period of ten years of 5% in Development
Zone A and 8% elsewhere. As of January 1, 2014, dividends distributed from Preferred Income would subject the recipient to a 20% tax (or
lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing company, provided however
that dividends distributed from ‘Preferred Income’ from one Israeli corporation to another, would not be subject to tax. Under
the transitional provisions of the 2011 Amendment, companies may elect to irrevocably implement the 2011 Amendment with respect to their
existing Approved and Benefiting Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment or keep
implementing the legislation prior to the 2011 Amendment. Should a company elect to implement the 2011 Amendment with respect to its existing
Benefiting Enterprises prior to June 30, 2015 dividends distributed from taxable income derived from Benefiting Enterprises to another
Israeli company would not be subject to tax. While a company may incur additional tax liability in the event of distribution of dividends
from tax exempt income generated from its Benefiting Enterprise, as previously described, no additional tax liability will be incurred
by a company in the event of distribution of dividends from Preferred Income. We have not elected to implement the 2011 Amendment and
we do not currently have any Preferred Enterprises.
67
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying
the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law, or Amendment 73, was published.
According to Amendment 73, a Preferred Enterprise located in development area A will be subject, under certain conditions, to a tax rate
of 7.5% instead of 9% effective from January 1, 2017, and thereafter (the tax rate applicable to preferred enterprises located in other
areas remains at 16%). Amendment 73 also prescribes special tax tracks for Technological Enterprises, which are subject to regulations
issued by the Minister of Finance on May 16, 2017.
The new tax tracks under the Amendment are as follows:
Technological Preferred Enterprise - an enterprise for which total consolidated revenues
of its parent company and all subsidiaries are less than NIS 10 billion. A Technological Preferred Enterprise, as defined in the Law,
which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development
area A - a tax rate of 7.5%).
Special Technological Preferred Enterprise - an enterprise for which total consolidated
revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits
deriving from intellectual property, regardless of the enterprise’s geographical location.
Any dividends distributed to “foreign companies”, as defined in the Law,
deriving from income from the Technological Enterprises will be subject, under certain conditions, to tax at a rate of 4%.
As of December 31, 2021, our net operating loss carry-forward for Israeli tax purposes
amounted to approximately $369.8 million. Under Israeli law, these net operating losses may generally be carried forward indefinitely
and offset against certain future taxable income.
As of December 31, 2021, the net operating loss carry-forward of our U.S. subsidiary
for federal income tax purposes amounted to approximately $4.8 million. Approximately $3.8 million of these losses are available to offset
any future U.S. taxable income of our U.S. subsidiary and will expire between 2023 and 2032.
Use of our U.S. net operating losses may be subject to substantial annual limitation
due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before utilization.
For a description of Israel government policies that affect our research and development
expenses, and the financing of our research and development, see “Item 5. Operating and Financial Review and Prospects - C. Research
and Development, Patents and Licenses - The Israel Innovation Authority.”
B. LIQUIDITY AND CAPITAL RESOURCES
Public Offering of Ordinary Shares
Cantor Controlled Equity OfferingSM
Sales Agreement
On May 25, 2018, we entered into a Controlled Equity OfferingSM Sales
Agreement, or the ATM Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, as sales agent, pursuant to which we could offer and
sell, from time to time through Cantor, Compugen ordinary shares having an aggregate offering price of up to $25 million. As of December
31, 2019, the Company sold 7,245,268 ordinary shares through the ATM Sales Agreement for an aggregate purchase price of approximately
$23.7 million and the ATM Sales Agreement was terminated.
68
Registered Direct Offering
On June 14, 2018, we entered into a definitive securities purchase agreement with
certain institutional investors and a placement agency agreement with JMP Securities LLC, in connection with a registered direct offering
which resulted in the issuance of 5,316,457 of our ordinary shares at a purchase price of $3.95 per share. In connection with the issuance
of the ordinary shares, we also issued warrants to purchase up to approximately 4.3 million additional ordinary shares. The warrants have
an exercise price of $4.74 per share and have a term of five years from the date of issuance. Gross proceeds from the sale of the ordinary
shares were approximately $21 million, before deducting placement agent discounts and commissions and offering expenses paid by us.
During 2020, the Company issued and sold 3,866,139 ordinary shares underlying 3,866,139
warrants (with proceeds of approximately $18.3 million). During 2021, the Company issued and sold 89,557 ordinary shares underlying 89,557
warrants (with proceeds of approximately $0.4 million). As of December 31, 2021, 297,469 warrants remained outstanding.
Shelf Registration Statement
On July 30, 2020, we filed a shelf registration statement on Form F-3 with the SEC
under which we may offer and sell from time to time in one or more offerings, our ordinary shares, debt securities, rights, warrants and
units having an aggregate offering price of up to $350 million. Under this Form
F-3 we also registered up to 749,104 ordinary shares underlying the warrants issued in our registered direct offering in June 2018.
This registration statement was declared effective by the SEC on August 7, 2020. 362,078 ordinary shares underlying the warrants
issued in such registered direct offering were sold in 2020 and 89,557 ordinary shares underlying the warrants issued in such registered
direct offering were sold in 2021 and as of February 15, 2022, 297,469 ordinary shares underlying the warrants are still outstanding.
We may seek additional capital or strategic considerations, even if we believe we have sufficient funds for our current or future operating
plans.
Securities Purchase Agreement
Bristol Myers Squibb Securities Purchase Agreement
On November 10, 2021, the Company and Bristol Myers Squibb entered into a securities
purchase agreement pursuant to which Bristol Myers Squibb made a $20 million investment in Compugen comprised of the purchase of 2,332,815
ordinary shares of Compugen at $8.57333 per share, which represented a 33% premium over the closing price of our ordinary shares on the
last trading day immediately prior to the execution of this agreement. This investment is in addition to Bristol Myers Squibb’s
$12 million investment that took place in October 2018.
License Agreement
AstraZeneca License Agreement
On March 30, 2018, the Company and AstraZeneca,
entered into an exclusive license agreement to enable the development of bi-specific and multi-specific immuno-oncology antibody products
based on the Company's monospecific antibodies that bind to TIGIT, including COM902,
pursuant to which the Company received an upfront payment of $10 million and is eligible to receive up to $200 million in development,
regulatory and commercial milestones for the first product as well as tiered royalties on future product sales. In December 2020 and September
2021, the program achieved a preclinical milestone and clinical milestone, respectively and accordingly we accrued an additional $2 and
$6 million, respectively, out of the said $200 million.
Public Offering of Ordinary Shares
On March 11, 2020, we entered into an underwriting agreement with SVB Leerink LLC
and Stifel, Nicolaus & Company, Incorporated, as representatives of the
several underwriters named therein, for the issuance and sale in a public offering of 8,333,334 of our ordinary shares at a price to the
public of $9.00 per share. In addition, we granted the underwriters a 30-day option to purchase up to 1,250,000 additional ordinary shares
at the public offering price, less the underwriting discounts and commissions. In this underwritten public offering we issued a
total of 8,816,339 ordinary shares (including the shares issued in upon exercise of the underwriters’ option) at said $9.00 per
share. Gross proceeds from the sale of the ordinary shares were approximately $79 million, before deducting underwriting discounts and
commissions and offering expenses paid by us.
69
Capital Resources
In 2021, our primary sources of cash were:
| • |
cash at hand; |
| • |
proceeds from Bristol Myers Squibb’s 2021 investment in us; and |
| • |
proceeds from AstraZeneca in connection with its 2021 milestone payment. |
We used these funds primarily to finance our
business operations.
We expect that our sources of cash for 2022 will include cash held in our bank accounts
and may include proceeds generated from agreements with collaborators and other third parties with respect to our novel targets and therapeutic
drug candidates and proceeds from issuance of ordinary shares as a result of exercise of options, warrants and shares pursuant to our
employee share purchase plan and/or from financing transactions.
Net Cash Used in Operating Activities
Net cash used in operating activities was approximately $27.9 million in 2019, approximately
$28.3 million in 2020 and approximately $22.8 million in 2021. Decrease in net cash used in 2021 compared to 2020 is mainly due to the
$2 million and $6 million AstraZeneca milestone payments, both collected in 2021,
and the $5M BMS participation in R&D expenses, offset by an increase in operating expenses, mainly expenses associated with our Phase
1 studies, preclinical activities, headcount related expenses and increased D&O insurance premium.
Net Cash Provided by (used in) Investing Activities
Net cash provided by investing activities was approximately $5.3 million in 2019 and
approximately $6.6 million in 2021, compared with net cash used in investing activities of approximately $82.2 million in 2020. Changes
in net cash during the years are affected by the level of cash in the Company over the years which are deposited or withdrawn from bank
deposits based on the cash needs to fund our operating activities. During 2021 cash provided by investing activities was higher as a result
of higher operating expenses than revenues and funds raised.
Net Cash Provided by Financing
Activities
Net cash provided by financing activities was approximately $25.9 million in 2019,
approximately $108.5 million in 2020 and approximately $16.8 million in 2021. The principal source of cash provided by financing activities
in 2021 were the Bristol Myers Squibb investment and proceeds received from stock
based awards exercises and the principal source of cash provided by financing activities in 2020 were the proceeds received from the public
offering and from options and warrants exercised.
Net Liquidity
Liquidity refers to the liquid financial assets available to fund our business operations
and pay for near-term obligations. These liquid financial assets mostly consist of cash and cash equivalents as well as short-term bank
deposits. As of December 31, 2021, we had cash and cash equivalents and short-term bank deposits of approximately $117.0 million compared
to approximately $123.8 million on December 31, 2020. We believe that our existing cash and cash equivalents, and short-term bank deposits
will be sufficient to fund our operations over the next 12 months. We believe we will meet longer-term expected future cash requirements
into 2024 in the event that the current level of annual expenditures will not significantly increase. We believe that our working capital
is sufficient for our present requirements.
70
The table below summarizes our contractual obligations as of December 31, 2021 and
should be read together with the accompanying comments that follow.
|
Payments due by period
(US$ in thousands)
|
||||||||||||||||||||
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
||||||||||||||||
|
Operating Lease Obligations(1)
|
3,045 |
895 |
1,390 |
760 |
- |
|||||||||||||||
|
Accrued Severance Pay, net(2)
|
552 |
552 |
||||||||||||||||||
|
Total |
3,597 |
895 |
1,390 |
760 |
552 |
|||||||||||||||
(1)
Consists of operating leases for our facilities and for motor vehicles. Includes the first five-year option period of the lease of the
Israeli facility. The first option was exercised during 2020.
(2)
Severance pay obligations to our Israeli employees. For more information please see “Item 6. Directors, Senior Management and Employees
– D. Employees.”
The above table does not include royalties that we may be required to pay to the IIA.
For more information, see “Item 5. Operating and Financial Review and Prospects - C. Research and Development, Patents and Licenses.”
The above table also does not include contingent contractual obligations or commitments
that may enter into effect in the future, such as contractual undertakings to pay royalties subject to certain conditions occurring.
Although we have sufficient cash and cash equivalents and short-term bank deposits
that we believe will enable us to fund our operations into 2024 at current annual expenditures, our ability to fund our capital needs
depends on our ongoing ability to generate cash from existing and future collaborations and from our ability to raise additional funds.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
We invest heavily in research and development. Research and development expenses were
our major operating expenses representing approximately 70% of total operating expenses in 2021, 2020 and 2019. Our research and development
expenses, net, were approximately $28.7 million in 2021, compared to approximately $22.8 million in 2020 and approximately $19.8 million
in 2019. As of December 31, 2021, 51 of our employees were engaged in research and development on a full-time basis. This represents approximately
70% of our entire work force at that time.
We focus our efforts on the development of our discovery capabilities and related
technologies, and the discovery and validation of our drug targets and the preclinical and clinical development of the respective therapeutic
product. Our pipeline programs continuously evaluate our computationally predicted drug target candidates and are advancing selected drug
target programs into preclinical and clinical development of therapeutic products. We expect that in 2022 our research and development
expenses will continue to be our major operating expense, representing approximately 80% of our total operating expenses.
We believe that our future success will depend, in large part, on our ability to discover
promising drug target candidates and therapeutic product candidates and to successfully advance the research and development of certain
of our product candidates under our internal pipeline towards preclinical and clinical studies and to successfully enter into revenue-sharing
partnering agreements with pharmaceutical companies with respect to such product candidates. In addition, we expect to continue to expand
our discovery infrastructure and capabilities which provide us with the underlying engine for the discovery of promising drug targets
for our pipeline as well as our clinical stage pipeline.
Research and Development Grants
We have participated in programs offered by the IIA that support research and development
activities. See Note 7b to our 2021 consolidated financial statement. We have not applied for additional grants from the IIA for research
and technological development since 2012.
The Israel Innovation Authority
The government of Israel encourages research and development projects in Israel through
the IIA, pursuant to and subject to the provisions of the R&D Law. Under the R&D Law, research and development projects which
are approved by the Research Committee of the IIA are eligible for grants, in exchange for payment of royalties from revenues generated
by the products developed within the framework of such approved project and subject to compliance with certain requirements and restrictions
under the R&D Law as detailed below, which must generally continue to be complied with even following full repayment of all IIA grants.
71
We received grants from the IIA for several projects and may receive additional grants
in the future. Under the terms of the grants received, we are required to pay royalties ranging between 3% to 5% of the revenues we generate
from our products which incorporate Financed Know-How, or IIA Products, until 100% of the dollar value of the grant is repaid (plus LIBOR
interest applicable to grants received on or after January 1, 1999). As of December 31, 2021, we received grants from the IIA in the principal
amount of approximately $7.3 million. Therefore, our contingent obligation for royalties, net of royalties already paid or accrued in
the sum of approximately $1.8 million, along with the accumulated LIBOR interest to date of approximately $4.0 million, totaled to approximately
$9.5 million as of December 31, 2021.
In addition, the Company participated in four MAGNET Consortium programs - Drugs and
Diagnostic Kits, or DAAT Consortium, Tevel Biotechnology Consortium, Pharmalogica Consortium and Rimonim Consortium – for which
it received from the IIA a total amount of approximately $2.1 million, and in two MAGNETON programs, for which it received from the IIA
approximately $0.5 million. These grants do not bear any royalty obligations, but as the R&D Law applies to these programs, the restrictions
on transfer of know-how or manufacturing outside of Israel, as detailed below, do apply. The R&D Law requires that the manufacture
of IIA Products will be carried out in Israel, unless the IIA provides its approval to the contrary. This approval may be subject to various
conditions, including the repayment of increased royalties equal to up to 300% of the total grant amount plus applicable interest and
an increase of 1% in the royalty rate, depending on the extent of the manufacturing that is to be conducted outside of Israel. The R&D
Law also provides that Financed Know-How and any right derived therefrom may not be transferred to third parties, unless such transfer
was approved in accordance with the R&D Law. The Research Committee operating under the IIA may approve the transfer of Financed Know-How
between Israeli entities, provided that the transferee undertakes all the obligations in connection with the grant as prescribed under
the R&D Law. In certain cases, the research committee may also approve a transfer of the Financed Know-How outside of Israel, in both
cases, subject to the receipt of certain payments calculated according to a formula set forth in the R&D Law. In the case of transfer
outside of Israel, a payment of up to 600% of the total amount of grants plus applicable interest; and in the case the R&D activity
related to the know-how remains in Israel, a payment of up to 300% of such total amount. These approvals are not required for the sale
or export of any products resulting from such R&D activity or based on such Financed Know-How.
At the end of 2021, the publication of the LIBOR ceased and alternative interests
were applied throughout the worldwide economy, including the SOFR interest. As of the date of this Annual Report, the IIA has not yet
published the alternative interest that will be applied on the grants that the Company received from the IIA. While the effect that the
replacement of the LIBOR interest will have on the Company remains uncertain as of the date of this Annual Report, the Company assesses
that such change will not have a material effect on its operations and financial condition in light of the common interests in the market.
For a discussion regarding the effects of the grants we received from the IIA on our
business, see “Item 3. Key Information – D. Risk Factors - Risks Related
to Operations in Israel - We received grants from the IIA that may expose us to payment of
royalties and restrict the transfer of know-how that we develop.”
D. TREND INFORMATION
We are a development stage company and it is not possible for us to predict with any
degree of accuracy the outcome of our research and development efforts. As such, it is not possible for us to predict with any degree
of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect
on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future
operating results or financial condition. However, subject to such limitation, we did identify certain trends that may have an effect
on us, some of which are as specified below, and as covered in the risk factors set forth under “Item 3. Key Information - D. Risk
Factors”.
Access to funds
Should we need to secure additional sources of liquidity, we believe that we could
finance our needs through the issuance of equity securities. However, we cannot guarantee that we will be able to obtain financing through
the issuance of equity securities on reasonable terms. As of recently, the COVID-19 pandemic, including government actions implemented
as a result thereof, has caused a negative impact on the outlook for the global economy and created significant volatility and disruption
of financial markets. An extended period of economic disruption, including a continued market downfall, could materially affect our ability
to secure additional funds and could further materially affect our business, strategy, results of operations and financial condition.
72
Exchange rate
A significant portion of our expenses is denominated in currencies other than the
U.S. dollar. The Company is therefore subject to non-U.S. currency risks and non-U.S. exchange exposure, especially the NIS. Exchange
rates can be volatile and a substantial change of foreign currencies against the U.S. dollar could increase or reduce the Company’s
expenses and net loss and impact the comparability of results from period to period. The devaluation of the U.S. dollar against the NIS
was 3.3%, 7.0% and 7.8% in 2021, 2020 and 2019, respectively. For example, for the year ended December 31, 2021, assuming a 10% devaluation
of the U.S. dollar against the NIS, we would have experienced an increase in our net loss of approximately $1.5 million, while assuming
a 10% appreciation of the U.S. dollar against the NIS, we would experience a decrease in our net loss of approximately $1.2 million.
Interest rate
A significant portion of our cash and cash equivalents is invested in bank deposits
and bear interest. The Company’s financial income is therefore subject to interest rate risk. Interest rates can be volatile, and
a substantial change in interest rates could increase or reduce the Company’s financial income and net loss. In addition to the
impact on our cash and cash equivalents, rising interest rates, or the perception thereof, may have wide economic impacts, including an
adverse impact on capital markets and the price of our shares. For more information regarding interest rate risk please see “Item
11. Quantitative And Qualitative Disclosures About Market Risk – Interest Rate Risk.”
Trend towards biologics
Biologics including monoclonal antibodies represent one of the fastest growing segments
in the drug industry, making up 18% of FDA approved drugs in 2021. The growth of this class has driven a large number of companies to
invest in new technologies (e.g., bi-specific monoclonal antibodies, multi-specific antibodies, antibody fragments) and new approaches
to fully exploit the potential of this class. In addition, the striking efficacy and recent approval ofcell therapies for the treatment
of cancer, such as CAR-T therapies, has also captured much attention in the pharma industry. The availability of such new technologies
and approaches to address drug targets may increase the differentiation and attractiveness of our novel therapeutic candidates.
E. CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements and other financial information
appearing in this Annual Report requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate on an on-going basis these estimates,
mainly related to share-based payments, deferred participation in research and development expenses, revenue recognition, and research
and development expenses.
We base our estimates on our experience and on various assumptions that we believe
are reasonable under the circumstances. The results of our estimates form the basis for our management’s judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Share Based Payments
We account for stock-based compensation in accordance with ASC 718, “Compensation
- Stock Compensation”, or ASC 718, which requires companies to estimate the fair value of equity-based payment awards on the date
of grant using an option-pricing model. We account for forfeitures as they occur.
The value of the pro-rata portion of the award, assuming no forfeiture, is recognized in our consolidated statement of comprehensive loss
as an expense over the requisite service periods. Upon forfeiture the expense is adjusted so that expense is recognized for the portion
of the award that actually vested.
We selected the Black-Scholes-Merthon option pricing model as the most appropriate
method for estimating the fair value of our share-based awards. The resulting cost of an equity incentive award is recognized as an expense
over the requisite service period of the award, which is usually the vesting period. We recognize compensation expense over the vesting
period using the straight-line method and classify these amounts in the consolidated financial statements based on the department to which
the related employee reports.
73
This model evaluates the options as if there is a single exercise point, and thus
considers expected option life (expected term). The input factored in this model is constant for the entire expected life of the option.
The determination of the grant date fair value is affected by estimates and assumptions
regarding a number of complex and subjective variables, including the expected term of the options, the expected volatility of our share
price over the expected term, risk-free interest rates and expected dividends. The computation of expected volatility is based on historical
volatility of our shares. The risk-free interest rate assumption is the implied yield currently available on United States treasury zero-coupon
issues with a remaining term equal to the expected life term of the options. We determined the expected life of the options based on historical
experience, representing the period of time that options granted are expected to be outstanding.
Share-based compensation expense recognized under ASC 718 was approximately $4.3 million,
$2.8 million and $2.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Revenue Recognition
Our revenues are generated mainly from collaborative and license agreements. In the
agreements, revenues are typically derived mainly from upfront payment and contingent payments related to milestone achievements.
The Company recognizes revenue in accordance with ASC 606 - “Revenue from Contracts
with Customers”.
As such, the Company analyzes its collaborative and license agreements to assess whether
they are within the scope of ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations
under each of its agreements, the Company performs the following five steps: (i) identification of the contract, or contracts, with a
customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation
of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, we satisfy a performance
obligation.
The consideration promised in a contract with a customer may include fixed amounts,
variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained.
We use assumptions to determine the standalone selling price of each performance obligation identified in the contract. We then allocate
the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation.
We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance
obligation is satisfied.
After contract inception, the transaction price is reassessed at every period end
and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations
on the same basis as at contract inception.
In December 2020 the program under
the exclusive license agreement with AstraZeneca achieved a preclinical milestone and in September 2021 such program achieved clinical
milestone and in connection with such milestones, we recognized revenues in an amount of $2 million and $6 million, in the years 2020
and 2021, respectively, in accordance with the criteria prescribed under ASC 606. See Note 2 to our 2021 consolidated financial statements.
Research and Development Expenses
Research and development costs are charged to the statement of comprehensive loss
as incurred.
The Company accrues costs for pre-clinical and clinical trial activities based upon
estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations or
other pre-clinical or clinical trial vendors that perform the activities. In certain circumstances, the Company is required to make nonrefundable
advance payments to vendors for goods or services that will be received in the future for use in research and development activities.
In such circumstances, the nonrefundable advance payments are deferred and capitalized, even when there is no alternative future use for
the research and development, until related goods or services are provided. Payments
made in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered.
74
The portion of the Bristol Myers Squibb $12.0 million investment in 2018 over the
fair market value of the shares issued in the amount of approximately $4.1 million and the portion of the Bristol Myers Squibb $20.0 million
investment in 2018 over the fair market value of the shares issued in the amount of $5.0 million were considered as deferred participation
of Bristol Myers Squibb in research and development expenses which is amortized over the period of the clinical trial based on the progress
in the research and development, in accordance with ASC 808 “Collaborative Arrangements”, see Note 1f and Note 8b to our 2021
consolidated financial statements.
Amortization of participation in research and development expenses for the years ended
December 31, 2021 and 2020 were approximately $1.3 million and $0.8 million, respectively.
Recent Accounting Pronouncements
See Note 2t to our 2021 consolidated financial statement.
ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information with respect to Compugen’s directors
and senior management as of February 15, 2022:
|
Name |
Age |
Positions | ||
|
Paul Sekhri(3)
|
63 |
Chairman of the Board of Directors (Chairman of the Nomination and Corporate Governance Committee)
| ||
|
Anat Cohen-Dayag, Ph.D. |
55 |
President and Chief Executive Officer, Director | ||
|
Jean-Pierre Bizzari, M.D.(4)
|
67 |
Director | ||
|
Gilead Halevy(2)
|
55 |
Director (Chairman of the Audit Committee) | ||
|
Kinneret Livnat Savitzky, Ph.D.(1)(3)
|
54 |
Director | ||
|
Eran Perry(1)(2)
|
51 |
Director | ||
|
Sanford (Sandy) Zweifach(1)(2)(3)
|
65 |
Director (Chairman of the Compensation Committee) | ||
|
Ari Krashin |
49 |
Chief Financial Officer and Chief Operating Officer | ||
|
Henry Adewoye, MD |
57 |
Senior Vice President and Chief Medical Officer | ||
|
Oliver Froescheis, Ph.D. |
56 |
Senior Vice President, Corporate and Business Development | ||
|
Zurit Levine, Ph.D. |
54 |
Senior Vice President, Technology Innovation | ||
|
Yaron Turpaz, Ph.D. |
51 |
Senior Vice President and Senior Advisor, Computational Discovery | ||
|
Eran Ophir, Ph.D. |
44 |
Vice President, Research and Drug Discovery |
____________________
|
(1) |
Member of our Compensation
Committee |
|
(2) |
Member of our Audit Committee
|
|
(3) |
Member of our Nomination and
Corporate Governance Committee |
| (4) |
Dr. Jean-Pierre Bizzari is expected to retire form the board of directors of the Company effective March 1, 2022. |
75
Paul Sekhri joined Compugen’s board of
directors as its Chairman in October 2017. Mr. Sekhri serves as the President and CEO of eGenesis, Inc. since January 2019. Prior to joining
eGenesis, Inc., Mr. Sekhri served as President and CEO of Lycera Corp. from February 2015 through December 2018. From April 2014 through
January 2015, Mr. Sekhri served as Senior Vice President, Integrated Care for Sanofi. From May 2013 through March 2014, Mr. Sekhri served
as Group Executive Vice President, Global Business Development and Chief Strategy Officer for Teva Pharmaceutical Industries Ltd. Prior
to joining Teva, Mr. Sekhri spent five years as Operating Partner and Head of the Biotechnology Operating Group at TPG Biotech, the life
sciences venture capital arm of TPG Capital. From 2004 to 2009, Mr. Sekhri was Founder, President, and Chief Executive Officer of Cerimon
Pharmaceuticals, Inc. Prior to founding Cerimon, Mr. Sekhri was President and Chief Business Officer of ARIAD Pharmaceuticals, Inc. Previously,
Mr. Sekhri spent four years at Novartis, as Senior Vice President, and Head of Global Search and Evaluation, Business Development and
Licensing for Novartis Pharma AG. Mr. Sekhri also developed the Disease Area Strategy for Novartis, identifying those specific therapeutic
areas upon which the company would focus. Mr. Sekhri’s first role at Novartis was as Global Head, Early Commercial Development.
Mr. Sekhri completed graduate work in Neuroscience at the University of Maryland School of Medicine, where he also received his BS in
Zoology. Mr. Sekhri is currently a member of the Board of Directors of Veeva Systems Inc., Ipsen S.A., BiomX Inc., and Spring Discovery and
Chairman of the Board of Directors of Pharming N.V. and of Longboard Pharmaceuticals, Inc. Additionally, Mr. Sekhri is the Chairman of
the Board of the Knights, and a member of Boards of The Metropolitan Opera. Mr. Sekhri is also an active member of the Patrons Council
of Carnegie Hall, where he established the Life Sciences Council of Carnegie Hall.
Anat Cohen-Dayag, Ph.D. joined
Compugen’s board of directors in February 2014. Dr. Cohen-Dayag joined Compugen in 2002 and held various positions. In November
2008, Dr. Cohen-Dayag was appointed as Vice President, Research and Development. In June 2009, Dr. Cohen-Dayag was appointed as co-Chief
Executive Officer of Compugen and in March 2010 Dr. Cohen-Dayag was appointed as Compugen’s President and CEO. Prior to joining
Compugen, Dr. Cohen-Dayag was head of research and development and member of the Executive Management at Mindsense Biosystems Ltd. Prior
to Mindsense Biosystems Ltd., Dr. Cohen-Dayag served as a scientist at the R&D department of Orgenics Ltd. Dr. Cohen-Dayag is a member
of the Board of Directors of Pyxis Ltd. Dr. Cohen-Dayag holds a B.Sc. in Biology from the Ben-Gurion University, Israel, and an M.Sc.
in Chemical Immunology and a Ph.D. in Cellular Biology, both from the Weizmann Institute of Science, Israel. Additionally, Dr. Cohen-Dayag
is a member of the Bio-Convergence Initiative of the Israel Academy of Sciences and Humanities.
Dr. Jean-Pierre Bizzari joined
Compugen’s board of directors in September 2018. Dr. Bizzari is a world-renowned oncology expert who brings to Compugen over 35
years of broad experience in oncology drug development. Dr. Bizzari served as Executive Vice President and Global Head of Oncology at
Celgene Corporation, responsible for Celgene’s clinical development and operations-statistics teams across the United States, Europe
and Asia/Japan where he oversaw the development and approval of leading oncology products, including REVLIMID® (lenalidomide), VIDAZA®
(azacitidine), ISTODAX® (romidepsin) and ABRAXANE® (nab-paclitaxel). In addition, he was chairman of Celgene’s hematology
oncology development committee and a member of the company’s management committee. Prior to Celgene, Dr. Bizzari was the Vice President,
Clinical Oncology Development for Sanofi-Aventis (formerly Rhône-Poulenc, Rhône-Poulenc Rorer and Aventis) where he oversaw
the approval of Eloxatin® (oxaliplatin), Taxotere® (docetaxel) and Elitek® (rasburicase). Dr. Bizzari joined the pharmaceutical
industry in 1983 as Head of Oncology at the Institut de Recherches Internationales SERVIER (France). Dr. Bizzari is a member of the Scientific
Advisory Board of the French National Cancer Institute, and a member of the board of the European Organization for Research and Treatment
of Cancer and Chairman of the New Drug Advisory Committee. He also serves on the boards of Halozyme Therapeutics, Onxeo, Oxford BioTherapeutics,
Nordic Nanovector and Transgene. Dr. Bizzari received his medical degree from the Nice Medical School and has trained at the Pitié-Salpêtrière
Hospital in Paris, The Ontario Institute for Cancer Research, and The McGill Rosalind and Morris Goodman Cancer Research Centre (formerly
the McGill Cancer Center) in Montreal, Canada.
76
Gilead Halevy joined Compugen’s board
of directors in June 2018. Mr. Halevy serves as a general partner of Kedma Capital Partners, a leading Israeli private equity fund, of
which he is also a founding member, since 2006. Prior to establishing Kedma, Mr. Halevy served as a Director at Giza Venture Capital from
2001 to 2006, where he led investments in communication and information technology companies and directed Giza’s European business
activities. From 1998 to 2001, Mr. Halevy practiced law at White & Case LLP. Mr. Halevy was also a founding member of the White &
Case Israel practice group during that time. Mr. Halevy currently serves as chairman of board of directors of Brand Industries Ltd. (TASE),
Iskoor Finance Ltd., Carmel Wineries; Continuity Software Ltd. and a director of
S. AL Holdings. Mr. Halevy holds a B.A. in Humanities (multidisciplinary program for exceptional students) and an LL.B. (Magna Cum Laude)
both from the Hebrew University of Jerusalem.
Dr. Kinneret Livnat Savitzky joined Compugen’s
board of directors in June 2018. Dr. Livnat Savitzky currently serves as a managing
partner at Team8 and Director at Team8 Health, Partner 1 GP Ltd. Dr. Livnat Savitzky also serves on the boards of the following biotechnology
or healthcare companies: FutuRx and several of its portfolio companies, Ramot (TTO of Tel-Aviv University), Nutritional Growth Solutions,
DreaMed Diabetes and Biomica. Between 2017 and 2021 she served as the CEO of FutuRx Ltd., an Israeli biotechnology accelerator established
by OrbiMed Israel Partners, Johnson & Johnson Innovation, Takeda Ventures Inc., and LEAPS, the venture arm of Bayer. From 2010 to
2016, Dr. Livnat Savitzky served as CEO of BioLineRX Ltd., a Nasdaq-listed drug development company focused on oncology and immunology.
During her tenure, BioLineRX signed a strategic collaboration with Novartis as well as licensing agreements with Merck (MSD), Genentech
and others. Prior to being appointed CEO of BioLineRX, Dr. Livnat Savitzky held various R&D management positions at BioLineRX and
Compugen. Dr. Livnat Savitzky holds a B.Sc. in Biology from The Hebrew University of Jerusalem, and an M.S.c and Ph.D. with distinction
in Human Genetics from Tel Aviv University.
Eran Perry joined
Compugen’s board of directors in July 2019. Eran Perry brings to Compugen over 20 years of diverse experience across various segments
of the healthcare industry as an entrepreneur and venture capital investor as well as in general management and strategy. In 2018, Mr. Perry
co-founded MII Fund & Labs, a dermatology-focused venture capital fund where he also serves as Managing Director and Chairman of the
Investment Committee. Mr. Perry is also the co-founder and board member of several pharmaceutical companies including Musli Thyropeutics,
ICD Pharma, Seanergy Dermatology, Follicle Pharma and Upstream Bio. Mr. Perry also serves on the board of directors of MyBiotics Pharma
and Noon Aesthetics. From 2006 to 2016, he served as Managing Director and Partner of Israel Healthcare Ventures (IHCV) and represented
IHCV in numerous portfolio companies. Prior to IHCV, Mr. Perry was a consultant in McKinsey & Company, serving clients worldwide in
the pharmaceutical industry, among others. Prior to that, he was a member of the Global Marketing group at Novartis Oncology. Before
moving to the private sector, Mr. Perry served in the Israeli Ministry of Justice. Mr. Perry holds an MBA from Columbia University,
and an LL.B. in Law and a B.Sc. in Mathematics and Computer Science, both from Tel Aviv University.
Sanford (Sandy) Zweifach joined Compugen’s
board of directors in June 2018. Mr. Zweifach is the Founder of Nuvelution Pharma, Inc. and since 2015 through 2019 was the Chief Executive
Officer of Nuvelution Pharma, Inc. From 2010 to 2015, Mr. Zweifach served as CEO of Ascendancy Healthcare, Inc., which he also founded.
He has also been a Partner at Reedland Capital Partners, a boutique investment bank, from 2005 to 2010, where he headed its life sciences
M&A and advisory efforts. From 2003 to 2005, he was CEO of Pathways Diagnostics, a biomarker development company. Mr. Zweifach was
a Managing Director/CFO of Bay City Capital, a venture capital/merchant banking firm, specializing in the biotech and the life science
industry, where he was responsible for oversight of the firm’s finance department, as well as President of the firm’s M&A
and financing division. Prior to this, he was President and CFO of Epoch Biosciences, which was acquired by Nanogen in 2004. Currently
Mr. Zweifach serves as a member of the leadership team of Palladio Biosciences and Janpix, Inc. both are subsidiaries of Centessa Pharmaceuticals
Limited, Executive Chairman of the Board of Directors of Kaerus Bioscience, Chairman of the Board of Directors of Carisma Therapeutics,
Inc., Chair of the Business Advisory Board of IMIDomics, S.L. and as a member of the Board of Directors of Essa Pharma, Inc. Earlier in
his career, Mr. Zweifach was a Certified Public Accountant (US) for Coopers & Lybrand and held various investment banking positions
focusing on biotech. He received his B.A. in Biology from UC San Diego and an M.S. in Human Physiology from UC Davis.
77
Ari Krashin joined Compugen in 2014 as Chief
Financial Officer and in 2016 was appointed also as Chief Operating Officer. Mr. Krashin has over 15 years of experience in capital markets,
finance and business development. He served as a chief financial officer for both public and private companies the most recent being AnyClip
Media and Spacenet Inc. From 2000 to 2013, Mr. Krashin also served in various financial positions at Gilat Satellite Networks (NASDAQ:
GILT), including his last position as chief financial officer, where he led the company’s global finance and related operations,
including business development, M&A activities, investor relations and administration. Mr. Krashin is a certified public accountant
and began his professional career with Kesselman and Kesselman, PWC, Israel. Mr. Krashin holds a B.A. in Business Administration and Accounting
from the College of Management, Rishon Le’Zion.
Dr. Henry Adewoye joined Compugen in March
2018 as Chief Medical Officer, bringing to Compugen over 20 years of extensive experience in leading multiple clinical trials in Oncology
and Hematology in both the biopharmaceutical industry and academia. Before Compugen, Dr. Adewoye was with Gilead Sciences Inc., as Clinical
Director in Oncology Clinical Research and was on the Oncology Leadership Team. He most recently served as Project Team and Clinical Lead
for Idelalisib (first-in-class PI3K delta inhibitor approved for the treatment of relapsed CLL, FL/SLL) and Andecaliximab (MMP9 mAb inhibitor).
Previously, he was Clinical Research Medical Director in Oncology at Amgen Inc. Dr. Adewoye was the Global Medical Monitor for the initial
registrational trial of the bispecific antibody blinatumomab (Blincyto®) and several Phase 2 and 3 studies evaluating VEGF inhibitors
(Motesanib, Trebananib) in patients with solid tumors. Dr. Adewoye completed his fellowship in Hematology/Oncology at Boston Medical Center
and completed his residency in Internal Medicine at Meharry Medical College. Dr. Adewoye received his medical degree at the University
of Jos, Nigeria and fellowship training in Hematology and Laboratory medicine at the University College Hospital Ibadan, Nigeria. Dr.
Adewoye has initial board certifications by the American Board of Internal Medicine in Medical Oncology, Hematology and Internal Medicine.
Oliver Froescheis, Ph.D.
joined Compugen in January 2020 as Senior Vice President, Corporate and Business Development. Dr. Froescheis has over 20 years of experience
in the pharmaceutical industry during which he has held positions in research, project management, marketing and business development.
Dr. Froescheis joined Compugen from Roche, where he spent the last 12 years in the Partnering organization, initially serving as Global
Due Diligence Director for in-licensing and M&A projects, then acting as Director of Business Development & Licensing, responsible
for oncology/immuno-oncology partnering projects and most recently leading R&D out-licensing across therapeutic areas. Dr. Froescheis
holds a Diploma in Chemistry and a Ph.D. in Analytical Chemistry, both from the University of Ulm, Germany.
Zurit Levine, Ph.D. was appointed as Senior
Vice President, Technology Innovation in 2018, responsible for leading and advancing
the Company’s computational innovation towards new discovery fields and areas. In this capacity, Dr. Levine is also responsible
for the Company’s IP strategy and portfolio. Dr. Levine joined Compugen in 1999 and has held several positions in Compugen’s
Research & Development department. In 2004, she was appointed Director of Therapeutic Selection & Validation, which position she
held until 2007 when she was appointed Director of Therapeutic Discovery. In 2009, she was appointed Executive Director of Research &
Development. From January 2010 to August 2011, she held the position of Vice President, Research and Development. In August 2011 she was
appointed Vice President, Research and Discovery. Dr. Levine holds a B.Sc. in Biology, a M.Sc. in Biochemistry and a Ph.D. in Biochemistry,
all from the Tel Aviv University, Israel.
Yaron Turpaz, Ph.D.
joined Compugen in November 2019 as Senior Vice President and Senior Advisor, Computational Discovery. Dr. Turpaz has over 15 years of
experience in the fields of research and development informatics, data sciences and technology in the biotech and pharma space with hands-on
experience using cloud based high throughput computational, machine learning and genomics platforms for drug discovery and development
applications in precision medicine. In his extensive pharma and biotech career, he held senior R&D Informatics roles at Human Longevity,
AstraZeneca, Eli Lilly and Affymetrix. Dr. Turpaz continues to lead data science and technology at Global Gene Corp. and serve as Chief
Information Officer and Senior Advisor at Engine Biosciences. Dr. Turpaz received a B.Sc. in Biology from Tel Aviv University, a Ph.D.
in Bioengineering from the University of Illinois and an MBA from the University of Chicago, Booth School of Business. He also held an
Adjunct Assistant Professor position at the Centre for Quantitative Medicine of Duke-National University of Singapore, Graduate Medical
School.
Eran Ophir, Ph.D.
joined Compugen in 2015 and was appointed Vice President, of Research and Drug Discovery in March 2020. In his role, Dr. Ophir is responsible
for Compugen’s research and drug discovery activities, overseeing
the research into the biology of Compugen’s computationally discovered targets and therapeutic lead antibody identification and
selection. Dr. Ophir brings significant expertise in immunology and immuno-oncology from his research work at the Weizmann Institute of
Science and the Ludwig Institute for Cancer Research in Lausanne, Switzerland. Dr. Ophir joined Compugen’s immuno-oncology group
as a senior scientist and has since held various positions in the Research and Development department, with increasing responsibilities.
Dr. Ophir received a B.Sc. in Bioinformatics from Tel Aviv University and a Ph.D. in Biology from the Weizmann Institute of Science.
78
Arrangements Involving Directors and Senior Management
There are no arrangements or understandings of which we are aware relating to the
election of our directors or the appointment of executive officers in our Company. In addition, there are no family relationships among
any of the individuals listed in this Item 6.A.
B. COMPENSATION
Aggregate Executive Compensation
During 2021, the aggregate compensation paid or accrued by us to all persons listed
in Item 6.A above (Directors and Senior Management) was approximately $5.7 million. This amount includes approximately $0.4 million set
aside or accrued to provide pension, severance, retirement or similar benefits, but excludes expenses (including business travel, professional
and business association dues and expenses) reimbursed to our executives and other fringe benefits commonly reimbursed or paid by companies
in Israel.
During 2021, we granted to our Directors and Senior Management listed in Item 6.A
a total of 550,000 options to purchase ordinary shares. These options are exercisable at an average exercise price of $6.45 per share,
and generally expire ten years after their respective dates of grant. As of December 31, 2021, there were a total of 4,111,124
outstanding options to purchase ordinary shares that were held by our Directors and Senior Management listed in Item 6.A.
Individual Compensation of Covered Office Holders
The table below outlines the compensation granted to our five most highly compensated
Office Holders (as such term is defined in the Companies Law - see below under “Approvals Required for Office Holders Terms of Employment”)
with respect to the year ended December 31, 2021. All amounts reported in the table reflect the cost to the Company, as recognized
in our financial statements for the year ended December 31, 2021. We refer to the five individuals for whom disclosure is provided
herein as our “Covered Office Holders”.
|
Information Regarding the Covered Office Holders |
Compensation for Services(2)
|
|||||||||||||||
|
Name and Principal Position(1)
|
Base Salary ($) |
Benefits and Perquisites ($)(3)
|
Stock-Based Compensation ($)(4)
|
Total ($) |
||||||||||||
|
Dr. Anat Cohen-Dayag
President & Chief Executive Officer |
498,266 |
333,362 |
469,679 |
1,301,307 |
||||||||||||
|
Dr. Henry Adewoye
Senior Vice President and Chief Medical Officer |
400,000 |
160,690 |
276,178 |
836,868 |
||||||||||||
|
Ari Krashin
Chief Financial and Operating Officer |
315,770 |
209,604 |
240,812 |
766,186 |
||||||||||||
|
Dr. Oliver Froescheis
Senior Vice President, Corporate and Business Development |
370,000 |
77,238 |
219,111 |
666,349 |
||||||||||||
|
Dr. Zurit Levine
Senior VP, Technology Innovations |
204,322 |
129,862 |
144,554 |
478,738 |
||||||||||||
| 1) |
All Covered Office Holders listed in the table were full-time officers of the Company in 2021. |
| 2) |
Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at an exchange rate
of NIS 3.2302= $1.00, which reflects the average conversion rate for 2021, or the Representative Rate. |
| 3) |
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites
may include, to the extent applicable to the respective Covered Office Holder, bonuses, payments, contributions and/or allocations for
savings funds, pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurance (e.g., life, disability,
accident), phone, convalescence pay, payments for social security, tax gross-up payments and other benefits and perquisites consistent
with the Company’s policies. |
| 4) |
Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2021,
with respect to options to purchase our ordinary shares granted to our Covered Office Holders. Assumptions and key variables used in the
calculation of such amounts are discussed in Note 2m to our 2021 consolidated financial statements set forth elsewhere in this report.
|
79
Compensation Policy
Under the Companies Law we are required to adopt a compensation policy, which sets
forth company’s policy regarding the terms of office and employment of office holders, including compensation, equity awards, severance
and other benefits, exemption from liability and indemnification. Such compensation policy should take into account, among other things,
the provision of proper incentives to directors and officers, management of risks by the company, the officer’s contribution to
achieving corporate objectives and increasing profits, and the function of the officer or director.
Our compensation policy, or the Compensation Policy, is designed to balance between
the importance of incentivizing office holders to reach personal targets and the need to assure that the overall compensation meets our
Company’s long-term strategic performance and financial objectives. The Compensation Policy provides our compensation committee
and our board of directors with adequate measures and flexibility to tailor each of our office holder’s compensation package based,
among other matters, on geography, tasks, role, seniority and capability. Moreover, the Compensation Policy is intended to motivate our
office holders to achieve ongoing targeted results in addition to high-level business performance in the long term, without encouraging
excessive risk taking. The Company draws upon a pool of talent that is highly sought after by large and established global pharmaceutical
and biotechnology companies, as well as by other development-stage life science companies which operate both within and outside of the
Company’s geographic areas. The Company believes that it therefore must offer compensation terms, both to its executives and to
its directors that are competitive with the compensation standards that exist in the companies with whom it competes for such talents.
In accordance with the Companies Law, an Israeli public company’s compensation
policy and any amendments thereto must be approved by the board of directors, after considering the recommendations of the compensation
committee, and by a special majority of our shareholders, or a Special Majority, which should include (i) at least a majority of the shareholders
who are not controlling shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded),
or (ii) the non-controlling shareholders and shareholders who do not have a personal interest in the matter who were present and voted
against the matter hold two percent or less of the voting power of the company. The compensation policy must be reviewed from time to
time by the board and must be re-approved or amended by the board of directors and the shareholders no less than every three years. If
the compensation policy is not approved by the shareholders, the compensation committee and the board of directors may nonetheless approve
the policy, following further discussion of the matter and for detailed reasons.
Our Compensation Policy for office holders was originally approved by our shareholders
in September 2013, with the most recent amendment adopted at the 2020 Annual General Meeting of Shareholders.
80
Approvals Required for Office Holders Terms of Employment
The term “Office Holder” as defined in the Companies Law includes a director,
the chief executive officer, chief business manager, deputy chief executive officer, vice chief executive officer, any other person fulfilling
or assuming any of the foregoing positions without regard to such person’s title, and any manager who is directly subordinated to
the chief executive officer. In addition to each person listed in the table under “Item 6. Directors, Senior Management and Employees
- A. Directors and Senior Management”, two other individuals have been Office Holders as of December 31, 2021.
“Terms of Office and Employment” means the terms of office and employment
of our Office Holders, including exemption and release of the Office Holder from liability for breach of his or her duty of care to the
Company, an undertaking to indemnify the Office Holder, post factum indemnification or insurance; any grant, payment, remuneration, compensation,
or other benefit provided in connection with termination of service and any benefit, other payment or undertaking to provide any payment
as aforesaid.
Compensation for Office Holders subordinated to the
Chief Executive Officer. The terms of office and employment of Office Holders
(other than directors and the chief executive officer) require the approval of the compensation committee and the board of directors,
provided such terms are in accordance with the company’s compensation policy. Shareholder approval is also required if the compensation
of such officer is not in accordance with such policy. However, in special circumstances the compensation committee and then the board
of directors may nonetheless approve such compensation even if such compensation was not approved by the shareholders, following a further
discussion and for detailed reasoning.
Compensation for Office Holders who are Directors
or Chief Executive Officers. The Terms of Office and Employment of directors,
other than directors who serve as chief executive officers and/or who possess a controlling interest in a company, require the approval
of the compensation committee, board of directors and shareholders by a simple majority, as long as it complies with the compensation
policy. With respect to our president and chief executive officer, who is also a director, or with respect to any chief executive officer
who is not a director (to the extent applicable in the future), further approval of the shareholders by the Special Majority is required.
However: (A) under certain circumstances, and to the extent that the proposed Terms of Office and Employment are in compliance with the
compensation policy, a company may be exempt from receiving shareholder approval with respect to the Terms of Office and Employment of
a candidate for the position of chief executive officer (provided that the candidate is not a director) (i) provided that the company’s
compensation committee and board of directors approved such terms and that such terms: (a) are not more beneficial than the terms of the
former chief executive officer, or are essentially the same in their effect; (b) are in line with the compensation policy; and (c) are
brought for shareholder approval at the next general meeting of shareholders; and (B) a company’s compensation committee and board
of directors are permitted to approve Terms of Office and Employment of a director, without convening a general meeting of shareholders,
provided that such terms are only beneficial to the Company or that such terms are in compliance with the terms set forth in the Companies
Regulations (Rules Regarding Compensation and Expenses of External Directors), 2000.
Variable Compensation and Annual Cash Bonuses of
Office Holders. The Companies Law requires that all variable compensation
of directors and chief executive officers be based on measurable criteria, with the exception of a non-substantial portion of up to 3
monthly salaries, which should take into consideration the applicable Office Holder’s contribution to the company. With respect
to Office Holders who are not directors or chief executive officers, the Companies Law allows that 100% of the variable compensation be
based on non-measurable criteria. Our Compensation Policy allows for a non-substantial portion of up to 20% of the bonus objectives for
each year to be based on non-measurable criteria, provided, however, that with respect to (i) our Office Holders who are not directors
nor our chief executive officer, our compensation committee and board of directors may increase the portion of targets based on non-measurable
criteria above the rate of 20%, up to 50% and with respect to our chief executive officer, our compensation committee and board of directors
may increase the portion of targets based on non-measurable criteria for up to three (3) monthly base salaries. Further, the annual cash
bonus of each of our Office Holders who is not a director is determined according to a formula that is consistent with the Compensation
Policy and that links the bonus payment score to measurable and qualitative objectives relating to both the Company’s performance
and to the performance by each such Office Holder of his responsibilities. In the case of our Office Holders, other than the chief executive
officer, assuming that the bonus terms conform to the Compensation Policy, the annual bonus objectives and subsequent payment scores are
determined by the compensation committee and board of directors, while the bonus terms for our chief executive officer generally require
the additional approval by our shareholders. For each fiscal year, our board of directors determines the maximum target bonus for each
of our Office Holders, including our chief executive officer.
81
Compensation Paid to our Non-Executive Directors (other than Mr.
Paul Sekhri)
On August 6, 2018, our shareholders approved, following previous resolutions made
by our audit committee (then sitting as a compensation committee) and the board of directors, and consistent with our Compensation Policy,
to compensate each of our non-executive directors whether currently in office or
appointed in the future, excluding the Chairman of the Board (each a “non-executive director”) as follows:
Cash Fee
(i) an annual fee of $45,000; and
(ii) an additional annual amount to be paid to non-executive directors
for service as members on each of the Company’s committees, as follows:
| (a) |
Audit Committee - $2,500 for a member, or $5,000 for the chairman; |
| (b) |
Compensation Committee - $2,000 for a member, or $4,000 for the chairman; and |
| (c) |
Nomination and Governance Committee - $1,000 for a member, or $3,000 for the chairman. |
No additional compensation shall be paid for attendance at a board or committee meeting.
VAT is added to the above compensation in accordance with applicable law.
Equity
In addition to the cash compensation detailed above, each non-executive director is
entitled to a yearly grant of options to purchase the Company’s ordinary shares, so that in the first year of service as a director,
each non-executive director shall be entitled to a one-time grant of 35,000 options, or Initial Option Grant, and, in addition, to a yearly
grant of 10,000 options in each of the following years of service, or the Annual Option Grant, as detailed below.
The grant date of each Initial Option Grant is the date of appointment for service
as director, whether initially appointed by the Board or by the general meeting of shareholders, with an exercise price equal to the closing
price of the Company’s ordinary shares on the Nasdaq on the last trading day prior to the date of their initial appointment to serve
on the Board. The grant date of each Annual Option Grant shall be such date in each year on which the Board approves the annual option
grants to other management Office Holders (provided that the service as director continues at the time of each grant), with an exercise
price equal to the closing price of the Company’s ordinary shares on the Nasdaq on the last trading day prior to such Board approval.
Mr. Zweifach, a non-executive director, was granted 40,000 options to purchase the
Company’s ordinary Shares in February 2018 while serving as a consultant to the Company, which service was terminated upon his appointment
as a director by the Board. Mr. Zweifach therefore waived his right to receive the Initial Option Grant in 2018 and is entitled only to
Annual Option Grants.
Both the Initial and the Annual Option Grants are subject (other than as described
herein) to the terms and conditions of the 2010 Plan, or any other equity-based incentive plan the Company may adopt in the future and
pursuant to which these equity awards would be granted. All such grants vest over a four-year period as follows: twenty five percent (25%)
of the options granted vest on the first day of the quarter one calendar year immediately following the quarter in which the options were
granted; and an additional 6.25% of the options granted vest each quarter thereafter, for the next 36 months.
82
Notwithstanding the terms of the relevant plan, all options granted to non-executive
directors become fully vested immediately upon the completion of one or more of the following events, whether by way of a consolidation,
merger or reorganization of the Company or otherwise: (a) a sale of all or substantially all of Company’s issued share capital or
assets to any other company, entity, person or a group of persons, or (b) the acquisition of more than 50% of the Company’s equity
or voting power by any shareholder or group of shareholders. Further, notwithstanding the terms of the relevant plan, all options granted
which shall be vested as of the date of final termination of office as a non-executive director of the Company may be exercised within
one year following such termination of office. To the extent legally available and applicable, such options will be granted to the non-executive
directors through a trustee under Section 102 of the Israel Income Tax Ordinance [New Version], 5721-1961, or the Tax Ordinance, under
the capital gains route.
At the Company’s Annual General Meeting of Shareholders for 2020, held on September
16, 2020, or the 2020 AGM, our shareholders approved, following previous resolutions made by our compensation committee and the board
of directors, and consistent with our Compensation Policy, that instead of an Annual Option Grant, the compensation committee and the
board may issue to all non-executive directors RSUs or other equity awards which are not options, or Other Equity, in which case
the Annual Option Grant of 10,000 options shall be adjusted to 5,000 units of Other Equity awards, provided, that with respect to
an annual equity grant that combines both types of equity awards (i.e., options and Other Equity),
such grant shall be adjusted, on a pro rata basis, to give effect to the relative portion of each type of equity awarded (for
illustration purposes, if the compensation committee and board approve the grant
of 4,000 RSUs to the non-executive directors, the relevant annual equity grant will be comprised of a total of 6,000 units, out of
which 4,000 will be RSUs and 2,000 will be options).
The provisions relating to vesting, acceleration and exercise period applicable to
options, as specified above, shall apply to Other Equity that may be granted, mutatis
mutandis.
Compensation to the Company’s Chairman of the Board of Directors,
a Non-Executive Director
On October 19, 2017, our shareholders approved, following previous resolutions made
by our audit committee (then sitting as a compensation committee) and the board of directors, and consistent with our Compensation Policy,
the following compensation for our non-executive Chairman of the Board, Mr. Paul
Sekhri:
Cash Fees: An
annual cash fee in the amount of $150,000. No meeting fees will be paid in addition to such annual cash fee.
Grant of Options to Purchase Ordinary Shares:
In connection with his appointment as the Chairman of the Board, we issued to Mr. Sekhri an initial grant of options to purchase 500,000
ordinary shares. These options were issued pursuant to the terms and conditions applicable to options granted under the Company’s
2010 Option Plan. Such grant vested over a four-year period as follows: twenty five percent (25%) vested on the first day of the quarter
one calendar year immediately following the quarter in which the options were granted; and an additional 6.25% vested each quarter thereafter
for the next 36 months. These options will expire ten years after the grant date, unless they expire earlier in accordance with the terms
of the Company’s 2010 Option Plan. The acceleration provisions applicable to options granted to other non-executive directors also
apply to the options granted to Mr. Sekhri and all options granted which shall be vested as of the date of final termination of office
as a director of the Company may be exercised within one year following such termination date.
At the 2020 AGM, our shareholders approved, following previous resolutions made by
our compensation committee and the board of directors, and consistent with our Compensation Policy, that Mr. Sekhri, in his role as the
non-executive chairman of the Board, shall be entitled to an annual option grant of 10,000 options to purchase Ordinary Shares each year,
or Chairman’s Annual Option Grant, starting from 2020 and for each of the following years of service, similar to the terms of the
Annual Option Grant to the other non-executive directors as specified above. The grant date for the 2020 Annual Option Grant was the day
of the 2020 AGM (i.e., September 16, 2020) and the exercise price is the closing price of the Company’s ordinary shares on the Nasdaq
on the last trading day prior to such date.
As approved for the other non-executive directors, instead of Chairman’s Annual
Option Grant, the compensation committee and the board may issue to Mr. Sekhri Other Equity, in which case the Chairman’s Annual
Option Grant of 10,000 options shall be adjusted to 5,000 units of Other Equity awards, provided, that with respect to an annual
equity grant that combines both types of equity awards, such grant shall be adjusted, on a pro rata basis, to give effect to
the relative portion of each type of equity awarded as specified above with respect to other non-executive directors.
The provisions relating to vesting, acceleration and exercise period applicable to
the options, as specified above, shall apply to Other Equity that may be granted as set forth above, mutatis
mutandis.
83
Compensation to our President and Chief Executive Officer
Pursuant to Dr. Anat Cohen-Dayag’s employment agreement (and in accordance with
the approval of her updated compensation terms at the 2020 AGM), as the chief executive officer of the Company she is entitled to a gross
monthly salary of NIS 134,125 (approximately $41,520 according to the Representative Rate). Dr. Cohen-Dayag is also entitled to certain
benefits and perquisites customary in Israel, including those mandated by applicable law. In addition, Dr. Anat Cohen-Dayag is eligible
for an annual grant of equity-based compensation and to an annual cash bonus based upon achievement of objectives determined by the Company,
both subject to receipt of all approvals required by applicable law and to the
terms of our Compensation Policy.
At the 2020 AGM, our shareholders approved that Dr. Cohen-Dayag shall be eligible
to receive an annual cash bonus of up to nine monthly salaries for each of the calendar years 2021, 2022 and 2023, without the need for
further shareholder approval, subject to meeting the specific performance criteria
determined by the compensation committee and board with respect to each such year, in accordance with the objectives and terms thereof
and the continuous employment of Dr. Cohen-Dayag as the Company’s chief executive officer through the last day of the calendar year
with respect to which the annual cash bonus is proposed to be paid. Additionally, at the 2020 AGM, our shareholders approved an annual
equity grant plan for Dr. Cohen-Dayag for each of the calendar years 2021, 2022 and 2023, according to which Dr. Cohen-Dayag shall be
granted options to purchase up to 150,000 Ordinary Shares, or Equity Framework, in each of these years, as shall be determined by the
compensation committee and board of directors with respect to each such year. In order to align such grants (including the exercise price
and vesting period) with the annual grant of options to other executive Office Holders (for whom shareholder approval is not required),
our shareholders resolved that the annual grant to Dr. Cohen-Dayag will be made on such date in 2021, 2022 and 2023 on which the board
of directors approves the respective year’s annual option grants to management Office Holders in such year.
The compensation committee and the board of directors may nevertheless determine that
as part of an annual equity grant, they wish to issue Dr. Cohen-Dayag Other Equity. For the purpose of demining the applicability
of the Equity Framework to Other Equity, Other Equity shall be given a “double weight” relative to options, so that each unit
of Other Equity will be equal to two (2) option units. For illustration purposes, if the compensation committee and board of directors
approve an annual equity grant to Dr. Cohen-Dayag of 40,000 options and 30,000 RSUs, then for the purpose of determining whether such
grant is within the Equity Framework, the 30,000 RSUs will be given a weight of 60,000 units and the 40,000 options will be counted as
40,000 units, comprising an aggregate of 100,000 units which is within the Equity Framework. In any event, at least 30% of the value of
any annual equity grant to Dr. Cohen-Dayag shall be based on either (i) options granted with fair market value exercise price; or (ii)
Other Equity which vesting is based on both time and performance criteria, as shall be determined by the compensation committee and board
of directors.
The options granted in each respective year shall be subject to the terms and conditions
applicable to options granted under the 2010 Plan (or any other option plan adopted by the Company). Each annual option grant will vest
over a four-year period as follows: twenty five percent (25%) will vest on the last day of the quarter one calendar year from the date
of grant; and an additional 6.25% will vest each quarter thereafter for the next 36 months. These options will have an exercise price
equal to the closing price of the Company’s ordinary shares on Nasdaq on the last trading day prior to the approval of each year’s
grant by the board of directors. These options will expire ten years after the grant date, unless they expire earlier in accordance with
the terms of the 2010 Plan or the terms of the option agreement to be entered into between the Company and Dr. Cohen-Dayag. If applicable,
the options will be granted through a trustee under Section 102 of the Tax Ordinance and, in accordance with the Company’s previous
election in this regard, be subject to the capital gains route for tax purposes.
All vested options and Other Equity (to the extent applicable) granted to Dr. Cohen-Dayag
under the Equity Framework shall have a one-year exercise period following the termination of her employment as the Company’s chief
executive officer, other than in the event of termination for “cause” (as defined in her employment agreement as shall be
in effect from time to time). In addition to the foregoing, and not as part of the Equity Framework, Dr. Anat Cohen-Dayag will be entitled
to participate in the ESPP or any other employee share purchase plan(s) that may be adopted by the Company from time to time until the
end of 2023, as long as the fair market value of the benefit provided to her under such employee share purchase plan(s) (determined by
the Company at the beginning of the respective offering period) in any given twelve (12) month period does not exceed ten percent (10%)
of her annual base salary.
In 2021 Dr. Cohen-Dayag was granted with 150,000 options, with an exercise price of
$6.45, pursuant to the terms of the CEO’s three-year equity framework approved by our shareholders in 2020. As of December 31, 2021,
Dr. Cohen-Dayag held options to purchase a total of 1,210,000 ordinary shares. Out of these outstanding options: (i) options to purchase
857,500 ordinary shares, with a weighted average exercise price of $5.64 per share, were exercisable as of December 31, 2021; and (ii)
options to purchase 352,500 ordinary shares, with a weighted average exercise price of $8.23 per share, had not vested as of December
31, 2021. Of the unvested options on December 31, 2021, options to purchase 151,875 ordinary shares are expected to vest during 2022,
options to purchase 97,500 ordinary shares are expected to vest during 2023 and options to purchase the remaining 103,125 ordinary shares
are expected to vest during the period between January 1, 2024, and September 30, 2025. These unvested options were granted under the
Company’s 2010 Plan. For additional information on Dr. Cohen-Dayag’s holdings see “Item 6. Directors, Senior Management
and Employee - E. Share Ownership - Share Ownership by Directors and Other Executive Officers.”
84
Dr. Cohen-Dayag’s employment agreement may generally be terminated by either
party by providing six (6) months advance written notice, provided that in the event of termination by the Company for “justifiable
cause” (as such term is defined in her employment agreement as shall be in effect from time to time) the Company may terminate Dr.
Cohen-Dayag’s employment without advance notice and that Dr. Cohen-Dayag may resign with advance notice of only two (2) months in
the event of resignation for “good reason” (as such term is defined in her employment agreement as shall be in effect from
time to time). Upon termination, Dr. Anat Cohen-Dayag will be entitled to receive certain payments associated with termination.
In the event that Dr. Cohen-Dayag’s employment is: (a) terminated by the Company,
other than for “justifiable cause”; or (b) terminated by Dr. Cohen-Dayag for “good reason” (hereinafter, (a) and
(b) shall be referred to together as “Dismissal”), Dr. Cohen-Dayag will also be entitled to an additional one-time payment
equal to six (6) monthly salaries, or the Termination Payment, and upon Dismissal within one year following certain “change of control”
events (as defined in her employment agreement as shall be in effect from time to time), Dr. Cohen-Dayag will be entitled to a special
termination payment (in addition to the Termination Payment) in an amount equal to six (6) monthly salaries.
In addition, upon Dismissal, or in the event of a “change of control”,
all outstanding unvested options granted to Dr. Cohen-Dayag as of such time will be accelerated and become immediately exercisable as
of the effective date of such Dismissal or change of control. Upon Dismissal, Dr. Cohen-Dayag will also be entitled to exercise all outstanding
vested options (including those options vested as a result of such accelerated vesting) for a period of one (1) year from the date of
such Dismissal, provided that such period does not extend beyond ten (10) years from the date of grant. Upon an event of change of control,
following which Dr. Cohen-Dayag’s employment is, within 12 months of the closing of such an event: (a) terminated by the Company,
other than for “justifiable cause”; or (b) terminated by Dr. Cohen-Dayag for any reason, Dr. Cohen-Dayag will be entitled
to exercise all outstanding vested options (including those vested as a result of such accelerated vesting) for a period of one (1) year
from the date of termination of her employment, provided that such period does not extend beyond ten (10) years from the date of grant.
Dr. Cohen-Dayag is not entitled to any compensation (including in connection with
her role as a director) in addition to that being paid to her as the chief executive officer of the Company. However, in the event of
termination of Dr. Cohen-Dayag employment agreement, she will be entitled to receive such compensation to the extent and for as long as
she will serve as a non-executive director of the Company.
Insurance, Indemnification and Exemption
Our Office Holder’s Insurance.
Our Articles provide that, subject to the provisions of the Companies Law, we may enter into contracts to insure the liabilities of our
Office Holders for any liabilities or expenses incurred by or imposed upon them as a result of any act (or omission) carried out by them
as our Office Holders, including with respect to any of the following:
| • |
a breach of duty of care to us or to another person; |
| • |
a breach of duty of loyalty to us, provided that the Office Holder acted in good faith and had reasonable grounds to assume that
such act would not prejudice our interests; |
| • |
monetary liabilities or obligations imposed upon him or her in favor of another person; |
| • |
A payment which the Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Israel
Securities Law, 5728-1968, or the Securities Law, and expenses that the Office Holder incurred in connection with a proceeding under Chapters
H’3, H’4 or I’1 of the Securities Law, including reasonable litigation expenses, including attorney’s fees, or
in connection with Article D of Chapter Four of Part Nine of the Companies Law; and |
| • |
Expenses incurred by the Office Holder in connection with a proceeding under Chapter G’1, of the Israel Restrictive Trade Practices
Law, 5748-1988, or Restrictive Trade Law, including reasonable litigation expenses, including attorney’s fees. |
85
Under the Companies Law, exemption and indemnification of, and procurement of insurance
coverage for, our Office Holders, must be approved by our compensation committee and our board of directors and, with respect to an Office
Holder who is the CEO or a director, also by our shareholders. However, according to regulations promulgated under the Companies Law,
shareholders and board of directors approvals for the procurement of such insurance are not required if the insurance policy is approved
by our compensation committee and: (i) the terms of such policy are within the framework for insurance coverage as approved by our shareholders
and set forth in our Compensation Policy; (ii) the premium paid under the insurance policy is at fair market value; and (iii) the insurance
policy does not and may not have a substantial effect on the Company’s profitability, assets or obligations.
In accordance with our Compensation Policy, approved by our shareholders at the 2020
AGM, we are currently entitled to hold directors’ and officers’ liability insurance policy for the benefit of our Office
Holders with insurance coverage of up to $100 million and with such annual premium reflecting market terms and not having a
substantial effect on our profitability, assets or obligations.
Our Office Holders’ Indemnification. Our
Articles provide that, subject to the provisions of the Companies Law, we may indemnify any of our Office Holders for all liabilities
and expenses incurred by them arising from or as a result of any act (or omission) carried out by them as Office Holders of the Company,
including as follows:
| • |
For any monetary liabilities or obligations imposed on our Office Holder in favor of another person pursuant to a court judgment,
including a compromise judgment or an arbitrator’s decision approved by a court; |
| • |
For any payments which our Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the
Securities Law and expenses the Office Holder incurred in connection with a proceeding under Chapters H’3, H’4 or I’1
of the Securities Law, including reasonable litigation expenses, including attorney’s fees, or in connection with Article D of Chapter
Four of Part Nine of the Companies Law; |
| • |
For reasonable litigation expenses, including attorney’s fees, incurred by the Office Holder in consequence of an investigation
or proceeding instituted against the Office Holder by an authority that is authorized to conduct such investigation or proceeding, and
which was concluded without filing of an indictment against the Office Holder and without imposing on the Office Holder a financial obligation
in lieu of criminal proceedings, or which was concluded without filing of an indictment against the Office Holder but with imposing on
such Office Holder a financial obligation in lieu of criminal proceedings in respect of an offense that does not require proof of criminal
intent or in connection with a financial sanction; For the purposes hereof: (i) “a proceeding that concluded without filing an indictment
in a matter in respect of which an investigation was conducted”; and (ii) “financial obligation in lieu of a criminal proceeding”,
shall have the meanings specified in Section 260(a)(1A) of the Companies Law; |
| • |
For reasonable litigation expenses, including attorney’s fees, incurred by the Office Holder or which the Office Holder is
ordered to pay by a court, in a proceeding filed against the Office Holder by the Company or on its behalf or by another person, or in
a criminal action of which the Office Holder is acquitted, or in a criminal action in which the Office Holder is convicted of an offense
that does not require proof of criminal intent; |
| • |
For expenses incurred by our Office Holder in connection with a proceeding under Chapter G’1, of the Restrictive Trade Law,
including reasonable litigation expenses, including attorney’s fees; and |
| • |
For any other liability, obligation or expense indemnifiable or which our Officer Holders may from time to time be indemnifiable
by law. |
The Company may undertake to indemnify an office holder as mentioned above: (a) prospectively,
provided that with respect of the first act (financial liability) the undertaking is limited to events which in the opinion of the board
of directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify is given, and to an amount
or criteria set by the board of directors as reasonable under the circumstances, and further provided that such events and amount or criteria
are set forth in the undertaking to indemnify, and (b) retroactively.
86
Indemnification letters, covering indemnification of those liabilities discussed above,
were granted to each of our present Office Holders and were amended at the Company’s Annual General Meeting of Shareholders for
2021, held on September 2, 2021, or the 2021 AGM. The indemnification letters, as amended, seek to indemnify our Office Holders to the
fullest extent permitted under the Companies Law, subject to the specific limitations specified therein.
Our Office Holder’s Exemption. Our Articles
provide that, subject to the provisions of the Companies Law, we may exempt and release our Office Holders, including in advance, from
all or part of such Office Holder’s liability for monetary or other damages due to a breach of their duty of care to the Company.
Our directors are released and exempt from all liability as aforesaid to the fullest extent permitted by law with respect to any such
breach, which has been or may be committed.
Limitations on Insurance, Indemnification and Exemption. The
Companies Law provides that a company may not insure, exempt or indemnify an Office Holder for any breach of his or her liability arising
from any of the following:
| • |
a breach by the Office Holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an Office Holder if the Office Holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
| • |
a breach by the Office Holder of his or her duty of care if such breach was intentional or reckless, but unless such breach was solely
negligent; |
| • |
any act or omission done with the intent to derive an illegal personal benefit; or |
| • |
any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings imposed on such Office Holder.
|
Administrative Enforcement
The Israeli Securities Law includes an administrative enforcement procedure that may
be used by the Israeli Securities Authority, to enhance the efficacy of enforcement in the securities market in Israel. Pursuant to the
Companies Law and the Israeli Securities Law, the Israeli Securities Authority is authorized to impose administrative sanctions, including
monetary fines, against companies like ours and their officers and directors for certain violations of the Israeli Securities Law or the
Companies Law (for further details see “Administrative Enforcement” below). Furthermore,
the Israeli Securities Law requires that the CEO of a company supervise and take all reasonable measures to prevent the company or any
of its employees from breaching the Israeli Securities Law. The CEO is presumed to have fulfilled such supervisory duty if the company
adopts internal enforcement procedures designed to prevent such breaches, appoints a representative to supervise the implementation of
such procedures and takes measures to correct the breach and prevent its reoccurrence.
Under the Israeli Securities Law, a company cannot obtain insurance against or indemnify
a third-party (including its officers and/or employees) for any administrative procedure and/or monetary fine (other than for payment
of damages to an injured party). The Israeli Securities Law permits insurance and/or indemnification for expenses related to an administrative
procedure, such as reasonable legal fees, provided that it is permitted under the company’s articles of association.
We have adopted and implemented an internal enforcement plan to reduce our exposure
to potential breaches of sections in the Companies Law and the Israeli Securities Law, applicable to us. Our Articles and letters of indemnification
permit, among others, insurance and/or indemnification as contemplated under the Israeli Securities Law (see “Insurance,
Indemnification and Exemption” above).
C. BOARD PRACTICES
We are incorporated in Israel, and, therefore, are generally subject to various corporate
governance practices under Israeli law such as with respect to external directors, independent directors, audit committee, compensation
committee, an internal auditor and approvals of interested party transactions. These matters are in addition to the requirements of the
Nasdaq Global Market and other relevant provisions of U.S. securities laws applicable to us. Under the Nasdaq Listing Rules, a foreign
private issuer may generally follow its home country practices for corporate governance in lieu of the comparable Nasdaq Global Market
requirements, except for certain matters such as composition and responsibilities of the audit committee and the SEC-mandated standards
for the independence of its members. We currently comply with all the above-mentioned requirements. See “Item 3. Key Information
- D. Risk Factors - Risks related to operations in Israel - Being a foreign private issuer exempts us from certain SEC requirements and
Nasdaq rules, which may result in less protection that is afforded to investors under rules applicable to domestic issuers”. For
information regarding home country practices followed by us see “Item 16G - Corporate Governance”.
87
Board of Directors
Our Articles provide that we may have no less than five nor more than fourteen directors.
Currently our board of directors consists of seven members. Our directors are elected at the annual general meeting for a term of approximately
one year, ending at the annual general meeting immediately following the annual general meeting at which they were elected or upon earlier
termination in circumstanced referred to under the Companies Law or our Articles. Our directors
may further be appointed by the board of director and in this case shall hold office until the end of the immediately following annual
general meeting or upon earlier termination in circumstanced referred to under the Companies Law or our Articles.
On February 24, 2022, we announced that Dr. Jean-Pierre will retire from the board
of directors of the Company effective March 1, 2022, and that effective that date Dr. Mathias Hukkelhoven, Ph.D. will join as a member
of our board of directors.
None of our directors is party to a service contract with us that provides for any
severance or similar benefits upon termination of his or her service, other than our president and chief executive officer, Dr. Anat Cohen-Dayag,
with whom we entered into an employment agreement. For additional information on the employment agreement entered into with Dr. Cohen-Dayag,
please see “Item 6 - Directors, Senior Management and Employees - B. Compensation - Compensation to our President and Chief Executive
Officer.”
Board of Directors Diversity
The table below provides certain information regarding the diversity of our board of directors.
|
Board Diversity Matrix as of February 15, 2022 | ||||
|
Total Number of Directors |
7 | |||
|
Female |
Male |
Non-Binary |
Did Not Disclose Gender | |
|
Part I: Gender Identity |
||||
|
Directors |
2 |
4 |
1 | |
|
Part II: Demographic Background |
||||
|
African American or Black |
||||
|
Alaskan Native or Native American |
||||
|
Asian |
||||
|
Hispanic or Latinx |
||||
|
Native Hawaiian or Pacific Islander |
||||
|
White |
2 |
3 |
||
|
Two or More Races or Ethnicities |
1 |
|||
|
LGBTQ+ |
1 | |||
|
Did Not Disclose Demographic Background |
1 | |||
Directors Under the Companies Law - General
A nominee for service as a director in a public company may not be elected without
submitting a declaration to the company, prior to his or her election, specifying that he or she has the requisite qualifications to serve
as a director, an external director or an independent director, as applicable, and the ability to devote the appropriate time to performing
his or her duties as such.
A director, including an external director or an independent director, who ceases
to meet the statutory requirements to serve as a director, external director or independent director, as applicable, must notify the company
to that effect immediately and his or her service as a director will expire upon submission of such notice.
88
External Directors and Independent Directors Under the Companies
Law
Under the Companies Law, Israeli public companies are generally required to have on
their board of directors at least two external directors meeting certain independence criteria, provided under Israeli law. In accordance
with the Israeli Companies Regulations (Alleviation for Public Companies whose shares are Traded on the Stock Exchange Outside of Israel),
2000, or the Alleviation Regulations, we, as an Israeli public company with no controlling shareholder (within the meaning of the Companies
Law), whose shares are listed on the Nasdaq Global Market, may exempt ourselves from the requirement of having external directors on our
board of directors and related requirements concerning the composition of the audit
and compensation committees of the board of directors, provided that we continue to comply with the U.S. securities laws and Nasdaq Listing
Rules applicable to U.S. domestic issuers regarding the independence of the board of directors and the composition of the audit and compensation
committee. On June 7, 2018, our board of directors determined to opt out of the requirement to elect and have external directors and composition
criteria of the audit committee and compensation committee under the Companies Law pursuant to the relief available under the Alleviation
Regulations, since at that time (and since that time) we have not had a controlling shareholder and as we have been complying with the
Nasdaq majority board independence requirement, and with the Nasdaq and SEC audit and compensation committee composition requirements,
or the Opt Out Criteria. In accordance with this decision, we currently have no external directors on our board of directors.
The term controlling shareholder, as used in the Companies Law for purposes of all
matters related to external directors and for certain other purposes, means a shareholder that has the ability to direct the activities
of the company, other than by virtue of being an Office Holder. For purposes of all matters related to external directors, a shareholder
is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in the company or has the right
to appoint the majority of the directors of the company or its chief executive officer.
Under the Companies Law, an ‘independent director’ is either an external
director or a director appointed or classified as such who meets the same non-affiliation criteria as an external director, as determined
by the company’s audit committee, and who has not served as a director of the company for more than nine consecutive years. For
these purposes, ceasing to serve as a director for a period of two years or less would not be deemed to sever the consecutive nature of
such director’s service. However, as our shares are listed on the Nasdaq Global Market, pursuant to the Alleviation Regulations,
we may also classify directors who qualify as independent directors under the relevant non-Israeli rules, as ‘independent directors’
under the Companies Law. In addition, the Alleviation Regulations provide that ‘independent directors’ may be elected for
additional terms that do not exceed three years each, beyond the 9 consecutive years, provided that, if the director is being re-elected
for an additional term or terms beyond the 9 consecutive years, the audit committee and board of directors must determine that, in light
of the director’s expertise and special contribution to the board of directors and its committees, the re-election for an additional
term is to the company’s benefit and the director must be re-elected by the required majority of shareholders and subject to the
terms specified in the Companies Law. Each of our directors, other than Dr. Anat Cohen-Dayag, who also serves as our chief executive officer,
meets the ‘independent directors’ criteria under the Companies Law.
Independent Directors Under the Nasdaq Listing
Rules
In addition to the requirements of the Companies Law as described above, since our
shares are listed on the Nasdaq Global Market, pursuant to the Nasdaq Listing Rules, a majority of our directors must be independent (as
defined under the Nasdaq Listing Rules). We comply with such Nasdaq independence requirement, as each of our directors, other than Dr.
Anat Cohen-Dayag, who also serves as our president and chief executive officer, has been determined by our board of directors to meet
the Nasdaq independence requirements.
Financial and Accounting Expertise Under the
Companies Law
Pursuant to the Companies Law, the board of directors of a publicly traded company
is required to make a determination as to the minimum number of directors who must have financial and accounting expertise according to
criteria set forth under the Companies Law and regulations promulgated there under
and based, among other things, on the type of company, its size, the volume and complexity of the company’s activities and the number
of directors. Our board of directors has determined that the minimum number of directors with financial and accounting expertise is one.
Currently, each of Mr. Gilead Halevy, Mr. Eran Perry and Mr. Sanford (Sandy) Zweifach qualifies as such.
89
Board Committees
Audit Committee
The Companies Law requires public companies such as ours to appoint an audit committee,
the responsibilities of which include, among other things: (i) identifying flaws in the management of the company’s business, among
other things, in consultation with the company’s internal auditor or external auditor, and making recommendations to the board of
directors as to how to correct them, (ii) reviewing and considering certain related party transactions and certain actions involving conflicts
of interest (as well as deciding whether certain actions specified in the Companies Law are considered material or non-material and whether
certain transactions are considered exceptional or ordinary), (iii) establishing procedures to be followed with respect to related party
transactions with a “controlling shareholder” (where such are not extraordinary transactions), which may include, where applicable,
the establishment of a competitive process for such transaction, under the supervision of the audit committee, or individual, or other
committee or body selected by the audit committee, in accordance with criteria determined by the audit committee, (iv) determining procedures
for approving certain related party transactions with a “controlling shareholder”, which were determined by the audit committee
not to be extraordinary transactions, but which were also determined by the audit committee not to be negligible transactions, (v) reviewing
the internal auditor’s work program performance, examining the company’s internal control structure and processes and determining
whether the internal auditor has the requisite tools and resources required to perform his or her role, (vi) examining the external auditor’s
scope of work as well as the external auditor’s fees and providing its recommendations to the appropriate corporate organ, (vii)
overseeing the accounting and financial reporting processes of the Company, and (viii) providing arrangements regarding employee complaints
with respect to flaws in the management of the Company’s business.
Under the Nasdaq Listing Rules, we are required to maintain an audit committee that
operates under a formal written charter and has certain responsibilities and authority, including being directly responsible for the appointment,
compensation, retention and oversight of the work of our external auditor. However, under Israeli law and our Articles, the appointment
of external auditor requires the approval of the shareholders and their compensation requires the approval of our board of directors.
In addition, as described above, pursuant to the Companies Law, the audit committee is required to examine the external auditor’s
scope of work as well as the external auditor’s fees and to provide its recommendations with respect thereto to the appropriate
corporate organ. Accordingly, the appointment of our external auditor is approved by our shareholders at the audit committee’s recommendation
and its compensation for audit and non-audit services is approved by the board of directors following the audit committee’s recommendation.
We have adopted a charter for the audit committee, which sets forth the purpose and
responsibilities of such committee.
In carrying out its duties, the audit committee meets with management at least once
in each fiscal quarter at which time, among other things, it reviews, and either approves or disapproves, the financial results of the
Company for the immediately preceding fiscal quarter and conveys its conclusions in this regard to the board of directors. The audit committee
also generally monitors the services provided by the Company’s external auditor to ensure their independence and reviews all audit
and non-audit services provided by them. The Company’s external and internal auditors also report regularly to the audit committee
and the audit committee discusses with our external auditor the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in our financial statements, as and when it deems it appropriate
to do so.
Under the Nasdaq Listing Rules, the audit committee is required to consist of at least
three independent directors, each of whom is financially literate and at least one of whom has accounting or related financial management
expertise.
We have an audit committee consisting of three directors, Mr. Gilead Halevy, who serves
as the chairman of our audit committee, Mr. Eran Perry and Mr. Sanford (Sandy) Zweifach, all of whom are financially literate under
the applicable rules and regulations of the SEC and Nasdaq Listing Rules and each of whom is an audit committee financial expert, as defined
by the SEC rules, and has the requisite financial experience required under the Nasdaq Listing Rules. Additionally, each of the members
of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is different
from the general test for independence of board and committee members under the Nasdaq Listing Rules.
The audit committee composition requirements referred to under Section 115 of the
Companies Law are not applicable to the Company as our board of directors, as part of its decision to opt out of the requirement to elect
external directors pursuant to the relief available under the Alleviation Regulations, also adopted relief from such composition requirements
on the basis that the Company complies, and will continue to comply, with the U.S. Securities Law and Nasdaq Listing Rules described above.
90
Compensation Committee
The Companies Law generally provides that public companies such as the Company must
appoint a compensation committee, the responsibilities of which include, among others: (i) reviewing and making recommendations to the
board of directors with respect to our Compensation Policy and with respect to any updates which may be required thereto from time to
time, (ii) reviewing the implementation of the Compensation Policy by the Company, (iii) reviewing and considering arrangements with respect
to the Terms of Office and Employment of Office Holders, (iv) exempting, under certain circumstances, a transaction relating to the Terms
of Office and Employment of Office Holders from the requirement of approval of the shareholders, and (v) overseeing, subject to applicable
law, the administration of the Company’s various compensation plans and arrangements, including, incentive compensation and equity
based plans. Under the Companies Law, the compensation committee may need to seek the approval of the board of directors and the shareholders
for certain compensation-related decisions, (see “Item 6 - Directors, Senior Management and Employees - B. Compensation - Approvals
Required for Office Holders Terms of Employment”).
We have adopted a charter for the compensation committee, which sets forth the purpose
and responsibilities of such committee.
Under the Nasdaq Listing Rules, we are required to maintain a compensation committee
consisting of at least two independent directors (as defined under the Nasdaq Listing Rules). Each compensation committee member must
also be deemed by our board of directors to meet the enhanced independence requirements for members of the compensation committee under
the Nasdaq Listing Rules, which requires, among other things, that our board of directors considers the source of each such committee
member’s compensation in considering whether he or she is independent.
The compensation committee composition requirements referred to under Section 118A
of the Companies Law are not applicable to the Company as our board of directors, as part of its decision to opt out of the requirement
to elect external directors pursuant to the relief available under the Alleviation Regulations, also adopted relief from such composition
requirements on the basis that the Company complies, and will continue to comply, with the Nasdaq majority board independence requirement
and with US Securities Law and Nasdaq Listing Rules concerning the composition of the compensation committee.
We have a compensation committee consisting of three directors, Mr. Sanford (Sandy)
Zweifach, who serves as the chairman of our compensation committee, Dr. Kinneret Livnat Savitzky and Eran Perry. Each member of our
compensation committee is an ‘independent director’ in accordance with the Nasdaq listing standards.
Nomination and Corporate Governance Committee
The Nasdaq Listing Rules require that director nominees be selected or recommended
for the board’s selection either by a nomination committee composed solely of independent directors, or by a majority of independent
directors, in a vote in which only independent directors participate, subject to certain exceptions. Mr. Paul Sekhri, who serves as the
chairman of our nomination and corporate governance committee, Dr. Kinneret Livnat Savitzky and Mr. Sanford (Sandy) Zweifach, each an
independent director, are the members of our nomination and corporate governance committee, which, among other responsibilities, recommends
director nominees for our board’s approval.
Internal Auditor
Under the Companies Law, the board of directors must appoint an internal auditor,
recommended by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s actions
comply with the law and orderly business procedures. Under the Companies Law, an interested party or an Office Holder of a company, or
a relative of an interested party or of an Office Holder of a company, as well as the company’s external auditor or any one on behalf
of the external auditor may not serve as a company’s internal auditor. The internal auditor’s tenure cannot be terminated
without his or her consent, nor can he or she be suspended from such position unless the board of directors has so resolved after hearing
the opinion of the audit committee and after providing the internal auditor with the opportunity to present his or her position to the
board of directors and to the audit committee. An interested party is defined in the Companies Law as a holder of 5% or more of the company’s
outstanding shares or voting rights, any person or entity who has the right to designate one or more directors or the chief executive
officer of the company or any person who serves as a director or as a chief executive officer of the company.
91
Ms. Sharon Cohen of Brightman, Almagor, Zohar & Co., a member firm of Deloitte
Touche Tohmatsu, has served as our internal auditor since 2019 (replacing a different partner at Brightman Almagor Zohar & Co., a
member firm of Deloitte Touche Tohmatsu). Ms. Sharon Cohen is not an employee, affiliate or Office Holder of the Company, or affiliated
with the Company’s external auditor.
Fiduciary Duties and Approval of 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.
All persons listed in the table under “Item 6. Directors, Senior Management and Employees - A. Directors and Senior Management”
are Office Holders. In addition to those persons listed in the table under Item 6.A, there are two additional individuals who were Office
Holders of the Company as of December 31, 2021.
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 standard of skills with which a reasonable Office Holder in the same
position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means to obtain:
| • |
information regarding the business advisability of a given action brought for the Office Holder’s approval or performed by
the Office Holder by virtue of his or her position; and |
| • |
all other information of importance pertaining to the aforesaid actions. |
The duty of loyalty requires an Office Holder to act in good faith and for the benefit
of the company and includes the duty to:
| • |
refrain from any act involving a conflict of interest between the fulfillment of his or her position in the company and the fulfillment
of any other position or his or her personal affairs; |
| • |
refrain from any act that is competitive with the business of the company; |
| • |
refrain from exploiting any business opportunity of the company with the aim of obtaining a personal gain for himself or herself
or for others; and |
| • |
disclose to the company all relevant information and provide it with all documents relating to the company’s affairs which
the Office Holder obtained due to his or her position in the company. |
Disclosure of Personal Interests of Office
Holders and Approval of Certain Transactions
The Companies Law requires that an Office Holder promptly discloses to the company
any personal interest that the Office Holder may have, and all related material
information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction
is an extraordinary transaction, as defined under Israeli law, the Office Holder must also disclose any personal interest held by the
Office Holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing,
or a Relative. In addition, the Office Holder must also disclose any interest held by any corporation in which the Office Holder: (i)
holds at least 5% of the company’s outstanding share capital or voting rights; (ii) is a director or general manager; or (iii) has
the right to appoint at least one director or the general manager. An extraordinary transaction is defined as a transaction which is either
not in the ordinary course of business, not on market terms, or 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 in which an Office Holder has a personal interest and which is not an extraordinary transaction, requires board approval,
after the Office Holder complies with the above disclosure requirement and provided the transaction is not adverse to the company’s
interest. Our Articles do not provide for a different method of approval. Furthermore, if the transaction is an extraordinary transaction,
then, in addition to any approval stipulated by the articles of association, it also must be approved by the company’s audit committee
and then by the board of directors, and, under certain circumstances, by the shareholders of the company.
A person with a personal interest in any matter may not generally be present at any
audit committee, compensation committee or board of directors meeting where such matter is being considered, and if he or she is a member
of the committee or a director, he or she may not generally vote on such matter at the applicable meeting.
92
Disclosure of Personal Interest of Controlling Shareholders and
Approval of certain Transactions
The Companies Law extends the disclosure requirements applicable to an Office Holder
to a ‘controlling shareholder’ in 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 or a group of shareholders who together own 25% or
more of the voting rights if no other shareholder holds more than 50% of the voting rights.
Extraordinary transactions of a public company with a controlling shareholder or in
which a controlling shareholder has a personal interest, as well as any engagement by a public company of a controlling shareholder or
of such controlling shareholder’s Relative, directly or indirectly, with respect to the provision of services to the company, and,
if such person is also an Office Holder of such company, with respect to such person’s Terms of Office and Employment as an Office
Holder, and if such person is an employee of the company but not an Office Holder, with respect to such person’s employment by the
company, generally require the approval of each of the audit committee (or with respect to Terms of Office and Employment, the compensation
committee), the board of directors and the shareholders of the company, in that order. The shareholder approval must fulfill one of the
following requirements: (i) it received the positive vote of at least a majority of the voting rights in the company who are present and
voting in the meeting and held by shareholders who do not have a personal interest in the transaction; (abstentions are disregarded) or
(ii) the voting rights held by shareholders who have no personal interest in the transaction and who have voted against the transaction,
do not exceed two percent of the voting rights in the company.
Any extraordinary transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest with a term of more than three years generally need to be brought for re-approval in accordance with
the above procedure every three years, unless the audit committee determines that the duration of the transaction is reasonable given
the circumstances related thereto and has been approved by the shareholders for such longer duration.
Pursuant to regulations promulgated under the Companies Law, certain transactions
with a controlling shareholder or his or her Relative, or with directors, that would otherwise require approval of a company’s shareholders
may be exempt from shareholder approval upon certain determinations of the audit committee or the compensation committee and board of
directors.
For information concerning the direct and indirect personal interests of certain of
our Office Holders and principal shareholders in certain transactions with us, see “Item 7. Major Shareholders and Related Party
Transactions - B. Related Party Transactions.”
Shareholders Duties
Pursuant to the Companies Law, a shareholder has a duty to: (i) act in good faith
in fulfilling his obligations towards the company and the other shareholders; and (ii) refrain from abusing his or her power with respect
to the company, including, when voting at a general meeting with respect to the following matters: (a) an amendment to the company’s
articles of association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) approval of interested
party transactions that require shareholders’ approval.
In addition, any controlling shareholder, any shareholder who knows that it possesses
power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company’s articles
of association has the power to appoint or prevent the appointment of an office holder in the company, is under a duty of fairness towards
the company. The Companies Law does not describe the substance of such duty of fairness but states that the remedies generally available
upon a breach of contract will also apply in the event of a breach of the duty of fairness, taking into account such shareholder’s
position.
Approval of Significant Private Placement
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 results in a person becoming 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 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.
93
D. EMPLOYEES
The following table sets out the number of our full-time employees engaged in specified
activities, at the end of the fiscal years 2021, 2020 and 2019 (the numbers include employees of our wholly owned U.S. subsidiary Compugen
USA, Inc.):
|
December 31, 2021 |
December 31, 2020 |
December 31, 2019 | |
|
Research & Development
|
51
|
45
|
37
|
|
Administration, Accounting and Operations |
21 |
21 |
23 |
|
Marketing and Business Development |
1 |
2 |
1 |
|
Total |
73 |
68 |
61 |
In addition to the headquarters in Holon, Israel, we maintain a subsidiary in South
San Francisco, California. On December 31, 2019, 54 of our employees were located in Israel and seven were located in the United States,
on December 31, 2020, 58 of our employees were located in Israel, nine were located in the United States and 1 employee was located in
Europe and on December 31, 2021, 58 of our employees were located in Israel, 12 were located in the United States and 3 employees were
located in Europe.
We consider our relations with our employees to be satisfactory and we have not experienced
a significant labor dispute or strike. We are not a party to any collective bargaining agreement with respect to our Israeli employees.
However, we are subject to certain labor related statutes and to certain provisions of expansion orders the Israeli Minister of the Economy
has given to collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordinating Bureau
of Economic Organizations and/or the Industrialists’ Association, which are applicable to our Israeli employees. These statutes
and provisions and additional Israeli labor law provisions cover a wide range of subjects and provide certain minimum employment standards,
including the length of the workday and work week, minimum wages, travel expenses, contributions to a pension fund, insurance for work-related
accidents, determination of severance pay, annual and other vacations, sick pay and other conditions of employment. We generally provide
our employees with benefits and working conditions beyond the required minimum.
Our severance pay liability to our Israeli employees, based upon the number of years
of service and the latest monthly salary, is in the large part covered by regular deposits with recognized pension funds, deposits with
severance pay funds and purchases of insurance policies. Pursuant to Section 14 of the Israeli Severance Pay Law 5723-1963, certain of
our liabilities for employee severance rights upon termination are covered by regular contributions to defined contribution plans, so
that upon termination of employment of the relevant employees, we are only required to release the payments made by us to such funds on
account of severance and by doing so are deemed to have complied with all of our severance payment obligations relating to the service
of applicable employees with respect to the period during which the provisions of such section apply. For information concerning our liability
for severance pay, see Note 2l to our 2021 consolidated financial statements.
Our employees are not represented by a labor union. We have written employment contracts
(including signed offers of employment) with each of our employees.
94
E. SHARE OWNERSHIP
Share Ownership by Directors and Other Executive Officers
All of the persons listed above under the caption “Directors and Senior Management”
own ordinary shares of the Company and/or options to purchase ordinary shares of the Company. Except as set forth in the table below,
none of the directors or executive officers beneficially owns ordinary shares and/or ordinary shares underlying options amounting to 1%
or more of the outstanding ordinary shares. The following table sets forth certain information as of February 15, 2022, regarding the
beneficial ownership by our directors and senior management. All numbers quoted in the table are inclusive of options to purchase shares
that are exercisable within 60 days after February 15, 2022. The shares that may
be issued under these options are deemed to be outstanding for the purpose of computing the percentage of ownership of such individual
or group but are not deemed to be outstanding for the purpose of computing the percentage of ownership of the other individual or group
shown in the table. The information in this table is based on 86,459,252 ordinary shares outstanding as of February 15, 2022.
|
Beneficial Owner |
Amount Owned |
Percent of Class |
||||||
|
Anat Cohen-Dayag(1)
|
966,122 |
1.1 |
% | |||||
|
All directors and executive officers
as a group (13 persons)(2)
|
2,984,881 |
3.3 |
% | |||||
___________________
| (1) |
Includes (i) 56,122 shares held by Dr. Cohen-Dayag, and (ii) 910,000 shares subject to options that are exercisable within 60 days
after February 15, 2022, with a weighted average exercise price of $5.74 per share, and which expire between August 2022 and July 2030.
|
| (2) |
Includes (i) a total of 78,894 ordinary shares held by directors and executive officers, and (ii) a total of 2,905,987 shares subject
to options that are beneficially owned by directors and executive officers that are exercisable within 60 days after February 15, 2022,
with a weighted average exercise price of $5.16 per share and which expire between August 2022 and September 2030. |
Share Incentive Plan and Employee Share Purchase Plan
We currently maintain one active share incentive plan, which is our 2010 Share Incentive
Plan, or the 2010 Plan. In addition to the discussion below, see Note 8 to our 2021 consolidated financial statements.
Compugen 2010 Share Incentive Plan
On July 25, 2010, our board of directors adopted the 2010 Plan which was also approved
by our shareholders on May 12, 2011. In addition, the board of directors and shareholders resolved that the options available for grants
under the 2000 Option Plan, at such time, as well as any options that may return to such pool in connection with terminated options, will
be made available for future grants under the 2010 Plan. Subject to applicable law, our board of directors may amend the 2010 Plan, provided
that any action by our board of directors which will alter or impair the rights or obligations of an option holder requires the prior
consent of that option holder. Our board of directors last increased the number of shares available under the 2010 Plan in May 2020. At
such time the board of directors also extended the term of the 2010 Plan by additional ten (10) years. See “Item 16G. Corporate
Governance.”
The compensation committee administers the 2010 Plan and has the authority to designate
the terms of the options granted thereunder, including the identity of the grantees, exercise prices, grant dates, vesting schedules and
expiration dates, which may be no more than ten years after the grant date. According to the 2010 Plan, options may not be granted with
an exercise price of less than the fair market value of our ordinary shares on the date of grant, unless otherwise determined by our board
of directors. The administration of the 2010 Plan by our compensation committee is subject to applicable law, including with respect to
the approval procedure of compensation to Office Holders required under the Companies Law (for additional information on the approval
procedure of compensation to Office Holders, see “Item 6. Directors, Senior Management and Employees - B. Approvals Required for
Office Holders Terms of Employment”).
If a grantee leaves his or her employment or other relationship with us, or if his
or her relationship with us is terminated without cause (and other than by reason of death or disability, as defined in the 2010 Plan),
the term of his or her unexercised options will generally expire in 90 days, unless determined otherwise by our board of directors.
95
As of December 31, 2021, options to purchase 6,976,104 ordinary shares at a weighted
average exercise price of approximately $6.39 per share were outstanding (i.e., were granted but not canceled, expired nor exercised)
under the 2010 Plan and 1,133,128 ordinary shares remained available for future grant under the 2010 Plan. Options to purchase 4,285,920
ordinary shares under the 2010 Plan have previously been exercised through December 31, 2021, at a weighted average exercise price of
approximately $4.94. As of December 31, 2021, outstanding options granted by the Company pursuant to the 2010 Plan expire between January
2022 and November 2031 (subject to terms of the plan).
Compugen 2021 Employee Share Purchase Plan
In November 2020, we adopted the Compugen Ltd. 2021 Employee Share Purchase Plan,
or ESPP.
The ESPP currently applies to our employees and officers.
Pursuant to the ESPP, in each twelve (12) months period, there are two offering periods,
comprised of six (6) months each (except for the first offering period under the ESPP which was for five (5) months only). Each eligible
participant, has the right to contribute up to 15% of his or her monthly Compensation (as defined in the ESPP), in order to buy ordinary
shares from us at a price per share equal with respect to each offering period, to 85% of the Fair Market Value of a share on the Entry
Date or the Purchase Date (as such terms are defined in the ESPP), whichever is lower, until changed by the committee of the board administering
the ESPP prior to the commencement of the enrollment process for such offering period. The maximum number of ordinary shares a Participant
may purchase during any calendar year shall be that whole number of ordinary shares determined by dividing $40,000 by the Purchase Price.
The maximum number of shares that may be issued under the ESPP in the aggregate is
600,000.
As of December 31, 2021 (following issuance of shares in connection with offering
periods already ended), there are 482,171 ordinary shares available for issuance under the ESPP.
Taxation of Equity Granted under our 2010 Plan
and ESPP to Israeli Grantees
Our board of directors elected the “Capital Gains Track” (as defined in
Section 102(b) (2) of the Tax Ordinance) for the grant of equity under the 2010 Plan and ESPP to Israeli grantees who are eligible for
grant under said Section 102 of the Tax Ordinance.
Pursuant to such election, and provided such eligible grantees comply with all the
requirements of the “Capital Gains Track”, gains derived by them, arising from the sale of shares acquired pursuant to the
ESPP or the exercise of options granted to them, will generally be subject to a flat capital gains tax rate of 25%, although these gains,
or part of them, will also be considered part of a grantee’s regular salary and subject to such grantee’s regular tax rate
applicable to such salary. As a result of the Company’s election in the “Capital Gains Track” under Section 102, the
Company is not allowed to claim as an expense for tax purposes in Israel the amounts credited to the grantee as capital gains, although
it is generally entitled to do so in respect of the salary income component (if any) of such grant, if any, when the related tax is paid
by the grantee as long as the grantee complies with all the requirements of the “Capital Gains Track”.
ITEM 7. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth share ownership information as of February 15, 2022
(unless otherwise noted below) with respect to each person who is known by us to be the beneficial owner of more than 5% of our outstanding
ordinary shares. The information contained in the table below has been obtained
from the Company’s records or from information furnished by an individual or entity to the Company or disclosed in public filings
with the SEC. Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished
by such owners, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such
shares. As of February 15, 2022, there were a total of 37 holders of record of our ordinary shares, of which 21 were registered with addresses
in the United States. Such United States holders were, as of such date, the holders of record of approximately 9.98% of our outstanding
ordinary shares. Our ordinary shares are traded on the Nasdaq Global Market in the United
States and on the TASE in Israel. A significant portion of our shares are held in “street name”, therefore we cannot determine
who our shareholders are, their geographical location or how many shares a particular shareholder owns.
96
Total “Number of Ordinary Shares Beneficially Owned” in the table below
include shares that may be acquired by any of the below entities upon the exercise of options or warrants known to us, that are either
currently exercisable or will become exercisable within 60 days of February 15, 2022.
The shareholders listed below do not have any different voting rights from any of our other shareholders.
|
Reporting Beneficial
Owner |
Number of Ordinary Shares Beneficially Owned
|
Percent of Ordinary Shares Beneficially Owned(1)
|
||||||
|
ARK Investment Management LLC(2)
|
9,222,415 |
10.7 |
% | |||||
|
Nikko Asset Management Americas, Inc.(3)
|
6,998,382 |
8.1 |
% | |||||
|
Sumitomo Mitsui Trust Holdings, Inc.(4)
|
6,998,382 |
8.1 |
% | |||||
|
Bristol-Myers Squibb Company(5)
|
4,757,058 |
5.5 |
% | |||||
| • |
ARK Investment Management LLC’s percentage of ownership has decreased from 20.42% as of December 31, 2020 to 10.7% as stated
above. |
| • |
Nikko Asset Management Americas, Inc.’s percentage of ownership has decreased from 8.40% as of December 31, 2020 to 8.1% as
stated above. |
| • |
Sumitomo Mitsui Trust Holdings, Inc.’s percentage of ownership has decreased from 8.40% as of December 31, 2020 to 8.1% as
stated above. |
| (1) |
Based upon 86,459,252 ordinary shares issued and outstanding as of February 15, 2022. |
| (2) |
Based upon information provided by the shareholder in its Form 13G/A filed with the SEC on February 9, 2022. With respect to the
ordinary shares reported in its Schedule 13G/A, ARK Investment Management LLC, or ARK, indicated as having (i) sole voting power with
respect to 8,879,327 ordinary shares, (ii) shared voting power with respect to 210,870 ordinary shares, (iii) sole dispositive power with
respect to 9,222,415 ordinary shares, and (iv) no shared dispositive power with respect to ordinary shares. Furthermore, in such filing
ARK indicated aggregate beneficial ownership of 9,222,415 ordinary shares. The address of the principal business office of ARK is 3 East
28th Street, 7th Floor, New York, NY 10016. |
| (3) |
Based upon information provided by the shareholder in its Schedule 13G/A filed with the SEC on February 14, 2022. With respect to
the ordinary shares reported in the Schedule 13G/A, Nikko Asset Management Americas, Inc., or Nikko, indicated as having (i) no sole voting
or dispositive power with respect to ordinary shares, (ii) shared voting power with respect to 5,851,942 ordinary shares, and (iii) shared
dispositive power with respect to 6,998,382 ordinary shares. Furthermore, in such filing Nikko indicated aggregate beneficial ownership
of 6,998,382 ordinary shares. The address of the principal business office of Nikko is 605 Third Avenue, 38th Floor, New York, NY
10158. |
| (4) |
Based upon information provided by the shareholder in its Schedule 13G/A filed with the SEC on February 4, 2022. With respect to
the ordinary shares reported in the Schedule 13G/A, Sumitomo Mitsui Trust Holdings, Inc., or Sumitomo, indicated as having (i) no sole
voting or dispositive power with respect to ordinary shares and (ii) shared voting power and dispositive power with respect to 6,998,382
ordinary shares. Furthermore, in such filing Sumitomo indicated aggregate beneficial ownership of 6,998,382 ordinary shares. The address
of the principal business office of Sumitomo is 1-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan. |
| (5) |
Based upon information provided by the shareholder in its Form
13G filed with the SEC on November 19, 2021, and confirmation by the shareholder that such information is true and correct as of the date
of this Annual Report. With respect to the ordinary shares reported in its Schedule 13G, Bristol-Myers Squibb Company, or BMS, indicated
as having (i) sole voting power and dispositive power with respect to 4,757,058 ordinary shares, and (ii) no shared voting power nor shared
dispositive power with respect to ordinary shares. Furthermore, in such filing BMS indicated aggregate beneficial ownership of 4,757,058
ordinary shares. The address of the principal business office of BMS is 430 East 29th Street,
New York, NY 10016. |
B. RELATED PARTY TRANSACTIONS
Other than as set forth below and transactions related to compensation of our executive
officers and directors as described under “Item 6. Directors, Senior Management and Employees - B. Compensation,” since January
1, 2021, we have not entered into any related party transaction.
Indemnification and Exemption Agreements
Our Articles permit us to exculpate, indemnify and insure our Office Holders to the
fullest extent permitted by the Companies Law. Accordingly, we release our Office Holders from liability and indemnify them to the fullest
extent permitted by law and provide them with letters of indemnification and exemption and release for this purpose, in the form most
recently approved at our 2021 AGM. Under the letters of indemnification and exemption and release (i) our undertaking to indemnify each
Office Holder for monetary liabilities or obligations imposed by a court judgment (including a settlement or an arbitrator’s award
approved by a court) is limited to matters that result from or are connected to those events or circumstances set forth therein, and (ii)
the indemnification that we undertake towards all persons whom it resolved to indemnify for the matters and circumstances described therein,
jointly and in the aggregate, do not exceed the higher of the: (i) an amount equal to 25% of the Company’s shareholders’ equity,
per the most recent financial statements (audited or reviewed) after the time that notice is provided to the Company; or (y) $20 million.
97
Our Office Holders are also covered by directors’ and officers’ liability
insurance. For more information see “Item 6. Directors, Senior Management and Employees - B. Compensation - Insurance, Indemnification
and Exemption.”
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
Consolidated Financial Statements
Our consolidated financial statements are included beginning on page F-1 of this Annual
Report. See also “Item 18. Financial Statements.”
Legal Proceedings
Currently, we are not a party to any legal or arbitration proceedings, including governmental
proceedings, that are pending or known to be contemplated, that our management believes, individually or in the aggregate, may have, or
have had in the recent past, a significant effect on our financial position or profitability, nor are we party to any material proceeding
in which any director, member of our senior management or affiliate is a party adverse to us or our subsidiary or has a material interest
adverse to us or our subsidiary.
Dividend Distribution Policy
We have never paid any cash dividends on our ordinary shares, and we do not intend
to pay cash dividends on our ordinary shares in the foreseeable future. Our current policy is to retain any earnings we have (if any)
for use in our business.
In the event that we decide to pay a cash dividend from income that is tax exempt
under our Benefiting Enterprises program, we would be required to pay the applicable corporate tax that would otherwise have been payable
on such income which would be in addition to the tax payable by the dividend payee. See Note 9 to our 2021 consolidated financial statements
and “Item 10. Additional Information - E. Taxation.”
B. SIGNIFICANT CHANGES
Not applicable.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Our ordinary shares were listed on The Nasdaq Global Market through June 16, 2009.
On June 17, 2009, the listing of our ordinary shares was transferred from The Nasdaq Global Market to The Nasdaq Capital Market, and on
January 27, 2014, the listing of our ordinary shares transferred back from The Nasdaq Capital Market to The Nasdaq Global Market. Our
trading symbol on Nasdaq is CGEN. Our ordinary shares have been dually listed on the Tel Aviv Stock Exchange since January 2002. Our trading
symbol on each of The Nasdaq Global Market and the Tel Aviv Stock Exchange is CGEN.
B. PLAN OF DISTRIBUTION
Not applicable
C. MARKETS
Our ordinary shares are traded in the United States on The Nasdaq Global Market and
in Israel on the Tel Aviv Stock Exchange (TASE).
98
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
F. EXPENSES OF THE ISSUE
Not applicable
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Copies of our Amended and Restated Articles and our Amended and Restated Memorandum
of Association, as in effect as of the date of this Annual Report, are attached as Exhibits 1.1 and 1.2, respectively, to this Annual
Report. 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.
C. MATERIAL CONTRACTS
Please see “Item 4. Information on the Company - B. Business Overview - Business
Strategy and Partnerships - Bayer Collaboration, - Bristol Myers Squibb Collaboration, - AstraZeneca License” and “Item 5.
Operating and Financial Review and Prospects Finance - B. Liquidity and Capital Resources” for a discussion of our material contracts.
D. EXCHANGE CONTROLS
There are currently no exchange controls in effect in Israel that restrict the repatriation
by non-residents of Israel in non-Israeli currency of any dividends, if any are declared and paid, and liquidation distributions or the
Company’s ability to import and export capital, except that such restrictions may exist with respect to citizens of countries which
are in a state of war with Israel.
E. TAXATION
The following is a brief summary of certain material tax consequences concerning the
ownership and disposition of our ordinary shares by purchasers or holders of our ordinary shares. Because parts of this discussion are
based on new or existing tax or other legislation that has not been subject to judicial or administrative interpretation, there can be
no assurance that the views expressed herein will be accepted by the tax or other authorities in question. The summary below does not
address all of the tax consequences that may be relevant to all purchasers or holders of our ordinary shares in light of each purchaser’s
or holder’s particular circumstances and specific tax treatment. For example, the summary below does not address the tax treatment
of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders
of our ordinary shares should consult their own tax advisors as to United States, Israeli or other tax consequences of the purchase, ownership
and disposition of our ordinary shares. This discussion is not intended, nor should it be construed, as legal or professional tax advice
and it is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal advisor.
Israeli Taxation
Taxation of Capital Gains Applicable to Non-Israeli
Shareholders
Israeli law generally imposes a capital gains tax on the sale of securities of an
Israeli company traded on the TASE, on an authorized stock exchange outside Israel or on a regulated market (which includes a system through
which securities are traded pursuant to rules prescribed by the competent authority in the relevant jurisdiction) in or outside Israel,
or a “Recognized Exchange” (which includes Nasdaq). Pursuant to amendments to the Tax Ordinance, effective as of January 1,
2012, the capital gains tax rate applicable to individuals upon the sale of such securities is such individual’s marginal tax rate
but not more than 25%, or 30% with respect to an individual who meets the definition of a ‘Substantial Shareholder’ on the
date of the sale of the securities or at any time during the 12 months preceding such date. A ‘Substantial Shareholder’ is
defined as a person who, either alone or together with any other person, holds, directly or indirectly, at least 10% of any of the means
of control of a company (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).
99
With respect to corporate investors, capital gain tax equal to the corporate tax rate
(23% in 2021) will be imposed on the sale of our traded shares.
In addition, if our ordinary shares are traded on a Recognized Exchange gains on the
sale of our ordinary shares held by non-Israeli tax resident investors will generally be, subject to certain conditions, exempt from Israeli
capital gains tax so long as the shares were not held through a permanent establishment that the non-Israeli tax resident investor maintains
in Israel. Furthermore, non-Israeli corporations will not be entitled to such exemption
if Israeli residents, whether directly or indirectly, (i) hold more than 25% of the means of control in such non-Israeli corporation or
(ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such corporation.
Notwithstanding the foregoing, dealers in securities in Israel are taxed at regular
tax rates applicable to business income.
In addition, persons paying consideration for shares, including purchasers of shares,
Israeli securities dealers effecting a transaction, or a financial institution through which securities being sold are held, are required,
subject to any applicable exemptions and the demonstration by the selling shareholder of its non-Israeli residency and other requirements,
to withhold tax upon the sale of publicly traded securities at a rate of 25% for individuals and at the corporate tax rate (23% in 2021)
for corporations.
Israeli law also generally exempts non-Israeli residents from capital gains tax on
the sale of securities of Israeli companies that are not traded on stock exchange in Israel, provided that the securities were acquired
on or after January 1, 2009 and that (i) such gains are not generated through a permanent establishment that the non- Israeli resident
maintains in Israel; (ii) the shares were not purchased from a relative; (iii) the sale of shares is not subject to real estate tax.
Income Taxes on Dividend Distribution to Non-Israeli
Shareholders
In principle, non-Israeli residents (whether individuals or corporations) are generally
subject to Israeli income tax on the receipt of dividends paid by Israeli publicly traded companies at the rate of 25%, if the shares
are registered with a Nominee Company, which is a company incorporated to be a holder of record and distribution agent of publicly traded
or other securities in accordance with the Israeli Securities Law, and at the rate of 30% on dividends paid to Substantial Shareholders
and to persons who were Substantial Shareholders at any time during the 12 months
preceding the date of the distribution, whose shares are not registered with a Nominee Company, unless a lower rate is provided under
an applicable tax treaty between Israel and the shareholder’s country of residence (subject to the receipt, in advance, of a valid
tax certificate from the Israeli tax authority allowing for a reduced tax rate). The distribution of dividends to non-Israeli residents
(either individuals or corporations) from income derived from the Company’s Benefiting Enterprise during the applicable benefits
period is subject to withholding tax at a rate of 20%, unless a lower tax rate is provided under an applicable tax treaty.
A non-resident of Israel who has received dividend income derived from or accrued
in Israel, from which the full amount of tax was withheld, is generally exempt from the duty to file tax returns in Israel in respect
of such income, provided that: (i) such income was not derived from a business conducted in Israel by the taxpayer; (ii) the taxpayer
has no other taxable sources of income in Israel with respect to which a tax return is required to be filed; and (iii)
the taxpayer is not liable for surcharge tax.
Residents of the United States generally will have withholding tax in Israel deducted
at source. As discussed below, they may be entitled to a credit or deduction for U.S. federal income tax purposes for all or part of the
amount of the taxes withheld, subject to detailed rules contained in U.S. tax legislation.
U.S. Israel Tax Treaty
The Convention between the Government of the State of Israel and the Government of
the United States of America with Respect to Taxes on Income, or the Treaty, is generally effective as of January 1, 1995. Under the Treaty,
the maximum Israeli withholding tax on dividends paid to a holder of our ordinary shares who is a Treaty U.S. Resident (as defined below)
is generally 25%. However, pursuant to the Investment Law, dividends distributed by an Israeli company and derived from income eligible
for benefits under the Investment Law will generally be subject to a reduced dividend withholding tax rate, subject to the conditions
specified in the Treaty. The Treaty further provides that a 15% or a 12.5% Israeli dividend withholding tax will apply to dividends paid
to a U.S. corporation owning 10% or more of an Israeli company’s voting shares during, in general, the current and preceding tax
year of the Israeli company. The 15% rate applies to dividends distributed from income derived from an Approved Enterprise or, presumably,
from a Benefiting Enterprise, in each case within the applicable period or, presumably, from a Preferred Enterprise, and the lower 12.5%
rate applies to dividends distributed from income derived from other sources. However, these provisions do not apply if the company has
certain amounts of passive income. The aforementioned rates under the Treaty will not apply if the dividend income was derived through
a permanent establishment of the U.S resident in Israel.
100
Pursuant to the Treaty, the sale, exchange or disposition of our ordinary shares by
a person who qualifies as a resident of the United States within the meaning of the Treaty and who is entitled to claim the benefits afforded
to such residents under the Treaty, or a Treaty U.S. Resident, generally will not be subject to the Israeli capital gains tax, unless
such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting power of the Company during any
part of the 12-month period preceding such sale, exchange or disposition subject to certain conditions. A sale, exchange or disposition
of our ordinary shares by a Treaty U.S. Resident who holds, directly or indirectly, shares representing 10% or more of the voting power
of the Company at any time during such preceding 12-month period would not be exempt under the Treaty from Israeli capital gain tax; however,
under the Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against U.S. federal income tax imposed
on any gain from such sale, exchange or disposition, under the circumstances and subject to the limitations specified in the Treaty and
U.S. domestic law. As mentioned above, gains on the sale of ordinary shares held by non-Israeli tax resident investors will generally
be exempt from Israeli capital gains tax if the ordinary shares are traded on a Recognized Exchange. This exemption would generally apply
notwithstanding the Treaty (subject to the receipt in advance of a valid tax certificate from the Israeli tax authority allowing for such
exemption).
Surcharge Tax
Furthermore, beginning on January 1, 2013, an additional tax liability at the rate
of 3% (as of 2017 and currently) was added to the applicable tax rate on the annual taxable income, including, but not limited to, income
derived from dividends, interest and capital gains, of individuals who are subject to tax in Israel (whether any such individual is an
Israeli resident or non-Israeli resident) exceeding NIS 651,600 in 2020, NIS 647,640 in 2021 and NIS 663,240 in 2022.
Israeli Transfer Pricing Regulations
On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006,
promulgated under Section 85A of the Tax Ordinance, came into effect, or the TP Regulations. Section 85A of the Tax Ordinance and the
TP Regulations generally require that all cross-border transactions carried out between related parties be conducted on an arm’s
length principle basis and will be taxed accordingly. The TP Regulations have not had a material effect on the Company.
Certain Material U.S. Federal Income Tax Considerations
General
The following is a summary of certain material U.S. federal income tax considerations
for U.S. holders (as defined below) of owning, and disposing of our ordinary shares. For this purpose, a U.S. holder is, a holder, who
for U.S. federal income tax purposes is a beneficial owner of ordinary shares and who is: (a) a citizen or individual resident of the
United States; (b) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or the District of Columbia; (c) an estate the income of which is subject
to U.S. federal income tax regardless of its source; or (d) a trust that is subject to the primary supervision of a court over its administration
and one or more U.S. persons control all substantial decisions, or a trust that has validly elected to be treated as a domestic trust
under applicable Treasury Regulations. This summary does not address any tax consequences to persons other than U.S. holders.
Except where noted, this summary deals only with ordinary shares held as capital assets
within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment).
It does not address any tax consequences to certain types of U.S. holders that are subject to special treatment under the U.S. federal
income tax laws, such as banks, insurance companies, tax-exempt or governmental organizations, financial institutions, broker-dealers,
dealers in securities or currencies, traders in securities that elect to use the mark-to-market method of accounting for their securities,
S corporations, partnerships or other pass-through entities (or arrangements treated as a partnership) for U.S. federal tax purposes,
regulated investment companies, real estate investment trusts, expatriates, persons owning, directly, constructively or by attribution,
10% or more, by voting power or value, of our ordinary shares, persons whose “functional currency” is not the U.S. dollar,
persons holding ordinary shares as part of a hedging, constructive sale or conversion, straddle, or other risk-reducing transaction, certain
former U.S. citizens or long term residents of the United States, corporations that accumulate income to avoid U.S. federal income tax,
persons that received an interest in our ordinary shares through the exercise of an option or otherwise in exchange for services, or persons
holding our ordinary shares in connection with a trade or business, permanent establishment or fixed base outside the United States.
101
This summary is a general summary and does not address all aspects of U.S. federal
income taxation that may be relevant to particular U.S. holders based on their particular investment or tax circumstances.
This summary relates only to U.S. federal income taxes and does not address any other
tax, including but not limited to, state, local, or non-U.S. taxes and does not describe all of the U.S. federal income tax consequences
that may be relevant, including the special tax accounting rules under Section 451(b) of the Code, the U.S. federal non-income tax considerations,
including estate or gift tax considerations, the Medicare contribution tax and the alternative minimum tax.
If a partnership (including an entity or arrangement classified as a partnership for
U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of a partner (including a person classified as a partner
for U.S. federal income tax purposes) will generally depend upon the status of the partner and the activities of the partnership. A partner
of a partnership holding our ordinary shares should consult its tax advisors.
The statements in this summary are based on the current U.S. federal income tax laws
as contained in the Code, Treasury Regulations, and relevant judicial decisions and administrative guidance, all as of the date hereof,
and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those
discussed below. The U.S. federal tax laws are subject to change, and any such change may materially affect the U.S. federal income tax
consequences of purchasing, owning, or disposing of our ordinary shares. We cannot assure you that new laws, interpretations of law or
court decisions, any of which may take effect retroactively, will not cause any statement in this summary to be inaccurate. No ruling
or opinions of counsel will be sought in connection with the matters discussed herein. There can be no assurance that the positions we
take on our tax returns will be accepted by the U.S. Internal Revenue Service, or IRS.
This summary is not a substitute for careful tax planning. Prospective
investors are urged to consult their own tax advisors regarding the specific U.S. federal, state, foreign and other tax consequences to
them, in light of their own particular circumstances, of the purchase, ownership and disposition of our ordinary shares and the effect
of potential changes in applicable tax laws.
Passive Foreign Investment Company Rules
In general, a corporation organized outside the United States will be classified as
a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year in which, after the application
of certain look-through rules with respect to income and assets of its subsidiaries, either:
| • |
at least 75% of our gross income is passive income, or |
| • |
at least 50% of the value (determined on the basis of a quarterly weighted average) of our total assets for the taxable year produce
or are held for the production of passive income. |
For this purpose, passive income generally includes dividends, interest, royalties
and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person).
Assets that produce or are held for the production of passive income may include cash (unless held in a non-interest bearing account for
short term working capital needs), marketable securities and other assets that may produce passive income. The 50% passive asset test
described above is generally based on the fair market value of each asset, with the value of goodwill and going concern value determined
in large part by reference to the market value of our ordinary shares, which may be volatile. Generally,
in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it
owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Whether we are a PFIC for any taxable year
will depend on the composition of our income and the composition and value of our assets (which, may be determined in large part by reference
to the market price of the ordinary shares, which is likely to continue to fluctuate) in each year, and because this is a factual determination
made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC in any taxable year.
102
Based on our analysis of our estimated income, estimated assets, activities and market
capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2021, but we may be a PFIC in one or more
subsequent taxable years. The determination of whether or not we are a PFIC is a fact-intensive determination made on an annual basis
and the applicable law is subject to varying interpretation and we cannot provide any assurance regarding our PFIC status for the past,
current or future taxable years. In particular, our status as a PFIC in current of any future tax year is uncertain because, among other
things, (i) we currently own a substantial amount of passive assets, including cash, (ii) we may not receive milestone payments under
any of our collaboration agreements, in which case, our income may be exclusively passive, (iii) the valuation of our assets that generate
non-passive income for PFIC purposes, including our intangible assets, is uncertain and may be determined in substantial part by our market
capitalization, which may vary substantially over time, and (iv) the allocation of our goodwill between passive and non-passive for purposes
of the PFIC asset test is subject to uncertainty. Furthermore, there can be no assurance that the IRS will agree with our conclusion and
that the IRS would not successfully challenge our position. Accordingly, we cannot provide any assurances regarding our PFIC status for
the current or future taxable years. Our U.S. counsel expresses no opinion with respect to our PFIC status for any taxable year.
If we are classified as a PFIC in any taxable year during a U.S. holder’s holding
period of our ordinary shares, such U.S. holder could be liable for additional taxes and interest charges upon (1) a distribution paid
during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if
shorter, the U.S. holder’s holding period for the ordinary shares, and (2) any gain recognized on a sale, exchange or other taxable
disposition, including a pledge, of the ordinary shares, whether or not we continue to be a PFIC. In these circumstances, the tax will
be determined by allocating such distribution or gain ratably over the U.S. holder’s holding period for the ordinary shares. The
amount allocated to the current taxable year (i.e., the year in which the distribution occurs, or the gain is recognized) and any year
prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount
allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable,
to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to
the tax. If we are a PFIC for any year during which a U.S. holder holds the ordinary shares, we must generally continue to be treated
as a PFIC by that holder for all succeeding years during which the U.S. holder holds the ordinary shares, unless we cease to meet the
requirements for PFIC status and the U.S. holder makes a “deemed sale” election with respect to the ordinary shares. If such
election is made, the U.S. holder will be deemed to have sold the ordinary shares it holds at their fair market value on the last day
of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described
above. After the deemed sale election, the U.S. holder’s ordinary shares with respect to which the deemed sale election was made
will not be treated as shares in a PFIC unless we subsequently again become a PFIC.
If a U.S. holder has made a qualified electing fund, or QEF, election covering all
taxable years during which the holder holds ordinary shares and in which we are a PFIC, distributions and gains will not be taxed as described
above. Instead, a U.S. holder that makes a QEF election is required for each taxable year to include in income the holder’s pro
rata share of the PFIC’s ordinary earnings as ordinary income and net capital gain as capital gain, regardless of whether such earnings
or gain have in fact been distributed, for each taxable year that the entity is classified as a PFIC. If
a U.S. holder makes a QEF election with respect to us, any distributions paid by us out of our earnings and profits that were previously
included in the U.S. holder’s income under the QEF election would not be taxable to the holder. A U.S. holder will increase its
tax basis in its ordinary shares by an amount equal to any income included under the QEF election and will decrease its tax basis by any
amount distributed on the ordinary shares that is not included in the holder’s income. If a U.S. holder has made a QEF election
with respect to its ordinary shares, any gain or loss recognized by the U.S. holder on a sale or other disposition of such ordinary shares
will constitute capital gain or loss. In addition, if a U.S. holder makes a timely QEF election, our ordinary shares will not be considered
shares in a PFIC in years in which we are not a PFIC, even if the U.S. holder had held ordinary shares in prior years in which we were
a PFIC. U.S. holders should consult their tax advisors regarding making QEF elections in their particular circumstances. If a U.S. holder
does not make and maintain a QEF election for the U.S. holder’s entire holding period for our ordinary shares by making the election
for the first year in which the U.S. holder owns our ordinary shares, the U.S. holder will be subject to the adverse PFIC rules discussed
above unless the U.S. holder can properly make a “purging election” with respect to our ordinary shares in connection with
the U.S. holder’s QEF election. A purging election may require the U.S. holder to recognize taxable gain on the U.S. holder’s
ordinary shares.
103
In order to comply with the requirements of a QEF election, a U.S. holder must receive
certain information from us. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of
the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621, including the information provided in the PFIC annual
information statement, to a timely filed U.S. federal income tax return and by filing a copy of the form with the IRS. There is no assurance
that we will provide the information required by the IRS in order to enable U.S. holders to make the QEF election. Moreover, there is
no assurance that we will have timely knowledge of our status as a PFIC in the future. Accordingly, U.S. holders may be unable to make
a timely QEF election with respect to our ordinary shares.
The tax consequences that would apply if we are a PFIC would also be different from
those described above if a timely and valid “mark-to-market” election is made by a U.S. holder for the ordinary shares held
by such U.S. holder. An electing U.S. holder would generally take into account as ordinary income or loss each year an amount equal to
the difference between the U.S. holder’s adjusted tax basis in such ordinary shares and their fair market value; however, losses
would be allowed only to the extent of the excess of amounts previously included in income over ordinary losses deducted in prior years
as a result of the mark-to-market election. The adjusted tax basis of a U.S. holder’s ordinary shares is increased by the amount
included in gross income under the mark-to-market regime, or is decreased by the amount of the deduction allowed under the regime. Any
gain from a sale, exchange or other taxable disposition of the ordinary shares in any taxable year in which we are a PFIC would be treated
as ordinary income and any loss from such sale, exchange or other taxable disposition would be treated first as ordinary loss (to the
extent of any net mark-to-market gains previously included in income) and thereafter as capital loss. If a U.S. holder makes a mark-to-market
election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the shares are
no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election.
A mark-to-market election is available to a U.S. holder only for “marketable
stock.” Generally, stock will be considered marketable stock if it is “regularly traded” on a “qualified exchange”
within the meaning of applicable Treasury Regulations. A class of stock is regularly traded during any calendar year during which such
class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. The ordinary shares will
be marketable stock as long as they remain listed on a qualified exchange, such as Nasdaq, and are regularly traded. However, we can provide
no assurances that our ordinary shares will continue to be listed on a qualified exchange or will be regularly traded. A mark-to-market
election will not apply to the ordinary shares for any taxable year during which we are not a PFIC but will remain in effect with respect
to any subsequent taxable year in which we become a PFIC. Once made, the election cannot be revoked without the consent of the IRS, unless
the ordinary shares cease to be marketable. U.S. holders are urged to consult their tax advisor about the availability of the mark-to-market
election, and whether making the election would be advisable in such holder’s particular circumstances.
If we are a PFIC and, at any time, have a non-U.S. subsidiary that is classified as
a PFIC (a “lower-tier” PFIC), U.S. holders of our ordinary shares generally would be deemed to own, and also would be subject
to the PFIC rules with respect to, their indirect ownership interests in that lower-tier PFIC. If we are a PFIC and a U.S. holder of our
ordinary shares does not make a QEF election in respect of a lower-tier PFIC, the U.S. holder could incur liability for the deferred tax
and interest charge described above if either (1) we receive a distribution from, or dispose of all or part of our interest in, the lower-tier
PFIC or (2) the U.S. holder disposes of all or part of its ordinary shares. There is no assurance that any lower-tier PFIC will provide
to a U.S. holder the information that may be required to make a QEF election with respect to the lower-tier PFIC. A mark-to-market election
under the PFIC rules with respect to our ordinary shares would not apply to a lower-tier PFIC, and a U.S. holder would not be able to
make such a mark-to-market election in respect of its indirect ownership interest in that lower-tier PFIC. Consequently, U.S. holders
of our ordinary shares could be subject to the PFIC rules with respect to income of the lower-tier PFIC the value of which already had
been taken into account indirectly via mark-to-market adjustments. U.S. holders are urged to consult their own tax advisors regarding
the issues raised by lower-tier PFICs.
Each U.S. holder who is a shareholder of a PFIC must file an annual information report
on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result
in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
THE RULES DEALING WITH PFICS AND WITH THE QEF AND MARK-TO-MARKET
ELECTIONS ARE VERY COMPLEX AND ARE AFFECTED BY VARIOUS FACTORS IN ADDITION TO THOSE DESCRIBED ABOVE, INCLUDING OUR OWNERSHIP OF ANY NON-U.S.
SUBSIDIARIES. AS A RESULT, U.S. HOLDERS OF ORDINARY SHARES ARE STRONGLY ENCOURAGED TO CONSULT THEIR TAX ADVISORS ABOUT THE PFIC RULES
IN CONNECTION WITH THEIR PURCHASING, HOLDING OR DISPOSING OF ORDINARY SHARES.
104
U.S. Federal Income Tax Consequences
If We Are Not a PFIC.
The description of the U.S. federal income tax consequences of the receipt of distributions
and the sale or other taxable exchange of our ordinary shares, described in the following two section “-Distributions”
and “-Disposition of Ordinary Shares,” apply only if we are not a PFIC in the relevant year and our share is not subject to
the rules described above under “-Passive Foreign Investment Company Rules” because
we were a PFIC with respect to a U.S. holder and its ordinary shares in a prior year.
Distributions
Subject to the discussion under “- Passive Foreign Investment Company Rules”
above, the gross amount of any distributions with respect to our ordinary shares (including any amounts withheld to reflect Israeli withholding
taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles. Such income (including any withheld taxes) will be includable in a U.S. holder’s gross income as
ordinary income on the day actually or constructively received. Distributions in
excess of earnings and profits will be non-taxable to the U.S. holder to the extent of, and will be applied against and reduce (but not
below zero), the U.S. holder’s adjusted tax basis in the ordinary shares. Distributions in excess of earnings and profits and such
adjusted tax basis will generally be taxable to the U.S. holder as described below under “Disposition
of Ordinary Shares.” However, since we do not calculate our earnings and profits under U.S. federal income tax principles,
it is expected that any distribution will be reported as a dividend, even if that distribution would otherwise be treated as a non-taxable
return of capital or as capital gain under the rules described above. The amount of any dividend paid by us will be treated as foreign-source
dividend income to U.S. holders, and the dividends received deduction will not be available to a U.S. holder that is taxed as a corporation
as a result.
With respect to non-corporate U.S. holders, certain dividends received from a “qualified
foreign corporation” that is not a PFIC may be subject to reduced rates of taxation. A qualified foreign corporation includes a
foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the United States
Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The United
States Treasury Department has determined that the US-Israel Tax Treaty meets these requirements. A foreign corporation is also treated
as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established
securities market in the United States. As discussed under “- Passive Foreign Investment Company Rules” above, there can be
no assurance that our ordinary shares will be considered readily tradable on an established securities market in any year. If we are a
qualified foreign corporation, and we are not classified as a PFIC for the taxable year in which a dividend is paid or in the preceding
taxable year (as discussed above under “- Passive Foreign Investment Company Rules”), dividend income will generally qualify
as “qualified dividend income” in the hands of individual U.S. holders, which is generally taxed at the lower applicable long
term capital gains rates, provided certain holding period and other requirements for treatment of such dividends as “qualified dividend
income” are satisfied. U.S. holders should consult their own tax advisors regarding the availability of the lower rate for dividends
paid with respect to our ordinary shares.
Although, to the extent we pay dividends in the future, we intend to pay dividends
to U.S. holders in U.S. dollars, the amount of any dividend paid in Israeli currency will equal its U.S. dollar value for U.S. federal
income tax purposes, calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. holder, regardless
of whether the Israeli currency is converted into U.S. dollars. If the Israeli currency received as a dividend are converted into United
States dollars on the date they are received, the U.S. holder generally will not be required to recognize foreign currency gain or loss
in respect of the dividend income. If the Israeli currency is not converted into U.S. dollars on the date of receipt, the U.S. holder
will have a basis in the Israeli currency equal to its U.S. dollar value on the date of receipt. Any subsequent gain or loss upon the
conversion or other disposition of the Israeli currency will be treated as ordinary income or loss, and generally will, for U.S. federal
income tax purposes, be treated as income or loss from U.S. sources.
105
Certain U.S. holders generally may claim Israeli taxes withheld from distributions
and paid over to the Israeli taxing authorities either as a deduction from gross income or as a credit against U.S. federal income tax
liability. To the extent a refund of the tax withheld is available to a U.S. holder under Israeli law or under the Treaty, the amount
of tax withheld that is refundable will not be eligible for credit against a U.S. holder’s United States federal income tax liability.
The foreign tax credit is subject to numerous complex limitations that must be determined and applied on an individual basis. U.S. holders
should consult their own tax advisors regarding the foreign tax credit rules.
Disposition of Ordinary Shares
In general, subject to the discussion under “- Passive Foreign Investment Company
Rules”, above, a U.S. holder will recognize U.S. source capital gain or loss upon a taxable disposition of an ordinary share equal
to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition (including
the amount of any foreign taxes withheld therefrom) and the U.S. holder’s adjusted tax basis in such share. A U.S. holder’s
adjusted tax basis generally will equal the U.S. holder’s acquisition cost less any distributions treated as a return of capital
as described under “- Distributions” above. Such capital gain or loss will be long-term capital gain or loss if a U.S. holder’s
holding period in the ordinary share is more than one year at the time of the taxable disposition. Under current law, subject to certain
exceptions (including but not limited to those described under “- Passive Foreign Investment Company Rules” above), long-term
capital gain realized by a non-corporate U.S. holder generally will be eligible for reduced rates of tax. The deduction of capital losses
may be subject to limitation. U.S. holders should consult their own independent tax advisors regarding the foreign tax credit rules with
respect to any foreign taxes withheld from a taxable disposition of ordinary shares, as well as regarding any foreign currency gain or
loss in connection with such a disposition.
Backup Withholding and Information Reporting
In general, information reporting will apply to dividends in respect of our ordinary
shares and the proceeds from the sale, exchange or redemption of our ordinary shares that are paid to a U.S. holder within the United
States (and in certain cases, outside the United States), unless such holder is an exempt recipient. A backup withholding tax generally
will apply to such payments if the U.S. holder fails to provide a taxpayer identification number and a duly executed IRS Form W-9 or certification
of other exempt status or, in the case of dividend payments, fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a refund
or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is furnished to the Internal
Revenue Service in a timely manner.
Individuals who own “specified foreign financial assets” with an aggregate
value in excess of $50,000 may be required to file an information report on IRS Form 8938, “Statement of Specified Foreign Financial
Assets,” with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial
accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained
by financial institutions: (i) stocks and securities issued by non-U.S. persons; (ii) financial instruments and contracts held for investment
that have non-U.S. issuers or counterparties; and (iii) interests in foreign entities. U.S. holders that are individuals are urged to
consult their tax advisors regarding the application of these rules to their ownership of our ordinary shares.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are required to file reports and other information with the SEC under the Exchange
Act, and the regulations thereunder applicable to foreign private issuers. As a
“foreign private issuer” we are exempt from the rules and regulations under the Securities Exchange Act prescribing the furnishing
and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing”
profit recovery provisions contained in Section 16 of the Securities Exchange Act, with respect to their purchase and sale of our shares.
In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies
whose securities are registered under the Securities Exchange Act. Nasdaq rules generally require that companies send an annual report
to shareholders prior to the annual general meeting, however we rely upon an exception under the Nasdaq Listing Rules and follow the generally
accepted business practice for companies in Israel. Specifically, we file annual reports on Form 20-F, which contain financial statements
audited by an independent accounting firm, electronically with the SEC and post a copy on our website. We also furnish to the SEC reports
on Form 6-K containing unaudited financial information after the end of each of the first three quarters.
106
You may review a copy of our filings with the SEC, including any exhibits and schedules,
at the offices of the Israel Securities Authority at 22 Kanfei Nesharim St., Jerusalem, Israel. As a foreign private issuer, we were only
required to file through the SEC’s EDGAR system as of November 2002. Our periodic filings are therefore available on the SEC’s
Website www.sec.gov from that date. You may read and copy any reports, statements or other information
that we file with the SEC, through the SEC’s EDGAR system available on the SEC’s website. These SEC filings are also available
to the public on the Israel Securities Authority’s website at www.isa.gov.il and from commercial
document retrieval services.
Any statement in this Annual Report about any of our contracts or other documents
is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed
to modify the description contained in this Annual Report. We urge you to review the exhibits themselves for a complete description of
the contract or document.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including changes in interest rates and foreign
currency exchange risk and inflation.
Interest Rate Risk
As of December 31, 2021, we had approximately $117.8 million in cash, cash equivalents,
restricted cash and short-term bank deposits. We mostly invest our cash surplus in bank deposits. Since these investments typically carry
fixed interest rate, financial income over the holding period is not sensitive to changes in interest rates. For more information, see
Note 2 to our 2021 consolidated financial statements.
Foreign Currency Exchange Risk and Inflation
The cost of our Israel operations, as expressed in U.S. dollars, is influenced by
the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of
the NIS in relation to the U.S. dollar. The inflation rate in Israel was 2.8%, (0.7%) and 0.6% in 2021, 2020 and 2019, respectively. The
devaluation of the U.S. dollar against the NIS was 3.3%, 7.0% and 7.8% in 2021, 2020 and 2019, respectively. For 2021, assuming a 10%
devaluation of the U.S. dollar against the NIS, we would experience an increase in our net loss of approximately $1.5 million, while assuming
a 10% appreciation of the U.S. dollar against the NIS, we would experience a decrease in our net loss of approximately $1.2 million. A
significant portion of our expenditures is employee compensation related. Salaries for Israel-based employees are paid in NIS and may
be adjusted for changes in the Israeli consumer price index, or CPI, through salary increases or adjustments. These upward adjustments
increase salary expenses in U.S. dollar terms. The devaluation/appreciation of the NIS against the U.S. dollar decreases/increases employee
compensation expenditures as expressed in dollars proportionally. Some of our other NIS based expenses are either currently adjusted to
U.S. dollars or are adjusted to the CPI. We currently have no foreign currency derivative contracts to hedge against currency exchange
risk fluctuation but may consider entering into such contracts in the future. For more information, see Note 2 of our 2021 consolidated
financial statements.
ITEM 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
Not applicable.
107
PART II
ITEM 13. DEFAULTS, DIVIDEND
ARREARAGES AND DELINQUENCIES
None.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
A. DISCLOSURE CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to ensure that information required
to be disclosed in the reports we are required to file is recorded, processed, summarized and reported on a timely basis. Under the supervision
of our chief executive officer (principal executive officer) and chief financial officer (principal financial officer), we conducted an
evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e)
promulgated under the Exchange Act. Based on this evaluation, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this Annual Report.
B. MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Our management, with the involvement of our board of directors and audit committee,
is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting (as defined in Rules 13a-15(e) and 15(d) - 15(e) of the Exchange Act) has been designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance
with generally accepted accounting principles.
Under the supervision of our chief executive officer (principal executive officer)
and chief financial officer (principal financial officer), our management conducted an evaluation of the effectiveness of our internal
control over financial reporting, as such term is defined under Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. In making
this assessment, our management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, our chief executive officer and chief financial officer have
concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report.
Notwithstanding the foregoing, all internal control systems no matter how well designed
have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide
only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Kost Forer Gabbay & Kasierer, a member firm of Ernst & Young Global, an independent
registered public accounting firm in Israel, which has audited our financial statements for the year ended December 31, 2021 that
are included in this Annual Report, has issued an attestation report on our internal control over financial reporting as of December 31,
2021.
C. ATTESTATION REPORT OF THE REGISTERED PUBLIC
ACCOUNTING FIRM
The attestation report of Kost Forer Gabbay & Kasierer, a member firm of Ernst
& Young Global, an independent registered public accounting firm in Israel, on our internal control over financial reporting as of
December 31, 2021 is provided on page F-4, as included under Item 18 of this Annual Report and is incorporated herein by reference.
D. CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
Based on the evaluation conducted by our management, with the participation of our
chief executive officer and chief financial officer, pursuant to Rules 13a-15(d) and 15d-15(d) promulgated under the Exchange Act, our
management (including such officers) have concluded that, there were no changes in our internal control over financial reporting that
occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
108
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE
FINANCIAL EXPERT
Our board of directors has determined that each of Mr. Gilead Halevy, Mr. Eran Perry
and Mr. Sanford (Sandy) Zweifach, each of whom serves on our audit committee and who meets the “independence” definition under
the Nasdaq Listing Rules, qualifies as an “audit committee financial expert” as defined in the instructions to this Item 16A
of Form 20-F.
ITEM 16B. CODE OF ETHICS
We have adopted a code of business conduct that applies to all of our employees, officers
and directors as well as a code of ethics for senior financial officers that applies to our chief executive officer, chief financial officer,
director of finance, controller, assistant controller and persons performing similar functions at our subsidiary.
The code of ethics for senior financial officers is available on our website, www.cgen.com.
However, information contained on our website does not constitute a part of this Annual Report.
We intend to post on our website all disclosures that are required by the rules and
regulations of the SEC or by the Nasdaq Listing Rules concerning any amendments to, or waivers from, any provision of the code of business
conduct or the code of ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The following table presents the fees billed or accrued to us by our principal accountant
for professional services rendered in the years ended December 31, 2021 and 2020:
|
2021
|
2020
|
|||||||
|
Audit Fees |
$ |
133,000 |
$ |
133,000 |
||||
|
Audit Related Fees |
$ |
25,000 |
$ |
75,000 |
||||
|
Tax Fees |
$ |
4,500 |
$ |
4,500 |
||||
|
All Other Fees |
$ |
2,500 |
$ |
2,500 |
||||
|
Total |
$ |
165,000 |
$ |
215,000 |
||||
“Audit Fees” are fees for professional services rendered by our principal
accountant in connection with the integrated audit (including review of internal control over financial reporting) of our consolidated
annual financial statements and review of our unaudited interim financial statements;
“Audit Related Fees” are fees for professional services rendered by our
principal accountant in connection with the audit and other assignments, including consultancy and consents with respect to an underwritten
public offering and related prospectus supplements filed with the SEC;
“Tax Fees” are fees for services rendered by our principal accountant
in connection with tax compliance, tax advice and tax planning which in years 2021 and 2020 were consultancy relating to withholding tax
on payments to foreign suppliers and annual Israeli tax reports; and
“All Other Fees” are fees for other consulting services rendered by our
principal accountant to us.
Pre-Approval Policies for non-Audit Services
Our audit committee is in charge of a policy and procedures for approval of audit
and non-audit services rendered by our external auditor. This policy generally provides that we will not engage our independent registered
public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by our audit committee
or the engagement is entered into pursuant to the pre-approval procedure described below. Annually, our audit committee pre-approves specified
types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months.
Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum
dollar amount. All of the fees listed in the table above were approved by our audit committee.
109
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
The Nasdaq Listing Rules require companies with securities listed thereon to comply
with its corporate governance standards. As a foreign private issuer whose shares are listed on Nasdaq, we are permitted to follow certain
home country corporate governance practices instead of those followed by U.S. companies under the Nasdaq Listing Rules, including:
Shareholder Approval.
Pursuant to Israeli law, we seek shareholder approval for all corporate actions requiring such approval under the requirements of the
Companies Law, which are different from the requirements for seeking shareholder approval under Nasdaq Listing Rule 5635. We seek shareholder
approval in specified situations, including upon issuance of options to directors in their capacity as directors, as required by Israeli
law.
Quorum at an Adjourned General Meeting of Shareholders.
Consistent with Israeli law, generally, a quorum for an adjourned general meeting of shareholders of the Company is any two shareholders
present in person, by proxy, by proxy card or by electronic vote at such meeting. As such, the Israeli quorum requirements for an adjourned
meeting are different from the Nasdaq requirement that an issuer listed on Nasdaq have a quorum requirement that in no case be less than
33 1/3% of the outstanding shares of the company’s common voting stock.
Distribution of Annual Reports.
We have chosen to follow our home country practice in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating to an issuer’s
furnishing of its annual report to shareholders. Specifically, we file annual reports on Form 20-F, which contain financial statements
audited by an independent accounting firm, electronically with the SEC and post a copy on our website.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING
FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and related notes are included in this Annual
Report beginning on page F-1.
110
ITEM 19.
EXHIBITS
Index to Exhibits
|
Exhibit Number |
Description |
111
|
101* |
The following financial information from Compugen Ltd.’s Annual Report on Form
20-F for the year ended December 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements
of Operations for the years ended December 31, 2021, 2020 and 2019; (ii) Consolidated Balance Sheets as of December 31, 2021 and 2020;
(iii) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019; (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019; and (v) Notes to Consolidated Financial Statements.
|
|
101.INS |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
101.CAL |
Inline XBRL Taxonomy Calculation Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Label Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
104 |
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101). |
| * |
Filed herewith. |
| @ |
Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions. |
| # |
Portions of this exhibit (indicated by asterisks therein) have been omitted as these portions are both not material and confidential.
|
112
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing this Amendment No. 1 and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
COMPUGEN LTD.
Signature:
/s/ Dr. Anat Cohen-Dayag
Name: Dr. Anat Cohen-Dayag
Title: President and Chief Executive Officer,
Director
Date: February 28, 2022 |
113
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
U.S. DOLLARS IN THOUSANDS
INDEX
|
Page | |
|
| |
|
F-2 – F-4 |
(PCAOB ID:
|
F-5 – F-6 | |
|
| |
|
F-7 | |
|
| |
|
F-8 | |
|
| |
|
F-9 – F-10 | |
|
| |
|
F-11 – F-38 | |
|
|
|
|
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel |
Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
COMPUGEN LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Compugen Ltd. and its subsidiary (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F - 2
|
|
|
Accrued pre-clinical and clinical trial expenses | ||
|
Description of the matter |
As discussed in Note 2(k) to the consolidated financial statements, the Company records costs for pre-clinical and clinical trial activities based upon estimates of costs incurred through the balance sheet date that have yet to be invoiced by the contract research organizations and other vendors.
Auditing the Company’s accruals for pre-clinical and clinical trial activities is challenging due to the fact that information necessary to estimate the accruals for the services that have been received during the reporting period is accumulated from multiple sources such as Company’s operations personnel that oversee the pre-clinical and clinical trial activities, information from service providers and terms and conditions included in the contracts with the service providers. In addition, in certain circumstances, the determination of the nature and level of services that have been received during the reporting period requires judgment because the timing and pattern of vendor invoicing does not correspond to the level of services provided and there may be delays in invoicing from pre-clinical and clinical study sites and other vendors. | |
|
How we addressed the matter in our audit |
We obtained an understanding of, evaluated the design and tested the operating effectiveness of internal controls that addressed the identified risks related to the Company’s process for recording accrued pre-clinical and clinical trial expenses.
To test the pre-clinical and clinical trial accruals, our audit procedures included, among others, reviewing a sample of agreements with the service providers to corroborate key terms and conditions and testing the accuracy and completeness of the underlying data used in the accrual computations. We also evaluated management’s estimates of the progress of a sample of pre-clinical and clinical trial activities by making direct inquiries of the Company’s operations personnel that oversee the pre-clinical and clinical trial activities and obtaining information directly from certain service providers which indicated the progress of pre-clinical and clinical trial completed through the balance sheet date and compared that to the Company’s accrual computations. To evaluate the completeness of the accruals, we also examined subsequent invoices from the service providers and cash disbursements to the service providers, to the extent such invoices were received, or payments were made prior to the date that the consolidated financial statements were issued. |
/s/KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company’s auditor since 2002
Tel-Aviv, Israel
February 28, 2022
F - 3
|
|
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel |
Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
COMPUGEN LTD.
Opinion on Internal Control over Financial Reporting
We have audited Compugen Ltd. and its subsidiary’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Compugen Ltd. and its subsidiary (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020 and the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
A Member of Ernst & Young Global
February 28, 2022
F - 4
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
|
|
|
December 31, | ||||||||
|
Note |
|
|
2021 |
|
|
2020 | |||||
|
ASSETS | |||||||||||
|
| |||||||||||
|
CURRENT ASSETS: | |||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
| |||||||
|
Restricted cash |
|
| |||||||||
|
Short-term bank deposits |
|
| |||||||||
|
Trade receivables |
|
| |||||||||
|
Other accounts receivable and prepaid expenses |
3 |
|
| ||||||||
|
| |||||||||||
|
Total current assets |
|
| |||||||||
|
| |||||||||||
|
NON-CURRENT ASSETS: | |||||||||||
|
Long-term prepaid expenses |
|
| |||||||||
|
Severance pay fund |
|
| |||||||||
|
Operating lease right of use asset |
4 |
|
| ||||||||
|
Property and equipment, net |
5 |
|
| ||||||||
|
| |||||||||||
|
Total non- current assets |
|
| |||||||||
|
| |||||||||||
|
Total assets |
$ |
|
$ |
| |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
|
|
December 31, | ||||||||
|
Note |
|
|
2021 |
|
|
2020 | |||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
|
| |||||||||||
|
CURRENT LIABILITIES: | |||||||||||
|
Trade payables |
$ |
|
$ |
| |||||||
|
Short-term deferred participation in R&D expenses |
|
| |||||||||
|
Current maturity of operating lease liability |
4 |
|
| ||||||||
|
Other accounts payable and accrued expenses |
6 |
|
| ||||||||
|
| |||||||||||
|
Total current liabilities |
|
| |||||||||
|
| |||||||||||
|
NON- CURRENT LIABILITIES: | |||||||||||
|
Long-term deferred participation in R&D expenses |
|
| |||||||||
|
Long-term operating lease liability |
|
| |||||||||
|
Accrued severance pay |
|
| |||||||||
|
| |||||||||||
|
Total non-current liabilities |
|
| |||||||||
|
| |||||||||||
|
COMMITMENTS AND CONTINGENT LIABILITIES |
7 | ||||||||||
|
| |||||||||||
|
SHAREHOLDERS’ EQUITY: |
8 | ||||||||||
|
Share capital: | |||||||||||
|
Ordinary shares of NIS |
|
| |||||||||
|
Additional paid-in capital |
|
| |||||||||
|
Accumulated deficit |
( |
) |
( |
) | |||||||
|
| |||||||||||
|
Total shareholders’ equity |
|
| |||||||||
|
| |||||||||||
|
Total liabilities and shareholders’ equity |
$ |
|
$ |
| |||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share and per share data)
|
Year ended December 31, | |||||||||||||||
|
Note |
2021 |
2020 |
2019 | ||||||||||||
|
| |||||||||||||||
|
Revenue |
$ |
|
$ |
|
$ |
| |||||||||
|
Cost of revenue |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Gross profit |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Operating expenses: | |||||||||||||||
|
| |||||||||||||||
|
Research and development expenses, net |
|
|
| ||||||||||||
|
Marketing and business development expenses |
|
|
| ||||||||||||
|
General and administrative expenses |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Total operating expenses |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Operating loss |
( |
) |
( |
) |
( |
) | |||||||||
|
| |||||||||||||||
|
Financial and other income, net |
11 |
|
|
| |||||||||||
|
| |||||||||||||||
|
Loss before taxes on income |
( |
) |
( |
) |
( |
) | |||||||||
|
Taxes on income |
9 |
|
|
| |||||||||||
|
| |||||||||||||||
|
Net loss |
( |
) |
( |
) |
( |
) | |||||||||
|
| |||||||||||||||
|
Basic net loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
| |||||||||||||||
|
Diluted net loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
| |||||||||||||||
|
Total comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
| |||||||||||||||
|
Weighted average number of ordinary shares used in computing basic net loss per share |
|
|
| ||||||||||||
|
| |||||||||||||||
|
Weighted average number of ordinary shares used in computing diluted net loss per share |
|
|
| ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
COMPUGEN LTD. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands (except share data)
|
Ordinary shares |
Additional paid-in |
Accumulated |
Total shareholders’ | |||||||||||||||||
|
Number |
Amount |
capital |
deficit |
equity | ||||||||||||||||
|
| ||||||||||||||||||||
|
Balance as of January 1, 2019 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||||||
|
| ||||||||||||||||||||
|
Options exercised |
|
|
|
- |
| |||||||||||||||
|
Issuance of shares and warrants, net |
|
|
|
- |
| |||||||||||||||
|
Stock-based compensation relating to options issued to employees, directors and non-employees |
- |
- |
|
- |
| |||||||||||||||
|
Net loss |
- |
- |
- |
( |
) |
( |
) | |||||||||||||
|
| ||||||||||||||||||||
|
Balance as of December 31, 2019 |
|
|
|
( |
) |
| ||||||||||||||
|
| ||||||||||||||||||||
|
Options exercised |
|
|
|
- |
| |||||||||||||||
|
Warrants exercised |
|
|
|
- |
| |||||||||||||||
|
Issuance of shares, net |
|
|
|
- |
| |||||||||||||||
|
Stock-based compensation relating to options issued to employees, directors and non-employees |
- |
- |
|
- |
| |||||||||||||||
|
Net loss |
- |
- |
- |
( |
) |
( |
) | |||||||||||||
|
| ||||||||||||||||||||
|
Balance as of December 31, 2020 |
|
|
|
( |
) |
| ||||||||||||||
|
| ||||||||||||||||||||
|
Exercise of options and ESPP shares |
|
|
|
- |
| |||||||||||||||
|
Warrants exercised |
|
( |
) |
|
- |
| ||||||||||||||
|
Issuance of shares, net |
|
|
|
- |
| |||||||||||||||
|
Stock-based compensation issued to employees, directors and non-employees |
- |
- |
|
- |
| |||||||||||||||
|
Net loss |
- |
- |
- |
( |
) |
( |
) | |||||||||||||
|
| ||||||||||||||||||||
|
Balance as of December 31, 2021 |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
| ||||||||||
(*)
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Cash flows from operating activities: | ||||||||||||
|
| ||||||||||||
|
Net loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||||||
|
Stock-based compensation |
|
|
| |||||||||
|
Depreciation |
|
|
| |||||||||
|
Increase (decrease) in severance pay, net |
( |
) |
|
( |
) | |||||||
|
Gain from property and equipment sales and disposals |
( |
) |
( |
) |
( |
) | ||||||
|
Decrease (increase) in interest receivables from short-term bank deposits |
|
( |
) |
| ||||||||
|
Decrease (increase) in trade receivables |
|
( |
) |
| ||||||||
|
Increase in other accounts receivable and prepaid expenses |
( |
) |
( |
) |
( |
) | ||||||
|
Decrease (increase) in long-term prepaid expenses |
( |
) |
( |
) |
| |||||||
|
Decrease in operating lease right of use asset |
|
|
| |||||||||
|
Increase (decrease) in trade payables and other accounts payable and accrued expenses |
|
|
( |
) | ||||||||
|
Increase (decrease) in deferred participation in R&D expenses |
|
( |
) |
( |
) | |||||||
|
Decrease in operating lease liability |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Net cash used in operating activities |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
Cash flows from investing activities: | ||||||||||||
|
| ||||||||||||
|
Proceeds from maturity of short-term bank deposits |
|
|
| |||||||||
|
Investment in short-term bank deposits |
( |
) |
( |
) |
( |
) | ||||||
|
Purchase of property and equipment |
( |
) |
( |
) |
( |
) | ||||||
|
Proceeds from sale of property and equipment |
|
|
| |||||||||
|
| ||||||||||||
|
Net cash provided by (used in) investing activities |
|
( |
) |
| ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
COMPUGEN LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
Year ended December 31, | ||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 | ||||||
|
Cash flows from financing activities: | ||||||||||||
|
| ||||||||||||
|
Proceeds from issuance of ordinary shares, net |
|
|
| |||||||||
|
Proceeds from exercise of warrants |
|
|
| |||||||||
|
Proceeds from exercise of stock-based awards |
|
|
| |||||||||
|
| ||||||||||||
|
Net cash provided by financing activities |
|
|
| |||||||||
|
| ||||||||||||
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
( |
) |
| ||||||||
|
Cash, cash equivalents and restricted cash at the beginning of the year |
|
|
| |||||||||
|
| ||||||||||||
|
Cash and cash equivalents and restricted cash at the end of the year |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
|
| ||||||||||||
|
Purchase of property and equipment |
$ |
|
$ |
|
$ |
| ||||||
|
Receivables on account of shares |
$ |
|
$ |
|
$ |
| ||||||
|
Right-of-use asset obtained in exchange for operating lease liability |
$ |
|
$ |
( |
) |
$ |
| |||||
|
| ||||||||||||
|
Cash paid (received) during the year for: | ||||||||||||
|
| ||||||||||||
|
Interest payments received from short-term bank deposits and cash equivalents |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||
|
| ||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ |
| ||||||
|
Restricted cash |
|
|
| |||||||||
|
| ||||||||||||
|
Total cash, cash equivalents and restricted cash |
$ |
|
$ |
|
$ |
| ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F - 10
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1: -GENERAL
a.Compugen Ltd. (the “Company”) is a clinical-stage therapeutic discovery and development company utilizing its broadly applicable predictive computational discovery capabilities to identify novel drug targets and new biological pathways to develop therapeutics in the field of cancer immunotherapy. Compugen’s innovative immuno-oncology pipeline consists of four clinical stage programs, targeting immune checkpoints Compugen discovered computationally, COM701, COM902, bapotulimab (formerly known as BAY1905254) and AZD2936. The Company’s lead product candidate, COM701, a potential first-in-class anti-PVRIG antibody, for the treatment of solid tumors, is undergoing Phase 1 clinical trials in dual, and triple combinations under clinical collaboration with Bristol Myers Squibb. COM902, a potential best-in-class, is a therapeutic antibody targeting TIGIT, developed internally and is undergoing a Phase 1 trial to evaluate it in patients with advanced malignancies as a monotherapy and in combination with COM701. Bapotulimab, an antibody targeting ILDR2, licensed to Bayer under a research and discovery collaboration and license agreement, is also in Phase 1 trials in patients with advanced solid tumors. AZD2936 is a novel anti-TIGIT/PD-1 bispecific antibody with a TIGIT component that is derived from Compugen’s COM902 program and is developed by AstraZeneca pursuant to an exclusive license agreement between Compugen and AstraZeneca and is in Phase 1/2 trial in patients with advanced or metastatic non-small cell lung cancer. Compugen’s therapeutic pipeline of early-stage immuno-oncology programs consists of programs aiming to address various mechanisms of immune resistance, including myeloid targets. The innovative immuno-oncology pipeline, the strategic collaborations and the Company’s computational discovery engine serve as the corporate three key building blocks. Compugen’s business model is to selectively enter into collaborations for its novel targets and related drug product candidates at various stages of research and development under various revenue-sharing arrangements.
b.The Company is headquartered in Holon, Israel. Its clinical development activities are headed from its United States subsidiary, Compugen USA, Inc, located in South San Francisco, CA.
c.The Company has incurred losses in the amount of $
d.On August 5, 2013, the Company entered into a Research and Development Collaboration and License Agreement (“Bayer Agreement”) with Bayer Pharma AG (“Bayer”) for the research, development, and commercialization of antibody-based therapeutics against two novel, Compugen-discovered immune checkpoint regulators.
Under the terms of the Bayer Agreement, the Company received an upfront payment of $
Pursuant to the terms of Bayer Agreement, Bapotulimab program was transferred to Bayer’s full control for further preclinical and clinical development activities, and worldwide commercialization under milestone and royalty bearing license from Compugen.
F - 11
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1: -GENERAL (Cont.)
e.Effective March 30, 2018, the Company entered into an exclusive license agreement with MedImmune Limited. the global biologics research and development arm of AstraZeneca (“AstraZeneca”) to enable the development of bi-specific and multi-specific immuno-oncology antibody products. Under the terms of the agreement, Compugen provided an exclusive license to AstraZeneca for the development of bi-specific and multi-specific antibody products derived from COM902. AstraZeneca has the right to create multiple products under this license and will be solely responsible for all research, development, and commercial activities under the agreement. Compugen received a $
f.On October 10, 2018, the Company entered into a Master Clinical Trial Collaboration Agreement (the “Agreement”) with Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) to evaluate the safety and tolerability of Compugen’s COM701 in combination with Bristol-Myers Squibbs’ PD-1 immune checkpoint inhibitor Opdivo® (nivolumab), in patients with advanced solid tumors.
Pursuant to the Agreement, Compugen is responsible for and will continue sponsoring the ongoing two-part Phase 1 trial, which includes the evaluation of the combination of COM701 and Opdivo®. The collaboration was also designed to address potential future combinations, including trials sponsored by Bristol-Myers Squibb to investigate combined inhibition of checkpoint mechanisms, such as PVRIG and TIGIT. Bristol-Myers Squibb and Compugen each supplies the other company with its own compound for the other party’s study, and otherwise each party is responsible for all costs associated with the study that it is conducting.
In conjunction with the signing of the Agreement in October 2018, Bristol-Myers Squibb made a $
On February 14, 2020, the Agreement was amended to include a triple combination clinical trial to evaluate the safety, tolerability and antitumor activity of COM701 in combination with Opdivo® (nivolumab), and Bristol-Myers Squibb’s investigational antibody targeting TIGIT known as BMS-986207, in patients with advanced solid tumors, instead of the planned expansion of the combined therapy study designed to evaluate the dual combination of COM701 and Opdivo®.
Pursuant to the Agreement, as amended, the Company sponsors the two-part Phase 1/2 trial, which evaluates the triple combination of COM701, Opdivo® and BMS-986207, in patients with advanced solid tumors where Bristol-Myers Squibb provides Opdivo® and BMS-986207 at no cost to the Company.
F - 12
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1: -GENERAL (Cont.)
As part of the amended Agreement, it was agreed that the Company will complete the dose escalation arm of the dual combination of COM701 with Opdivo® under the ongoing Phase 1 study and will not continue the expansion cohorts of the dual combination. However, on February 19, 2021, the Agreement was further amended to include an expansion of the Phase 1 combination study designed to evaluate the dual combination of COM701 and Opdivo® in patients with advanced solid tumors, where the Company is responsible for and sponsors the expansion cohort and Bristol Myers Squibb provides Opdivo® at no cost to the Company for this study.
On November 10, 2021, the Agreement was further amended to establish a joint steering committee (alongside the existing joint development committee which acts at an operational level) to facilitate strategic oversight and guidance for the programs run under the collaboration.
In conjunction with the signing of the amendment to the Agreement in November 2021, Bristol-Myers Squibb made a $
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).
a.Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The Company considered the impact of COVID-19 on the estimates and assumptions and determined that there were no material adverse impacts on the consolidated financial statements for the year ended December 31, 2021. As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods. Such changes could result in future impairments of long-lived assets.
b.Financial statements in U.S. dollars:
The reporting and functional currency of the Company is the U.S. dollar, as the Company’s management believes that the U.S. dollar is the primary currency of the economic environment in which the Company and Compugen USA, Inc. have operated and expect to continue to operate in the foreseeable future.
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar are re-measured into dollars in accordance with ASC No. 830, “Foreign Currency Matters”. All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the consolidated statement of comprehensive loss as financial income or expenses, as appropriate.
F - 13
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c.Basis of consolidation:
The consolidated financial statements include the accounts of the Company and Compugen USA, Inc. Intercompany transactions and balances have been eliminated upon consolidation.
d.Cash equivalents:
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
e.Restricted cash:
Restricted cash is held in interest bearing saving accounts which are used as a security for the Company’s Israeli facility leasehold bank guarantee and credit card security for Compugen USA, Inc.
f.Short-term bank deposits:
Bank deposits with maturities of more than three months but less than one year are included in short-term bank deposits. Such short-term bank deposits are stated at cost which approximates market values.
The short-term bank deposits as of December 31, 2021 and 2020 are in U.S. dollars and bear an annual weighted average interest rate of
g.Property and equipment, net:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:
|
% | |
|
| |
|
Computers, software and related equipment |
|
|
Laboratory equipment and office furniture |
|
|
Leasehold improvements |
|
F - 14
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h.Impairment of long-lived assets:
The long-lived assets of the Company and Compugen USA, Inc. are reviewed for impairment in accordance with ASC 360, “Property, Plant, and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years 2021, 2020 and 2019, no impairment losses have been identified.
i.Revenue recognition:
The Company generates revenues mainly from its collaborative and license agreements. The revenues are derived mainly from upfront license payments, research and development services and contingent payments related to milestone achievements.
The Company recognizes revenue in accordance with ASC 606 – “Revenue from Contracts with Customers”.
As such, the Company analyzes its contracts to assess whether they are within the scope of ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps:
•
Identification of the contract, or contracts, with a customer
•
Identification of the performance obligations in the contract - At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not distinct from other promises in the contract (either because it is not capable of being distinct or because it is not distinct within the context of the contract), or if an option to acquire good or service does not provide the customer with a material right.
•
Determination of the transaction price - The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
F - 15
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i.Revenue recognition (Cont.):
•
Allocation of the transaction price to the performance obligations in the contract - If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices. The relative selling price for each deliverable is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the deliverable.
•
Recognition of revenue when, or as, the Company satisfies a performance obligation - Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.
The Company entered into an exclusive license agreement with AstraZeneca. Under the terms of the agreement, Compugen provided AstraZeneca with an exclusive license to intellectual property (“IP”) rights of the Company for the development of bi-specific and multi-specific antibody products derived from COM902. Compugen received a $
Under ASC 606, the Company determined the license to the IP to be a functional IP that has significant standalone functionality. The Company is not required to continue to support, develop or maintain the intellectual property transferred and will not undertake any activities to change the standalone functionality of the IP. Therefore, the license to the IP is a distinct performance obligation and as such revenue is recognized at the point in time that control of the license is transferred to the customer.
Future milestone payments are considered variable consideration and are subject to the variable consideration constraint (i.e. will be recognized once concluded that it is “probable” that a significant reversal of the cumulative revenues recognized under the contract will not occur in future periods when the uncertainty related to the variable consideration is resolved). Therefore, as the milestone payments are not probable, revenue was not recognized in respect to such milestone payments prior to achievement of such milestone.
F - 16
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i.Revenue recognition (Cont.):
Sales- or usage-based royalties to be received in exchange for licenses of IP are recognized at the later of when (1) the subsequent sale or usage occurs or (2) the performance obligation to which some or all of the sales- or usage-based royalty has been allocated is satisfied (in whole or in part). As royalties are payable based on future Commercial Sales, as defined in the agreement, which did not occur as of the financial statements date, the Company did not recognize any revenues from royalties.
On December 18, 2020 the first milestone with respect to the first licensed product, under the AstraZeneca License Agreement was achieved and the Company recognized revenues in total amount of $
On September 29, 2021 the second milestone with respect to the first licensed product, under the AstraZeneca License Agreement was achieved and the Company recognized revenues in total amount of $
For information regarding revenues, please refer to Note 10 below.
j.Cost of revenues:
Cost of revenues consist of certain royalties and milestones paid or accrued.
k.Research and development expenses, net:
Research and development costs are charged to the statement of comprehensive loss as incurred and are presented net of the amount of any grants the Company receives for research and development in the period in which the grant was received.
As part of the process of preparing the consolidated financial statements, the Company accrues costs for pre-clinical and clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations or other pre-clinical or clinical trial vendors that perform the activities. In certain circumstances, the Company is required to make nonrefundable advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the nonrefundable advance payments are deferred and capitalized, and amortized as the related goods or services are provided. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.
F - 17
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.Research and development expenses, net (Cont.):
The portion of the Bristol-Myers Squibb $
Amortization of participation in R&D expenses for the years ended December 31, 2021, 2020 and 2019 were $
l.Severance pay:
The Company’s liability for severance pay for its Israeli employees is calculated pursuant to Israeli Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date, and is in large part covered by regular deposits with recognized pension funds, deposits with severance pay funds and purchases of insurance policies. The value of these deposits and policies is recorded as an asset in the Company’s balance sheet. Pursuant to Section 14 of the Israeli Severance Pay Law, for Israeli employees under this section, the Company’s contributions for severance pay have replaced its severance obligation. Upon contribution of the full amount of the employee’s monthly salary for each year of service, no additional calculations are conducted between the parties regarding the matter of severance pay and no additional payments are made by the Company to the employee.
Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the balance sheet, as the Company is legally released from the obligation to employees once the deposit amounts have been paid.
Severance expenses for the years ended December 31, 2021, 2020 and 2019 amounted to approximately $
m.Stock-based compensation:
The Company accounts for stock-based compensation to employees and non-employees in accordance with ASC 718, “Compensation - Stock Compensation”, (“ASC 718”), which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The Company accounts for forfeitures as they occur.
The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
F - 18
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.Stock-based compensation (Cont.):
The Company selected the Black-Scholes-Merton (“Black-Scholes”) option-pricing model as the most appropriate fair value method for its share-options awards and Employee Stock Purchase Plan (“ESPP”). The option-pricing model requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term. Expected volatility was calculated based on actual historical share price movements over a term that is equivalent to the expected term of granted options. The expected term of options granted is based on historical experience and represents the period of time that options granted are expected to be outstanding.
The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
The Company used the following weighted-average assumptions for options granted to employees, directors and non-employees and ESPP:
|
Year ended December 31, | |||||||||
|
2021 |
2020 |
2019 | |||||||
|
| |||||||||
|
Employee stock Options | |||||||||
|
Volatility |
|
|
| ||||||
|
Risk-free interest rate |
|
|
| ||||||
|
Dividend yield |
|
|
| ||||||
|
Expected life (years) |
|
|
| ||||||
|
| |||||||||
|
ESPP | |||||||||
|
Volatility |
|
|
| ||||||
|
Risk-free interest rate |
|
|
| ||||||
|
Dividend yield |
|
|
| ||||||
|
Expected life (years) |
|
- |
- | ||||||
n.Concentration of credit risks:
Financial instruments that potentially subject the Company and Compugen USA, Inc. to concentration of credit risk consist principally of cash and cash equivalents, restricted cash and short-term bank deposits.
Cash, cash equivalents, restricted cash and short-term bank deposits are invested in major banks in Israel and in the U.S. Generally, these deposits may be redeemed upon demand and bear minimal risk.
The trade receivables of the Company derive from milestone payments under collaboration agreements between the company and its collaborators, located primarily in Europe.
F - 19
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
n.Concentration of credit risks (Cont.):
The Company’s collaborators are major pharma companies. The amounts due to the Company by such collaborators are paid pursuant to the terms of the agreements after a short period of time and bear low risk.
The Company had one collaborator that accounted for 100% of the Company’s consolidated revenues, for the years ended December 31, 2021 and 2020. The Company had no revenues in 2019.
o.Basic and diluted loss per share:
Basic loss per share is calculated based on the weighted average number of ordinary shares outstanding during each year. Diluted net loss per share is calculated based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential in accordance with ASC 260, “Earnings per Shareˮ.
All outstanding share options and warrants for the years ended December 31, 2021, 2020 and 2019 have been excluded from the calculation of the diluted net loss per share, because all such securities are anti-dilutive for all periods presented. As of December 31, 2021, 2020 and 2019 the average number of shares related to outstanding options and warrants excluded from the calculations of diluted net loss per share were
p.Income taxes:
The Company accounts for income taxes in accordance with ASC No. 740, “Income Taxes”, (“ASC 740”) which prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. As of December 31, 2021 and 2020, a full valuation allowance was provided by the Company.
ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10.
F - 20
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q.Fair value of financial instruments:
The Company applies ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), pursuant to which fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputting that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 -Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The carrying amounts of cash and cash equivalents, restricted cash, short-term bank deposits, other accounts receivable and prepaid expenses, trade payable and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
r.Derivative instruments:
The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and Hedging”. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
F - 21
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
r.Derivative instruments (Cont.):
If the derivatives meet the definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of such derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings.
In the past the Company entered into forward contracts to hedge against the risk of overall changes in future cash flow from payments of payroll and related expenses as well as other expenses denominated in NIS. As of December 31, 2021 and 2020, the Company had no outstanding forward contracts. The Company measured the fair value of the contracts in accordance with ASC 820 (classified as level 2).
These contracts met the requirement for cash flow hedge accounting and during each of the years ended December 31, 2021, 2020 and 2019, no amount of total gains were recognized and were classified to operating expenses as effective hedge and no unrealized gains were recognized under other comprehensive income (loss).
s.Comprehensive income (loss):
The Company accounts for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. Comprehensive income (loss) generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. The Company elected to present the comprehensive income (loss) in a single continuous statement.
In the years 2021, 2020 and 2019 the Company has no components of other comprehensive income (loss), other than net loss.
F - 22
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t.Recently issued and recently adopted Accounting Standards:
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature and a beneficial conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS). ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company adopted ASU 2020-06 as of January 1, 2021. The adoption of this standard did not have an impact to the Company’s financial statements.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832). This ASU requires business entities to disclose information about government assistance they receive if the transactions were accounted for by analogy to either a grant or a contribution accounting model. The disclosure requirements include the nature of the transaction and the related accounting policy used, the line items on the balance sheets and statements of operations that are affected and the amounts applicable to each financial statement line item and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021. The disclosure requirements can be applied either retrospectively or prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application. The ASU is currently not expected to have a material impact on our consolidated financial statements.
NOTE 3: -OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
Prepaid expenses |
$ |
|
$ |
| ||||
|
Government authorities |
|
| ||||||
|
Other |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
F - 23
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4: -LEASES
The Company leases all its real estate, storage area and cars under various operating lease agreements that expire on various dates.
The Company’s operating leases have original lease periods expiring between 2022 and 2024. The offices in Israel lease include two options to renew, one of which was exercised in 2020. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain.
In October 2020 the Company’s lease of its offices in Israel was amended in connection with the exercise of the option. The amendment was not accounted for as a new lease. As a result of the amendment the operating lease right of use asset increased by $
Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancelable lease payments and payments for optional renewal periods where it is reasonably certain the renewal period will be exercised.
Under ASC 842, all leases, including non-cancelable operating leases, are now recognized on the balance sheet. The aggregated present value of lease payments is recorded as a long-term asset titled Operating lease right of use asset. The corresponding lease liabilities are split between current maturity of operating lease liability within current liabilities and long-term operating lease liability within long-term liabilities. The Company’s leases do not provide an implicit rate, therefore the Company uses its incremental borrowing rate based on information available on the commencement date in determining the present value of lease payments.
The Company subleased small part of its leased premises until March 14, 2021. Sublease income in the year ended December 31, 2021 and 2020, amounted to $
The following table represents the weighted-average remaining lease term and discount rate:
|
Twelve months ended | ||
|
December 31, 2021 | ||
|
| ||
|
Weighted average remaining lease term |
| |
|
Weighted average discount (annual) rate |
|
Operating lease expenses were approximately $
Cash paid for amounts included in the measurement of lease liabilities was approximately $
F - 24
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4: -LEASES (Cont.)
Maturities of operating lease liabilities were as follows:
|
December 31, 2021 | ||||
|
| ||||
|
2022 |
$ |
| ||
|
2023 |
| |||
|
2024 |
| |||
|
2025 |
| |||
|
2026 and after |
| |||
|
| ||||
|
Total operating lease payments |
| |||
|
Less: imputed interest |
| |||
|
Present value of lease liabilities |
| |||
|
| ||||
|
Lease liabilities, current |
| |||
|
Lease liabilities, non- current |
| |||
|
| ||||
|
Present value of lease liabilities |
$ |
2,750 | ||
The above annual minimum future rental commitments include the period covered by the first exercised option with respect to the leased facility of Compugen Ltd. through March 2026 and exclude the second option to extend the lease of the Company facility for additional five-year period following expiration of the current lease period.
NOTE 5: -PROPERTY AND EQUIPMENT, NET
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
Cost: | ||||||||
|
| ||||||||
|
Computers, software and related equipment |
$ |
|
$ |
| ||||
|
Laboratory equipment and office furniture |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
Accumulated depreciation: | ||||||||
|
| ||||||||
|
Computers, software and related equipment |
|
| ||||||
|
Laboratory equipment and office furniture |
|
| ||||||
|
Leasehold improvements |
|
| ||||||
|
| ||||||||
|
|
| |||||||
|
| ||||||||
|
Depreciated cost |
$ |
|
$ |
| ||||
F - 25
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5: -PROPERTY AND EQUIPMENT, NET (Cont.)
During 2021 and 2020 total cost of $
For the years ended December 31, 2021, 2020 and 2019, depreciation expenses were approximately $
NOTE 6: -OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
Employees and related accruals |
$ |
|
$ |
| ||||
|
Accrued expenses |
|
| ||||||
|
| ||||||||
|
$ |
|
$ |
| |||||
NOTE 7: - COMMITMENTS AND CONTINGENCIES
a.The Company provided bank guarantees in the amount of $
b.Under the Office of the Israel Innovation Authority of the Israeli Ministry of Industry, Trade and Labor, formerly known as the Office of the Chief Scientist, (the “IIA”), the Company is not obligated to repay any amounts received from the IIA if it does not generate any income from the results of the funded research program(s). If income is generated from a funded research program, the Company is committed to pay royalties at a rate of between
As of December 31, 2021, the Company’s aggregate contingent obligations for payments to IIA, based on royalty-bearing participation received or accrued, net of royalties paid or accrued, totaled approximately to $
F - 26
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7: - COMMITMENTS AND CONTINGENCIES (Cont.)
c.On June 25, 2012 the Company entered into an Antibodies Discovery Collaboration Agreement (the “Antibodies Discovery Agreement”) with a U.S. antibody technology company (“mAb Technology Company”), providing an established source for fully human mAbs. Under the Antibodies Discovery Agreement, the mAb Technology Company will be entitled to certain royalties that could be eliminated, upon payment of certain one-time fees (all payments referred together as “Contingent Fees”). For the years ended December 31, 2021, 2020 and 2019, the Company incurred such Contingent Fees in the amounts of $
d.On
Under the agreement the Advisor was entitled to
For the years ended December 31, 2021, 2020 and 2019, the Company has not paid and did not accrue payments under this agreement.
e.Effective as of January 5, 2018, the Company entered into a Commercial License Agreement (CLA) with a European cell line development company. Under the agreement the Company is required to pay an annual maintenance fee, certain amounts upon the occurrence of specified milestones events, and
f.Effective as of October 28, 2020, the Company entered into a collaboration agreement with a U.S. antibody discovery and optimization company for generation and optimization of therapeutic antibodies for the Company. Under the agreement the Company is required to pay service fees per services performed and certain amounts upon the occurrence of specified milestones events, and single-digit percent royalties on annual net sales with respect to each product sold that comprises or contains one or more antibodies so generated or optimized. The royalty rate is dependent upon the product type and any third-party contribution. For the years ended December 31, 2021, 2020 and 2019, the Company incurred in the research and development expenses such milestone payment in the amounts of $
F - 27
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8: - SHAREHOLDERS’ EQUITY
a.Ordinary shares:
The ordinary shares confer upon their holders the right to attend and vote at general meetings of the shareholders. Subject to the rights of holders of shares with limited or preferred rights which may be issued in the future, the ordinary shares of the Company confer upon the holders thereof equal rights to receive dividends, and to participate in the distribution of the assets of the Company upon its winding-up, in proportion to the amount paid up or credited as paid up on account of the nominal value of the shares held by them respectively and in respect of which such dividends are being paid or such distribution is being made, without regard to any premium paid in excess of the nominal value, if any.
b.Issuance of shares:
On May 25, 2018, the Company entered into a Controlled Equity OfferingSM sales agreement with Cantor Fitzgerald & Co. (“Cantor”), as sales agent, pursuant to which the Company may offer and sell, from time to time through Cantor, ordinary shares, par value NIS
On June 14, 2018, the Company entered into securities purchase agreement with certain institutional investors and a placement agency agreement with JMP Securities LLC in connection with a registered direct offering (the “Offering”) of an aggregate of
During the years ended December 31, 2021, and 2020, warrants to purchase an aggregate of
On October 10, 2018, the Company entered into a Master Clinical Trial Collaboration Agreement (the “Master Clinical Agreement”) with Bristol-Myers Squibb to evaluate the safety and tolerability of the Company’s COM701 in combination with Bristol-Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo® (nivolumab), in patients with advanced solid tumors. In conjunction with the Master Clinical Agreement, Bristol-Myers Squibb made a $
F - 28
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8: - SHAREHOLDERS’ EQUITY (Cont.)
Under the terms of the securities purchase agreement, Bristol-Myers Squibb purchased
The premium over the fair market value in the amount of $
In conjunction with the signing of the amendment to the Master Clinical Agreement in November 2021, Bristol Myers Squibb made a $
The premium over the fair market value in the amount of $
In March 2020, the Company entered into an underwriting agreement with SVB Leerink LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of several underwriters relating to the issuance and sale in a public offering of
c.Share option plan:
Under the Company’s 2010 Share Option Plan as amended (the “Plan”), options may be granted to employees, directors and non-employees of the Company and Compugen USA Inc.
Under the 2010 Share Option Plan the Company reserved for issuance up to an aggregate of
F - 29
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8: - SHAREHOLDERS’ EQUITY (Cont.)
c.Share option plan (Cont.):
In general, options granted under the Plan vest over a
Any options that are cancelled, forfeited or expired become available for future grants.
Transactions related to the grant of options to employees, directors and non-employees under the above Plan during the year ended December 31, 2021, were as follows:
|
Number of options |
Weighted average exercise price |
Weighted average remaining contractual life |
Aggregate intrinsic value | |||||||||||||
|
$ |
Years |
$ | ||||||||||||||
|
| ||||||||||||||||
|
Options outstanding at beginning of year |
|
|
|
| ||||||||||||
|
Options granted |
|
| ||||||||||||||
|
Options exercised |
( |
) |
| |||||||||||||
|
Options forfeited |
( |
) |
| |||||||||||||
|
Options expired |
( |
) |
| |||||||||||||
|
| ||||||||||||||||
|
Options outstanding at end of year |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Exercisable at end of year |
|
|
|
| ||||||||||||
Weighted average fair value of options granted to employees, directors and non-employees during the years 2021, 2020 and 2019 was $
Aggregate intrinsic value of exercised options by employees, directors and non-employees during the years 2021, 2020 and 2019 was $
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company’s closing share price on the last trading day of calendar 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2021. This amount is impacted by the changes in the fair market value of the Company’s shares.
F - 30
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8: - SHAREHOLDERS’ EQUITY (Cont.)
c.Share option plan (Cont.):
As of December 31, 2021, the total unrecognized estimated compensation cost related to non-vested share options granted prior to that date was $
d.Employee Stock Purchase Plan:
The Company adopted an ESPP in November 2020, with the first offering period starting at January 1, 2021. In connection with its adoption, a total of
The ESPP is implemented through six-month offering periods (except for the first offering period that was
Since its adoption and through December 31, 2021,
In accordance with ASC No. 718, the ESPP is compensatory and, as such, results in recognition of compensation cost.
e.The stock-based compensation expenses related to stock options and ESPP are included as follows in the expense categories:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Research and development expenses |
$ |
|
$ |
|
$ |
| ||||||
|
Marketing and business development expenses |
|
|
| |||||||||
|
General and administrative expenses |
|
|
| |||||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
F - 31
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - INCOME TAXES
a. Israeli taxation:
1.Tax rates applicable to the income of the Company.
Taxable income of the Company is subject to a corporate tax rate of
2.Measurement of taxable income in US dollars:
The Company has elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Accordingly, results for tax purposes are measured in terms of earnings in dollars.
3.Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”):
On April 1, 2005, an amendment to the Investment Law came into effect (the “Amendment 60”) that significantly changed the provisions of the Investment Law. The Amendment 60 limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as a “Beneficiary Enterprise” including a provision generally requiring that at least
Another condition for receiving the benefits under the alternative track in respect of expansion programs pursuant to Amendment 60 is a minimum qualifying investment. The Company was eligible under the terms of minimum qualifying investment and elected 2012 as its “year of election”.
Additionally, the Amendment 60 enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the Investment Law as they were on the date of such approval.
As of December 31, 2021, there was no taxable income attributable to the Beneficiary Enterprise.
F - 32
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - INCOME TAXES (Cont.)
a. Israeli taxation (Cont.):
In January 2011, another amendment to the Investment Law came into effect (“the 2011 Amendment”). According to the 2011 Amendment, the benefit tracks in the Investment Law were modified and a flat tax rate applies to the Company’s entire income subject to this amendment (the “Preferred Income”).
Once an election is made, the Company’s income will be subject to the amended tax rate of 16% from 2015 and thereafter (or 9% for a preferred enterprise located in development area A).
Commencing 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a certain tax year and from that year and thereafter, it will be subject to the amended tax rates.
The Company does not currently intend to adopt the 2011 Amendment and intends to continue to comply with the Investment Law as in effect prior to enactment of the 2011 Amendment. Accordingly, the Company did not adjust its deferred tax balances as of December 31, 2021. The Company’s position may change in the future.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2016 and 2017 Budget Years), 2016, which includes Amendment 73 to the Law (the “Amendment 73”) was published. According to Amendment 73, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2016 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
Amendment 73 also prescribes special tax tracks for technological enterprises, which are subject to rules that were issued by the Minister of Finance in May 2017. The new tax tracks under the Amendment are as follows:
Preferred Technological Enterprise (“PTE”) - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion in a tax year. A PTE, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
The above changes in the tax rates relating to PTE tax track were not taken into account in the computation of deferred taxes as of December 31, 2021 and 2020, since the Company estimates that it will not implement the PTE tax track.
F - 33
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - INCOME TAXES (Cont.)
a. Israeli taxation (Cont.):
4.Tax benefits under the law for the Encouragement of Industry (Taxes), 1969 (the “Encouragement Law”):
The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the income of which in a given tax year exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Management believes that the Company is currently qualified as an “industrial company” under the Encouragement Law and, as such, is entitled to tax benefits, including: (1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over three years.
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company qualifies, or, that the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the future.
5.Net operating losses carryforward and capital loss:
As of December 31, 2021, Compugen Ltd.’s net operating losses carryforward for tax purposes in Israel amounted to approximately $
F - 34
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - INCOME TAXES (Cont.)
b.Non-Israeli subsidiary, Compugen USA, Inc.:
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “U.S. Tax Reform” or “TCJA”); a comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include several key tax provisions that might impact the Company, among others: (i) a permanent reduction to the statutory federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017; (ii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain new rules designed to prevent erosion of the U.S. income tax base - “BEAT”); (iii) establishing immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits; and (iv) providing a permanent deduction to corporations generating revenues from non-US markets (known as a deduction for foreign derived intangible income - “FDII”).
As of December 31, 2021, Compugen USA, Inc. has net operating loss carryforwards for federal income tax purposes of approximately $
Neither Israeli income taxes, foreign withholding taxes nor deferred income taxes were provided in relation to undistributed earnings of the Company’s foreign subsidiary. This is because the Company has the intent and ability to reinvest these earnings indefinitely in the foreign subsidiary and therefore those earnings are continually redeployed in those jurisdictions.
c.Loss (income) before taxes is comprised as follows:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Domestic (Israel) |
$ |
|
$ |
|
$ |
| ||||||
|
Foreign |
( |
) |
( |
) |
( |
) | ||||||
|
| ||||||||||||
|
$ |
|
$ |
|
$ |
| |||||||
d.Taxes on income (tax benefit) for the year ended December 31, 2019 is comprised from refund of withholding tax payments, which were deducted from milestone payments by the German tax authorities. There were no withholding tax payments for the years ended December 31, 2021, 2020 and 2019.
F - 35
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9: - INCOME TAXES (Cont.)
e.Deferred taxes:
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company and Compugen USA, Inc.’s deferred tax assets are comprised of operating loss carryforward and other temporary differences. Significant components of the Company and Compugen USA, Inc. deferred tax assets are as follows:
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
| ||||||||
|
Operating loss carryforward |
$ |
|
$ |
| ||||
|
Research and development |
|
| ||||||
|
Accrued social benefits and other |
|
| ||||||
|
Right of use assets |
( |
) |
( |
) | ||||
|
Lease liabilities |
|
| ||||||
|
Property and equipment |
|
| ||||||
|
Deferred tax asset before valuation allowance |
|
| ||||||
|
Valuation allowance |
( |
) |
( |
) | ||||
|
| ||||||||
|
Net deferred tax asset |
$ |
|
$ |
| ||||
The Company and Compugen USA, Inc. have provided full valuation allowances in respect of deferred tax assets resulting from operating loss carryforward and other temporary differences. Management currently believes that since the Company has a history of losses, it is more likely than not that the deferred tax regarding the operating loss carryforward and other temporary differences will not be realized in the foreseeable future.
f.Reconciliation of the theoretical tax expense (benefit) to the actual tax expense (benefit):
The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating loss carryforward among the Company and Compugen USA, Inc. due to the uncertainty of the realization of such tax benefits.
g.Tax assessments:
The Company has tax assessments through 2016 that are deemed to be final.
F - 36
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10: - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company’s business is currently comprised of
The following represents the total revenue for the years ended December 31, 2021, 2020 and 2019 and long-lived assets as of December 31, 2021 and 2020:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Revenue from sales to customers: | ||||||||||||
|
| ||||||||||||
|
Europe |
$ |
|
$ |
|
$ |
| ||||||
|
| ||||||||||||
|
Total revenue |
$ |
|
$ |
|
$ |
| ||||||
|
December 31, | ||||||||
|
2021 |
2020 | |||||||
|
Long-lived assets: | ||||||||
|
| ||||||||
|
Israel |
$ |
|
$ |
| ||||
|
United States |
|
| ||||||
|
| ||||||||
|
Total long-lived assets |
$ |
|
$ |
| ||||
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Sales to a single customer exceeding 10%: | ||||||||||||
|
| ||||||||||||
|
Customer A |
|
% |
|
% |
| |||||||
NOTE 11: -FINANCIAL AND OTHER INCOME, NET
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
| ||||||||||||
|
Interest income |
$ |
|
$ |
|
$ |
| ||||||
|
Bank fees and other finance expenses |
( |
) |
( |
) |
( |
) | ||||||
|
Foreign currency translation adjustments |
( |
) |
|
( |
) | |||||||
|
Gain (loss) from sales and disposals of fixed assets |
|
|
| |||||||||
|
| ||||||||||||
|
Financial and other income, net |
$ |
|
$ |
|
$ |
| ||||||
F - 37
COMPUGEN LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12: -RELATED PARTY BALANCES AND TRANSACTIONS
|
December 31, | ||||||||
|
2021 |
|
|
2020 | |||||
|
| ||||||||
|
Trade payables and accrued expenses |
$ |
|
$ |
| ||||
|
Year ended December 31, | ||||||||||||
|
2021 |
|
|
2020 |
|
|
2019 | ||||||
|
Amounts charged to: | ||||||||||||
|
| ||||||||||||
|
Research and development expenses |
$ |
|
$ |
|
$ |
| ||||||
For the years ended December 31, 2021, 2020 and 2019 the Company received research and development services related with cancer studies in animal models, and breeding and maintenance of animals (mice) to support such studies. The transaction was at arm’s length.
NOTE 13: -LOSSES PER SHARE
The following table sets forth the computation of basic and diluted losses per share:
|
Year ended December 31, | ||||||||||||
|
2021 |
2020 |
2019 | ||||||||||
|
Numerator: | ||||||||||||
|
| ||||||||||||
|
Net loss for basic and diluted loss per share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
| ||||||||||||
|
Denominator: | ||||||||||||
|
| ||||||||||||
|
Weighted average number of ordinary shares used in computing basic and diluted net loss per share |
|
|
| |||||||||
|
| ||||||||||||
|
Basic and diluted earnings per ordinary share |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
F - 38