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As filed with the Securities and Exchange Commission on March 6, 2020

Registration No. 333-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Ayala Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		2836		82-3578375
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

Oppenheimer 4

Rehovot 7670104, Israel

+972-8-373-1541

(Address, including zip code, and telephone number, including area code, of  registrant’s principal executive offices)

 

 

PHS Corporate Services, Inc.

1313 N. Market Street

Suite 5100

Wilmington, DE 19801

(857) 444-0553

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Peter N. Handrinos Keith L. Halverstam Latham & Watkins LLP 200 Clarendon Street Boston, MA 02116 (617) 948-6000		Haim Gueta Shachar Hadar Meitar, Law Offices 16 Abba Hillel Rd. Ramat Gan, Israel		Deanna L. Kirkpatrick Yasin Keshvargar Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 (212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐             

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐             

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐             

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

		Large accelerated filer		☐		Accelerated filer		☐
		Non-accelerated filer		☒		Smaller reporting company		☒
						Emerging growth company		☒

If an emerging growth company, 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 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities To Be Registered		Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee(2)
Common Stock, par value $0.01 per share		$50,000,000.00		$6,490.00

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional shares of our common stock that the underwriters have the option to purchase.

 

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MARCH 6, 2020.

PRELIMINARY PROSPECTUS

            Shares

 

 

Ayala Pharmaceuticals, Inc.

Common Stock

 

 

This is the initial public offering of our common stock. We are selling            shares of our common stock. We currently expect the initial public offering price to be between $        and $        per share of common stock. Currently, no public market exists for the shares.

We have granted the underwriters an option to purchase up to            additional shares of our common stock.

We have applied to have our common stock listed on The Nasdaq Global Market under the symbol “AYLA.”

We are an “emerging growth company” under the federal securities laws and are subject to reduced public company disclosure standards. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 11 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

		Per Share		Total
Public offering price		$		$
Underwriting discount(1)		$		$
Proceeds, before expenses, to us		$		$

 

(1)

We refer you to “Underwriting” beginning on page 169 for additional information regarding underwriting compensation.

The underwriters expect to deliver the shares to purchasers on or about                    , 2020 through the book-entry facilities of The Depository Trust Company.

 

 

Joint Book-Running Managers

 

Citigroup		Jefferies

 

 

Co-Managers

 

Oppenheimer & Co.		Raymond James

 

 

                    , 2020.

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		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			72
MARKET AND INDUSTRY DATA			74
USE OF PROCEEDS			75
DIVIDEND POLICY			76
CAPITALIZATION			77
DILUTION			79
SELECTED CONSOLIDATED FINANCIAL DATA			81
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			82
BUSINESS			95
MANAGEMENT			138
EXECUTIVE AND DIRECTOR COMPENSATION			144
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			153
PRINCIPAL STOCKHOLDERS			156
DESCRIPTION OF CAPITAL STOCK			158
SHARES ELIGIBLE FOR FUTURE SALE			163
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS			165
UNDERWRITING			169
LEGAL MATTERS			176
EXPERTS			176
WHERE YOU CAN FIND MORE INFORMATION			176
INDEX TO FINANCIAL STATEMENTS			F-1

 

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

We have proprietary rights to trademarks, trade names and service marks appearing in this prospectus that are important to our business. Solely for convenience, the trademarks, trade names and service marks may appear in this prospectus without the ^® and TM symbols, but any such references are not intended to indicate, in any way, that we forgo or will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our common stock. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability. If we are unable to achieve or sustain profitability, the market value of our common stock will likely decline.

We are a clinical-stage biopharmaceutical company with a limited operating history and have incurred significant losses since our formation. We had a net loss of approximately $8.9 million and $17.8 million for the years ended December 31, 2018 and 2019, respectively. As of December 31, 2019, we had accumulated net losses of approximately $40.7 million. We have not commercialized any products and have never generated revenue from the commercialization of any product. To date, we have devoted most of our financial resources to licensing product candidates and research and development, including our preclinical development activities and clinical trials.

We expect to incur significant operating expenses and increasing net losses for the next several years, at least, as we advance AL101, AL102 and any future product candidate through preclinical and clinical development, seek regulatory approvals and commercialize AL101, AL102 or any other product candidate, if approved. The costs of advancing product candidates into each clinical phase tend to increase substantially over the duration of the clinical development process. Therefore, the total costs to advance any of our product candidates to marketing approval in even a single jurisdiction will be substantial. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of any products or achieve or maintain profitability. Our expenses will also increase substantially if and as we:

 

•

advance our Phase 2 ACCURACY trial of AL101 for the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC;

 

•

commence our Phase 2 clinical trials of AL101 for the treatment of recurrent/metastatic triple negative breast cancer, or R/M TNBC, or relapsed/refractory T-cell acute lymphoblastic leukemia, or R/R T-ALL, initiate clinical trials of AL102 for the treatment of desmoid tumors, or obtain and conduct clinical trials for any other product candidates;

 

•

assuming successful completion of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC, are required by the U.S. Food and Drug Administration, or FDA, to complete Phase 3 clinical trials to support submission of a New Drug Application, or NDA, of AL101 for the treatment of R/M ACC;

 

•

develop AL101 or AL102 for other indications and develop other product candidates;

 

•

establish a sales, marketing and distribution infrastructure to commercialize AL101 and/or AL102, if approved, and for any other product candidates for which we may obtain marketing approval;

 

•

maintain, expand and protect our intellectual property portfolio;

 

•

hire additional clinical, scientific and commercial personnel;

 

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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company; and

 

•

acquire or in-license other product candidates or technologies.

Furthermore, our ability to successfully develop, commercialize and license any product candidates and generate product revenue is subject to substantial additional risks and uncertainties, as described under “—Risks Related to Development, Clinical Testing, Manufacturing and Regulatory Approval” and “—Risks Related to Commercialization.” As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. If we are unable to develop and commercialize one or more product candidates, either alone or through collaborations, or if revenues from any product that receives marketing approval are insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain profitability or meet outside expectations for our profitability. If we are unable to achieve or sustain profitability or to meet outside expectations for our profitability, the value of our common stock will be materially and adversely affected.

Even if this offering is successful, we will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of AL101 and AL102.

We expect to spend substantial amounts of capital to complete the development of, seek regulatory approvals for and, if approved, commercialize AL101 and AL102. These expenditures will include costs related to our Phase 2 ACCURACY trial and potential Phase 3 clinical development of AL101 for the treatment of R/M ACC, and costs associated with our license agreement with Bristol-Myers Squibb Company, or BMS, under which we are obligated to make milestone payments, royalty payments in connection with the sale of resulting products and payments consisting of a portion of all consideration we receive in connection with the sublicense or assignment of any patent rights we licensed from BMS. For more information regarding this agreement, please see “Business—License Agreements.”

We anticipate that we will use the net proceeds of this offering, together with our existing cash and cash equivalents and short-term restricted bank deposits, to advance the clinical development of AL101 and AL102 and the remainder, if any, for working capital and general corporate purposes.

Even with the net proceeds of this offering, we will require additional capital to enable us to complete the development and commercialization of AL101 for the treatment of R/M ACC, R/M TNBC and R/R T-ALL, AL102 for the treatment of desmoid tumors and any other potential indications, if approved, which we may obtain through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our development efforts.

Based upon our current operating plan, we believe that the net proceeds from this offering and our existing cash and cash equivalents and short-term restricted bank deposits will enable us to fund our operating expenses and capital expenditure requirements through                    . This estimate and our expectation regarding the sufficiency of the net proceeds of this offering to advance the clinical development of AL101 and AL102 are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, or our ongoing and planned Phase 2 clinical trials may be more expensive, time-consuming or difficult to design or implement than we currently anticipate. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently

 

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expected because of circumstances beyond our control. Because the length of time and activities associated with successful development of AL101 and AL102 is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

•

the progress, timing, costs and results of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC, additional development plans for AL101, development plans for AL102 and the development of any future product candidates;

 

•

the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;

 

•

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

 

•

the cost and timing of completion of commercial-scale manufacturing activities;

 

•

the cost of testing drug substances and drug products at release and during stability programs;

 

•

the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us;

 

•

the effect of competing technological and market developments;

 

•

the costs of operating as a public company;

 

•

the extent to which we in-license or acquire other product candidates or technologies;

 

•

the cost of establishing sales, marketing and distribution capabilities for AL101 and AL102;

 

•

the timing and amount of milestone, royalty and other payments that we may receive or that we may be required to make under our license agreements;

 

•

our ability to establish and maintain collaborations on favorable terms, if at all;

 

•

the costs associated with potential product liability claims, including the costs associated with obtaining insurance against such claims and with defending against such claims; and

 

•

the initiation, progress and timing of our commercialization of AL101 and AL102, if approved.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of AL101 and AL102 or potentially discontinue operations.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate sufficient revenue to support our operations, we may finance our cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources. We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences

 

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that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, intellectual property, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate product candidate development or future commercialization efforts.

Our recurring losses from operations could continue to raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.

We have incurred significant operating losses since our inception and have never generated product revenue, and it is possible we will never generate product revenue or profit. Accordingly, we have concluded that substantial doubt exists regarding our ability to continue as a going concern. Meaningful revenues will likely not be available until and unless any current or future product candidate is approved by the FDA or comparable regulatory agencies in other countries and successfully marketed, either by us or a partner, an outcome which may not occur. Our audited financial statements appearing at the end of this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties related to our ability to operate on a going concern basis. In its report on our financial statements for the years ended December 31, 2018 and 2019, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and negative cash flows since inception and our need to raise additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or a part of their investment. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.

We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

We were established and began operations in November 2017. Our operations to date have been limited to financing and staffing our company, licensing product candidates, developing AL101 for the treatment of R/M ACC, R/M TNBC and R/R T-ALL, developing AL102 for the treatment of desmoid tumors, and conducting preclinical studies and clinical trials of AL101 and AL102. We have not yet demonstrated the ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

 

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In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will eventually need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition and, as a result, our business may be adversely affected.

As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any particular quarterly or annual period as indications of future operating performance.

We are heavily dependent on the success of AL101 and AL102, our most advanced product candidates, which are still under clinical development, and if either AL101 or AL102 does not receive regulatory approval or is not successfully commercialized, our business may be harmed.

To date, we have invested a significant portion of our efforts and financial resources in the development of AL101 for the treatment of R/M ACC, R/M TNBC and R/R T-ALL and in the development of AL102 for the treatment of desmoid tumors and MM. Our future success is substantially dependent on our ability to successfully complete clinical development for, obtain regulatory approval for and successfully commercialize AL101 and AL102, which may never occur. We currently have no products that are approved for commercial sale and may never be able to develop a marketable product. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to AL101 and AL102, which will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts before we can generate any revenues from any commercial sales. We cannot be certain that we will be able to successfully complete any of these activities.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and comparable foreign regulatory authorities. We are not permitted to market AL101 and AL102 in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. We have not submitted an NDA to the FDA or comparable applications to other regulatory authorities for AL101 and AL102 and may not be in a position to do so for several years, if ever. If we are unable to obtain the necessary regulatory approvals for AL101 or AL102, we will not be able to commercialize AL101 and AL102 and our financial position will be materially adversely affected and we may not be able to generate sufficient revenue to continue our business.

We may be required to make significant payments under our license of AL101 and AL102 from BMS.

In November 2017, we licensed rights to AL101 and AL102 pursuant to a license agreement with BMS, or the BMS License Agreement. Under the BMS License Agreement, we are subject to significant obligations, including milestone payments, royalty payments on product sales and clinical development obligations, as well as other material obligations. Under the BMS License Agreement, we will be obligated to pay BMS fixed royalty payments that could range from a high single-digit to a low teen percentage on net sales of products containing AL101 or AL102, as well as a portion of all consideration we receive in connection with the sublicense or assignment of any patent rights we licensed from BMS, ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced product candidate that is subject to the applicable sublicense or assignment. For more information regarding the BMS License Agreement, please see “Business—License Agreements.” If these payments become due under the terms of the BMS License Agreement, we may not have sufficient funds available to meet our obligations and our development efforts may be materially harmed. Furthermore, if we are forced to raise additional funds, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.

 

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Due to our limited resources and access to capital, we must prioritize development of certain programs and product candidates; these decisions may prove to be wrong and may adversely affect our business.

We may fail to identify and acquire, through purchase or license, viable new product candidates for clinical development for a number of reasons. If we fail to identify and acquire additional product candidates, our business could be materially harmed.

Efforts to identify and pursue new product candidates and disease targets require substantial technical, financial and human resources, regardless of whether they are ultimately successful. Programs may initially show promise in preclinical studies, yet fail to yield positive results during clinical development for a number of reasons, including:

 

•

the methodology used may not be successful in identifying potential indications and/or product candidates; or

 

•

product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective products.

Because we have limited financial and human resources, we intend to initially focus on programs and product candidates for a limited set of indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications with our existing product candidates that may later prove to have greater commercial potential or a greater likelihood of success. We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful.

We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

As of December 31, 2019, we had 29 employees. We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product candidate development, regulatory affairs and sales and marketing. We may have difficulty identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Many of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can discover and develop product candidates and operate our business will be limited.

A pandemic, epidemic or outbreak of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States, Israel or elsewhere, our business may be adversely affected. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of February 2020, has spread

 

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to over 50 countries, including the United States and Israel. While the spread of COVID-19 has not yet directly impacted our operations, we continue to monitor our operations and government recommendations and may elect to temporarily close our office and/or laboratory space to protect our employees. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had net operating loss carryforwards, or NOLs, of $23.9 million for federal income tax purposes and $10.9 million for state income tax purposes, which may be available to offset our future taxable income, if any, and begin to expire in various amounts in 2037 and 2038, respectively, provided that NOLs generated in tax years ending after December 31, 2017 will not be subject to expiration. In general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to use its pre-change NOLs to offset future taxable income. If the U.S. Internal Revenue Service challenges our determinations with respect to the existence of previous ownership changes or the effects thereof, or if we undergo an ownership change, our ability to use our NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. In addition, utilization of federal NOLs generated in tax years beginning after December 31, 2017 are limited to a maximum of 80% of the taxable income for such year determined without regard to the NOL deduction. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs, even if we attain profitability. The reduction of the corporate tax rate under recently-enacted U.S. tax legislation may cause a reduction in the economic benefit of our NOLs and other deferred tax assets available to us.

Risks Related to Development, Clinical Testing, Manufacturing and Regulatory Approval

Our product candidates are designed for patients with genetically defined cancers, which is a rapidly evolving area of science, and the approach we are taking to discover and develop product candidates is novel and may never lead to marketable products.

The discovery and development of targeted therapies for patients with genetically defined cancers is an emerging field, and the scientific discoveries that form the basis for our efforts to discover and develop product candidates are relatively new. The scientific evidence to support the feasibility of developing product candidates based on these discoveries is both preliminary and limited. The patient populations for our product candidates are not completely defined but are substantially smaller than the general treated cancer population, and we will need to screen and identify these patients. Successful identification of patients is dependent on several factors, including achieving certainty as to how specific genetic alterations respond to our product candidates and developing companion diagnostics to identify such genetic alterations. Furthermore, even if we are successful in identifying patients, we cannot be certain that the resulting patient populations will be large enough to allow us to successfully conduct clinical trials, and if approved, commercialize our products and achieve profitability. Therefore, we do not know if our approach of treating patients with genetically defined cancers will be successful, and if our approach is unsuccessful, our business will suffer.

 

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Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain outcome.

Before obtaining marketing approval from the FDA or other comparable foreign regulatory authorities for the sale of our product candidates, we must complete preclinical development and extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. We may experience delays in initiating and completing any clinical trials that we intend to conduct, and we do not know whether our ongoing or planned clinical trials will begin or progress on schedule, need to be redesigned, enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays related to:

 

•

the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies;

 

•

obtaining regulatory authorizations to commence a trial or consensus with regulatory authorities on trials design;

 

•

reaching an agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

•

obtaining Institutional Review Board, or IRB, approval at each site, or Independent Ethics Committee, or IEC, approval at sites outside the United States;

 

•

changes to clinical trial protocols;

 

•

recruiting suitable patients to participate in a trial in a timely manner and in sufficient numbers;

 

•

having patients complete a trial or return for post-treatment follow-up;

 

•

imposition of a clinical hold by regulatory authorities, including as a result of unforeseen safety issues or side effects or failure of trial sites to adhere to regulatory requirements or follow trial protocols;

 

•

clinical sites deviating from trial protocol or dropping out of a trial;

 

•

addressing patient safety concerns that arise during the course of a trial;

 

•

the occurrence of serious adverse events in trials of the same class of agents conducted by other companies;

 

•

subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in competing clinical trials;

 

•

adding a sufficient number of clinical trial sites;

 

•

manufacturing sufficient quantities of product candidate with sufficient quality for use in clinical trials;

 

•

lack of adequate funding to continue the clinical trial;

 

•

selection of clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;

 

•

a facility manufacturing our product candidates or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practice, or cGMP, regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;

 

•

any changes to our manufacturing process that may be necessary or desired;

 

•

third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices, or GCP, or other regulatory requirements;

 

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•

third-party contractors not performing data collection or analysis in a timely or accurate manner; or

 

•

third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications.

We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs or IECs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial or the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance, as described in “—Risks Related to Our Dependence on Third Parties.”

We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial which, if successful, would represent a well-controlled trial for purposes of seeking marketing approval. It may be necessary to re-design our clinical trials, including to conduct clinical trials of our product candidates in combination with other therapies, in an effort to achieve the response rates sufficient to support marketing approval. We cannot be certain that our ongoing or planned clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could seriously harm our business.

Further, conducting clinical trials in foreign countries, as we may do for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of a clinical trial. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of a product candidate.

If we experience delays in the commencement or completion of any clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of AL101, AL102 or any other product candidate we develop could be harmed, and our ability to generate revenues may be delayed. In addition, any delays in our clinical trials could increase our costs, slow the development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and results of operations. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

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We were not involved in the early development of our lead product candidates; therefore, we are dependent on third parties having accurately generated, collected and interpreted data from certain preclinical studies and clinical trials for our product candidates.

We licensed exclusive worldwide rights to AL101 and AL102 from BMS in November 2017, and were not involved in or able to control the development of AL101 and AL102 prior to such time. While BMS is contractually obligated to provide all data it generated from preclinical studies and clinical trials conducted for AL101 and AL102 prior to our licensing of such products, in certain instances we are currently reliant upon reports BMS generated analyzing such data. In the event further data is required by a regulatory authority or otherwise in our development of AL101 and/or AL102 and BMS does not comply with its contractual obligation to provide such data, we could incur increased costs in re-analyzing certain preclinical and clinical data and will experience delays in the development of AL101 and AL102, which could adversely affect our financial position and delay our ability to commercialize AL101 and AL102.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for AL101, AL102 or any other product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other data. Even if we eventually complete clinical testing and receive approval of any regulatory filing for our product candidates, the FDA and other comparable foreign regulatory authorities may approve our product candidates for a more limited indication or a narrower patient population than we originally requested. We have not obtained regulatory approval for any product candidate and it is possible that we will never obtain regulatory approval for AL101, AL102 or any other product candidate. We are not permitted to market any of our product candidates in the United States until we receive regulatory approval of an NDA from the FDA.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidate is safe and effective for its intended use. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities.

The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including:

 

•

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

•

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

•

serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates, or other products containing the active ingredient in our product candidates;

 

•

negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

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•

the population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in the full population for which we seek approval;

 

•

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

•

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

•

the data collected from clinical trials of our product candidates may not be acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and we may be required to conduct additional clinical trials;

 

•

the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the specifications of our product candidates;

 

•

the FDA or comparable foreign regulatory authorities may fail to approve or find deficiencies with the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

•

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or comparable foreign regulatory authority approval. We cannot guarantee that the FDA or foreign regulatory authorities will interpret trial results as we do, and more trials could be required before we are able to submit applications seeking approval of our product candidates. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Furthermore, the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval, which may lead to the FDA or comparable foreign regulatory authorities delaying, limiting or denying approval of our product candidates.

Of the large number of drugs in development, only a small percentage successfully complete the regulatory approval processes and are commercialized. This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market AL101, AL102 or any other product candidate, which would significantly harm our business, results of operations and prospects.

In addition, the FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may approve a product candidate with a Risk Evaluation and Mitigation Strategy, or REMS, or a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Regulatory authorities may also grant approval contingent on the performance of costly post-marketing clinical trials. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.

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 who remain in the study until its conclusion. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our

 

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clinical trials, and even once enrolled, we may be unable to retain a sufficient number of patients to complete any of our trials.

Patient enrollment and retention in clinical trials depends on many factors, including:

 

•

the size and nature of the patient population;

 

•

the severity of the disease under investigation;

 

•

the patient eligibility criteria defined in the protocol;

 

•

the size of the patient population required for analysis of the trial’s primary endpoints;

 

•

the nature of the trial protocol;

 

•

the existing body of safety and efficacy data with respect to the product candidate;

 

•

the number of clinical sites and the proximity of patients to clinical sites;

 

•

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

•

clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;

 

•

competing clinical trials being conducted by other companies or institutions;

 

•

our ability to maintain patient consents; and

 

•

the risk that patients enrolled in clinical trials will drop out of the trials before completion.

For example, we are currently conducting our Phase 2 ACCURACY trial of AL101 in a subset of R/M ACC patients with Notch-activating mutations and intend to conduct a Phase 2 clinical trial of AL101 in a subset of R/M TNBC patients with Notch-activating mutations in mid-2020 and a Phase 2 trial of AL101 in R/R T-ALL patients in the second half of 2020. We cannot be sure that we will be able to identify a sufficient number of patients with this genotype in a timely manner to initiate the R/M TNBC and R/R T-ALL Phase 2 trials at their respective target dates, or in sufficient numbers to complete these trials or our Phase 2 ACCURACY trial. Furthermore, any negative results we may report in clinical trials of any product candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in increased costs or program delays, which could have a harmful effect on our strategy to rapidly advance the clinical development of our product candidates or could render further development impossible.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and our business will be harmed.

For planning purposes, we sometimes estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies and clinical trials, the regulatory submissions or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical trials, receipt of regulatory approval or the commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

 

•

our available capital resources or capital constraints we experience;

 

•

the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians and collaborators;

 

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•

our ability to identify and enroll patients who meet clinical trial eligibility criteria;

 

•

our receipt of authorizations by the FDA and comparable foreign regulatory authorities, and the timing thereof;

 

•

other actions, decisions or rules issued by regulators;

 

•

our ability to access sufficient, reliable and affordable supplies of materials used in the manufacture of our product candidates;

 

•

our ability to manufacture and supply clinical trial materials to our clinical sites on a timely basis;

 

•

the efforts of our collaborators with respect to the commercialization of our products, if any; and

 

•

the securing of, costs related to, and timing issues associated with, commercial product manufacturing as well as sales and marketing activities.

If we fail to achieve announced milestones in the timeframes we expect, the commercialization of any of our product candidates may be delayed, and our business, results of operations, financial condition and prospects may be adversely affected.

Results of preclinical studies, early clinical trials or analyses may not be indicative of results obtained in later trials.

The results of preclinical studies, early clinical trials or analyses of our product candidates, including our post hoc analyses of AL101 and AL102, may not be predictive of the results of later-stage clinical trials or the results of clinical trials of the same product candidates in other indications. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. In addition, conclusions based on promising data from analyses of clinical results, such as our post hoc analyses, may be shown to be incorrect when implemented in prospective clinical trials. Even if our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC and any other clinical trials of AL101 or AL102 are completed as planned, we cannot be certain that their results will support the safety and efficacy sufficient to obtain regulatory approval. Product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other comparable foreign regulatory authorities despite having progressed through preclinical studies and early-stage clinical trials. Moreover, the results of clinical trials of a product candidate in a particular indication may not be predictive of the results of clinical trials of that product candidate in other indications.

In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. Patients treated with our product candidates may also be undergoing surgical, radiation and chemotherapy treatments and may be using other approved products or investigational new drugs, which can cause side effects or adverse events that are unrelated to our product candidate. As a result, assessments of efficacy and safety can vary widely for a particular patient, and from patient to patient and site to site within a clinical trial. This subjectivity can increase the uncertainty of, and adversely impact, our clinical trial outcomes. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.

 

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Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose interim top-line or preliminary data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the top-line or preliminary data we previously published. As a result, top-line and preliminary data should be viewed with caution until the final data are available.

From time to time, we may also disclose interim data from our preclinical studies and clinical trials. For example, we have reported interim data from our ongoing Phase 2 ACCURACY trial as of December 30, 2019, elsewhere in this prospectus. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock after this offering.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

If the interim top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

Our product candidates may cause serious adverse events or undesirable side effects, which may delay or prevent marketing approval, or, if approved, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our product candidates’ use. Results of any clinical trial we conduct could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Serious adverse events or undesirable side effects caused by AL101, AL102 or any other product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. To date, patients treated with AL101 or AL102 have experienced adverse events that include nausea, vomiting, diarrhea, fatigue, cough, decreased appetite, epistaxis, dry skin, insomnia and hypophosphatemia. In addition, in the Phase 1 studies conducted by BMS, there was one patient death that was assessed by the investigator to be treatment-related and there was one patient death that BMS determined could have been treatment-related.

 

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Patients in our ongoing and planned clinical trials may in the future suffer other significant adverse events or other side effects not observed in our preclinical studies or previous clinical trials. In addition, if our product candidates are used in combination with other therapies, our product candidates may exacerbate adverse events associated with the therapy and the severity and frequency of adverse events may be greater than the cumulative severity and frequency of such adverse events when the therapies are used as monotherapies. Patients treated with our product candidates may also be undergoing surgical, radiation and chemotherapy treatments, which can cause side effects or adverse events that are unrelated to our product candidates, but may still impact the success of our clinical trials. The inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using or due to the gravity of such patients’ illnesses.

If unacceptable side effects arise in the development of our product candidates, we, the FDA or the IRBs at the institutions in which our studies are conducted, or the DSMB, if constituted for our clinical trials, could recommend a suspension or termination of our clinical trials, or the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of a product candidate for any or all targeted indications. In addition, drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition and prospects significantly.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

•

regulatory authorities may withdraw approvals of such product;

 

•

regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication;

 

•

additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;

 

•

we may be required to implement a REMS or create a medication guide outlining the risks of such side effects for distribution to patients;

 

•

we could be sued and held liable for harm caused to patients;

 

•

the product may become less competitive; and

 

•

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of a product candidate, if approved, and could significantly harm our business, results of operations and prospects.

The market opportunities for AL101 and AL102, if approved, may be smaller than we anticipate.

We expect to initially seek approval of AL101 for the treatment of R/M ACC. Our projections of the number of ACC patients, the number of R/M ACC patients and the proportion of R/M ACC patients with Notch-activating mutations are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations and publicly available databases, and may prove to be incorrect. Further, new sources may reveal a change in the estimated number of patients, and the number of patients may turn out to be lower than expected. Additionally, the potential addressable patient population for our

 

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current programs or future product candidates may be limited. The ultimate market opportunity for our product candidates will depend on, among other things, the final labeling for such product candidates as agreed with the FDA or comparable foreign regulatory authorities, acceptance by the medical community and patient access, potential competition and drug pricing and reimbursement. Even if we obtain significant market share for any product candidate, if approved, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications.

We may not be successful in developing, or collaborating with others to develop, diagnostic tests to identify patients with Notch-activating mutations.

We are currently developing product candidates that target the aberrant activation of the Notch pathway and believe that our product candidates, if approved, would be used as treatments for patients with Notch-activating mutations. Commercially available diagnostic tests are limited in their ability to uncover all potential Notch-activating mutations, as they do not cover all four Notch genes and only uncover simple mutations in the Notch gene locus, such as point mutations, insertions, deletions and copy number variations. These tests are able to detect only a subset of the patients with Notch-activating mutations. To identify additional patients with Notch-activating mutations who we believe may benefit from the use of our product candidates, we intend to collaborate with leading diagnostics companies to improve the testing capabilities for Notch-activating mutations. However, the development of such diagnostic tests is expensive, difficult and we and our collaborators may be unable to successfully do so within a reasonable amount of time with acceptable costs, if at all.

In addition, collaborations are subject to substantial additional risks and uncertainties, as described under “—Risks Related to Our Dependence on Third Parties.” For example, if our collaborators do not successfully carry out their contractual duties or obligations or fail to meet expected deadlines, the addressable patient population for our product candidates may be limited. Further, if our relationship with any collaborator terminates, we may not be able to enter into alternative collaborative arrangements or do so on commercially reasonable terms. The occurrence of any of the above will have an adverse impact on our business, financial condition and prospects.

Even if we or our collaborators are successful in developing diagnostic tests that uncover additional Notch-activating mutations, such diagnostic tests may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community for reasons such as cost, ease of use and belief regarding the effectiveness of our product candidates.

We have never obtained marketing approval for a product candidate and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our product candidates.

We have never obtained marketing approval for a product candidate. It is possible that the FDA may refuse to accept for substantive review any NDAs that we submit for our product candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our product candidates. If the FDA does not accept or approve our NDAs for our product candidates, it may require that we conduct additional clinical, preclinical or manufacturing validation studies and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA that we submit may be delayed, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs.

Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability. If any of these outcomes occurs, we may be forced to abandon our development efforts for our product candidates, which could significantly harm our business.

 

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Even if we obtain FDA approval for AL101, AL102 or any other product candidate in the United States, we may never obtain approval for or commercialize AL101, AL102 or any other product candidate in any other jurisdiction, which would limit our ability to realize their full market potential.

In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country.

Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.

Additionally, in June 2016, the electorate in the United Kingdom voted to withdraw from the European Union in a national referendum, commonly referred to as Brexit. On March 29, 2017, the United Kingdom formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework affecting the pharmaceutical and biotechnology industries in the United Kingdom is derived from the European Union directives and regulations, the referendum could materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom and/or the European Union. In addition, following the Brexit vote, the European Union moved the European Medicines Agency’s, or the EMA, headquarters from the United Kingdom to the Netherlands. This transition may cause disruption in the administrative and medical scientific links between the EMA and the U.K. Medicines and Healthcare products Regulatory Agency, including delays in granting clinical trial authorization or marketing authorization, disruption of import and export of active substance and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized formulations. The cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of products in the United Kingdom and/or the European Union. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union, and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occurs, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.

Even if we obtain regulatory approval for AL101, AL102 or any product candidate, we will still face extensive and ongoing regulatory requirements and obligations and any product candidates, if approved, may face future development and regulatory difficulties.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such product, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, establishment

 

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registration and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and GCP requirements for any clinical trials that we conduct post-approval.

Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product candidate may be marketed or to the conditions of approval, including a requirement to implement a REMS. If any of our product candidates receives marketing approval, the accompanying label may limit the approved indicated use of the product candidate, which could limit sales of the product candidate. The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. Violations of the Federal Food, Drug, and Cosmetic Act, or FDCA, relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.

In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes or failure to comply with regulatory requirements, may yield various results, including:

 

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restrictions on manufacturing such products;

 

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restrictions on the labeling or marketing of products;

 

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restrictions on product manufacturing, distribution or use;

 

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requirements to conduct post-marketing studies or clinical trials;

 

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warning letters or untitled letters;

 

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withdrawal of the products from the market;

 

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refusal to approve pending applications or supplements to approved applications that we submit;

 

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recall of products;

 

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fines, restitution or disgorgement of profits or revenues;

 

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suspension or withdrawal of marketing approvals;

 

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refusal to permit the import or export of our products;

 

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product seizure; or

 

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injunctions or the imposition of civil or criminal penalties.

Further, the FDA’s policies may change, and additional government regulations may be enacted that could impose extensive and ongoing regulatory requirements and obligations on any product candidate for which we obtain marketing approval. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current presidential administration may impact our business and industry. Namely, the current presidential administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of

 

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guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of drugs for off-label uses.

If any of our product candidates is approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

If we are required by the FDA to obtain approval of a companion diagnostic device in connection with approval of one of our product candidates, and we do not obtain or face delays in obtaining FDA approval of a companion diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.

According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication. We plan to collaborate with patient diagnostic companies during our clinical trial enrollment process to help identify patients with tumor gene alterations that we believe are most likely to respond to our product candidates. For example, we have initially entered into a collaboration agreement with ArcherDX, Inc. to co-develop suitable clinical trial assays. If a satisfactory companion diagnostic is not commercially available, we may be required to create or obtain one that would be subject to regulatory approval requirements. The process of obtaining or creating such diagnostic is time consuming and costly.

Companion diagnostics are developed in conjunction with clinical programs for the associated product and are subject to regulation as medical devices by the FDA and comparable foreign regulatory authorities, and, to date, the FDA has required premarket approval of all companion diagnostics for cancer therapies. Generally, when a companion diagnostic is essential to the safe and effective use of a therapeutic product, the FDA requires that the companion diagnostic be approved before or concurrent with approval of the therapeutic product and before a product can be commercialized. The approval of a companion diagnostic as part of the therapeutic product’s labeling limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the companion diagnostic was developed to detect.

If the FDA or a comparable foreign regulatory authority requires approval of a companion diagnostic for any of our product candidates, whether before or after the product candidate obtains marketing approval, we and/or third-party collaborators may encounter difficulties in developing and obtaining approval for these companion diagnostics. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval of a companion diagnostic could delay or prevent approval or continued marketing of our related product candidates.

 

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We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent us from completing our clinical trials or commercializing our product candidates, if approved, on a timely or profitable basis, if at all.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the Securities and Exchange Commission, or the SEC, and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, in recent years, including in 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

We have been granted Orphan Drug Designation for AL101 for the treatment of ACC and may seek Orphan Drug Designation for other indications or product candidates, and we may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity, and may not receive Orphan Drug Designation for other indications or for our other product candidates.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs intended for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA to market the same product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. However, Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

In May 2019, the FDA granted Orphan Drug Designation to AL101 for the treatment of ACC. We may seek Orphan Drug Designations for AL101 in other indications or for AL102 or other product candidates. There can be no assurances that we will be able to obtain such designations.

 

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Even if we obtain Orphan Drug Designation for any product candidate in specific indications, we may not be the first to obtain marketing approval of such product candidate for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Further, even if we obtain orphan drug exclusivity in the United States for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Further, the composition of matter patents for AL101 and AL102 will expire in 2032 and 2033, respectively, and if orphan drug exclusivity does not protect these products from competition, our business and financial condition could be materially adversely affected.

Although we have received Fast Track designation for AL101, and may seek Fast Track designation for our other product candidates, such designations may not actually lead to a faster development timeline, regulatory review or approval process.

If a drug is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a drug sponsor may apply for FDA Fast Track designation. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

We have received Fast Track designation for AL101 for the treatment of patients with R/M ACC, and we may seek Fast Track designations for additional indications for AL101 or for our other product candidates. However, the FDA has broad discretion whether or not to grant such designations. If we seek a designation for a product candidate, we may not receive it from the FDA. Even if we receive it, such designation does not ensure that we will receive marketing approval or that approval will be granted within any particular time frame. We may not experience a faster development or regulatory review or approval process compared to conventional FDA procedures. In addition, the FDA may withdraw a designation if it believes that the designation is no longer supported by data from our clinical development program.

We may attempt to secure approval from the FDA or comparable foreign regulatory authorities through the use of accelerated approval pathways. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.

We may in the future seek an accelerated approval for one or more of our product candidates. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in

 

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cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verity and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its approval of the drug.

Prior to seeking accelerated approval for any of our product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit an NDA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or receive an expedited regulatory designation for our product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing, including bridging or comparability testing to demonstrate the validity of clinical data obtained in clinical trials following manufacturing changes, FDA notification or FDA approval.

Because certain of our prior clinical trials of AL101 and AL102 were conducted by third parties, we will need to perform analytical and other tests to demonstrate that any new drug product material is comparable in all respects, including potency, to the product used in such earlier clinical trials. There is no assurance that any such product will pass the required comparability testing, that any other future third-party manufacturer that we engage will be successful in producing our product candidates or that any materials produced by any third-party manufacturer that we engage will have the same effect in patients that we have observed to date with respect to materials used in prior clinical trials.

All of the above could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence sales and generate revenue.

Moreover, we have not yet manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates if approved. We may make changes as we work to optimize our manufacturing processes, but we cannot be sure that even minor changes in our processes will result in therapies that are safe and effective and approved for commercial sale.

 

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Potential product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

The use of AL101, AL102 or any other product candidates we may develop in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

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impairment of our business reputation and significant negative media attention;

 

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withdrawal of participants from our clinical trials;

 

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significant costs to defend the litigation;

 

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distraction of management’s attention from our primary business;

 

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substantial monetary awards to patients or other claimants;

 

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inability to commercialize AL101, AL102 or any other product candidate;

 

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product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

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decreased market demand for any product, if approved; and

 

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loss of revenue.

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

We currently carry insurance with an aggregate of $5 million in coverage. However, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, property, umbrella, clinical trials and directors’ and officers’ insurance.

Any additional product liability insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for any of our product candidates, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the commercialization of any product candidates we develop.

We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

 

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Risks Related to Commercialization

We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results than those achieved by our product candidates. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly as they develop novel approaches to treating disease indications that our product candidates are also focused on treating. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaboration partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products.

We consider our most direct competitors with respect to AL101 and AL102 to be companies developing gamma secretase inhibitors, including SpringWorks Therapeutics, Inc. and Celgene Corporation, recently acquired by BMS, or companies that develop Notch inhibitors, including Cellestia Biotech AG and Ciclomed LLC. In addition, with respect to AL101 for the treatment of ACC, we are aware that other companies are, or may be, developing products for this indication, including GlaxoSmithKline plc, Cellestia Biotech AG and LSK BioPartners, Inc. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.

Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. For additional information regarding our competition, see “Business—Competition.”

The successful commercialization of AL101, AL102 and any other product candidate we develop will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels, and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as AL101 and AL102, if approved. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize AL101, AL102 and any other product candidates we develop. Assuming we obtain coverage for our product candidates by a third-party payor,

 

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the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar, or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing drugs may limit the amount we will be able to charge for our product candidates. Increasingly, other third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates and may not be able to obtain a satisfactory financial return on our product candidates.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.

No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries have and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of the national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and third-party payors in the United States to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates.

 

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We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

Even if AL101, AL102 or any other product candidate we develop receives marketing approval, it may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

If AL101, AL102 or any other product candidate we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If it does not achieve an adequate level of acceptance, we may not generate significant product revenues or become profitable. The degree of market acceptance of our product candidates, if approved, will depend on a number of factors, including but not limited to:

 

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the efficacy and potential advantages compared to alternative treatments;

 

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effectiveness of sales and marketing efforts;

 

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the cost of treatment in relation to alternative treatments, including any similar generic treatments;

 

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our ability to offer our products for sale at competitive prices;

 

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the convenience and ease of administration compared to alternative treatments;

 

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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

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the strength of marketing and distribution support;

 

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the timing of market introduction of competitive products;

 

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the availability of third-party coverage and adequate reimbursement;

 

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product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations on warnings contained in a product’s approved labeling;

 

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the prevalence and severity of any side effects; and

 

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any restrictions on the use of our product together with other medications.

Because we expect sales of our product candidates, if approved, to generate substantially all of our revenues for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business and could require us to seek additional financing.

If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing AL101 and AL102, if approved.

We do not have any infrastructure for the sales, marketing or distribution of AL101 and AL102, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market and successfully commercialize AL101, AL102 or any other product candidate we develop, if approved, we must build our sales, distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We expect to build a focused sales, distribution and marketing infrastructure to market AL101 and AL102, if approved. There are significant expenses and risks involved with establishing our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing

 

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team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any product launch, which would adversely impact the commercialization of that product. Additionally, if the commercial launch of AL101 or AL102 for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

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the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to prescribe our products; and

 

•

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

We do not anticipate having the resources in the foreseeable future to allocate to the sales and marketing of our product candidates, if approved, in certain markets overseas. Therefore, our future success will depend, in part, on our ability to enter into and maintain collaborative relationships for such capabilities, the collaborator’s strategic interest in a product and such collaborator’s ability to successfully market and sell the product. We intend to pursue collaborative arrangements regarding the sale and marketing of AL101 and AL102, if approved, for certain markets overseas; however, we cannot assure you that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that they will have effective sales forces. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful.

If we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of AL101 and AL102, we may be forced to delay the potential commercialization of AL101 and AL102 or reduce the scope of our sales or marketing activities for AL101 or AL102. If we need to increase our expenditures to fund commercialization activities for AL101 and AL102, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. We may also have to enter into collaborative arrangements for AL101 and AL102 at an earlier stage than otherwise would be ideal and we may be required to relinquish rights to AL101 and AL102 or otherwise agree to terms unfavorable to us. Any of these occurrences may have an adverse effect on our business, operating results and prospects.

If we are unable to establish adequate sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates and may never become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

A variety of risks associated with operating internationally could materially adversely affect our business.

Our principal executive offices are located in Israel and certain of our product candidates may be manufactured at third-party facilities located in the United States, United Kingdom, India and Australia. In addition, our business strategy includes potentially expanding internationally if any of our product candidates receives regulatory approval. Doing business internationally involves a number of risks, including but not limited to:

 

•

multiple, conflicting and changing laws and regulations, such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

 

•

failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;

 

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•

additional potentially relevant third-party patent rights;

 

•

complexities and difficulties in obtaining protection and enforcing our intellectual property;

 

•

difficulties in staffing and managing foreign operations;

 

•

complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;

 

•

limits in our ability to penetrate international markets;

 

•

financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;

 

•

natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;

 

•

certain expenses including, among others, expenses for travel, translation and insurance; and

 

•

regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions, or its anti-bribery provisions.

Any of these factors could significantly harm our international expansion and operations and, consequently, our results of operations.

Risks Related to Our Dependence on Third Parties

Our employees and independent contractors, including principal investigators, CROs, consultants, vendors, and any third parties we may engage in connection with development and commercialization may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

Our employees and independent contractors, including principal investigators, consultants, vendors and any third parties we may engage in connection with development and commercialization of our product candidates, could engage in misconduct, including intentional, reckless or negligent conduct or unauthorized activities that violate the laws and regulations of the FDA or other similar regulatory requirements of other authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; manufacturing standards; data privacy, security, fraud and abuse and other healthcare laws and regulations; or laws that require the reporting of true, complete and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other

 

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U.S. federal healthcare programs or healthcare programs in other jurisdictions, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.

We currently rely on third-party contract manufacturing organizations, or CMOs, for the production of clinical supply of AL101 and AL102 and intend to rely on CMOs for the production of commercial supply of AL101 and AL102, if approved. Our dependence on CMOs may impair the development of AL101 and AL102 and may impair the commercialization of AL101 and AL102, if approved, which would adversely impact our business and financial position.

We have limited personnel with experience in manufacturing, and we do not own facilities for manufacturing AL101, AL102 or any product candidate. Instead, we rely on and expect to continue to rely on CMOs for the supply of cGMP-grade clinical trial materials and commercial quantities of AL101, AL102 and any future product candidates, if approved. Reliance on CMOs may expose us to more risk than if we were to manufacture our product candidates ourselves. We plan to rely on CMOs to provide a sufficient clinical and commercial supply of AL101 and AL102.

The facilities used to manufacture our product candidates must be inspected by the FDA and comparable foreign authorities. While we provide oversight of manufacturing activities, we do not and will not control the execution of manufacturing activities by, and are or will be essentially dependent on, our CMOs for compliance with cGMP requirements for the manufacture of our product candidates. As a result, we are subject to the risk that our product candidates may have manufacturing defects that we have limited ability to prevent. CMOs may also have competing obligations that prevent them from manufacturing our product candidates in a timely manner. If a CMO cannot successfully manufacture material that conforms to our specifications and the regulatory requirements, we will not be able to secure or maintain regulatory approval for the use of our product candidates in clinical trials, or for commercial distribution of our product candidates, if approved. In addition, we have limited control over the ability of our CMOs to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or comparable foreign regulatory authority finds deficiencies with or does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval or finds deficiencies in the future, we may need to find alternative manufacturing facilities, which would delay our development program and significantly impact our ability to develop, obtain regulatory approval for or commercialize our product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacture of our product candidates or that obtained approvals could be revoked. Furthermore, CMOs may breach existing agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreement at a time that is costly or otherwise inconvenient for us. If we were unable to find an adequate CMO or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

We rely on and will continue to rely on CMOs to purchase from third-party suppliers the raw materials necessary to produce our product candidates. We do not and will not have control over the process or timing of the acquisition of these raw materials by our CMOs. Moreover, we currently do not have any agreements for the production of these raw materials. Supplies of raw materials could be interrupted from time to time and we cannot be certain that alternative supplies could be obtained within a reasonable time frame, at an acceptable cost, or at all. In addition, a disruption in the supply of raw materials could delay the commercial launch of our product candidates, if approved, or result in a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates. Growth in the costs and expenses of raw materials may also impair our ability to cost effectively manufacture our product candidates. There are a limited number of suppliers for the raw materials that we may use to manufacture our product candidates and we may need to assess alternative suppliers to prevent a possible disruption of the manufacture of our product candidates. Moreover, our product candidates utilize drug substances that are produced on a small scale, which could limit our ability to reach agreements with alternative suppliers.

 

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Finding new CMOs or third-party suppliers involves additional cost and requires our management’s time and focus. In addition, there is typically a transition period when a new CMO commences work. Although we generally have not, and do not intend to, begin a clinical trial unless we believe we have on hand, or will be able to obtain, a sufficient supply of our product candidates to complete the clinical trial, any significant delay in the supply of our product candidates or the raw materials needed to produce our product candidates, could considerably delay conducting our clinical trials and potential regulatory approval of our product candidates.

As part of their manufacture of our product candidates, our CMOs and third-party suppliers are expected to comply with and respect the intellectual property and proprietary rights of others. If a CMO or third-party supplier fails to acquire the proper licenses or otherwise infringes, misappropriates or otherwise violates the intellectual property or proprietary rights of others in the course of providing services to us, we may have to find alternative CMOs or third-party suppliers or defend against applicable claims, either of which would significantly impact our ability to develop, obtain regulatory approval for or commercialize our product candidates, if approved.

We are dependent on a small number of suppliers for some of the materials used to manufacture our product candidates, and on one company for the manufacture of the active pharmaceutical ingredient for each of our product candidates.

We currently depend on a small number of suppliers for some of the materials used in, and processes required to develop, our product candidates. We cannot ensure that these suppliers or service providers will remain in business or have sufficient capacity or supply to meet our needs, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to work with us. Our use of a small number of suppliers exposes us to several risks, including disruptions in supply, price increases or late deliveries. There are, in general, relatively few alternative sources of supply for substitute materials. Our current vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Finding suitable replacement suppliers, materials and processes could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption or delay in supply could compromise our ability to pursue development and eventual commercialization of our product candidates.

We intend to rely on third parties to conduct, supervise and monitor our clinical trials. If those third parties do not successfully carry out their contractual duties, or if they perform in an unsatisfactory manner, it may harm our business.

We rely, and will continue to rely, on CROs, CRO-contracted vendors and clinical trial sites to ensure the proper and timely conduct of our clinical trials, including our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC. Our reliance on CROs for clinical development activities limits our control over these activities, but we remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards.

We and our CROs will be required to comply with the Good Laboratory Practice requirements for our preclinical studies and GCP requirements for our clinical trials, which are regulations and guidelines enforced by the FDA and are also required by comparable foreign regulatory authorities. Regulatory authorities enforce GCP requirements through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCP requirements.

 

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In addition, our clinical trials must be conducted with product produced under cGMP requirements. Accordingly, if our CROs fail to comply with these requirements, we may be required to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be adversely affected if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Our CROs are not our employees, and we do not control whether or not they devote sufficient time and resources to our clinical trials. Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities, which could affect their performance on our behalf. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

If our relationship with any CROs terminates, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management’s time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.

Our existing collaboration with Novartis is, and any future collaborations will be, important to our business. If we are unable to maintain our existing collaboration or enter into new collaborations, or if these collaborations are not successful, our business could be adversely affected.

An important part of our strategy is to evaluate and, as deemed appropriate, extend our current or enter into additional partnerships in the future, including potentially with major biopharmaceutical companies. We have limited capabilities for product development and do not yet have any capability for commercialization. Accordingly, we have entered into an evaluation, option and license agreement with Novartis, or the Novartis Agreement, that provides Novartis with the exclusive ability to evaluate, develop, and potentially license, AL102 in combination with Novartis’ BCMA-targeting agents for the treatment of MM. For more information regarding the Novartis Agreement, please see “Business—License Agreements.” We may also enter into collaborations with other companies to provide us with important technologies or funding for our programs.

Any current or future collaborations we may extend or enter into may pose a number of risks, including the following:

 

•

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

•

collaborators may not perform their obligations as expected;

 

•

collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on preclinical study or clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

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•

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

•

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

•

for collaborations involving combination therapies that have not yet been tested together, treatment emergent adverse events may be unforeseen and may negatively impact the development of our product candidates;

 

•

collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of a product candidate or product;

 

•

a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;

 

•

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

•

collaborators may not properly obtain, maintain, enforce or defend our intellectual property rights or proprietary rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

•

collaborators may infringe, misappropriate or otherwise violate the intellectual property or proprietary rights of third parties, which may expose us to litigation and potential liability;

 

•

collaborations may be terminated for the convenience of the collaborator and, if terminated, we would potentially lose the right to pursue further development or commercialization of the applicable product candidates;

 

•

collaborators may learn about our technology and use this knowledge to compete with us in the future;

 

•

there may be conflicts between different collaborators that could negatively affect those collaborations and potentially others;

 

•

the number and type of our collaborations could adversely affect our attractiveness to future collaborators or acquirers; and

 

•

the loss of, or a disruption in our relationship with, any one or more collaborators could harm our business.

Under the Novartis Agreement, the combination of AL102 with BCMA-targeting agents for the treatment of MM is currently being developed. Under the Novartis Agreement, upon completion of the relevant evaluation studies, we and Novartis will negotiate in good faith to provide for the expansion of the respective clinical collaboration and the establishment of a commercial relationship. However, Novartis has no obligation to continue development of the combination products, regardless of the applicable evaluation studies results.

If any collaborations do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research and

 

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development funding or milestone or royalty payments under such collaborations. If we do not receive the funding we expect under these agreements, our continued development of our product candidates could be delayed and we may need additional resources to develop additional product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of any collaborators and there can be no assurance that our collaborations will produce positive results or successful products on a timely basis or at all.

Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination or otherwise changes its business priorities, the collaborator might deemphasize or terminate the development or commercialization of our product candidates. If a collaborator terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of our business and our stock price could be adversely affected.

We may in the future collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of our product candidates. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our programs, and our business may be materially and adversely affected.

If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products, technology or data from third parties, including those for AL101 and AL102, we could lose such rights that are important to our business.

In November 2017, we licensed rights to AL101 and AL102 pursuant to the BMS License Agreement. This agreement imposes on us, and additional agreements we may enter into with other parties in the future may impose on us, diligence, development and commercialization timelines, milestone and royalty payment, insurance and other obligations.

For example, in exchange for the rights granted to us under the BMS License Agreement, we are obligated to pay BMS up to a total of $16.5 million in milestone payments for the ultimate approval of AL101 for the treatment of ACC in addition to other milestone payments that we are required to pay upon the achievement of other clinical development and commercial milestones, royalty payments that could range from a high single-digit to a low teen percentage on net sales of products containing AL101 or AL102, as well as a portion of all consideration we receive in connection with the sublicense or assignment of any patent rights we licensed from BMS, ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced product candidate that is subject to the applicable sublicense or assignment. If we or any of our collaborators fail to comply with our obligations under the BMS License Agreement or other current or future agreements, BMS or counterparties to other agreements may have the right to terminate such agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or

 

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cause us to lose our rights under these agreements, including our rights to important intellectual property or technology, and we may be required to cease the development and commercialization of AL101 and AL102 and any future product candidates that are subject to such agreements.

License agreements may also require us to meet specified development thresholds to maintain the license, including establishing a set timeline for developing and commercializing products.

Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

•

the scope of rights granted under the license agreement and other interpretation-related issues;

 

•

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

 

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the sublicensing of patent and other rights under our collaborative development relationships;

 

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our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

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the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

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the priority of invention of patented technology.

In addition, intellectual property license agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. Any of the foregoing risks could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Risks Related to Healthcare Laws and Other Legal Compliance Matters

Enacted and future healthcare legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates, if approved, and may affect the prices we may set.

In the United States, European Union, or EU, and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include the following:

 

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an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market share in certain government healthcare programs;

 

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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

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new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and their immediate family members;

 

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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively and an extension of the rebate program to individuals enrolled in Medicaid managed care organizations;

 

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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;

 

•

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

 

•

creation of the Independent Payment Advisory Board, which, once empaneled, will have the authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law unless overruled by a supermajority vote of Congress; and

 

•

establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial, Congressional and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. The current presidential administration and Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. The Tax Cuts and Jobs Act of 2017 includes a provision that 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.” On December 14, 2018, the U.S. District Court for the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed, the remaining provisions of the ACA are invalid as well. The presidential administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the U.S. District Court for the Northern District of Texas issued an order staying the judgment pending appeal. Litigation and legislation over the ACA are likely to continue and it is uncertain the extent to which any such changes may impact our business or financial condition.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, the Budget Control Act of 2011, resulted in aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additionally, the orphan drug tax credit was reduced as part of a broader tax reform. Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to request access to certain IND products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right

 

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to Try Act. These new laws or any other similar laws introduced in the future may result in additional reductions in Medicare and other healthcare funding, which could negatively affect our customers and accordingly, our financial operations.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing.

In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates, if approved.

In markets outside of the United States and EU, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action in the United States, the EU or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.

 

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Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers will be subject to applicable healthcare regulatory laws, which could expose us to penalties.

Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our product candidates, if approved. Such laws include:

 

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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any good, facility, item, or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

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the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act, or FCA, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA;

 

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the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, 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; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, which also imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and healthcare providers as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information;

 

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the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

 

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the U.S. federal legislation commonly referred to as the Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics, and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the government information related to certain payments and other transfers of value to physicians, certain other healthcare professionals, and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Additionally, on October 25, 2018, President Trump signed into law the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities

 

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Act” which in part (under a provision entitled “Fighting the Opioid Epidemic with Sunshine”) extends the reporting and transparency requirements for physicians in the Physician Payments Sunshine Act to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives (with reporting requirements going into effect in 2022 for payments made in 2021);

 

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analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and state laws governing the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts, such as the California Consumer Protection Act, or the CCPA, which came into effect beginning in January 2020 and, among other things, requires new disclosures to California individuals and affording such individuals new abilities to opt out of certain sales of personal information, in addition to severely limiting our ability to use their information; and

 

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similar healthcare laws and regulations in the EU and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of certain protected information, such as the General Data Protection Regulation, or the GDPR, which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the European Economic Area, or the EEA, and the United Kingdom (including health data).

Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

Any clinical trial programs we conduct or research collaborations we enter into in the EEA may subject us to the GDPR.

If we conduct clinical trials or enter into research collaborations in the EEA, we may be subject to the GDPR. The GDPR applies extraterritorially and implements stringent operational requirements for processors and controllers of personal data, including, for example, high standards for obtaining consent from individuals to process then personal data, robust disclosures to individuals, a comprehensive individual data rights regime, data export restrictions governing transfers of data from the EU, to other jurisdictions, short timelines for data breach

 

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notifications, limitations on retention of information, increased requirements pertaining to health data, other special categories of personal data and pseudonymised (i.e., key-coded) data and additional obligations if we contract third-party processors in connection with the processing of personal data. The GDPR provides that EU member states may establish their own laws and regulations limiting the processing of personal data, including genetic, biometric or health data, which could limit our ability to use and share personal data or could cause our costs to increase. If our or our partners’ or service providers’ privacy or data security measures fail to comply with GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of our total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.

We are subject to environmental, health and safety laws and regulations, and we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities.

Our operations, including our development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release and disposal of and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.

As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, the production efforts of our third-party manufacturers or our development efforts may be interrupted or delayed.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations. We can face serious consequences for violations.

Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents or partners, even if we do not explicitly authorize or have prior knowledge of such activities. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the Trade Laws. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

 

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Risks Related to Our Intellectual Property

If we fail to comply with our obligations under our existing intellectual property license with BMS and any future intellectual property licenses with third parties, we could lose rights that are important to our business, including the right to develop and commercialize the AL101 and AL102 product candidates.

We are party to a license agreement with BMS which gives us the right to practice certain issued patents to develop and commercialize AL101 and AL102. We may enter into additional license agreements in the future. Our existing license agreements impose, and any future license agreements are likely to impose, various diligence, milestone payment, royalty, insurance and other obligations on us. Any uncured, material breach under these license agreements could result in the loss of our rights to practice such in-licensed intellectual property and could compromise our development and commercialization efforts for any current product candidates, including requiring us to cease the development and commercialization of AL101 and AL102, or future product candidates.

If we are unable to obtain, maintain, protect and enforce patent and other intellectual property protection for our technology and products or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our proprietary technologies, product candidate development programs and product candidates. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to AL101, AL102 and any future product candidates. We seek to protect our proprietary position by filing or collaborating with our licensors to file patent applications in the United States and abroad related to our development programs and product candidates. The patent prosecution process is expensive, time-consuming and complex, and we and our collaborators may not be able to file, prosecute, maintain or enforce all necessary or desirable patent applications at a reasonable cost or in a timely manner. Moreover, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

It is possible that we will fail to identify further patentable aspects of our research and development output before it is too late to obtain patent protection. Although we enter into confidentiality agreements with employees, consultants, CROs, contractors, manufacturers, advisors and other third parties who have access to our confidential information, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States, EU and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or any licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. The patent applications that we own, or in-license, may fail to result in issued patents with claims that provide further coverage of AL101, AL102 or any other product candidate in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Additionally, any U.S. provisional patent application that we or our licensors file is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of filing the related provisional patent application. If we or our licensors do not timely file any non-provisional patent application, we may lose our priority date with respect to the provisional patent application and any patent protection on the inventions disclosed in the provisional patent application. Even if patents do successfully issue and even if such patents further cover AL101, AL102 or any future product candidate, third parties may challenge their validity, ownership, enforceability or scope, which may result in such patents being narrowed, invalidated, circumvented, or held unenforceable. Any successful challenge to these patents or any other patents owned by or licensed to us could

 

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deprive us of rights necessary for the successful commercialization of AL101, AL102, or any other product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.

If the patent applications we own or have in-licensed with respect to our development programs and product candidates fail to issue, if their validity, breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for AL101, AL102 or any future product candidate, it could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to commercialize future product candidates. Any such outcome could have a material adverse effect on our business.

The patent position of biotechnology and pharmaceutical companies is highly uncertain, involves complex legal, scientific, and factual questions, and is characterized by the existence of large numbers of patents and frequent litigation based on allegations of patent or other intellectual property infringement, misappropriation or other violations. In addition, the laws of jurisdictions outside the United States may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish our ability to protect our inventions or obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our patents or narrow the scope of our patent protection. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in the issuance of patents, or may result in the issuance of patents which fail to protect our technology or products, in whole or in part, or which fail to effectively prevent others from commercializing competitive technologies and products.

The issuance of a patent is not conclusive as to its inventorship, ownership, scope, validity or enforceability, and we may be subject to a third-party pre-issuance submission of prior art, or our owned and licensed patents may be challenged, in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Thus, even if our patent applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Patent term extensions may be available; however the life of a patent, and the protection it affords, is limited. Without sufficient patent protection for our current or future product candidates, we may be open to competition from generic versions of such products. Our competitors or other third parties may also be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.

In addition, 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. Moreover, some of our owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. 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. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

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Third parties may assert claims against us alleging infringement, misappropriation or other violation of their patents or other intellectual property rights, and we may need to become involved in lawsuits to protect or enforce our patents or other intellectual property rights, either of which could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our product candidates, prohibit our use of proprietary technology or sale of products or put our patents and other proprietary rights at risk.

Our commercial success depends, in part, upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates without alleged or actual infringement, misappropriation or other violations of the patents and proprietary rights of third parties. Litigation relating to infringement, misappropriation or other violation of patent and other intellectual property rights in the pharmaceutical and biotechnology industries is common, including patent infringement lawsuits, interferences, oppositions and post-grant review, inter partes review, reexamination and derivation proceedings before the U.S. Patent and Trademark Office, or USPTO, and corresponding foreign patent offices. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights, and third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. In addition, many companies in intellectual property-dependent industries, including the biotechnology and pharmaceutical industries, have employed intellectual property litigation as a means to gain an advantage over their competitors. Numerous U.S., EU and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates, and as the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement, misappropriation or other violation of the intellectual property rights of third parties. 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. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.

We may be subject to third-party claims including infringement, interference or derivation proceedings, post-grant review, inter partes review and reexamination proceedings before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. In order to successfully challenge the validity of any such U.S. patent in federal courts, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that any such third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to commercialize the applicable product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to prohibit our use of those compositions, formulations, methods of treatment, prevention or use or other technologies, effectively blocking our ability to develop and commercialize the applicable product candidate until such patent expires or is finally determined to be invalid or unenforceable or unless we obtained a license.

In addition, defending such claims would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be infringing a third party’s patent or other intellectual property rights. These damages potentially include increased damages (possibly treble damages) and attorneys’ fees if we are found to have infringed such rights willfully. Further, if a patent or other intellectual property infringement suit is brought against us or our third-party service providers, our development, manufacturing or sales activities relating to the product or product candidate that is the subject of the suit may be delayed or terminated, as parties making claims against us may obtain injunctive or other equitable relief. As a result of patent or other intellectual property infringement claims, or in order to avoid potential infringement claims, we may choose to seek, or be required to seek, a license from the third party in order to develop and commercialize

 

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the applicable product candidate, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights. These licenses may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be non-exclusive, which would give our competitors access to the same intellectual property rights. If we are unable to enter into a license on acceptable terms, we could be prevented from commercializing one or more of our product candidates, or forced to modify such product candidates, or to cease some aspect of our business operations, which could harm our business significantly. We might also be forced to redesign or modify our product candidates so that we no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be impossible or technically infeasible. Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. In addition, if the breadth or strength of protection provided the patents and patent applications we own or in-license is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

If we or one of our licensors or collaborators were to initiate legal proceedings against a third party to enforce an owned or in-licensed patent covering one of our product candidates, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States and in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace, and a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Third parties might allege unenforceability of our patents because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Our patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, 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 this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop, manufacture and market our product candidates.

We cannot guarantee that any of our or our licensors’ patent searches or analyses, including but not limited to the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are

 

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complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States, Europe and elsewhere that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. For example, in the United States, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States, EU and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could be filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. After issuance, the scope of patent claims remains subject to construction as determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States, the EU or elsewhere that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates.

From time to time we may identify patents or applications in the same general area as our products and product candidates. We may determine these third-party patents are irrelevant to our business based on various factors including our interpretation of the scope of the patent claims and our interpretation of when the patent expires. If the patents are asserted against us, however, a court may disagree with our determinations. Further, while we may determine that the scope of claims that will issue from a patent application does not present a risk, it is difficult to accurately predict the scope of claims that will issue from a patent application, our determination may be incorrect, and the issuing patent may be asserted against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay monetary damages, we may be temporarily or permanently prohibited from commercializing our product candidates or be required to obtain a license under such patent, which may not be available on reasonable terms or at all. We might, if possible, also be forced to redesign our product candidates so that we no longer infringe, misappropriate or otherwise violate the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biopharmaceutical and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical and pharmaceutical industries involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical and pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the Leahy-Smith America Invents Act, or the AIA, which was passed in September 2011, resulted in significant changes to the U.S. patent system.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after that date but before us could

 

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therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. This will require us to be cognizant of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent with the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action.

Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.

We may become involved in opposition, interference, derivation, inter partes review, post-grant review, reexamination or other proceedings challenging our or our licensors’ patent rights, and the outcome of any proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our owned or in-licensed patent rights, in whole or in part, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

Additionally, 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 addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the validity, enforceability and value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, as well as similar bodies in other jurisdictions, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, the complexity and uncertainty of European patent laws have also increased in recent years. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business, and these laws and regulations patents could continue to change in unpredictable ways that could have a material adverse effect on our existing patent rights and our ability to protect and enforce our intellectual property in the future.

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 European and other patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance, renewal and annuity fees on any issued patent are due to be paid to the USPTO and European and other patent agencies over the lifetime of a patent. While an inadvertent failure to make payment of such fees or to comply with such provisions can in many cases be cured by additional payment of a late fee or by other means in accordance with the applicable rules, there are situations in which such noncompliance will result in the abandonment or lapse of the patent or patent application, and the partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or

 

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patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If we or our licensors fail to maintain the patents and patent applications covering our product candidates or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, our competitors might be able to enter the market, which would hurt our competitive position and could impair our ability to successfully commercialize our product candidates in any indication for which they are approved, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property and proprietary rights throughout the world.

Filing, prosecuting and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In-licensing patents covering our product candidates in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all, and even in-licensing or filing, prosecuting and defending patents in only those jurisdictions in which we develop or commercialize our product candidates may still be prohibitively expensive or impractical. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensed patents to develop their own products and, further, may export otherwise infringing products to territories where we and our licensors have patent protection, but enforcement is not as strong as that in the United States or the EU. These products may compete with our product candidates, and our or our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, we may decide to abandon national and regional patent applications while they are still pending. The grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications may be rejected by the relevant patent office, while substantively similar applications are granted by others. For example, relative to other countries, China has a heightened requirement for patentability and specifically requires a detailed description of medical uses of a claimed drug. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for and launch generic versions of our products. It is also common for, depending on the country, the scope of patent protection to vary for the same product candidate or technology.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or regulations in the United States and the EU, and many companies have encountered significant difficulties in protecting and defending proprietary rights in such jurisdictions. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets or other forms of intellectual property, which could make it difficult for us to prevent competitors in some jurisdictions from marketing competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, are likely to result in substantial costs and divert our efforts and attention from other aspects of our business, and additionally could put at risk our or our licensors’ patents of being invalidated or interpreted narrowly, could increase the risk of our or our licensors’ patent applications not issuing, or could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, while damages or other remedies may be awarded to the adverse party, which may be commercially significant. If we prevail, damages or other remedies awarded to us, if any, may not be commercially meaningful. 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. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights

 

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in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign markets. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition in those jurisdictions.

In some jurisdictions, compulsory licensing laws compel patent owners to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties under patents relevant to our business, or if we or our licensors are prevented from enforcing patent rights against third parties, our competitive position may be substantially impaired in such jurisdictions. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of marketing exclusivity for our product candidates, our business may be materially harmed.

The term of any individual patent depends on applicable law in the country where the patent is granted. In the United States, provided all maintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or earliest claimed non-provisional filing date. Extensions may be available under certain circumstances, but the life of a patent and, correspondingly, the protection it affords is limited. Even if we or our licensors obtain patents covering our product candidates, when the terms of all patents covering a product expire, our business may become subject to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory review and approval of new product candidates, patents protecting such candidates may 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.

In the United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period of the patent term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. While the length of such patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per approved drug may be extended and only those claims covering the approved drug product, a method for using it or a method for manufacturing it may be extended. In the EU, our product candidates may be eligible for patent term extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents, fail to exercise due diligence during the testing phase or regulatory review process or otherwise fail to satisfy applicable requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner. The resulting reduction of years of revenue from applicable products could be substantial.

Further, under certain circumstances, patent terms covering our products or product candidates may be extended for time spent during the pendency of the patent application in the USPTO (referred to as patent term adjustment, or PTA). The laws and regulations underlying how the USPTO calculates the PTA is subject to

 

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change and any such PTA granted by the USPTO could be challenged by a third party. If we do not prevail under such a challenge, the PTA may be reduced or eliminated, resulting in a shorter patent term, which may negatively impact our ability to exclude competitors. Because PTA added to the term of patents covering pharmaceutical products has particular value, our business may be adversely affected if the PTA is successfully challenged by a third party and our ability to exclude competitors is reduced or eliminated.

Our proprietary rights may not adequately protect our technologies and product candidates, and do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

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others may be able to make products that are similar to AL101, AL102 or our future product candidates but that are not covered by the claims of the patents that we own or exclusively licensed;

 

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others, including inventors or developers of our owned or in-licensed patent technologies who may become involved with competitors, may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights;

 

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we or any of our collaborators might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license;

 

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we or any of our collaborators might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own, license or will own or license;

 

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it is possible that our pending patent applications will not lead to issued patents;

 

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it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents;

 

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issued patents that we own or exclusively license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

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our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

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ownership, validity or enforceability of our or our licensors’ patents or patent applications may be challenged by third parties; and

 

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the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that our trade secrets will be misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets and protect other proprietary information.

We consider proprietary trade secrets and confidential or unpatented know-how to be important to our business. We may rely on trade secrets or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers. Because we expect to rely on third parties to manufacture AL101, AL102 and any future product candidates, and we expect to collaborate with third parties on the

 

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development of AL101, AL102 and any future product candidates, we must, at times, share trade secrets with them. We also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Under such circumstances, trade secrets or confidential know-how can be difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, CROs, contractors, manufacturers, advisors and other third parties who have access to our confidential information to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with us prior to beginning research or us disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology. Despite our efforts, any such parties may breach these agreements and unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our competitive position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations. Enforcing a claim that a third party obtained illegally or misappropriated trade secrets or confidential know-how is expensive, time consuming and unpredictable, and the enforceability of confidentiality agreements and the protection of trade secrets generally may vary from jurisdiction to jurisdiction.

In addition, our agreements typically restrict the ability of our advisors, employees, third-party contractors, consultants, CROs, manufacturers, advisors and other third parties to publish data potentially relating to our trade secrets, although the agreements may grant certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors or other third parties may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s or other third party’s discovery of our trade secrets would impair our competitive position and have a material adverse effect on our business.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

We may also rely on trademarks and trade names to protect our business. If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

 

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We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

The growth of our business may depend in part on our ability to acquire or in-license additional intellectual property or proprietary rights. For example, our programs may involve product candidates that may require the use of additional intellectual property or proprietary rights held by third parties. Our product candidates may also require specific formulations to work effectively and efficiently, which may be covered by intellectual property rights held by others. We may also develop products containing combinations of our compositions and pre-existing pharmaceutical compositions, and could be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates, both of which may also be covered by intellectual property rights held by others. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary or important to our business operations at a reasonable cost or on reasonable terms, if at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. In cases where we are unable to procure sufficient rights to third-party intellectual property rights, we might need to cease use of the compositions or methods covered by such third-party intellectual property rights and/or develop alternative approaches that do not infringe, misappropriate or otherwise violate such intellectual property rights. This could entail additional costs and development delays, and the development of such alternatives may not be feasible. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us. Any of the foregoing could prevent us from developing or commercializing one or more of our product candidates, or force us to modify such product candidates, or to cease some aspect of our business operations, which could have a material adverse effect on our business.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties or claims asserting ownership of what we regard as our own intellectual property.

We do and may employ and contract with individuals who were previously employed by other biotechnology or pharmaceutical companies. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, collaborators and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us and to not use the know-how or confidential information of their former employer or other third parties, we cannot guarantee that we have executed such agreements with all applicable parties. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

In addition, while it is our policy to require our employees, contractors and other third parties who may be involved in the conception or 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, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights under such agreements may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine

 

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the ownership of what we regard as our intellectual property. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Our use of “open source” software could subject our proprietary software to general release and subject us to possible litigation.

Our bioinformatics platform incorporates software licensed under so-called “open source” licenses and we may incorporate open source software into other technologies in the future. Usage of open source software can lead to greater risks than the use of other third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software or other contractual protections or code quality, as it is generally freely accessible and made available to the general public on an “as-is” basis under the terms of a non-negotiable license. Some open source licenses contain requirements that the user disclose source code for modifications it makes to the open source software and license such modifications to third parties at no cost. We monitor our use of open source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code based on our modifications of open source code. However, there can be no assurance that such efforts will be successful and we could face claims that we are utilizing open source software in breach of the applicable licenses, which could result in litigation that may cause us to be required to disclose our proprietary source code based on our modifications of open source code, incur expenses and be liable for damages and such litigation could distract our personnel from their normal responsibilities.

Risks Related to Our Employees, Managing Our Growth and Our Operations

Our future success depends on our ability to retain our key personnel and to attract, retain and motivate qualified personnel.

We are highly dependent on the development, regulatory, commercialization and business development expertise of Roni Mamluk, M.D., Ph.D., our Chief Executive Officer, as well as the other principal members of our management, scientific and clinical teams. Although we have formal employment agreements, offer letters or consulting agreements with our executive officers, these agreements do not prevent them from terminating their services at-will with 60 days’ to three months’ advance notice.

If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability to develop and commercialize product candidates will be limited.

We may engage in acquisitions or in-licensing transactions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire or license, as applicable, other businesses, products or technologies. If we do identify suitable candidates, we may not be able to make such acquisitions or licenses on favorable terms, or at all. Any acquisitions or in-license we make may not strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur

 

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debt in connection with an acquisition or in-license or issue common stock or other equity securities to the stockholders of the counterparty, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business, product or technology that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner. Acquisitions and in-licensing may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

Our business and operations would suffer in the event of system failures.

Our computer systems, as well as those of our CROs and other contractors and consultants, are vulnerable to damage from computer viruses, unauthorized access, natural disasters (including hurricanes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of AL101, AL102 or any other product candidate could be delayed.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, clinical trial data, proprietary business information, personal data and personally identifiable information of our clinical trial subjects and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors, or breached due to employee error, a technical vulnerability, malfeasance or other disruptions. Although, to our knowledge, we have not experienced any such material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, significant regulatory penalties, and such an event could disrupt our operations, damage our reputation, and cause a loss of confidence in us and our ability to conduct clinical trials, which could adversely affect our reputation and delay our clinical development of our product candidates.

Risks Related to Our Common Stock and This Offering

No active trading market for our common stock currently exists, and an active trading market may not develop.

Prior to this offering, there has not been an active trading market for our common stock. If an active trading market for our common stock does not develop following this offering, you may not be able to sell your shares quickly or at the market price or at all. Our ability to raise capital to continue to fund operations by selling shares of our common stock and our ability to acquire other companies or technologies by using shares of our common stock as consideration may also be impaired. The initial public offering price of our common stock will be determined by negotiations between us and the underwriters, and may not be indicative of the market prices of our common stock that will prevail in the trading market.

The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to

 

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the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

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any delay in the completion of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC;

 

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inability to obtain additional funding;

 

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the success of competitive products or technologies;

 

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actual or expected changes in our growth rate relative to our competitors;

 

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results of clinical trials of our product candidates or those of our competitors;

 

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developments related to our existing or any future collaborations;

 

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adverse regulatory decisions;

 

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regulatory actions with respect to our product candidates or our competitors’ products and product candidates;

 

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regulatory or legal developments in the United States and other countries;

 

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development of new product candidates that may address our markets and make our product candidates less attractive;

 

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changes in physician, hospital or healthcare provider practices that may make our product candidates less useful;

 

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inability to obtain adequate product supply for AL101, AL102 or any other product candidate, or the inability to do so at acceptable prices;

 

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developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

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the recruitment or departure of key scientific or management personnel;

 

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the level of expenses related to any of our product candidates or clinical development programs;

 

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failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

 

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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;

 

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actual or expected changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

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variations in our financial results or those of companies that are perceived to be similar to us;

 

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changes in the structure of healthcare payment systems;

 

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market conditions in the pharmaceutical and biotechnology sectors;

 

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announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors;

 

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significant lawsuits, including patent or shareholder litigation, and disputes or other developments relating to our proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

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trading volume of our common stock;

 

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general economic, industry and market conditions; and

 

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the other factors described in this “Risk Factors” section and elsewhere in this prospectus.

 

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In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control or significantly influence all matters submitted to stockholders for approval.

Upon the closing of this offering, based on the number of shares of common stock outstanding as of February 29, 2020, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates will, in the aggregate, hold shares representing approximately     % of our outstanding voting stock (or     % of our outstanding voting stock if the underwriters exercise in full their option to purchase additional shares of our common stock), without giving effect to any potential purchases by these stockholders in this offering. As a result, if these stockholders choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors, the composition of our management and approval of any merger, consolidation or sale of all or substantially all of our assets.

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

The initial public offering price of our common stock is substantially higher than the pro forma as adjusted net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. Based on the initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $            per share as of December 31, 2019, representing the difference between our pro forma as adjusted net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. To the extent shares subsequently are issued under outstanding options or warrants, you will incur further dilution. See “Dilution.”

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We anticipate that we will use the net proceeds of this offering, together with our existing cash and cash equivalents and short-term restricted bank deposits, to advance the clinical development of AL101 and AL102 and the remainder, if any, for working capital and general corporate purposes, as set forth under “Use of Proceeds.” However, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our

 

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common stock. After this offering, we will have outstanding                  shares of common stock based on the number of shares outstanding as of February 29, 2020. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. The remaining                  shares are currently restricted as a result of securities laws or lock-up agreements, which may be waived by Citigroup Global Markets Inc. and Jefferies LLC, but will become eligible to be sold at various times beginning 180 days after this offering, unless held by one of our affiliates, in which case the resale of those securities will be subject to volume limitations under Rule 144 of the Securities Act of 1933, as amended, or Rule 144. Moreover, after this offering, holders of an aggregate of                  shares of our common stock will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, until such shares can otherwise be sold without restriction under Rule 144 or until the rights terminate pursuant to the terms of the investors’ rights agreement between us and such holders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;

 

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

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reduced disclosure obligations regarding executive compensation; and

 

•

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our stock and our stock price may be reduced or become more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to take advantage of this extended transition period.

 

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We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed time frame or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse, inaccurate or misleading opinion regarding our business, our stock price and trading volume may be negatively impacted.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse, inaccurate or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our target operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

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Provisions in our restated certificate of incorporation and restated bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our restated certificate of incorporation and our restated bylaws, which will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:

 

•

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

 

•

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

•

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;

 

•

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

•

the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

 

•

the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors;

 

•

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

•

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

•

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Furthermore, our restated certificate of incorporation, which will become effective upon the closing of this offering, specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving claims brought against us by stockholders. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our restated certificate of incorporation described above.

 

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We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors, officers, employees and agents as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers, employees or agents. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, would be your sole source of gain.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our common stock would be your sole source of gain on an investment in our common stock for the foreseeable future. See the “Dividend Policy” section of this prospectus for additional information.

It may be difficult to enforce a U.S. judgment against us, our officers and directors named in this prospectus in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.

Not all of our directors or officers are residents of the United States and most of their and our assets are located outside the United States. Service of process upon our non-U.S. resident directors and officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Additionally, Israeli courts might not enforce judgments obtained in the United States against us or our non-U.S. directors and executive officers, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.

Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.

Recent U.S. tax legislation may materially adversely affect our financial condition, results of operations and cash flows.

Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, and revising

 

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the rules governing net operating losses. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service, any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.

The reduction of the corporate tax rate under the legislation may cause a reduction in the economic benefit of our net operating loss carryforwards and other deferred tax assets available to us. Furthermore, under the legislation, although the treatment of tax losses generated before December 31, 2017 has generally not changed, utilization of NOLs generated in tax years beginning after December 31, 2017 are limited to a maximum of 80% of the taxable income for such year determined without regard to the NOL deduction. This change may require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years.

While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going-forward basis. We continue to work with our tax advisors and auditors to determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors with respect to such legislation.

Risks Related to Our Operations in Israel

Political, economic and military instability in Israel may impede our ability to operate and harm our financial results.

Our principal executive offices and research and development facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region could directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could adversely affect our operations. Ongoing and revived hostilities or other Israeli political or economic factors, could prevent or delay shipments of our products, harm our operations and product development and cause any future sales to decrease. In the event that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export our supplies and products, our operations may be materially adverse affected. Furthermore, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries, principally those in the Middle East, still restrict business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictive laws and policies may seriously limit our ability to sell our products in these countries and may have an adverse impact on our operating results, financial conditions or the expansion of our business.

In addition, political uprisings and conflicts in various countries in the Middle East are affecting the political stability of those countries. This instability has raised concerns regarding security in the region and the potential for armed conflict. In Syria, a country bordering Israel, a civil war is taking place. In addition, there are concerns that Iran, which has previously threatened to attack Israel, may step up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, as well as a growing presence in Syria. Additionally, the Islamic State of Iraq and Levant, or ISIL, a violent jihadist group whose stated purpose is to take control of the Middle East, remains active in areas within close proximity to Israeli borders. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any

 

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potential future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may be disinclined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts, political instability, terrorism, cyberattacks or any other hostilities involving or threatening Israel would likely negatively affect business conditions generally and could harm our results of operations.

On Israel’s domestic front, there is currently a level of unprecedented political instability. The Israeli government has been in a transitionary phase since December 2018, when the Israeli Parliament, or the Knesset, first resolved to dissolve itself and call for new general elections. In 2019, Israel held general elections twice, in April and September, and a third general election was held in March 2020. The Knesset, for reasons related to this extended political transition, has failed to pass a budget for the year 2020, and certain government ministries, which may be critical to the operation of our business, are without necessary resources and may not receive sufficient funding moving forward. Given the likelihood that the current political stalemate may not be resolved during the next calendar year, our ability to conduct our business effectively may be adversely materially affected.

Our operations may be disrupted by the obligations of our personnel to perform military service.

Some of our employees in Israel are obligated to perform up to 36 days, and in some cases longer periods, of military reserve duty annually until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) and, in the event of a military conflict or emergency situations, could be called to immediate active duty for extended periods of time. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence due to military service of a significant number of our employees or of one or more of our key employees for extended periods of time, and such disruption could materially adversely affect our business. Additionally, the absence of a significant number of the employees of our Israeli suppliers and subcontractors related to military service or the absence for extended periods of one or more of their key employees for military service may disrupt their operations which may subsequently disrupt our operations.

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 have entered into assignment of invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created during 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 with us. Under the Israeli Patent Law, 1967, or the Patent Law, inventions conceived by an employee during the scope of his or her employment with a company and as a result thereof are regarded as

 

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“service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no agreement between an employer and an employee with respect to the employee’s right to receive compensation for such “service inventions,” the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her service inventions and the scope and conditions for such remuneration. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria specified in the Patent Law). Although our employees have agreed to assign to us service invention rights, as a result of uncertainty under Israeli law with respect to the efficacy of waivers of service invention rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

Our operations may be affected by negative economic conditions or labor unrest in Israel.

General strikes or work stoppages, including at Israeli ports, have occurred periodically or have been threatened in the past by Israeli trade unions due to labor disputes. These general strikes or work stoppages may have an adverse effect on the Israeli economy and on our business, including our ability to receive raw materials from our suppliers in a timely manner and could have a material adverse effect on our results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements, including but not limited to statements regarding:

 

•

our plans to develop and commercialize our product candidates;

 

•

the timing of our ongoing or planned clinical trials for AL101, AL102 and any future product candidates;

 

•

the timing of and our ability to obtain and maintain regulatory approvals for AL101, AL102 and any future product candidates;

 

•

the clinical utility of our product candidates;

 

•

our commercialization, marketing and manufacturing capabilities and strategy;

 

•

our ability to collaborate with leading diagnostic companies to develop diagnostic tests for identifying patients with Notch-activating mutations;

 

•

our expectation about the willingness of healthcare professionals to use AL101, AL102 and any future product candidates;

 

•

our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates;

 

•

our expected use of proceeds from this offering;

 

•

our competitive position and the development of, and projections relating to, our competitors or our industry;

 

•

our ability to identify, recruit and retain key personnel;

 

•

the impact of laws and regulations;

 

•

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

•

our plans to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives;

 

•

research and development cost;

 

•

our estimates and statements regarding our future revenue, future results of operations and financial position;

 

•

our business strategy;

 

•

our research and development costs;

 

•

our plans and objectives of management for future operations; and

 

•

the plans and objectives of management.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this prospectus are only predictions and are based largely on our current expectations and projections about future events and

 

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financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

 

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MARKET AND INDUSTRY DATA

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research and studies conducted by third parties. Industry publications and studies generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified market and industry data from third-party sources. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. While we believe our internal company research as to such matters is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source. These data involve a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from our issuance and sale of shares of our common stock in this offering will be approximately $             million, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional shares of our common stock, we estimate that our net proceeds will be approximately $             million.

We anticipate that we will use the net proceeds of this offering, together with our existing cash and cash equivalents and short-term restricted bank deposits, for the following purposes:

 

•

approximately $             to $             million to advance AL101 through its ongoing Phase 2 ACCURACY trial for the treatment of R/M ACC;

•

approximately $             to $             million to advance AL101 for its planned Phase 2 trial for the treatment of R/M TNBC;

•

approximately $             to $             million to advance AL101 for its planned Phase 2 trial for the treatment of R/R TALL;

•

approximately $             to $             million to advance AL102 for its planned Phase 2 trial for the treatment of desmoid tumors; and

 

•

the remainder, if any, for working capital and general corporate purposes.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Each increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us, by $             million, assuming the assumed initial public offering price stays the same.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We may also use a portion of the net proceeds to in-license, acquire, or invest in additional businesses, technologies, products or assets, although currently we have no specific agreements, commitments or understandings in this regard. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to develop product candidates can be difficult and we anticipate that we will need additional funds to complete the development of any product candidates we identify. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents and short-term restricted bank deposits, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through                 . We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term and intermediate-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. The payment of dividends, if any, will be at the discretion of our board of directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in our future debt agreements, and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and short-term restricted bank deposits and capitalization as of December 31, 2019, as follows:

 

•

on an actual basis;

 

•

on a pro forma basis to reflect:

 

∎

the automatic conversion of all outstanding shares of our preferred stock into 7,430,452 shares of common stock upon the closing of this offering; and

 

∎

the filing and effectiveness of our restated certificate of incorporation, which will occur upon the closing of this offering.

 

•

on a pro forma as adjusted basis to give further effect to our issuance and sale of                  shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

 

		As of December 31, 2019
		(in thousands, except share data)
										Pro Forma As
		Actual				Pro Forma				Adjusted(1)
Cash and cash equivalents and short-term restricted bank deposits		$	16,808			$	16,808			$
Long-term debt, net of current portion			299				299
Convertible preferred stock (Series A and Series B), par value $0.01 per share; 8,200,000 shares authorized, 7,430,452 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted			53,373				—
Stockholders’ (deficit) equity
Preferred stock, $0.01 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted			—				—
Common stock, par value $0.01 per share; 20,000,000 shares authorized, actual; 10,129,445 shares issued and 9,997,750 shares outstanding, actual; 200,000,000 shares authorized, pro forma and pro forma as adjusted; 17,558,397 shares issued and 17,428,265 shares outstanding, pro forma;                  shares issued and shares outstanding, pro forma as adjusted			101				175
Additional paid-in capital			1,720				55,019
Accumulated deficit			(40,741	)			(40,741	)
Total stockholders’ (deficit) equity			(38,920	)			14,453
Total capitalization		$	14,453			$	14,453			$

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro

 

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forma as adjusted amount of each of cash and cash equivalents and short-term restricted bank deposits, additional paid-in capital, total stockholders’ deficit and total capitalization by $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and short-term restricted bank deposits, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $            million.

The number of shares in the table above does not include:

 

•

1,216,439 shares of common stock issuable upon exercise of stock options outstanding, under our 2017 Plan, as of December 31, 2019, at a weighted-average exercise price of $2.57 per share;

 

•

105,500 shares of our common stock issuable upon the exercise of stock options granted after December 31, 2019 pursuant to our 2017 Plan; and

 

•

shares of our common stock reserved for future issuance under the Amended 2017 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the Amended 2017 Plan.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

As of December 31, 2019, we had a historical net tangible book value of $(39.6) million, or $(3.96) per share of common stock. Our historical net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2019.

Our pro forma net tangible book value as of December 31, 2019 was $13.8 million, or $0.79 per share. Pro forma net tangible book value represents the amount of our total tangible assets less total liabilities, after giving effect to the automatic conversion of all shares of our preferred stock outstanding as of December 31, 2019 into an aggregate of 7,430,452 shares of our common stock in connection with this offering. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the total number of shares outstanding as of December 31, 2019, after giving effect to the pro forma adjustment described above.

After giving further effect to receipt of the net proceeds from our issuance and sale of                  shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2019 would have been approximately $            million, or approximately $            per share. This amount represents an immediate increase in pro forma net tangible book value of $            per share to our existing stockholders and an immediate dilution of approximately $            per share to new investors participating in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock. The following table illustrates this dilution:

 

Assumed initial public offering price per share						$
Historical net tangible book value per share as of December 31, 2019		$	(3.96	)
Increase (decrease) per share attributable to the conversion of our preferred stock			4.75
Pro forma net tangible book value (deficit) per share as of December 31, 2019			0.79
Increase per share attributable to this offering		$
Pro forma as adjusted net tangible book value per share after this offering						$
Dilution per share to new investors in this offering						$

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by $            per share, and dilution to new investors by $            per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $            per share and decrease (increase) the dilution per share to new investors by $            per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase additional shares of our common stock, the pro forma as adjusted net tangible book value after this offering would be $            per share, the increase in pro forma as adjusted net tangible book value per share would be $            per share and the dilution per share to new

 

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investors would be $            per share, in each case assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

The following table summarizes on the pro forma as adjusted basis described above, as of December 31, 2019, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

 

		Shares Purchased								Total Consideration								Average Price
		Number				Percent				Amount				Percent				Per Share
Existing stockholders								%		$						%		$
New investors
Total							100.0	%							100.0	%		$

A $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $            million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by                 percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by                 percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $            million and, in the case of an increase, would increase the percentage of the total consideration paid by new investors by     % and, in the case of a decrease, would decrease the percentage of the total consideration paid by new investors by                 percentage points, assuming no change in the assumed initial public offering price.

The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of December 31, 2019, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into common stock in connection with this offering, and exclude:

 

•

1,216,439 shares of common stock issuable upon exercise of stock options outstanding under our 2017 Plan as of December 31, 2019, at a weighted-average exercise price of $2.57 per share;

 

•

105,500 shares of our common stock issuable upon the exercise of stock options granted after December 31, 2019 pursuant to our 2017 Plan; and

 

•

shares of our common stock reserved for future issuance under the Amended 2017 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the Amended 2017 Plan.

To the extent any of these outstanding options is exercised, there will be further dilution to new investors. If all of such outstanding options had been exercised as of December 31, 2019, the pro forma as adjusted net tangible book value per share after this offering would be $            , and total dilution per share to new investors would be $                .

If the underwriters exercise in full their option to purchase additional shares of our common stock:

 

•

the percentage of shares of common stock held by existing stockholders will decrease to approximately     % of the total number of shares of our common stock outstanding after this offering; and

 

•

the number of shares of common stock held by new investors will increase to                 , or approximately     % of the total number of shares of our common stock outstanding after this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. The following tables set forth our summary consolidated financial data for the period indicated. We have derived the consolidated statements of operations data for the years ended December 31, 2018 and 2019 and the consolidated balance sheet data as of December 31, 2019 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected for any future period.

 

		Year Ended December 31,
		2018				2019
		(in thousands, except share and per share data)
Consolidated Statement of Operations and Comprehensive Loss Data:
Revenue from license agreement		$	—			$	2,334
Cost of revenue			—				(1,285	)
Gross profit			—				1,049
Operating expenses:
Research and development			5,741				14,424
General and administrative			3,294				4,336
Operating loss			(9,035	)			(17,711	)
Other non-operating income (expense):
Financial income, net			448				225
Loss before income tax			(8,587	)			(17,486	)
Taxes on income			(286	)			(306	)
Net loss attributable to common stockholders		$	(8,873	)		$	(17,792	)
Net loss attributable to common stockholders, basic(1)		$	(8,873	)		$	(17,792	)
Net loss per share attributable to common stockholders, basic(1)		$	(0.90	)		$	(1.79	)
Weighted average common stock outstanding, basic(1)			9,871,995				9,952,214
Pro forma net loss per share attributable to common stockholders, basic and diluted(1)		$	(0.66	)		$	(1.04	)
Pro forma weighted average common stock outstanding, basic and diluted(1)			13,543,029				17,160,699

 

(1)

See Note 2 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma basic and diluted net loss per share of common stock and the weighted average number of shares used in the computation of the per share amounts.

 

		Year Ended December 31,
		2018				2019
		(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents and short-term restricted bank deposits		$	26,264			$	16,808
Total assets			27,125				20,054
Additional paid-in capital			990				1,720
Accumulated deficit			(22,949	)			(40,741	)
Total stockholders’ (deficit) equity		$	(21,859	)		$	(38,920	)

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Consolidated Financial Data” section of this prospectus and our consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage oncology company focused on developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer, through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway with gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of AL101 suggest that our approach may address the shortcomings of existing treatment options. We believe that our novel product candidates, if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers.

Our lead product candidate, AL101, is being developed as a potent, selective, injectable small molecule gamma secretase inhibitor. We obtained an exclusive, worldwide license to develop and commercialize AL101 from Bristol-Myers Squibb Company, or BMS, in November 2017. BMS evaluated AL101 in three Phase 1 studies in more than 200 subjects with various cancers who had not been prospectively characterized for Notch activation. While these Phase 1 studies did not report statistically significant overall results, clinical activity was observed across these studies in cancers in which Notch has been implicated as a tumorigenic driver.

We were incorporated as a Delaware corporation on November 14, 2017, and our headquarters is located in Rehovot, Israel. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital and conducting research and development activities for our product candidates. To date, we have funded our operations primarily through private placements of common stock and convertible preferred stock. From our inception through December 31, 2019, we have raised an aggregate of $46.3 million to fund our operations, primarily consisting of proceeds from sales of our convertible preferred stock.

We have incurred significant net operating losses in every year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year and could be substantial. Our net losses were $8.9 million and $17.8 million for the years ended December 31, 2018 and 2019, respectively. As of December 31, 2019, we had an accumulated deficit of $40.7 million. We anticipate that our expenses will increase significantly as we:

 

•

advance our Phase 2 ACCURACY trial of AL101 for the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC;

 

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•

commence our Phase 2 clinical trials of AL101 for the treatment of R/M TNBC and R/R T-ALL, initiate clinical trials of AL102 for the treatment of desmoid tumors, or obtain and conduct clinical trials for any other product candidates;

 

•

assuming successful completion of our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC, are required by the U.S. Food and Drug Administration, or FDA, to complete Phase 3 clinical trials to support submission of a New Drug Application, or NDA, of AL101 for the treatment of R/M ACC;

 

•

establish a sales, marketing and distribution infrastructure to commercialize AL101 and/or AL102, if approved, and for any other product candidates for which we may obtain marketing approval;

 

•

collaborate with leading diagnostic companies to develop diagnostic tests for identifying patients with Notch-activating mutations;

 

•

maintain, expand, protect and enforce our intellectual property portfolio;

 

•

hire additional staff, including clinical, scientific, technical, regulatory operational, financial, commercial and personnel, to execute our business plan; and

 

•

add clinical, scientific, operational, financial and management information systems and personnel to support our product development and potential future commercialization efforts, and to enable us to operate as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate. Additionally, we currently use contract research organizations, or CROs, to carry out our clinical development activities. Furthermore, commencing upon the closing of this offering, we will incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to fund our operations through public or equity offerings or debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current or any future product candidates.

Because of the numerous risks and uncertainties associated with therapeutics product development, we are unable to predict accurately the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2019, we had cash and cash equivalents and short-term restricted bank deposits totaling $16.8 million. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents and short-term restricted bank deposits, will enable us to fund our operating expenses and capital expenditure requirements through                . We have based these estimates on assumptions that may prove to be imprecise or incorrect, and we may use our available capital resources sooner than we currently expect. See “—Liquidity and Capital Resources.” Because of the numerous risks and uncertainties associated with the development of our current and any future product candidates, our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

If we raise additional funds through marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, intellectual property, future revenue streams or product candidates or grant licenses on terms

 

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that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate product candidate development programs or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

In its report on our financial statements for the year ended December 31, 2018 and 2019, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. See “Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital—Our recurring losses from operations could continue to raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.”

License Agreements

Bristol-Myers Squibb

In November 2017, we entered into an exclusive worldwide license agreement with Bristol-Myers Squibb Company, or BMS, for AL101 and AL102, each a small molecule gamma secretase inhibitor in development for the treatment of cancers. Under the terms of the license agreement, we have licensed the exclusive worldwide development and commercialization rights for AL101 (previously known as BMS-906024) and AL102 (previously known as BMS-986115).

We are responsible for all future development and commercialization of AL101 and AL102. In consideration for the rights granted under the agreement, we paid BMS a payment of $6 million and issued to BMS 1,125,929 shares of Series A preferred stock valued at approximately $7.3 million. We are obligated to pay BMS up to approximately $142 million in the aggregate upon the achievement of certain clinical development or regulatory milestones and up to $50 million in the aggregate upon the achievement of certain commercial milestones by each product containing the licensed BMS compounds. In addition, we are obligated to pay BMS tiered royalties ranging from a high single-digit to a low teen percentage on worldwide net sales of all products containing the licensed BMS compounds. For more information regarding this agreement, please see “Business—License Agreements.”

Novartis

In December 2018, we entered into an evaluation, option and license agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which we granted Novartis an exclusive option to obtain an exclusive license to research, develop, commercialize and manufacture AL102 for the treatment of multiple myeloma.

We will continue to supply Novartis quantities of AL102, products containing AL102 and certain other materials for purposes of conducting evaluation studies not comprising human clinical trials during the option period, together with our know-how as may reasonably be necessary in order for Novartis to conduct such evaluation studies. Novartis has agreed to reimburse us for all such expenses.

At any time during the option term, Novartis may exercise its option by payment of a low eight figure option exercise fee. If Novartis exercises its option, it will be obligated to pay us up to an additional $245 million upon the achievement of certain clinical development and commercial milestones. In addition, Novartis is obligated to pay us tiered royalties at percentages ranging from a mid-single digit to a low double-digit percentage on worldwide net sales of products licensed under the agreement. For more information regarding this agreement, please see “Business—License Agreements.”

 

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Components of Our Results of Operations

Revenue Recognition

We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which applies to all contracts with customers. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps:

 

(i)

identify the contract(s) with a customer;

 

(ii)

identify the performance obligations in the contract;

 

(iii)

determine the transaction price;

 

(iv)

allocate the transaction price to the performance obligations in the contract; and

 

(v)

recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within the contract and determine those that are performance obligations and assess whether each promised good or service is distinct.

Customer option to acquire additional goods or services gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract.

In a contract with multiple performance obligations, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations.

We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time.

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

In December 2018, we entered into the Novartis Agreement for which we paid for its research and development costs up to $4.3 million. For additional details regarding the Novartis Agreement, refer to Note 5 of our consolidated financial statements included elsewhere in this prospectus.

We concluded that there is one distinct performance obligation under the Novartis Agreement: Research and development services, an obligation which is satisfied over time.

Revenue associated with the research and development services in the amount of $2.3 million was recognized in 2019.

We concluded that progress towards completion of the research and development performance obligation related to the Novartis Agreement is best measured in an amount proportional to the expenses incurred from the total estimated expenses. We periodically review and update our estimates, when appropriate, which may adjust revenue recognized for the period. The transaction price to be recognized as revenue under the Novartis Agreement consists of the reimbursable research and development costs.

Operating Expenses

Our operating expenses since inception have consisted solely of research and development expenses and general and administrative expenses.

 

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Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including the development of and pursuit of regulatory approval of our lead product candidates, AL101 and AL102, which include:

 

•

employee-related expenses, including salaries, benefits and stock-based compensation expense for personnel engaged in research and development functions;

 

•

expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs, investigative sites and consultants;

 

•

costs of manufacturing our product candidates for use in our preclinical studies and clinical trials, as well as manufacturers that provide components of our product candidates for use in our preclinical and current and potential future clinical trials;

 

•

costs associated with our bioinformatics platform;

 

•

consulting and professional fees related to research and development activities;

 

•

costs related to compliance with clinical regulatory requirements; and

 

•

facility costs and other allocated expenses, which include expenses for rent and maintenance of our facility, utilities, depreciation and other supplies.

We expense research and development costs as incurred. Our external research and development expenses consist primarily of costs such as fees paid to consultants, contractors and CROs in connection with our preclinical and clinical development activities. We typically use our employee and infrastructure resources across our development programs and we do not allocate personnel costs and other internal costs to specific product candidates or development programs with the exception of the costs to manufacture our product candidates.

The following table summarizes our research and development expenses by product candidate or development program for the years ended December 31, 2018 and 2019:

 

		Years Ended December 31,
		2018				2019
Program-specific costs:
AL101
ACC		$	4,442			$	11,518
TNBC			434				1,107
General Expenses			707				1,580
AL102
General Expenses			158				219
Total research and development expenses		$	5,741			$	14,424

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we initiate additional clinical trials, including Phase 2 clinical trials of AL101 for the treatment of R/M TNBC and R/R T-ALL and of AL102 for the treatment of desmoid tumors, scale our manufacturing processes, continue to develop additional product candidates and hire additional clinical and scientific personnel.

The successful development of AL101, AL102 and any future product candidate is highly uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of these product candidates. We are also unable to predict when,

 

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if ever, we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of preclinical studies, clinical trials and development of our product candidates will depend on a variety of factors, including:

 

•

successful completion of clinical trials with adequate safety, tolerability and efficacy profiles for AL101, AL102 and any potential future product candidates that are satisfactory to the FDA or any comparable foreign regulatory authority;

 

•

approval of INDs for AL101 and AL102 and any potential future product candidate to commence planned or future clinical trials in the United States or foreign countries;

 

•

significant and changing government regulation and regulatory guidance;

 

•

timing and receipt of marketing approvals from applicable regulatory authorities;

 

•

establishing arrangements with contract manufacturing organizations, or CMOs, for third-party clinical and commercial manufacturing to obtain sufficient supply of our product candidates;

 

•

obtaining, maintaining, protecting and enforcing patent and other intellectual property rights and regulatory exclusivity for our product candidates;

 

•

commercializing the product candidates, if and when approved, whether alone or in collaboration with other organizations;

 

•

acceptance of the product, if and when approved, by patients, the medical community and third-party payors;

 

•

competition with other therapies; and

 

•

maintenance of a continued acceptable safety profile of the products following approval.

A change in the outcome of any of these variables with respect to the development, manufacture or commercialization enabling activities of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, auditing, tax services and insurance costs.

We expect that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we expect to incur increased expenses associated with being a public company, including the costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

Financial Income, Net

Financial income, net primarily consists of non-cash financial expense incurred in connection with the measurement of derivative instrument in connection with the anti-dilution right granted to BMS, and interest income earned on our cash and cash equivalents and short-term restricted bank deposits.

 

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Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing purchase orders and open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the following costs incurred for services in connection with research and development activities for which we have not yet been invoiced:

 

•

vendors in connection with clinical development activities;

 

•

vendors in connection with the testing of clinical trial materials;

 

•

CROs in connection with clinical trials; and

 

•

investigative sites in connection with clinical trials.

We contract with CROs to conduct clinical and other research and development services on our behalf. We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with them. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our CROs will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

 

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Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees, directors, consultants or advisors of the company or its affiliates based on their fair value on the date of the grant and recognize compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. We apply the accelerated method of expense recognition to all awards with only service-based vesting conditions.

For stock-based awards granted to non-employees, compensation expense is recognized over the period during which services are rendered by such non-employees until completed.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Determination of Fair Value of Common Stock

As a private company with no active public market for our common stock, our board of directors has historically determined the fair value of our common stock on each date of grant, with input from management. Our board of directors periodically determined the estimated per share fair value of our common stock at various dates using valuations performed by third parties. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. Our determinations of the fair value of our common stock were made using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Guide. Once a public trading market for our common stock has been established in connection with the completion of this offering, it will no longer be necessary for us to estimate the fair value of our common stock in connection with our accounting for stock options.

Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including:

 

•

the lack of an active public market for our common stock and convertible preferred stock;

 

•

the prices at which we sold shares of our convertible preferred stock in arm’s-length transactions and the superior rights, preferences and privileges of the convertible preferred stock relative to our common stock, including the liquidation preferences of our preferred stock;

 

•

our results of operations and financial condition, including cash on hand;

 

•

the material risks related to our business;

 

•

our stage of development and business strategy;

 

•

the composition of, and changes to, our management team and board of directors;

 

•

the market performance of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed initial public offerings, or IPOs, of companies in the life sciences and biotechnology sectors; and

 

•

the likelihood of achieving a liquidity event such as an IPO given prevailing market conditions.

Our valuations were prepared in accordance with the guidelines in the Practice Guide, which prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. Through

 

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September 2019, we utilized the option pricing method, or OPM, and a guideline transaction method, which we believed was the most appropriate for each of the valuations of our common stock performed by our independent third-party valuation specialist. The OPM treats our security classes as call options on total equity value, and allocates our equity value across its security classes based on the rights and preferences of the securities within the capital structure under an assumed liquidation event. The OPM method is used when the range of possible future outcomes is difficult to predict and forecasts would be highly speculative. We believed this method was the most appropriate given the expectation of various potential liquidity outcomes and the difficulty of selecting appropriate enterprise values given our early stage of development, while allowing us to accurately capture the potential downside risk of our clinical-stage assets. Beginning in November 2019, for options granted after September 30, 2019, we utilized a hybrid of the OPM and Probability-Weighted Expected Return Method, or PWERM. The PWERM is a scenario based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. Under this hybrid method, we considered both the initial public offering liquidity scenario and an alternative scenario in the event an initial public offering does not occur. In October 2019, we engaged a new third-party valuation firm to retrospectively estimate the value of our common stock as of certain prior dates. Share-based compensation was awarded as a result of such retrospective valuations.

There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates are management’s best estimates and include assumptions regarding our future operating performance, the time to completing an initial public offering or other liquidity event, the related company valuations associated with such events and the determinations of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been different.

Results of Operations

Comparison of the Years Ended December 31, 2018 and 2019

The following table summarizes our results of operations for the years ended December 31, 2018 and 2019 (in thousands):

 

		Years Ended December 31,								% Change
		2018				2019
Revenue from license agreement		$	—			$	2,334				100	%
Cost of revenue			—				(1,285	)			100
Gross profit			—				1,049				100
Operating expenses:
Research and development			5,741				14,424				151
General and administrative			3,294				4,336				32
Operating loss			(9,035	)			(17,711	)			96
Financial income, net			448				225				(50	)
Loss before income tax			(8,587	)			(17,486	)			104
Taxes on income			(286	)			(306	)			7
Net loss attributable to common stockholders		$	(8,873	)		$	(17,792	)			101	%

Research and Development Expenses

Research and development expense increased by $8.7 million from $5.7 million for the year ended December 31, 2018 to $14.4 million for the year ended December 31, 2019. The increase in research and development expense was primarily attributable to the advancement of our Phase 2 ACCURACY trial.

 

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General and Administrative Expenses

General and administrative expense increased by $1.0 million from $3.3 million for the year ended December 31, 2018 to $4.3 million for the year ended December 31, 2019. The increase in general and administrative expenses was primarily attributable to increases in costs related to the hiring of additional personnel, salaries and related expenses and other legal and corporate expenses.

Financial Income, net

Financial income, net decreased by $0.2 million from $0.4 million for the year ended December 31, 2018 to $0.2 million for the year ended December 31, 2019.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations from inception through December 31, 2019 primarily through gross proceeds of $46.3 million from sales of our convertible preferred stock. The following table provides information regarding our total cash and cash equivalents and short-term restricted bank deposits at December 31, 2018 and 2019 (in thousands):

 

		As of December 31,
		2018				2019
Cash and cash equivalents and short-term restricted bank deposits		$	26,264			$	16,808

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2018 and 2019 (in thousands):

 

		Years Ended December 31,
		2018				2019
Net cash used in operating activities		$	(6,371	)		$	(14,950	)
Net cash used in investing activities			(250	)			(1,581	)
Net cash provided by financing activities			25,420				7,075
Net increase (decrease) in cash and cash equivalents and short-term restricted bank deposits		$	18,799			$	(9,456	)

Net Cash Used in Operating Activities

The cash used in operating activities resulted primarily from expenses associated with our clinical development programs and early-stage research and general and administrative expenses.

Net cash used in operating activities was $15.0 million for the year ended December 31, 2019 compared to $6.3 million for the year ended December 31, 2018. The increase in net cash used in operating activities of $8.9 million was attributable to $8.9 million increase in net loss.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1.6 million for the year ended December 31, 2019 compared to $0.3 million for the year ended December 31, 2018. The increase in net cash used for investing activities of $1.3 million was attributable a $1.0 million increase in purchases of property and equipment.

 

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Net Cash Provided by Financing Activities

Net cash provided by financing activities was $7.1 million for the year ended December 31, 2019 compared to $25.4 million for the year ended December 31, 2018. The decrease in net cash provided by financing activities of $18.3 million was attributable to net proceeds of $22.4 million from the sale of our Series B preferred stock and net proceeds of $3.0 million from the sale of our Series A preferred stock during the year ended December 31, 2018.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development for, initiate later-stage clinical trials for, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We expect that the net proceeds from this offering, together with our existing cash and cash equivalents and short-term restricted bank deposits, will enable us to fund our operating expenses and capital expenditure requirements into                . We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

 

•

the costs of conducting future clinical trials of AL101 and AL102;

 

•

the costs of manufacturing additional material for future clinical trials of AL101 and AL102;

 

•

the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;

 

•

the costs, timing and outcome of regulatory review of our product candidates;

 

•

our ability to establish and maintain collaborations, including our collaboration with ArcherDX, Inc., or ArcherDX, on favorable terms, if at all;

 

•

the achievement of milestones or occurrence of other developments that trigger payments under any current or future license, collaboration, or other agreements;

 

•

the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

•

the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

 

•

the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, protecting and enforcing our intellectual property rights and defending intellectual property-related claims;

 

•

our headcount growth and associated costs as we expand our business operations and our research and development activities; and

 

•

the costs of operating as a public company.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not

 

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expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Any debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, such as the Novartis Agreement, we may have to relinquish valuable rights to our technologies, intellectual property, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

In its report on our financial statements for the year ended December 31, 2019, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. See “Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital—Our recurring losses from operations could continue to raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.”

Contractual Obligations

The following table summarizes our significant contractual obligations as of payment due date by period at December 31, 2019:

 

		(in thousands)
		Total				Less than 1 year				1 to 3 years				3 to 5 years				More than 5 years
Operating lease obligation(1)		$	1,479			$	341			$	682			$	456			$	—
Total		$	1,479			$	341			$	682			$	456			$	—

 

(1)

Represents future minimum lease payments under our non-cancelable operating lease which expires in 2029. The minimum lease payments above do not include any related common area maintenance charges, operating expenses or real estate taxes.

We have not included any potential contingent payments upon the achievement by us of specified regulatory and commercial events, as applicable, or patent prosecution or royalty payments we may be required to make under the BMS License Agreement. We have excluded these potential payments in the contractual obligations table because the timing and likelihood of these contingent payments are not currently known and would be difficult to predict or estimate. See “Business—License Agreements.”

We enter into agreements in the normal course of business with CROs for clinical trials, third-party manufacturers for clinical supply manufacturing, professional consultants for expert advice and other vendors for other services for operating purposes. We have not included these payments in the table of contractual

 

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obligations above since the contracts do not contain any minimum purchase commitments and are cancelable at any time by us, generally upon 30 days prior written notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates. As of December 31, 2018 and 2019, our cash equivalents consisted of interest-bearing checking accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term nature and the low-risk profile of our interest-bearing accounts, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents and short-term restricted bank deposits or on our financial position or results of operations. We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors located in Europe and Israel. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

Inflation generally affects us by increasing our clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2018 and 2019.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of this extended period.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, or EGC, we intend to rely on certain of these exemptions, including exemptions from the requirement to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

 

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BUSINESS

Overview

We are a clinical-stage oncology company focused on developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer, through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway with gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of AL101 suggest that our approach may address the shortcomings of existing treatment options. We believe that our novel product candidates, if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers.

Our lead product candidate, AL101, is being developed as a potent, selective, injectable small molecule gamma secretase inhibitor, or GSI. We obtained an exclusive, worldwide license to develop and commercialize AL101 from Bristol-Myers Squibb Company, or BMS, in November 2017. BMS evaluated AL101 in three Phase 1 studies in more than 200 subjects with various cancers who had not been prospectively characterized for Notch activation, and to whom we refer to as unselected subjects. While these Phase 1 studies did not report statistically significant overall results, clinical activity was observed across these studies in cancers in which Notch has been implicated as a tumorigenic driver.

We are currently evaluating AL101 as a monotherapy in an open-label Phase 2 clinical trial for the treatment of recurrent/metastatic adenoid cystic carcinoma, or R/M ACC, for patients bearing Notch-activating mutations. We refer to this trial as the ACCURACY trial. We use next-generation sequencing, or NGS, to identify patients with Notch-activating mutations, an approach that we believe will enable us to target the patient population with cancers that we believe are most likely to respond to and benefit from AL101 treatment. We chose to initially target R/M ACC based on our differentiated approach, which is comprised of: data generated in a Phase 1 study of AL101 in unselected, heavily pretreated subjects conducted by BMS, our own data generated in patient-derived xenograft models, our bioinformatics platform and our expertise in the Notch pathway.

ACC is a rare malignancy of the secretory glands, most commonly of the salivary glands. It has an annual incidence of approximately 3,400 patients in the United States, approximately 1,700 of whom are R/M ACC patients. There are currently no FDA-approved therapies for patients with R/M ACC. Based on scientific literature and our bioinformatics research, we estimate that 18% to 22% of R/M ACC patients have Notch-activating mutations. These Notch patients have a significantly worse prognosis, with estimated overall median survival rates roughly four times shorter than patients without Notch-activating mutations. According to published data from 31 Phase 2 clinical trials in ACC conducted since 2005 using a variety of treatment modalities, these treatments showed limited or no clinical activity in unselected ACC subjects. The objective response rates, or ORR, in 30 of these trials, ranged from 0% to 20%, with a 47% ORR observed in one trial conducted in China. In 15 of the 31 trials, a 0% ORR was observed. ORR includes subjects who displayed either a complete response, or CR, or a partial response, or PR.

We are currently conducting our ongoing Phase 2 ACCURACY trial for the treatment of R/M ACC in subjects with progressive disease and Notch-activating mutations. Our interim data from the ACCURACY trial is as of December 30, 2019, and include safety data from 34 subjects and efficacy data from 27 subjects as of the date of the first radiographic scan. As of December 30, 2019, AL101, which was generally well tolerated with manageable side effects, showed a 63% disease control rate (total subjects who displayed either a response or

 

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stable disease), with an unconfirmed 15% ORR. A confirmed response is a response observed in two or more scans while an unconfirmed response is observed in only one scan. This unconfirmed 15% ORR included no CRs and four PRs (two confirmed PRs and two unconfirmed PRs that will remain unconfirmed as both subjects subsequently left the trial) and 48% of subjects displaying stable disease, or SD. If approved, we believe that AL101 has the potential to be the first FDA-approved therapy for patients with R/M ACC and address the unmet medical need of these patients. AL101 was granted Orphan Drug Designation in May 2019 for the treatment of ACC and Fast Track Designation in February 2020 for the treatment of R/M ACC.

AL101’s clinical activity was also observed in two Phase 1 studies conducted by BMS in subjects with various cancers in which Notch-activating mutations are known to be a tumorigenic driver. These cancers included hematological cancers such as T-ALL and soft tissue tumors such as desmoid tumors. Clinical activity was also observed in a further BMS Phase 1 study of AL101 in combination with chemotherapy, which included heavily pretreated subjects with triple negative breast cancer, or TNBC. We intend to commence additional Phase 2 clinical trials of AL101 for the treatment of R/M TNBC in mid-2020 and for the treatment of relapsed or refractory T-cell acute lymphoblastic leukemia, or R/R T-ALL, in the second half of 2020.

TNBC is one of the most aggressive types of breast cancer. Breast cancer, which has an annual incidence of approximately 270,000 patients in the United States, is the leading cause of cancer death in women worldwide and the second leading cause of cancer death in women in the United States. Approximately 10% of breast cancer patients are diagnosed with TNBC, which is associated with a younger age and more advanced stage at diagnosis, increased risk of visceral metastasis and decreased survival. Approximately 37% of TNBC patients have R/M TNBC, resulting in an annual incidence of approximately 10,000 R/M TNBC patients in the United States. Based on primary literature and our bioinformatics research, we estimate that approximately 9% to 16% of R/M TNBC patients have Notch-activating gene alterations including mutations and fusions. In the Phase 1 study of AL101 in combination with chemotherapy in heavily pretreated subjects, which included 22 TNBC subjects, a CR was observed in one TNBC subject, PRs were observed in seven TNBC subjects and SD was observed in five TNBC subjects. Based on these findings and supporting data from our own patient-derived xenograft, or PDX, models, we intend to commence a Phase 2 clinical trial of AL101 as a monotherapy for the treatment of R/M TNBC in patients with Notch-activating mutations in mid-2020.

We are also developing AL101 for the treatment of T-ALL, an aggressive, rare form of T-cell specific leukemia. T-ALL has an annual incidence of approximately 1,200 patients in the United States, of which an estimated 400 patients, including pediatric patients, present for the treatment of relapsed/refractory, or R/R, T-ALL. Approximately 65% of all R/R T-ALL patients have Notch-activating mutations. In addition, there is an incremental subset of patients with Notch pathway activation who do not bear Notch-activating mutations. R/R T-ALL is characterized by chemotherapy resistance, induction failure and tendency for early relapse, as 55% of adult patients and 20% of pediatric patients will relapse following first-line therapy. In the Phase 1 study of AL101, which included 26 unselected, heavily pretreated evaluable T-ALL subjects treated with 4 mg or 6 mg dose levels, a CR was observed in two T-ALL subjects and a PR was observed in one T-ALL subject. Of the three T-ALL subjects who displayed a response, two had a confirmed Notch-activating mutation. Based on these findings and supporting data from our preclinical studies, we intend to commence a Phase 2 clinical trial of AL101 for the treatment of R/R T-ALL in the second half of 2020.

Our second product candidate, AL102, is being developed as a potent, selective, oral GSI. We obtained an exclusive, worldwide license to develop and commercialize AL102 from BMS in November 2017. We are currently developing AL102 for the treatment of desmoid tumors, which are rare, disfiguring and often debilitating types of soft tissue tumors. Desmoid tumors have an annual incidence of approximately 1,700 patients in the United States. There are currently no FDA-approved therapies for patients with desmoid tumors. Given the slowly progressive nature of the disease, we believe these patients will be best served by an oral therapy. BMS conducted a Phase 1 study of AL102 in 36 unselected, heavily pretreated subjects. While this Phase 1 study did not report statistically significant overall results, the study included one subject with desmoid tumors who was observed to have SD for over six months. We believe that GSIs have the potential to treat patients with desmoid tumors based on data from multiple clinical evaluations, including data from three patients with desmoid tumors evaluated in a Phase 1 study of AL101 conducted by BMS. We are leveraging these findings and intend to commence a Phase 2 clinical trial of AL102 for the treatment of desmoid tumors in the second half of 2020.

 

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In addition, we are collaborating with Novartis International Pharmaceutical Limited, or Novartis, to develop AL102 for the treatment of multiple myeloma, or MM, in combination with Novartis’ B-cell maturation antigen, or BCMA, targeting therapies. We granted Novartis the exclusive ability to evaluate, develop and potentially license and commercialize AL102 as a monotherapy and in combination with other therapies for the treatment of MM. Novartis conducted a preclinical study evaluating AL102 alone and in combination with Novartis’ bi-specific antibody. Using a cell line model of human MM, Novartis’ study showed that treatment with AL102 resulted in an approximate 20-fold increase in the levels of cell surface expression of BCMA. Furthermore, using human MM cells from donors, Novartis’ study showed that AL102 enhanced BCMA-CD3 bi-specific antibody redirected t-cell cytotoxicity activity in vitro. We believe that the clinical activity of BCMA-targeting agents may also be enhanced in clinical trials when used in combination with a GSI such as AL102.

Our product candidates have been or are being evaluated in clinical trials at leading oncology centers across the United States, including MD Anderson Cancer Center, Memorial Sloan Kettering Cancer Center and Massachusetts General Hospital, and in centers in Canada and Europe, including Gustave Roussy in France.

The following chart summarizes our current portfolio of product candidates:

 

 

 

(1)

If Novartis exercises its option to license AL102 for the treatment of MM, we will be entitled to receive from Novartis an exercise fee and may be entitled to receive from Novartis certain development, regulatory and commercial milestone payments as well as tiered royalties on net sales of licensed products. For more information, please see “Business—License Agreements”. Phase 1 study with bi-specific anti-BCMA is ongoing but dosing of AL102 has not yet been initiated.

Our History and Team

We were founded in November 2017 when we acquired an exclusive, worldwide license to AL101 and AL102, previously called BMS-906024 and BMS-986115, from BMS. We have assembled a team with extensive experience in building and operating clinical and commercial organizations, particularly in oncology and rare diseases. Our Chief Executive Officer, Roni Mamluk, Ph.D., has extensive experience in the biopharmaceutical industry and has led our business since its inception. Our Chief Medical Officer, Gary Gordon, M.D., Ph.D., is an oncologist with clinical research experience from John Hopkins School of Medicine and in oncology drug development roles at AbbVie, Inc. Dr. Gordon was involved in the development and commercialization plans for venetoclax, celecoxib and veliparib. Members of our management team have held leadership positions at companies that have successfully discovered, acquired, developed and commercialized therapies for a range of rare diseases and cancers, including Chiasma Inc., Adnexus Therapeutics, Inc., AbbVie Inc., Abbott Laboratories, Protalix Biotherapeutics, Inc. and Teva Pharmaceutical Industries Ltd.

We have raised $46.3 million of capital since our inception. Our shareholders include BMS, Novartis and prominent investors such as Israel Biotech Fund, aMoon Fund, Harel Insurance and Finance and SBI Investments.

 

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Our Targeted Approach to Treating Rare Cancers

 

•

Target indications in which Notch is a known tumorigenic driver

 

∎

The Notch pathway has long been implicated in multiple solid tumor and hematological cancers, and often has been associated with more aggressive cancers. Based on our understanding of the role of the Notch pathway, we are developing targeted therapies to address the underlying key drivers of tumor growth in patients where GSI inhibition of Notch may lead to clinical benefit.

 

∎

We use our bioinformatics platform to analyze NGS data and identify patients in whom Notch may be a tumorigenic driver. We apply our big-data analysis capabilities to identify and confirm patients with Notch-activating mutations, who are likely sensitive to GSIs.

 

•

Validate indications via PDX models

 

∎

After our bioinformatics analysis and prior to initiating our clinical trials, we utilize PDX mouse models that allow us to assess the GSI sensitivity of patient-derived tumors in vivo with Notch-activating mutations where applicable. In these models, mice are implanted with tumor tissue derived from individual patient biopsies that either do or do not have a Notch-activating mutation and we observe whether the tumor responds to treatment with our product candidates. Using these models, we are able to validate whether the tumors with Notch-activating mutations in our target indications are highly sensitive to gamma secretase, or g-secretase, inhibition.

 

•

Target indications with high unmet medical need and pursue expedited regulatory review pathways

 

∎

BMS previously evaluated AL101 in three Phase 1 studies in more than 200 unselected subjects with various cancers. As these studies were conducted in unselected subjects, we believe that the response rates observed in these studies were lower than those that could be achieved by prescreening patients for Notch-activating mutations. The responses observed in these studies directed us to initially investigate R/M ACC, R/M TNBC, R/R T-ALL and desmoid tumors.

 

∎

Each indication we are currently targeting is a rare disease for which there is either no FDA-approved therapy or for which current therapies are insufficient for long-term disease control. By focusing our development efforts on these indications, we expect that smaller clinical trial sizes may be sufficient to support expedited regulatory review pathways.

 

•

Expand our addressable patient population

 

∎

Commercially available diagnostic tests are limited in their ability to test for all potential Notch-activating mutations, as they do not cover all four Notch genes and only uncover simple mutations in the Notch gene locus, such as point mutations, insertions, deletions and copy number variations. We entered into a collaboration agreement with ArcherDX, Inc., or ArcherDX, to co-develop diagnostic tests that test for all four Notch genes and, in addition to simple mutations, are also designed to detect gene rearrangements such as fusions, which may also result in Notch activation. We believe that these diagnostic tests, if successfully developed, have the potential to expand the addressable patient population for our product candidates.

Our Strategy

Our goal is to develop and commercialize therapies that improve treatment outcomes for patients with aggressive cancers. The key elements of our strategy are:

 

•

Rapidly advance the clinical development of AL101 for the treatment of R/M ACC. We are currently conducting our Phase 2 ACCURACY trial of AL101 for the treatment of R/M ACC. Our interim data from the clinical trial as of December 30, 2019 showed encouraging initial signs of activity. We expect to report further results from this trial in a medical conference in 2020. AL101 was granted Orphan Drug Designation in May 2019 for the treatment of ACC and Fast Track Designation in February 2020 for the treatment of R/M ACC. We intend to leverage our substantial drug

 

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development experience to efficiently advance the development AL101. If approved, we believe that AL101 has the potential to be the first FDA-approved therapy for patients with R/M ACC. We may also seek regulatory approval of AL101 for the treatment of R/M ACC selectively in other territories.

 

•

Rapidly advance the clinical development of AL101 for the treatment of R/M TNBC and R/R T-ALL. In parallel with R/M ACC, we are committed to developing AL101 in additional indications with a high unmet medical need and in which Notch-activating mutations are known to be a tumorigenic driver, such as TNBC and T-ALL. We intend to commence Phase 2 clinical trials of AL101 for the treatment of R/M TNBC in mid-2020 and for the treatment of R/R T-ALL in the second half of 2020. We also intend to evaluate other indications in which we believe AL101 could potentially deliver substantial benefits to patients.

 

•

Rapidly advance the clinical development of AL102 for the treatment of desmoid tumors. We intend to commence a Phase 2 clinical trial evaluating AL102 for the treatment of desmoid tumors in the second half of 2020. There are currently no FDA-approved therapies for patients with desmoid tumors. We also intend to evaluate other indications in which we believe AL102 could potentially deliver substantial benefits to patients.

 

•

Collaborate with select diagnostic developers to identify and expand our addressable patient population. Consistent with our targeted approach to oncology, our development strategy is based on using companion diagnostics to identify and expand patient populations with Notch-activating mutations. Commercially available diagnostic tests are limited in their ability to test for all potential Notch-activating mutations. To address this, we have entered into a collaboration agreement with ArcherDX to co-develop a suitable clinical trial assay that may be used to assist in patient selection in our future clinical trials, and that is designed to detect across all four Notch genes and a wider range of Notch gene rearrangements than what is possible with commercially available diagnostic tests today.

 

•

Commercialize our product candidates, if approved, to address the unmet medical need of underserved patient populations with rare and aggressive cancers. We intend to commercialize our product candidates, if approved, by building our own specialized sales and marketing organization initially in the United States. We believe our target market can be addressed by a small number of dedicated marketing and medical sales specialists covering specialized oncologists treating the target patient population. We may also selectively pursue strategic collaborations with third parties to maximize the commercial potential of our product candidates, if approved.

 

•

Evaluate strategic collaborations to maximize the potential of our portfolio. We are continuously evaluating opportunities to expand our portfolio of product candidates through in-licensing, acquisition and other collaboration opportunities to jointly develop product candidates and maximize the value of our company. We have already established a collaboration with Novartis to develop AL102 in combination with Novartis’ BCMA-targeting therapies for the treatment of MM and intend to assess other collaboration opportunities by leveraging our novel GSI technology.

Our Product Candidates

The Role of the Notch Pathway

The Notch pathway has long been implicated in multiple solid tumor and hematological cancers, and often has been associated with more aggressive cancers. Notch receptors serve as critical facilitators in processes such as cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, which all contribute to a poorer prognosis. Humans have four Notch receptors, known as Notch 1, 2, 3 and 4, as well as five transmembrane-bound ligands. Different forms of cancer are associated with different types of Notch mutations.

 

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Normal and Tumorigenic Signaling of Notch

 

As seen on the left side of the above graphic, normal Notch receptor signaling is initiated by the binding of a ligand expressed on an adjacent cell, which triggers a conformational change, permitting cleavage of the Notch receptor by the g-secretase complex. As seen on the right side of the above graphic, this cleavage releases the Notch intracellular domain, or NICD, which then translocates to the cell nucleus, interacts with transcription complexes and promotes the transcription of downstream target genes that regulate critical cell functions. This pathway activation is terminated by the degradation of NICD. Activating mutations in the Notch receptor lead to accumulation of the NICD and hyper-activation of the pathway, resulting in excess NICD. Hyper-activation of the Notch pathway promotes cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, which are each hallmarks of cancer.

Our Potent and Selective Investigational Gamma Secretase Inhibitors

We are developing targeted therapies designed to address the underlying key drivers of tumor growth in patients where GSI inhibition of the Notch pathway may lead to clinical benefit. Our current portfolio of product candidates targets the aberrant activation of the Notch pathway with GSIs. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, blocks the expression of Notch gene targets by blocking the final cleavage step required for Notch activation, thereby “turning off” the aberrant activation of the Notch pathway. We have designed our GSIs to selectively inhibit all four Notch receptors.

Our Bioinformatics Platform

We have developed a proprietary bioinformatics platform to analyze NGS data and identify patients in whom Notch is a tumorigenic driver. We apply our big-data analysis capabilities to identify and confirm patients with Notch-activating mutations who are likely sensitive to GSIs.

The first step in our bioinformatics process is to gather evidence from literature and identify indications in which Notch is a known tumorigenic driver. We then confirm there are a requisite number of patients with Notch alterations in a specific indication using our proprietary database to integrate genetic information from thousands of unidentified patients. We couple these methods with our analysis of PDX models, which allow us to assess the sensitivity of the tumors in vivo with Notch-activating mutations, for certain indications.

 

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Our bioinformatics platform includes:

 

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Our Ayala Cancer Omics Research Database, or ACORD, which is used to collate NGS data and integrate Notch-activating mutations from approximately 250,000 patients with over 400 different forms of cancer and harbors approximately 27,000 unique Notch alterations. We continue to expand ACORD by gaining access to additional sources of NGS data and scientific literature. We believe that we possess the largest database of Notch-activating mutations.

 

•

Open source and proprietary algorithms integrated into a dedicated software platform, resulting in over 20 specialized data processing pipelines. These algorithms transform DNA and RNA sequences into searchable parameters, including which cancers harbor potential Notch-activating mutations. A systems biology approach is then applied to explore pathways involved in drug resistance and inform the design of our future clinical trial designs and to consider potential treatment combinations and responses to GSI.

Our scientists continue to utilize unique capabilities in bioinformatics and functional biology to create a Notch-focused patient identification engine that we believe will result in the discovery of additional patients with currently undetected Notch-activating mutations.

Expanding Our Addressable Patient Population

In addition to the well-known scientific literature supporting Notch’s tumorigenic role in various forms of cancer, we are developing our bioinformatics platform to potentially discover additional genetic alterations not currently covered in commercially available genetic screening panels. Currently available NGS tests only cover certain areas of Notch genes on the DNA level, however, we believe that there is no single test that covers all four Notch genes on the DNA and RNA level. As a result, these tests are able to detect only a subset of the patients with Notch-activating mutations. In order to develop a diagnostic test that can detect the full breadth of Notch-activating mutations on both the DNA and RNA level, we plan to collaborate with leading diagnostics companies to improve the testing capabilities for Notch-activating mutations. For example, we have a collaboration agreement with ArcherDX to co-develop a suitable clinical trial assay to assist with patient selection for our future clinical trials and detect a wider range of Notch gene rearrangements than commercially available NGS tests.

We estimate that there are up to 12,000 newly diagnosed patients annually across the United States, Europe and Japan who have Notch pathway activation in the indications that we are currently targeting.

Our Novel Approach: AL101 and AL102

Differentiated GSI for the Treatment of Rare Cancers

AL101 and AL102 are potent and selective small molecule GSIs designed to inhibit the aberrant activation of the Notch pathway. In preclinical studies and three Phase 1 studies conducted by BMS, tumor responses were observed in cancers we are initially targeting and where Notch is known to be an important tumorigenic driver. Our further investigation using PDX models provided additional evidence supporting our targeted patient population development approach.

In preclinical studies, both AL101 and AL102 inhibited all four Notch genes at low concentrations, when compared to other GSIs either currently or previously under development as illustrated in the below graphic.

 

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Comparative Inhibitory Potency of Five GSIs in a Notch Luciferase Reporter Assay

Inhibition of Constitutive Notch Signaling: IC50 (nM)¹

 

 

(1)

Luciferase reporter-based assay, inhibition of constitutive Notch signaling.

(2)

Nirogacestat is being developed by SpringWorks Therapeutics, Inc.

(3)

RO-4929097 was developed by F. Hoffmann-La Roche Ltd. and is not under active development.

(4)

MK-0752 was developed by Merck & Co., Inc. and is not under active development.

The Notch cell-based transactivation assay was based on the ability of the released NICD to function as a transcription factor with other nuclear factors. Luciferase reporter activity provided a measure of the antagonism of Notch transcriptional activity. HeLa cervical cancer cells were transiently cotransfected with plasmids containing truncated Notch 1—4 receptors and a luciferase reporter vector. The cells were tested for Notch-activity in the absence or presence of GSIs at increasing concentrations. These data represent the GSI concentration inhibiting luciferase assay by 50%, or IC50. Lower concentrations correlate to more potent GSIs. As highlighted in the above graphic, AL101 and AL102 generally reached IC50 across all four Notch receptors at concentrations lower than other GSIs either currently or previously under development, which displayed the potency of AL101 and AL102 and supported the continued clinical development of these product candidates.

Effect on Tumor Growth in T-ALL Mouse Model

 

Tumor volume data are Mean ± SEM for 7-8 mice per treatment arm.

 

(1)

Crenigacestat is being developed by Celgene Corporation, recently acquired by BMS.

 

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Furthermore, as shown in the graphs above, AL101’s stronger inhibition of tumor growth was observed in T-ALL mouse models when compared to other GSI molecules. We believe that AL101 and AL102, if approved, are GSIs with the potential to address the unmet medical need for patients with rare and aggressive tumors.

AL101 for the Treatment of R/M Adenoid Cystic Carcinoma

Disease Background

ACC is a rare solid tumor malignancy of secretory glands including the salivary glands. While major salivary glands are located in the mouth, minor salivary glands are scattered throughout the aerodigestive tract and are mostly concentrated in cheeks, lips, tongue, palate and floor of the mouth. ACC can also arise in other sites outside the head and neck. When presenting in the major salivary glands, ACC can cause symptoms of varying severity, including numbness, difficulty swallowing or paralysis of a facial nerve.

ACC is characterized by its high recurrence rate and, along with its persistent and relentless progressive course, often manifests as local recurrences and late-onset distant metastasis. ACC has an annual incidence of approximately 3,400 patients in the United States, approximately 1,700 of which are R/M ACC patients. Based on primary literature and our bioinformatics research, we estimate that 18% to 22% of R/M ACC patients have Notch-activating mutations.

Notch Is a Tumorigenic Driver in ACC and

Correlates with a Distinct Pattern of Metastases and Poor Prognosis

 

Median RFS = 12.5 vs 33.9 months (p=0.01)		Median OS = 29.6 vs 121.9 months (p=0.001)

Data from MD Anderson Cancer Center

As the understanding of the biology of cancer and ACC specifically evolved, the importance of the Notch pathway and Notch-activating mutations was established. A recent publication from MD Anderson Cancer Center examined the relationship between Notch-activating mutations and ACC patient prognosis in 102 subjects, as illustrated in the figures above. The figure on the left shows that the relapse free survival, or time from diagnosis to relapse, was reduced from 33.9 months for Notch 1 wild-type, or WT, patients to 12.5 months for Notch 1 mutant patients. In addition, patients with Notch-activating mutations were more likely to present with advanced-stage disease and they developed a somewhat different pattern of metastatic disease compared to Notch 1 WT patients. Similarly, the graphic on the right demonstrates that median overall survival was reduced from 121.9 months for Notch 1 WT patients to 29.6 months for Notch 1 mutant patients. Similar results were subsequently observed in an additional retrospective study analyzing data from 84 ACC subjects at Memorial Sloan Kettering Cancer Center, where median overall survival was reduced from 204.5 months for Notch 1 WT patients to 55.1 months for Notch 1 mutant patients.

 

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Current Treatment Landscape

The current standard of care is typically surgery followed by radiation. Radiation or systemic therapy, comprised of chemotherapy and targeted drugs, may be recommended if the tumor cannot be surgically removed or in cases of advanced metastatic disease. There are limited systemic therapy treatment options, and no FDA-approved therapies, available for patients with R/M ACC. According to the Surveillance, Epidemiology, and End Results, or SEER, the relative survival rate for all ACC patients in the United States between 1975 and 2016 was 81% at five years and 66% at ten years. Treatment has been particularly ineffective for ACC patients with metastatic disease, where survival rates are much lower: 33% at five years and 24% at ten years. According to published data from 31 Phase 2 clinical trials in ACC conducted since 2005 using a variety of treatment modalities, these treatments showed limited or no clinical activity in unselected ACC subjects. The ORR in 30 of these trials ranged from 0% to 20%, with a 47% ORR observed in one trial conducted in China. In 15 of the 31 trials, a 0% ORR was observed. Accordingly, there remains a lack of effective treatment options for patients with R/M ACC.

Our Proposed Solution for R/M ACC: AL101

We are developing AL101 as a potent, selective and injectable small molecule GSI for patients with R/M ACC with Notch-activating mutations and we believe that AL101 has the potential to be the first FDA-approved therapy for this patient population.

Our Ongoing Phase 2 ACCURACY Trial:

We are currently evaluating subjects in our ongoing Phase 2 ACCURACY trial of AL101 as a monotherapy for the treatment of R/M ACC. Our Phase 2 ACCURACY trial is an open-label, single-arm, multi-center study of AL101 administered intravenously, or IV, in subjects with ACC bearing Notch-activating mutations who have previously been treated for or are newly diagnosed with metastatic disease. As of December 30, 2019, the trial included 13 open clinical sites across the United States, Europe and Canada. We dosed 34 subjects as of December 30, 2019 and we expect to dose a total of approximately 90 subjects.

The primary endpoint of our Phase 2 ACCURACY trial is the objective response rate as measured by Response Evaluation Criteria in Solid Tumors, or RECIST, 1.1, a commonly used set of measures for evaluating the response of solid tumors to treatment, with confirmation by an independent review committee. Secondary endpoints include objective response rate by investigator review, duration of response and progression-free survival by an independent review committee and an investigator review, overall survival, safety and tolerability and pharmacokinetics, or PK. The Phase 2 ACCURACY trial is powered to assess statistical significance for these endpoints. However, the Phase 2 ACCURACY trial is ongoing and formal statistical testing will not be performed until the study is complete.

Stage 1 of the trial includes dosing a maximum of 45 subjects at 4 mg of AL101 IV once weekly, and is currently enrolling. Stage 2 of the trial will include dosing of an additional 42 subjects at 6 mg of AL101 IV once weekly. As of December 30, 2019, we had dosed 34 subjects in this trial at 4 mg of AL101 IV once weekly. Per study protocol, dosing was continued until disease progression, unacceptable toxicity or withdrawal of consent for treatment by a subject.

Ongoing Phase 2 ACCURACY Trial Interim Clinical Data

Our interim data from the Phase 2 ACCURACY trial as of December 30, 2019 showed early signs of clinical activity. As of December 30, 2019, 27 subjects were evaluable for a response using RECIST 1.1. No CRs were observed, two confirmed and two unconfirmed PRs (which will remain unconfirmed as both subjects subsequently left the trial) were observed in four subjects, and SD was observed in 13 subjects, yielding a 63% disease control rate among the evaluable subjects. All four subjects with either confirmed or unconfirmed PRs had received prior radiation therapy and two subjects had received prior systemic chemotherapy. As of December 30, 2019, three of the evaluable subjects remain on therapy.

 

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The best objective responses observed in our Phase 2 ACCURACY trial, as determined by the investigator and measured by RECIST 1.1, are shown in the following graph, by individual subject. The dotted lines under the x-axis represent cutoffs for PR, defined as a 30% or greater reduction in the sum of the longest diameters of target lesions for RECIST 1.1 or, for bone-only disease patients, a 50% or greater reduction in lesion size for the MD Anderson modified bone response criteria. Progressive disease is defined as a 20% or greater increase in the sum of the longest diameters. Stable disease is reflected between the dotted lines at 20% and -30%.

Best Objective Responses by Investigator Review (n=27)^a

 

 

 

Data

as of data collection cutoff date of December 30, 2019.

B—bone-only disease

a) Includes efficacy-evaluable subjects only.

b) Subject #2 had an unconfirmed PR at week 16.

c) These subjects had clinical PD.

d) Subject #3, with bone-only disease, had an unconfirmed PR at week 32 by the investigator per modified MDA Bone Response Criteria (52% disease reduction).

e) Subject #4, with bone-only disease, had SD at week 16 by the investigator per modified MDA Bone Response Criteria (38% disease reduction).

f) Subject #14, with bone-only disease, had PD at week 8 by the investigator, but the value of percentage change in tumor volume per modified MDA Bone Response Criteria is not available.

g) Subject #19 had radiographic PD.

The following graph depicts the treatment duration and clinical response of subjects in our Phase 2 ACCURACY trial as of December 30, 2019. Time to PR is denoted using yellow circles and the six subjects who remain on therapy as of the data cutoff are denoted using blue arrows. Radiographic evaluations are performed every eight weeks and the first point at which a subject achieves a PR is indicated by the change in line color following the yellow response circles. Unless otherwise indicated, the responses observed have been maintained.

 

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Time of Objective Response^a by Investigator Review (n=30)^b

 

 

Data as of data collection cutoff date of December 30, 2019.

a)

Response as assessed by investigator per RECIST 1.1; first response assessment was at week 8.

b)

Represents all efficacy-evaluable subjects, including those who had not yet had their first post dose follow-up radiologic evaluation.

c)

Only deaths occurring within 30 days after the last dose are shown.

Subject #3, Subject #4 and Subject #14 had bone-only disease. Subject #3 had an unconfirmed PR at week 32 by the investigator per modified MDA Bone Response Criteria. Subject #2 had an unconfirmed PR at week 16.

 

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The figures below are radiographic scan results from three subjects participating in our Phase 2 ACCURACY trial who exhibited either a confirmed PR (subjects #6 and #15) or unconfirmed PR (subject #2) in soft tissues.

 

•

Subject #2 was a 56 year-old female with ACC that had spread to the dura, or the layer of tissue covering the brain, and the tissues surrounding her eye. She had received prior therapy with surgery and radiation treatments but the disease progressed despite these therapies. This subject exhibited gradual improvements during the clinical trial and an unconfirmed PR was observed at week 16. She also had a leak of cerebrospinal fluid that complicated her participation in the study. Subject #2 subsequently chose to stop therapy.

Subject #2

 

 

•

Subject #6 was a 29 year-old male with extensive metastatic liver disease and significant right upper quadrant pain related to the enlargement of his liver. He had received prior therapy with radiation and chemotherapy treatments but the disease progressed despite these therapies. This subject exhibited gradual improvements during the clinical trial and a confirmed PR was observed at week 8. Subject #6 died shortly after week 28, within 30 days of AL101 treatment.

Subject #6

 

 

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•

Subject #15 was a 47 year-old female with metastatic liver disease. She had received prior therapy with surgery, radiation and chemotherapy treatments but the disease progressed despite these therapies. On trial, a substantial shrinkage of disease in this subject’s liver was observed and a confirmed PR was observed at week 8. As of December 30, 2019, Subject #15 ended treatment and subsequent progressive disease was observed.

Subject #15

 

We have observed subjects responding by their first radiographic exam at eight weeks following treatment. We believe that these interim results provide evidence supporting continue development of AL101 as a monotherapy for patients with R/M ACC. We expect to release additional interim results from our Phase 2 ACCURACY study at a medical conference in 2020.

Phase 2 ACCURACY Trial Interim Safety Results

AL101 was generally observed to be well tolerated in the interim data as of December 30, 2019, with most adverse events being mild to moderate in severity. Approximately 85% of subjects experienced at least one treatment-related adverse event, or TRAE, while only approximately 18% experienced a Grade 3 or 4 TRAE. In addition, two subjects experienced a treatment-related serious adverse event, or TRSAE. The two TRSAEs included a Grade 2 infusion reaction and a Grade 1 keratoacanthoma. Five subjects had a dose reduction from 4 mg to 2.4 mg, three of which were within two weeks of an adverse event. There were 10 dose interruptions resulting in delays of at least one week due to adverse events, eight of which were no more than two weeks in length. Four subjects began treatment but discontinued before their first post-dose radiographic evaluation. Of these four subjects, one subject discontinued due to an infusion reaction, two subjects discontinued due to non-treatment related adverse events and one subject stopped treatment without a first follow-up radiographic evaluation. Therefore, these four subjects were considered non-evaluable for efficacy. In addition, there was one death within 30 days of stopping AL101 treatment, which was assessed by the investigator not to be treatment-related. The following chart depicts the TRAEs observed in our Phase 2 ACCURACY trial, as of the data cutoff date of December 30, 2019.

TRAEs Reported in ³15% of Subjects

 

 

Data as of data collection cutoff date of December 30, 2019.

Grade 1: Mild; asymptomatic or mild symptoms; clinical or diagnostic observations only; intervention not indicated.

Grade 2: Moderate; minimal, local or noninvasive intervention indicated; limiting age-appropriate instrumental activities of daily living, or instrumental ADL, which refers to activities such as preparing meals, shopping for groceries or clothes, using the telephone and managing money.

 

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Grade 3: Severe or medically significant but not immediately life-threatening; hospitalization or prolongation of hospitalization indicated; disabling; limiting self-care ADL, which refers to bathing, dressing and undressing, feeding one’s self, using the toilet, taking medications, and not being bedridden.

Grade 4: Life-threatening consequences; urgent intervention indicated.

Regulatory Approval Strategy

In May 2019, the FDA granted Orphan Drug Designation to AL101 for the treatment of ACC. In addition, in February 2020, the FDA granted Fast Track Designation to AL101 for the treatment of R/M ACC. Given the significant unmet medical need and lack of FDA-approved therapies for patients with R/M ACC, we may seek a potential expedited regulatory review pathway pending additional results from the ongoing Phase 2 ACCURACY trial.

AL101 Potently Inhibited Notch-Activated ACC Tumors in PDX Models

A comprehensive preclinical and Phase 1 program for AL101 was conducted by BMS and was designed to inform the appropriate dose to be used in clinical trials and evaluate the safety of AL101. We have expanded upon the preclinical work and have generated data using four ACC PDX models. PDX mouse models allow us to assess the sensitivity of the tumors in vivo with Notch-activating mutations. In these models, mice are implanted with tumor tissue derived from individual patient biopsies that either do or do not have a Notch-activating mutation and we observe whether the tumor responds to treatment with our product candidates. Using these models, we have observed that the tumors with Notch-activating mutations in these indications were highly sensitive to g secretase inhibition.

The activity of AL101 in ACC was evaluated in a total of four ACC PDX models: two with activated Notch 1 (referred to as ACCx9 and ACCx11) and two with WT, non-mutated Notch (referred to as ACCx5M1 and ACCx6). In these models, tumors were implanted into mice and upon reaching an average tumor volume of 150mm³ to 300mm³, mice were randomized to control vehicle or AL101 treatment arms. Mice were treated at a dose of 7.5 mg/kg AL101 for four consecutive days of each week, with a three-day dosing holiday between cycles of treatment. These models were designed to evaluate the level of tumor growth inhibition observed following administration of AL101 as a monotherapy. Tumor growth inhibition, or TGI, is assessed as tumor volume in treated xenografts over vehicle treated controls, whereby 100% is equivalent to zero tumor growth on treatment and percentages higher than 100% represent tumor regression, or reduction in tumor size. In these PDX models, we observed significant TGI of AL101 as a monotherapy in the ACCx9 (106% TGI) and ACCx11 (74% TGI) models with activated Notch 1, as compared to the ACCx6 (54% TGI) and ACCx5M1 (22% TGI) models with WT, non-mutated Notch.

 

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The following graphs depict the effect of AL101 on TGI compared to control vehicle, in each of the four ACC PDX models.

Anti-Tumor Activity of AL101 as a Monotherapy Observed in ACC PDX Tumors

 

Mice bearing ACC PDX tumors were treated with vehicle or AL101 for four consecutive days of each week, with a three day dosing holiday between cycles. The two models at the top harbor Notch-activating mutations while the bottom two models had WT Notch. The TGI percentage of AL101 is represented as the blue line in each graph.

These results demonstrate that AL101 showed greater activity when treating tumors with Notch-activating mutations. The results from these models support the clinical development of AL101 as a potential targeted monotherapy for patients with R/M ACC and Notch-activating mutations.

AL101 for the Treatment of Triple Negative Breast Cancer

Disease Background

TNBC is one of the most aggressive types of breast cancer. Breast cancer, which has an annual incidence of approximately 270,000 patients in the United States, is the leading cause of cancer death in women worldwide and the second leading cause of cancer death in women in the United States. Approximately 10% of breast cancer patients are diagnosed with TNBC, which is associated with a younger age at diagnosis, advanced stage at diagnosis, increased risk of visceral metastasis and decreased survival. TNBC is characterized by the lack of: estrogen receptors, progesterone receptors and excess HER2 protein. Approximately 37% of TNBC patients have R/M TNBC, resulting in an annual incidence of approximately 10,000 R/M TNBC patients in the United States. Based on primary literature and our bioinformatics research, we estimate that approximately 9% to 16% of R/M TNBC patients have Notch-activating gene alterations including mutations and other fusions.

Current Treatment Landscape

There are limited treatment options available for patients with R/M TNBC. These therapies are limited to TNBC patients that are germline breast cancer gene positive or with tumors that express high PD-L1 levels. When these patients relapse, they are treated with chemotherapy. All other TNBC patients are initially treated with chemotherapy. However, responses to chemotherapy are not durable and relapse is often rapid. Approximately 80% of first-line TNBC patients require second-line therapies and approximately 60% of these patients will progress to third-line therapies. Second-line therapies for patients with metastatic TNBC are

 

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suboptimal, with median overall survival of 10.2 months following second-line treatment regimens containing taxane, capecitabine or gemcitabine, and median overall survival of 15.2 months following second-line or later treatment with eribulin. Although the five-year survival rate for women diagnosed with TNBC is 77%, the five-year survival rate for women diagnosed with metastatic TNBC is only 10%, indicating the need for new therapies that can prolong overall survival. Targeting the Notch pathway may provide an additional treatment option to these patients, as Notch-activating mutations are known to correlate with poorer prognosis. Accordingly, we believe that there remains a lack of effective treatment options for patients with R/M TNBC.

AL101 Potently Inhibited Notch-Activated TNBC Tumors in PDX Models

Following BMS’s Phase 1 study in unselected subjects, we have expanded our TNBC research and generated data from nine TNBC PDX models. The results of these models provided evidence supporting our thesis that Notch-activating mutations in TNBC are responsive to GSIs. These PDX models were selected based on Notch genetic profiling to include Notch WT or different Notch-activating mutations. Two of these PDX models had Notch WT (CTG-0017 and CTG-1520) and three of these PDX models had Notch mutations that were not activating (CTG-1646, CTG-1167 and CTG-1941), all five of which were therefore not expected to respond to GSIs. In addition, four of these PDX models had Notch-activating mutations (CTG-1340) and/or fusions (CTG-1408, CTG-1374 and CTG-2010). Tumor tissue derived from individual patient biopsies were implanted into and grown in mice, which were then randomized to control vehicle or AL101 treatment arms and treated for a maximum of 60 days.

In these PDX models, we observed that AL101 as a monotherapy showed substantial anti-tumor activity that correlated with the presence of Notch-activating mutations. In PDX models with Notch-activating mutations, tumor regression was observed and TGI ranged from 62% to 147%. In PDX models with Notch WT or non-activating mutations, tumor growth inhibition ranged from 12% to 64%. The following graphs depict the results of administration of AL101 on TGI compared to control vehicle, in each of the nine TNBC PDX models.

Anti-Tumor Activity of AL101 as a Monotherapy in TNBC PDX Tumors

 

Mice (n=5) bearing TNBC PDX tumors were treated with vehicle or AL101 (3 mg/kg for four consecutive days a week). The four models on the left bear Notch-activating mutations or fusions and the five models on the right either had Notch WT or non-activating mutations, which were not expected to respond to GSIs. Dotted lines represent an average of n=4 mice.

 

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We believe that the results from these models support the clinical development of AL101 as a potential targeted monotherapy for patients with R/M TNBC with Notch-activating mutations.

Our Proposed Solution for R/M TNBC: AL101

We are developing AL101 as a monotherapy for the treatment of R/M TNBC to address the lack of effective treatment options for these patients. In the Phase 1 study of AL101 in combination with chemotherapy in unselected, heavily pretreated subjects, which included 22 TNBC subjects, a CR was observed in one TNBC subject, PRs were observed in seven TNBC subjects and SD was observed in five TNBC subjects. Based on these findings and supporting data from our own PDX models, we intend to commence a Phase 2 clinical trial of AL101 as a monotherapy for the treatment of R/M TNBC in patients with Notch-activating mutations in mid-2020.

Design for Phase 2 Clinical Trial of AL101 for the Treatment of R/M TNBC

We expect our proposed Phase 2 clinical trial will be an open-label, single-arm, multi-center study of AL101 administered IV in subjects with TNBC bearing Notch-activating mutations who have failed two or fewer lines of therapy. We anticipate enrolling up to     subjects in this trial.

We expect the primary endpoint of the trial will be objective response rate. Secondary endpoints may include safety, duration of response, progression free survival and relapse free survival. We anticipate that subjects will be dosed with AL101 IV once weekly, and that dosing will continue until lack of clinical benefit is observed or consent is withdrawn.

AL101 for the Treatment of T-cell Acute Lymphoblastic Leukemia

Disease Background

T-ALL is an aggressive, rare form of acute lymphoblastic leukemia, a disease which has an annual incidence of approximately 6,000 patients in the United States. T-ALL has an annual incidence of approximately 1,200 patients in the United States, of which an estimated 400, including pediatric patients, present for the treatment of R/R T-ALL. Notch is known to be a critical component of T-cell development and is inherently implicated as a tumorigenic driver in T-ALL. Approximately 65% of all T-ALL patients have Notch-activating mutations. In addition, there is an incremental subset of patients with Notch pathway activation who do not bear Notch-activating mutations.

T-ALL often presents as a result of the bone marrow being unable to produce sufficient amounts of normal blood cells, leading to symptoms such as anemia, infection, bleeding, bruising, fever, weakness and fatigue. Patients suffering from T-ALL frequently have central nervous system complications, as well as swollen lymph nodes in the mediastinum, or middle of the chest, which often affects breathing and circulation.

Current Treatment Landscape

The curative therapy for T-ALL is an allogeneic transplant. However, in order to be eligible to receive a transplant, patients must have exhibited a CR to prior therapies. The current standard first-line therapy for T-ALL is an intensive chemotherapy regimen, which yields overall survival rates greater than 80% among pediatric patients and approximately 50% among adult patients. Although first-line therapy is effective in most T-ALL patients, an estimated 55% of adult patients and 20% of pediatric patients will relapse. Second-line therapies for R/R T-ALL include targeted therapies administered in combination with chemotherapy and have shown limited efficacy, with an overall survival rate lower than 20% for pediatric patients. As a result, we believe that there remains a lack of effective treatment options for patients with R/R T-ALL.

 

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Our Proposed Solution for R/R T-ALL: AL101

We are developing AL101 for the treatment of R/R T-ALL to address the lack of effective treatment options for these patients. In the Phase 1 study of AL101, which included 26 unselected, heavily pretreated T-ALL evaluable subjects treated at 4 mg or 6 mg dose levels, CRs were observed in two subjects and a PR was observed in one subject. Of the three subjects who displayed a response, two had a confirmed Notch-activating mutation. Based on these findings and preclinical studies, we intend to commence a Phase 2 clinical trial of AL101 for the treatment of R/R T-ALL in the second half of 2020. We expect our proposed Phase 2 trial will be an open-label, single-arm, multi-center study of AL101 in R/R T-ALL subjects.

Phase 1 Studies

BMS evaluated AL101 in more than 200 unselected subjects with various cancers across three Phase 1 studies. While these Phase 1 studies did not report statistically significant overall results, clinical activity was observed in cancers in which activation of the Notch pathway is a known tumorigenic driver. In these Phase 1 studies, the recommended clinical dose for our ongoing Phase 2 ACCURACY trial was established. A summary of the three Phase 1 studies is below.

CA216001

In a Phase 1 study of AL101 in heavily pretreated subjects with advanced or metastatic tumors, which we refer to as the CA216001 study, AL101 IV was administered as a monotherapy. A total of 58 subjects were evaluated in the dose-escalation phase and an additional 36 subjects were evaluated in the dose-expansion phase. Of these subjects, 43 were treated with 4 mg of AL101 IV once weekly and 14 subjects were treated with 6 mg of AL101 IV once weekly. An additional 11 subjects were treated in a twice-weekly dosing arm and received either 4 mg or 6 mg of AL101 IV twice weekly. The primary objective of the CA216001 study was to evaluate the safety and tolerability of AL101. Secondary objectives included evaluating the PK, pharmacodynamics, or PD, changes in the expression of Notch-induced genes and the anti-tumor activity of AL101. Formal statistical testing for these endpoints was not performed and the results were presented as descriptive statistics. The design of this study, including dose groupings, is depicted below.

 

Of the 94 subjects evaluated in this study, two subjects had ACC and three subjects had desmoid tumors. PRs were observed in three subjects, including one subject with ACC and two subjects with desmoid tumors. In addition, SD was observed in 10 subjects, including one subject with ACC and one subject with desmoid tumors. As shown in the below graphs, the PK of AL101 was linear, with dose-dependent increases in exposure that correlated with suppression of the PD marker Hes1.

 

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Subjects enrolled in the CA216001 study were heavily pretreated, with over 70% of subjects previously undergoing at least three lines of prior therapy. AL101 was generally observed to be well tolerated at the dose chosen for our Phase 2 ACCURACY trial. During the course of the study, there were 27 deaths, including one death due to hepatic failure in the highest weekly dose tested (8.4 mg) that was assessed by the investigator to be treatment-related. Treatment was discontinued in nine subjects due to TRAEs. Approximately 89% of subjects experienced at least one TRAE and approximately 51% of subjects experienced at least one Grade 3 or 4 TRAEs. In addition, approximately 16% of subjects dosed with 4 mg and approximately 29% of subjects dosed with 6 mg experienced TRSAEs. The following table represents the most commonly reported TRAEs.

 

QW = once weekly

The results from this Phase 1 study of AL101 supported advancing the once weekly dosing regimen of 4 mg or 6 mg and showed early signs of clinical activity across solid tumor types. In addition, AL101 was generally observed to be well tolerated at the dose chosen for our Phase 2 ACCURACY trial.

 

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CA216002

In a Phase 1 study of AL101 in 31 heavily pretreated subjects, which included four T-LL subjects and 27 T-ALL subjects, AL101 IV was administered QW, or once weekly, as a monotherapy. We refer to this study as the CA216002 study. A total of 17 subjects were evaluated in the dose-escalation phase and an additional 14 subjects were evaluated in the dose-expansion phase. The primary objective of the CA216002 study was to evaluate the safety and tolerability of AL101. Secondary objectives included evaluating the PK, PD changes in the expression of Notch-induced genes and the anti-tumor activity of AL101. Formal statistical testing for these endpoints was not performed and the results were presented as descriptive statistics. The design of this study, including dose groupings, is depicted below.

 

Dose-escalation Phase (3+3 design) (n=17)		Dose-expansion Phase (n=14)

A total of 26 T-ALL subjects in this study received either a 4 mg or 6 mg dosage of AL101, 11 of whom had Notch 1 mutations. Objective responses were observed in three subjects with T-ALL, each in the 6 mg dose group, with CRs observed in two subjects and a PR observed in one subject. Of these three subjects, two had Notch 1 mutations. Following the administration of AL101, eight subjects with T-ALL experienced a 50% or greater reduction in leukemic blasts in bone marrow.

Subjects enrolled in the CA216002 study were heavily pretreated, with over 50% of subjects previously undergoing at least three lines of prior therapy. AL101 was generally well tolerated during the study. During the course of the study, there were 20 deaths, including one patient in the 4 mg once weekly dosing group who was heavily pretreated with at least four prior systemic therapies and died due to gastrointestinal hemorrhage. While this patient’s death was assessed by the investigator not to be treatment-related, BMS determined that it was possible the death was treatment-related. Treatment was discontinued in one subject due to TRAEs. Approximately 74% of subjects experienced at least one TRAE and approximately 23% of subjects experienced at least one Grade 3 or 4 TRAEs. In addition, approximately 16% of subjects experienced TRSAEs, which included single events of hepatoxicity and hypersensitivity in the 4 mg dose cohort and single events of anemia, diarrhea and infusion-related reaction in the 6 mg dose cohort. The following table represents the most commonly reported TRAEs.

 

The results from this Phase 1 study of AL101 supported advancing the anticipated once weekly dosing regimen of 6 mg, as this dose showed signs of clinical activity and was generally observed to be well tolerated.

CA216003

In a Phase 1 study in heavily pretreated subjects with advanced or metastatic solid tumors, which we refer to as the CA216003 study, AL101 IV was administered in combination with three different chemotherapy

 

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regimens. A total of 95 subjects were evaluated in the study, with 90 subjects receiving both chemotherapy and AL101. The primary objective of the CA216003 study was to evaluate the safety and tolerability of AL101 in combination with chemotherapy. Secondary objectives included evaluating the PK of AL101 in combination with chemotherapy, PD changes in the expression of Notch-induced genes after treatment with AL101 in combination with chemotherapy and the anti-tumor activity of AL101 in combination with chemotherapy. Formal statistical testing for these endpoints was not performed and the results were presented as descriptive statistics.

Of the 95 subjects evaluated in this study, 22 subjects had TNBC. Of the TNBC subjects, a CR was observed in one subject, PRs were observed in seven subjects and SD was observed in five subjects.

Subjects enrolled in the CA216003 study were heavily pretreated, with 40% of subjects previously undergoing at least three lines of prior therapy. AL101 in combination with chemotherapy was generally observed to be well tolerated during the study. During the course of the study, there were 32 deaths, but none were assessed by the investigator or BMS to be treatment-related. Treatment was discontinued in 15 subjects due to TRAEs. Nearly all subjects experienced at least one TRAE and approximately 82% of subjects experienced at least one Grade 3 or 4 TRAE. In addition, approximately 34% of subjects experienced TRSAEs. The most commonly reported Grade 3 or 4 TRSAEs included febrile neutropenia (10%) and diarrhea (6%). The most commonly reported TRAEs included: fatigue (78%), diarrhea (63%), hypophosphatemia (62%), nausea (52%), decreased appetite (46%), vomiting (39%), alopecia (38%), anemia (31%), neutropenia (26%), rash (26%), dysgeusia, or distortion of the sense of taste, (20%), dehydration (19%), weight decrease (18%), thrombocytopenia, or low blood platelet count, (17%), hypokalemia, or low potassium levels, (17%), stomatitis, or inflammation of the mouth and lips, (16%) and myalgia, or muscle soreness (16%).

Our Novel Approach: AL102

Overview

AL102 is being developed as a potent, selective and oral GSI. We obtained an exclusive, worldwide license to develop and commercialize AL102 from BMS in November 2017. We are initially developing AL102 for the treatment of desmoid tumors. In addition, we are collaborating with Novartis to develop AL102 for the treatment of MM in combination with Novartis’ BCMA-targeting agents. We believe that the clinical activity of BCMA-targeting agents may be enhanced when used in combination with a GSI such as AL102.

AL102 for the Treatment of Desmoid Tumors

Disease Background

Desmoid tumors, also called aggressive fibromatosis, are rare connective tissue neoplasms with an annual incidence of approximately 1,700 patients in the United States, and arise in the extremities, abdominal wall, mesenteric root, and chest wall. An estimated 7% to 15% of desmoid tumors present in the head and neck. They do not metastasize, but often aggressively infiltrate neurovascular structures and vital organs resulting in pain, loss of function, organ dysfunction, and death.

Desmoid tumors are typically diagnosed in patients between 15 and 60 years of age, more often in young adults, with a two- to three-fold female predominance and no significant racial or ethnic predilection.

Current Treatment Landscape

Although surgery and radiation remain the primary therapies for desmoid tumors, there are no treatment options for some patients given the diffuse nature of the tumor in some tissues. Surgery and radiation suffer from additional shortcomings including the morbidity associated with resection, disfigurement and/or functional impairment, post-operative complications and frequent recurrences. Aggressive adjuvant radiation therapy and surgical resection with wide margins of normal tissue may improve rates of post-surgical recurrence, which can occur in up to 72% of patients.

There are no FDA-approved systemic therapies for the treatment of unresectable, recurrent or progressive desmoid tumors and there is no currently accepted standard of care. Since current treatment responses are

 

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insufficient and not durable, there is an unmet medical need for the treatment of recurrent or progressive tumors (systemic therapy). Given the high recurrence and progression rates and lack of effective treatment options, we believe that there is a sizeable patient population with desmoid tumors with a high unmet medical need.

Clinical Evidence of GSI Activity in Desmoid Tumors

Based on data from multiple clinical evaluations, including data from three patients with desmoid tumors evaluated in a Phase 1 study of AL101 conducted by BMS, we believe that GSIs have the potential to address the shortcomings associated with existing treatment options for patients with desmoid tumors. In the Phase 1 study of AL101, PRs were observed in two subjects with desmoid tumors and SD was observed in another subject with desmoid tumors. In addition, three subjects, including two subjects from the Phase 1 study of AL101, entered into an expanded access program.

Phase 1 Study of AL102

Prior to our in-licensing of AL102, BMS conducted preclinical toxicity, PK and PD studies. AL102 was administered orally as a monotherapy in a Phase 1 study in 36 heavily pretreated cancer subjects. The primary objective of the study was to evaluate the safety, tolerability and proper dosage of AL102. Secondary objectives included evaluating the PK, PD changes in the expression of Notch-induced genes and the anti-tumor activity of AL102. Formal statistical testing for these endpoints was not performed and the results were presented as descriptive statistics. The study had two arms. Arm A was designed to study daily dosing while Arm B was designed to study dosing two consecutive days each week. The design of this study, including dose groupings, is depicted below:

Dose escalation phase (n=36)

 

Of the 36 subjects evaluated in the study, SD was observed in 11 subjects, five of whom received AL102 for five months or longer and included subjects with ACC, fibromatosis (which is closely related to desmoid tumors), renal cell cancer and retroperitoneal fibroscarcoma.

The maximum tolerated dose for a once daily dosing regimen of Arm A was 1.5 mg, with one dose-limiting toxicity of Grade 3 nausea in the six dose-limited toxicity evaluable subjects. On the once daily schedule, the 2 mg dose was not tolerated, with dose-limiting toxicities in three of the five dose-limiting toxicity evaluable subjects, which included Grade 3 events of ileus, nausea, or pruritus/urticaria. A maximum tolerated dose was not established for a twice weekly dosing regimen of AL102, as Arm B was ongoing at the time that this study was terminated. The highest tolerated dose was 4 mg twice weekly, with no dose-limiting toxicities in the two dose-limiting toxicity evaluable subjects. A higher dose of 8 mg was not tolerated, with dose-limiting toxicities in two of the six dose-limiting toxicity evaluable subjects, which included Grade 3 diarrhea or Grade 3 nausea/dehydration/anorexia with Grade 2 fatigue. The most common TRAEs in this study included diarrhea (72%), hypophosphatemia (61%), nausea (61%), vomiting (44%), fatigue (44%), decreased appetite (36%), rash (31%), hypokalemia (28%) and pruritus (25%). In addition, TRSAEs experienced by more than one subject included diarrhea (8%) and nausea (8%).

BMS elected to terminate this study prior to completion due to strategic considerations.

 

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Our Proposed Solution for Desmoid Tumors: AL102

We are developing AL102 as a monotherapy for the treatment of desmoid tumors to address the lack of effective treatment options for these patients. Given our expertise in the Notch pathway, we believe that the Notch pathway plays a critical role in desmoid tumors. This is potentially due to crosstalk between Notch and regulated WNT pathway, which is the hallmark of desmoid progression. We are leveraging the findings from the Phase 1 studies conducted by BMS and intend to initiate a Phase 2 clinical trial of AL102 for the treatment of desmoid tumors in second half of 2020.

AL102 for the Treatment of Multiple Myeloma

Despite numerous advances in the treatment landscape for MM, the disease remains incurable. BCMA is ubiquitously expressed on myeloma cells and is currently a target of active studies utilizing a number of therapeutic approaches. Increasing the expression of the BCMA on target cells and reducing the shedding in the circulation is believed to potentially enhance therapies and increase responses.

We are collaborating with Novartis to develop AL102 for the treatment of MM in combination with Novartis’ BCMA-targeting therapies. In December 2018, we granted Novartis the exclusive ability to evaluate, develop and potentially license and commercialize AL102, as a monotherapy and in combination with other therapies, for the treatment of MM. Novartis conducted a preclinical study evaluating AL102 alone and in combination with an investigational anti-BCMA-CD3 bispecific antibody, or BisAb, controlled by Novartis. Using a preclinical cell line model of human multiple myeloma (KMS11) and shown in the figure below, Novartis’ study showed that treatment with AL102 resulted in an approximate 20-fold increase in the levels of cell surface expression of BCMA and decreased shedding of BCMA to below lower levels of detection, as measured by levels of soluble BCMA.

AL102 Reduced Shed BCMA and Increased Membrane BCMA Levels in MM Cell Lines

 

Soluble BCMA levels (ng/mL) from culture supernatants of KMS11 cells treated overnight with a serial dilution of AL102 are shown on the left Y axis. Antibody binding capacity, or ABC, of anti-BCMA on the surface of AL102 treated KMS11 cells is shown on the right Y axis. AL102 inhibited shedding of BCMA from KMS11 cells in a dose-dependent manner, which resulted in increased BCMA expression on the cell surface over

 

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the same dose range. Untreated KMS11 cells have a BCMA ABC of approximately 14,000. The average ABC with treatment of 10 nM AL102 was approximately 285,000, representing an approximate 20-fold increase in cell surface BCMA expression with AL102 treatment.

In addition, we tested increasing concentrations of three different GSI molecules, AL102, Nirogacestat and Crenigacestat on shed BCMA and membrane BCMA in UM266 multiple myeloma cell lines. As seen in the figures below, similar dose related activity as measured by mean flurescence intensity, or MFI, for membrane BCMA and by change from baseline for shed BCMA was observed for AL102 and Crenigacestat while relatively weaker activity was observed for Nirogacestat.

 

As shown below, in an assay designed by Novartis to evaluate the BisAb redirected t-cell cytotoxicity, or RTCC, activity in vitro, using human MM cells from donors, AL102 enhanced BisAb RTCC activity in a dose-dependent manner with enhancement of BisAb potency at concentrations of approximately 8nM or higher.

 

Novartis has initiated a Phase 1 study with its bi-specific anti-BCMA agent, but dosing of AL102 has not yet been initiated. Novartis will be responsible for the conduct and expenses of any trials of AL102 in combination with their BCMA-targeting agents. We believe that the clinical activity of BCMA-targeting agents may also be enhanced in clinical trials when used in combination with a GSI such as AL102.

 

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License Agreements

Bristol-Myers Squibb Company License Agreement

In November 2017, we entered into a license agreement, or the BMS License Agreement, with BMS, under which BMS granted us a worldwide, non-transferable, exclusive, sublicensable license under certain patent rights and know-how controlled by BMS to research, discover, develop, make, have made, use, sell, offer to sell, export, import and commercialize AL101 and AL102, or the BMS Licensed Compounds, and products containing AL101 or AL102, or the BMS Licensed Products, for all uses including the prevention, treatment or control of any human or animal disease, disorder or condition.

Under the BMS License Agreement, we are obligated to use commercially reasonable efforts, either through ourselves or through our affiliates or sublicensees, to develop at least one BMS Licensed Product. As between BMS and us, we have sole responsibility for, and bear the cost of, conducting research and development and preparing all regulatory filings and related submissions with respect to the BMS Licensed Compounds and/or BMS Licensed Products. BMS has assigned and transferred all INDs for the BMS Licensed Compounds to us. We are also required to use commercially reasonable efforts to obtain regulatory approvals in certain major market countries for at least one BMS Licensed Product, as well as to commercialize and sell each BMS Licensed Product after obtaining such regulatory approval. As between BMS and us, we have sole responsibility for, and bear the cost of, commercializing BMS Licensed Products. For a limited period of time, we may not, either by ourselves or through our affiliates, sublicensees, or any other third parties, engage directly or indirectly in the clinical development or commercialization of a Notch inhibitor molecule that is not a BMS Licensed Compound.

As consideration of the rights granted by BMS to us under the BMS License Agreement, we paid BMS a payment of $6 million and issued to BMS 1,125,929 shares of Series A preferred stock valued at approximately $7.3 million. We are required to pay BMS payments upon the achievement of certain development or regulatory milestone events of up to $95 million in the aggregate with respect to the first BMS Licensed Compound to achieve each such event and up to $47 million in the aggregate with respect to each additional BMS Licensed Compound to achieve each such event. We are also obligated to pay BMS payments of up to $50 million in the aggregate for each BMS Licensed Product that achieves certain sales-based milestone events and tiered royalties on net sales of each BMS Licensed Product by us or our affiliates or sublicensees at rates ranging from a high single-digit to low teen percentage, depending on the total annual worldwide net sales of each such Licensed Product. If we sublicense or assign any rights to the licensed patents, the BMS Licensed Compounds and/or the BMS Licensed Products, we are required to share with BMS a portion of all consideration we receive from such sublicense or assignment, ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced BMS Licensed Compound or BMS Licensed Product that is subject to the applicable sublicense or assignment, but such portion may be reduced based on the milestone or royalty payments that are payable by us to BMS under the BMS License Agreement.

The BMS License Agreement remains in effect, on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis, until the expiration of royalty obligations with respect to a given BMS Licensed Product in the applicable country. Royalties are paid on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis from the first commercial sale of a particular BMS Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such BMS Licensed Product in such country, (b) when such BMS Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such BMS Licensed Product in such country.

Any inventions, and related patent rights, invented solely by either party pursuant to activities conducted under the BMS License Agreement shall be solely owned by such party, and any inventions, and related patent rights, conceived of jointly by us and BMS pursuant to activities conducted under the BMS License Agreement shall be jointly owned by us and BMS, with BMS’s rights thereto included in our exclusive license. We have the

 

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first right—with reasonable consultation with, or participation by, BMS—to prepare, prosecute, maintain and enforce the licensed patents, at our expense.

BMS has the right to terminate the BMS License Agreement in its entirety upon written notice to us (a) for insolvency-related events involving us, (b) for our material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, (c) for our failure to fulfill our obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS, or (d) if we or our affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed patent rights. We have the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Product has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if we reasonably determine that there are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products. Upon termination of the BMS License Agreement in its entirety by us for convenience or by BMS, we grant an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of our patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS must pay us a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed Compounds and/or BMS Licensed Products.

Novartis International Pharmaceutical Limited Evaluation, Option and License Agreement

In December 2018, we entered into an evaluation, option and license agreement, or the Novartis Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which Novartis agreed to conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen, or BCMA, therapies in multiple myeloma, and we agreed to supply AL102 for such studies. All supply and development costs associated with such evaluation studies are fully borne by Novartis.

Under the Novartis Agreement, we granted Novartis an exclusive option to obtain an exclusive (including as to us and our affiliates), sublicensable (subject to certain terms and conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by us (including applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop, manufacture (subject to our non-exclusive right to manufacture and supply AL102 and/or the Novartis Licensed Product for Novartis) and commercialize AL102 and/or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed Product, for the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. We also granted Novartis the right of first negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102 for indications other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis Agreement, we may not, either ourselves or through our affiliates or any other third parties, directly or indirectly research, develop or commercialize certain BCMA-related compounds for the treatment of multiple myeloma.

Novartis must pay us a low eight figure option exercise fee in order to exercise its option and activate its license, upon which we will be eligible to receive development, regulatory and commercial milestone payments of up to $245 million in the aggregate and tiered royalties on net sales of Novartis Licensed Products by Novartis or its affiliates or sublicensees at rates ranging from a mid-single-digit to low double-digit percentage, depending on the total annual worldwide net sales of Novartis Licensed Products. Royalties will be paid on a country-by-country and Novartis Licensed Product-by-Novartis Licensed Product basis from the first commercial sale of a particular Novartis Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such Novartis Licensed Product in such country, (b) when such Novartis Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing

 

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exclusivity for such Novartis Licensed Product in such country. Contemporaneously with the Novartis Agreement, we entered into a stock purchase agreement and associated investment agreements, or the SPA, with Novartis’s affiliate, Novartis Institutes for BioMedical Research, Inc., or NIBRI, pursuant to which NIBRI acquired a $10 million equity stake in us.

Novartis shall own any inventions, and related patent rights, invented solely by it or jointly with us in connection with activities conducted pursuant to the Novartis Agreement. We will maintain first right to prosecute and maintain any patents licensed to Novartis, both before and after its exercise of its option. We maintain the first right to defend and enforce our patents prior to Novartis’s exercise of its option, upon which Novartis gains such right with respect to patents included in the license.

The option we granted to Novartis will remain in effect until the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, (b) the termination of the Novartis Agreement, or (c) 36 months following the delivery by us to Novartis of sufficient amounts of clinical evaluation materials to conduct the anticipated clinical studies. The Novartis Agreement remains in effect until such time as no Novartis Licensed Product is being developed or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless terminated earlier. We have the right to terminate the Novartis Agreement (a) for Novartis’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102 and/or the Novartis Licensed Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate the Novartis Agreement (a) in its entirety or on a country-by-country basis for convenience, upon 60 days’ written notice to us, (b) for our material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which we are making good faith efforts to cure such breach) or (c) upon immediate written notice to us for insolvency-related events involving us.

Manufacturing

We rely on third parties to manufacture AL101 and AL102. We have entered into agreements with leading CMOs to produce both AL101 and AL102 for our ongoing and planned clinical studies and clinical trials for AL101 and AL102. We are also currently in the process of manufacturing batches to support all of our expected clinical supply as well as batches to support a potential NDA submission. We require all of our contract manufacturing organizations, or CMOs, to conduct manufacturing activities in compliance with current good manufacturing practice, or cGMP, requirements. We currently rely solely on these CMOs for scale-up and process development work and to produce sufficient quantities of our product candidates for use in clinical trials. We anticipate that these CMOs will have the capacity to support both clinical supply and commercial-scale production, but we do not have any formal agreements at this time to cover commercial production. We may also elect to enter into agreements with other CMOs to manufacture supplies of drug substance and finished drug product.

Sales and Marketing

We intend to market and commercialize our product candidates, if approved, by building our own specialized sales and marketing organization initially in the United States. We believe our target market can be addressed by a small number of dedicated marketing and medical sales specialists covering specialized oncologists treating the target patient population. We may also selectively pursue strategic collaborations with third parties to maximize the commercial potential of our product candidates, if approved.

Competition

The pharmaceutical industry is characterized by rapid evolution of technologies and intense competition. While we believe that our product candidates, technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates that we successfully develop and commercialize will compete with approved

 

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treatment options, if any, including off-label therapies, and new therapies that may become available in the future. Key considerations that would impact our ability to effectively compete with other therapies include the efficacy, safety, method of administration, cost, level of promotional activity and intellectual property protection of our products. Many of the companies against which we may compete have significantly greater financial resources and expertise than we do in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products.

We consider our most direct competitors with respect to AL101 and AL102 to be companies developing GSIs, including SpringWorks Therapeutics, Inc. and Celgene Corporation, recently acquired by BMS, or companies that are developing Notch inhibitors, including, but not limited to, Cellestia Biotech AG and Ciclomed LLC.

In addition, with respect to AL101 for the treatment of ACC, we are aware that other companies are, or may be, developing products for this indication, including, but not limited to, GlaxoSmithKline plc, Cellestia Biotech AG and LSK BioPartners, Inc., which we believe all are at an early development stage.

With respect to AL101 for the treatment of TNBC, we are aware that other companies are, or may be, developing products for this indication, including, but not limited to, F. Hoffmann-La Roche Ltd., Merck & Co., Inc., BMS, AstraZeneca Plc, Immunomedics Inc. and Pfizer Inc.

With respect to AL101 for the treatment of T-ALL, we are aware that other companies are, or may be, developing products for this indication, including, but not limited to, Sanofi S.A., Janssen Pharmaceutica, Jazz Pharmaceuticals plc and Vasgene Therapeutics, Inc.

With respect to AL102, we are aware that other companies are, or may be, developing product candidates for the treatment of desmoid tumors, including, but not limited to, Springworks Therapeutics, Inc., Bayer Corporation, Cellestia Biotech AG and Iterion Therapeutics, Inc.

With respect to MM, we are aware that other companies are, or may be, developing product candidates with GSI as anti-BCMA agents, including, but not limited to, Springworks Therapeutics, Inc. in collaboration with GlaxoSmithKline plc and Celgene Corporation, recently acquired by BMS.

Smaller or early-stage companies, including oncology-focused therapeutics companies, may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies may also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, enrolling patients in clinical trials and acquiring technologies complementary to, or necessary for, our programs.

The availability of reimbursement from government and private payors will also significantly impact the pricing and competitiveness of our products. Our competitors may obtain FDA or other regulatory approvals for their products more rapidly than we may obtain approvals for our product candidates, if any, which could result in our competitors establishing a strong market position before we are able to commercialize our product candidates.

Intellectual Property

Our success depends in part on our ability to obtain and maintain intellectual property and proprietary protection for our product candidates, manufacturing and process discoveries and other know-how, to operate without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of others, and to defend and enforce, and prevent others from infringing, misappropriating or otherwise violating, our intellectual property and proprietary rights. We take efforts to protect our proprietary position using a variety of methods, which include pursuit of U.S. and foreign patent applications related to our proprietary technology, inventions and improvements, such as compositions of matter and methods of use, that we determine are important to the development and implementation of our business. We also may rely on trade secrets,

 

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trademarks, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position. For more information regarding risks relating to intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.”

Patents and Patent Applications

The term of individual patents depends upon the legal term of patents in the countries in which they are obtained. In most countries in which we file patent applications, including the United States, the patent term is generally 20 years from the earliest date of filing a non-provisional patent application, assuming the patent has not been terminally disclaimed over a commonly-owned patent or a patent naming a common inventor, or over a patent not commonly owned but that was disqualified as prior art as the result of activities undertaken within the scope of a joint research agreement. In the United States, the term of a patent may also be eligible for patent term adjustment for delays within the United States Patent and Trademark Office, or USPTO. In addition, for patents that cover an FDA-approved drug, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, may permit a patent term extension of up to five years beyond the expiration of the patent. While the length of such patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per approved drug may be extended and only those claims covering the approved drug product, a method for using it or a method for manufacturing it may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek any available patent term extension to any issued patents we may be granted in any jurisdiction where such extensions are available; however, there is no guarantee that the applicable authorities, including the FDA and the USPTO in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions.

As of March 1, 2020, we owned or exclusively licensed a total of five issued U.S. patents, 119 granted foreign patents, two pending U.S. patent applications, 16 pending foreign patent applications, and three pending Patent Cooperation Treaty, or PCT, applications.

In November 2017, we entered into the BMS License Agreement, pursuant to which we acquired exclusive worldwide rights under certain patents and know-how controlled by BMS to research, discover, develop, make, have made, use, sell, offer to sell, export, import and commercialize AL101 and AL102. For more information regarding the BMS License Agreement, please see “—License Agreements.” As of December 2, 2019, the patent rights exclusively in-licensed under the BMS License Agreement include the following patent families:

 

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A patent family having claims directed to the composition of matter of AL101 and methods of treating certain types of cancer, which includes two issued U.S. patents, 62 granted patents in 62 foreign jurisdictions (including China, the European Patent Office, or EPO, Japan and the Russian Federation) and six pending patent applications in foreign jurisdictions. Without taking potential patent term extension or adjustment into account, the issued patents and any patents issued from pending applications in this family are expected to expire in 2032.

 

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A patent family having claims directed to the composition of matter of AL102 and methods of treating certain types of cancer, which includes two issued U.S. patents, 57 granted patents in 57 foreign jurisdictions (including China, the EPO, Japan and the Russian Federation), and 10 pending patent applications in 10 foreign jurisdictions. Without taking potential patent term extension or adjustment into account, the issued patents and any patents issued from pending applications in this family are expected to expire in 2033.

 

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A patent family consisting of one issued U.S. patent having claims directed to the method of use for the combination of AL101 with gemcitabine for treating cancer that is expected to expire, without taking potential patent term extension or adjustment into account, in 2034.

 

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As of December 2, 2019, we solely owned two U.S. pending patent applications and two PCT applications. In addition, we co-owned one PCT application with BMS, covering clinical data of AL101. One of our solely-owned patent families, consisting of one pending U.S. patent application and one PCT application, includes claims directed to methods of using AL101 to treat Notch-altered ACC. Another solely-owned patent family, consisting of one U.S. patent application, includes claims directed to methods of using AL101 to treat Notch-altered TNBC. A third solely-owned patent family, consisting of one PCT application, includes claims directed to the method of use for combination treatments using AL101 and/or AL102 and other cancer drugs. Any patents issued from our owned patent applications or from patent applications claiming the priority of such patent applications are expected to expire, without taking potential patent term extension or adjustment into account, between 2039 and 2040.

Trade Secrets

We also rely upon trade secrets, know-how, confidential information and continuing technological innovation to develop and maintain our competitive position, and seek to protect and maintain the confidentiality of such items to protect aspects of our business that are not amenable to, or that we do not presently consider appropriate for, patent protection. We maintain efforts to protect such proprietary rights through a variety of methods, including confidentiality agreements, invention assignment agreements, and non-solicitation and non-compete agreements with employees, consultants, collaborators, advisors, suppliers and other parties who may have access to our confidential or proprietary information. These agreements generally provide that all confidential information developed or made known to the other party during the course of its relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Where applicable, the agreements provide that all inventions to which the other party contributed as an inventor shall be assigned to us, and as such, will become our property. There can be no assurance, however, that these agreements will be self-executing or otherwise provide meaningful protection or adequate remedies for our trade secrets or other proprietary information, including in the event of unauthorized use or disclosure of such information. We also seek to preserve the integrity and confidentiality of our trade secrets and other confidential information by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in the measures we take to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. For more information regarding risks relating to trade secrets, third parties and other factors that could affect our intellectual property rights, please see “Risk Factors—Risks Related to Our Intellectual Property.”

Government Regulation

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application, or NDA, process before it may be legally marketed in the United States.

U.S. Drug Development Process

In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution,

 

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disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

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completion of preclinical laboratory tests, animal studies and formulation studies in accordance with FDA’s good laboratory practice requirements and other applicable regulations;

 

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submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

 

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approval by an independent institutional review board, or IRB, or ethics committee at each clinical site before each trial may be initiated;

 

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performance of adequate and well-controlled human clinical trials in accordance with good clinical practice requirements, or GCPs to establish the safety and efficacy of the proposed drug for its intended use;

 

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submission to the FDA of an NDA after completion of all pivotal trials;

 

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

 

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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity, and of selected clinical investigation sites to assess compliance with GCPs; and

 

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FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States.

Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamics characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data

 

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safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

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Phase 1:    The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

 

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Phase 2:    The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

 

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Phase 3:    The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

The FDA or the sponsor may suspend 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 IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial.

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and 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 candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

 

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While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.

U.S. Review and Approval Process

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted. The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within required specifications. Additionally, before approving a NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional pivotal Phase 3 trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA or, addressing all of

 

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the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may also require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could impact the timeline for regulatory approval or otherwise impact ongoing development programs.

In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data need to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. However, competitors, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the

 

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approval of one of our product candidates for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. In addition, if an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity.

Expedited Development and Review Programs

The FDA has a fast track designation program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. With regard to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for review of new molecular entity NDAs under its current PDUFA review goals.

In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires pre-approval of promotional materials as a condition for accelerated approval, which could adversely impact the timing of the commercial launch of the product.

The Food and Drug Administration Safety and Innovation Act established a category of drugs referred to as “breakthrough therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work to expedite the development and review of such drug.

Fast track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.

 

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Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

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

 

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fines, warning letters, or untitled letters;

 

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clinical holds on clinical studies;

 

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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

 

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

 

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consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

 

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mandated modification of promotional materials and labeling and the issuance of corrective information;

 

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the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

 

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injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

 

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Marketing Exclusivity

Market exclusivity provisions authorized under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application, or ANDA, or an NDA submitted under Section 505(b)(2), or 505(b)(2) NDA, submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.

The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to any preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.

FDA Regulation of Companion Diagnostics

We expect that certain of our product candidates may require an in vitro diagnostic to identify appropriate patient populations for our product candidates. These diagnostics, often referred to as companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA approval. We expect that any companion diagnostic developed for our product candidates will utilize the PMA pathway.

If use of companion diagnostic is essential to safe and effective use of a drug or biologic product, then the FDA generally will require approval or clearance of the diagnostic contemporaneously with the approval of the therapeutic product. On August 6, 2014, the FDA issued a final guidance document addressing the development and approval process for “In Vitro Companion Diagnostic Devices.” According to the guidance, for novel product candidates, a companion diagnostic device and its corresponding drug candidate should be approved or cleared contemporaneously by FDA for the use indicated in the therapeutic product labeling. The guidance also

 

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explains that a companion diagnostic device used to make treatment decisions in clinical trials of a drug generally will be considered an investigational device, unless it is employed for an intended use for which the device is already approved or cleared. If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device under the FDA’s Investigational Device Exemption, or IDE, regulations. Thus, the sponsor of the diagnostic device will be required to comply with the IDE regulations. According to the guidance, if a diagnostic device and a drug are to be studied together to support their respective approvals, both products can be studied in the same investigational study, if the study meets both the requirements of the IDE regulations and the IND regulations. The guidance provides that depending on the details of the study plan and subjects, a sponsor may seek to submit an IND alone, or both an IND and an IDE.

The FDA has generally required companion diagnostics intended to select the patients who will respond to cancer treatment to obtain approval of a PMA for that diagnostic simultaneously with approval of the therapeutic. The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. In addition, PMAs for certain devices must generally include the results from extensive preclinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought. In particular, for a diagnostic, the applicant must demonstrate that the diagnostic produces reproducible results when the same sample is tested multiple times by multiple users at multiple laboratories. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System Regulation, or QSR, which imposes elaborate testing, control, documentation and other quality assurance requirements.

If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure the final approval of the PMA, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the applicant. The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution.

If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA. Once granted, PMA approval may be withdrawn by the FDA if compliance with post approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing. PMA approval is not guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that can substantially delay approval.

After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses and indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with the FDA. A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the United States.

 

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Other Healthcare Laws

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation, U.S. federal and state anti-kickback, fraud and abuse, false claims, consumer fraud, pricing reporting, data privacy and security, and transparency laws and regulations as well as similar foreign laws in jurisdictions outside the U.S. For example, the federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act and the civil monetary penalties statute. The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit, among other things, any individual or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal civil and criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the healthcare fraud statute implemented under HIPAA or specific intent to violate it in order to have committed a violation. The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to payments or other transfers of value made to physicians, certain other healthcare professionals, teaching hospitals, and applicable manufacturers and group purchasing organizations as well as ownership and investment interests held by physicians and their immediate family members. Additional reporting and transparency requirements for payments to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives go into effect in 2022 for payments made in 2021.

Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; state and local laws that require the registration of pharmaceutical sales representatives; and state and local laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Violation of any of such laws or any other governmental regulations that apply may result in penalties, including, without limitation, civil and criminal penalties, damages, fines, additional reporting obligation, the curtailment or restructuring of operations, exclusion from participation in governmental healthcare programs and individual imprisonment.

Data Privacy and Security Laws

Pharmaceutical companies may be subject to U.S. federal and state health information privacy, security and data breach notification laws, which may govern the collection, use, disclosure and protection of health-related

 

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and other personal information. State laws may be more stringent, broader in scope or offer greater individual rights with respect to protected health information, or PHI, than HIPAA and state laws may differ from each other, which may complicate compliance efforts. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured PHI, a complaint about privacy practices or an audit by the Department of Health and Human Services, or HHS, may be subject to significant civil, criminal and administrative fines and penalties and/ or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. In addition, California enacted the California Consumer Privacy Act, or CCPA, which creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA came into effect on January 1, 2020, and the California Attorney General may bring enforcement actions for violations beginning July 1, 2020. The CCPA has been amended from time to time, and it remains unclear what, if any, further modifications will be made to this legislation or how it will be interpreted.

European Union member states, the United Kingdom, Switzerland and other jurisdictions have also adopted data protection laws and regulations, which impose significant compliance obligations. In the European Economic Area, or the EEA, and the United Kingdom, the collection and use of personal data, including clinical trial data, is governed by the provisions of the General Data Protection Regulation, or the GDPR. The GDPR became effective on May 25, 2018, repealing its predecessor directive and increasing responsibility and liability of companies in relation to the processing of personal data of EU data subjects. The GDPR, together with national legislation, regulations and guidelines of the EU member states and the United Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, analyze, store, transfer and otherwise process personal data, including health data from clinical trials and adverse event reporting. In particular, the GDPR includes obligations and restrictions concerning the consent of the individuals to whom the personal data relates, the information provided to such individuals, the transfer of personal data out of the EEA or the United Kingdom, security breach notifications, security and confidentiality of the personal data and imposition of substantial potential fines for breaches of the data protection obligations. European data protection authorities may interpret the GDPR and national laws differently and impose additional requirements, which adds to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance on implementation and compliance practices are often updated or otherwise revised.

Coverage and Reimbursement

Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Significant uncertainty exists as to the coverage and reimbursement status of any newly approved product. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. One third-party payor’s decision to cover a particular product does not ensure that other payors will also provide coverage for the product. As a result, the coverage determination process can require manufacturers to provide scientific and clinical support for the use of a product to each payor separately and can be a time-consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

In addition, third-party payors are increasingly reducing reimbursements for pharmaceutical products and services. The U.S. government and state legislatures have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party payors are more and more challenging the prices charged, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical products, in addition to questioning their safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product.

 

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In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Pharmaceutical products may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products and may also compete with imported foreign products. Furthermore, there is no assurance that a product will be considered medically reasonable and necessary for a specific indication, will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be established even if coverage is available or that the third-party payors’ reimbursement policies will not adversely affect the ability for manufacturers to sell products profitably.

Healthcare Reform

In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was signed into law, which substantially changed the way healthcare is financed by both governmental and private insurers in the United States. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments and fraud and abuse changes. Additionally, the ACA increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1%; required collection of rebates for drugs paid by Medicaid managed care organizations; imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs; expanded eligibility criteria for Medicaid programs; created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, in 2017, Congress enacted the Tax Cuts and Jobs Act, which eliminated 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.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. While the Texas U.S. District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA.

Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers, which will remain in effect through 2027 absent additional congressional action. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among other things, to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for pharmaceutical products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient

 

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reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices.

Employees

As of December 31, 2019, we had 29 employees, including 10 employees with M.D. or Ph.D. degrees. Of these employees, 17 employees are engaged in research and development activities. None of our employees is represented by a labor union or covered by a collective bargaining agreement.

Facilities

Our principal office is located at Oppenheimer 4, Rehovot 7670104, Israel, where we lease approximately 15,000 square feet of office and laboratory space under a lease agreement that terminates in 2029. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.

Legal Proceedings

We are not subject to any material legal proceedings.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this prospectus.

 

Name		Age				Position
Executive Officers
Roni Mamluk, Ph.D.			52			Chief Executive Officer and Director
Yossi Maimon, CPA, M.B.A.			49			Chief Financial Officer
Gary Gordon, M.D., Ph.D.			67			Chief Medical Officer
Directors
David Sidransky, M.D.(2)(3)			59			Chairman of the Board of Directors
Robert Spiegel, M.D., FACP(1)(2)			70			Director
Murray A. Goldberg(1)(3)			75			Director
Todd Sone(1)(2)(3)			49			Director
Guy Harmelin, M.D.(4)			41			Director

 

(1)

Member of the audit committee.

(2)

Member of the compensation committee.

(3)

Member of the nominating and corporate governance committee.

(4)

Dr. Harmelin is expected to resign from our board of directors effective immediately prior to, and contingent upon, the effectiveness of the registration statement of which this prospectus forms a part.

Executive Officers

Roni Mamluk, Ph.D. has served as our Chief Executive Officer and a member of our board of directors since November 2017. Prior to joining us, Dr. Mamluk held various management positions at Chiasma, Inc., a biopharmaceutical company, including as Chief Executive Officer from April 2013 to March 2015 and has served as a member of its board of directors since June 2017. Prior to her time at Chiasma, Dr. Mamluk was the head of preclinical development of an oncology product at Adnexus Therapeutics Inc., a biopharmaceutical company, from April 2004 to June 2006. Dr. Mamluk received a B.Sc. in Animal Sciences from Hebrew University of Jerusalem and a Ph.D. in Biology of Reproduction from the Hebrew University of Jerusalem, where she graduated summa cum laude. Dr. Mamluk also held a postdoctoral fellowship in angiogenesis at Harvard Medical School. We believe that Dr. Mamluk’s extensive scientific knowledge, experience with our company and experience serving on a public company board of directors qualifies her to serve on our board of directors.

Yossi Maimon, CPA, M.B.A. has served as our Chief Financial Officer since March 2019. Prior to joining us, Mr. Maimon served as Chief Financial Officer at Protalix BioTherapeutics Inc., a biopharmaceutical company, from October 2006 to July 2019. Prior to his time at Protalix, Mr. Maimon served as Chief Financial Officer of ColBar LifeScience Ltd., a medical device company, from 2002 to 2006. Mr. Maimon received a B.A. in Accounting from the City University of New York and an M.B.A. from Tel Aviv University. Mr. Maimon is licensed as a Certified Public Accountant in New York and Israel.

Gary Gordon, M.D., Ph.D. has served as our Chief Medical Officer since August 2019. Prior to joining us, Dr. Gordon served as Vice President of Oncology Development at AbbVie Inc., a biopharmaceutical company, from January 2013 to April 2018. Prior to his time at AbbVie, Dr. Gordon served as Divisional Vice President of Global Oncology Development at Abbott Laboratories, a medical device company, from April 2003 to December 2012. Prior to his time at Abbott, Dr. Gordon served as Chief Scientific Officer and Vice President of Clinical Affairs at Ovation Pharmaceuticals Inc., a biopharmaceutical company, from May 2001 to April 2003. Dr. Gordon received a B.S. in Biochemistry from the State University of New York at Stony Brook and a Ph.D. in Pharmacology and an M.D. from Johns Hopkins University School of Medicine.

 

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Non-Employee Directors

David Sidransky, M.D. has served as the chairman of our board of directors since November 2017. Since July 1994, Dr. Sidransky has been the Director of the Head and Neck Cancer Research Division at Johns Hopkins University School of Medicine’s Department of Otolaryngology and Professor of Oncology, Cellular & Molecular Medicine, Urology, Genetics, and Pathology at the John Hopkins University School of Medicine. Dr. Sidransky currently serves on the board of directors of Galmed Pharmaceuticals Ltd., a biopharmaceutical company, Rosetta Genomics Ltd., a molecular diagnostics company, Biond Biologics Ltd., a biotechnology company, Tamir Biotechnology Ltd., a biotechnology company, Orgenesis Inc., a pharmaceutical manufacturing company, and is the chairman of the board of directors of Advaxis, Inc., a biotechnology company and Champions Oncology, Inc., a biopharmaceutical company. Previously, Dr. Sidransky served on the board of directors of Akari Therapeutics plc. In addition, Dr. Sidransky served as Director of the American Association for Cancer Research (AACR) from 2005 to 2008. Dr. Sidransky received a B.S. in Chemistry from Brandeis University and an M.D. from Baylor College of Medicine where he also completed his residency in Internal Medicine. We believe that Dr. Sidransky’s pioneering academic work, extensive medical and scientific knowledge and experience serving on public company boards of directors qualify him to serve on our board of directors.

Robert Spiegel, M.D., FACP has served as a member of our board of directors since December 2017. Since 2012, Dr. Spiegel has served as an Associate Professor at the Weill Cornell Medical School. In addition, Dr. Spiegel has served as a Senior Advisor to Warburg Pincus, a private equity firm, and an Advisor to the Israel Biotech Fund, a venture investment fund since 2010 and 2016, respectively. Prior to these positions, Dr. Spiegel served as Chief Medical Officer of PTC Therapeutics, Inc., a biopharmaceutical company, from March 2011 to April 2016. Prior to his time at PTC Therapeutics, Dr. Spiegel held various management positions at Schering-Plough Corporation, a global healthcare company, including as Chief Medical Officer and Senior Vice President of the Schering-Plough Research Institute, the pharmaceutical research arm of the Schering-Plough Corporation from 1998 to 2009. Dr. Spiegel is currently a member of the board of directors of Geron Corporation and Cyclacel Pharmaceuticals, Inc., biopharmaceutical company, since 2010 and 2018, respectively. Dr. Spiegel has previously served as a member of the board of directors for Sucampo Pharmaceuticals, Inc., a biopharmaceutical company, Edge Therapeutics, Inc., a biotechnology company, Avior Computing Corporation, a privately-held governance risk and compliance process technology company, Talon Therapeutics, Inc., a biopharmaceutical company, Capstone Therapeutics Corp., a biotechnology company, the Cancer Institute of New Jersey and Cancer Care New Jersey. Dr. Spiegel received a B.A. in 1971 from Yale University and an M.D. from the University of Pennsylvania in 1975. Following his residency in internal medicine, Dr. Spiegel completed a fellowship in medical oncology at the National Cancer Institute. We believe that Dr. Spiegel’s extensive medical and scientific knowledge as well as his experience in the life science industry qualifies him to serve on our board of directors.

Murray A. Goldberg has served as a member of our board of directors since December 2017. Mr. Goldberg held various management positions at Regeneron Pharmaceuticals, Inc., a biopharmaceutical company, from March 1995 to March 2015, including as Senior Vice President of Administration and Assistant Secretary from October 2013 to March 2015, as Chief Financial Officer and Senior Vice President, Finance and Administration and Assistant Secretary from March 1995 to October 2013 and as Treasurer from March 1995 to October 2012. Mr. Goldberg has been a member of the board of directors of Aerie Pharmaceuticals Inc., a biopharmaceutical company, since August 2013 and serves as the chairman of its audit committee. Mr. Goldberg has been a member of the board of directors of Teva Pharmaceuticals Industries Ltd. since July 2017. Mr. Goldberg received a B.S. in Engineering from New York University, a Master’s degree in International Economics from the London School of Economics and an M.B.A. from the University of Chicago. We believe that Mr. Goldberg is qualified to serve on our board of directors because of his broad financial, operational and transactional experience in the industry.

Todd Sone has served as a member of our board of directors since April 2018. Since December 2017, Mr. Sone has served as a partner at aMoon 2 Fund Limited Partnership, a healthtech and life-science venture

 

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capital firm. Prior to his time at aMoon, Mr. Sone served as a Managing Director at Signet Healthcare Partners, an investment fund that provides growth capital to commercial-stage life-science companies, from December 2009 to December 2017. Mr. Sone served on the board of directors of Arbor Pharmaceuticals, LLC, a biopharmaceutical company, Apicore US LLC, a biopharmaceutical company, Impopharma Inc., a biopharmaceutical company, and SMART Medical Systems Ltd., a medical device company. Mr. Sone received a B.Com (with High Distinction) from the University of Toronto and an M.B.A. from The Wharton School at the University of Pennsylvania with concentrations in healthcare management and finance. We believe that Mr. Sone’s extensive experience in the life-science industry qualifies him to serve on our board of directors.

Guy Harmelin, M.D. has served as a member of our board of directors since December 2017. Since May 2017, Mr. Harmelin has led the Alternative Investments at Harel Insurance Investments & Financial Services Ltd, an investment company. Prior to his time at Harel, Dr. Harmelin was the Co-Founder, and served as the CEO, of RondinX Ltd., a microbiome drug target discovery company, from December 2015 to May 2017. Prior to his time at RondinX Ltd., Dr. Harmelin served as a Resident Physician at Tel Aviv Medical Center and as a principal at 7-Health Ventures, a Life Science Venture Capital Fund, from January 2010 to November 2015. Dr. Harmelin received his M.D. from the University of Florence, Italy, with summa cum laude honors. We believe that Mr. Harmelin is qualified to serve on our board of directors because of his broad financial, operational and transactional experience in the life science industry. Dr. Harmelin has notified us that he will resign from our board of directors immediately prior to, and contingent upon, the effectiveness of the registration statement of which this prospectus forms a part.

Board Composition and Election of Directors

Director Independence

Our board of directors currently consists of six members. Our board will consist of five members following the resignation of Dr. Harmelin, which will be effective upon the effectiveness of the registration statement relating to this offering. Our board of directors has determined that, of these five directors, David Sidransky, Robert Spiegel, Murray Goldberg and Todd Sone do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of The Nasdaq Stock Market LLC, or Nasdaq. There are no family relationships among any of our directors or executive officers.

Classified Board of Directors

In accordance with our restated certificate of incorporation that will go into effect upon the closing of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the closing of this offering, our directors will be divided among the three classes as follows:

 

•

the Class I directors will be                  and                 , and their terms will expire at our first annual meeting of stockholders following this offering;

 

•

the Class II directors will be                  and                 , and their terms will expire at our second annual meeting of stockholders following this offering; and

 

•

the Class III directors will be                  and                 , and their terms will expire at the third annual meeting of stockholders following this offering.

Our restated certificate of incorporation that will go into effect upon the closing of this offering will provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our

 

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board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors.

Our directors were elected to and currently serve on the board pursuant to a stockholders agreement among us and our existing stockholders. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.” This agreement will terminate upon the closing of this offering, after which there will be no further contractual obligations regarding the election of our directors.

Board Leadership Structure

Our board of directors is currently chaired by David Sidransky, M.D. Our corporate governance guidelines provide that, if the chairman of the board is a member of management or does not otherwise qualify as independent, the independent directors of the board may elect a lead director. The lead director’s responsibilities would include, but would not be limited to: presiding over all meetings of the board of directors at which the chairman is not present, including any executive sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent directors and the chief executive officer and chairman of the board. Our corporate governance guidelines further provide the flexibility for our board of directors to modify our leadership structure in the future as it deems appropriate.

Role of the Board in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee also monitors compliance with legal and regulatory requirements. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed through committee reports about such risks.

Board Committees

Our board of directors has an audit committee, a compensation committee and a nominating and corporate governance committee, each of which has the composition and the responsibilities described below. In addition, from time to time, special committees may be established under the direction of our board of directors when necessary to address specific issues.

Each of the three standing committees—audit, compensation and nominating and corporate governance—each of which operates under a charter that has been approved by our board of directors. Upon our listing on The Nasdaq Global Market, each committee’s charter will be available under the Corporate Governance section of our website at www.ayalapharma.com. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.

 

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Audit Committee

The audit committee’s responsibilities include:

 

•

appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;

 

•

overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;

 

•

reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures;

 

•

coordinating our board of directors’ oversight of our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

 

•

discussing our risk management policies;

 

•

meeting independently with our internal auditing staff, if any, registered public accounting firm and management;

 

•

reviewing and approving or ratifying any related person transactions; and

 

•

preparing the audit committee report required by the Securities Exchange Commission, or SEC, rules.

The members of our audit committee are Robert Spiegel, Murray Goldberg and Todd Sone. Murray Goldberg serves as the chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the applicable listing rules of Nasdaq, or the Nasdaq rules. Our board of directors has determined that Robert Spiegel and Murray Goldberg meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable Nasdaq rules. Our board of directors has determined that Murray Goldberg is an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable Nasdaq rules.

We believe that the composition and functioning of our audit committee complies with all applicable requirements of the Sarbanes-Oxley Act, and all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee

The compensation committee’s responsibilities include:

 

•

reviewing and approving, or recommending for approval by the board of directors, the compensation of our CEO and our other executive officers;

 

•

overseeing and administering our cash and equity incentive plans;

 

•

reviewing and making recommendations to our board of directors with respect to director compensation;

 

•

reviewing and discussing annually with management our “Compensation Discussion and Analysis,” to the extent required; and

 

•

preparing the annual compensation committee report required by SEC rules, to the extent required.

The members of our compensation committee are David Sidransky, Robert Spiegel and Todd Sone. David Sidransky serves as the chairperson of the committee. Our board of directors has determined that each of David Sidransky, Robert Spiegel and Todd Sone is independent under the applicable Nasdaq rules, including the Nasdaq rules specific to membership on the compensation committee, and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act.

 

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We believe that the composition and functioning of our compensation committee complies with all applicable requirements of the Sarbanes-Oxley Act, and all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee’s responsibilities include:

 

•

identifying individuals qualified to become board members;

 

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recommending to our board of directors the persons to be nominated for election as directors and to each board committee;

 

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developing and recommending to our board of directors corporate governance guidelines, and reviewing and recommending to our board of directors proposed changes to our corporate governance guidelines from time to time; and

 

•

overseeing a periodic evaluation of our board of directors.

The members of our nominating and corporate governance committee are David Sidransky, Murray Goldberg and Todd Sone. David Sidransky serves as the chairperson of the committee. Our board of directors has determined that David Sidransky, Murray Goldberg and Todd Sone are independent under the applicable Nasdaq rules.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee is or has been our current or former officer or employee. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director or member of our compensation committee during the fiscal year ended December 31, 2019.

Code of Ethics and Code of Conduct

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Upon our listing on The Nasdaq Global Market, our code of business conduct and ethics will be available under the Corporate Governance section of our website at www.ayalapharma.com. In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

This section discusses the material components of the executive compensation program for our executive officers who are named in the “2019 Summary Compensation Table” below. In 2019, our “named executive officers” and their positions were as follows:

 

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Roni Mamluk, Ph.D., Chief Executive Officer;

 

•

Yossi Maimon, CPA, M.B.A., Chief Financial Officer; and

 

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Gary Gordon, M.D., Ph.D., Chief Medical Officer.

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.

2019 Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the year ended December 31, 2019.

 

Name and Principal Position		Year				Salary ($)(1)				Bonus ($)				Stock Awards ($)(5)				Option Awards ($)(5)				Non-Equity Incentive Plan Compensation ($)(6)				All Other Compensation ($)				Total ($)
Roni Mamluk, Ph.D. Chief Executive Officer(2)			2019				248,784				—				307,447				—				56,940				84,843(7)				698,014
Yossi Maimon, C.P.A., M.B.A. Chief Financial Officer(3)			2019				217,103				—				—				357,776				74,571				78,278(7)				727,728
Gary Gordon, M.D., Ph.D. Chief Medical Officer(4)			2019				156,250				70,000	(8)			—				447,751				53,151				43,861(9)				771,013

 

(1)

Amounts reported for the named executive officer and paid in New Israeli Shekels are converted from New Israeli Shekels to U.S. dollars using an exchange rate of 3.5 New Israeli Shekels to 1 U.S. dollar.

(2)

Dr. Mamluk was employed on an 80% basis until October 1, 2019. Dr. Mamluk is based in Israel.

(3)

Mr. Maimon’s employment commenced on March 15, 2019. Mr. Maimon was employed on an 80% basis until July 20, 2019. Mr. Maimon is based in Israel.

(4)

Dr. Gordon’s employment commenced on August 1, 2019. Dr. Gordon is employed on an 80% basis and is based in the United States.

(5)

Amounts reflect the full grant-date fair value of stock awards and stock options granted during 2019 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock awards and option awards made to named executive officers in Note 9 to the consolidated financial statements included elsewhere in this prospectus.

(6)

Amounts reported represent annual bonuses paid based upon the achievement of our corporate objectives for 2019. Refer to “—Narrative Disclosure to Summary Compensation Table—2019 Bonuses” below for additional information.

(7)

Consists of contributions to Dr. Mamluk’s and Mr. Maimon’s severance funds, pension funds and educational funds, in each case, under Israeli law, and the use of a leased company car.

(8)

Amount represents a sign-on bonus paid to Dr. Gordon in connection with his commencement of employment with us.

(9)

Amount represents matching 401(k) contributions, travel allowance, cell phone use and reimbursement of certain other items relating to Dr. Gordon’s use of a home office.

 

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Narrative Disclosure to Summary Compensation Table

The following describes material features of the compensation disclosed in the Summary Compensation Table.

2019 Salaries

The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. The 2019 annual base salaries for our named executive officers were as follows (converted to U.S. dollars based on the exchange rate of 3.5 New Israeli Shekels to 1 U.S. dollar for each of Dr. Mamluk and Mr. Maimon):

 

Name		2019 Annual Base Salary ($)
Roni Mamluk			292,000
Yossi Maimon			274,285
Gary Gordon			375,000

In March 2019, Dr. Mamluk’s salary increased from $205,714 to $233,600. In October 2019, Dr. Mamluk’s salary increased to $292,000 coincident with her transition from 80% to full-time employment, and increased again on January 1, 2020 to $344,143. In July 2019, Mr. Maimon’s salary increased to $274,285 coincident with his transition from 80% to full-time employment.

2019 Bonuses

We offer our named executive officers the opportunity to earn annual performance bonuses to compensate them for attaining short-term corporate goals established by our board of directors. Our board of directors determines the amount of any annual performance bonus payment by multiplying the level of achievement of the applicable performance criteria by the named executive officer’s target bonus percentage and the named executive officer’s annual base salary. In addition, the board of directors retains discretion to adjust the bonus amounts upward or downward based on any factors that it determines are relevant. For 2019, performance bonuses were based on achieving certain clinical, development and corporate targets.

The 2019 target bonus amounts for our named executive officers, expressed as percentages of their respective annual base salaries, were 30% for Dr. Mamluk, 50% for Mr. Maimon and 40% for Dr. Gordon. Each of Dr. Mamluk’s, Mr. Maimon’s and Dr. Gordon’s bonuses for 2019 were prorated based on the length of their service and/or percentage of full-time employment with the Company. The actual annual cash bonuses awarded to each named executive officer for their 2019 performance are set forth above in the 2019 Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.”

Dr. Gordon was also awarded a signing bonus of $70,000, which was made payable immediately upon the commencement of his employment with the Company during 2019 but is subject to repayment in the event of certain terminations of employment as described below under “Executive Compensation Arrangements.”

 

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Equity Compensation

In 2019, we granted to certain of our named executive officers options to purchase shares of our common stock and restricted stock as set forth below.

 

Named Executive Officer		2019 Stock Options Granted				2019 Restricted Stock Granted
Roni Mamluk			—				94,599	(1)
Yossi Maimon			159,920	(2)			—
Gary Gordon			190,000	(3)			—

 

(1)

The restricted stock vests quarterly over a period of four years from December 24, 2019 subject to continued service with the Company.

(2)

Consists of an option to purchase 18,920 shares that vests quarterly over a period of four years from December 24, 2019 subject to continued service with the Company and an option to purchase 141,000 shares that vests as to 25% of the underlying shares on March 15, 2020 and in equal quarterly installments over the following three years, subject to continued service with the Company.

(3)

The option vests as to 25% of the underlying shares on August 1, 2020 and in equal quarterly installments over the following three years, subject to continued service with the Company.

Each equity award was granted under our 2017 Stock Incentive Plan, and each option was granted with an exercise price equal to the fair market value of our common stock on the date of grant, as determined by the board of directors.

In addition, our board of directors has approved the grant of certain equity awards to our named executive officers to be made under our 2017 Stock Incentive Plan effective upon the effectiveness of the registration statement for our initial public offering. For Dr. Mamluk, in accordance with her employment agreement, our board of directors has approved the grant of an option to purchase 94,599 shares with an exercise price equal to the initial public offering price of our common stock and the grant of 94,599 shares of restricted stock, each of which vests as to 6.25% of the underlying shares quarterly for a period of four years from the effective grant date, subject to continued service to the Company. For Mr. Maimon, our board of directors has approved a grant of 22,704 shares of restricted stock, which vests as to 6.25% of the underlying shares quarterly for a period of four years from the effective grant date, subject to continued service to the Company.

Our 2017 Stock Incentive Plan facilitates the grant of equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which is essential to our long-term success. We intend to amend and restate the 2017 Stock Incentive Plan in connection with this offering. For additional information about the 2017 Stock Incentive Plan, refer to “—Incentive Compensation Plan” below.

Other Elements of Compensation

U.S. Retirement Plan

We maintain a 401(k) retirement savings plan for our U.S.-based employees, including Dr. Gordon, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees. In 2019, we made a matching contribution of 100% of all employee contributions up to 6% of the employee’s base salary. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.

 

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Benefits to Israeli Employees

We are obligated under labor laws in Israel to make regular deposits to funds administered by financial institutions for certain pension and severance liabilities on behalf of each of our Israeli employees, including our Israel-based named executive officers, subject to certain conditions. The amount of these contributions is based on the benefit obligation amount, which has not yet been deposited into an employee’s fund. We also make certain non-obligatory contributions to an education fund for our Israeli employees generally, including our Israel-based named executive officers.

Employee Benefits and Perquisites

During their employment, our U.S. named executive officers are eligible to participate in our employee benefit plans and programs, including medical and dental benefits, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans. We reimburse business expenses to our named executive officers on the same basis as other employees and also provide our named executive officers with the personal use of a leased company car and reimbursement of certain car-related expenses.

No Tax Gross-Ups

We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by us.

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2019.

 

						Option Awards																Stock Awards
Name		Grant Date				Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)				Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Roni Mamluk			02/01/2018(2)				70,666				70,665				2.55				02/01/2028
Roni Mamluk			12/24/2019(3)				—				—				—				—				94,599				307,477
Yossi Maimon			03/15/2019(4)				—				141,000				2.58				03/15/2029				—				—
Yossi Maimon			12/24/2019(5)				—				18,920				3.25				12/23/2029
Gary Gordon			09/19/2019(6)				—				190,000				2.58				09/19/2029				—				—

 

(1)

Calculated based on $3.25, the estimated per share fair value of our common stock as of December 31, 2019.

(2)

25% of the shares subject to the option vested on November 15, 2018, and the remainder vests in equal quarterly installments over the following three years, subject to continued service with the Company. The option is subject to full acceleration in the event of a Merger/Sale (as defined in the 2017 Stock Incentive Plan).

(3)

The restricted shares vest quarterly over four years from December 24, 2019, subject to continued service with the Company.

(4)

25% of the shares subject to the option vest on March 15, 2020, and the remainder vests in equal quarterly installments over the following three years, subject to continued service with the Company.

 

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(5)

The shares subject to the option vest quarterly over four years from December 24, 2019, subject to continued service with the Company.

(6)

25% of the shares subject to the option vest on August 1, 2020, and the remainder vests in equal quarterly installments over the following three years, subject to continued service with the Company.

Executive Compensation Arrangements

Employment Agreement with Dr. Roni Mamluk

Pursuant to the terms of Dr. Mamluk’s employment agreement, effective as of November 30, 2017 and as amended on March 31, 2019, she is entitled to a monthly salary of NIS 68,133 for employment on an 80% basis, increased to NIS 85,166 upon her transition to full-time employment and is eligible to receive an annual target bonus of up to 30% of her base salary. Dr. Mamluk’s employment agreement also provided for an initial option to purchase 141,331 shares of the Company’s common stock. Dr. Mamluk’s employment agreement provides that the Company may terminate Dr. Mamluk’s employment without Cause with 90 days’ prior notice, or pay in lieu of such notice. Dr. Mamluk’s employment agreement also provides for her use of a leased company car and reimbursement of certain car-related expenses.

Pursuant to the applicable award agreement, Dr. Mamluk’s option award granted on February 1, 2018 will vest in full in the event the Company consummates a Merger/Sale (as defined in the 2017 Stock Incentive Plan).

Dr. Mamluk’s employment agreement also provides that immediately prior to an initial public offering of the Company, the Company will grant to her an additional option award covering 0.5% of the Company’s fully diluted shares outstanding and an additional restricted stock award covering 0.5% of the Company’s fully diluted shares outstanding. Refer to “—Narrative Disclosure to Summary Compensation Table—Equity Compensation” above for additional information regarding these awards.

Employment Agreement with Mr. Yossi Maimon

Pursuant to the terms of Mr. Maimon’s employment agreement, dated March 15, 2019, he is eligible to receive a monthly salary of NIS 64,000 for employment on an 80% basis, increased to NIS 80,000 upon his transition to full-time employment and is eligible to receive an annual target bonus of up to six times his monthly base salary. Mr. Maimon’s employment agreement also provided for an initial grant of an option to purchase 141,000 shares of the Company’s common stock. Mr. Maimon’s employment agreement provides that the Company may terminate Mr. Maimon’s employment without Cause with 60 days’ prior notice, or pay in lieu of such notice. Mr. Maimon’s employment agreement also provides for his use of a leased company car and reimbursement of certain car-related expenses or an equivalent monthly travel allowance in lieu of a lease car and payment for Mr. Maimon’s lunch on each business day.

Mr. Maimon’s employment agreement also provides that, in the event of an initial public offering of the Company, he is entitled to a one-time bonus payment equal to six times his monthly base salary as in effect prior to the closing of such initial public offering.

Employment Agreement with Dr. Gary Gordon

Pursuant to the terms of Dr. Gordon’s employment agreement, dated July 24, 2019, he is entitled to a base salary of $375,000 and is eligible to receive an annual target bonus of up to 40% of his base salary. Dr. Gordon’s employment agreement also provided for an initial option to purchase 190,000 shares of the Company’s common stock. Dr. Gordon received a one-time sign-on bonus of $70,000 pursuant to his employment agreement. In the event Dr. Gordon is terminated by the Company for Cause (as defined in his employment agreement) prior to the second anniversary of his start date or in the event Dr. Gordon resigns without Good Reason (as defined in his

 

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employment agreement) prior to the first anniversary of his start date, he will be obligated to repay the full amount of the sign-on bonus, and in the event Dr. Gordon resigns without Good Reason following the first anniversary of his start date but before the second anniversary of his start date, he will be obligated to repay a prorated portion of the sign-on bonus based on the length of his employment with the Company.

Dr. Gordon’s employment agreement provides that the Company may terminate Dr. Gordon’s employment without Cause with three months’ prior notice. In addition, pursuant to Dr. Gordon’s employment agreement, in the event that Dr. Gordon’s employment is terminated by the Company without Cause or by Dr. Gordon for Good Reason, he will be entitled to receive continued payment of his base salary for three to six months following the termination date based on the date and circumstances of such termination.

Dr. Gordon’s employment agreement also provides that in the event Dr. Gordon’s employment terminates prior to the end of fiscal year other than by the Company for Cause or by him without Good Reason, he will be eligible to receive his annual bonus based on actual achievement of the applicable performance goals, prorated based on the length of his employment during such year.

Employment Agreement Amendments

We have entered into employment agreement amendments with each of our named executive officers, effective January 1, 2020. The amendments provide that if the named executive officer’s employment is terminated by the Company without Cause or the named executive offer resigns for Good Reason, in each case, on or within 12 months following a change in control, then the named executive officer shall be entitled to receive a cash amount equal to the sum of his or her annual base salary and his or her target annual bonus for the year of termination, and accelerated vesting of all unvested equity awards then held by the named executive officer. In addition, the amendment with Mr. Maimon provides that he will be eligible for an annual target bonus of up to 40% of his annual salary.

Director Compensation

Historically, we have not paid cash compensation to any of our non-employee directors for service on our board of directors and no such amounts were paid to our non-employee directors during 2019. Mr. Murray Goldberg and Dr. Robert Spiegel have each received awards of options under the 2017 Stock Incentive Plan for their board service; however, no such options were issued in 2019. According to each of their engagement agreements, each dated April 25, 2018, we granted to each of Mr. Goldberg and Dr. Spiegel options to purchase 35,000 shares of our common stock, which vest quarterly over two years subject to continued service. In addition, in the event either of Mr. Goldberg’s or Dr. Spiegel’s service is terminated by the Company other than for Cause (as defined in the 2017 Stock Incentive Plan), any unexercised and unvested options shall immediately accelerate and vest as of that termination date and will remain exercisable until up to the first anniversary of the termination date. The engagement agreements of Mr. Goldberg and Dr. Spiegel also require us to reimburse all reasonable out-of-pocket expenses incurred by Mr. Goldberg and Dr. Spiegel in performing their services for us.

The table below shows the aggregate numbers of option awards (exercisable and not exercisable) and unvested stock awards held as of December 31, 2019 by each of our non-employee directors.

 

Name		Options Outstanding at Fiscal Year End				Unvested Stock Awards Outstanding at Fiscal Year End
Murray A. Goldberg			35,000				—
Robert Spiegel, M.D., FACP.			35,000				—

We intend to approve and implement a compensation program for our non-employee directors that consists of annual retainer fees and long-term equity awards, to be effective in connection with the consummation of this offering.

 

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Incentive Compensation Plan

We maintain the 2017 Stock Incentive Plan, pursuant to which we may grant equity and equity-based awards to our service providers, including our directors and named executive officers. We intend to amend and restate the 2017 Stock Incentive Plan in connection with this offering. The following summarizes the material terms of our 2017 Stock Incentive Plan, as amended and restated in connection with this offering, as currently contemplated.

2017 Stock Incentive Plan

The 2017 Stock Incentive Plan was adopted by our board of directors in December 2017. The 2017 Stock Incentive Plan provides for the grant of awards to employees, directors, officers, consultants, advisors and any other person or entity who provides services to us, or to any of our affiliates. The amendment and restatement of the 2017 Stock Incentive Plan will be effective on the day immediately prior to the date the Company’s registration statement relating to this offering becomes effective.

Authorized Shares. The maximum number of shares that may be issued pursuant to awards under the 2017 Stock Incentive Plan is 2,655,650 shares. Any shares (i) underlying an award granted under the plan that has expired, or was canceled, terminated, forfeited or, repurchased or settled in cash in lieu of issuance of shares, for any reason, without having been exercised; (ii) tendered to pay the exercise price or tax withholding obligations of an award; or (iii) withheld to pay the exercise price or tax withholding obligations of an award will again be available for grant of awards.

Administration. Our board of directors, or a duly authorized committee of our board of directors, administers the 2017 Stock Incentive Plan. Under the 2017 Stock Incentive Plan, the administrator has the authority, subject to applicable law, to interpret the terms of the 2017 Stock Incentive Plan and any notices of grant or awards granted thereunder, designate eligible grantees of award grants, prescribe the forms of agreement for use under the 2017 Stock Incentive Plan, set the time or times at which an award will be granted, accelerate or amend the vesting schedule applicable to an award grant, adopt policies, guidelines, rules and regulations related to the administration of the 2017 Stock Incentive Plan, determine the fair market value applicable to the shares underlying each award, determine the applicable tax track for purposes of 102 awards, convert, cancel, substitute or suspend an award, or determine, modify or waive or supplement the terms of awards, including (i) the vesting schedule, acceleration thereof, and terms and conditions upon which an award may be exercised or become vested, (ii) the exercise price of an award, (iii) the method of payment for an award, (iv) the method for satisfying applicable tax withholding obligations in connection with the awards, (v) the time of the expiration of the award, and (vi) the effect of termination of employment.

Eligibility. The 2017 Stock Incentive Plan provides for granting options in compliance with Section 102 of the Israeli Income Tax Ordinance (New Version), 5721-1961 (the “Ordinance”) or, for options and restricted stock awards granted to consultants, advisors, service providers or controlling shareholders of the Company, under Section 3(i) of the Ordinance. Our 2017 Stock Incentive Plan also provides for the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the United States Internal Revenue Code of 1986, as amended, or the Code, and options that do not so qualify.

Grant. All awards granted pursuant to the 2017 Stock Incentive Plan will be evidenced by a written or electronic notice of grant, in a form approved by the administrator in its sole discretion. The notice of grant will set forth the terms and conditions of the award grant. Each award will expire ten years from the date of the grant thereof, unless such shorter term of expiration is otherwise designated by the administrator and stated accordingly in the notice of grant.

 

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Awards. The 2017 Stock Incentive Plan provides for the grant of stock options, restricted stock, restricted stock units, or RSUs, or other share or share-based awards.

 

•

Stock Options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. The administrator will determine the number of shares covered by each option, the exercise price of each option and the conditions and limitations applicable to the exercise of each option. The exercise price of a stock option will not be less than 100% of the fair market value of the underlying share on the grant date (or 110% in the case of ISOs granted to certain significant stockholders). The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders).

 

•

Restricted Stock and RSUs. Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of our common stock in the future, which may also remain forfeitable unless and until specified conditions are met. The terms and conditions applicable to restricted stock and RSUs will be determined by the administrator, subject to the conditions and limitations contained in the 2017 Stock Incentive Plan.

 

•

Other Share or Share-Based Awards. The administrator may grant other awards pursuant to which shares, cash or a combination thereof may be received, including stock appreciation rights, or awards denominated in stock units, including units valued on the basis of measures other than market value.

Transferability. Other than by will, the laws of descent and distribution or as otherwise determined by the administrator or provided under the 2017 Stock Incentive Plan, neither the award nor any right in connection with such awards are assignable or transferable.

Termination of Employment. In the event of termination of a grantee’s employment with the company or any of its affiliates, all vested and exercisable awards held by such grantee as of the date of termination may be exercised within three months after such date of termination, unless otherwise provided by the administrator. After such three month period, all unexercised awards will terminate and the shares covered by such awards shall again be available for issuance under the 2017 Stock Incentive Plan.

In the event of termination of a grantee’s employment or service with the company or any of its affiliates due to such grantee’s death or permanent disability, all vested and exercisable awards held by such grantee as of the date of termination may be exercised by the grantee or the grantee’s legal guardian, estate, or by a person who acquired the right to exercise the award by bequest or inheritance, as applicable, within twelve months after such date of termination, unless otherwise provided by the administrator. Any awards which are unvested as of the date of death or permanent disability or which are vested but not then exercised within the twelve month period following such date, will terminate and the shares covered by such award shall again be available for issuance under the 2017 Stock Incentive Plan.

Notwithstanding any of the foregoing, if a grantee’s employment or services with the company or any of its affiliates is terminated for “cause” (as defined in the 2017 Stock Incentive Plan), all outstanding awards held by such grantee (whether vested or unvested) will terminate on the date of such termination and the shares covered by such awards shall again be available for issuance under the 2017 Stock Incentive Plan.

Transactions. In the event of a division or subdivision of our outstanding capital stock, any distribution of bonus shares, consolidation or combination of our capital stock, reclassification of our common stock, a merger, or a reorganization (including combinations or exchanges or shares, spin-off or other divestitures or divisions), the administrator in its sole discretion may make an appropriate adjustment in the number of shares related to each outstanding award and to the number of shares reserved for issuance under the 2017 Stock Incentive Plan, to the class and kind of shares subject to the 2017 Stock Incentive Plan, the exercise price per share of each outstanding award, and the terms and conditions concerning vesting and exercisability, duration and term of outstanding awards.

 

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In the event of a sale of all or substantially all of our assets or stock, a merger (including a consolidation, amalgamation or like transaction), a scheme for effecting any of the foregoing, approval by the stockholders of a complete dissolution or liquidation of the company, or any other such transaction or set of circumstances that the board determines is similarly applicable, the awards outstanding at such time will be assumed or substituted, unless otherwise determined by the administrator. If the awards outstanding are not assumed or substituted, the administrator may, in its sole discretion, provide the grantee a right to exercise its awards under such terms and conditions as determined by the administrator, or cancel each outstanding award and determine if and to what extent payment shall be made to the grantee.

Plan Amendment. Our board of directors may amend, suspend, terminate or modify the 2017 Stock Incentive Plan at any time. However, stockholder approval should be obtained for any amendment that increases the maximum aggregate number or changes the class of persons eligible to receive shares under the 2017 Stock Incentive Plan, or changes the 2017 Stock Incentive Plan in any manner that would otherwise require stockholder approval under the law.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following includes a summary of transactions since January 1, 2017 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive and Director Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders.

Preferred Stock Financings

Series A Preferred Shares

On December 13, 2017, we issued and sold to investors 2,092,309 shares of our Series A preferred stock at a purchase price of $6.50 per share, for an aggregate consideration of approximately $13.6 million. On March 22, 2018, we issued and sold to investors an additional 461,540 shares of our Series A preferred stock at a purchase price of $6.50 per share, for an aggregate consideration of approximately $3.0 million.

Series B Preferred Shares

On December 19, 2018, we issued and sold to investors 3,097,343 shares of our Series B preferred stock at a purchase price of $7.91 per share, for an aggregate consideration of approximately $24.5 million. On February 18, 2019, we issued and sold to investors an additional 151,179 shares of our Series B preferred stock at a purchase price of $7.91 per share, for an aggregate consideration of approximately $1.2 million. On May 30, 2019, we issued and sold to investors an additional 502,152 shares of our Series B preferred stock at a purchase price of $7.91 per share, for an aggregate consideration of approximately $4.0 million.

The following table sets forth the aggregate number of shares of our capital stock acquired by beneficial owners of more than 5% of our capital stock in the financing transactions described above. Each share of our Series A preferred stock and Series B preferred stock identified in the following table will convert into one share of common stock immediately prior to the closing of this offering.

 

		Series A				Series B
Participants		Preferred Stock				Preferred Stock
5% or Greater Stockholders(1)
Israel Biotech Fund I, L.P.			738,462				423,514
aMoon 2 Fund Limited Partnership			738,462				1,017,848
Harel Insurance Company Ltd.			615,385				423,514
Bristol-Myers Squibb Company			1,125,929				—
Novartis Institutes for BioMedical Research, Inc.			—				1,264,222

 

(1)

Additional details regarding these stockholders and their equity holdings are provided in this prospectus under the caption “Principal Stockholders.”

Some of our directors are associated with our principal stockholders as indicated in the table below:

 

Director		Principal Stockholder
David Sidransky		Israel Biotech Fund I, L.P.
Todd Sone		aMoon 2 Fund Limited Partnership
Guy Harmelin		Harel Insurance Company Ltd.
Murray Goldberg		Israel Biotech Fund I, L.P.
Robert Spiegel		Israel Biotech Fund I, L.P.

 

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Investors’ Rights Agreement

We entered into an Amended and Restated Investor Rights Agreement in December 2018 with the holders of our preferred stock, including entities with which certain of our directors are related. The agreement provides for certain rights relating to the registration of such holders’ common stock, including shares issuable upon conversion of preferred stock, and a right of first refusal to purchase future securities sold by us. See “Description of Capital Stock—Registration Rights” for additional information.

Stockholders Agreement

We entered into an Amended and Restated Stockholders Agreement by and among us and certain of our stockholders, pursuant to which the following directors were elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Dr. Robert Spiegel, Mr. Murray Goldberg, Dr. Guy Harmelin, Dr. David Sidransky, Mr. Todd Sone, and Roni Mamluk, Ph.D. Roni Mamluk, Ph.D. was selected to serve on our board of directors in her capacity as our chief executive officer. Dr. Sidransky was initially selected to serve on our board of directors as representative of holders of our preferred stock, as designated by Israel Biotech Fund I, L.P. Mr. Goldberg and Dr. Spiegel were initially selected to serve on our board of directors as industry expert directors, as designated by Israel Biotech Fund I, L.P. Mr. Sone was initially selected to serve on our board of directors as representative of holders of our preferred stock, as designated by aMoon 2 Fund Limited Partnership. Dr. Harmelin was initially selected to serve on our board of directors as representative of holders of our preferred stock, as designated by Harel Insurance Company Ltd.

The stockholders agreement will terminate immediately prior to the consummation of this offering, and members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until they resign, are removed or their successors are duly elected by the holders of our common stock. The composition of our board of directors after this offering is described in more detail under “Management—Board Composition and Election of Directors.”

Employment Agreements

We have entered into employment agreements with our named executive officers. For more information regarding the agreements with our named executive officers, see “Executive and Director Compensation — Executive Compensation Arrangements.”

Indemnification Agreements

We intend to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us or will require us to indemnify each director (and in certain cases their related venture capital funds) and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer.

Stock Option Grants to Executive Officers and Directors

We have granted stock options to our executive officers and certain of our directors as more fully described in the section entitled “Executive and Director Compensation.”

Policies and Procedures for Related Person Transactions

Our board of directors has adopted a written related person transaction policy, to be effective upon the closing of this offering, setting forth the policies and procedures for the review and approval or ratification of

 

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related person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s-length transaction and the extent of the related person’s interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial ownership of our common stock, as of February 29, 2020 by:

 

•

each person or group of affiliated persons known by us to beneficially own more than 5% of our common stock;

 

•

each of our named executive officers;

 

•

each of our directors; and

 

•

all of our executive officers and directors as a group.

The number of shares beneficially owned by each stockholder is determined under rules issued by the Securities and Exchange Commission. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership is based on 17,429,765 shares of common stock outstanding as of February 29, 2020, assuming the conversion of all outstanding shares of our preferred stock into common stock. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days of February 29, 2020 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless noted otherwise, the address of all listed stockholders is Oppenheimer 4, Rehovot 7670104, Israel. Each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

 

		Shares of common stock beneficially owned				Percentage of common stock beneficially owned
						Before this offering				After this offering
Name of Beneficial Owner
5% or Greater Stockholders
Israel Biotech Fund I, L.P.(1)			6,180,238				35.5	%				%
aMoon 2 Fund Limited Partnership(2)			4,382,947				25.1
Harel Insurance Company Ltd.(3)			3,227,669				18.5
Bristol-Myers Squibb Company(4)			1,125,929				6.5
Novartis Institutes for BioMedical Research, Inc.(5)			1,264,222				7.3
Named Executive Officers and Directors
Roni Mamluk, Ph.D.(6)			226,742				1.3
Yossi Maimon, CPA, M.B.A.(7)			36,433				*
Gary Gordon, M.D., Ph.D.			—				—
David Sidransky, M.D.(1)			—				—
Robert Spiegel, M.D., FACP(1)(8)			35,000				*
Murray A. Goldberg(1)(9)			35,000				*
Todd Sone(2)			—				—
Guy Harmelin, M.D.(3)			—				—
All executive officers and directors as a group (8 persons)(10)			333,175				1.9	%

 

*

Less than 1%.

(1)

Consists of 5,018,262 shares of common stock and 1,161,976 shares of common stock issuable upon conversion of shares of convertible preferred stock held by Israel Biotech Fund I, L.P. (“IBF I”). Israel Biotech Fund GP Partners, L.P. (“IBF”) is the sole general partner of IBF I. I.B.F. Management, Ltd. (“IBF Management”) is the sole general partner of IBF. IBF and IBF Management may be deemed to have sole voting and dispositive power with respect to the common stock and preferred stock held by IBF I.

 

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Dr. Robert Spiegel, a member of our board of directors and an advisor to IBF, Mr. Murray Goldberg, a member of our board of directors and an advisor to IBF, and Dr. David Sidransky, the chairman of our board of directors managing partner of IBF and director of IBF Management, disclaim beneficial ownership over such shares, except to the extent of their pecuniary interest therein (as limited partners of IBF I and IBF). The address of IBF I, IBF and IBF Management is Ruhrberg Science Center, Bell Entrance, 4th Floor, 3 Pekeris Street, Rabin Science Park, Rehovot 7670212, Israel.

(2)

Consists of 2,626,637 shares of common stock and 1,756,310 shares of common stock issuable upon conversion of shares of convertible preferred stock held by aMoon 2 Fund Limited Partnership (“aMoon”). aMoon 2 Fund G.P. Limited Partnership (“aMoon G.P.”) is the sole general partner of aMoon. aMoon General Partner Ltd. (“aMoon Ltd.”) is the sole general partner of aMoon G.P. Mr. Yair C. Schindel is the sole shareholder of aMoon Ltd. Thus, aMoon G.P., aMoon Ltd. and Mr. Yair C. Schindel may be deemed to have sole voting and dispositive power with respect to the common stock and preferred stock held by aMoon. Todd Sone, a member of our board of directors and a partner in aMoon, disclaims beneficial ownership over such shares, except to the extent of his pecuniary interest therein.    The address of aMoon is 34 Yerushalaim Rd, Beit Gamla, 6th Floor, Ra’anana, 4350110, Israel.

(3)

Consists of 2,188,770 shares of common stock and 1,038,899 shares of common stock issuable upon conversion of shares of convertible preferred stock held by Harel Insurance Company Ltd. (“Harel”), a subsidiary of Harel Insurance Investments & Financial Services Ltd. Dr. Guy Harmelin, a member of our board of directors and Vice President of Alternative Investments at Harel Insurance Investments & Financial Services Ltd., disclaims beneficial ownership over such shares, except to the extent of his pecuniary interest therein. Harel Insurance Investments & Financial Services Ltd. is a widely held public company listed on the Tel Aviv Stock Exchange. The address of Harel is 3 Abba Hillel Rd. Ramat Gan, Israel.

(4)

Consists of 1,125,929 shares of common stock issuable upon conversion of shares of convertible preferred stock held by Bristol-Myers Squibb Company (“BMS”). The address of BMS is P.O. Box 4000, Route 206 & Province Line Road, Princeton, New Jersey 08543 USA.

(5)

Consists of 1,264,222 shares of common stock issuable upon conversion of shares of convertible preferred stock held by Novartis Institutes for BioMedical Research, Inc. (“NIBR”). The address of NIBR is 250 Massachusetts Avenue Cambridge, Massachusetts 02139 USA.

(6)

Includes 79,499 shares of common stock underlying options which are exercisable within 60 days of February 29, 2020.

(7)

Includes 36,433 shares of common stock underlying options which are exercisable within 60 days of February 29, 2020.

(8)

Includes 35,000 shares of common stock underlying options which are exercisable within 60 days of February 29, 2020.

(9)

Includes 35,000 shares of common stock underlying options which are exercisable within 60 days of February 29, 2020.

(10)

Includes 185,932 shares of common stock underlying options which are exercisable within 60 days of February 29, 2020.

 

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DESCRIPTION OF CAPITAL STOCK

General

The following description summarizes some of the terms of our restated certificate of incorporation and restated bylaws that will become effective upon the closing of this offering, the amended and restated investors’ rights agreement and of the General Corporation Law of the State of Delaware. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation, restated bylaws and the amended and restated investors’ rights agreement, copies of which have been or will be filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of the General Corporation Law of the State of Delaware. The description of our common stock and preferred stock reflects changes to our capital structure that will occur immediately prior to the closing of this offering.

Following the closing of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share.

As of February 29, 2020, there were 9,997,750 shares of our common stock outstanding and 7,430,452 shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock in connection with this offering, held of record by 17 stockholders.

Common Stock

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Subject to the supermajority votes for some matters, other matters shall be decided by the affirmative vote of our stockholders having a majority in voting power of the votes cast by the stockholders present or represented and voting on such matter. Our restated certificate of incorporation and restated bylaws also provide that our directors may be removed only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon. In addition, the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock entitled to vote thereon is required to amend or repeal, or to adopt any provision inconsistent with, several of the provisions of our restated certificate of incorporation. See below under “—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws—Amendment of Charter Provisions.” Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

Under the terms of our restated certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

 

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The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.

Options

As of February 29, 2019, options to purchase 1,314,126 shares of our common stock were outstanding under our 2017 Plan.

Registration Rights

Holders of                  shares of our common stock are entitled to certain rights with respect to the registration of such shares for public resale under the Securities Act, pursuant to an amended and restated investors’ rights agreement by and among us and certain of our stockholders, until the rights otherwise terminate pursuant to the terms of the investors’ rights agreement. The registration of shares of common stock as a result of the following rights being exercised would enable holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective.

Form S-1 Registration Rights

If at any time after six months after the closing date of this offering, the holders of at least 30% of the registrable securities then outstanding request in writing that we effect a registration with respect to at least 30% of the registrable securities then outstanding, having an anticipated aggregate offering amount, net of expenses, of at least $10,000,000, we may be required to register their shares. We are obligated to effect at most two registrations in response to these demand registration rights. If the holders requesting registration intend to distribute their shares by means of an underwriting, the managing underwriter of such offering will have the right to limit the numbers of shares to be underwritten for reasons related to the marketing of the shares.

Piggyback Registration Rights

If at any time after this offering we propose to register any shares of our common stock under the Securities Act, subject to certain exceptions, the holders of registrable securities will be entitled to notice of the registration and to include their shares of registrable securities in the registration. If our proposed registration involves an underwriting, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares.

Form S-3 Registration Rights

If, at any time after we become entitled under the Securities Act to register our shares on a registration statement on Form S-3, the holders of at least 20% of the registrable securities then outstanding request in writing that we effect a registration with respect to all or part of such registrable securities then outstanding and having an anticipated aggregate offering amount, net of expenses, of at least $3,000,000, we will be required to effect such registration.

Expenses and Indemnification

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expenses may include all registration and filing fees, printing expenses, fees and disbursements of our counsel, reasonable fees and disbursements of a counsel for the selling securityholders and blue sky fees and expenses. Additionally, we have agreed to indemnify selling stockholders for damages, and any legal or other expenses reasonably incurred, arising from or based upon any untrue statement of a material fact contained in any registration statement, an omission or alleged omission to state a material fact in any registration statement or necessary to make the statements therein not misleading, or any violation or alleged violation by the indemnifying party of securities laws, subject to certain exceptions.

Termination of Registration Rights

The registration rights terminate upon the earlier of the date that is five years after the closing of this offering, such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such holders’ shares without limitation during a three-month period without registration and the closing of a deemed liquidation event, as defined in the investors’ rights agreement.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Some provisions of Delaware law, our restated certificate of incorporation and our restated bylaws could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.

These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock

The ability of our board of directors, without action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Stockholder Meetings

Our restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president (in the absence of a chief executive officer), or by a resolution adopted by a majority of our board of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our restated bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.

Elimination of Stockholder Action by Written Consent

Our restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.

 

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Staggered Board

Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see “Management—Board Composition and Election of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Removal of Directors

Our restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote in the election of directors.

Stockholders Not Entitled to Cumulative Voting

Our restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the General Corporation Law of the State of Delaware, which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.

Choice of Forum

Our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative form, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or our certificate of incorporation or bylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (5) any action asserting a claim governed by the internal affairs doctrine. Under our restated certificate of incorporation, this exclusive forum provision will not apply to claims which are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not apply to actions arising under federal securities laws, including suits brought to enforce any liability or duty created by the Securities Act, Exchange Act, or the rules and regulations thereunder. Our restated certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum provision contained in our restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.

 

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Amendment of Charter Provisions

The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock and the provision prohibiting cumulative voting, would require approval by holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote thereon.

The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.

Stock Exchange Listing

We have applied to have our common stock listed on The Nasdaq Global Market under the symbol “AYLA.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock.

Upon the closing of this offering, we will have outstanding an aggregate of              shares of common stock, assuming the issuance of              shares of common stock offered by us in this offering, the automatic conversion of all outstanding shares of our preferred stock into 9,997,750 shares of our common stock and no exercise of options after February 29, 2020. Of these shares, all shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.

The remaining              shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below. We expect that substantially all of these shares will be subject to the 180-day lock-up period under the lock-up agreements described below. Upon expiration of the lock-up period, we estimate that approximately              shares will be available for sale in the public market, subject in some cases to applicable volume limitations under Rule 144.

In addition, of the 1,314,126 shares of our common stock that were subject to stock options outstanding as of February 29, 2020, options to purchase 350,876 shares of common stock were vested as of February 29, 2020 and, upon exercise, these shares will be eligible for sale subject to the lock–up agreements described below and Rules 144 and 701 under the Securities Act.

Lock-Up Agreements

We and each of our directors and executive officers and holders of substantially all of our outstanding capital stock, have agreed that, without the prior written consent of Citigroup Global Markets Inc. and Jefferies LLC, we and they will not, subject to certain exceptions, during the period ending 180 days after the date of this prospectus, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock, whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

Upon the expiration of the applicable lock-up periods, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above. For a further description of these lock-up agreements, please see “Underwriting.”

Rule 144

Affiliate Resales of Restricted Securities

In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, who has beneficially owned shares of our common stock for at least six months would be entitled to sell in “broker’s transactions” or certain “riskless principal transactions” or to market makers, a number of shares within any three-month period that does not exceed the greater of:

 

•

1% of the number of shares of our common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

•

the average weekly trading volume in our common stock on The Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

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Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with the Securities and Exchange Commission and Nasdaq concurrently with either the placing of a sale order with the broker or the execution directly with a market maker.

Non-Affiliate Resales of Restricted Securities

In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.

Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.

Rule 701

In general, under Rule 701, any of an issuer’s employees, directors, officers, consultants or advisors who purchases shares from the issuer in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act is entitled to sell such shares 90 days after such effective date in reliance on Rule 144. An affiliate of the issuer can resell shares in reliance on Rule 144 without having to comply with the holding period requirement, and non-affiliates of the issuer can resell shares in reliance on Rule 144 without having to comply with the current public information and holding period requirements.

The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after an issuer becomes subject to the reporting requirements of the Exchange Act.

Equity Plans

We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We expect to file the registration statement covering shares offered pursuant to our stock plans shortly after the date of this prospectus, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market, subject to compliance with the resale provisions of Rule 144.

Registration Rights

Upon the closing of this offering, the holders of              shares of common stock, which includes all of the shares of common stock issuable upon the automatic conversion of our preferred stock upon the closing of this offering, or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See “Description of Capital Stock—Registration Rights” for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of the lock-up agreement described above.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership, and disposition of our common stock.

This discussion is limited to Non-U.S. Holders that hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:

 

•

U.S. expatriates and former citizens or long-term residents of the United States;

 

•

persons subject to the alternative minimum tax;

 

•

persons holding our common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

•

banks, insurance companies, and other financial institutions;

 

•

brokers, dealers, or traders in securities;

 

•

“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

•

partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);

 

•

tax-exempt organizations or governmental organizations;

 

•

persons deemed to sell our common stock under the constructive sale provisions of the Code;

 

•

persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;

 

•

tax-qualified retirement plans;

 

•

“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds; and

 

•

persons subject to special tax accounting rules as a result of any item of gross income with respect to the stock being taken into account in an applicable financial statement.

If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

 

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INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Definition of a Non-U.S. Holder

For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our common stock that is neither a “U.S. person” nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

•

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

•

a trust that (i) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (ii) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

Distributions

As described in the section entitled “Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we do make distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder’s adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale or Other Taxable Disposition.”

Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.

Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular graduated rates, applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be

 

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subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.

Sale or Other Taxable Disposition

A Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:

 

•

the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable);

 

•

the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or

 

•

our common stock constitutes a U.S. real property interest, or USRPI, by reason of our status as a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates, applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax if our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder’s holding period.

Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.

Information Reporting and Backup Withholding

Payments of dividends on our common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our common stock within the United States or conducted through certain U.S.-related brokers generally will

 

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not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.

Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Additional Withholding Tax on Payments Made to Foreign Accounts

Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, our common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2019, recently proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.

 

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UNDERWRITING

Citigroup Global Markets Inc. and Jefferies LLC are acting as joint book-running managers of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name.

 

Underwriter		Number of Shares
Citigroup Global Markets Inc.
Jefferies LLC
Oppenheimer & Co. Inc.
Raymond James & Associates, Inc.
Total

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the option to purchase additional shares of our common stock described below) if they purchase any of the shares.

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $         per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary accounts.

If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to              additional shares at the public offering price less the underwriting discounts and commissions. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.

We and each of our directors, executive officers and holders of substantially all of our outstanding shares of common stock, or securities convertible into or exchangeable for shares of our common stock have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Citigroup Global Markets Inc. and Jefferies LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Citigroup Global Markets Inc. and Jefferies LLC in their sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice.

The restrictions described above do not apply to our officers, directors and other existing stockholders, subject to certain restrictions, with respect to:

 

•

transfers of shares of common stock or other securities acquired in this offering or in open market transactions on or after the completion of this offering;

 

•

bona fide gifts or charitable contributions;

 

•

transfers to a trust for the direct or indirect benefit of the officer, director or other existing stockholder or the immediate family of such person, including by will or intestate succession;

 

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•

distributions or other transfers by a partnership to its partners or by a limited liability company to its members or by a corporation to its stockholders or to any wholly-owned subsidiary of such corporation;

 

•

transfers to an affiliate of the officer, director or other existing stockholder, including investment funds or other entities under common control or management that are affiliates of such person;

 

•

transfers to us in connection with the termination of employment with us or pursuant to agreements under which we have the option to repurchase such shares;

 

•

the exercise of any option to purchase shares of common stock pursuant to our stock incentive plans or stock purchase plans described in this prospectus;

 

•

the conversion of outstanding preferred stock into shares of common stock, provided that any such shares received upon such conversion shall be subject to the restrictions on transfer set forth above;

 

•

transfers by operation of law pursuant to a court order or a settlement agreement related to the distribution of assets in connection with the dissolution of a marriage or civil union;

 

•

transfers to us to cover tax withholdings upon a vesting event of any equity award granted under our stock incentive plans or stock purchase plans described in this prospectus;

 

•

the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of common stock, provided that such plan does not provide for any transfers or dispositions during the restricted period; and

 

•

transfers pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all of our stockholders involving a change of control that has been approved by our board of directors.

The restrictions described above do not apply to us, subject to certain restrictions, with respect to:

 

•

the issuance and sale of shares of common stock in this offering;

 

•

the issuance and sale of shares of common stock pursuant to our employee stock option plans, stock ownership plans or dividend reinvestment plans described in this prospectus;

 

•

the issuance shares of common stock upon the conversion of securities or the exercise of warrants outstanding as of the date of this prospectus;

 

•

the issuance and sale of shares of common stock pursuant to one or more registration statements on Form S-8 relating to our employee stock option plans, stock ownership plans or dividend reinvestment plans described in this prospectus; and

 

•

the issuance of shares of common stock in connection with a merger, joint venture, strategic alliance, commercial or other collaborative transaction, or the acquisition or license of the business, property, technology or other assets of another individual or entity, or the assumption of an employee benefit plan in connection with such a merger or acquisition, provided that the aggregate number of shares of common stock issued does not exceed 5.0% of the total outstanding shares of common stock immediately following the issuance.

Prior to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.

 

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We have applied to have our shares listed on The Nasdaq Global Market under the symbol “AYLA.”

The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.

 

		No Exercise				Full Exercise
Per share		$				$
Total		$				$

We estimate that our portion of the total expenses of this offering will be approximately $        . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $35,000.

In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the option to purchase additional shares of our common stock, and stabilizing purchases.

 

•

Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering.

 

•

“Covered” short sales are sales of shares in an amount up to the number of shares represented by the underwriters’ option to purchase additional shares of our common stock.

 

•

“Naked” short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters’ option to purchase additional shares of our common stock.

 

•

Covering transactions involve purchases of shares either pursuant to the underwriters’ option to purchase additional shares of our common stock or in the open market in order to cover short positions.

 

•

To close a naked short position, the underwriters must purchase shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

•

To close a covered short position, the underwriters must purchase shares in the open market or must exercise the option to purchase additional shares of our common stock. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares of our common stock.

 

•

Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum.

Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

Conflicts of Interest

The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal

 

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investment, hedging, financing and brokerage activities. The underwriters and their respective affiliates have in the past performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary fees and reimbursement of expenses and may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

Notice to Prospective Investors in Canada

The shares of our common stock offered in this prospectus may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Notice to Prospective Investors in the European Economic Area and United Kingdom

In relation to each member state of the European Economic Area and the United Kingdom (each a “Relevant State”), no shares have been offered or will be offered to the public in that Relevant State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of the shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:

 

•

to any legal entity which is a qualified investor as defined under the Prospectus Regulation;

 

•

to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or

 

•

in any other circumstances falling within Article 1(4) of the Prospectus Regulation,

 

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provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.

For the purposes of this provision, the expression an “offer to the public” in relation to any shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.

Notice to Prospective Investors in the United Kingdom

This prospectus is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the Financial Services and Markets Act 2000.

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.

Notice to Prospective Investors in France

Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:

 

•

released, issued, distributed or caused to be released, issued or distributed to the public in France; or

 

•

used in connection with any offer for subscription or sale of the shares to the public in France.

Such offers, sales and distributions will be made in France only:

 

•

to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;

 

•

to investment services providers authorized to engage in portfolio management on behalf of third parties; or

 

•

in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).

The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.

 

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Notice to Prospective Investors in Israel

The shares offered by this prospectus have not been approved or disapproved by the Israel Securities Authority, or ISA, nor have such shares been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus that has been approved by the ISA. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing this prospectus, nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the shares being offered.

This document does not constitute a prospectus under the Israeli Securities Law and has not been filed with or approved by the ISA. In the State of Israel, this document may be distributed only to, and may be directed only at, and any offer of the shares may be directed only at investors listed in the first addendum to the Israeli Securities Law, or the Addendum, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.

Notice to Prospective Investors in Hong Kong

The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Japan

The shares offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or

 

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any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

•

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

•

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

•

to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

•

where no consideration is or will be given for the transfer;

 

•

where the transfer is by operation of law;

 

•

as specified in Section 276(7) of the SFA; or

 

•

as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Singapore Securities and Futures Act Product Classification: Solely for the purposes of our obligations pursuant to Sections 309B(1)(a) and 309B(1)(c) of the SFA, we have determined, and hereby notify all relevant persons (as defined in Section 309A of the SFA), that the shares are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

 

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LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP. Certain legal matters will be passed upon for the underwriters by Davis Polk & Wardwell LLP.

EXPERTS

The consolidated financial statements of Ayala Pharmaceuticals, Inc. at December 31, 2018 and 2019, and for the years then ended, appearing in this prospectus and registration statement have been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this offering, we will be required to file periodic reports, proxy statements, and other information with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The Securities and Exchange Commission maintains an Internet website that contains reports, proxy statements and other information about registrants, like us, that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov.

We also maintain a website at www.ayalapharma.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 

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AYALA PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets			F-4
Consolidated Statements of Operations			F-5
Statement of Changes in Stockholders’ Deficit			F-6
Statements of Consolidated Cash Flows			F-7
Notes to Consolidated Financial Statements			F-8

 

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		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 Stockholders and the Board of Directors of

AYALA PHARMACEUTICALS, INC.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ayala Pharmaceuticals, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2019 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1e to the consolidated financial statements, the Company has suffered recurring losses from operations, has a negative cash-flow from operating activities, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1e. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audit we are required to obtain an understanding of internal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion.

Our audit 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.

 

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Our audit 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.

Tel-Aviv, Israel		/s/ KOST FORER GABBAY & KASIERER
March 6, 2020		A Member of Ernst & Young Global

We have served as the Company’s auditor since 2017.

 

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AYALA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)

 

		December 31, 2018				December 31, 2019				Pro Forma December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	26,097			$	16,725			$	16,725
Short-term restricted bank deposits			167				83				83
Trade receivables			—				469				469
Prepaid expenses and other current assets			588				417				417
Total current assets			26,852				17,694				17,694
Long-term assets:
Other assets			32				283				283
Deferred offering costs			—				656				656
Property and equipment, net			241				1,421				1,421
Total long-term assets			273				2,360				2,360
Total assets		$	27,125			$	20,054			$	20,054
Liabilities, convertible preferred stock, and stockholders’ deficit:
Current liabilities:
Trade payables		$	951			$	2,922			$	2,922
Other Accounts payables			1,823				2,380				2,380
Total current liabilities			2,774				5,302				5,302
Long-term liabilities:
Long-term rent liability			—			$	299			$	299
Total long-term liabilities		$	—			$	299			$	299
Convertible preferred stock, $0.01 par value:
Series A Preferred Stock of $0.01 par value per share; 3,700,000 shares authorized at December 31, 2018 and 2019; 3,679,778 issued and outstanding shares at December 31, 2018 and 2019; aggregate liquidation preference value of $23,919 at December 31, 2018 and 2019			23,823				23,823				—
Series B Preferred Stock of $0.01 par value per share; 4,500,000 shares authorized at December 31, 2018 and 2019; 3,097,343 and 3,750,674 issued and outstanding shares at December 31, 2018 and 2019, respectively; aggregate liquidation preference value of $24,500 and $29,668 at December 31, 2018 and 2019, respectively			22,387				29,550				—
Total convertible preferred stock			46,210				53,373				—
Stockholders’ (deficit) equity:
Common Stock of $0.01 par value per share; 20,000,000 shares authorized at December 31, 2018 and 2019; 10,008,750 and 10,129,445 shares issued at December 31, 2018 and 2019, respectively; 9,919,334 and 9,997,750 shares outstanding at December 31, 2018 and 2019, respectively		$	100			$	101			$	175
Additional paid-in capital			990				1,720				55,019
Accumulated deficit			(22,949	)			(40,741	)			(40,741	)
Total stockholders’ (deficit) equity			(21,859	)			(38,920	)			14,453
Total liabilities, convertible preferred stock, and stockholders’ (deficit) equity		$	27,125			$	20,054			$	20,054

The accompanying notes are an integral part of the consolidated financial statements.

 

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AYALA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except shares and per shares data)

 

		Year ended December 31, 2018				Year ended December 31, 2019
Revenue from license agreement			—				2,334
Cost of revenue			—				(1,285	)
Gross profit			—				1,049
Research and development		$	5,741			$	14,424
General and administrative			3,294				4,336
Operating loss			(9,035	)			(17,711	)
Financial income, net			448				225
Loss before income tax			(8,587	)			(17,486	)
Taxes on income			(286	)			(306	)
Net loss attributable to common stockholders		$	(8,873	)		$	(17,792	)
Net loss per share attributable to common stockholders, basic		$	(0.90	)		$	(1.79	)
Weighted average common shares outstanding, basic			9,871,995				9,952,214
Pro forma net loss per share attributable to common stockholders, basic and diluted		$	(0.66	)		$	(1.04	)
Pro forma weighted average common shares outstanding, basic and diluted			13,543,029				17,160,699

The accompanying notes are an integral part of the consolidated financial statements.

 

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AYALA PHARMACEUTICALS, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

U.S. dollars in thousands (except share amounts)

 

		Convertible Preferred Stock
		Series A Preferred Stock								Receipts on account of Series A Preferred Stock				Series B Preferred Stock								Receivables on account of Series B Preferred Stock				Total Amount								Common Stock								Additional paid-in capital				Accumulated Deficit				Total Stockholders’ Deficit
		Number				Amount								Number				Amount																Number				Amount
Balance as of December 31, 2017			2,092,309			$	13,583			$	6,835				—			$	—			$	—			$	20,418								9,833,669			$	98			$	(98	)		$	(13,592	)		$	(13,592	)
Issuance of Series A Preferred Stock, net			1,513,045				9,756				(6,835	)			—				—				—				2,921								—				—				—				—				—
Issuance of Series A Preferred Stock on account of anti-dilution			74,424				484				—				—				—				—				484								—				—				—				(484	)			(484	)
Issuance of Series B Preferred Stock, net			—				—				—				3,097,343				24,387				(2,000	)			22,387								—				—				—				—				—
Exercise of stock options			—				—				—				—				—				—				—								8,750				*				22				—				22
Share based compensation			—				—				—				—				—				—				—								76,915				2				1,066				—				1,068
Net loss			—				—				—				—				—				—				—								—				—				—				(8,873	)			(8,873	)
Balance as of December 31, 2018			3,679,778			$	23,823			$	—				3,097,343			$	24,387			$	(2,000	)			46,210								9,919,334			$	100			$	990			$	(22,949	)		$	(21,859	)
Issuance of Series B Preferred Stock, net			—				—				—				653,331				5,163				2,000				7,163								—				—				—				—				—
Exercise of stock options			—				—				—				—				—				—				—								1,500				*				4				—				4
Share based compensation			—				—				—				—				—				—				—								76,916				1				726				—				727
Net loss			—				—				—				—				—				—				—								—				—				—				(17,792	)			(17,792	)
Balance as of December 31, 2019			3,679,778			$	23,823			$	—				3,750,674			$	29,550			$	—			$	53,373								9,997,750			$	101			$	1,720			$	(40,741	)		$	(38,920	)

 

*

Represents an amount lower than $1.

The accompanying notes are an integral part of the consolidated financial statements.

 

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AYALA PHARMACEUTICALS, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

U.S. dollars in thousands

 

		Year Ended December 31, 2018				Year Ended December 31, 2019
Cash flows from operating activities:
Net loss		$	(8,873	)		$	(17,792	)
Adjustments to reconcile net loss to net cash used in operating activities:
Revaluation of anti-dilution right			(458	)			—
Shared based compensation			1,068				727
Depreciation			49				150
(Increase) decrease in prepaid expenses and other current assets			(537	)			171
Increase in trade receivables			—				(469	)
Increase in trade payable			818				1,935
Increase in long term rent liability			—				299
Increase in other accounts payable			1,562				29
Net cash used in operating activities			(6,371	)			(14,950	)
Cash flows from investing activities:
Investment in long-term deposits			(29	)			(251	)
Purchase of property and equipment			(221	)			(1,330	)
Net cash used in investing activities			(250	)			(1,581	)
Cash flows from financing activities:
Exercise of stock options			22				4
Issuance of convertible preferred stock, net			25,398				7,071
Net cash provided by financing activities			25,420				7,075
Increase in cash and cash equivalents and short-term restricted bank deposits			18,799				(9,456	)
Cash and cash equivalents and short-term restricted bank deposits at beginning of the year			7,465				26,264
Cash and cash equivalents and short-term restricted bank deposits at end of the year		$	26,264				16,608
Supplemental disclosure of non-cash financing activities
Non-cash Series B Preferred Stock issuance costs		$	92				—
Non-cash deferred offering costs		$	—				656
Issuance of Series A Preferred Stock in consideration for anti-dilution right		$	484				—
Supplemental disclosures of cash flow information:
Cash received for interest		$	46				378
Cash paid for income taxes		$	(25	)			(169	)

The accompanying notes are an integral part of the consolidated financial statements.

 

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1. General

a) Ayala Pharmaceuticals, Inc. (the “Company”) was incorporated in November 2017. The Company is a clinical stage oncology company dedicated to developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. The Company’s current portfolio of product candidates, AL101 and AL102, target the aberrant activation of the Notch pathway with gamma secretase inhibitors.

b) In 2017, the Company entered into an exclusive worldwide license agreement with respect to AL101 and AL102. See Note 5.

c) The Company’s lead product candidates, AL101 and AL102, have completed preclinical and Phase 1 studies. A Phase 2 trial (ACCURACY) for AL101 in patients with recurrent/metastatic adenoid cystic carcinoma (“R/M ACC”) bearing Notch-activating mutations is ongoing.

d) The Company has a wholly-owned Israeli subsidiary, Ayala-Oncology Israel Ltd. (the “Subsidiary”), which was incorporated in November 2017.

e) The Company has incurred an accumulated deficit of approximately $40.7 million as of December 31, 2019 and incurred recurring operating losses and negative cash flows from operating activities since inception. As of December 31, 2019, the Company’s total stockholders’ deficit amounted to approximately $38.9 million.

During the year ended December 31, 2019, the Company incurred operating losses of approximately $17.8 million, and its negative cash flow from operating activities was approximately $15.0 million. The Company will be required to identify additional liquidity resources in the near term in order to support its research and development and clinical trials activities.

As of December 31, 2019, the Company’s cash and cash equivalents and short-term restricted bank deposits totaled approximately $16.6 million. The Company’s current operating plan includes various assumptions concerning the level and timing of cash outflows for operating activities. The Company’s ability to successfully carry out its business plan is primarily dependent upon its ability to (1) obtain sufficient additional capital, (2) enter into license agreements to use or commercialize its products and (3) receive other sources of funding. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its products.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The audited consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

f) The Company is subject to risks common to companies in the biopharmaceutical development industry. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain required regulatory approval or that any approved products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales. The Company operates in an environment of rapid technological change and substantial competition from pharmaceutical and biotechnology companies.

 

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2. Significant Accounting Policies

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The significant accounting policies followed in the preparation of the consolidated financial statements, are as follows:

Use of Estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s management believes that the estimates, judgment 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 consolidated financial statements. Actual results could differ from those estimates.

Consolidated Financial Statements in U.S. Dollars

A substantial portion of the Company’s financing activities, including equity transactions and cash investments, are incurred in U.S. dollars. The Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

A subsidiary’s functional currency is the currency of the primary economic environment in which the subsidiary operates; normally, that is the currency of the environment in which a subsidiary primarily generates and expends cash. In making the determination of the appropriate functional currency for a subsidiary, the Company considers cash flow indicators, local market indicators, financing indicators and the subsidiary’s relationship with both the parent company and other subsidiaries. For subsidiaries that are primarily a direct and integral component or extension of the parent entity’s operations, the U.S. dollar is the functional currency.

The Company has determined the functional currency of its foreign subsidiary is the U.S. Dollar. The foreign operation is considered a direct and integral part or extension of the Company’s operations. The day-to-day operations of the foreign subsidiary are dependent on the economic environment of the U.S. Dollar.

Accordingly, monetary accounts maintained in currencies other than the U.S. dollar are remeasured into U.S. dollars in accordance with Statement of the Accounting Standard Codification (“ACS”) No. 830 “Foreign Currency Matters” (“ASC No. 830”). All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the Subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid certificates of deposits with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and are stated at fair value. Restricted cash consists of a money market account that serves as collateral for a credit card agreement and lease agreements at one of the Company’s financial institutions.

 

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Property and Equipment, Net

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, at the following annual rates:

 

Computers and software			33%
Lab equipment			15%
Office furniture and equipment			7%

Leasehold improvements are amortized on a straight-line basis over the shorter of the assets’ estimated useful life or the remaining term of the lease. Maintenance and repair costs are expensed as incurred.

Impairment of Long-Lived Assets

The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets through an impairment charge, to their estimated fair values. During the years ended December 31, 2018 and 2019, no impairment indicators have been identified.

Accrued Post-Employment Benefit

Under Israeli employment laws, employees of the Company are included under Section 14 of the Severance Compensation Act, 1963 (“Section 14”) for a portion of their salaries. According to Section 14, these employees are entitled to monthly payments made by the Company on their behalf with insurance companies.

Payments in accordance with Section 14 release the Company from any future severance payments with respect to those employees. The obligation to make the monthly deposits is expensed as incurred. In addition, the aforementioned deposits are not recorded as an asset in the consolidated balance sheet, and there is no liability recorded as the Company does not have a future obligation to make any additional payments. Severance costs amounted to approximately $0.1 million and $0.2 million for the year ended December 31, 2018 and 2019, respectively.

The Company maintains a 401(k) retirement savings plan for its U.S. employees. Each eligible employee may elect to contribute a portion of the employee’s compensation to the plan. As of December 31, 2018 and 2019, the Company has matched 100% of all employee contributions, up to 6% of the employee’s base salary.

Fair Value of Financial Instruments:

The Company measures and discloses the fair value of financial assets and liabilities in accordance with ASC Topic 820, “Fair Value Measurement.” Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1:    Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

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Level 2:    Observable inputs that are based on inputs not quoted on active markets but corroborated by market data.

Level 3:    Unobservable inputs are used when little or no market data are available.

Research and Development

Research and development costs are expensed as incurred. Research and development costs include payroll and personnel expenses, consulting costs, external contract research and development expenses, raw materials, drug product manufacturing costs, and allocated overhead including depreciation and amortization, rent, and utilities. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Acquired In-Process Research and Development

In an asset acquisition, the initial costs of rights to in-process research and development projects acquired are expensed as R&D in the consolidated statements of operations unless the in-process research and development has an alternative future use. In a business combination, the fair value of in-process research and development is capitalized as an indefinite-lived intangible asset, regardless of whether the in-process research and development asset has an alternative future use.

Clinical Trial Costs

Clinical trial costs are a component of research and development expenses. The Company bases its expenses related to CRO on its estimates of the services received and efforts expanded pursuant to agreements with them. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In instances where payments made to CROs exceed the level of services provided and result in a prepayment of the research and development expenses. For reoccurring services fees, the Company estimates the time period over which services will be performed and the level of effort to be expanded in each period. If the actual timing of the performance of services varies from the estimate, the Company adjusts the accrual or amount of prepaid expenses accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Patent Costs

Legal and related patent costs are expensed as incurred as their realization is uncertain. Costs related to patent registration are classified as general and administrative expenses, and costs related to acquired patents are classified as research and development expenses in the accompanying consolidated statements of operations.

Business and Asset Acquisitions

When the Company acquires a business, the purchase price is allocated to the net tangible and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of operations.

 

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The Company accounts for a transaction as an asset acquisition pursuant to the provisions of ASU No. 2017-01, Clarifying the Definition of a Business, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, or otherwise does not meet the definition of a business. Asset acquisition-related costs are capitalized as part of the asset or assets acquired. The Company did not complete any business combinations during the years ended December 31, 2018 and 2019.

Contingent Liabilities

The Company accounts for its contingent liabilities in accordance with ASC No. 450, “Contingencies”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2018 and 2019, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. This standard 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, if it is more likely than not that some portion of the entire deferred tax asset will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740-10, “Income Taxes”. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company’s tax positions had no material effect on the Company’s financial results.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions that it believes are of high quality credit rating. The Company has not experienced any losses on its deposits of cash or cash equivalents.

Share-Based Compensation

The Company measures its share-based payment awards made to employees, directors, and non-employee service providers based on estimated fair values. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The Company recognizes compensation expenses based on the accelerated method over the requisite service period. The Company recognizes forfeitures of awards as they occur.

 

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The Black-Scholes option pricing model requires a number of assumptions, of which the most significant are share price, expected volatility, expected option term (the time from the grant date until the options are exercised or expire), risk-free rate, and expected divided rate. Share price is estimated based on third party valuation (see also Note 9). Expected volatility is estimated based on volatility of similar public companies in the biotechnology sector. The Company has historically not paid dividends and has no foreseeable plans to pay dividends, therefore the Company uses an expected dividend yield of 0%. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent expected term. The expected option term is calculated for options granted to employees and directors using the “simplified” method. Under this approach, the expected term is presumed to be the midpoint between the weighted average vesting term and the contractual term of the option. The simplified method makes the assumption that the employee will exercise share options evenly over the period when the share options are vested and ending on the date when the share options expire. The expected option term for options granted to non-employees is based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the share options granted and the results of operations of the Company.

Basic and Diluted Net Loss per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding together with the number of additional shares of Common Stock that would have been outstanding if all potentially dilutive shares of Common Stock had been issued. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive.

Unaudited Pro Forma Net Loss per Share

Immediately prior to the completion of the Company’s anticipated initial public offering (the “IPO”), all outstanding shares of Series A Preferred Stock and Series B Preferred Stock will convert into shares of Common Stock. The unaudited pro forma net loss per share for the years ended December 31, 2018 and 2019 was computed using the weighted-average number of shares of Common Stock outstanding, including the pro forma effect of the conversion of all outstanding shares of Series A Preferred Stock and Series B Preferred Stock into shares of shares of Common Stock as if such conversion had occurred at the beginning of the period, or their issuance dates if later. Pro forma net loss per share does not include the shares expected to be sold in the IPO.

Comprehensive Loss

The Company has no components of comprehensive loss other than net loss. Thus, comprehensive loss is the same as net loss for the period presented.

Segment Information

Financial information is available for evaluation by the chief operating decision maker, the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment. Operating segments are defined as components of an enterprise in which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance.

Deferred Offering Costs

Deferred offering costs consist primarily of accounting, legal, and other fees related to the Company’s proposed IPO. Upon consummation of the IPO, the deferred offering costs will be reclassified to stockholders’ (deficit) equity and recorded against the proceeds from the offering. In the event the offering is aborted, deferred offering costs will be expensed. As of December 31, 2018 and 2019, the Company had $0.0 and $0.7 million in deferred offering costs, respectively.

 

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09— Revenue from contracts with customers , to achieve a consistent application of revenue recognition, resulting in a single revenue model to be applied by reporting companies under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for public entities for fiscal years beginning after December 15, 2017 and is effective for nonpublic entities for fiscal years beginning after December 15, 2018. The standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it being recognized at the date of initial application. The Company adopted this standard on January 1, 2018, see Revenue Recognition below.

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which provides guidance to decrease the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the guidance as of January 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods therein. Early adoption is permitted. The Company adopted the guidance starting January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity in applying the guidance in Topic 718 around modifications of stock-based payment awards. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The Company adopted the guidance as of January 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is not a business. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The Company adopted the guidance as of January 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflects this election.

 

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In February 2016, the FASB issued ASU 2016-02—Leases, requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than 12 months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and for the Company for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this new guidance on its financial statements.

In June 2018, the FASB issued ASU No. 2018-07 Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share based payment. The standard expands the scope of Topic 718, (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The standard is effective for public entities for fiscal years beginning after December 15, 2019 and nonpublic entities for fiscal years beginning after December 15, 2020. Early adoption is permitted but no earlier than a company’s adoption date of Topic 606. The Company is currently evaluating the impact of adopting this new guidance on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which applies to all contracts with customers. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps:

 

(i)

identify the contract(s) with a customer;

 

(ii)

identify the performance obligations in the contract;

 

(iii)

determine the transaction price;

 

(iv)

allocate the transaction price to the performance obligations in the contract; and

(v) recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

Customer option to acquire additional goods or services gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract.

In a contract with multiple performance obligations, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations.

 

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The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time.

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expect to be entitled to receive in exchange for those goods or services.

In December 2018, the Company entered into an Evaluation Option to acquire License Agreement (the “Novartis Agreement”) with Novartis International Pharmaceutical Limited (“Novartis”) for which the company is paid for its research and development costs up to $4.3 million. For additional details regarding the Novartis Agreement, refer to Note 5.

The Company concluded that there is one distinct performance obligation under the Novartis Agreement: Research and development services, obligation which is satisfied over time.

Revenue associated with the research and development services in the amount of $2.3 million was recognized in 2019.

The Company concluded that progress towards completion of the research and development performance obligation related to the Novartis Agreement is best measured in an amount proportional to the expenses incurred from the total estimated expenses. The Company periodically reviews and updates its estimates, when appropriate, which may adjust revenue recognized for the period. The transaction price to be recognized as revenue under the Novartis Agreement consists of the reimbursable research and development costs.

3. Property and Equipment, net

Property and Equipment, net consists of the following:

 

		December 31, 2018				December 31, 2019
		(in thousands)
Cost:
Computers and software		$	58			$	72
Lab equipment			170				276
Office furniture and equipment			15				140
Leasehold improvements			47				1,085
			290				1,573
Less: Accumulated depreciation			49				152
Property and equipment, net		$	241			$	1,421

Depreciation expenses for the years ended December 31, 2018 and 2019 was approximately $49,000 and $150,000, respectively.

 

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4. Accrued Expenses

Accrued expenses consist of the following:

 

		December 31, 2018				December 31, 2019
		(in thousands)
Accrued professional fees		$	367			$	770
Accrued research and development expenses			516				105
Tax provision			289				440
Accrued payroll and employee benefits			651				1,065
Total accrued expenses		$	1,823			$	2,380

5. Commitments and Contingent Liabilities

Lease

The Subsidiary rents its facilities under an operating lease agreement, which expired in November 2019.

In January 2019, the Company signed a new lease agreement. The term of the lease is for 63 months and includes an option to extend the lease for an additional 60 months. As part of the agreement, the lesser has agreed to sponsor up to approximately $0.5 million of lease improvements. The minimum rental payments under operating leases as of December 31, 2019, are as follows (in thousands):

 

Year ended December 31,
2020		$	341
2021			341
2022			341
2023			341
2024			115
		$	1,479

The Subsidiary obtained a bank guarantee in the amount of approximately $0.2 million for its new office lease agreement and $24,000 in connection with the former office lease agreement.

Asset Transfer and License Agreement with Bristol-Myers Squibb Company.

In November 2017, the Company entered into a license agreement, or the BMS License Agreement, with Bristol-Myers Squibb Company, or BMS, under which BMS granted the Company a worldwide, non-transferable, exclusive, sublicensable license under certain patent rights and know-how controlled by BMS to research, discover, develop, make, have made, use, sell, offer to sell, export, import and commercialize AL101 and AL102, or the BMS Licensed Compounds, and products containing AL101 or AL102, or the BMS Licensed Products, for all uses including the prevention, treatment or control of any human or animal disease, disorder or condition.

Under the BMS License Agreement, the Company is obligated to use commercially reasonable efforts to develop at least one BMS Licensed Product. The Company has sole responsibility for, and bear the cost of, conducting research and development and preparing all regulatory filings and related submissions with respect to the BMS Licensed Compounds and/or BMS Licensed Products. BMS has assigned and transferred all INDs for the BMS Licensed Compounds to the Company. The Company is also required to use commercially reasonable efforts to obtain regulatory approvals in certain major market countries for at least one BMS Licensed Product, as well as to effect the first commercial sale of and commercialize each BMS Licensed Product after obtaining such regulatory approval. The Company has sole responsibility for, and bear the cost of, commercializing BMS Licensed Products. For a limited period of time, the Company may not, engage directly or indirectly in the clinical development or commercialization of a Notch inhibitor molecule that is not a BMS Licensed Compound.

 

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As consideration of the rights granted by BMS to the Company under the BMS License Agreement, the Company paid BMS a payment of $6 million and issued to BMS 1,125,929 shares of Series A Preferred Stock valued at approximately $7.3 million. The payment and transfer of intellectual property occurred in November 2017 at the time the BMS License Agreement was executed (the “Effective Date”). Pursuant to the terms of the BMS License Agreement, BMS was eligible to receive the Series A Preferred Stock within 60 days of the Effective Date (January 2018). However, the issuance of Series A Preferred Stock did not occur until March 2018. Notwithstanding the foregoing, BMS was eligible to all of the corresponding rights of a Series A Preferred Stock holder as of the Effective Date. As such, all related costs to the BMS license were recorded in 2017.

The Company is required to pay BMS payments upon the achievement of certain development or regulatory milestone events of up to $95 million in the aggregate with respect to the first BMS Licensed Compound to achieve each such event and up to $47 million in the aggregate with respect to each additional BMS Licensed Compound to achieve each such event. The Company is also obligated to pay BMS payments of up to $50 million in the aggregate for each BMS Licensed Product that achieves certain sales-based milestone events and tiered royalties on net sales of each BMS Licensed Product by the Company or its affiliates or sublicensees at rates ranging from a high single-digit to low teen percentage, depending on the total annual worldwide net sales of each such Licensed Product. If the Company sublicenses or assigns any rights to the licensed patents, the BMS Licensed Compounds and/or the BMS Licensed Products, the Company is required to share with BMS a portion of all consideration received from such sublicense or assignment, ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced BMS Licensed Compound or BMS Licensed Product that is subject to the applicable sublicense or assignment, but such portion may be reduced based on the milestone or royalty payments that are payable by the Company to BMS under the BMS License Agreement.

Under the terms of the BMS Agreement, the Company was obligated to issue to BMS additional shares of preferred stock as would be required for BMS to maintain its 8% equity ownership in Company, subject to certain exceptions. This right terminated upon the closing of the sale of the Company’s Series B Preferred Stock. The Company estimates the fair value of this anti-dilution commitment using the probability weighted expected return method (“PWERM”). At the date of BMS Agreement, the Company recorded liability associated with the anti-dilution right in the amount of approximately $0.5 million, according to its fair value. For the year ended December 31, 2018, the Company recorded an income of approximately $0.5 million for the revaluation of the liability, within financial income, net, in the consolidated statement of operations.

The Company accounted for the acquisition of the rights granted by BMS as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred and value of shares issued to BMS as research and development expense in the consolidated statement of operations as incurred since the acquired the rights granted by BMS represented in-process research and development and had no alternative future use.

The Company accounts for contingent consideration payable upon achievement of sales milestones in such asset acquisitions when the underlying contingency is resolved.

The BMS License Agreement remains in effect, on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis, until the expiration of royalty obligations with respect to a given BMS Licensed Product in the applicable country. Royalties are paid on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis from the first commercial sale of a particular BMS Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such BMS Licensed Product in such country, (b) when such BMS Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such BMS Licensed Product in such country.

Any inventions, and related patent rights, invented solely by either party pursuant to activities conducted under the BMS License Agreement shall be solely owned by such party, and any inventions, and related patent rights, conceived of jointly by the Company and BMS pursuant to activities conducted under the BMS License Agreement shall be jointly owned by the Company and BMS, with BMS’s rights thereto included in the Company’s exclusive

 

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license. The Company has the first right—with reasonable consultation with, or participation by, BMS—to prepare, prosecute, maintain and enforce the licensed patents, at the Company’s expense.

BMS has the right to terminate the BMS License Agreement in its entirety upon written notice to the Company (a) for insolvency-related events involving the Company, (b) for the Company’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, (c) for the Company’s failure to fulfill its obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS, or (d) if the Company or its affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed patent rights. The Company has the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Project has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if the Company reasonably determine that there are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products.

Upon termination of the BMS License Agreement in its entirety by the Company for convenience or by BMS, the Company grants an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of its patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS must pay the Company a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed Compounds and/ or BMS Licensed Products.

Option and License Agreement with Novartis International Pharmaceutical Ltd.

In December 2018, the Company entered into an evaluation, option and license agreement, or the Novartis Option Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which Novartis agreed to conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen, or BCMA, therapies in multiple myeloma, and the Company agreed to supply AL102 for such studies. All supply and development costs associated with such evaluation studies are fully borne by Novartis.

Under the Novartis Option Agreement, the Company granted Novartis an exclusive option to obtain an exclusive (including as to the Company and its affiliates), sublicensable (subject to certain terms and conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by the Company (including applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop, manufacture (subject to the Company’s non-exclusive right to manufacture and supply AL102 or the Novartis Licensed Product for Novartis) and commercialize AL102 or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed Product, for the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. The Company also granted Novartis the right of first negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102 for indications other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis Option Agreement, the Company may not, either itself or through its affiliates or any other third parties, directly or indirectly research, develop or commercialize certain BCMA-related compounds for the treatment of multiple myeloma.

According to the agreement, Novartis shall pay the Company a low eight figure option exercise fee in order to exercise its option and activate its license, upon which the Company will be eligible to receive development, regulatory and commercial milestone payments of up to $245 million in the aggregate and tiered royalties on net sales of Novartis Licensed Products by Novartis or its affiliates or sublicensees at rates ranging from a mid-single-digit to low double-digit percentage, depending on the total annual worldwide net sales of Novartis Licensed Products. Royalties will be paid on a country-by-country and Novartis Licensed Product-by-Novartis

 

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Licensed Product basis from the first commercial sale of a particular Novartis Licensed Product in a country until the latest of (a) 10 years after the first commercial sale of such Novartis Licensed Product in such country, (b) when such Novartis Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such Novartis Licensed Product in such country. Contemporaneously with the Novartis Option Agreement, the Company entered into a stock purchase agreement and associated investment agreements, or the SPA, with Novartis’ affiliate, Novartis Institutes for BioMedical Research, Inc., or NIBRI, pursuant to which NIBRI acquired a $10 million equity stake in the Company.

Novartis shall own any inventions, and related patent rights, invented solely by it or jointly with the Company in connection with activities conducted pursuant to the Novartis Option Agreement. The Company will maintain first right to prosecute and maintain any patents licensed to Novartis, both before and after its exercise of its option. The Company maintain the first right to defend and enforce its patents prior to Novartis’s exercise of its option, upon which Novartis gains such right with respect to patents included in the license.

The option granted to Novartis will remain in effect until the earlier of (a) 60 days following the last visit of the last subject in the evaluation studies, (b) the termination of the Novartis Option Agreement, or (c) 36 months following the delivery by the Company to Novartis of sufficient amounts of clinical evaluation materials to conduct the anticipated clinical studies. The Novartis Option Agreement remains in effect until such time as no Novartis Licensed Product is being developed or commercialized by Novartis, its affiliates, or sublicensees (including distributors or commercial partners), unless terminated earlier. The Company has the right to terminate the Novartis Option Agreement (a) for Novartis’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (b) for Novartis’s failure to use commercially reasonable efforts to develop or commercialize AL102 and/or the Novartis Licensed Product not remedied within four months following written notice to Novartis. Novartis has the right to terminate the Novartis Option Agreement (a) in its entirety or on a country-by-country basis for convenience, upon 60 days written notice to us, (b) for Company’s material breach if such breach remains uncured for 60 days (such cure period shall be extended for an additional period during which Novartis is making good faith efforts to cure such breach) or (c) upon immediate written notice to the Company for insolvency-related events involving the Company.

6. Fair Value Measurements

As of December 31, 2019, the Company had no financial liabilities measured at fair value.

The changes in the fair value of the Company’s Level 3 financial liabilities, which are measured on a recurring basis are as follows (in thousands):

 

		December 31, 2018
Beginning balance		$	458
Revaluation of anti-dilution right recorded in financial income, net			(458	)
Ending balance		$	—

The fair value of the anti-dilution right is based on significant inputs not observed in the market, and thus represent a Level 3 measurement. Refer to Note 5 for further discussion on the right of issue liability.

Level 3 measurement was done using the probability weighted expected return method (“PWERM”) and using comparable discount rates to measure present value of commitment.

 

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7. Convertible Preferred Stock

In December 2017, the Company entered into a Series A Preferred Stock Purchase Agreement, pursuant to which the Company issued 2,553,849 shares of Series A Preferred Stock for a total amount of $16.6 million, at a price equal to $6.50 per share, of which 461,540 shares of Series A Preferred Stock were issued for a total amount of $3.0 million at an additional closing that took place in March 2018.

In consideration for the license from BMS, described in Note 5, the Company issued 1,125,929 shares of Series A Preferred Stock.

In December 2018, the Company entered into a Series B Preferred Share Purchase Agreement, according to which the Company issued 3,097,343 shares of Series B Preferred Stock for a total amount of $24.5 million, at a price equal to $7.91 per share.

In February and May 2019, the Company completed additional closings of the Series B Preferred Stock financing, in which the Company issued 653,331 shares of Series B Preferred Stock for a total amount of $5.2 million, at a price equal to $7.91 per share.

 

		December 31, 2018
Convertible Preferred Shares		Shares Authorized				Shares Issued and Outstanding				Carrying Value				Liquidation Preference
Series A			3,700,000				3,679,778			$	23,823,000			$	23,918,557
Series B			4,500,000				3,097,343			$	22,387,000			$	24,499,983
Total			8,200,000				6,777,121			$	46,210,000			$	48,418,540

 

		December 31, 2019
Convertible Preferred Shares		Shares Authorized				Shares Issued and Outstanding				Carrying Value				Liquidation Preference
Series A			3,700,000				3,679,778			$	23,823,000			$	23,918,557
Series B			4,500,000				3,750,674			$	29,550,000			$	29,667,831
Total			8,200,000				7,430,452			$	53,373,000			$	58,586,388

The holders of the Company’s convertible preferred stock have various rights, preferences, and privileges as follows:

Dividend Rights

The holders of each share of Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, when and if declared by the board of directors, a dividend in the amount per share declared on the Common Stock, based on the number of shares of Common Stock into which each such preferred share is then convertible, simultaneously with the payment of such dividend on the shares of Common Stock. No dividends have been declared to date.

Automatic Conversion Rights

Each share of Series A Preferred Stock and Series B Preferred Stock is convertible, at the option of the holder at any time, into the number of shares of Common Stock as is determined by dividing the original issue price for such series of preferred stock by the conversion price for such series of preferred share that is in effect at the time of conversion. The initial conversion price for the series of preferred stock is the original issue price for such series of preferred stock. The original issue price was $6.50 and $7.91 per share for the Series A Preferred Stock and Series B Preferred Stock, respectively. The applicable conversion price of each is subject to

 

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adjustment upon any future stock splits or combinations, recapitalizations, or upon the issuance of any new securities as a price per share lower than the applicable conversion price of the Series A Preferred Stock and Series B Preferred Stock in effect immediately prior to such issuance.

Each share of Series A Preferred Stock and Series B Preferred Stock will automatically be converted into shares of Common Stock, at the then effective conversion, upon the closing of the sale of shares of Common Stock to the public in a firm commitment underwritten public offering, provided that the price per share of the Common Stock in such offering reflects a pre-money valuation of at least $200 million and that such offering results in the least $50 million of gross proceeds to the Company.

Voting Rights

Each holder of the Series A Preferred Stock and Series B Preferred Stock is entitled to one vote for each share of Common Stock into which such Series A Preferred Stock and Series B Preferred Stock could be converted.

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or deemed liquidation event (a consolidation or merger or a sale, license or other disposition of all or substantially all of the Company’s assets), the holders of the Series A Preferred Stock and Series B Preferred Stock will be entitled to receive on a pro rata basis, prior and in preference to the holders of shares of Common Stock and with the Series B Preferred Stock being paid prior to and in preference over the Series A Preferred Stock, an amount equal to the greater of their respective original issuance price ($6.50 per share of Series A Preferred Stock and $7.91 per share of Series B Preferred Stock, as adjusted for any share split, share combination, share dividend, recapitalization or like events) plus any declared but unpaid dividends, or such amount as would have been payable had all shares of Series A Preferred Stock or Series B Preferred Stock, respectively, been converted into Common Stock, in each case, less the amount of any distributions paid in preference on such preferred share in any prior liquidation or other similar event.

After payment in full of the convertible preferred shares amount, the remaining distributable proceeds, if any, shall be distributed pro-rata among all the holders of Common Stock (on a non-converted basis), provided however, that if a conversion of a convertible preferred share into Common Stock immediately prior to the applicable distribution of the distributable proceeds to the holder of such convertible preferred share would result in the holder of such convertible preferred share receiving in respect of such converted preferred share a greater payment than the convertible preferred shares amount applicable to such convertible preferred share, then the holder of such convertible preferred share shall be entitled to participate in such distribution together with the holders of Common Stock, on a pro-rata, as converted basis, without the need to actually convert such convertible preferred share.

In the event of a liquidation event, all the funds and assets of the Company available for distribution among all the shareholders shall be distributed in the following order of preference:

(a) the holders of the Series B Preferred Stock shall be entitled to receive an amount per share equal to $7.91 per each share of Series B Preferred Stock (less the amount of distributions actually received in any prior liquidation event, plus all declared but unpaid dividends);

(b) the holders of the Series A Preferred Stock shall be entitled to receive an amount per share equal to $6.50 per each share of Series A Preferred Stock (less the amount of distributions actually received in any prior liquidation event, plus all declared but unpaid dividends); and

(c) the remaining assets of the Company available for distribution to shareholders shall be distributed among the common stockholders.

 

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Although the convertible preferred shares are not redeemable, in the event of certain “deemed liquidation events” that are not solely within the Company’s control (including merger, acquisition, or sale of all or substantially all of the Company’s assets), the holders of the convertible preferred shares would be entitled to preference amounts paid before distribution to other shareholders (as explained in the previous paragraph) and hence effectively redeeming the preference amount.

Redemption

The Company’s Certificate of Incorporation does not provide redemption rights to the holders of the Series A Preferred Stock and Series B Preferred Stock.

Classification of Series A Preferred Stock and Series B Preferred Stock—The deemed liquidation preference provisions of the convertible preferred shares are considered contingent redemption provisions that are not solely within the Company’s control. Accordingly, the Series A Preferred Stock and Series B Preferred Stock have been presented outside of permanent equity in the mezzanine section of the consolidated balance sheet.

As of December 31, 2018 and 2019, the Company did not adjust the carrying values of the convertible preferred shares to the deemed liquidation values of such shares since a liquidation event was not probable of occurring.

8. Common Stock

On November 14, 2017, the Company approved its subscription agreements with its founding stockholders, according to which the Company issued 9,833,669 shares of Common Stock for no consideration.

On December 10, 2017, the stockholders of the Company increased the authorized capital stock of the company by 24,995,000 shares of Common Stock such that after such increase the authorized capital stock of the company was 25,000,000, divided into (i) 20,000,000 shares of Common Stock (ii) 5,000,000 shares of Series A Preferred Stock.

Concurrently with the increase, the stockholders of the Company approved a stock split of the Company’s Common Stock and Preferred Stock such that each then outstanding share was divided into 10,000 shares so that following such stock split each stockholder holds a total of 10,000 shares for each share held by such shareholder immediately prior to the stock split. All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:10,000 stock split as if it had taken place as of the beginning of the earliest period presented.

The Common Stock confer upon the holders the right vote in annual and special meetings of the Company, and to participate in the distribution of the surplus assets of the Company upon liquidation of the Company, after the distribution of the preferred stock liquidation preference. No dividends have been declared as of December 31, 2018 and 2019.

In December 2018, the stockholders of the Company increased the authorized capital stock of the company by 3,200,000 shares such that after such increase, the authorized capital stock of the company was 28,200,000 shares, divided into (i) 20,000,000 shares of Common Stock (ii) 3,700,000 shares of Series A Preferred Stock and (iii) 4,500,000 shares of Series B Preferred Stock.

Total shares of Common Stock reserved for issuance are summarized as follows:

 

		December 31, 2018				December 31, 2019
Series A Preferred Stock, as converted			3,679,778				3,679,778
Series B Preferred Stock, as converted			3,097,343				3,750,674
Options outstanding			874,831				1,216,439
Shares available for future option grants			605,738				143,436
Total shares of Common Stock reserved for issuance			8,257,690				8,790,327

 

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a.

Composition of capital stock:

 

December 31, 2018

December 31, 2019

Authorized

Issued and outstanding

Authorized

Issued and outstanding

Shares of USD 0.01 par value:

Common Stock

20,000,000

9,919,334

*

20,000,000

9,997,750

*

* Does not include 89,416 and 131,695 shares of restricted Common Stock issued but not outstanding in 2018 and 2019, respectively.

9. Share Based Plans:

Company’s stock options:

In 2017, the Company’s board of directors adopted the 2017 Stock Incentive Plan (“the Plan”). According to the Plan share awards or options to purchase shares may be granted to employees, directors, consultants and other service providers of the Company or any affiliate of the Company.

As of December 31, 2019, a total of 1,655,650 shares of Common Stock were authorized for issuance in accordance with the provisions of the 2017 Plan, of which 143,436 shares were then available for future awards at December 31, 2019 (whether as share awards or as options to purchase shares of Common Stock of the Company). Each option granted under the Plan expires no later than 10 years from the date of grant. The options vest primarily over four to five years of employment.

The following table set forth the parameters used in computation of the options compensations to employees:

 

		Year ended December 31,
		2018		2019
Expected volatility		80%		80%
Expected dividends		0%		0%
Expected term (in years)		6.00-6.34		6.06-6.34
Risk free rate		2.43%-3.18%		1.41%-2.51%
Share price		2.61-2.74		2.74-3.25

Exercise price:

In determining the exercise prices for stock options granted, the board of directors considered the fair value of common stock as of each grant date. The fair value of common stock underlying the stock options was determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from independent third-party valuations, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the current clinical and management team, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of common stock, arm’s length sales of the Company’s capital stock, the effect of the rights and preferences of the convertible preferred stockholders, and the prospects of a liquidity event, among others.

Expected volatility:

As the Company is privately owned, there is not sufficient historical volatility for the expected term of the stock options. Therefore, the Company uses an average historical share price volatility based on an analysis of reported data for a peer group of comparable publicly traded companies which were selected based upon industry similarities.

 

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Expected term (years):

Expected term represents the period that the Company’s option grants are expected to be outstanding. There is not sufficient historical share exercise data to calculate the expected term of the stock options. Therefore, the Company elected to utilize the simplified method to value option grants. Under this approach, the weighted-average expected life is presumed to be the average of the shortest vesting term and the contractual term of the option.

Risk-free interest rate:

The Company determined the risk-free interest rate by using a weighted-average equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant.

Expected dividend yield:

The Company does not anticipate paying any dividends in the foreseeable future.

The Company recorded share-based compensation for the period indicated as follows (in thousands):

 

		Year ended December 31, 2018				Year ended December 31, 2019
Research and development		$	415			$	365
General and administrative			653				362
Total share-based compensation		$	1,068			$	727

The Company recognizes compensation expenses for the value of its awards granted based on the accelerated method over the requisite service period of each of the awards.

A summary of the Company’s share options activity granted to employees under the Plan is as follows:

 

		Year ended December 31, 2019
		Number of options				Weighted average exercise price				Weighted average remaining contractual term (in years)				Aggregate intrinsic value
Outstanding at beginning of year			874,831			$	2.55				—			$	—
Granted			468,420				2.60
Exercised			(1,500	)			2.55								285
Forfeited			(125,312	)			2.55
Outstanding, December 31, 2019			1,216,439			$	2.57				8.45			$	842,447
Exercisable options, December 31, 2019			329,978			$	2.55				6.98			$	234,284

The weighted-average grant date per-share fair value of stock options granted during 2018 and 2019 was $1.58 and $2.08, respectively. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2018 and 2019 was $1,575 and $285, respectively. As of December 31, 2019, there was approximately $1.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.11 years.

 

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Company’s restricted shares:

In February 2018 the Company has granted 166,331 restricted shares to an employee and an officer of the Company. In the case of the officer, the restricted shares shall vest over two years starting November 15, 2017, and in the case of the other employee, the restricted shares shall vest over four years starting November 15, 2017.

In December 2019 the Company has granted 119,195 restricted shares to two officers of the Company. The restricted shares shall vest over four years starting December 24, 2019.

The following table summarizes information relating to restricted shares, as well as changes to such awards during the fiscal years ended December 31, 2018 and 2019:

 

		Year ended December 31, 2018				Year ended December 31, 2019
Outstanding at beginning of year			—				89,416
Granted			166,331				119,195
Vested			(76,915	)			(76,916	)
Outstanding at end of year			89,416				131,695

The weighted average fair values at grant date of restricted shares granted for the years ended December 31, 2018 and 2019 was $2.61 and $3.37, respectively.

The total fair value of shares vested during each of 2018 and 2019 was approximately $0.2 million. As of December 31, 2019, the Company had approximately $0.3 million of unrecognized compensation expense related to non-vested RSUs, expected to be recognized over a weighted average period of 1.24 years.

Restricted shares are subject to a repurchase right by the Company on certain occasions. Under the repurchase right, the Company may reacquire a pro-rata portion of the granted shares, for no consideration, if certain conditions occur including the employees’ end of service with the Company.

10. Taxes on Income

The Company records income tax expense related to profits realized in the United States and realized by its subsidiary in Israel.

United States:

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “U.S. Tax Reform”); a comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes, most of which are effective for tax years beginning after December 31, 2017, 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% (top rate) to 21% (flat rate) effective for tax years beginning after December 31, 2017 (ii) a new tax deduction in the amount of 37.5% of “foreign derived intangible income” that effectively reduces the federal corporate tax on certain qualified foreign derived sales/licenses/leases and service income in excess of a base amount to 13.125% (as compared to the regular corporate income tax rate of 21%); (iii) stricter limitation on the tax deductibility of business interest expense; (iv) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) (v) a one-time deemed repatriation tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate and (vi) an expansion of the U.S. controlled foreign corporation (“CFC”) anti deferral starting with the CFC’s first tax year beginning in 2018 intended to tax in the U.S. “global intangible low-taxed income” (“GILTI”).

 

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The Company recorded loss from continuing operations, before taxes on income for the period indicated as follows (in thousands):

 

		Year ended December 31, 2018				Year ended December 31, 2019
United States		$	(8,035	)		$	(17,104	)
Israel			(552	)			(382	)
Net loss before tax		$	(8,587	)		$	(17,486	)
Income tax expense is summarized as follows (in thousands):
		Year ended December 31, 2018				Year ended December 31, 2019
Current:
Federal		$	—			$	—
State			—				10
Foreign			286				296
		$	286			$	306
Deferred:
Federal		$	—			$	—
State			—				—
Foreign			—				—
		$	—			$	—
Income tax expense		$	286			$	306

The effective income tax rate differed from the amount computed by applying the federal statutory rate to our loss before income taxes as follows:

 

		Year ended December, 31 2018				Year ended December, 31 2019
U.S. federal tax provision at statutory rate			21.00	%			21.00	%
State and local tax, net of federal benefit			2.51				2.81
Foreign rate differences			(0.07	)			(0.04	)
Non-deductible stock compensation			(2.61	)			(0.87	)
Section 951A GILTI			(1.48	)			(1.02	)
Effect of other permanent differences			(0.03	)			0.00
Uncertain tax positions			(2.39	)			(1.11	)
Change in valuation allowance			(20.27	)			(22.44	)
Federal Tax Reform Rate Change			0.00				0.00
Other adjustments			0.00				(0.08	)
Effective tax rate			(3.34	)%			(1.75	)%

 

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Deferred Income Taxes

Deferred income 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. Significant components of the Company’s deferred tax assets are as follows (in thousands):

 

		As of December 31, 2018				As of December 31, 2019
Deferred tax assets:
Federal net operating loss carryforwards		$	1,828			$	5,730
Intangible assets			2,971				2,971
Accrued expenses			90				120
Other			1				(7	)
Total deferred tax assets			4,890				8,814
Valuation allowance			(4,890	)			(8,814	)
Net deferred tax assets		$	—			$	—

As of December 31, 2019, the Company has provided a valuation allowance of approximately $8.8 million in respect of the Company’s deferred tax assets resulting from tax loss carryforwards and other temporary differences. Realization of deferred tax assets is dependent upon future earnings, if any, the time and amount of which are uncertain. As the Company is still in its development stage and has not yet generated revenues, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to their recoverable amounts.

Available Carryforward Tax Losses

As of December 31, 2019, the Company has an accumulated federal tax loss carryforward of approximately $23.9 million, of which approximately $0.3 million expires in 2037 and approximately $23.6 million can be carried forward indefinitely. The Company also has state loss carryforwards of approximately $10.9 million, of which approximately $2.5 million will expire in at various dates through 2039, and approximately $8.4 million can be carried forward indefinitely.

Utilization of the U.S. net operating losses above may be subject to substantial annual limitations due to the “change in ownership” provisions of Internal Revenue Code Section 382 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

Uncertain Tax Positions

The Company has reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of December 31, 2018 and 2019, the Company has recorded an uncertain tax position liability exclusive of interest and penalties of approximately $0.2 and $0.4 million, respectively. As of December 31, 2019, the Company has not accrued penalties for uncertain tax positions. A reconciliation of the Company’s unrecognized tax benefits is below:

 

		2018				2019
		(in thousands)				(in thousands)
Uncertain tax position at the beginning of year		$	—			$	205
Additions for uncertain tax position of prior years (foreign exchange and interest)			—				25
Additions for tax positions of current year			205				194
Uncertain tax position at the end of the year		$	205			$	424

 

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The Company remains subject to examination until the statute of limitations expires for each respective tax jurisdiction. The statute of limitations is currently open for 2017 and 2018 for all tax jurisdictions.

Israel:

In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) which reduces the corporate income tax rate from 25% to 24% effective from January 1, 2017, and to 23% effective from January 1, 2018.

The Israeli corporate income tax rate was 23% in 2018 and 2019. Income not eligible for Preferred Enterprise benefits is taxed at the regular corporate tax rates as described above.

11. Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of the unaudited pro forma net loss per share for the period presented (in thousands, except for share data):

 

		Year ended December 31, 2018				Year ended December 31, 2019
Numerator:
Net loss		$	8,873			$	17,792
Denominator:
Weighted-average number of shares used to compute net loss per share, basic and diluted			9,871,995				9,959,214
Pro forma adjustment to reflect assumed conversion of convertible preferred shares							7,201.485
Weighted-average number of shares used to compute pro forma loss per share, basic and diluted (unaudited)							17,160,699

The following potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect: 3,679,778 shares of Series A Preferred Stock, 3,750,674 shares of Series B Preferred Stock and 1,216,439 options outstanding to purchase common stock as of December 31, 2019.

12. Related Party Transactions

The Company incurred $28,000 in professional services expense related to certain stockholder for the year ended December 31, 2018.

The Company recorded share-based compensation in the amount of approximately $69,000 and $65,000 for professional services expense related to certain members of the board of directors for the periods ended December 31, 2018 and 2019, respectively.

There are no balances with related parties as of December 31, 2018 and 2019.

13. Subsequent Events

During 2020, the board of directors granted 105,500 stock options to certain non-executive board members of the Company and its employees.

 

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            Shares

Ayala Pharmaceuticals, Inc.

Common Stock

 

 

 

PRELIMINARY  PROSPECTUS

                    , 2020

 

 

Citigroup

Jefferies

Oppenheimer & Co.

Raymond James

                    , 2020

Until                     , 2020 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

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Part II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than estimated underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the Nasdaq initial listing fee.

 

		Amount
Securities and Exchange Commission registration fee		$	6,490
FINRA filing fee			8,000
Nasdaq initial listing fee				*
Accountants’ fees and expenses				*
Legal fees and expenses				*
Blue Sky fees and expenses				*
Transfer Agent’s fees and expenses				*
Printing and engraving expenses				*
Miscellaneous				*
Total expenses		$		*

 

*

To be filed by amendment.

Item 14. Indemnification of Directors and Officers.

Section 102 of the General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our restated certificate of incorporation provides that no director of the Registrant shall be personally liable to it or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.

Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee, or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Our restated certificate of incorporation provides that we will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an

 

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action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Our restated certificate of incorporation provides that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favour by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.

We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.

We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.

In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, or the Securities Act, against certain liabilities.

Item 15. Recent Sales of Unregistered Securities.

Set forth below is information regarding shares of capital stock issued by us within the past three years. Also included is the consideration received by us for such shares and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.

(a)    Issuance of Capital Stock.

Since January 1, 2017, the registrant issued an aggregate of (i) 3,679,778 shares of Series A Preferred Stock for aggregate consideration of approximately $16.6 million and (ii) 3,750,674 shares of Series B Preferred Stock for an aggregate consideration of approximately $29.7 million to accredited investors, each pursuant to Rule 506 as a transaction not involving a public offering.

 

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(b)    Equity Grants.

Since January 1, 2017, the registrant granted stock options to purchase an aggregate of 1,462,001 shares of its common stock, at a weighted exercise price per share of $2.70 per share, to employees, non-employees, and directors in connection with services provided to the registrant by such parties.

Item 16. Exhibits and Financial Statement Schedules.

(a)    Exhibits.

 

Exhibit Number					Description of Exhibit
		1.1			Form of Underwriting Agreement
		3.1			Certificate of Incorporation of the Registrant, as amended (currently in effect)
		3.2			Bylaws of the Registrant (currently in effect)
		3.3*			Form of Restated Certificate of Incorporation of the Registrant (to be effective upon the closing of this offering)
		3.4*			Form of Restated Bylaws of the Registrant (to be effective upon the closing of this offering)
		4.1			Amended and Restated Investors’ Rights Agreement
		4.2*			Specimen Stock Certificate evidencing the shares of common stock
		5.1*			Opinion of Latham & Watkins LLP
		10.1#*			Amended 2017 Stock Incentive Plan and form of option agreements thereunder
		10.2#*			Non-Employee Director Compensation Program
		10.3#*			Form of Indemnification Agreement for Directors and Officers
		10.4			Lease Agreement, dated January 24, 2019, between Ayala-Oncology Israel Ltd. and Ogen Real Estate Maniv Ltd.
		10.5			Employment Agreement, dated December 26, 2017, between Ayala-Oncology Israel Ltd. and Roni Mamluk, Ph.D., as amended.
		10.6			Employment Agreement, dated March 15, 2019, between Ayala-Oncology Israel Ltd. and Yossi Maimon, CPA, M.B.A., as amended.
		10.7			Employment Agreement, dated July 24, 2019, between the Registrant and Gary Gordon M.D., Ph.D.
		10.8†			License Agreement, dated November 29, 2017, between the Registrant and Bristol-Myers Squibb Company
		10.9†			Evaluation, Option and License Agreement, dated December 19, 2018, between the Registrant and Novartis International Pharmaceutical Limited
		21.1			Subsidiaries of the Registrant
		23.1			Consent of Ernst & Young LLP
		23.2*			Consent of Latham & Watkins LLP (included in Exhibit 5.1)
		24.1			Power of Attorney (included on signature page)

 

*

To be filed by amendment.

#

Indicates management contract or compensatory plan.

 

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†

Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).

(b)    Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriter, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned hereby undertakes that:

 

(1)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rehovot, Israel, on this 6^th day of March, 2020.

 

 

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SIGNATURES AND POWER OF ATTORNEY

We, the undersigned officers and directors of Ayala Pharmaceuticals, Inc., hereby severally constitute and appoint Roni Mamluk, Ph.D. and Yossi Maimon, CPA, M.B.A., and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him or her and in his or her name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.

 

Signature		Title		Date
/s/ Roni Mamluk Roni Mamluk, Ph.D.		Chief Executive Officer and Director (principal executive officer)		March 6, 2020
/s/ Yossi Maimon Yossi Maimon, CPA, M.B.A.		Chief Financial Officer (principal financial officer and principal accounting officer)		March 6, 2020
/s/ David Sidransky David Sidransky, M.D.		Chairman of the Board of Directors		March 6, 2020
/s/ Robert Spiegel Robert Spiegel, M.D., FACP		Director		March 6, 2020
/s/ Murray A. Goldberg Murray A. Goldberg		Director		March 6, 2020
/s/ Todd Sone Todd Sone		Director		March 6, 2020
/s/ Guy Harmelin Guy Harmelin, M.D.		Director		March 6, 2020

 

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Exhibit 1.1

Ayala Pharmaceuticals, Inc.

Common Stock

Underwriting Agreement

New York, New York

    , 2020

Citigroup Global Markets Inc.

Jefferies LLC

As Representatives of the several Underwriters,

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

c/o Jefferies LLC

520 Madison Avenue

New York, New York 10022

Ladies and Gentlemen:

Ayala Pharmaceuticals, Inc., a corporation organized under the laws of the State of Delaware (the “Company”), proposes to sell to the several underwriters named in Schedule I hereto (the “Underwriters”), for whom you (the “Representatives”) are acting as representatives, [•] shares of common stock, $0.01 par value per share (“Common Stock”) of the Company (said shares to be issued and sold by the Company being hereinafter called the “Underwritten Securities”). The Company also proposes to grant to the Underwriters an option to purchase up to [•] additional shares of Common Stock solely to cover over-allotments, if any (the “Option Securities;” the Option Securities, together with the Underwritten Securities, being hereinafter called the “Securities”). To the extent there are no additional Underwriters listed on Schedule I hereto other than you, the term Representatives as used herein shall mean you, as Underwriters, and the terms Representatives and Underwriters shall mean either the singular or plural as the context requires.

As used in this underwriting agreement (this “Agreement”), the “Registration Statement” means the registration statement referred to in paragraph 1(a) hereof, including the exhibits, schedules and financial statements and any prospectus supplement relating to the Securities that is filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”) and deemed part of such registration statement pursuant to Rule 430A under the Securities Act (“Rule 430A”), as amended at the date and time that this Agreement is executed and delivered

 

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by the parties hereto (the “Execution Time”), and, in the event any post-effective amendment thereto or any registration statement and any amendments thereto filed pursuant to Rule 462(b) under the Securities Act (a “Rule 462(b) Registration Statement”) becomes effective prior to the Closing Date (as defined in Section 3 hereof), shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be; the “Effective Date” means each date and time that the Registration Statement, any post-effective amendment or amendments thereto or any Rule 462(b) Registration Statement became or becomes effective; the “Preliminary Prospectus” means any preliminary prospectus referred to in paragraph 1(a) hereof and any preliminary prospectus included in the Registration Statement at the Effective Date that omits information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A (the “Rule 430A Information”); and the “Prospectus” means the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) under the Securities Act (“Rule 424(b)”) after the Execution Time.

As used in this Agreement, the “Disclosure Package” shall mean (i) the Preliminary Prospectus that is generally distributed to investors and used to offer the Securities, (ii) any issuer free writing prospectus, as defined in Rule 433 under the Securities Act (an “Issuer Free Writing Prospectus”), identified in Schedule II hereto, (iii) any other free writing prospectus, as defined in Rule 405 under the Securities Act (a “Free Writing Prospectus”), that the parties hereto shall hereafter expressly agree in writing to treat as part of the Disclosure Package and (iv) the pricing information set forth on Schedule IV hereto.

1. Representations and Warranties. The Company represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1.

(a) The Company has prepared and filed with the SEC a registration statement (file number 333-[•]) on Form S-1, including a related preliminary prospectus, for the registration of the offering and sale of the Securities under the Securities Act. Such Registration Statement, including any amendments thereto filed prior to the Execution Time, has become effective. The Company may have filed one or more amendments thereto, including a related preliminary prospectus, each of which has previously been furnished to you. The Company will file with the SEC a final prospectus relating to the Securities in accordance with Rule 424(b) after the Execution Time. As filed, such final prospectus shall contain all information required by the Securities Act and the rules thereunder and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the most recent Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein.

 

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(b) On the Effective Date, the Registration Statement did, and when the Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date (as defined herein) and on any date on which Option Securities are purchased, if such date is not the Closing Date (a “settlement date”), the Prospectus (and any supplement thereto) will, comply in all material respects with the applicable requirements of the Securities Act and the rules thereunder; on the Effective Date, at the Execution Time and on the Closing Date, the Registration Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and on the date of any filing pursuant to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto), it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.

(c) (i) The Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, when taken together as a whole, (ii) each electronic road show, when taken together as a whole with the Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, and (iii) any individual Written Testing-the-Waters Communication (as defined herein), when taken together as a whole with the Disclosure Package and the price to the public, the number of Underwritten Securities and the number of Option Securities to be included on the cover page of the Prospectus, does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.

(d) (i) At the time of filing the Registration Statement and (ii) as of the Execution Time (with such date being used as the determination date for purposes of this clause (ii)), the Company was not and is not an Ineligible Issuer (as defined in Rule 405 under the Securities Act (“Rule 405”)), without taking account of any determination by the SEC pursuant to Rule 405 that it is not necessary that the Company be considered an Ineligible Issuer.

 

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(e) From the time of the initial confidential submission of the Registration Statement to the SEC (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the Execution Time, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication by the Company or by any person authorized to act on its behalf, with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

(f) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule III hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405.

(g) Each Issuer Free Writing Prospectus does not include any information that conflicts with the information contained in the Registration Statement, including any document incorporated by reference therein that has not been superseded or modified. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by or on behalf of any Underwriter consists of the information described as such in Section 8 hereof.

(h) Each of the Company and its subsidiaries (i) has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Disclosure Package and the Prospectus, and is duly qualified to do business as a foreign corporation and (ii) is in good standing under the laws of each jurisdiction which requires such qualification, except where the failure to be so qualified or in good standing would not reasonably be expected, singly or in the aggregate, to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business (a “Material Adverse Effect”).

 

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(i) All the outstanding shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non-assessable, and, except as otherwise set forth in the Disclosure Package and the Prospectus, all outstanding shares of capital stock of the subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest or any other security interests, claims, liens or encumbrances.

(j) There is no franchise, contract or other document of a character required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required (and the Preliminary Prospectus contains in all material respects the same description of the foregoing matters contained in the Prospectus); and the statements in the Preliminary Prospectus and the Prospectus under the headings “Material U.S. Federal Income Tax Consequences to Non-U.S. Holders,” “Risk Factors—Risks Related to Development, Clinical Testing, Manufacturing and Regulatory Approval,” “Risk Factors—Risks Related to Our Intellectual Property,” “Business—License Agreements,” “Business—Intellectual Property,” “Business—Government Regulation” insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, present fairly, in all material respects, such legal matters, agreements, documents or proceedings.

(k) This Agreement has been duly authorized, executed and delivered by the Company.

(l) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the the Disclosure Package and the Prospectus, will not be, an “investment company” as defined in the Investment Company Act of 1940, as amended.

(m) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, except such as have been obtained under the Securities Act, the listing rules of the Nasdaq Global Market and applicable rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Disclosure Package and the Prospectus.

(n) Neither the issue and sale of the Securities nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation,

 

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condition, covenant or instrument to which the Company or any of its subsidiaries is a party or bound or to which its or their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its subsidiaries or any of its or their properties, except in the case of clauses (ii) and (iii) for any such breach, violation or imposition as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect.

(o) No holders of securities of the Company have rights to the registration of such securities under the Registration Statement, except for such rights as have been effectively waived.

(p) The consolidated historical financial statements and schedules of the Company and its consolidated subsidiaries included in the Registration Statement, the Disclosure Package and the Prospectus present fairly, in all material respects, the financial condition, results of operations and cash flows of the Company as of the dates and for the periods indicated, comply as to form, in all material respects, with the applicable accounting requirements of the Securities Act and have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The selected financial data set forth under the caption “Selected Consolidated Financial Data” in the Registration Statement, the Disclosure Package and the Prospectus fairly present, in all material respects, on the basis stated in the Registration Statement, the Disclosure Package and the Prospectus, the information included therein.

(q) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) could reasonably be expected to have a Material Adverse Effect, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(r) Each of the Company and each of its subsidiaries owns or leases all such properties as are necessary to the conduct of its operations as presently conducted, except as would not reasonably be expected to have a Material Adverse Effect.

(s) Neither the Company nor any subsidiary is in violation or default of (i) any provision of its charter or bylaws, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or

 

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bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or such subsidiary or any of its properties, as applicable, except in the case of clauses (ii) and (iii) for any such violation or default as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect.

(t) Ernst & Young LLP, who has certified certain financial statements of the Company and its consolidated subsidiaries and delivered its report with respect to the audited consolidated financial statements and schedules included in the Disclosure Package and the Prospectus, is an independent registered public accounting firm with respect to the Company within the meaning of the Securities Act and the applicable published rules and regulations thereunder.

(u) The Company has filed all tax returns that are required to be filed or has requested extensions thereof (except (i) in any case where such failure to file would not reasonably be expected to have a Material Adverse Effect or (ii) as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto)) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except (i) where any such failure to pay, assessment, fine or penalty is currently being contested in good faith or would not reasonably be expected to have a Material Adverse Effect or (ii) as set forth in or, contemplated in, the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(v) No labor problem or dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, in each case, that would reasonably be expected to have a Material Adverse Effect, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(w) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company reasonably believes are prudent and customary in the businesses in which they are engaged; all policies of insurance insuring the Company or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and there are no material claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such subsidiary has been refused any insurance

 

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coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(x) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in or contemplated by the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(y) The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations required to be issued by all applicable authorities necessary to conduct their respective businesses, except for any such failure to possess as would not reasonably be expected to have a Material Adverse Effect; and neither the Company nor any such subsidiary has received written notice of any proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect, except as set forth in or contemplated in the Registration Statement, the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(z) The Company and each of its subsidiaries, considered together as one entity, maintain a system of internal accounting controls designed to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and its subsidiaries’ internal controls over financial reporting are effective and the Company and its subsidiaries are not aware of any material weakness in their internal controls over financial reporting.

(aa) The Company and its subsidiaries, considered together as one entity, maintain “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”); and such disclosure controls and procedures are effective.

 

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(bb) The Company has not taken, directly or indirectly (without giving effect to the activities of the Underwriters), any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

(cc) To the best knowledge of the Company, the Company and its subsidiaries (i) are in compliance with any and all applicable foreign, U.S. federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) have not received notice of any actual or potential liability under any Environmental Law, except where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto). Except as set forth in the Disclosure Package and the Prospectus, neither the Company nor any of the subsidiaries has been named as a “potentially responsible party” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.

(dd) In the ordinary course of its business, the Company periodically reviews the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect, except as set forth in or contemplated in the, the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(ee) None of the following events has occurred or exists: (i) a failure to fulfill the obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the regulations and published interpretations thereunder with respect to a Plan (as defined below), determined without regard to any waiver of such obligations or extension of any amortization period that would reasonably be expected to have a Material Adverse Effect; (ii) an audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other federal or state governmental agency or any foreign regulatory agency with respect to the employment or

 

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compensation of employees by any of the Company or any of its subsidiaries that would reasonably be expected to have a Material Adverse Effect; (iii) any breach of any contractual obligation, or any violation of law or applicable qualification standards, with respect to the employment or compensation of employees by the Company or any of its subsidiaries that would reasonably be expected to have a Material Adverse Effect. None of the following events has occurred or is reasonably likely to occur: (i) an increase in the aggregate amount of contributions required to be made to all Plans in the current fiscal year of the Company and its subsidiaries compared to the amount of such contributions made in the most recently completed fiscal year of the Company and its subsidiaries that would reasonably be expected to have a Material Adverse Effect; (ii) an increase in the “accumulated post-retirement benefit obligations” (within the meaning of Statement of Financial Accounting Standards 106) of the Company and its subsidiaries compared to the amount of such obligations in the most recently completed fiscal year of the Company and its subsidiaries that would reasonably be expected to have a Material Adverse Effect; (iii) any event or condition giving rise to a liability under Title IV of ERISA that would reasonably be expected to have a Material Adverse Effect; or (iv) the filing of a claim by one or more employees or former employees of the Company or any of its subsidiaries related to their employment that would reasonably be expected to have a Material Adverse Effect. For purposes of this paragraph, the term “Plan” means a plan (within the meaning of Section 3(3) of ERISA) subject to Title IV of ERISA with respect to which the Company or any of its subsidiaries may have any liability.

(ff) There is and has been no failure on the part of the Company and any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection thereunder (the “Sarbanes-Oxley Act”), that are in effect and with which the Company is required to comply as of the Effective Date, including Section 402 relating to loans and Sections 302 and 906 relating to certifications.

(gg) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries is aware of or has taken any action, directly or indirectly, that could result in a violation or a sanction for violation by such persons of the Foreign Corrupt Practices Act of 1977 or the U.K. Bribery Act 2010, each as may be amended, or similar law of any other relevant jurisdiction, or the rules or regulations thereunder to which the Company and its subsidiaries are subject (the “Anti-Corruption Laws”); and the Company and its subsidiaries have instituted and maintain policies and procedures designed to ensure compliance therewith. No part of the proceeds of the offering will be used, directly or indirectly, in violation of the Anti-Corruption Laws.

 

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(hh) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and the money laundering statutes and the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

(ii) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries (i) is, or is controlled or 50% or more owned in the aggregate by or is acting on behalf of, one or more individuals or entities that are currently the subject of any sanctions administered or enforced by the United States (including any administered or enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or the Bureau of Industry and Security of the U.S. Department of Commerce), the United Nations Security Council, the European Union, a member state of the European Union (including sanctions administered or enforced by Her Majesty’s Treasury of the United Kingdom) or other relevant sanctions authority (collectively, “Sanctions” and such persons, “Sanctioned Persons” and each such person, a “Sanctioned Person”), (ii) is located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions that broadly prohibit dealings with that country or territory (collectively, “Sanctioned Countries” and each, a “Sanctioned Country”) or (iii) will, directly or indirectly, use the proceeds of this offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity in any manner that would result in a violation of any Sanctions by, or could result in the imposition of Sanctions against, any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise).

(jj) Neither the Company nor any of its subsidiaries has engaged in any dealings or transactions with or for the benefit of a Sanctioned Person, or with or in a Sanctioned Country, in the preceding three years, nor does the Company or any of its subsidiaries have any plans to engage in dealings or transactions with or for the benefit of a Sanctioned Person, or with or in a Sanctioned Country.

(kk) The subsidiaries listed on Annex A attached hereto are the only significant subsidiaries of the Company as defined by Rule 1-02 of Regulation S-X.

(ll) Except as disclosed in the Registration Statement, Disclosure Package and the Prospectus, and as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect, (i) the Company owns, possesses, or has valid and enforceable licenses or other rights to use, on reasonable terms, all patents, trademarks, service marks, trade names, domain names and other source identifiers, copyrights, licenses, inventions, trade secrets, technology, know-how and all other intellectual property or proprietary rights

 

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(including all registrations and applications for registration of, and all goodwill associated with, the foregoing) (collectively, “Intellectual Property”) that is used in, held for use in or, to the knowledge of the Company, is necessary for the conduct of the business of the Company as now conducted or as proposed in the Registration Statement, the Disclosure Package or the Prospectus to be conducted; (ii) to the knowledge of the Company, (a) there are no rights of third parties to any such Intellectual Property, (b) there has been no infringement, misappropriation or other violation by third parties of any such Intellectual Property, (c) there is no pending or threatened action, suit, investigation, proceeding or claim by others (i) challenging the Company’s or any of its subsidiaries’ rights in or to, or the validity, enforceability or scope of, any Intellectual Property owned by or licensed to the Company or (ii) alleging that the Company infringes, misappropriates or otherwise violates any Intellectual Property of others, and, in each case, the Company is unaware of any facts which would form a reasonable basis for any such actions, suits, investigations, proceedings or claims, (d) the conduct of the business of the Company has not conflicted with, infringed, misappropriated or otherwise violated, and the manufacture, sale and other exploitation of any of the product candidates described in the Registration Statement, the Disclosure Package or the Prospectus will not conflict with, infringe, misappropriate or otherwise violate, any valid and enforceable Intellectual Property of any third party, (e) there is no U.S. patent or published U.S. patent application which contains claims that dominate or may dominate any Intellectual Property described in the Registration Statement, the Disclosure Package and the Prospectus as being owned by or licensed to the Company or that interferes with the issued or pending claims of any such Intellectual Property, (f) there is no prior art of which the Company is aware that may render any patent held by the Company invalid or any patent application held by the Company un-patentable which has not been disclosed to the U.S. Patent and Trademark Office or similar offices in other jurisdictions, (g) none of the Intellectual Property owned by or exclusively licensed to the Company has been adjudged invalid or unenforceable in whole or part, and, to the knowledge of the Company, all such Intellectual Property is valid and enforceable, and (h) the Company has at all times taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of all Intellectual Property, the value of which to the Company is contingent upon maintaining the confidentiality thereof.

(mm) The statements contained in the Preliminary Prospectus and the Prospectus under the captions “Risk Factors—Risks Related to Our Intellectual Property,” “Business—License Agreements” and “Business—Intellectual Property,” insofar as such statements summarize legal matters, agreements, documents, or proceedings discussed therein, present fairly, in all material respects, such legal matters, agreements, documents or proceedings.

 

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(nn) Except as disclosed in the Registration Statement, Disclosure Package and the Prospectus, and as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect, to the knowledge of the Company, the Company and its subsidiaries’ information technology assets and equipment, computers, systems, networks, websites and databases (including the data and information of their respective employees, suppliers, vendors and any third party data maintained, processed or stored by the Company and its subsidiaries, and any such data processed or stored by third parties on behalf of the Company and its subsidiaries) (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its subsidiaries, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its subsidiaries have implemented and maintained commercially reasonable controls, policies, procedures, and safeguards necessary to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and data (including all personal, personally identifiable, sensitive, confidential or regulated data (“Data”)) used in connection with their businesses. Without limiting the foregoing, the Company and its subsidiaries have used reasonable efforts to establish and maintain, and have established, maintained, implemented and complied with, reasonable information technology, information security, cyber security and data protection controls, policies and procedures, including oversight, access controls, encryption, technological and physical safeguards and business continuity/disaster recovery and security plans that are designed to protect against and prevent breach, destruction, loss, unauthorized distribution, use, access, disablement, misappropriation or modification, or other compromise or misuse of or relating to any information technology system or Data used in connection with the operation of the Company’s and its subsidiaries’ businesses (“Breach”). To the knowledge of the Company, there has been no such Breach, except as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect. The Company and its subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in, any such Breach, except as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect. The Company and its subsidiaries are presently in material compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect.

(oo) Except as disclosed in the Registration Statement, Disclosure Package and the Prospectus, and as would not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect, (i) The Company and its subsidiaries have complied, and are presently in compliance, in all material respects, with all applicable internal and external privacy policies, contractual obligations, industry standards, applicable state, federal and international data privacy and security laws and regulations, including without limitation, HIPAA, the European Union General Data Protection Regulation (“GDPR”) (EU

 

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2016/679), and other statutes, judgments, orders, rules and regulations of any applicable court or arbitrator or other governmental or regulatory authority and any legal obligations regarding the collection, use, transfer, import, export, storage, protection, disposal, disclosure or other processing by the Company and its subsidiaries of Data (collectively, the “Data Security Obligations”); (ii) neither the Company nor any of its subsidiaries has received any notification of or complaint regarding, or are aware of any other facts that, singly or in the aggregate, would reasonably indicate non-compliance by the Company or any of its subsidiaries with any Data Security Obligation; (iii) there is no pending, or to the knowledge of the Company, threatened, action, suit or proceeding by or before any applicable court or governmental agency, authority or body alleging non-compliance by the Company or any of its subsidiaries with any Data Security Obligation; (iv) to ensure compliance with the Data Security Obligations, the Company and its subsidiaries have at all times taken steps reasonably necessary in accordance with industry standard practices (including, without limitation, implementing and monitoring compliance with adequate measures with respect to technical and physical security) designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the collection, use, transfer, import, export, storage, protection, disposal, disclosure or other processing of Data that is subject to the Data Security Obligations (the “Policies”) to protect such Data against loss and unauthorized access, use, modification, disclosure or other misuse; and (v) the Company and its subsidiaries have made all disclosures of their then-current Policies to users or customers required by applicable laws and regulatory rules or requirements, and none of such disclosures made or contained in any Policy have, to the knowledge of the Company, been inaccurate or in violation of any applicable laws and regulatory rules or requirements.

(pp) Except as described in the Registration Statement, the Disclosure Package and the Prospectus, the preclinical and clinical studies conducted by or, to the knowledge of the Company, on behalf of or sponsored by the Company or its subsidiaries, or in which the Company or its subsidiaries have participated, that are described in the Registration Statement, the Disclosure Package and the Prospectus, or the results of which are referred to in the Registration Statement, the Disclosure Package and the Prospectus, as applicable, were, and if still pending are, being conducted in all material respects in accordance with standard medical and scientific research standards and procedures for products or product candidates comparable to those being developed by the Company and all applicable statutes and all applicable rules and regulations of the U.S. Food and Drug Administration and comparable regulatory agencies outside of the United States to which they are subject, including the European Medicines Agency (collectively, the “Regulatory Authorities”). The Company has no knowledge of any other studies not described in the Registration Statement, the Disclosure Package and the Prospectus, the results of which are inconsistent with or call into question the results described or referred to in the Registration Statement, the Disclosure Package and the Prospectus. The Company and its subsidiaries are, and since January 1, 2017, have operated in compliance in all material respects

 

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with all applicable statutes, rules and regulations of the Regulatory Authorities and all other applicable federal, state or foreign health care laws and regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export, or disposal of any product candidates under development by the Company or any of its subsidiaries (collectively, the “Health Care Laws”), except where such non-compliance would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries, to the knowledge of the Company, have received any written notices, correspondence or other communications from the Regulatory Authorities or any other governmental agency requiring or threatening the termination or suspension of any preclinical or clinical studies that are described in the Registration Statement, the Disclosure Package and the Prospectus or the results of which are referred to in the Registration Statement, the Disclosure Package and the Prospectus, and, to the knowledge of the Company, there are no reasonable grounds for the same. Except as would not, whether singly or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its subsidiaries has received any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any court or arbitrator or governmental or regulatory authority alleging that it is in violation of any Health Care Laws, and, to the knowledge of the Company, no such claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action has been threatened.

(qq) Neither the Company, its subsidiaries nor, to the knowledge of the Company, any of the Company’s or its subsidiaries’ officers, directors, employees, contractors or agents is a party to any corporate integrity agreements, deferred prosecution agreements, monitoring agreements, consent decrees, settlement orders, or similar agreements with or imposed by any Regulatory Authority with respect to Health Care Laws. Neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any of the Company’s or its subsidiaries’ employees, officers, directors, contractors or agents has been excluded, suspended or debarred from participation in any U.S. federal health care program (as defined in 42 U.S.C. § 1320a-7b(f)) or human clinical research or is subject to a governmental inquiry, investigation, proceeding or other similar action that would reasonably be expected to result in such debarment, suspension or exclusion.

(rr) Neither the Company nor any of its subsidiaries has failed to submit to the Regulatory Authorities any required filing, declaration, listing, registration, report or submission with respect to the Company’s product candidates that are described or referred to in the Registration Statement, the Disclosure Package and the Prospectus, except where such failure would not, singly or in the aggregate, reasonably expected to have a Material Adverse Effect. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect, all such filings, declarations, listings, registrations, reports or submissions were in compliance with applicable laws when filed, or

 

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were corrected by subsequent submission. Except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect, no deficiencies regarding compliance with applicable law have been asserted in writing by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or submissions.

(ss) Except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, the Company (i) does not have any material lending or other similar relationship with any banking or lending affiliate of any of the Underwriters and (ii) does not intend to use any of the proceeds from the sale of the Securities hereunder to repay any outstanding debt owed to any affiliate of any of the Underwriters.

(tt) Neither the Company nor any of its subsidiaries nor any of its or their properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the State of New York.

Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.

2. Purchase and Sale.

(a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[•] per share, the amount of the Underwritten Securities set forth opposite such Underwriter’s name in Schedule I hereto.

(b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to [•] Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten Securities but not payable on the Option Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time on or before the 30th day after the date of the Prospectus upon written notice by the Representatives to the Company setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.

 

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3. Delivery and Payment. Delivery of and payment for the Underwritten Securities and the Option Securities (if the option provided for in Section 2(b) hereof shall have been exercised on or before the first Business Day immediately preceding the Closing Date) shall be made at 10:00 AM, New York City time, on [•], 2020, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the “Closing Date”). As used herein, “Business Day” shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City. Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. Delivery of the Underwritten Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.

If the option provided for in Section 2(b) hereof is exercised after the third Business Day immediately preceding the Closing Date, the Company will deliver the Option Securities (at the expense of the Company) to the Representatives, at 388 Greenwich Street, New York, New York 10013, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. If settlement for the Option Securities occurs after the Closing Date, the Company will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof.

4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus.

5. Agreements. The Company agrees with the several Underwriters that:

(a) Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not

 

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file any such proposed amendment or supplement to which you reasonably object. The Company will cause the Prospectus, properly completed, and any supplement thereto to be filed in a form approved by the Representatives with the SEC pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company will promptly advise the Representatives (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the SEC pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement shall have been filed with the SEC, (ii) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the SEC or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or of any notice objecting to its use or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Company will use its reasonable best efforts to prevent the issuance of any such stop order or the occurrence of any such suspension or objection to the use of the Registration Statement and, upon such issuance, occurrence or notice of objection, to obtain as soon as possible the withdrawal of such stop order or relief from such occurrence or objection, including, if necessary, by filing an amendment to the Registration Statement or a new registration statement and using its reasonable best efforts to have such amendment or new registration statement declared effective as soon as practicable.

(b) If, at any time prior to the filing of the Prospectus pursuant to Rule 424(b) , any event occurs as a result of which the Disclosure Package would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made or the circumstances then prevailing not misleading, the Company will (i) notify promptly the Representatives so that any use of the Disclosure Package may cease until it is amended or supplemented; (ii) amend or supplement the Disclosure Package to correct such statement or omission; and (iii) supply any amendment or supplement to you in such quantities as you may reasonably request.

(c) If, at any time when a prospectus relating to the Securities is required to be delivered under the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172 under the Securities Act (“Rule 172”)), any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made or the circumstances then prevailing not misleading, or if it shall be necessary to amend the

 

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Registration Statement or supplement the Prospectus to comply with the Securities Act or the rules thereunder, the Company promptly will (i) notify the Representatives of any such event; (ii) prepare and file with the SEC, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance; and (iii) supply any supplemented Prospectus to you in such quantities as you may reasonably request.

(d) As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement or statements of the Company and its subsidiaries that will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act.

(e) Upon request, the Company will furnish to the Representatives and counsel for the Underwriters, without charge, conformed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), as many copies of each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus and any supplement thereto as the Representatives may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering.

(f) The Company will arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may reasonably designate and will maintain such qualifications in effect so long as required for the distribution of the Securities; provided that in no event shall the Company be obligated to (i) qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject or (ii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

(g) The Company will not, without the prior written consent of the Representatives, offer, sell, contract to sell, pledge, or otherwise dispose of, (or enter into any transaction that is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company) directly or indirectly, including the filing (or participation in the filing) of a registration statement with the SEC in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other shares of Common Stock or any securities convertible into, or exercisable, or exchangeable for, shares of Common Stock; or publicly announce an intention to effect any such transaction, for a period of 180 days after the date of this Agreement, provided,

 

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however, that the Company may (i) effect the transactions contemplated hereunder, (ii) issue and sell shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock, pursuant to any equity incentive plan, stock ownership plan, dividend reinvestment plan or other similar plan or arrangement of the Company described in the Registration Statement, the Disclosure Package and the Prospectus (collectively, the “Company Plans”), (iii) issue shares of Common Stock issuable upon the conversion of securities outstanding at the Execution Time or the exercise of warrants or options or the settlement of restricted stock units outstanding at the Execution Time or issued thereafter pursuant to a Company Plan, (iv) file one or more registration statements on Form S-8 relating to any Company Plan, and (v) issue shares of Common Stock, or any securities convertible into, or exercisable, or exchangeable for shares of Common Stock, or enter into an agreement to issue shares of Common Stock, or any securities convertible into or exercisable or exchangeable for shares of Common Stock, in connection with any merger, joint venture, strategic alliance, commercial or other collaborative transaction, or the acquisition or license of the business, property, technology or other assets of another individual or entity, or the assumption of an employee benefit plan in connection with such a merger or acquisition, provided, however, that (x) the aggregate number of shares of Common Stock, or securities convertible into or exercisable or exchangeable for shares of Common Stock, that the Company may issue or agree to issue pursuant to this clause (v) shall not exceed 5.0% of the total outstanding shares of Common Stock immediately following the issuance of the Securities, and (y) the recipients of such securities provide to the Representatives a signed lockup letter in the form described in Section 6(k) and attached as Exhibit A hereto.

(h) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 6(k) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three Business Days before the effective date of the release or waiver (which notice of release or waiver shall be substantially in the form of Exhibit C hereto), the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two Business Days before the effective date of the release or waiver.

(i) The Company will not take, directly or indirectly (without giving effect to activities by the Underwriters), any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

(j) The Company agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the SEC of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus and each Issuer Free

 

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Writing Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus and each Issuer Free Writing Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp or transfer taxes in connection with the original issuance and sale of the Securities to the Underwriters; (iv) the printing (or reproduction) and delivery of this Agreement, any blue sky memorandum and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the registration of the Securities under the Exchange Act and the listing of the Securities on the Nasdaq Global Market; (vi) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees and up to a maximum aggregate amount of $10,000 for the reasonable fees and expenses of counsel for the Underwriters relating to such registration and qualification); (vii) any filings required to be made with FINRA (including filing fees and up to a maximum aggregate amount of $35,000 for the reasonable fees and expenses of counsel for the Underwriters relating to such filings); (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Securities, provided, however, that if the Representatives and the Company mutually agree that an aircraft shall be chartered in connection with any road show, the Company shall be responsible for 50% of the costs and expenses of such chartered aircraft and the Underwriters shall be responsible for the remaining 50% of such costs and expenses; (ix) the fees and expenses of the Company’s accountants and the fees and expenses of counsel (including local and special counsel) for the Company; and (x) all other costs and expenses incident to the performance by the Company of its obligations hereunder.

(k) The Company agrees that, unless it has or shall have obtained the prior written consent of the Representatives, and each Underwriter, severally and not jointly, agrees with the Company that, unless it has or shall have obtained, as the case may be, the prior written consent of the Company, it has not made and will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a Free Writing Prospectus required to be filed by the Company with the SEC or retained by the Company under Rule 433 under the Securities Act (“Rule 433”); provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the Free Writing Prospectuses included in Schedule II hereto and any electronic road show. Any such free writing prospectus consented to by the Representatives or the Company is hereinafter referred to as a “Permitted Free Writing Prospectus.” The Company agrees that (x) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has complied and will comply, as the case may be, with the requirements of Rule 164 under the Securities Act (“Rule 164”) and Rule 433 applicable to any Permitted Free Writing Prospectus, including in respect of timely filing with the SEC, legending and record keeping.

 

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(l) The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Securities within the meaning of the Securities Act and (b) completion of the 180-day restricted period referred to in Section 5(h) hereof.

(m) If at any time following the distribution of any Written Testing-the-Waters Communication, any event occurs as a result of which such Written Testing-the-Waters Communication would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein in the light of the circumstances under which they were made or the circumstances then prevailing not misleading, the Company will (i) notify promptly the Representatives so that use of the Written Testing-the-Waters Communication may cease until it is amended or supplemented; (ii) amend or supplement the Written Testing-the-Waters Communication to correct such statement or omission; and (iii) supply any amendment or supplement to the Representatives in such quantities as may be reasonably requested.

6. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions:

(a) The Prospectus, and any supplement thereto, have been filed in the manner and within the time period required by Rule 424(b); any material required to be filed by the Company pursuant to Rule 433(d) shall have been filed with the SEC within the applicable time periods prescribed for such filings by Rule 433; and no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use shall have been issued and no proceedings for that purpose shall have been instituted or threatened.

(b) The Company shall have requested and caused Latham & Watkins LLP, counsel for the Company, to have furnished to the Representatives their opinion and negative assurance letter, dated the Closing Date and addressed to the Representatives, in form and substance satisfactory to the Representatives.

(c) The Company shall have requested and caused Pearl Cohen Zedek Latzer Baratz, LLP, intellectual property counsel for the Company, to have furnished to the Representatives their opinion, dated the Closing Date and addressed to the Representatives, in form and substance satisfactory to the Representatives.

 

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(d) The Company shall have requested and caused Latham & Watkins LLP, tax counsel for the Company, to have furnished to the Representatives their opinion, dated the Closing Date and addressed to the Representatives, in form and substance satisfactory to the Representatives.

(e) The Representatives shall have received from Davis Polk & Wardwell LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Disclosure Package, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.

(f) The Company shall have furnished to the Representatives a certificate of the Company, signed by the Chief Executive Officer and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Disclosure Package, the Prospectus and any amendment or supplement thereto, as well as each electronic road show used in connection with the offering of the Securities, and this Agreement and that:

(i) the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;

(ii) no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use has been issued and no proceedings for that purpose have been instituted or, to the Company’s knowledge, threatened; and

(iii) since the date of the most recent financial statements included in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto), there has been no material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(g) The Company shall have requested and caused Ernst & Young LLP to have furnished to the Representatives, at the Execution Time and at the Closing Date, letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives.

 

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(h) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement, the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 6 or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement, the Disclosure Package and the Prospectus (exclusive of any amendment or supplement thereto).

(i) Prior to the Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request.

(j) The Securities shall have been listed and admitted and authorized for trading on the Nasdaq Global Market, and satisfactory evidence of such actions shall have been provided to the Representatives.

(k) At or prior to the Execution Time, the Company shall have furnished to the Representatives a letter substantially in the form of Exhibit A hereto from each officer and director of the Company and all stockholders and optionholders of the Company addressed to the Representatives.

If any of the conditions specified in this Section 6 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.

The documents required to be delivered by this Section 6 shall be delivered at the office of Davis Polk & Wardwell LLP, counsel for the Underwriters, at 450 Lexington Avenue, New York, New York, 10017, on the Closing Date.

7. Reimbursement of Underwriters’ Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other

 

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than by reason of a default by any of the Underwriters if (i) prior to the Closing Date with respect to the Underwritten Securities,, the Company will reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all documented out of pocket expenses (including reasonable fees and disbursements of counsel for the Underwriters) that shall have been incurred by them in connection with the proposed purchase and sale of the Underwritten Securities or (ii) after the Closing Date with respect to the Underwritten Securities but prior to a settlement date with respect to the purchase of any Option Securities, the Company shall reimburse the Underwriters severally through Citigroup Global Markets Inc. on demand for all documented out of pocket expenses (including reasonable fees and disbursements of counsel for the Underwriters) that shall have been incurred by them in connection with the proposed purchase and sale of any such Option Securities; provided that if this Agreement is terminated by the Representatives pursuant to Section 9 hereof, the Company will have no obligation to reimburse any defaulting Underwriter.

8. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees, affiliates and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other U.S. Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof, or in any Preliminary Prospectus, or the Prospectus, or any Issuer Free Writing Prospectus, or any Written Testing-the-Waters Communication or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any documented legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have.

 

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(b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth (i) in the last paragraph of the cover page regarding delivery of the Securities and, under the heading “Underwriting,” (ii) the list of Underwriters and their respective participation in the sale of the Securities, (iii) the sentences related to concessions and reallowances and (iv) the paragraph related to stabilization, syndicate covering transactions and penalty bids in the Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus.

(c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying

 

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party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

(d) In the event that the indemnity provided in paragraph (a), (b) or (c) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) (collectively, “Losses”) to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Underwriters on the other hand from the offering of the Securities. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Underwriters on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Securities exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this paragraph, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to

 

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contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee, affiliate and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph.

9. Default by an Underwriter. If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such non-defaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any non-defaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company and any non-defaulting Underwriter for damages occasioned by its default hereunder.

10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such delivery and payment (i) trading in the Company’s Common Stock shall have been suspended by the SEC or Nasdaq Global Market or trading in securities generally on the New York Stock Exchange or the Nasdaq Stock Market shall have been suspended or limited or minimum prices shall have been established on either of such exchanges, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities, (iii) there shall have occurred a material disruption in commercial banking or securities settlement or clearance services or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Preliminary Prospectus or the Prospectus (exclusive of any amendment or supplement thereto).

 

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11. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors, employees, agents, affiliates or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement.

12. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to Citigroup Global Markets Inc. at 388 Greenwich Street, New York, New York 10013, Attention: General Counsel, facsimile number: +1 (646) 291-1469; to Jefferies, LLC, 520 Madison Avenue, New York, New York 10022, Attention: General Counsel; or, if sent to Ayala Pharmaceuticals, Inc., will be mailed, delivered or telefaxed to Ayala Pharmaceuticals, Inc., 2 Oppenheimer Street, Rehovot, Israel 7670110, Attention: Yossi Maimon, email: yossi.m@ayalapharma.com.

13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder.

14. Jurisdiction. The Company agrees that any suit, action or proceeding against the Company brought by any Underwriter, the directors, officers, employees, affiliates and agents of any Underwriter, or by any person who controls any Underwriter, arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in any State or U.S. federal court in The City of New York and County of New York, and waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the non-exclusive jurisdiction of such courts in any suit, action or proceeding. The Company hereby appoints Yossi Maimon at 1313 N. Market Street, Suite 5100, Wilmington, Delaware 19801 as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated herein that may be instituted in any State or U.S. federal court in The City of New York and County of New York, by any Underwriter, the directors, officers, employees, affiliates and agents of any Underwriter, or by any person who controls any Underwriter, and expressly accepts the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Company hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company.

 

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Notwithstanding the foregoing, any action arising out of or based upon this Agreement may be instituted by any Underwriter, the directors, officers, employees, affiliates and agents of any Underwriter, or by any person who controls any Underwriter, in any court of competent jurisdiction in the State of Delaware.

15. Recognition of the U.S. Special Resolution Regimes.

(a) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

(b) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.

As used in this Section 15, “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k); “Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b), (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b) or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b); “Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable; and “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

16. No Fiduciary Duty. The Company hereby acknowledges that (a) the purchase and sale of the Securities pursuant to this Agreement is an arm’s-length commercial transaction between the Company, on the one hand, and the Underwriters and any affiliate through which it may be acting, on the other, (b) the Underwriters are acting as principal and not as an agent or fiduciary of the Company and (c) the Company’s engagement of the Underwriters in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, the Company agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Underwriters has advised or is currently advising the Company on related or other matters). The Company agrees that it will not claim that the Underwriters have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.

 

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17. Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters, or any of them, with respect to the subject matter hereof.

18. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.

19. Waiver of Jury Trial. The Company and the Underwriters hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

20. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement.

21. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof.

[Signature pages follow]

 

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If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and the several Underwriters.

 

 

Very truly yours,
Ayala Pharmaceuticals, Inc.
By:
		Name: Roni Mamluk
		Title:   Chief Executive Officer

[Signature Page to Underwriting Agreement]

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The foregoing Agreement is hereby confirmed

and accepted as of the date first above written.

Citigroup Global Markets Inc.

Jefferies LLC

 

By: Citigroup Global Markets Inc.
By:
		Name:
		Title:

 

By: Jefferies LLC
By:
		Name:
		Title:

For themselves and the other several Underwriters named in

Schedule I to the foregoing Agreement.

[Signature Page to Underwriting Agreement]

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SCHEDULE I

 

Underwriters		Number of Underwritten Securities to be Purchased
Citigroup Global Markets Inc.
Jefferies LLC
Oppenheimer & Co. Inc.
Raymond James & Associates, Inc.
Total:

 

I-1

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SCHEDULE II

Schedule of Free Writing Prospectuses included in the Disclosure Package

[list each Issuer Free Writing Prospectus to be included in the Pricing Disclosure Package]

 

II-1

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SCHEDULE III

Schedule of Written Testing-the-Waters Communication

[Provided separately]

 

III-1

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SCHEDULE IV

Pricing Information

Public offering price per share:

Number of Underwritten Securities:

Number of Option Securities:

 

III-1

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ANNEX A

List of Subsidiaries

Ayala-Oncology Israel Ltd.

 

Annex A-1

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Form of Lock-Up Agreement		EXHIBIT A

Ayala Pharmaceuticals, Inc.

Public Offering of Common Stock

        , 20    

Citigroup Global Markets Inc.

Jefferies LLC

As Representatives of the several Underwriters,

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

c/o Jefferies LLC

520 Madison Avenue

New York, New York 10022

Ladies and Gentlemen:

This letter agreement is being delivered to you in connection with the proposed underwriting agreement (the “Underwriting Agreement”), among Ayala Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and each of you as representatives (the “Representatives”) of a group of Underwriters named therein, relating to an underwritten public offering of Common Stock, $0.01 par value (the “Common Stock”), of the Company (the “Offering”).

In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned will not, without the prior written consent of the Representatives, offer, sell, contract to sell, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Securities and Exchange Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the Securities and Exchange Commission promulgated thereunder with respect to, any shares of capital stock of the Company or any securities convertible into, or exercisable or exchangeable for, such capital stock, or publicly announce an intention to effect any such transaction, for a period from the date hereof until 180 days after the date of the Underwriting Agreement (the “Lock-Up Period”), subject to the exceptions set forth in this letter. If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions shall be equally applicable to any issuer-directed shares of Common Stock the undersigned may purchase in the Offering.

 

A-1

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The foregoing restrictions shall not apply to:

 

(a)

the transfer of shares of Common Stock or other securities of the Company acquired in the Offering (other than any issuer-directed shares of Common Stock purchased in the Offering by an officer or director of the Company) or in open market transactions on or after the completion of the Offering, provided that no filing by any party under the Exchange Act or other public announcement shall be required or shall be voluntarily made in connection with such transfers (other than a filing on Schedule 13D, 13F or 13G that is required to be filed during the Lock-Up Period); or

 

(b)

the transfer of shares of Common Stock or other securities convertible into, or exercisable or exchangeable for, shares of Common Stock owned by the undersigned:

 

(i)

as a bona fide gift or charitable contribution;

 

(ii)

to any trust for the direct or indirect benefit of the undersigned or the immediate family (as defined below) of the undersigned, including by will or intestate succession;

 

(iii)

as a distribution or other transfer by a partnership to its partners or by a limited liability company to its members or by a corporation to its stockholders or to any wholly-owned subsidiary of such corporation; or

 

(iv)

to any affiliate, as defined in Rule 405 under the Securities Act of 1933, as amended, of the undersigned, including investment funds or other entities under common control or management that are affiliates of the undersigned;

provided that in the case of any transfer, disposition or distribution pursuant to clauses (b)(i)-(iv) above, (A) each transferee, donee or distributee shall execute and deliver a lock-up agreement in the form of this letter agreement to the Representatives and (B) no filing by any party (donor, donee, transferor or transferee) under the Exchange Act or other public announcement shall be required or shall be voluntarily made in connection with such transfer, disposition or distribution during the Lock-Up Period (other than a filing on a Form 5 made after the expiration of the Lock-Up Period).

Furthermore, no provision in this letter agreement shall be deemed to restrict or prohibit:

 

(1)

the transfer of the undersigned’s Common Stock or any security convertible into, or exercisable or exchangeable for, Common Stock to the Company in connection with (A) the termination of the undersigned’s employment with the Company or (B) pursuant to agreements in effect on the date of the Preliminary Prospectus (as defined in the Underwriting Agreement) under which the Company has the option to repurchase such shares, provided that in the case of a transfer pursuant to this clause (1), any filing required to be made by any party under the Exchange Act during the Lock-Up Period shall clearly indicate in the footnotes thereto that such transfer relates to the circumstances described in this clause (1). Subject to the foregoing, no public announcement shall be voluntarily made in connection with such transfer (other than a filing on a Form 5 made after the expiration of the Lock-Up Period);

 

A-2

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(2)

the exercise by the undersigned of any option to purchase any shares of Common Stock pursuant to any stock incentive plan or stock purchase plan of the Company described in the Preliminary Prospectus, either through cash or “cashless” exercise (the term “cashless” exercise being intended to mean the surrender of a portion of the option shares or previously owned shares to the Company to cover payment of the exercise price), provided that the underlying shares of Common Stock shall continue to be subject to the restrictions on transfer set forth in this letter agreement, and provided further no filing by any party under the Exchange Act or other public announcement shall be required or shall be voluntarily made during the Lock-Up Period (other than a filing on a Form 5 made after the expiration of the Lock-Up Period or, in the case of a “cashless” exercise, a filing on a Form 4 that reports such “cashless” exercise under transaction code “F”);

 

(3)

the conversion of the outstanding preferred stock of the Company into shares of Common Stock, provided that any such shares received upon such conversion shall be subject to the restrictions on transfer set forth in this letter agreement;

 

(4)

the transfer of shares of Common Stock by operation of law pursuant to a court order or a settlement agreement related to the distribution of assets in connection with the dissolution of a marriage or civil union, provided that such transferee agrees to be bound by the restrictions on transfer set forth herein, and provided further that any required filing under Section 16 of the Exchange Act shall indicate in the footnotes thereto that the filing relates to the circumstances described in this clause (4) and no other public announcement shall be required or shall be voluntarily made in connection with such transfer during the Lock-Up Period;

 

(5)

the transfer of shares of Common Stock or any security convertible into, or exercisable or exchangeable for, Common Stock to the Company to cover tax withholdings upon a vesting event of any equity award granted under any stock incentive plan or stock purchase plan of the Company described in the Preliminary Prospectus, provided that any filing under Section 16 of the Exchange Act with regard to the transfer shall clearly indicate in the footnotes thereto that the filing relates to the circumstances described in this clause (5);

 

(6)

the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Stock, provided that such plan does not provide for any transfers or dispositions of Common Stock during the Lock-Up Period, and provided, further, to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Lock-Up Period; and

 

A-3

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(7)

the transfer of shares of Common Stock or any security convertible into, or exercisable or exchangeable for, Common Stock pursuant to a bona fide third-party tender offer for securities of the Company, merger, consolidation or other similar transaction made to all holders of the Company’s securities involving a Change of Control (as defined below), which transaction is approved by the Board of Directors of the Company, provided that all of the undersigned’s securities subject to this letter agreement that are not so transferred, sold, tendered or otherwise disposed of remain subject to this letter agreement, and provided further that it shall be a condition of the transfer that if the tender offer, merger, consolidation or other such transaction is not completed, the undersigned’s securities subject to this letter agreement shall remain subject to the restrictions herein.

For purposes of this letter agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. For purposes of this letter agreement, “Change of Control” means the consummation of any bona fide third party tender offer, merger, consolidation or other similar transaction, in one transaction or a series of related transactions, the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, other than the Company or its subsidiaries, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% or more of the total voting power of the voting stock of the Company (or the surviving entity).

The undersigned now has, and, except as contemplated by clauses (i)-(iv) above, for the duration of this letter agreement will have, good and marketable title to the undersigned’s shares of capital stock of the Company or any securities convertible into, or exercisable or exchangeable for, such capital stock, free and clear of all liens, encumbrances, and claims whatsoever, other than any charitable pledge of such securities that by its terms could not result in any transfer, disposition or distribution of such securities during the Lock-Up Period.

If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.

This letter agreement shall automatically terminate and be of no further effect (i) July 31, 2020, in the event the closing of the Offering shall not have occurred on or before such date, (ii) prior to the execution of the Underwriting Agreement, upon such date the Company notifies the Representatives in writing that it does not intend to proceed with the Offering, (iii) the registration statement filed with the U.S. Securities and Exchange Commission in connection with the Offering is withdrawn, or (iv) upon the termination of the Underwriting Agreement prior to the Closing Date (as defined in the Underwriting Agreement) in accordance with the terms thereof.

 

A-4

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The undersigned hereby consents to receipt of this letter agreement in electronic form and understands and agrees that this letter agreement may be signed electronically. In the event that any signature is delivered by electronic mail, or otherwise by electronic transmission evidencing an intent to sign this letter agreement, such electronic mail or other electronic transmission shall create a valid and binding obligation of the undersigned with the same force and effect as if such signature were an original. Execution and delivery of this letter agreement by electronic mail or other electronic transmission is legal, valid and binding for all purposes.

 

A-5

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Form of Press Release		EXHIBIT B

Ayala Pharmaceuticals, Inc.

[insert date]

Ayala Pharmaceuticals, Inc. (the “Company”) announced today that Citigroup Global Markets Inc. and Jefferies LLC, the lead book-running managers in the Company’s recent public sale of [•] shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to [•] shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on [insert date], 2020, and the shares may be sold on or after such date.

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

B-1

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Form of Waiver of Lock-up		ADDENDUM

Ayala Pharmaceuticals, Inc.

Public Offering of Common Stock

[insert date], 2020

[name and address of officer or director requesting waiver]

Dear Mr./Ms. [insert name]:

This letter is being delivered to you in connection with the offering by Ayala Pharmaceuticals, Inc. (the “Company”) of [•] shares of common stock, $0.01 par value (the “Common Stock”), of the Company and the lock-up letter dated [insert date], 20__ (the “Lock-up Letter”), executed by you in connection with such offering, and your request for a [waiver] [release] dated [insert date], 2020, with respect to [•] shares of Common Stock (the “Shares”).

Citigroup Global Markets Inc. and Jefferies LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective [insert date], 2020; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].

Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.

 

Yours very truly,
Citigroup Global Markets Inc.
By:
		Name:
		Title:

 

Jefferies LLC
By:
		Name:
		Title:

cc: Ayala Pharmaceuticals, Inc.

Exhibit 3.1

 

		State of Delaware Secretary of State Division of Corporations Delivered 09:34 AM 12/19/2018 FILED 09:34 AM 12/19/2018 SR 20188243232 - File Number 6615492

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

AYALA PHARMACEUTICALS, INC.

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

Ayala Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

1. That the name of this corporation is Ayala Pharmaceuticals, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on November 14, 2017.

2. That the Board of Directors of the Corporation (the “Board of Directors”) duly adopted resolutions proposing to amend and restate the Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:

RESOLVED, that the Amended and Restated Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:

FIRST: The name of this corporation is Ayala Pharmaceuticals, Inc. (the “Corporation”)

SECOND: The address of the registered office of the Corporation in the State of Delaware is 1313 N. Market Street, Suite 5100, Wilmington, New Castle County, DE 19801. The name of its registered agent at such address is PHS Corporate Services, Inc.

THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 20,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”); (ii) 3,700,000 shares of Series A Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”); and (iii) 4,500,000 shares of Series B Preferred Stock, $0.01 par value per share (“Series B Preferred Stock”). The Series B Preferred Stock and the Series A Preferred Stock shall collectively be referred herein as “Preferred Stock”.

 

1

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The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

 

A.

COMMON STOCK

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Corporation’s Certificate of Incorporation (the “Certificate of Incorporation”) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

 

B.

PREFERRED STOCK

Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein.

Unless otherwise indicated, references to “Sections” or “Subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

1. Dividends.

The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the shares of Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each such outstanding share of Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per such share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted

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into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of such share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per such share of Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the applicable Original Issue Price (as defined below) of such share of Preferred Stock; provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, then the dividend payable to the holders of Series A Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A Preferred Stock dividend, and the dividend payable to the holders of Series B Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Stock dividend. The “Original Issue Price” shall initially (as of the Series B Original Issue Date) mean (a) in the case of the Series A Preferred Stock—$6.50 per share (the “Series A Original Issue Price”), and (b) in the case of the Series B Preferred Stock, $7.91 per share (the “Series B Original Issue Price”); in each case, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock or the Series B Preferred Stock, as applicable.

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

2.1 Preferential Payments to Holders of Series B Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event (as defined below), the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Series A Preferred Stock and Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series B Original Issue Price, plus any dividends declared but unpaid thereon, minus any amounts actually received on account of such share of Series B Preferred Stock prior to such time in accordance with the provisions of Sections 1 and 2 hereof, or (ii) such amount per share as would have been payable had all shares of Series B Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, minus any amounts actually received on account of such share of Series B Preferred Stock prior to such time in accordance with the provisions of Sections 1 and 2 hereof. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The amount which a holder of a share of Series B Preferred Stock is entitled to receive under Subsection 2.1 is hereinafter referred to as the “Series B Liquidation Amount.

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2.2 Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event (as defined below), after the payment of al] preferential amounts required to be paid to the holders of shares of Series B Preferred Stock, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series A Original Issue Price, plus any dividends declared but unpaid thereon, minus any amounts actually received on account of such share of Series A Preferred Stock prior to such time in accordance with the provisions of Sections 1 and 2 hereof, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, minus any amounts actually received on account of such share of Series A Preferred Stock prior to such time in accordance with the provisions of Sections 1 and 2 hereof. If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Subsection 2.2, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The amount which a holder of a share of Series A Preferred Stock is entitled to receive under Subsection 2.2 is hereinafter referred to as the “Series A Liquidation Amount.”

2.3 Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of the shares of Common Stock only, pro rata based on the number of shares held by each such holder.

2.4 Deemed Liquidation Events.

2.4.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least a majority in interest of the then outstanding shares of Preferred Stock, voting together as a separate, exclusive class (the “Required Vote”), waive treatment of such an event as a Deemed Liquidation, which waiver shall be made by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event:

(a) a merger or consolidation in which

 

(i)

the Corporation is a constituent party or

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(ii)

a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or

(b) the sale, lease, transfer, exclusive perpetual license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets or intellectual property of the Corporation and its subsidiaries taken as a whole or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

2.4.2 Effecting a Deemed Liquidation Event.

(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.4.1(a)(i) above unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 through 2.3 above.

2.4.3 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.4.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.4.3, consideration placed into escrow or retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Initial Consideration.

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2.4.4 Amount Deemed Paid or Distributed. If the amount deemed paid or distributed under this Subsection 2.4 is made in properly other than in cash, the value of such payment or distribution shall be the fair market value of such property, determined as follows:

(a) For securities not subject to investment letters or other similar restrictions on free marketability,

(b) if traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the 30-period ending three (3) days prior to the closing of such transaction;

(c) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing of such transaction; or

(d) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

2.4.5 The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board of Directors) from the market value as determined pursuant to clause (a) above so as to reflect the approximate fair market value thereof.

3. Voting.

3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of a meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class, on an as-converted basis.

3.2 Election of Directors. The holders of record of the shares of Preferred Stock, exclusively and as a separate class, shall be entitled to elect three (3) directors of the Corporation (the “Preferred Directors”). Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose (or by a written consent of stockholders in lieu of a meeting). If the holders of shares of Preferred Stock fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the Preferred Stock elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the

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stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. A vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2.

4. Optional Conversion.

The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

4.1 Right to Convert.

4.1.1 Conversion Ratio. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the then applicable Original Issue Price thereof by the Applicable Conversion Price (as defined below) in effect at the time of conversion. The “Applicable Conversion Price” shall initially (as of the Series B Original Issue Date) be equal to (a) in the case of the Series A Preferred Stock, $6.50, and (b) in the case of the Series B Preferred Stock, $7.91. Such initial Applicable Conversion Price, and the respective rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

4.1.2 Termination of Conversion Rights. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.

4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

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4.3 Mechanics of Conversion.

4.3.1 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and, a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.

4.3.2 Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel. be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Applicable Conversion Price.

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4.3.3 Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Applicable Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

4.4 Adjustments to Applicable Conversion Price for Diluting Issues.

4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:

(a) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(b) “Series B Original Issue Date” shall mean the date on which the first share of Series B Preferred Stock was issued.

(c) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(d) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series B Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (l) and (2), collectively “Exempted Securities”):

 

(i)

shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on, or upon the conversion of, Preferred Stock, and shares of Common Stock actually issued upon the exercise of

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such Options, or upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, upon the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

 

(ii)

shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsections 4.5, 4.6, 4.7 or 4.8 below, and shares of Common Stock actually issued upon the exercise of such Options, or upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

 

(iii)

shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors, and shares of Common Stock actually issued upon the exercise or conversion of such Options, in each case provided such issuance is pursuant to the terms of such Option;

 

(iv)

shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors, and shares of Common Stock actually issued upon the exercise of such Options, or upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

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(v)

shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors, and shares of Common Stock actually issued upon the exercise of such Options, or upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security; or

 

(vi)

shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board of Directors, and shares of Common Stock actually issued upon the exercise of such Options, or upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security; or

 

(vii)

shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors, and shares of Common Stock issuable upon the exercise of such Options, or

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upon the conversion or exchange of such Convertible Securities or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security.

4.4.2 No Adjustment of Applicable Conversion Price. No adjustment in the Applicable Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from Stockholders representing the Required Vote agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

4.4.3 Deemed Issue of Additional Shares of Common Stock.

(a) If the Corporation at any time or from time to time after the Series B Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4 below, are revised as a result of an amendment to such terms or if any other adjustment is made pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (l) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Applicable Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (i) the Applicable Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

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(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4 below (either because the consideration per share (determined pursuant to Subsection 4.4.5 hereof) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series B Original Issue Date), are revised after the Series B Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3(a) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4 below, the Applicable Conversion Price shall be readjusted to such Applicable Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Applicable Conversion Price provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Applicable Conversion Price that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Applicable Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

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4.4.4 Adjustment of Applicable Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series B Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3), without consideration or for a consideration per share less than the Applicable Conversion Price in effect immediately prior to such issuance or deemed issuance, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

CP₂ = CP₁ * (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

(a) “CP₂” shall mean the Applicable Conversion Price in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock;

(b) “CP₁” shall mean the Applicable Conversion Price in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock;

(c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding (without duplication) (i) all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or deemed issuance and (ii) all shares of Common Stock issuable upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (and assuming exercise of any outstanding Options therefor) immediately prior to such issuance or deemed issuance);

(d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP₁ (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP₁); and

(e) “C” shall mean the number of such Additional Shares of Common Stock issued or deemed issued in such transaction.

4.4.5 Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows:

(a) Cash and Property: Such consideration shall:

 

(i)

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

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(ii)

insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

 

(iii)

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors.

(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing

 

(i)

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

(ii)

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

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4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4.4.4 above then, upon the final such issuance, the Applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series B Original Issue Date effect a subdivision of the outstanding Common Stock, the Applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series B Original Issue Date combine the outstanding shares of Common Stock, the Applicable Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Applicable Conversion Price then in effect by a fraction:

(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Applicable Conversion Price shall be adjusted pursuant to this subsection as of

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the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series B Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.4, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsection 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of the Common Stock issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock.

4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than fifteen (15) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than fifteen (15) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Preferred Stock.

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4.10 Notice of Record Date. In the event:

(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock, or any Deemed Liquidation Event; or

(c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up or a Deemed Liquidation Event is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up or a Deemed Liquidation Event, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.

5. Mandatory Conversion.

5.1 Trigger Events. Upon either (a) the date and time, or the occurrence of an event, specified by vote or written consent of the holders representing the Required Vote, or (b) the closing of the sale of shares of Common Stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), provided that the price per each share of the Common Stock in such sale to the public reflects a pre-money valuation of at least $200,000,000 and that such offering results in at least $50 million of gross proceeds to the Corporation (such an event a “QIPO”), (the date and time specified or the time of the event specified in such vote or written consent, or the time of such closing, respectively, is referred to herein as the “Mandatory Conversion Time”), (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate thereof, and (ii) such shares may not be reissued by the Corporation.

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5.2 Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. At the Mandatory Conversion Time, all outstanding shares of Preferred Stock shall be deemed to have been converted into shares of Common Stock (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), which shall be deemed to be outstanding of record as of such time, and all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the last sentence of this Subsection 5.2, and to receive payment of any dividends accrued and declared but unpaid thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted.

5.3 Effect of Mandatory Conversion. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

6. Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

7. Waiver. Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of Stockholders representing the Required Vote.

8. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

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FIFTH: Subject to any additional vote required by the Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.

Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.

ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity (as defined below). An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the

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Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

THIRTEENTH: For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Certificate of Incorporation from employees, officers, directors or consultants of the Company in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board of Directors (in addition to any other consent required under this Certificate of Incorporation), such repurchase may be made without regard to any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero (0).

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3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.

4. That this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s Amended and Restated Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.

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IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 19 day of December, 2018.

 

By:		/s/ David Sidransky

Name:		David Sidransky
Title:		President

 

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Exhibit 3.2

BY-LAWS

OF

AYALA PHARMACEUTICALS, INC.

1. OFFICES:

1.1 The Corporation may have an office or offices at such places as the Board of Directors may from time to time designate.

2. MEETING OF STOCKHOLDERS:

2.1 The annual meeting of stockholders for the election of directors shall be held at such time and date as may be fixed by the Board of Directors.

2.2 Special meetings of the stockholders may be called at any time by the president, and shall be called by the president or secretary on the request in writing, or by vote, of a majority of the directors, or at the request in writing of stockholders of record owning a majority in amount of the capital stock outstanding and entitled to vote.

2.3 All meetings of the stockholders may be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors or as shall be specified and fixed in the respective notices or waiver of notice thereof.

3. DIRECTORS:

3.1 The property and business of the Corporation shall be managed by, or under the direction of, its Board of Directors, consisting of one or more directors as determined from time to time by resolution of the Board of Directors.

3.2 Each director shall hold office until the next annual election, and until such director’s successor is elected and qualified, or until such director’s earlier resignation or removal. Directors shall be elected by the stockholders, except that vacancies in the Board of Directors by reason of death, resignation or otherwise and newly created directorships may be filled for the unexpired term by the remaining directors, though less than a quorum, by a majority vote.

4. POWER OF DIRECTORS:

4.1 The Board of Directors shall have such general and specific powers as are conferred upon corporations by the General Corporation Law of the State of Delaware, as amended from time to time, subject only to the provisions of the statutes, Certificate of Incorporation, and these By-Laws, which may restrict or deny such powers.

5. MEETING OF DIRECTORS:

5.1 After each annual election of directors, the newly elected directors may meet for the purpose of organization, the election of officers, and the transaction of other business, at such place and time as may be fixed by the stockholders at the annual meeting, and if a majority of the directors be present at such place and time, no prior notice of such meeting shall be required to be given to the directors. The place and time of such meeting may also be fixed by written consent of the directors. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.

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5.2 Special meetings of the Board of Directors may be called by the president, and shall be called by the president or the secretary at the written request of two directors, by notice to each director given five (5) days prior to the meeting if by mail, or two (2) days prior to the meeting if by telephone, facsimile telecommunication or electronic transmission.

5.3 Special meetings of the Board of Directors may be held within or without the State of Delaware at such place as is indicated in the notice or waiver of notice thereof.

5.4 A majority of the directors shall constitute a quorum, but a smaller number may adjourn from time to time, without further notice, until a quorum is secured.

6. EXECUTIVE AND OTHER COMMITTEES:

6.1 The Board of Directors may designate an executive committee and one or more other committees each to consist of one or more of the directors of the Corporation.

6.2 Any such committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation to the extent provided in the resolution of the Board of Directors, subject to applicable laws.

6.3 The executive committee and such other committees shall meet at stated times or on notice to all by any of their own number. They shall fix their own rules of procedure. A majority shall constitute a quorum, but unless otherwise determined by the Board of Directors, the affirmative vote of a majority of the whole committee shall be necessary in every case.

7. OFFICERS OF THE CORPORATION:

7.1 The officers of the Corporation may be a President, one or more Vice-Presidents, Secretary, Treasurer, and such other officers as may from time to time be chosen by the Board of Directors.

7.2 Each officer shall hold office until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. Any officer may be removed either with or without cause at any time by the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors.

 

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8. DUTIES OF THE PRESIDENT:

Unless otherwise determined by the Board of Directors,

8.1 The President shall be the chief executive officer of the Corporation unless otherwise determined by the Board of Directors. It shall be the President’s duty to preside at all meetings of the stockholders; to have general and active management of the business and the Corporation; to see that all orders and resolutions of the Board of Directors are carried into effect; to execute all contracts, agreements, deeds, bonds, mortgages and other obligations and instruments, in the name of the Corporation, and to affix the corporate seal thereto when authorized by the Board of Directors or the executive committee.

8.2 The President shall have the general supervision and direction of the other officers of the Corporation and shall see that their duties are properly performed and shall have the general duties and powers of supervision and management usually vested in the office of the President of a Corporation.

9. VICE PRESIDENT:

Unless otherwise determined by the Board of Directors,

9.1 The Vice-Presidents, in the order designated by the Board of Directors, shall be vested with all powers and required to perform all the duties of the President in the President’s absence or disability and shall perform such other duties as may be prescribed by the Board of Directors.

10. PRESIDENT PRO TEM:

10.1 In the absence or disability of the President and the Vice-President, the Board of Directors may appoint from their own number a president pro tem.

11. SECRETARY:

Unless otherwise determined by the Board of Directors,

11.1 The Secretary shall attend all meetings of the Corporation, the Board of Directors, the executive committee and standing committees. The Secretary shall act as clerk thereof and shall record all of the proceedings of such meetings in a book kept for that purpose. The Secretary shall give proper notice of meetings of stockholders and Board of Directors and shall perform such other duties as shall be assigned by the President or the Board of Directors.

12. TREASURER:

Unless otherwise determined by the Board of Directors,

12.1 The Treasurer shall have custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.

12.2 The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, executive committee or President, taking proper vouchers for such disbursements, and shall render to the President and Board of Directors, whenever they may require it, an account of all his transactions as treasurer, and of the financial condition of the Corporation, and at the regular meeting of the Board of Directors next preceding the annual stockholders’ meeting, a like report for the preceding year.

 

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12.3 The Treasurer shall keep an account of stock registered and transferred in such manner and subject to such regulations as the Board of Directors may prescribe.

12.4 The Treasurer shall give the Corporation a bond, if required by the Board of Directors, in such sum and in form and with security satisfactory to the Board of Directors for the faithful performance of the duties of his office and the restoration to the Corporation, in case of his death, resignation or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession, belonging to the Corporation. The Treasurer shall perform such other duties as the Board of Directors or executive committee may from time to time prescribe or require.

13. DUTIES OF OFFICERS MAY BE DELEGATED:

13.1 In case of the absence or disability of any officer of the Corporation or for any other reason deemed sufficient by a majority of the Board of Directors, the Board of Directors may delegate his powers or duties to any other officer or to any director for the time being.

14. CERTIFICATES OF STOCK:

14.1 Certificates of stock shall be signed by the Chairman, the Vice Chairman, the President or a Vice-President, and either by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. If a certificate of stock be lost or destroyed, another may be issued in its stead upon proof of loss or destruction and the giving of a satisfactory bond of indemnity in an amount sufficient to indemnify the Corporation against any claim. A new certificate may be issued without requiring bond when, in the judgment of the Board of Directors, it is proper to do so.

15. TRANSFER OF STOCK:

15.1 Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books.

16. STOCKHOLDERS OF RECORD:

16.1 The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware.

 

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17. FISCAL YEAR:

17.1 The fiscal year of the Corporation shall be determined by the Board of Directors.

18. DIVIDENDS:

18.1 Dividends upon the capital stock may be declared by the Board of Directors at any regular or special meeting and may be paid in cash or property or in shares of the capital stock. The Board of Directors may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purposes and may alter or abolish any such reserve or reserves.

19. CHECKS FOR MONEY:

19.1 All checks, drafts or orders for the payment of money shall be signed by the Treasurer or by such other officer or officers as the Board of Directors may from time to time designate. No check shall be signed in blank.

20. BOOKS AND RECORDS:

20.1 The books, records and accounts of the Corporation except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the By-Laws or by resolution of the Board of Directors.

21. NOTICES:

21.1 Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by facsimile telecommunication or electronic transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or when such notice is dispatched, if delivered through the mail, by facsimile telecommunication or electronic transmission, shall be the time of the giving of the notice.

21.2 A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

22. AMENDMENT:

22.1 These By-Laws may be amended, altered, repealed or supplemented at any regular meeting of the stockholders or of the Board of Directors or at any special meeting called for that purpose, by affirmative vote of a majority of the stock issued and outstanding and entitled to vote or of a majority of the whole board of directors, as the case may be.

 

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23. INDEMNIFICATION:

23.1 Right to Indemnification:

23.1.1 Each person who was or is a party to, or is threatened to be made a party to, or is involved in, any action, suit or proceeding, whether civil, criminal, administrative or investigative (“Proceeding”), including without limitation Proceedings by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he or she or a person for whom he or she is the legal representative is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Such right shall be a contract right and shall include the right to be paid by the corporation for expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such Proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this section or otherwise.

23.2 Right of Claimant to Bring Suit:

23.2.1 If a claim under Section 23.1 is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall create a presumption that claimant had not met the applicable standard of conduct.

 

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23.3 Non-Exclusivity of Rights:

23.3.1 The rights conferred by Sections 23.1 and 23.2 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.

23.4 Insurance:

23.4.1 The corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.

DATED: November 14, 2017

 

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Exhibit 4.1

AYALA PHARMACEUTICALS, INC.

AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) is made as of December 19, 2018, by and among Ayala Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and each investor listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor, and each of the stockholders listed on Schedule B hereto, each of whom is referred to herein as a “Key Holder”, and any Additional Purchaser (as defined in the Purchase Agreement) that becomes a party to this Agreement in accordance with Section 6.9 hereof.

RECITALS:

WHEREAS, certain of the Investors (the “Existing Investors”) hold shares of the Company’s Series A Preferred Stock and/or shares of Common Stock issued upon conversion thereof and possess registration rights, information rights, rights of first offer, and other rights pursuant to that certain Investors’ Rights Agreement dated as of December 13, 2017, as amended on March 22, 2018, by and among the Company, the Key Holders and such Existing Investors (the “Prior Agreement”);

WHEREAS, the Existing Investors are holders of at least a majority of the Registrable Securities of the Company (as defined in the Prior Agreement), and desire to amend and restate the Prior Agreement in its entirety and to accept the rights and obligations created pursuant to this Agreement in lieu of the rights and obligations granted to or imposed on them under the Prior Agreement; and

WHEREAS, the Company and certain of the Investors are parties to that certain Series B Preferred Stock Purchase Agreement of even date herewith (the “Purchase Agreement”), under which certain of the Company’s and such Investors’ obligations are conditioned upon the execution and delivery of this Agreement by such Investors, Existing Investors holding at least a majority of the Registrable Securities, and the Company; and

WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce those certain Investors to invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company hereby agree that this Agreement shall govern the rights of the Investors to cause the Company to register shares of Common Stock issuable to the Investors, to receive certain information from the Company, and to participate in future equity offerings by the Company, and shall govern certain other matters as set forth in this Agreement;

NOW, THEREFORE, the parties hereby agree to amend and restate the Prior Agreement to read in its entirety as follows:

1.    Definitions. For purposes of this Agreement:

1.1    “Affiliate” means, with respect to any specified Investor, any other Person who or which, directly or indirectly, controls, is controlled by or is under common control with

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such Investor, including without limitation any general partner, managing member, officer or director of such Investor, and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Investor. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to a Person, shall mean either of the following: (i) in the case of a corporate entity, ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or the equivalent body of such a corporate entity, or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the equity interests with the power to direct the management and policies of such entity.

1.2    “Board of Directors” means the Company’s Board of Directors.

1.3    “Certificate of Incorporation” means the Company’s Amended and Restated Certificate of Incorporation, as the same may be amended, restated or otherwise modified from time to time.

1.4    “Common Stock” means shares of the Company’s common stock, par value $0.01 per share.

1.5    “Competitor” means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in the Company’s business (as currently conducted or as may be conducted in the future), but shall not include any financial investment firm or collective investment vehicle that, together with its Affiliates, holds less than twenty percent (20)% of the outstanding equity of any Competitor and does not, nor do any of its Affiliates, have a right to designate any members of the Board of Directors of any Competitor.

1.6    “Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

1.7    “Deemed Liquidation Event” shall have the meaning given to such term in the Certificate of Incorporation.

 

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1.8    “Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.

1.9    “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.10    “Excluded Registration” means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

1.11    “FOIA Party” means a Person that, in the reasonable determination of the Board of Directors, may be subject to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information Act, 5 U.S.C. 552 (“FOIA”), any state public records access law, any state or other jurisdiction’s laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.

1.12    “Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

1.13    “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.14    “GAAP” means generally accepted accounting principles in the United States.

1.15    “Holder” means any holder of Registrable Securities who is a party to this Agreement.

1.16    “Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.

1.17    “Initiating Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.

 

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1.18    “IPO” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.

1.19    “Key Holder Registrable Securities” means (i) the shares of Common Stock held by the Key Holders, and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of such shares.

1.20    “Major Investor” means any Investor that, individually or together with such Investor’s Affiliates, holds at least 5% of the voting power represented by the then issued and outstanding shares of the Company; provided, however, that, for purpose of Section 4 of this Agreement (‘Rights to Future Stock Issuances’), any Investor shall be deemed a Major Investor regardless of the extent of voting power it holds, but neither BMS nor any Affiliate thereof shall be deemed a Major Investor for purpose of such Section 4.

1.21    “New Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities, other than Exempted Securities (as such term is defined in the Certificate of Incorporation).

1.22    “Novartis” means Novartis Institutes for BioMedical Research, Inc.

1.23    “Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

1.24    “Preferred Stock” means the Series A Preferred Stock and the Series B Preferred Stock.

1.25    “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, held by the Investors or acquired by the Investors after the date hereof; (iii) the Key Holder Registrable Securities, provided, however, that such Key Holder Registrable Securities shall not be deemed Registrable Securities, and the Key Holders shall not be deemed Holders for the purposes of Sections 2.1, 2.10, 3.1, 3.2, 4.1 and 6.6; and (iv) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2 .13 of this Agreement.

 

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1.26    “Registrable Securities then outstanding” means the number of shares at a point in time determined by adding the number of shares of outstanding Common Stock that are Registrable Securities at such time and the number of shares of Common Stock issuable (directly or indirectly) at such time pursuant to then exercisable and/or convertible securities that are Registrable Securities.

1.27    “Required Holders” means holders of at least a majority of the Registrable Securities then outstanding.

1.28    “Restricted Securities” means the securities of the Company required to be notated with or bear the legend set forth in Section 2.12(b) hereof.

1.29    “SEC” means the Securities and Exchange Commission.

1.30    “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act, or any successor provisions.

1.31    “SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act, or any successor provisions.

1.32    “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.33    “Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 2.6.

1.34    “Selling Holder Counsel” shall have the meaning assigned to it in Section 2.6.

1.35    “Series A Preferred Stock” means shares of the Company’s Series A Preferred Stock, par value $0.01 per share.

1.36    “Series B Preferred Stock” means shares of the Company’s Series B Preferred Stock, par value $0.01 per share.

1.37    “Stockholders Agreement” means the Amended and Restated Stockholders Agreement dated as of the date hereof, by and among the Company, the Investors, and Key Holders (as defined therein), as the same may be amended, restated or otherwise modified from time to time.

1.38    “BMS” means Bristol-Myers Squibb Company.

 

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1.39    “BMS License Agreement” means that certain License Agreement between the Company and BMS dated as of November 29, 2017, as may be amended from time to time.

2.    Registration Rights. The Company covenants and agrees as follows:

2.1    Demand Registration.

(a)    Form S-1 Demand. If, at any time after six (6) months after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least thirty percent (30%) of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least thirty percent (30%) of the Registrable Securities then outstanding, having the anticipated aggregate offering price, net of Selling Expenses, of at least $10.0 million, then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days after the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.

(b)    Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty percent (20%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering amount, net of Selling Expenses, of at least $3.0 million, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.

(c)    Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Company’s chief executive officer or other most senior executive officer then in office stating that in the good faith judgment of the Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for

 

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preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than one hundred twenty (120) days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such one hundred twenty (120) day period other than an Excluded Registration.

(d)    The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to a request made under Section 2.1(a) (i) if it delivers notice to the Holders within thirty (30) days after such request of its reasonable intent to file a registration statement for a public offering within ninety (90) days and thereafter uses commercially reasonable efforts to cause such registration statement to become effective; (ii) during the period that is one hundred eighty (180) days after commencing a Company-initiated registration; (iii) after the Company has effected two (2) registrations pursuant to Section 2.1(a); or (iv) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Section 2.1(d).

2.2    Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 2.6.

 

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2.3    Underwriting Requirements

(a)    If, pursuant to Section 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority-in-interest of the Initiating Holders, subject only to the reasonable approval of the Company. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder, or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting; provided further that the obligation of any Holder to indemnify, if any, pursuant to such underwriting agreement, shall be several, and not joint and several, among such Holders selling Registrable Securities and the liability of each such Holder shall be in proportion thereto, provided further that, such liability shall be limited to the net amount received by such Holder from the sale of its Registrable Securities in such registration, except in the case of fraud or willful misconduct by such Holder. To facilitate the allocation of shares in accordance with the above provision, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares.

(b)    In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested

 

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to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below twenty percent (20%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering, or (iii) notwithstanding (ii) above, any Registrable Securities which are not Key Holder Registrable Securities be excluded from such underwriting unless all Key Holder Registrable Securities are first excluded from such offering. For purposes of the provision in this Section 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder” as defined in this sentence.

(c)    For purposes of Section 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section 2.3(a), less than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

2.4    Obligations of the Company.

Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a)    prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to one hundred eighty (180) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold; eighty (180) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

 

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(b)    prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

(c)    furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

(d)    use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(e)    in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

(f)    use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

(g)    provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(h)    promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

 

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(i)    notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

(j)    after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

2.5    Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

2.6    Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements of one counsel for the selling Holders (“Selling Holder Counsel”) selected by the Holders of at least a majority in interest of the Registrable Securities to be included in the applicable registration, shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of at least a majority in interest of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Required Holders agree to forfeit their right to one registration pursuant to Section 2.l(a) or Section 2.l(b), as the case may be; provided further that if, at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Section 2.l(a) or Section 2.l(b), as the case may be. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.

2.7    Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

 

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2.8    Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:

(a)    To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.

(b)    To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under this Section 2.8(b) or under Section 2.8(d) exceed, in the aggregate, the net proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.

(c)    Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the

 

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defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.

(d)    To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

(e)    Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

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(f)    Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.

2.9    Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

(a)    make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

(b)    use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

(c)    furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

2.10    Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Required Holders, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (i) to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included or (ii) to demand registration of any securities held by such holder or prospective holder; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Section 6.9.

 

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2.11    “Market Stand-off’’ Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days in the case of the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), or ninety (90) days in the case of any registration other than the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 2.11 (A) shall apply only to the IPO, (B) shall not apply to shares of Common Stock acquired in the IPO or in the open market following the IPO, (C) shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and (D) shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than two percent (2%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) The underwriters in connection with such registration are intended third-party beneficiaries of this Section 2.11 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.

2.12    Restrictions on Transfer.

(a)    The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-

 

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transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. Notwithstanding the foregoing, the Company shall not require any transferee of shares pursuant to an effective registration statement or, following the IPO, SEC Rule 144 to be bound by the terms of this Agreement.

(b)    Each certificate, instrument, or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, may (unless otherwise permitted by the provisions of Section 2.12(c)) be stamped or otherwise imprinted with a legend substantially in the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12.

(c)    The holder of Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, or, following the IPO, the transfer is made pursuant to SEC Rule 144, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without

 

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registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144 or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that, with respect to transfers under the foregoing clause (y), each transferee agrees in writing to be subject to the terms of this Section 2.12. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided may be notated with or bear, except if such transfer is made pursuant to SEC Rule 144 or pursuant to an effective registration statement, the appropriate restrictive legend set forth in Section 2.12(b), except that such certificate instrument, or book entry shall not be notated with, nor bear, such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

2.13    Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1 or Section 2.2 shall terminate upon the earliest to occur of:

(a)    the closing of a Deemed Liquidation Event;

(b)    following the IPO, such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and

(c)    the fifth (5^th) anniversary of the IPO.

3.    Information and Observer Rights.

3.1    Delivery of Financial Statements. The Company shall deliver to each Major Investor:

(a)    as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders’ equity as of the end of such year; all such financial statements audited and certified by independent public accountants of nationally recognized standing, associated with one of the “Big-4” accounting firms, selected by the Company and approved by the Board of Directors;

(b)    as soon as practicable but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and

 

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a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(c)    as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “Budget”), approved by the Board of Directors and prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

Notwithstanding anything else in this this Agreement to the contrary, (w) the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date forty-five (45) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective, (x) the Company shall not be obligated to provide information (i) that the Company reasonably determines in good faith to be a trade secret or the Board reasonably determines in good faith to be sensitive confidential information; or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel, (y) the Company may cease providing the information set forth in this Section 3.1 to any Major Investor that the Board of Directors has reasonably and unanimously (excluding any member of the Board of Directors who is affiliated with such Major Investor) determined to be a Competitor of the Company, and (z) any and all information provided to a Major Investor pursuant hereto shall be subject to the confidentiality provisions set forth in Section 3.5 of this Agreement.

3.2    Inspection. The Company shall permit each Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a Competitor of the Company), at such Major Investor’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

 

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3.3    Observer Rights. As long as Novartis owns shares of the issued and outstanding capital stock of the Company, the Company shall invite a representative of Novartis to attend all meetings of the Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if the Board of Directors has reasonably and unanimously (excluding any member of the Board of Directors who is affiliated with Novartis) determined that access to such information or attendance at such meeting (a) would upon advice from the Company’s qualified legal counsel, adversely affect the attorney-client privilege between the Company and its counsel, (b) would result in disclosure of trade secrets, (c) would result in a conflict of interest, or (d) if such Investor or its representative is a Competitor of the Company.

3.4    Termination of Information Rights and Observer Rights. The covenants set forth in Sections 3.1, 3.2 and 3.3 shall terminate and be of no further force or effect upon the earliest to occur of (i) immediately before, but subject to, the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) a Deemed Liquidation Event.

3.5    Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Sections 3.5 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information, or (c) is or has been made Known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.5; (iii) to any existing or prospective Affiliate, partner member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, rule or regulation, provided that the Investor promptly notifies the Company of such disclosure (to the extent permissible) and takes reasonable steps to minimize the extent of any such required disclosure.

 

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4.    Rights to Future Stock Issuances.

4.1     Right of First Offer. Subject to the terms and conditions of this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to (i) each Major Investor, and (ii) only in the event that such an offer or sale of New Securities is a financing in which BMS is entitled to participate in accordance with the provisions of Section 8.1.2 of the BMS License Agreement – also to BMS. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate; provided that each such Affiliate (x) is not a Competitor or FOIA Party, unless such party’s purchase of New Securities is otherwise consented to by the Board of Directors, (y) agrees to enter into this Agreement and the Stockholders Agreement of even date herewith among the Company, the Investors and the other parties named therein, as an “Investor” under each such agreement (provided that any Competitor or FOIA Party shall not be entitled to any rights as a Major Investor under Sections 3.1, 3.2 and 4.1 hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Major Investor holding the fewest number of Preferred Stock and any other Derivative Securities.

(a)    The Company shall give notice (the “Offer Notice”) to each Major Investor and, if applicable in accordance with the foregoing, also to BMS, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

(b)    By notification to the Company within fourteen (14) days after the Offer Notice is given, each Major Investor (and, if applicable in accordance with the foregoing, BMS) may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Major Investor (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Major Investor) bears to the total number of shares of Common Stock of the Company then issued and outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock); provided, that if BMS is entitled to purchase or otherwise acquire a portion of such New Securities in accordance with Section 8.1.2 of the BMS License Agreement, then the number of New Securities each Major Investor is entitled to purchase or acquire hereunder shall be proportionally reduced to the extent required (if at all required) to allow the sale to BMS of that number of New Securities it has elected to purchase or otherwise acquire in such financing in accordance with Section 8.1.2 of the BMS License Agreement, and provided, further, that, notwithstanding anything to the contrary and unless approved by holders of at least a majority of the Registrable Securities then outstanding and held by the Major Investors, in no event shall BMS be entitled to purchase or otherwise acquire any New Securities in excess of the amount it is entitled to purchase in such financing pursuant to Section 8.1.2 of the BMS License Agreement (i.e. as required in order to maintain its eight percent (8.0%) ownership interest in Company (on a fully diluted basis)). At the expiration of such fourteen (14) day period, the Company shall promptly notify each Major Investor that elects to purchase or

 

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acquire all the shares available to it (each, a “Fully Exercising Investor”) of any other Major Investor’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors, which is equal to the proportion that the Common Stock issued and held, or issuable upon conversion of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the number of shares of Common Stock issued and held, or issuable (directly or indirectly) upon conversion of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Section 4.1(b) shall occur within the later of one hundred twenty (120) days after the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.1(c).

(c)     If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.1(b), the Company may, during the ninety (90) day period following the expiration of the periods provided in Section 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.1.

(d)     The right of first offer in this Section 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Certificate of Incorporation), and (ii) shares of Common Stock issued in the IPO.

4.2     Termination. The covenants set forth in Section 4.1 shall terminate and be of no further force or effect upon the earliest to occur of (i) immediately before, but subject to, the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event.

4.3     BMS. The rights of BMS under this Section 4 are an implementation of its participation rights (if and to the extent applicable) under Section 8.1.2 of the BMS License Agreement, and are neither in addition to nor in substitution of the rights of BMS under Section 8.1.2 of the BMS License Agreement.

5.     Additional Covenants.

5.1     Insurance. The Company shall use its commercially reasonable efforts to obtain or renew, if applicable, within ninety (90) days of the date hereof, from financially sound and reputable insurers Directors and Officers Errors and Omissions insurance in an amount and on

 

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terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as the Board of Directors determines that such insurance should be discontinued.

5.2     Board Expenses. The Company shall reimburse the non-employee directors for all reasonable out-of-pocket expenses incurred (consistent with the Company’s policies) in connection with their role as a director of the Company.

5.3     Directors’ Liability and Indemnification. The Company hereby acknowledges that one or more of the directors nominated by holders of Preferred Stock may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their affiliates (collectively, the “Fund Indemnitors”) for alleged acts or omissions in their capacities as directors of the Company. The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to any such director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such director are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by such director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such director to the extent legally permitted and as required by the Certificate of Incorporation or By-laws of the Company (or any agreement between the Company and such director), without regard to any rights such director may have against the Fund Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such director with respect to any claim for which such director has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such director against the Company.

5.5     Right to Conduct Activities. The Company hereby agrees and acknowledges that certain of the Investors and certain of their respective Affiliates are venture capital funds or professional investment funds (collectively, the “Funds”), and as such invest in numerous portfolio companies, some of which may be deemed competitive with the Company’s business (as currently conducted or as may be conducted in the future). The Company hereby agrees that, to the extent permitted under applicable law, none of the Funds shall be liable to the Company for any claim arising out of, or based upon, (i) the investment by any such Fund in any entity competitive with the Company, or (ii) actions taken by any partner, officer or other representative of any such Fund to assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however, that the foregoing shall not relieve (x) any of the Investors from liability associated with the unauthorized disclosure of the Company’s confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.

 

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5.6    FCPA and Anti-Money Laundering Laws. The Company represents that it shall not (and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any Non-U.S. Official (as (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law (including without limitation the United States Money Laundering Control Act of 1986). Upon request, the Company agrees to provide responsive information and/or certifications concerning its compliance with applicable anti-corruption laws. The Company shall promptly notify each Investor if the Company becomes aware of any Enforcement Action (as defined in the Purchase Agreement). The Company shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future, to comply with the FCPA. The Company shall use its best efforts to cause any direct or indirect subsidiary, whether now in existence or formed in the future, to comply in all material respects with all applicable laws.

5.7    Employee Agreements. The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement; and (ii) each Key Employee to enter into noncompetition and nonsolicitation agreement. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any restricted stock agreement between the Company and any employee, without the consent of the Board.

5.8    Employee Stock. Unless otherwise approved by the Board, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such options or shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, and (ii) a market stand-off provision.

 

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5.9     Covenants concerning Harel Group.

(a)    (a) Reorganization. The Company hereby acknowledges that Harel Insurance Company Ltd. (“Harel”) and certain of its Permitted Transferees (together, the “Harel Group”) are subject to certain Israeli laws, which provide, among other things, that the Harel Group is prohibited from making investments in any Restricted Jurisdiction (as defined below), and, accordingly, the Company confirms that it shall not reorganize, reincorporate or redomicile (but shall not be limited from making investments) in any jurisdiction or country which is not (i) a jurisdiction considered to be an “investment grade” as of the date of such reorganization, reincorporation or redomiciliation (currently, a jurisdiction with a rating of BBB or higher), (ii) a permitted country as defined under the Israeli regulations that apply to the Harel Group as of the date of such reorganization, reincorporation or redomiciliation (currently, a jurisdiction with a rating of BBB or an OECD country), or (iii) any such jurisdiction or country that meets such criteria in subsections (i) and (ii) as of the date of such reorganization, reincorporation or redomiciliation (any jurisdiction which is not included in either of subsections (i), (ii) or (iii) - each, a “Restricted Jurisdiction”).

(b)    Governmental Authority. The Company hereby acknowledges that the Commissioner of the Capital Market, Insurance and Savings in Israel has jurisdiction over the Harel Group, and accordingly the Commissioner of the Capital Market, Insurance and Savings in Israel may claim to have jurisdiction with respect to the Company.

(c)    No Pledge. The Company hereby acknowledges that (a) Harel is an institutional investor subject to Israeli law and (b) Harel is prohibited from granting a security interest in, or pledging to any lender of, Harel’s equity interest in the Company, and accordingly, the Company agrees that Harel shall not be obligated to grant a security interest in, or pledge, its equity interest in the Company to any lender.

(d)    Prohibited Tax Shelter Transactions. The Company shall use reasonable efforts not to engage in a transaction that, as of the date that the Company enters into a binding commitment to engage in such transaction, the Company reasonably believes to constitute a “prohibited tax shelter transaction” within the meaning of Section 4965 of the US Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law) (the “Code”). In the event that the Company has entered into such a prohibited tax shelter transaction, or that a transaction previously entered into has since been characterized as a prohibited tax shelter transaction, the Company shall promptly notify Harel of such fact and shall provide any information reasonably requested by Harel to satisfy its own tax filing obligations with respect to such transaction.

(e)    Use of Harel Group’s Name. Neither the Company nor any of its subsidiaries shall identify the Harel Group as investors in the Company in any press release, published notice or other publication without the prior written consent of Harel other than information that is in the public domain.

(f)    Distribution in Kind; Valuation of Securities. The Company hereby acknowledges that the Harel Group is subject to Israeli laws that do not permit Harel to hold

 

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investments in entities formed or organized in countries which are Restricted Jurisdiction. In light of the foregoing, the Company agrees that if it at any time proposes to distribute such securities to its shareholders, no such distribution to the shareholders shall be made until an alternative method with respect to Harel shall be consummated conferring upon Harel the economic benefits of such distribution in a manner that does not result in Harel being in violation of applicable laws. In addition, the Company, if so requested by Harel, shall obtain a bone fide valuation of any securities or property to be distributed thereby to its stockholders from a reputable independent valuation firm, at the Company’s expense.

(g)     Termination. The covenants contained in this Section 5.9 shall terminate upon such time as the Harel Group holds no equity securities of the Company. For as long as the Harel Group holds equity securities of the Company, this Section 5.9 may not be amended or terminated without the prior written consent of Harel.

5.10     Termination of Covenants. The covenants set forth in this Section 5 (except for Section 5.9 hereof, which shall terminate in accordance with Section 5.9(g)) shall terminate and be of no further force or effect upon the earliest to occur of (i) immediately before but subject to the consummation of an IPO or (ii) upon a Deemed Liquidation Event.

6.     Miscellaneous.

6.1     Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; or (ii) after such transfer, holds at least 1,000,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations), or, if less, all of the Registrable Securities held by such Holder; provided, however, that (x) the Company is, concurrently with such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member, shall be aggregated together and with those of the transferring Holder and its Affiliates; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties, including without limitation, the Investor’s Affiliates. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

 

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6.2     Governing Law. This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.

6.3     Counterparts; Facsimile. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other form of electronic transmission method and any counterpart so delivered (with electronic confirmation of delivery) shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

6.4     Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

6.5     Notices. All notices, requests, and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given, delivered and received upon the earlier of actual receipt or (i) upon personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile (with electronic confirmation of delivery) during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties only at their addresses as set forth on Schedule A or Schedule B (as applicable) hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section 6.5. If notice is given to the Company, a copy, which shall not constitute notice, shall also be sent to Haim Gueta, Adv., at Meitar Liquornik Geva Leshem Tal, Law Offices, 16 Abba Hillel Silver Rd., Ramat-Gan, Israel, 5250608.

6.6     Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the Required Holders; provided that the Company may in its sole discretion waive compliance with Section 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 2.12(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, (a) this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed

 

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that a waiver of the provisions of Section 4 of this Agreement by the Required Holders (the “Waiving Holders”) with respect to a particular issuance shall not be effective as to any Investor who has not waived such right of first offer (a “Non-Waiving Holder”) unless (1) no Waiving Holder purchases any New Securities in such issuance or (2) if any Waiving Holder purchases New Securities in such issuance, each Investor shall have been provided the opportunity to purchase up to such Investor’s pro rata share (as calculated in the manner described in Section 4) of all of the New Securities that are allocated for purchase by the Investors), and (b) for as long as the Harel Group holds any equity securities of the Company, the provisions of Section 5.9 (‘Covenants concerning Harel Group’) may not be amended or terminated and the observance thereof may not be waived without the written consent of Harel, (c) for as long as BMS holds any equity securities of the Company, the provisions of Section 4 that refer to BMS may not be amended or terminated and the observance thereof may not be waived without the written consent of BMS, and (d) for as long as Novartis holds any equity securities of the Company, Section 3.3 may not be amended or terminated and the observance thereof may not be waived without the written consent of Novartis. Further, this Agreement may not be amended, and no provision hereof may be waived, in each case, in any way which would adversely affect the rights of the Key Holders hereunder in a manner disproportionate to any adverse effect such amendment or waiver would have on the rights of the Investors hereunder, without also the written consent of the holders of at least a majority of the Registrable Securities held by the Key Holders. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Section 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

6.7    Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

6.8    Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated Person may apportion such rights as among themselves in any manner they deem appropriate.

6.9    Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page or joinder agreement to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

 

27

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6.10    Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.

6.11    Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the State of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of State of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

6.12    Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

28

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[Remainder of Page Intentionally Left Blank]

 

29

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first written above.

COMPANY:

 

AYALA PHARMACEUTICALS, INC.
By:		/s/ Roni Mamluk
Name:		Roni Mamluk
Title:		Chief Executive Officer

Address:

Ayala Pharmaceuticals, Inc.

c/o PHS Corporate Services

1313 N. Market Street, Suite 5100

Wilmington, DE 19801

 

KEY HOLDERS

/s/ Roni Mamluk

Roni Mamluk

[Signature Page to A&R Investors’ Rights Agreement/

December 2018]

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first written above.

 

INVESTORS
Israel Biotech Fund I, L.P						aMoon 2 Fund Limited Partnership
By its general partner:
Israel Biotech Fund GP Partners, L.P.						By:		/s/ Yair Schindel
						Name:		Yair Schindel
By its general partner:						Title:		Managing Partner
I.B.F. Management, Ltd.
By:		/s/ Yuval Cabilly				By:		/s/ Tomer Berkovits
Yuval Cabilly Director						Name:		Tomer Berkovits
						Title:		Managing Director
Harel Insurance Company Ltd.						Bristol-Myers Squibb Company
By:		/s/ Harel Insurance Company Ltd.				By:
Name:						Name:
Title:						Title:
SBI JI Innovation Fund Limited Partnership
By:		/s/ Yusuke Inaba
ID Number: Yusuke Inaba TR9741779
Title:		Authorized signatory of GP

 

[Signature Page to A&R Investors’ Rights Agreement/

December 2018]

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first written above.

 

INVESTORS (continue)
Novartis Institutes for BioMedical Research, Inc.
By:		/s/ Scott A. Brown
Name:		Scott A. Brown
Title:		VP General Counsel

 

[Signature Page to A&R Investors’ Rights Agreement/

December 2018]

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first written above.

 

INVESTORS (continue)
Minick Family Trust						IB Landav Holdings LLC
By:		/s/ Scott Minick				By:		/s/ David A. Crenshaw
Name:		Scott Minick, Trustee				Name:		David A. Crenshaw
Title:						Title:		Managing Member
/s/ Mark Cohen
Mark Cohen						Eddy Shalev
IBF Investors LLC						Novit, LP (US Pharmacia)
By:						By:		/s/ Katarlyna Kusmierz
Name:						Name:		Katarlyna Kusmierz
Title:						Title:		General Partner, Novit US, Inc.
Fridator Trust No. 4						Erongo Ltd.
By:						By:		/s/ C. Spencer
Name:						Name:		C. Spencer
Title:						Title:		Authorised Signatory
Arc Group Ventures LLC						For and on behalf of Corpserve Ltd As sole corporate director of
By:		/s/ Irene Susmano				By:		/s/ J. Brosi
Name:		Irene Susmano				Name:		J. Brosi
Title:		Vice President				Title:		Authorised Signatory

 

[Signature Page to A&R Investors’ Rights Agreement/

December 2018]

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SCHEDULE A

NAME AND CONTACT OF INVESTORS

Israel Biotech Fund I, L.P

Ruhrberg Science Center, 3 Pekeris St., Rabin Science Park, Rehovot, 7670212, Israel

Fax number: +972722514177

Attn.: Sarit Steinberg sarit@israelbiotechfund.com

aMoon 2 Fund Limited Partnership

34 Jerusalem Street, Ra’anana, 4350108, Israel

Attention: Todd Sone; Adv. Michal Goren Miller

Tel +972-733989560; +972-58-6395511

Email: Contact@amoon.fund; todd@amoon.fund; michal@amoon.fund

with a copy to:

Naschitz, Brandes, Amir

Attention: Inbar Mishory Bartal, imishory@nblaw.com

+972-3-6235044, fax: +972-3-6235051

Harel Insurance Company Ltd.

Harel Building, 3 Abba Hillel St., Ramat Gan, 5211802, Israel

Attention: Guy Harmelin

guyha@harel-ins.co.il

Tel +972-37549797; Fax +972-3-7348858

Bristol-Myers Squibb Company

P.O. Box 4000, Route 206 & Province Line Road, Princeton, New Jersey 08543-4000

Attention: Vice President, Business Development

With a copy to: Bristol-Myers Squibb Company, P.O. Box 4000

Route 206 & Province Line Road, Princeton, New Jersey 08543-4000

Attention: Vice President & Assistant General Counsel, Business Development and Licensing

Novartis Institutes for BioMedical Research, Inc.

250 Massachusetts Avenue Cambridge, MA 02139 USA

Attn.: General Counsel

SBI JI Innovation Fund Limited Partnership

Ackerstein Towers B 3rd floor, 11 Hamanofim Street, Herzliya Pituach, 4672562 Israel

Attention: Mr. David Benami

Telephone: +972 52 3678910

Email: david@sbi-ji.co.il

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With a copy to:

Attention: Mr. Yusuke Inaba

Telephone: + 972-50-9059742

Email: yusuke@sbi-ji.co.il

Minick Family Trust

774 Mays Blvd Suite 10-510, Incline Village, NV 89451, US

scott1minick@gmail.com

Mark Cohen

[XXX]

[XXX]

Eddy Shalev

[XXX]

[XXX]

IB Landav Holdings LLC

756 Warren St. Westfield NJ 07090, US

ellkay18@gmail.com; david.a.crenshaw@icloud.com

Attention: Lance Kaplan; David Crenshaw

IBF Investors LLC

801 Key Highway, #110 Baltimore, MD 21230, US

bsholk@axcelpartners.com

Attention: Bruce Sholk

Novit, LP (US Pharmacia)

966 Hungerford Dr. Ste. 3B Rockville MD 20850, US

k.kusmierz@uspiusa.com

Attention: Kasia Kusmierz

Fridator Trust No. 4

40 rue de Geneve, CP 471, 1225 Chene-Bourg, Switzerland

mark@kernohan.ch

Attention: Mark Kernohan

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Erongo Ltd.

2nd Floor, O’Neal Marketing Associates Building, Wickham Cay II PO Box 3174 Road Town Tortola BVI

jbroll@catalyst.co.za; ari@ciderinvestments.com; jacqueline.brosi@earlfiduciary.com

Attention: Jonathan Broll; Ari Fried; Jacqueline Brosi

Arc Group Ventures LLC

655 Third Avenue, 28th Floor NY NY 10017, US

isusmano@arcny.com; korff@arcny.com; rpayne@arcny.com

Attention: Irene Susmano; Joseph Korf; Rachel Payne

SCHEDULE B

NAME AND CONTACT OF KEY HOLDERS

Roni Mamluk

[XXX]

[XXX]

Exhibit 10.4

This is a translation into English of the final Hebrew version of the Lease Agreement. In the event of a conflict between the English and Hebrew texts, the Hebrew text shall prevail.

Lease Agreement

Made and executed in Tel Aviv on the 24th day of January, 2019

 

Between:		Ogen Yielding Real Estate Ltd., Company Reg. No. 520033093 Of 3 Har Sinai St., Tel Aviv (Hereinafter: the “Landlord”)   The first party;
And between:		AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697 Of 7 Openheimer St. Tel.: 08-3731541; Fax: 08-9918945 (Hereinafter: the “Tenant”)   The second party;

 

1.	Definitions and recitals

As used in this Agreement, the following terms shall have the respective meanings set forth beside them below:

 

1.1.

The Land – parcels 212 and 213 (previously parcels 74 and 147) in block no. 3695.

 

1.2.

The Lot – Lot No. 2002 in accordance with the Urban Building Plan (UBP) that will be created in the Land, as part of a repeated division and consolidation procedure, and on which the Building is built, within its meaning hereunder.

 

1.3.

The UBP – all plans that apply and/or that will apply to the Land.

 

1.4.

The Drawings – the drawings for the construction of the Leased Premises, within their meaning, in shell level, hereby attached as Appendix A of this Agreement.

 

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2

Unofficial English translation from Hebrew original

 

1.5.

Tenant’s Drawings – the drawings for the performance of finishing works in the Leased Premises hereby attached as Appendix C of this Agreement.

 

1.6.

The Commercial Center – a center for different commercial purposes and that includes 2 commercial floors and that the Landlord built on the Land and that is designated for lease and that is actually leased to different tenants.

 

1.7.

Building F – a 10-floor building that was built above the Commercial Center and in which different leased premises are situated, marked in the Project drawings as Building F.

 

1.8.

Building G or the Building – a building with a commercial ground floor, a commercial lobby floor and offices, in addition to 16 office floors, a technical roof, a bridge built above the Parking Lot, within its meaning hereunder and where the Leased Premises are situated, as defined hereunder.

 

1.9.

The Parking Lot – a parking lot with two floors of parking basements and that is situated in the area of the Project.

 

1.10.

The Project – the Commercial Center, Building F, the Building and the Parking Lot, and any other building that will be built, if any, on the Land, and known by the name of ‘Weizmann Business Park – Rehovot.’

 

1.11.

The Offices – an area of approximately 962 sq.m. gross that is situated and that constitutes a certain part of floor 3 in the Building and that is marked and highlighted in red in the blueprint hereby attached as Appendix A’1 of this Agreement.

 

1.12.

The Parking Spaces – 15 reserved Parking Spaces in the Project Parking Lot, marked and highlighted in red in the blueprint hereby attached as Appendix A-2 of this Agreement, when the provisions set forth in the Parking Appendix, Appendix A’3 of this Agreement shall apply thereto.

 

1.13.

The Leased Premises – the Offices and the Parking Spaces, within their meaning above.

 

1.14.

Area of the Leased Premises – for the purpose of this Agreement including for the purpose of calculating the rent that will be paid in accordance with this Agreement and for the purpose of the Management Agreement the Area of the Leased Premises is 962 sq.m.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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3

Unofficial English translation from Hebrew original

 

1.15.

Index – the consumer price index (including fruits and vegetables) published by the Central Bureau of Statistics including the same Index even if published by another government institution and an official index superseding the same, whether or not structured on the same data as the existing Index. In the event another Index supersedes the Index the ratio between the other Index and the substituted Index will be set by the Central Bureau of Statistics, and in the event the Central Bureau of Statistics does not set such a ratio as said the ratio between the indexes will be set by the President of the Institute of Certified Public Accountants in Israel or whoever he appoints for the purpose of this matter and his decision shall be final and shall bind the parties.

 

1.16.

The Basic Index – the index known on the date of signing this Agreement.

 

1.17.

The Determining Index – the Index known on the date of paying each payment in accordance with this Agreement, however in any event the Determining Index will not fall below the Basic Index.

 

1.18.

The Contractor – Danya Cebus Ltd., Company Reg. No. 512569237.

 

1.19.

The Management Agreement – the Landlord or any other company appointed by the Landlord for the purpose of managing the Project, whether by itself and whether by a subcontractor on its behalf.

 

1.20.

Public areas – areas in the interior parts of the Building, within its meaning above, other than the areas of the Leased Premises and/or the other leased premises and/or areas designated for lease, including all structures, additions and modifications added to the Building from time to time and the areas of roofs, passageways, entries and exits, areas of the Parking Lot, parking areas, service areas and rooms, interior courtyards and/or service corridors, technical areas such as electrical rooms, air-conditioning and systems, loading and unloading areas, elevators, stairs and any other area in the area of the Building designated or that is actually used by the visitors and tenants of the Building and protected spaces and that the Landlord is entitled to handle in any manner it deems fit without obtaining the approval of the different right holders in the Project, including all areas in the Project that are situated outside the area of the Building and that are designated to be used by the public and the visitors in the Building including roads, access roads, pavements, gardens, signs, open parking spaces and the like.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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4

Unofficial English translation from Hebrew original

 

1.21.

“Linked,” “Linkage Differentials,” “Linked Values,” – and any similar expression shall mean the multiplication of the relevant amount by the rate of the ratio between the Index that was recently published before making the calculation and/or the relevant payment and the Basic Index, or the rate of the ratio between other indexes, if stated expressly.

 

1.22.

Interest in Arrears – an interest according to the rate of the Index and with the addition of 1% (one out of a hundred) for every 30 days, calculated on daily basis.

 

1.23.

Maintenance Fees/Management Fees – all payments that the Tenant is obligated to pay to the Management Company in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in the Management Agreement.

 

1.24.

Customization Works – the customization works that the Tenant will perform for the purpose of customizing the Leased Premises for the Tenant’s specifications and requirements.

 

1.25.

Landlord’s Account – account no. 5263 in branch no. 063 (Ayalon business) in Bank Hapoalim Ltd., in the Landlord’s name, or any account as instructed in writing by the Landlord to the Tenant.

 

1.26.

Quarter – January to March, April to June, July to September, October to December in each calendric year.

 

1.27.

Delivery Date/Lease Commencement Date – February 1, 2019.

 

1.28.

The Architect – whoever is appointed/will be appointed by the Landlord as the Project Architect.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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5

Unofficial English translation from Hebrew original

 

Recitals

 

Whereas:		The Landlord owns the Land and is the sole possessor of the Land.
And whereas:		The Landlord built on the Land a Project that includes, inter alia, the Commercial Center, Building F and the Parking Lot, and as of the date of signing this Agreement the construction works in the Building where the Leased Premises are situated are still in progress;
And whereas:		The Tenant offered to lease from the Landlord in unprotected lease the Leased Premises that are situated in the Building for the purpose of managing the Tenant’s offices, as stated in this Agreement hereunder;
And whereas:		The Landlord wishes to lease the Leased Premises to the Tenant in unprotected lease and all for the purpose and under the conditions set out in this Agreement hereunder;

Therefore, it is Declared, Stipulated and Agreed between the Parties as Follows:

 

2.	Preamble and Appendixes

 

2.1.

The preamble to this Agreement including Recitals and Appendixes thereof constitute an integral part hereof.

 

2.2.

The following are the appendixes of this Agreement:

 

Appendix A 1, 2		-		Blueprints of the Leased Premises (shell, offices, Parking Spaces, to the extent that there are Parking Spaces in the Leased Premises);
Appendix A’3		-		Parking Appendix;
Appendix B		-		Technical Specification (Landlord’s works – shell level);
Appendix C		-		Tenant’s drawings – for full finish level;
Appendix D		-		Authorization to debit account;
Appendix E		-		Insurance Appendix and Certificates of Insurance (construction period and Term of Lease);
Appendix F		-		Canceled;

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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6

Unofficial English translation from Hebrew original

 

Appendix G		-		Bank guarantee;
Appendix H		-		Promissory note;
Appendix I		-		Minutes of the Tenant;
Appendix I’1		-		Minutes of the Landlord;
Appendix J		-		Signage Appendix;

 

3.

The lease

Subject to the fulfillment of the entire fundamental undertakings of the Tenant as stated in the Agreement, the Landlord hereby undertakes to lease the Leased Premises to the Tenant and the Tenant hereby undertakes to lease the Leased Premises from the Landlord in accordance with the provisions set forth in this Lease Agreement.

 

4.	Declarations of the parties

 

4.1.

Declarations of the Landlord

 

The

Landlord hereby declares, warrants and affirms as follows:

 

4.1.1.

It is the registered owner of the Land and the sole possessor of the Land, including of the Leased Premises, and its engagement in this Agreement does not constitute an undertaking towards a third-party and the approval of any entity for the lease contemplated in this Agreement is not required.

 

4.1.2.

There is no preclusion, under any law and/or agreement, preventing its engagement in this Agreement, and all subject to the entire conditions, arrangements and provisions set forth in this Agreement hereunder.

 

4.1.3.

Subject to the truthfulness of the declarations made by the Landlord in this Agreement, it is clarified that the declarations of the Landlord shall not derogate from the obligations of the Tenant to conduct all inspections as stated in Section 4.2 hereunder under its responsibility and at its expense.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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7

Unofficial English translation from Hebrew original

 

4.1.4.

The Building was built in accordance with the law, according to building permits that were lawfully issued and Form 4 was issued for the Building.

 

4.1.5.

The Landlord is a company registered in Israel, no resolution regarding its liquidation was adopted and this Agreement is signed by the authorized signatories on behalf of the Landlord, and the mere engagement in this Agreement is made in accordance with the instruments of incorporation of the Landlord. A copy of the minutes of the Landlord, including an acknowledgement made by the legal counsel of the Landlord with respect to the validity of the said resolution are hereby attached as Appendix I’1.

 

4.1.6.

Its rights in the Leased Premises are free from any third-party rights, including a pledge and/or a charge and/or an attachment and/or an administrative and/or a judicial order, and the Landlord shall be solely entitled to lease the Leased Premises and receive the rent in accordance with this Agreement during the entire Term of Lease as stated in this Agreement.

 

4.1.7.

To the best of its knowledge there is no legal action of any kind that is pending and that might cause the Landlord to fail in the fulfillment of its undertakings in accordance with this Agreement.

 

4.1.8.

The Landlord undertakes not to permit the placement of cellular antenna for commercial use (except for reception amplifiers) in the Building and in all other areas in the Project.

 

4.1.9.

This Section (including sub-sections thereof) is a fundamental and basic condition in this Agreement.

 

4.2.

Declarations of the Tenant

The Tenant hereby declares, warrants and affirms as follows:

 

4.2.1

It actually saw and inspected independently the Land and the area where the Land is situated and saw and inspected the general drawings for the construction of the Project including the Building, in their condition at the time of signing this Agreement and in general the drawings for the construction of the Leased Premises

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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8

Unofficial English translation from Hebrew original

 

and the location of the Leased Premises in the Building, including the performance of inspections with respect to the zoning classification of the Building including the Leased Premises, and the options of use of the Leased Premises and that it or anyone acting on its behalf received the full information they requested; and after conducting all the inspections as said and subject to the truthfulness of the Landlord’s declarations in this Agreement it found all of the aforesaid satisfying and in compliance with its requirements and specifications and it hereby waives any claims regarding a non-conformance in connection with any of the aforesaid matters, except for claims regarding a defect and/or failure and/or a latent defect and/or that the Landlord knew and that the Landlord did not disclose to the Tenant.

 

4.2.2

It acknowledges that after delivery of possession in the Leased Premises the construction works in the Project will continue, including the works for the purpose of completing and/or customizing areas in the Building for different tenants and/or the construction of other structures on the Land and/or development works in the Land and it declares that it shall not have any claims and/or demands and/or suits against the Landlord in connection therewith, and provided that all of the following conditions are satisfied cumulatively: (1) the works shall not constitute an unreasonable nuisance preventing its use of the Leased Premises; (2) the proper access to and from the Leased Premises shall be maintained at all times. This condition is a fundamental condition in this Agreement.

 

4.2.4

The Tenant acknowledges that different businesses will operate in the Project and the Building, including commercial units and areas, in a mix that will be decided by the Landlord and at its sole discretion. The Tenant waives in advance any claim regarding the type of the businesses conducted in the different leased premises in general, and in the areas of the Building and the commercial areas in particular, including with respect to their nature and standard, and any claim regarding the scope of their activities, their opening days and hours, entry and exit arrangements to and from them and to the Commercial Center, the Parking Lot and the Building, and provided that that this shall not constitute a nuisance preventing the use of the Tenant of the Leased Premises from 08:00-19:00.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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9

Unofficial English translation from Hebrew original

 

4.2.5

It acknowledges that the Landlord shall be entitled to limit and/or prevent completely the operation of a business or businesses for certain purposes in the Project, in the Commercial Center, in Building F and in the Building and/or grant exclusivity to a certain business or businesses from time to time, and it is aware that the Landlord shall be entitled to operate in the Commercial Center, in Building F and in the Building a number of businesses of the same type and for the same purpose, at the sole discretion of the Landlord and without any limitations, and provided that the nature of the Building as an office building will not be affected thereby and that the commercial use will not affect the reasonable use of the Tenant in the Leased Premises. Subject to the aforesaid provisions, the Tenant shall be estopped from arguing and it hereby waives irrevocably any claim and/or demand and/or suit against the Landlord for the purpose of this matter.

 

4.2.6

There is no preclusion preventing its engagement in this Agreement and the full and timely fulfillment of its entire undertakings in accordance with this Agreement.

 

4.2.7

It leases the Leased Premises based on its own inspections and/or the inspections conducted by anyone acting on its behalf and it does not rely on any assurance, representation or an undertaking made by the Landlord and/or anyone acting on its behalf, except for the declarations and undertakings of the Landlord as stated in this Agreement.

 

4.2.8.

It adopted a resolution in accordance with the provisions set forth in any law and in accordance with its instruments of incorporation confirming its engagement in the transaction contemplated in this Agreement for the purpose of leasing the Leased Premises subject matter of this Agreement and the fulfillment of its entire undertakings in accordance with this Agreement. A copy of the minutes of the Tenant, including an acknowledgement by the legal counsel of the Tenant confirming the validity of the said resolution is hereby attached as Appendix I. The minutes of the Tenant, together with a “true and certified” copy of the certificate of incorporation of the Tenant will be delivered to the Landlord at the time of signing this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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4.2.9

The Tenant and/or anyone acting on its behalf will perform the Customization Works in accordance with the provisions set forth in any law. Breach of this Section shall constitute a fundamental breach of this Agreement.

 

4.2.10

This Section (including all sub-sections thereof) is a fundamental and material condition in this Agreement.

 

5.	Area of the Leased Premises for the purpose of calculating the rent

The “Area of the Leased Premises” or the “Area Chargeable with Rent” shall be the following:

 

5.1.

The area of the offices is approximately 962 sq.m. (gross exterior dimensions, with the addition of the relative part in the common property designated for the use of all or part of the users in the Building), and all as stated in the blueprint hereby attached as Appendix A’1 of this Agreement.

The total area as said constitutes and shall be referred in this Agreement as “Area Chargeable with Rent.” It is clarified that the area stated in this Section above (962 sq.m.) which is the area chargeable with rent, the management fees and all other payments that the Tenant owes in accordance with this Agreement, includes an additional area that will be considered as an integral part of the Area of the Leased Premises for all intents and purposes (and that constitutes part of the common property in the Building).

 

5.2.

To the extent that there are any deviations or changes with relation to the Areas of the Leased Premises and the information stated in this Agreement and the records kept by the municipality, the aforesaid shall not derogate from any of the amounts owed by the Tenant in accordance with this Agreement and the Tenant shall have no claim and/or demand and/or suit against the Landlord in connection with the said deviations and/or changes as said.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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6.	Purpose of Lease

 

6.1.

The Tenant declares and warrants that it leases the Leased Premises solely for the purpose of operating research and development laboratories for pharmaceutical products and offices, and not for any other purpose (this purpose as said shall be referred hereinafter: the “Purpose of Lease”).

Breach of the provisions set forth in this Section 6.1 above shall constitute a fundamental breach of this Agreement.

 

6.2.

The Tenant undertakes to operate its business in the Leased Premises solely in accordance with the Purpose of Lease, without any deviations and without deviating in any manner from the Purpose of Lease. Any modification or expansion of the Purpose of Lease are subject to the prior and written approval of the Landlord and the Landlord shall be entitled not to perform any modification or expansion as said, for any reason and at the reasonable discretion of the Landlord.

Breach of the provisions set forth in this Section 6.2 shall constitute a fundamental breach of the Agreement.

 

6.3.

Without derogating from the generality of the aforesaid, the Tenant confirms that it is aware that the operation of the Leased Premises while changing or deviating from the Purpose of Lease, except for being a fundamental breach of this Agreement as stated above, might result in breach of lease agreements and/or other authorization agreements made between the Landlord and other tenants in the Commercial Center and/or in Building F and/or in the Building and cause other damages to the Landlord, including damages to the reputation and to the good name of the Landlord and therefore the Landlord may obtain, in any circumstances in which the business in the Leased Premises is managed in deviation from or in violation of the Purpose of Lease, an injunction against such operation as said, inter alia. The Tenant shall indemnify and compensate the Landlord, within a reasonable time taking into consideration the circumstances, in respect of any damage and/or expense and/or loss caused to the Landlord as a result of a suit brought by a tenant and/or an authorized party and/or any other damage as said (hereinafter in this Section: “Other Damage”) and all without derogating from any relief and/or remedy and/or right granted to the Landlord in accordance with the Agreement and/or in accordance with the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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provisions set forth in any law, and all on the condition that the Landlord notified the Tenant about such a suit as said within a reasonable time as of the day the Landlord learned about its existence, and on the condition that the Landlord afforded to the Tenant an opportunity to defend against such a suit as said, whether by its addition as a third-party to the said suit, whether by its inclusion in the defense of the Landlord against the suit, whether by affording an opportunity to the Tenant to defend against the suit on behalf of the Landlord and all at the discretion of the Landlord.

 

6.4.

The Tenant declares and warrants that it possesses the know-how, experience and capability to operate its business as stated in the Purpose of Lease.

 

6.5.

The Tenant agrees and declares that it is aware that the Landlord might – following its decision and at its sole discretion – grant exclusivity and/or exclusive use for certain businesses operated in the Commercial Center and/or in Building F and/or in the Building and/or act for the purpose of preventing the operation of certain businesses and create a balance and/or a business mix in any manner that the Landlord deems fit, at its sole discretion, in connection with the types of businesses operating in the Commercial Center, in Building F and in the Building, and provided that the Building will remain in essence an office building.

 

7.	The Term of Lease and the additional terms of lease (option)

The First Term of Lease –

 

7.1.

The First Term of Lease in accordance with this Agreement is for a period of 63 months (5 years and 3 months) and shall commence on the delivery of possession date in the Leased Premises to the Tenant as stated in Section 12.1 hereunder, i.e. on February 1, 2019 and shall expire on April 30, 2024 (hereinafter: the “First Term of Lease”).

 

7.2.

The Second Term of Lease – the Tenant is hereby granted an option to extend the Term of Lease, beyond the First Term of Lease, by an additional Term of Lease of 60 months (5 years) that shall commence upon expiration of the First Term of Lease (hereinafter: the “Second Term of Lease”).

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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7.3.

Extension of the Term of Lease by the Second Term of Lease – upon expiration of the First Term of Lease the Term of Lease shall be extended in the manner set out hereunder for the entire Second Term of Lease, which is subsequent to the First Term of Lease, as stated above, and under the conditions set out in this Section, and solely upon the fulfillment of the entire cumulative conditions as follows:

 

7.3.1.

The Tenant did not commit a fundamental breach of this Agreement and the said breach was not cured after receiving a written notice at least 14 days in advance.

 

7.3.2.

No litigation is held between the parties in court and/or arbitration proceedings.

 

7.3.3.

The Tenant will deliver written notice to the Landlord, which notice shall be received by the Landlord at least 6 (six) months prior to the expiration of the First Term of Lease, regarding its wish to extend the Term of Lease.

 

7.3.4.

In the event the Term of Lease was extended as stated above, the entire provisions set forth in this Agreement shall fully apply also during the relevant Term of Lease, and the additional and relevant Term of Lease shall be deemed as part of the Term of Lease for all intents and purposes, except for the Rent to which the provisions of Section 8 hereunder shall apply. For the avoidance of doubt, it is clarified that the extension of the Agreement in accordance with the provisions set forth above will cause an automatic extension of the Term of Lease and a corresponding and identical extension of the Management Agreement.

 

7.4.

In the event the First Term of Lease was not extended in accordance with the provisions set forth above, this Agreement shall be terminated upon expiration of the relevant Term of Lease, as the case may be, and the Tenant shall have no suit and/or claim and/or demand against the Landlord regarding the termination of the Term of Lease as said, and the Tenant shall vacate the Leased Premises upon expiration of the relevant Term of Lease in accordance with the provisions set forth in this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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7.5.

The Tenant shall not be entitled to terminate the lease and/or vacate the Leased Premises prior to the expiration of the Term of Lease and/or prior to the expiration of the relevant Term of Lease that was extended or that entered into force however only in accordance with the provisions set forth in this Agreement. If, notwithstanding the aforementioned, the Tenant vacates the Leased Premises prior to the expiration of the Term of Lease as said for any reason, and without being entitled explicitly to act in the said manner in accordance with the provisions set forth in this Agreement, the entire undertakings of the Tenant as stated in the Agreement and Appendixes thereof shall continue to apply and the Tenant shall be obligated among other things (but not limited to), to pay on time to the Landlord and/or to the Management Company and/or to any third-party, as the case may be, inter alia, all payments of any kind applicable in accordance with the Agreement including Appendixes thereof – until the expiration of the relevant Term of Lease that was extended or that entered into force or until a substitute tenant is found for the Leased Premises in accordance with the provisions set forth in Section 20.1 hereunder, whichever is earlier, and subject to the statutory obligation of the Landlord to mitigate its losses.

 

7.6.

For the avoidance of doubt it is clarified that the said in Section 7.5 above shall not derogate from the right of the Landlord in accordance with the Agreement and/or in accordance with the provisions set forth in any law including, and without derogating from the generality of the aforesaid, its right to order the Tenant to vacate the Leased Premises.

 

7.7.

For the avoidance of doubt it is clarified that upon expiration of the Second Term of Lease (in the event the Term of Lease entered into force in accordance with the provisions set forth in this Agreement) this Agreement shall be terminated and the Tenant shall have no right and/or option to extend this Agreement by an additional term, and the Tenant shall have no suits and/or demands and/or claims against the Landlord in respect of termination of the Agreement as said and the Tenant shall vacate the Leased Premises in accordance with the provisions set forth in this Agreement hereunder.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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8.

Rent Fees

The Tenant will pay to the Landlord the “Total Rent” within its meaning hereunder for the entire Term of Lease/Term of Lease, as detailed in section 7 herein, and all in accordance with the following provisions:

It is clarified that the “Total Rent” is the amount of the “Basic Rent” and the “Basic Customization Costs” within the meaning of these terms in Section 8.13 and 8.14 hereunder.

Rent for the office areas

 

8.1.

During the First Term of Lease – in respect of each month during the First Term of Lease the Tenant will pay to the Landlord total monthly Rent in the amount of NIS 78.4 (in words: seventy-eight new Israeli shekels and forty agora) for each 1 sq.m. of the Area of the Leased Premises multiplied by the “Area Chargeable with Rent” as stated in Section 5.1 above (hereinafter: the “Total Rent”).

 

8.2.

The Total Rent for the Second Term of Lease will be updated and will total the amount obtained from the Total amount of the Rent according to its rate in the last full month of the First Term of Lease in accordance with the provisions set forth in this Agreement with the addition of linkage to the Index (hereinafter: the “Linked Rent”) with the addition of 7% (seven percent) from the said Linked Rent (hereinafter: the “Total Rent during the Second Term of Lease”).

 

8.3.

The Total Rent set out in this Agreement will be linked to the Basic Index for the entire terms of lease and linkage differentials to the Index shall be added to the Rent.

 

8.4.

The said linkage differentials will be calculated for all intents and purposes as part of the Rent. The Rent, with the addition of the linkage differentials, shall be referred hereinabove and hereinafter: the “Rent.”

 

8.5.

Rent for the Parking Spaces of the Leased Premises – the Rent and the Management Fees in respect of the Parking Spaces in the Leased Premises shall be in the amount of NIS 475 in respect of each single Parking Space in addition to VAT and in addition to linkage to the Basic Index. For the avoidance of doubt it is clarified that the Rent in respect of a Parking Space also includes the Management Fees in respect of the Parking Space however not the municipal taxes for the Parking Spaces that the Tenant will pay directly to the municipality, and not the signage costs that will be paid directly to the Landlord (in the amount of NIS 100 for each single sign).

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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8.6.

The Tenant will pay to the Landlord in advance the Rent for each quarter (3 calendric months) during the Term of Lease, on the first business day of each quarter. “Business day” shall mean – each of the weekdays Sun. – Thurs. in which the banks in Israel actually conduct business.

 

8.7.

It is clarified that the delivery and/or the deposit of a check and/or of any note with the Landlord and/or the Management Company and/or the provision of the authorization to debit account shall not be deemed in any manner as payment however only after the moneys and/or the payments as said are actually cashed.

 

8.8.

Without derogating from any other provision in this Agreement, the Tenant undertakes to pay the Rent to the Landlord and the Management Fees to the Landlord or the Management Company and all other payments of any kind imposed on the Tenant in accordance with the Agreement and/or in accordance with the provisions set forth in any law to the Landlord and/or to the relevant entity as the case may be.

 

8.9.

It is hereby agreed that the Tenant shall be obligated to pay to the Landlord the Interest in Arrears, within its meaning above, in respect of the amount for payment as said in respect of any payment that is not paid on the date set for its payment in this Agreement, and calculated as of the date of the required payment as said and until the actual payment date – in addition to and without derogating from any relief and/or remedy and/or right granted to the Landlord in accordance with the Agreement and/or in accordance with the provisions set forth in any law, after delivery of written notice by the Landlord.

 

8.10.

The Landlord hereby gives to the Tenant an irrevocable instruction to pay the Rent to the Landlord’s Account, as stated in Section 1.24 above, by an authorization to debit account as stated in Section 8.11 hereunder.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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8.11.

Payments arrangement by the authorization to debit account – the Tenant hereby grants authorization to the Landlord and the Landlord hereby receives the instruction of the Tenant to debit the Tenant’s account for the amount of the Rent and the Management Fees and any other payment that the Tenant undertook to pay in this Lease Agreement. At the time of signing this Agreement the Tenant will sign an authorization letter to the bank in the form hereby attached as Appendix D of this Agreement for the purpose of debiting the Tenant’s account in the bank (hereinafter: the “Authorization Letter”). The Tenant undertakes not to cancel or modify the Authorization Letter or any of its instructions prior to the expiration of the Term of Lease, or prior to the date of returning possession in the Leased Premises to the Landlord, whichever is later. This condition is a material and fundamental condition in this Agreement.

 

8.12.

“Allocation transaction” – it is clarified that the lease contemplated in this Agreement is an “allocation” transaction. The Area of Leased Premises is allocated to the Tenant in “shell” condition (as stated in Appendix B) and the Tenant undertakes to perform the Customization Works in the Leased Premises by itself and at its expense and according to its requirements and specifications. Subject to the performance of the Customization Works by the Tenant, the Landlord undertakes to participate in the costs of the basic customizations by payment of participation fees, on the dates and in the following rates:

 

8.12.1.

25% of the participation fees – at the end of the first month of the customizations period.

 

8.12.2.

30% of the participation fees – at the end of the second month of the customizations period.

 

8.12.3.

25% of the participation fees – at the end of the third month of the customizations period.

 

8.12.4.

10% of the participation fees – after obtaining the certificate of the National Fire and Rescue Authority.

 

8.12.5.

10% of the participation fees – upon completion of the Customization Works by the Tenant, obtaining as-made plans (including the plans in PDF and DWG files), facility manual and all certificates of occupancy for the Leased Premises.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Payment shall be made subject to the presentation of invoices of the contractors on behalf of the Tenant. It is clarified that if, on the date stated above, works were performed for an amount that is lower from the percentage of the participation fees that the Landlord is required to pay, then the unpaid amount will be added to the next amount of payment, and so on (for example and for the sake of illustration: in the event that, at the end of the first month 10% of the participation fees were paid, at the end of the second month the Tenant shall be entitled to 45% of the participation fees, assuming that the works that total this amount were performed, and if such works were not performed – the payment for the works that were not yet performed will be delayed until the next payment date, and so on and so forth).

For the avoidance of doubt, it is clarified that the amount of the participation fees will be paid only for the performance of the construction works that are performed in the shell of the Leased Premises and in the utilities of the Leased Premises (such as flooring, partitions, paint works, ceilings, doors, electricity, air-conditioning, plumbing utilities etc.).

For the avoidance of doubt, it is clarified that the amount of the participation fees that the Landlord undertakes to pay to the Tenant is NIS 2,000/1 sq.m. in addition VAT multiplied by the area chargeable with the Rent, within its meaning in Section 5.1 above.

It is agreed that in the event there is a difference of opinion between the parties regarding the payment of the participation fees or any part thereof, the Landlord undertakes to pay to the Tenant the undisputed amount, and with respect to the disputed amount – the parties will approach Mr. Yossi Shalev or Mr. Eddie Koren, as decided by the parties (hereinafter: the “Agreed Arbitrator”) for the purpose of deciding about the disputed amount, and it is agreed that the decision of the Agreed Arbitrator shall bind the parties to this Agreement. In the event the Agreed Arbitrator decides that the Landlord is obligated to pay to the Tenant, the Landlord undertakes to pay the amount set by the Agreed Arbitrator to the Tenant in 30 days as of the date of receiving the decision of the Agreed Arbitrator. Both parties to this Agreement will pay the fees to the Agreed Arbitrator, in equal parts between them. In the event Mr. Yossi Shalev and Mr. Eddie Koren are unable to serve as an Agreed Arbitrator, the parties to this Agreement will request from the Chairman of Association of Engineers, Architects and Graduates in Technological Sciences in Israel to appoint another Agreed Arbitrator.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Breach of the provisions set forth in this Section 8.12 shall constitute a fundamental breach of the Agreement.

The ‘Basic Monthly Rent’ in respect of the shell of the Leased Premises is in the amount of NIS 57/1 sq.m. in addition to VAT, multiplied by the area chargeable with Rent set out in Section 5.1 above (hereinabove and hereinafter: the “Basic Rent”).

Basic cost of customizations – the addition to the Basic Monthly Rent that the Tenant will pay in respect of the monthly cost of customizations set out between the parties as stated in this Agreement is NIS 21.4/1 sq.m. in addition to VAT, multiplied by the area chargeable with Rent set out in Section 5.1 above (hereinafter: the “Basic Customizations Cost”).

 

8.13.

The Basic Customizations Cost was set according to the agreed key which is an addition of NIS 1.07/1 sq.m. for every NIS 100/1 sq.m. that the Landlord invested in the customizations of the Leased Premises for the Tenant’s requirements and specifications.

 

8.14.

It is clarified and emphasized that the Total Rent set out for the purpose of this Agreement, including the investment made by the Landlord in the costs of the customizations of the Leased Premises for the Tenant’s requirements and specifications in the amount of NIS 2,000 per 1 sq.m. gross as stated in this Agreement were set by the Landlord based on the Tenant’s notice that it intends to realize the entire First Term of Lease set out in this Agreement.

 

8.15.

For the avoidance of doubt, it is agreed that the participation amount is paid to the Tenant based on the assumption that the Tenant will stay in the Leased Premises at least 5 years (at least until the expiration of the First Term of Lease). It is further clarified that in the event the Tenant vacates the Leased Premises after 5 years (upon expiration of the First Term of Lease) the Tenant shall not be obligated to pay to the Landlord any returns for the participation fees.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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8.16.

The entire collateral set out in this Agreement will also serve as collateral for the purpose of securing the return of the relative customization costs to the Landlord. The Landlord shall be entitled to realize the collaterals in its possession, inter alia, also for the purpose of collecting overdue Rent (and that also include a component for the customization costs) from the Tenant and in accordance with the provisions set forth in this Agreement. For the avoidance of doubt it is clarified that in any event and under any scenario in accordance with this Agreement, the customizations that were performed in the Leased Premises, whether within the framework of the finishing works for shell level and whether within the framework of the performance of the Tenant’s Customization Works and that are affixed to the Leased Premises, shall constitute the sole property and property of the Landlord and the Tenant shall not be entitled to any indemnity and/or compensation and/or payment of any kind and shall not dismantle or take possession therein and/or property and/or any right of any kind. This condition is a fundamental and basic condition in this Agreement. The aforesaid shall not derogate from the arguments of the Tenant in the event this Agreement is terminated earlier due to the fault of the Tenant and/or anyone acting on its behalf.

 

8.17.

Exemption from the Rent for the customizations period and the exemption period – notwithstanding anything to the contrary herein, the Tenant shall not pay to the Landlord Rent for the Leased Premises (and for the Parking Spaces that will be delivered to the Tenant upon expiration of the exemption period and as of this date henceforth the Rent and the other payments shall be made in respect whereof) in respect of the Term of Lease of 90 days commencing on the Delivery Date and during which the Tenant performs Customization Works in the Leased Premises, however the other payments in connection with the Leased Premises shall apply to the Tenant during the exemption period (including Management Fees, municipal taxes and all other mandatory payments stemming from the possession and the use of the Leased Premises). Without derogating from the other provisions set forth in this Agreement, it is agreed that against the waiver of the Landlord of the Rent during the exemption period as said, upon expiration of the Term of Lease or upon the termination of this Agreement for any reason, subject to the provisions of Section 19 hereunder, all improvements and customizations that are permanently affixed to the Leased Premises and that are performed by the Tenant or by anyone acting on its behalf shall become the exclusive and sole possession and property of the Landlord. For the avoidance of doubt it is clarified that upon expiration of the exemption period the exemption will be canceled, and the Tenant will pay to the Landlord all payments the Tenant is obligated to pay in accordance with the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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provisions set forth in this Agreement, including the Rent in accordance with the provisions set forth in this Agreement, unless there was a delay in the completion date of the Customization Works in respect of an act and/or omission of the Landlord and/or the Management Company and/or anyone acting on their behalf, and in such circumstances as said this shall result in a corresponding delay in the dates of the payments made in accordance with this Agreement.

 

8.18.

It is agreed that the Tenant shall be responsible for building the wall that will separate the Area of the Leased Premises and the other areas in the floor and for building the wall that will create the connecting corridor (as marked in the blueprint) and the leveling of the floor to 3cm in areas where this is required, however the performance costs of these works shall apply to the Landlord and shall be paid to the Tenant in 7 days as of the date of receiving an invoice, and provided that the works are actually performed. It is clarified that the Landlord shall incur the costs of leveling works for the floor up to the amount of NIS 50,000.

 

8.19.

Breach of any of the provisions set forth in this Section above including all sub-sections thereof shall be deemed as a fundamental breach of this Agreement.

 

9.	Value added tax

Statutory VAT shall be added to all the amounts stated hereinabove and hereunder. The Tenant shall pay VAT for each of the payments that the Tenant is obligated to pay the Landlord in accordance with the provisions set forth in this Agreement according to its statutory rate from time to time and/or any other tax superseding the same and/or any tax that, according to the law imposing it, will apply to any of the payments that the Tenant is obligated to pay in accordance with the provisions set forth in this Agreement. At the time and against the payment of the VAT the Landlord will issue an invoice in respect of the Tenant’s payments. In addition, the Landlord will present to the Tenant each year a certificate regarding withholding of tax at source and a certificate regarding keeping books of account.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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10.	Additional payments

During the entire Term of Lease the Tenant will pay, in addition to all other payments applicable to the Tenant in accordance with this Agreement, all payments, levies, municipal taxes, taxes and any other mandatory payments of any kind, municipal, governmental or other, including, and without derogating from the generality of the aforesaid any fees, licensing fees and licenses of any kind relating to the Leased Premises and/or to the business conducted therein and/or to their operation and/or their possession and any other payment that naturally applies and/or that applies in accordance with the law to a tenant and/or a possessor and/or a user and/or the business conducted by the Tenant in the Leased Premises and/or the operator of a business in a real estate property, by itself and under its responsibility, and all to the extent required. In addition, the parties agree that any taxes or levies in connection with the operation and/or the possession of the Leased Premises (as opposed to ownership of the Leased Premises) or in connection with the Rent that will be imposed in the future and that are not imposed at the time of signing this Agreement will be paid by the Tenant and all in the manner described above.

The Landlord shall be responsible for paying all payments, levies, municipal taxes, taxes and mandatory payments of any kind, whether municipal, governmental and/or other, including, and without derogating from the generality of the aforesaid any fees, licensing fees and licenses of any kind, whether existing today and whether existing in the future, and that apply in accordance with the law to owners of properties (such as betterment levy, development levy etc.).

Without derogating from the generality of the aforesaid, and in addition to any other payment applicable in accordance with the Agreement, the Tenant will pay make full and timely payment on the dates set out in the Agreement and/or in the law (as the case may be) by itself all of the following payments:

 

10.1.

All payments for the supply of water, electricity, telephone, gas, municipal taxes, business tax, signage tax or any other expense related to the use and/or the operation of the Leased Premises.

It is clarified that the Tenant undertakes to deliver written notice to the municipality and to the other entities and/or the proper authorities regarding the delivery and the receipt of possession in the Leased Premises, as of the first date in which the Leased Premises was delivered to the Tenant and cause its registration in the municipality records as a possessor in the Leased Premises. In addition, the Tenant undertakes to act for the purpose transferring the name of the possessor, the debtor and the recipient in respect of the water and/or electricity and/or municipal taxes and/or gas bills (if required) to the Tenant’s name and the Tenant undertakes to return the name of the payer in all the said bills to the name of the Landlord and/or anyone acting on its behalf (and in accordance with the instructions of the Landlord) upon expiration of the Term of Lease, and all in cooperation with the Landlord, to the extent required.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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As of the Lease Commencement Date or as of the date of delivery of possession in the Leased Premises, whichever is earlier, the Tenant undertakes not to request from the municipality to use an “exemption from municipal taxes in respect of a vacant property” during the entire Term of Lease and/or the extended Terms of Lease, as the case may be. To the extent that the Tenant breaches this undertaking, the Tenant undertakes to return to the Landlord, on the date of obtaining the extension, an amount equal to the amount of the municipal taxes for which the Tenant was granted an exemption in connection therewith. This undertaking is a fundamental undertaking made by the Tenant. Notwithstanding the said it is agreed that the Tenant shall be entitled to request from the municipality to obtain an exemption from municipal taxes in respect of a property undergoing renovations.

 

10.2.

All payments made to the Landlord and/or the Management Company, as the case may be, in respect of the maintenance and the management of the Project, including of the Building, as stated in Section 14 hereunder.

 

10.3.

All payments, fees, levies and taxes of any kind that apply to the management of the business of the Tenant in the Leased Premises including, and without derogating from the generality of the aforesaid, licensing fees for the Tenant’s business.

 

10.4.

All expenses in respect of the installation of a telephone line and/or other communication systems in the Leased Premises and their use; it is clarified that the telephone will be installed by a domestic operator with a proper license and all under the responsibility and at the sole expense of the Tenant and following coordination with the Landlord and/or the Management Company and the telephone will be registered solely in the name of the Tenant and under its sole responsibility.

 

10.5.

The Tenant undertakes to present within a reasonable period of time to the Landlord and/or the Management Company certificates confirming that the Tenant has no debts in respect of the payments that were made as said and/or receipts in respect of the payments that were made as said (in the event it is impossible to obtain a certificate from the relevant authority) according to the written demand made by any thereof.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

10.6.

The Landlord shall be entitled (however not obligated, under any circumstances) to pay instead of, on account of and in favor of the Tenant any of the payments the Tenant is obligated to pay and that the Tenant refrained from paying for any reason to pay such payments in full and/or on time, after delivering a demand 14 days in advance and in writing as a minimum demanding from the Tenant to make such payment as said and the Tenant did not act in the said manner. In the event the Landlord paid any payment as said, the Tenant shall be obligated to return to the Landlord any amount as said, immediately upon receiving the Landlord’s first demand as said, without derogating from any relief and/or remedy and/or right granted to the Landlord in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law. Without derogating from the foregoing, and without derogating from any relief and/or remedy and/or right granted to the Landlord in accordance with the Agreement and/or in accordance with the provisions set forth in any law, it is agreed and emphasized that any amount that the Landlord will pay in lieu of the Tenant as stated above shall carry Interest in Arrears as of its payment date by the Landlord and until the actual date the payment is returned.

 

11.	Construction works in the Building and in the Leased Premises

 

11.1.

Works in the Leased Premises

 

11.1.1.

Until the Delivery Date the Landlord will complete in the Leased Premises and will perform in the Leased Premises the works that the Landlord is obligated to perform, as stated in Appendix B (in shell level). The Landlord shall be entitled to perform construction works in the Building, together with the Tenant’s Customization Works and provided that this shall not cause an unreasonable disturbance to the Tenant in the performance of the Customization Works. The Tenant on its behalf undertakes to avoid causing any disturbance to the Landlord in the performance of the Landlord’s works.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

Subject to the approval of the plans for the Customization Works in accordance with the provisions set forth in this Agreement, the provision of collaterals, certificates of insurance for the performance of the works, a signed Banks’ Clearing House (Masav) letter, the Landlord will allow the Tenant to perform the Customization Works by itself and at the Tenant’s expense, on the Delivery Date. The Tenant will prepare the Leased Premises for the purpose of their opening for business and will perform in the Leased Premises, at its expense and under its sole responsibility, all works, crafts and installations that the Tenant is obligated to perform as stated in Appendix C (hereinafter collectively: the “Tenant’s Works”) after 3 months as of the Delivery Date. It is clarified that upon expiration of the period set out in this Section, the Tenant shall be obligated to start paying the Rent and the other payments applicable to the Tenant in accordance with the provisions set forth in this Agreement, even if the Customization Works are not completed until that date.

 

11.1.2.

It is clarified that during the period of the Customization Works the Landlord shall be entitled, during the performance of the Tenant’s Customization Works, to perform by different contractors and craftsmen different construction and customization works in the Building, to the extent required, and all when the said works of the Landlord will not delay and/or unreasonably disturb the performance of the Tenant’s Works. For the avoidance of doubt, it is clarified that in any event the Landlord’s works will not be performed in the Area of the Leased Premises after the Delivery Date.

 

11.1.3.

The Tenant will act for the purpose of delivering for the Landlord’s inspection, until February 28, 2019, technical specifications and work plans of the Customization Works in the Leased Premises. The Landlord shall be entitled to approve the said plans and technical specifications, revise and/or make amendments therein, or reject them, and will provide the reasons for this rejection in writing, in 14 days as of the date of their receipt. In the event the specifications and the plans were not approved, in whole or in part, the Tenant will submit to the Landlord new plans and technical specifications, according to the instructions of the Landlord and/or

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

anyone acting on its behalf, and the Landlord will respond to the said plans in 14 days as of the date of their receipt. It is agreed that any delay in the approval of the plans by the Landlord and/or the comments submitted by the Landlord for the purpose amending the plans beyond the periods of time stated in this Section shall entitle the Tenant to an extension for the completion of the exemption period for a period that will correspond to number of days of the delay.

 

11.1.4.

The plans and the technical specifications as said – after their approval by the Landlord (if approved) and subject to the modifications that are made or that are demanded by the Landlord – will be attached as Appendix C – and shall constitute an integral part thereof as of that date.

The following provisions shall apply to the performance of the Tenant’s Works:

 

11.1.5.

After the Tenant’s Works are approved in writing by the Landlord in accordance with the provisions set forth in this Agreement, the Tenant will perform the Tenant’s Works in a manner that will not be in violation of the provisions set forth in any law. The access roads to the Leased Premises for the purpose of performing the works, the transportation methods of the equipment and materials, loading and unloading areas, hours of work etc. will be determined in coordination with the contractor or the Landlord’s representatives as the case may be, and subject to the undertaking of the Landlord to provide these measures to the Tenant and to the contractors on its behalf.

 

11.1.6.

The Tenant undertakes to employ only contractors, suppliers and professionals who are licensed in accordance with the provisions set forth in any law for the type of the work performed for the Tenant.

 

11.1.7.

Without granting any rights to any third-party, the Tenant shall be solely liable for the equipment and the materials that the Tenant or anyone acting on its behalf will bring, for the purpose of performing the works and the installations performed by the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

Tenant. The materials, equipment and the facilities that the Tenant will install in the Leased Premises shall comply solely with the Israeli standards applicable to the said materials, equipment and facilities. The Tenant will not place any equipment, facility and material outside the Leased Premises without advance coordination with the representative on behalf of the contractor or the Landlord.

 

11.1.8.

The Tenant and/or anyone acting on its behalf shall not be entitled to store or lay materials, facilities and equipment in the areas of the Building outside the Leased Premises, or use them for the purpose of performing the works without obtaining the prior and express approval of the Landlord.

 

11.1.9.

The Tenant shall be solely liable for the Tenant’s Works and/or for any damage and/or cost caused to any person and/or to property as a result of the performance of the Tenant’s Works.

 

11.1.10.

In the event the Tenant hires any contractors for the purpose of performing any of the Tenant’s Works the Tenant undertakes to assure in advance that the said contractors will also take out insurance for their works in accordance with the provisions set forth in the Insurance Appendix of this Agreement and with respect to the insurance for the works. It is emphasized that a condition for the commencement of any works in the Leased Premises by the Tenant is that the Tenant will deliver to the Landlord the construction certificate of insurance stated in the Insurance Appendix.

 

11.1.11.

In the event a building permit or any other license is required for the purpose of performing any modifications and additions in connection with the Tenant’s Works, the Tenant shall be solely obligated to obtain all permits and/or licenses as said before the commencement of the modifications and the additions, and the Tenant shall be responsible and shall incur all expenses in connection therewith and the Tenant shall be precluded from raising any claim and/or demand and/or suit against the Landlord in respect of the demands made by the authorities as said, and provided that if the Tenant is required – the Landlord shall cooperate with the Tenant for the purpose of this matter, and provided that this will not impose any financial or other liability on the Landlord other than the liabilities imposed on the Landlord in accordance with the provisions set forth in this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.1.12.

In the event an additional building permit or any other license is required for the purpose of performing modifications and additions in connection with the Tenant’s Works the Tenant undertakes that the advisors and/or the contractors and/or the craftsmen on behalf of the Tenant for the purpose performing the interior design, the design of the electricity, plumbing, air-conditioning, sanitation, sewage, fire protection and any other main system in the Leased Premises will coordinate their plans in advance with the Architect and/or with the designers of the said systems for the Landlord (and all according to the Landlord’s instructions) in a manner that will not cause any damage to the said systems. Upon the occurrence of the circumstances stated above (and solely upon their occurrence) the Tenant shall incur the payment to the Landlord’s advisors.

 

11.1.13.

Due to the complexity of the issue and the level of its impact on the entire systems in the Project the Tenant shall be obligated to use, for the purpose of performing the works in connection with the systems that are part of the Tenant’s Works, only advisors and/or contractors and/or craftsmen authorized in accordance with and/or anyone acting on its behalf and they shall be obligated to use materials, tools and systems of high quality and standard and that are in compliance with all the necessary standards, and the entire requirements of the Landlord and/or anyone acting on its behalf with respect to the connection method of the systems of the Leased Premises to the common systems in the Building.

 

11.1.14.

Any completion and/or addition and/or modification made at the Tenant’s expense in the Leased Premises within the framework of the Tenant’s Works and the fixtures of the Leased Premises (hereinafter collectively: the “Modifications”) as stated above shall become the property of the Landlord. Notwithstanding the said it is clarified that with respect to the laboratory areas, the Tenant shall be obligated to return to the Landlord the laboratory areas in shell level, when the said area includes only a floor and a ceiling (for the avoidance of doubt it is clarified that the ceiling and

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

the floor that are left in this area will be the same ceiling and floor installed by the Tenant in the area of the laboratories and the Tenant shall not be obligated to restore the situation to its previous state with respect to the type of the floor and the ceiling that were in this area prior to the performance of the Customization Works by the Tenant in this area). The Leased Premises will be returned to the Landlord subject to reasonable wear stemming from reasonable and ordinary use of the Leased Premises.

 

11.1.15.

Canceled.

 

11.1.16.

The Landlord shall not be held liable for any delay or lag in the completion of the Leased Premises and/or the delivery of possession in the Leased Premises to the Tenant as a result of a delay depending on the Tenant in the delivery of the drawings and the specifications that the Tenant is obligated to provide to the Landlord as stated in Section 11.1.3 above, or a delay in their compliance with the Landlord’s requirements, and the Tenant shall be solely liable for any delay and/or lag in the completion of the Leased Premises and will start paying the Rent and all other payments the Tenant is obligated to pay in accordance with the provisions set forth in this Agreement on the dates stated in this Agreement.

 

11.1.17.

Without derogating from the generality of the aforesaid the Tenant will pay the Rent, incur all other payments the Tenant is obligated to pay in accordance with this Agreement and will fulfill its entire undertakings as stated in this Agreement – even if delivery of possession in the Leased Premises is delayed or deferred as a result of the delays stated in these sections not due to the fault of the Landlord and/or the Management Company and/or anyone acting on their behalf – as of the date the Tenant should have received possession if the Tenant had fulfilled its undertaking regarding the delivery dates of the specifications and the drawings and/or with respect to the completion date of the Tenant’s Works.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.1.18.

In the event the Lease Agreement is lawfully terminated as a result of a breach committed by the Tenant in respect of any of the circumstances as stated above, the Tenant shall not be entitled to any indemnity and/or reimbursement for the works that the Tenant performed and/or facilities and/or equipment that the Tenant left in the Leased Premises after vacating the Leased Premises and/or any fixtures that the Tenant added to the Leased Premises and/or installed in the Leased Premises and the provisions set forth in Section 22 hereunder shall apply to the parties.

 

11.1.19.

The placement of facilities and/or systems of the Tenant on the roof of the Building will not be allowed (as opposed to the systems in the Building or systems that will be used by the Landlord and the Landlord shall be entitled to place the said system on the roof of the Building at its sole discretion) however only after obtaining the prior and written approval of the Landlord. The Landlord shall be entitled to set prerequisites as a condition for its approval to place such facilities and systems as said, at its sole discretion.

 

11.2.

Air-conditioning, electricity and alarm systems

 

11.2.1.

The parties agree that the Tenant undertakes, at its expense, to hire the services of the safety advisor of the Building only (S. Netanel) for the purpose of preparing a safety plan and obtaining the approval of the National Fire and Rescue Authority for the Leased Premises. In addition, the Tenant undertakes to obtain the approval of the advisors of the Building for the purpose of “approving and inspecting the Tenant’s drawings” prior to the commencement of the works, the Tenant shall be responsible and shall incur all expenses for the inspection of the drawings vis-à-vis the relevant advisors (electricity, air-conditioning, plumbing).

 

11.2.2.

The Tenant undertakes to install in the Leased Premises air-conditioning systems as stated in and subject to the provisions set forth in Appendix B of this Agreement. The air-conditioning system in the Leased Premises will be installed and will be connected to the main system solely at the Tenant’s expense. The drawings will be submitted to the Landlord according to the orders made in the system.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.2.3.

The Tenant undertakes to install in the Leased Premises at its expense a fire alarm system and a PA system manufactured by Swilco Company (including sprinklers in a layout according to the Tenant’s requirements) and as stated in and subject to the provisions set forth in Appendix B and Appendix C of this Agreement.

 

11.2.4.

The Tenant declares that it is aware that the Landlord is the sole right holder towards Israel Electric Corp. in anything related to the receipt and supply of electricity to the Building. The supply of electricity to the Building and to the Leased Premises shall be made in accordance with the provisions set forth in Appendix B of this Agreement. It is clarified that the Landlord shall not be held liable in any manner in the event of a malfunction in the electricity supply to the Leased Premises, to the extent that the said malfunction does not stem from a negligent act or from an omission of the Landlord and/or anyone acting on its behalf. This condition is a fundamental condition in this Agreement.

 

11.2.5.

Electricity systems:

 

11.2.5.1.

The Tenant undertakes to install an electricity system in the Leased Premises at its expense, in the manner set out and subject to the provisions set forth in Appendix B and Appendix C of this Agreement.

 

11.2.5.2.

The Tenant shall have no claim and/or suit against the Landlord in the event of a malfunction in the provisional electricity system and/or in the electricity supply to the Leased Premises, provided that the malfunction does not stem from an act and/or omission of the Landlord and/or anyone acting on its behalf.

 

11.2.5.3.

The Tenant undertakes to purchase an energy meter manufactured by Silver Gate Company (QLC) and install and wire the meter up to the communication cabinet on the floor.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.2.6.

The Tenant will provide to the Landlord, up to 3 days prior to the date in which permanent electricity connection is installed in the Area of the Leased Premises, a certificate from a certified electrical inspector confirming that the electricity systems in the Leased Premises are in working order. The presentation of such a certificate as said shall constitute a condition for the connection of the electricity system in the Leased Premises to the electricity system of the Building. Failure to connect the Leased Premises to the electricity system as a result of failure to present such a certificate as said shall not release the Tenant from its obligations in accordance with this Agreement, including the payment of the Rent and the expenses.

 

11.2.7.

The Tenant confirms that it is aware that the electricity meters, including the electricity meter of the Leased Premises, will be located in bulk and will be installed by the Landlord in each floor or area in the Building as decided by the Landlord, and the Tenant agrees to the location of the meter as said and the billing of the Tenant according to the reading of the said meter. The Tenant will pay to the Landlord or to IEC, in the event electricity is supplied in bulk, the installation costs of the electricity meters used in the Leased Premises no later than 30 (thirty) days as of the date of receiving the demand of the Landlord, and according to the amount stated by the Landlord in its demand, when the Landlord’s demand will be based on the purchase and installation costs of the electricity meters, and following presentation of invoices.

 

11.2.8.

The Tenant undertakes to pay to the Landlord or the Management Company, as decided by the Landlord, in respect of the consumption of electricity in the Leased Premises during the Term of Lease, the amounts stated in the bills the Landlord or the Management Company will deliver to the Tenant, at the Landlord’s discretion, by way of a wire transfer to the Landlord’s Account or (as decided by the Landlord) to the Management Company, shortly after the delivery date of the billing notice to the Tenant. The said electricity bills will be based on the current tariffs charged by IEC.

 

11.2.9.

The Tenant declares and affirms that it is aware that prior to the Delivery Date, and for the purpose of enabling work and lighting in the Leased Premises, the Landlord will set up a provisional electricity system and the electricity will be supplied to the central distribution board in the floor without meters, and the Tenant will connect to the said system. The Tenant undertakes that during the performance of the Tenant’s Works the Tenant will pay for the electricity according to the actual consumption of the users of electricity.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.2.10.

The air-conditioning system, the sprinklers system, the electricity systems including all components, accessories and facilities of the said systems, and any improvement, modification and addition connected permanently and made by the Tenant during the Term of Lease will become the property of the Landlord who shall become their owner upon expiration of the Term of Lease or upon termination of this Agreement, including in the event the Tenant is replaced, and the Tenant waives any claim and/or demand in connection therewith. For the avoidance of doubt, it is hereby clarified that the Tenant or anyone acting on its behalf, including a substitute tenant coming in its place, shall not be entitled to any payment or indemnity in respect whereof, not from the Landlord, not from the Management Company and not from any other substitute tenant.

 

11.3.

General provisions in connection with the construction of the Building and the Leased Premises

 

11.3.1.

Canceled.

 

11.3.2.

The Landlord shall be entitled at any time, and without obtaining any approval by the Tenant, to perform any modification or addition in the Project, at its sole discretion, both prior to the commencement of the Term of Lease and during and/or after the Term of Lease, including, but not limited to, addition or reduction of areas, the addition of floors, areas or wings to the Commercial Center and/or to Building F and/or to the Building and/or the allocation of indoor or outdoor public areas into areas used exclusively by different users, modifications in openings and passageways, modifications in parking lots, the use of basements, entrances (pedestrians and vehicles) to the Commercial Center and/or to Building F and/or to the Building, the protected spaces and/or the toilets, the performance of different construction

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

additions and/or removal of construction, and any other modification in the Building or in the drawings of the Project (hereinafter in this Section: the “Modifications”) subject to the fulfillment of the entire cumulative conditions: (1) the said Modifications will not impose any unreasonable nuisance preventing the use of the Leased Premises; (2) this will not impose on the Tenant any additional costs; (3) the proper access to and from the Leased Premises and the Parking Spaces will be maintained at all times.

Subject to the said in the last part of sub-section 11.3.2 above, the Tenant shall be precluded from raising any claims and/or suits and/or demands against the Landlord and/or anyone acting on its behalf in connection with the performance of the Modifications, in whole or in part, and subject to the said in the last part of sub-section 11.3.2 above, and the Tenant undertakes not to disturb and not to object to any modification or addition as said. This condition is a fundamental condition in this Agreement.

 

11.3.3.

Canceled.

 

11.4.

The Tenant undertakes to allow the Landlord to enter to the Leased Premises at any reasonable time, both for the purpose of conducting an inspection regarding the performance of the entire provisions set forth in this Agreement and for the purpose performing any works and/or repairs, and all by appointment with the Tenant. In addition, the Architect and/or the foremen on behalf of the Landlord in the Project shall be entitled to conduct an inspection with the Tenant in the Leased Premises following advance coordination with the Tenant, during the performance of the Tenant’s Works and thereafter, and in the event the Landlord finds that the Customization Works may harm the construction of the Building and/or the safety and/or the common systems in the Building, the Landlord shall be entitled to demand from the Tenant to perform modifications in the Tenant’s Works, and the Landlord’s demand will be delivered in writing and will be delivered in accordance with the provisions set forth in this Agreement, and the Tenant undertakes to fulfill any reasonable demand as said within a reasonable time. In addition, the Tenant shall be entitled to disagree with the opinion of the representative on behalf of the Landlord, and in the event of differences of opinion the parties will request from an agreed person to decide in the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

dispute, as stated in Section 11.5 hereunder. It is clarified that works and/or repairs in the Leased Premises will be performed only in the event there is no other option to perform such works and/or repairs not from the Area of the Leased Premises, following advance coordination with the Tenant with respect to their performance dates and after restoring the condition to its previous state upon completion of the works.

 

11.5.

In the event of a difference of opinion between the parties regarding the level of compliance of the construction of the Leased Premises with the specifications and the drawings, and with respect to any other dispute relating to a delay on behalf of the Tenant in the provision of specifications and drawings and/or their compliance with the Landlord’s requirements set out in Section 11 including all sub-sections thereof, and/or relating to the duration of the delay caused in connection therewith in the delivery of possession in the Leased Premises to the Tenant and/or the Lease Commencement Date and relating to the performance of the construction works in the Project and the Leased Premises – an architect and/or an engineer whose identity will be agreed between the parties will decide in this dispute as an expert (and not as an arbitrator), as the case may be, and his decision shall be final and shall bind the parties for all intents and purposes as if the parties agreed to this decision from the start.

 

11.6.

For the avoidance of doubt, it is hereby agreed and clarified that the Tenant, as opposed to the Landlord, shall be solely responsible for obtaining all licenses and/or certificates and/or permits that are required in accordance with the provisions set forth in any law for the purpose of opening its business in the Leased Premises and conducting its business during the entire Term of Lease and all at its sole expense, including a business license in accordance with the provisions set forth in the Business Licensing Law 5728-1968 and/or any law. During the entire Term of Lease the Tenant undertakes to satisfy all conditions that are required for the purpose of obtaining permits, licenses and certificates as said, conduct its business in accordance with their terms and keep them in effect during the entire Term of Lease, and not to make any non-conforming use in the Leased Premises and not to conduct in the Leased Premises any business that is not permitted in accordance with the law that applies or that will apply, and observe the instructions of any authority that acts in accordance with the law in connection with the aforesaid matters, and all subject to and in compliance with the provisions set forth in Section 16 hereunder. To the extent that the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

Landlord’s signature is required for the purpose of obtaining any approval and/or license as said, the Landlord undertakes to sign any document whose signature will be required for the purpose of obtaining such an approval as said, provided that this will not impose on the Landlord any liability, financial or other – that is not imposed expressly on the Landlord in accordance with the provisions set forth in this Agreement.

 

11.7.

The Tenant undertakes not to install and not to permit and/or agree that a third-party will install antennae and/or cellular relays and/or reception and/or transmission facilities (hereinafter: the “Transmission Facilities”) in the Building and/or in the Leased Premises and/or in their area. For the avoidance of doubt, it is clarified that cellular reception amplifiers and/or Wi-Fi are not part of the Transmission Facilities whose installation by the Tenant is prohibited. The Landlord shall be entitled to install and/or agree to the installation of Transmission Facilities, at its sole discretion, in the area of the Project and in the Building, and all in accordance with the provisions set forth in any law. This Section is a material section in this Agreement. Notwithstanding the said, it is agreed that the Landlord shall not be entitled to install cellular antennae in the area of the Building.

 

11.8.

Signage

 

11.8.1.

The Tenant shall not be entitled to install signs on and/or outside the Area of the Leased Premises (including in the areas of roofs and/or façades of the Building) however only after obtaining the Landlord’s approval, which approval shall be granted in advance and in writing. To the extent that the Landlord’s approval for the installation of signs is granted as said, and in accordance with the provisions set forth in the Signage Appendix, Appendix J of this Agreement.

 

11.8.2.

Canceled.

 

11.8.3.

The Landlord shall be entitled to remove, at its expense, any sign that the Tenant will install in violation of the provisions set forth in this Section. The Tenant shall return to the Landlord any amount that the Landlord will pay in connection with the removal of the sign and/or the repair of the wall to which the sign was attached, immediately after the Tenant receives a written letter of demand from the Landlord.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

11.8.4.

The Tenant declares that it does not object and that it agrees that the Landlord and/or any other third-party will attach signs to the façades of the Building and/or on the roof of the Building with the Landlord’s approval and on the condition that this will not cause a disturbance to the Leased Premises. In addition, the Landlord shall be entitled to connect a sign to the walls of the Building that includes the Landlord’s name, a logo and the trademark and other particulars relating to the Landlord.

 

12.	Delivery of possession and delivery protocol

The Landlord undertakes to complete the construction works of the Building (except for development works, finishing works in the public areas, operation of the electromechanical systems, completion of the preparation of the loading and unloading areas, warehouses and different finishing works that will be completed no later than 12 months as of the delivery of possession date in the Leased Premises), complete the Landlord’s works in the Leased Premises and deliver possession in the Leased Premises to the Tenant until the Delivery Date, and the following provisions shall apply:

 

12.1.

Possession in the Leased Premises to the Tenant as stated above will be delivered upon the completion of the works that the Landlord is obligated to perform until that date and no later than February 1, 2019. The representatives on behalf of the parties will draw up and sign a delivery protocol on the Delivery Date.

For the avoidance of doubt it is clarified that the avoidance by the Tenant from cooperating with the Landlord in drawing up a delivery protocol and/or the existence of any defects and/or non-conformances and/or the need to complete the works in the Leased Premises will not give rise to a preclusion that will prevent receipt of possession in the Leased Premises, and provided that the Leased Premises are ready for delivery in accordance with the provisions set forth in this Agreement, and the Tenant shall be obligated to receive possession in the Leased Premises on the Delivery Date.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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12.2.

The Tenant undertakes to receive possession on the Delivery Date, provided that the Leased Premises are ready for delivery in accordance with the provisions set forth in this Agreement, and the Tenant confirms that in any event the Tenant fails to come and receive possession on the said date (and the Leased Premises were ready for delivery on that date in accordance with the provisions set forth in this Agreement), the Tenant shall be held liable for all obligations applicable to the Tenant as of that date as stated in this Agreement, including the obligation to pay the Rent, management fees, municipal taxes and all other expenses and additional payments imposed on the Tenant in accordance with this Agreement.

 

12.3.

On the delivery of possession date and as a condition for delivery of possession, the Tenant undertakes to perform the following actions:

 

12.3.1.

To receive possession in the Leased Premises, and provided that the Leased Premises are ready for delivery in accordance with the provisions set forth in this Agreement. Receipt of possession in the Leased Premises by the Tenant shall constitute approval on behalf of the Tenant that the Leased Premises were delivered to the Tenant in full compliance with the provisions set forth in this Agreement and subject to the said in the delivery protocol and defects that could not have been detected at the time of drawing up the delivery protocol.

 

12.3.2.

To pay the full amount of the Rent for the first month of lease (beyond the exemption period) of the First Term of Lease and to pay the management fees and all other and additional expenses and payments the Tenant is obligated to pay in accordance with the provisions set forth in this Agreement.

 

12.3.3.

To provide to the Landlord certificates of insurance signed by the insurer during the entire Term of Lease as stated in the Insurance Appendix.

 

12.3.4.

To provide to the Landlord an irrevocable authorization to debit the bank account for the purpose of transferring the payments.

It is clarified that in the event the Tenant fails to perform any of the actions stated above fully and timely the Tenant will not receive possession in the Leased Premises and this shall not be deemed as any breach committed by the Landlord, and without derogating from any relief and/or remedy and/or

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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right granted to the Landlord and/or the Management Company in accordance with this Agreement and/or in accordance with the Management Agreement and/or in accordance with the provisions set forth in any law, and without derogating from the provisions of Section 12.2 above and the undertakings of the Tenant to perform fully and timely all of the aforesaid actions.

 

13.	The business activities in the Building and in the Leased Premises and their times

 

13.1.

Opening the business in the Leased Premises

The Tenant undertakes to conduct its business in the Leased Premises regularly, continuously and in a high level and standard of management and maintenance that is appropriate for similar modern and luxurious buildings same as the Building, as of the completion date of the Tenant’s Works henceforth, and during the entire Term of Lease, and all as customary in businesses that are similar to the Tenant’s business.

 

13.2.

The Tenant undertakes to make full and timely payment of any payment that the Tenant owes in accordance with this Agreement, including payment of the Rent, whether or not the Tenant uses the Leased Premises, except for circumstances in which the Leased Premises cannot be used as a result of an act and/or omission of the Landlord and/or the Management Company and/or anyone acting on their behalf and subject to the provisions set forth in this Agreement.

 

13.3.

The Tenant shall be entitled to close its business in the Leased Premises for the periods as customary for that type of business same as the business conducted by the Tenant. The closing of the business in the Leased Premises for any reason shall not derogate from the Tenant’s obligation to pay the Rent for the entire Term of Lease.

 

13.4.

The opening hours of the business conducted in the Leased Premises shall be as customary for businesses such as the business conducted by the Tenant, without derogating from the provisions set forth in any law and the instructions of any competent authority.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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13.5.

Without derogating from any provision set forth above, the Tenant declares that it is aware that the Landlord and/or the Management Company shall be fully entitled to allow other leased premises and/or other businesses in the Building, according to their decision and at their absolute discretion, to open their businesses at times and on days as decided by the Landlord and/or the Management Company and the Tenant declares irrevocably that it shall have no objection that the other business establishments in the Building, in whole or in part, will operate their business on the dates and at the times as said, and the Tenant shall not have any claim and/or suit and/or demand against the Landlord and/or the Management Company and/or the other tenants in connection therewith, and provided that this shall not disturb the reasonable use of the Tenant in the Leased Premises in accordance with the Purpose of Lease. For the avoidance of doubt, it is clarified that the Landlord undertakes, to the extent that this depends on the Tenant, to allow the Tenant to work 7 days a week, 24 hours a day and that the Tenant will have access to the Leased Premises at any time.

 

13.6.

The Tenant declares and warrants that it is aware that different businesses and stores will be operated in the areas of the Project, in the Commercial Center in Building F and in the Building, according to the mix and the nature of the leased premises that are customary in centers such as the center where the Project is located, and the Tenant declares and warrants that it shall have no claim and/or demand and/or suit in connection therewith, including in connection with their hours of operation, the entry and exit arrangements therefrom, and provided that this shall not cause any nuisance in the use the Tenant makes in the Leased Premises from 08:00-19:00.

 

13.7.

The Landlord and/or the Management Company shall be entitled to close the leased premises in the Building (other than the Leased Premises) including in the commercial area for any activity on special days and time as decided by the Landlord and/or the Management Company and at their discretion, including, and without derogating from the generality of the aforesaid, the Holocaust Remembrance Day, the Day of Remembrance for the Fallen Soldiers of Israel and Victims of Terrorism (“Yom Hazikaron”) Saturdays and holidays and other days of similar importance.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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13.8.

The Parking Lot

 

13.8.1.

The Landlord shall be entitled to operate a parking lot in the Project and grant rights of use therein or lease the Parking Lot, in whole or in part, and/or certain reserved or unreserved Parking Spaces to third-parties, even if they do not lease areas in the Project, and all at the sole discretion of the Landlord and provided that this shall not affect the Parking Spaces leased by the Tenant. Subject to the aforesaid regarding avoidance from affecting the rights of the Tenant in the Parking Spaces, the Landlord shall be entitled to use the area of the Parking Lot at its absolute and sole discretion, including the provision of certain areas and/or their allocation in any manner in favor of whoever it decides and for any period of time decided and the collection of separate payment from whoever received such areas as said, and the Tenant shall have no claim and/or suit and/or demand in respect of the aforesaid, and provided that this shall not affect the right of use of the Tenant in the parking spaces.

 

13.8.2.

The Landlord may, at its absolute and sole discretion, decide from time to time to operate the Parking Lot or any part thereof as a parking lot in return for payment, whether by itself, whether by the Management Company and whether by others, including to lease the Parking Lot to subcontractors. It is agreed that the Landlord and/or the entity that will operate the Parking Lot as stated above shall be entitled to set out procedures for the use, operation, parking, entry and exit in the Parking Lot, and that will be reasonable and customary, and change them from time to time, provided that this shall not affect the rights of the Tenant in accordance with this Agreement and/or impose additional payments on the Tenant.

 

13.8.3.

Canceled.

 

13.8.4.

The Parking Spaces included in the Leased Premises – to the extent that Parking Spaces are included in the areas of the Leased Premises, the provisions set out in the Parking Appendix, Appendix A’3, shall apply to the said Parking Spaces.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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14.	Management of the Project and the Building

The Landlord shall be entitled to cause that a corporation that will engage in the management of the Building will be appointed or formed from time to time, whether by way of separate management and whether as management of part of the Project as a whole, including all its wings, including the Commercial Center, Building F, the Building and their maintenance (hereinafter: the “Management Company”). As long as such a corporation is not appointed or formed, or as long as the Management Company does not start with the management of the any of the areas in the Project, its buildings, the Commercial Center and maintenance thereof, or in the event such an appointment expired as said, the Landlord or anyone acting on its behalf will serve as the Management Company for the purpose of this Agreement.

The Management Company will set out the arrangements, rules and procedures relating to the management of the Project areas in whole, including the Building and their maintenance, and will lay down bylaws that will apply to all the tenants and the users of the Project areas and will monitor the enforcement and performance of such bylaws. The Tenant undertakes to sign with the Management Company the Management Agreement whose key principles are the principles laid down in this Section 14. The bylaws will be attached to the Management Agreement when the provisions set forth in the first part of this Section shall apply to the said bylaws.

In addition, the Management Company will provide, whether by itself and/or by subcontractors, management and maintenance services for the areas of the Project, including for the Building, including the supply of electricity in bulk for the Building and systems thereof, the collection of bills from the tenants and the possessors of the Building, in accordance with this Agreement and including services for the purpose of collecting the Rent, management fees and other payments for the consumption of electricity, cleaning and lighting of the public areas in the areas of the Project and the Building, both indoor and outdoor, air-conditioning for the indoor public areas, gardening in the public areas, maintenance, warranty and repairs of the electricity systems in the public areas, lighting, air-conditioning, elevators, escalators and all other systems and facilities that are used by all the users of the Project areas and the Building, installation, use and maintenance of different facilities for the use and enjoyment of the other tenants and/or visitors to the Building, signage, dwelling insurance for the areas of the Project including for the Building (excluding the content of the leased premises) third-party liability insurance in connection with the public areas, payment of municipal and governmental taxes applicable to the public areas and the maintenance of the parking lots and their operation, or any other service that is required for the purpose of managing and maintaining the Project areas including the Building (hereinafter: the “Services”).

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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It is further agreed that the warranty and the repairs as stated in the definition of the Services above also include, however not only, the replacement and/or retrofitting of equipment and accessories as may be required, and the Management Company shall be entitled, if the Management Company makes a decision to that effect, to finance the said services in whole or in part, by a fund for the replacement and/or retrofitting of the equipment and the payments for the said fund will be collected regularly from the different tenants as part of the maintenance and management expenses, and the Management Company will invest the said funds in solid investments and the said investments will not be returned to the Tenant. The deposits made in the said fund will be made according to the decision made by the accountant on behalf of the Landlord or the Management Company in accordance with the generally accepted accounting principles and while relying on the opinion of technical professionals. In the event the said fund is insufficient for the purpose of replacing and retrofitting the equipment systems or any facilities, the tenants leasing the units in the Project and in the Building shall make good the missing amount, according to the ratio between the area of their unit and the total area of the other units in the Building that are actually possessed by the tenants and/or that are designated for lease and/or sale. It is clarified that as of the date of signing this Agreement no payments for an equipment replacement fund are charged from the tenants leasing the Building as part of the management fees.

 

14.1.

The Management Company shall have access to the Leased Premises, by appointment, for the purpose of performing any work in the Area of the Leased Premises and that is required for the purpose of performing the services or any thereof, and subject to the fulfillment of all of the following cumulative conditions: (1) there is no possibility to perform the work reasonably not from the Area of the Leased Premises; (2) the work will be performed in a manner that will not cause a disturbance to the business conducted by the Tenant in the Leased Premises and will be coordinated with the Tenant in advance; (3) the Leased Premises will be restored to their previous condition upon completion of the work.

 

14.2.

The Management Company will employ workers, subcontractors, advisors, accountants, attorneys etc. as it deems fit and proper in buildings such as the Building for the purpose of performing its work. The expenses paid by the Management Company for all of the aforesaid works and its general expenses will be included as part of the “cost” as stated in Section 14.3 hereunder. For the avoidance of doubt, it is clarified that the employment of the said workers by the Management Company shall not derogate from its obligations in accordance with this Agreement and/or the Management Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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14.3.

The Tenant will pay for the period commencing on the Delivery Date henceforth maintenance fees as participation in the expenses of the Management Company, including a fund for the retrofitting and/or replacement of equipment in accordance with the provisions set forth in the first part of Section 14 above, according to its relative rate in the expenses of the Management Company.

The relative part of the Tenant in the maintenance fees will be calculated by dividing the Area of the Leased Premises by the total number of all the areas designated for lease (and that were not leased yet) and/or for sale in the Building, and the total area that was actually sold or leased in the Building. The estimated maintenance fees will be based on cost price for the performance of the Services, within their meaning above, with the addition of 15% profit for the Management Company (COST+15%). As of the date of signing this Agreement the monthly estimated maintenance fees are in the amount of NIS 15 for each 1 sq.m. of the areas of the Leased Premises for the purpose of collecting the Rent, together with linkage differentials to the Basic Index, and in addition to statutory VAT. The Management Company or the Landlord shall be entitled to update the amount of the maintenance fees according to the actual costs and according to the increase in the prices of the inputs and/or wages etc.

It is clarified that the said maintenance fees include only services that will be provided to the Building during the following days and hours of activity: Sun. – Thurs., from 08:00-18:00 (hereinafter: the “Ordinary Hours of Work”). In respect of additional services that are provided to the Tenant, beyond the said Ordinary Hours of Work, including the operation of the coolers/chillers system, beyond the Ordinary Hours of Work, the maintenance fees will be charged according to the actual consumption of the Tenant (according to the reading of the energy meter that will be installed in the Leased Premises). Subject to the aforesaid provisions, the operation of the air-conditioning and the electricity system will be permitted for 24 hours a day, 7 days a week.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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It is clarified that the said maintenance fees will include only services in respect of the maintenance of the common areas in the Building, however not the management in the floors of the areas of the Leased Premises.

It is clarified that the maintenance fees as stated above include guarding services at the entrance to the Building from 07:00 and until 19:00. The tenants shall solely incur the costs of the guarding services beyond the said hours.

 

14.4.

The Tenant confirms that it is aware, and the Tenant shall have no claim in connection therewith, that certain stores and/or commercial areas and/or businesses that are defined as “anchor stores/tenants” will participate in the expenses of the Management Company for fixed amounts that were set prior to the signing of this Agreement or that will be set after the signing of this Agreement, by negotiations held between the Landlord and the said anchor tenants and according to the customary practice in projects such as the Project, and provided that this will not increase the amount of the management fees that the Tenant is obligated to pay in accordance with the provisions set forth in this Agreement. Therefore, the amount of participation in the management expenses as paid by the said anchor tenants will be subtracted from the management expenses in addition to the profit to the Management Company, and the balance will be divided among the tenants leasing the leased premises in the Project, including in the Building according to the key presented above. In addition, it is agreed that the Management Company will set a separate rate for each of the following wings: commercial wing, offices wing and the parking lot areas.

 

14.5.

The Management Company shall be entitled, at its discretion, to provide special services to any of the tenants leasing premises in the Project including in the Building and/or its users, and in such circumstances as said the said tenant or user shall be solely responsible for paying for the said services, if provided.

 

14.6.

The Tenant shall be entitled to inspect the accounting documents of the Management Company and receive explanations from the Management Company following advance coordination with the Management Company. The books of the Management Company and its documents shall constitute prima facie proof of their content with respect to the expenses of the Management Company and anything associated therewith.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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14.7.

The refusal and/or the willingness and/or the request of the Tenant to receive any service and/or a service that the Tenant undertook to receive in accordance with the Agreement and/or the Management Agreement and/or the Tenant’s request to terminate the performance of the services, in whole or in part, shall not release the Tenant from its undertakings in accordance with this Agreement including the obligation to pay the Rent, and in any event shall not release the Tenant from any of its undertakings in accordance with this entire Section 14.

 

14.8.

The signing of the Tenant on this Agreement constitutes a direct undertaking towards the Management Company, once the Management Company is appointed or formed and to the extent that this is relevant to the Management Company, and an undertaking of the Tenant towards the Landlord to fulfill its entire undertakings towards the Management Company whether as stated in this Agreement and whether as stated in the Management Agreement stated hereunder. As long as the Management Company is not appointed or formed, the Landlord shall come in its place. At the Landlord’s request the Tenant will sign the Management Agreement with the Management Company that is based on the principles laid down in this Section 14. The Tenant agrees that there might be changes in the said principles and that stem from requirements that are unknown at the time of signing this Agreement. In such circumstances as said the Tenant will sign the Management Agreement at the Landlord’s request, to the extent that they do not impair the rights of the Tenant by virtue of this Agreement and on the condition that the contract is reasonable.

 

14.9.

The Management Company shall be entitled, however not obligated, to set out from time to time at its discretion and as customary in similar projects and buildings bylaws and/or procedures and/or instructions in anything related to the use of the areas in the Project and the Building including, but not limited to, anything related to entry and exit procedures, security, access, right of way to pedestrians and vehicles, transportation of goods and merchandise to the Leased Premises and their removal from the Leased Premises, prevention of different types of nuisances and disturbances, instructions, arrangements and guidelines for the performance of renovations and/or customization works in the leased premises and their area, opening and closing times of the businesses in the Commercial Center, operating hours of the lighting and the intensity of the lights in the different

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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leased premises and in the display windows, the use of the parking lots and the public areas, the operation of air-conditioning systems, heating and/or cooling systems in the public areas in the Project and the Building and/or in the leased premises themselves, the operation of the audio or music systems in the Building and in the leased premises themselves, signage, placement of ads or signs and the like. The Tenant undertakes that it and anyone acting on its behalf will observe strictly the entire provisions set forth in the bylaws and/or the procedures and/or the instructions set out by the Management Company as said, and provided that they are reasonable and as customary in similar buildings and do not impose on the Tenant additional costs and/or impair its rights in accordance with this Agreement, without derogating from the authorities of the Management Company to change them as stated above.

 

14.10.

In any event the Tenant defaults in making any of the payments that are due or that will be due to the Tenant to the Management Company in accordance with this Agreement and/or in the event the Tenant breaches the provisions set forth in this Agreement and/or in the event the Tenant avoids performing any action and/or performs an action the Tenant is prohibited from performing in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law and fails to cure the breach in 14 days as of the date of receiving a written notice, the Management Company shall be entitled, without prejudice to its right to seek any other relief in accordance with the law, and at its discretion, perform one or more of the following actions:

 

(1)

To terminate in whole or in part the management and the performance of the services provided to the Tenant and/or to prevent from the Tenant to use the services or any part thereof.

 

(2)

To demand an injunction and/or a mandatory injunction.

 

(3)

To act in any other manner permitted to it in accordance with the law including the termination of this Agreement, termination of the Lease Agreement with the Tenant and the eviction of the Tenant from the Leased Premises.

 

(4)

To perform the actions in the name of the Tenant and/or to cure the breach at the Tenant’s expense and to charge the Tenant for its expenses.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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14.11.

The parties agree that with respect to any amount that the Tenant fails to pay on time and that is not paid even in 7 days after the date set for its payment (hereinafter: the “Amount in Default”) the Tenant shall be obligated to pay to the Management Company, in addition to the Amount in Default, linkage differentials with respect to the Basic Index and the said amount shall incur Interest in Arrears as of the date the debt was created and until the actual payment date.

The parties agree and declare that in addition to the entire reliefs set out in this Agreement and in the law, the Tenant shall be obligated to pay to the Management Company, in addition to the Amount in Default, the entire expenses that the Management Company will pay in anything related to the legal proceedings against the Tenant in connection with any litigation or lawsuit or any action in the Execution Office including the fees to the attorney of the Management Company that handles the case, according to the decisions made in a peremptory judgment and the Tenant undertakes to return to the Management Company the entire expenses the Management Company incurred in respect of the litigation that was conducted including the commencement of a lawsuit and/or execution proceedings according to the results of the proceeding and the ruling of the expenses made by the court.

 

15.	Possession and management of the Leased Premises

 

15.1.

The Tenant undertakes to conduct its business in the Leased Premises in accordance with the provisions set forth in any applicable law and without causing any nuisance to the possessors of the areas of the Building and grounds thereof. In any event of breach as said the Tenant undertakes to apply all measures that are required by the Landlord and/or by the competent authorities for the purpose of eliminating the nuisance in 7 days as of the date of receiving a letter of demand from the Landlord to that effect. In the event the Tenant fails to act in the said manner, the Landlord shall be entitled to perform any other action, including for the purpose of eliminating the nuisance and the Tenant on its behalf shall indemnify the Landlord for any expense the Landlord shall incur in connection therewith.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Without derogating from the generality of the aforesaid the Tenant undertakes not to operate in the Leased Premises or grounds thereof any PA system and/or speakers and/or unreasonable noise and/or odor and/or waste and/or litter nuisances and not to attach and/or place signs in the areas of the Building. In addition, the Tenant undertakes to keep a reasonable level of cleanliness in the Leased Premises and in their nearby surroundings. In the event the Tenant breached the aforesaid provisions, the Landlord may, after delivery of a seven (7) days’ prior and written notice during which the breach was not cured, perform all actions and obtain all the reliefs set out in this Agreement, including in Section 14.10 above, and the Tenant shall incur all expenses caused to the Landlord in connection therewith

 

15.2.

The Tenant will conduct its business in the Leased Premises in strict adherence to the provisions set forth in the Management Agreement, to the extent that there is any, and all reasonable and customary procedures and instructions set out by the Management Company by virtue of its authority as stated in Section 14 above including all sub-sections thereof.

 

15.3.

The Tenant undertakes to keep the Leased Premises during the entire Term of Lease in good and operable condition (subject to natural and reasonable wear) and will repair promptly and at its expense any breakdown, damage or defect detected therein, except for reasonable wear in the main systems of the Leased Premises that will be repaired by the Landlord within a reasonable time taking into consideration the circumstances of the case. In the event the Tenant fails to start with the performance of the repair (that applies to the Tenant in accordance with the provisions set forth in this Agreement) in 7 (seven) days as of the date of receiving written notice for the purpose of this matter to repair the damage and/or the breakdown as said, the Tenant shall be responsible for performing the repair in accordance with the provisions set forth in this Agreement, the Landlord and/or the Management Company shall be entitled to enter the Leased Premises and perform the said actions in lieu of the Tenant and the provisions set forth in Section 25 of the Agreement shall apply.

 

15.4.

The Tenant will return possession in the Leased Premises to the Landlord upon expiration of the Term of Lease or as a result of the shortening of the Term of Lease in consequence of the termination of this Lease Agreement and in the same condition the Leased Premises were delivered at the time of delivery of possession therein to the Tenant, and subject to natural and reasonable wear. For the avoidance of doubt it is clarified and emphasized that the Leased Premises will be delivered to the Landlord when they include any renovation, improvement, addition, modification, repair or

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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fixture therein, even if installed and/or if they were added to the Leased Premises by the Tenant at its expense (and including the customization works that the Tenant performed in the Leased Premises on the Lease Commencement Date), including the air-conditioning systems, mechanical systems, electrical systems etc. For the avoidance of doubt, it is clarified that with respect to the area that was designated for the laboratories in the Leased Premises, the said area will be returned to the Landlord in shell level (however when it includes the floor that the Tenant installed in this area).

 

15.5.

The Landlord and/or the Management Company shall be entitled, at their discretion, to enter the Leased Premises from time to time on reasonable dates and following advance coordination for the purpose of inspecting the performance of this Lease Agreement and/or for the purpose performing works and repairs and provided that they apply reasonable measures to avoid the reasonable use of the Leased Premises and will assure that the inconvenience caused to the Tenant will be as minimal as possible, and after completing the repair the Landlord and/or the Management Company undertakes to restore the Leased Premises to their previous state (with respect to the part where the repair was performed.

Public areas and common property

 

15.6.

The Tenant shall not be entitled to make any use of the pavements, roads, yards, piers, roof and façades of the Building and any other and/or public area situated outside the Leased Premises, within its meaning above, however solely for the purpose of these public areas are designated. The Landlord undertakes to provide to the Tenant generation services in a capacity of up to 3 KWA.

 

(1)

The common property, to the extent that there is any common property in the Building, shall mean – any of the areas of the Building that is not designated for lease and/or sale by the Landlord (hereinafter: the “Common Property”). The Common Property is intended for the use of all tenants and/or users in the Building and not for the exclusive use of the Tenant.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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(2)

The Tenant shall be entitled to use the Common Property solely according to the purposes and/or the objects and/or the intended uses of the Leased Premises. The Landlord shall be entitled, from time to time and at its sole discretion, to permit to any third-party to use any part of the Common Property for the purposes set out by the Landlord, and provided that the use of the Tenant in the Common Property according to the purpose for which these areas are designated will not be impaired thereby.

For the avoidance of doubt it is clarified that even in the event the Landlord granted its approval to use any public areas as said, the Tenant shall not be entitled to roof and/or fence and/or close in any manner these areas, however only after obtaining the prior and written approval of the Landlord and subject to the provisions set forth in any law, and after making all payments and/or obtaining any certificate and/or permit by the Tenant, to the extent that these are required by the authorities.

 

(3)

For the avoidance of doubt the Tenant is aware that it shall be entitled to use the areas of the Common Property solely in accordance with the provisions set forth in any law and the provisions set forth in this Agreement.

 

15.7.

Without derogating from the provisions set forth in Section 11.3.2 above, it is clarified and emphasized that the following provisions shall also apply with respect to the addition of built areas in the Project:

 

(1)

The Landlord shall be entitled, at its sole discretion, to add additional built areas on the Land and/or in the Building, to the extent that the Urban Building Plans (UBP) that apply and/or that will apply to the Land permit such an addition, and the Tenant will not prevent and/or interfere and/or object to the addition of the built areas by the Landlord as said, and provided that that they will not interfere with the reasonable use of the Tenant in the Leased Premises according to the Purpose of Lease and in such manner that the access to the Leased Premises at any time will be safe and reasonable and that this will not impose on the Tenant any obligation of any kind.

 

(2)

The Tenant declares and warrants that it will not prevent in any manner, whether directly or indirectly, and will not submit any objection to any plan that will be submitted by the Landlord for the addition of built areas on the Land and/or in the Building, whether Urban Building Plans (UBP), whether a plan for building permits and whether any other plan, and provided that the conditions set out in Section 15.7(1) above have been met.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

(3)

Canceled.

 

16.	Licenses and permits

 

16.1.

The Tenant declares and affirms that it inquired in the planning and building authorities and in the municipality the valid UBP where the Building and the Leased Premises are situated (hereinafter: the “Plan”) and inspected the permitted uses of the Building and the Leased Premises in accordance with the Plan and/or according to the building permit. After gaining all particulars relating to the applicable UBP in the premises, the Tenant decided to lease the Leased Premises from the Landlord according to the Purpose of Lease.

If, as a result of the use that the Tenant makes and/or will make in the Leased Premises the Landlord receives a demand from the Local Planning and Building Committee to pay a betterment levy, or non-conforming usage fees, the Tenant shall be obligated to pay directly to the Local Planning and Building Committee any amount the Landlord is obligated to pay by the Local Planning and Building Committee, or return to the Landlord any amount as said that is paid by the Landlord to the Local Planning and Building Committee, and provided that the Landlord notifies the Tenant regarding any suit and/or claim and/or demand made against it and will afford to the Tenant an opportunity to defend against such a demand.

The Tenant declares that it is familiar with the business it intends to conduct in the Leased Premises and the conditions that are required for the purpose of obtaining the business license and the Tenant, as opposed to the Landlord, shall be solely responsible and the Tenant undertakes to obtain all licenses, approvals and permits that are required or that will be required in accordance with the provisions set forth in any law for the purpose of conducting its business in the Leased Premises according to the Purpose of Lease. Prior to signing the Agreement, the Tenant considered the option to obtain all licenses and/or approvals and/or permits as said and found them in compliance with its purposes and requirements. The Tenant shall incur at its expense all payments that are required for the purpose of obtaining the said licenses or permits, including the performance of customizations in the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Leased Premises, if required for the purpose of obtaining the said licenses and permits. The Landlord shall not be held liable in any manner or form for obtaining the permits and/or the approvals that are required for the purpose of obtaining a business license for the Leased Premises. The Landlord will agree, to the extent that this is required from the Landlord in accordance with the provisions set forth in any law as the owner and the landlord of the Leased Premises and in accordance with the provisions set forth in any law, to submit an application for a business license and will sign any customary and reasonable form that is required for the purpose of this matter, and provided that this shall not impose on the Landlord any financial or other liability. For the avoidance of doubt, to the extent that the Tenant fails to obtain any business license for its business in the Leased Premises in consequence of an act or omission of the Tenant and/or in consequence of the non-conformance of the Tenant’s business and/or the use that the Tenant wishes to make in the Leased Premises to the provisions set forth in the UBP and the provisions set forth in any law applicable to the Leased Premises, this shall not derogate from any of the undertakings of the Tenant in accordance with this Agreement, including the payment of the Rent and the maintenance fees.

 

16.2.

The Tenant will extend on time any license and permit that are required for the purpose of conducting its business in the Leased Premises in compliance with the Purpose of Lease and, in addition, the Tenant undertakes to present to the Landlord a copy from any license or permit as said, upon receiving the demand of the Landlord to that effect. If, for any reason, the Tenant did not obtain a business license and not for a reason stemming from the Landlord and/or anyone acting on its behalf, the Tenant shall not be entitled to terminate this Agreement and this shall not release the Tenant from any of his obligations in accordance with this Agreement. In such circumstances as said, the Landlord on its behalf shall be entitled to terminate the lease contemplated in this Agreement and the Tenant shall be exempt from paying all payments the Tenant is obligated to pay in respect of the Leased Premises until expiration of the Term of Lease contemplated in this Agreement.

 

16.3.

The Tenant shall be responsible for obtaining at its expense a permit for the signs the Tenant wishes to place in the Leased Premises and pay any levy in respect whereof.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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16.4.

Failure to obtain such a license or permit as said shall not give rise to grounds justifying failure by the Tenant to fulfill its undertakings in accordance with the Agreement and the Landlord shall be entitled, however not obligated, in the event of failure in such manner that will cause the submission of indictments and/or reports and/or fines and/or the issuance of shutdown orders (whether administrative and whether judicial) in respect of the Leased Premises, to terminate the Agreement and demand from the Tenant, in addition to any other relief in accordance with the Lease Agreement and the law, payment for all the damages caused to the Landlord as a result of the breach, and provided that the Landlord notifies the Tenant regarding any claim and/or demand and/or suit brought against it, will afford the Tenant an opportunity to defend against it, will not settle in such a proceeding without obtaining the prior and written approval of the Landlord and that the damages shall be paid according to a peremptory judgment.

 

16.5.

The Tenant shall incur in person any fine or penalty imposed in respect of the management of the business and/or the use of the Leased Premises by the Tenant and/or its employees and/or agents and/or customers without a permit or in violation of a permit, whether imposed on the Landlord or the Management Company and whether imposed on the Tenant, and provided that the Landlord notifies the Tenant regarding any claim and/or demand and/or suit referred against it, will afford the Tenant an opportunity to defend against it, will not settle in such a proceeding without obtaining the prior and written approval of the Landlord and that the damages will be paid according to a peremptory judgment.

 

16.6.

The Tenant undertakes to observe at its expense and under its responsibility during the entire Term of Lease, and without receiving any demand or reminders from the Landlord, the entire provisions set forth in the law regarding the setting up of the business in the Leased Premises, including its use and management. Without derogating from the generality of the aforesaid, the specific provisions set forth hereunder shall apply with respect to the aforesaid.

 

16.7.

The Tenant undertakes that, to the extent that this is required in accordance with the law, it will act in accordance with the provisions set forth in the Placement of Resuscitation Machines in Public Places Law, 5768- 2008.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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16.8.

To the extent that the Tenant is bound by law to make the Leased Premises accessible to disabled persons, the Tenant shall be solely obligated to act in the said manner and at its expense, and the Landlord shall not be responsible for the purpose of this matter in any manner, as opposed to the obligation to make the Building and the Project accessible to disabled persons that will be imposed on the Landlord.

 

16.9.

The Tenant undertakes to install in the Leased Premises, at its expense and under its responsibility, a fire safety system including sprinklers, and any other equipment that is required (hereinafter: the “Fire Safety System”) according to the demands made by the National Fire and Rescue Authority and in accordance with the provisions set forth in any law expressly, and after obtaining the approval of the Standards Institution of Israel.

 

16.10.

The Tenant undertakes to install in the Leased Premises a fire detection system (hereinafter: the “Detection System”) that will be connected directly to the fire department call center and to other entities on behalf of the Tenant. It is hereby clarified that the undertaking of the Tenant as set out in this sub-section is an independent undertaking and will also apply in circumstances in which the Landlord installed (whether inside or outside the Leased Premises) a Fire Detection System connected to a control panel that will also connect to other detection systems that the company will install in other leased premises and/or in public areas in the Land (hereinafter: the “Main System”) and this will not impose on the Landlord any liability in connection therewith, and without derogating from the undertakings of the Tenant as stated in the first part of this sub-section, and the Landlord shall be entitled, however not obligated, to demand that in addition to the connection to the fire department center (and other entities on its behalf) the Tenant will also connect the Detection System also to the main system. Without derogating from the other provisions set forth in this Agreement, the Tenant undertakes to act for the purpose of providing proper maintenance to the fire protection and fire detection systems and the Tenant hereby releases the Landlord and anyone acting on its behalf from any liability for any damage caused to the Leased Premises and/or their content and/or to the equipment and/or to any person and/or corporation including to its employees and/or to the Landlord and/or to anyone acting on its behalf and/or to the other lessees and/or tenants in the Land and/or to any other person, as a result of a malfunction and/or a non-conformance in the Fire Protection System and/or in the Fire Detection System, provided that the malfunction was not caused for reasons depending on the main system or on the Landlord and/or anyone acting on its behalf.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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16.11.

For the avoidance of doubt it is hereby clarified that the connection to the main system as stated in sub-section 16.10 above shall not derogate from the obligations of the Tenant and the exemption granted in accordance with the provisions set forth in this sub-section, and shall not impose any responsibility and/or liability on the Landlord towards the Tenant in respect of any damage caused to the Leased Premises and/or to their content and/or to the equipment and/or to any other person and/or corporation including to its workers and/or to the Landlord and/or to anyone acting on its behalf and/or to the other tenants and/or lessees in the Land and/or to any other person as a result of a malfunction and/or non-conformance in the Fire Protection System and/or the Fire Detection System and/or the main system, unless these occurred as a result of an act and/or omission of the Landlord and/or the Management Company and/or anyone acting on their behalf.

 

16.12.

As a condition for the operation of the Leased Premises according to the Purpose of Lease by the Tenant, the Tenant shall conduct at its expense an inspection of the working order of the Fire Protection and the Fire Detection Systems in the Leased Premises only, within their meaning in Section 16.10, and will provide to the Landlord the written approval of the National Fire and Rescue Authority and the Standards Institution of Israel regarding the working order of the Fire Protection and the Fire Detection systems in the Leased Premises and all other safety issues as required by them as a condition for the occupancy of the Leased Premises. The Tenant will take measures at its expense to obtain all necessary approvals from the National Fire and Rescue Authority and/or the Standards Institution of Israel and/or any other authority whose approval is required in accordance with the law regarding the working order of the Fire Protection System and to the extent that an approval on behalf of the National Fire and Rescue Authority for the occupancy of the Leased Premises is required, the Tenant undertakes to obtain the said approval as well. The Tenant declares that it is aware that the breach of the said undertaking by the Tenant shall constitute a fundamental breach of this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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16.13.

Without derogating from the provisions set forth in this Section, the Tenant undertakes to observe, at its expense, the entire instructions of the National Fire and Rescue Authority as delivered from time to time and in accordance with the National Fire and Rescue Authority Law and/or in accordance with any law and it is hereby clarified expressly that in the event the Tenant fails to observe any of the aforesaid provisions the Landlord shall be entitled, however not obligated, to perform in its name and under its responsibility everything required as said, at the Tenant’s expense, and the Tenant undertakes to compensate and indemnify the Landlord promptly for the entire expenses the Tenant incurred for the performance of the said actions as said, in the event the Landlord performed the required work in lieu of the Tenant and subject to the presentation of invoices. In the event the Landlord acted as said, subject to the criterion of reasonableness this shall not derogate from the liability imposed on the Tenant with respect to the fire detection and fire protection systems and/or impose any liability on the Landlord and/or anyone acting on its behalf in anything associated therewith.

 

16.14.

For the avoidance of doubt it is clarified that the Tenant shall be solely obligated to obtain all approvals and/or permits as stated above and/or that are required in accordance with the provisions set forth in any law as a result of the use of the Leased Premises and the Landlord and/or anyone acting on its behalf do not and will not be held liable in connection therewith, even if the Landlord did not claim its right to obtain the said approvals and/or permits as said and the Tenant shall be precluded from raising any claim and/or demand and/or suit against the Landlord and/or anyone acting on its behalf in connection therewith, and provided that the preclusion preventing the issuance of the approval did not stem from circumstances depending on the Landlord and/or anyone acting on its behalf. The Landlord undertakes to deliver to the Tenant any approval and/or permit that is in its possession and that is demanded by the authorities as a supplemental approval for obtaining the approvals and the permits.

 

17.	Liability and indemnity

 

17.1.

The Tenant, and solely the Tenant, as opposed to the Landlord, shall be held liable for the protection of the Leased Premises and their content, and shall be held liable in accordance with any law towards any person and/or entity and/or authority for any damage, loss, failure or injury (hereinafter in this Section 17, including sub-sections thereof: “Damage”) caused to the body and/or to the property in the Area of the Leased Premises and/or in consequence of the use of the Leased Premises and/or as a result of

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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conducting its business (in the Leased Premises and outside the Leased Premises) and for any Damage caused in connection with the possession in the Leased Premises and/or use thereof and/or in consequence of an act or omission the Tenant and/or anyone acting on its behalf commits in the Area of the Leased Premises and/or in the area of the Project and the Building – whether committed by the Tenant and whether committed by anyone acting on its behalf, including its workers, agents, contractors, suppliers, visitors and/or any other person on its behalf and/or with its permission.

It is hereby agreed and declared expressly that the Landlord shall not be held liable in any manner for the Tenant and/or anyone acting on its behalf for any Damage that is caused, if caused, to the property and/or to the business of the Tenant and anyone staying therein, and for any Damage to the Leased Premises and all, without derogating from the generality of the aforesaid – also indirect and consequential loss, except for Damage caused by an act and/or omission of the Landlord and/or anyone acting on its behalf.

For the avoidance of doubt, it is clarified that everything stated in this Section 17.1 above also constitutes a provision in favor of a third-party, within the meaning of this term in Chapter D of the Contracts Law (General Part) 5733-1973 when the said third-party is the Management Company.

 

17.2.

Any activity that is held and/or that is performed in the Leased Premises shall be performed under the sole responsibility of the Tenant and the Landlord will have no connection and/or responsibility and/or liability for such an activity as said, except for the liabilities of the Landlord and/or the Management Company in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law. Without derogating from the generality of the aforesaid the Tenant shall be held liable in accordance with the provisions set forth in any law for any Damage and for any other responsibility in consequence of the breach or the partial fulfillment of the provisions set forth in any law and/or license and/or permit in connection with the use of the Leased Premises by the Tenant, including its employees, agents, contractors, suppliers, visitors and/or any other person acting on its behalf and/or with its permission.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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17.3.

Without derogating from the rights of the Landlord in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law, the Tenant undertakes to compensate and indemnify the Landlord and/or anyone acting on its behalf and/or the Management Company in respect of any expense and/or loss caused to any thereof in consequence of an act or omission of the Tenant and/or anyone acting on its behalf in consequence of an event for which the Tenant is held liable as stated in Sections 17.1 or 17.2 above and/or for the full amount that the Landlord and/or the Management Company paid or incurred in connection with the Damage, within its meaning above, and all legal expenses that the Landlord and/or anyone acting on its behalf and/or the Management Company incurred in connection with a lawsuit and/or in connection with a defense in a lawsuit as said in consequence of the Damage and/or expenses for legal actions commenced by the Landlord in consequence of breach of any of the undertakings of the Tenant in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law and all on the condition that the Landlord notified the Tenant regarding such a lawsuit as said within a reasonable time after learning about the said lawsuit and on the condition that it afforded to the Tenant an opportunity to defend against the said lawsuit, whether by its addition as a third-party in the said lawsuit, whether by its inclusion in the defense of the Landlord against the lawsuit, whether by affording to the Tenant an opportunity to defend against the lawsuit on behalf of the Landlord, and did not settle in the said lawsuit without obtaining the prior and written approval of the Tenant and that the said indemnity and/or the damages shall be paid in accordance with a peremptory judgment (hereinafter collectively: the “Conditions for Indemnity”).

 

17.4.

The Tenant, as opposed to the Landlord, shall be solely liable, in accordance with the provisions set forth in any law, for any bodily injury and/or damage to property caused in connection with its negligence and for any wrong committed in connection with the possession in the Leased Premises and/or the use made therein, except for Damage caused by the Landlord and/or anyone acting on its behalf.

 

17.5.

The Tenant shall indemnify the Landlord and/or the Management Company in respect of any Damage and/or suit and/or obligation the Landlord and/or the Management Company will be obligated to pay in connection with Damage and/or a wrong committed in the Leased Premises and/or in connection with and/or stemming from the possession in the Leased Premises and/or in connection with the use made therein and for which the Tenant is held liable as stated in Sections 17.1 and 17.2 above, and all immediately upon receiving the first written demand of the Landlord and subject to the Conditions of Indemnity set out in Section 17.3 above.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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17.6.

For the avoidance of doubt it is hereby clarified that the said in this Section shall not impose on the Tenant any liability for bodily injury and/or damage to property caused in consequence of an act and/or omission of a third-party and/or damages for which the Tenant is not held liable in accordance with the provisions set forth in any law.

 

17.7.

The parties agree and declare expressly that the Landlord shall not be held liable in any manner towards the Tenant for Damage caused to the Tenant’s property and/or to the Tenant’s business for any reason and, without derogating from the generality of the aforesaid, also indirect and consequential loss, except for Damage caused deliberately by the Landlord and/or Damage in respect of which it is proven that it stems from acts and/or omissions of the Landlord and/or anyone acting on its behalf.

 

18.

Insurance

Without derogating from the liability of the Tenant in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law, the Tenant shall be responsible for taking out and maintaining during the entire Term of Lease all the insurances in accordance with the entire requirements laid down in the Insurance Appendix hereby attached to this Agreement as an integral part thereof and marked as Appendix E.

 

19.	Additions and modifications

The Tenant shall not be entitled to perform any modifications or additions in the Leased Premises that constitute fixtures, whether interior or exterior modifications, or any additions, whether interior or exterior modifications that require the issuance of a building permit and/or a constructive modification in the drawings including the common systems in the Building without obtaining the prior and written approval of the Landlord, which approval shall not be unreasonably withheld (hereinafter: “Modifications and Additions”).

The performance of the Modifications and Additions is stipulated on the condition that the Modifications and Additions will be performed by lawfully licensed contractors, and to the extent that the Modifications require a building permit and/or a permit issued by a competent authority the Modifications will be performed only in accordance with the requirements laid down by the competent authorities and after obtaining a building permit in accordance with the law.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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20.	Transfer of rights

 

20.1.

The Tenant shall not be entitled to assign and/or transfer and/or perform a transaction and/or endorse in any other manner its rights and/or obligations in connection with this Agreement, in whole or in part without obtaining the prior, express and written approval of the Landlord, which approval shall not be unreasonably withheld.

Notwithstanding the aforesaid, it is clarified that the Tenant shall be entitled at any time and without obtaining the prior and written approval of the Landlord, to transfer rights in the Leased Premises and rights in accordance with the Agreement, and permit any use of the Leased Premises or any part thereof to others, within the framework of a sale or transfer of shares in the Tenant, activities and/or assets of the Tenant, in whole or in part, whether by way of a sale, assignment, reorganization or merger, and provided that the new legal entity that is formed instead of the Tenant will step in and take over the Tenant in this Agreement.

In addition, the Tenant shall be entitled to transfer its rights in accordance with this Agreement, in whole or in part, or permit the use of the Leased Premises or any part thereof, to any parent company and/or subsidiary and/or a related company, within the meaning of these terms in the Securities Law 5728-1968, without obtaining the prior and written approval of the Landlord.

It is further agreed that the Tenant shall be entitled to lease the Leased Premises, in whole or in part, to a sublessee, subject to obtaining the prior and written approval of the Landlord, which approval shall not be unreasonably withheld.

In addition, the Tenant shall be entitled to transfer its rights and obligations in accordance with this Agreement to a substitute lessee who will sign this Agreement and who will step in and take over the Tenant in this Agreement, and provided that the Landlord approves the in advance and in writing the identity of the Landlord.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Breach of the provisions set forth in this Section 20.1 shall constitute a fundamental breach of the Agreement.

 

20.2.

The Landlord and/or anyone acting on its behalf shall be entitled to assign and/or perform a transaction and/or sell and/or rent and/or lease and/or charge and/or pledge and/or transfer and/or endorse in whole or in part its rights and/or obligations in accordance with this Agreement, in whole or in part, without obtaining any approval from the Tenant in connection therewith, and all on the condition that the rights of the Tenant in accordance with this Agreement shall not be impaired thereby and that the Tenant shall not be subject to additional obligations as a result of such actions. The Tenant undertakes to fulfill its entire undertakings as stated in the Agreement towards anyone that steps in and takes over the Landlord as said (hereinafter: the “Transferee”) unconditionally, and the Tenant undertakes to cooperate with the Landlord and/or with the Transferee and sign any document and/or declaration, to the extent required, if required by the Landlord for the purpose of approving and/or performing the said in this Section, including, and without derogating from the generality of the aforesaid the replacement of the entire collaterals that the Tenant provided to the Landlord and their replacement with collaterals in the name of the Transferee, to the extent that this is demanded by the Landlord, and all on the condition that the rights of the Tenant in accordance with this Agreement shall not be impaired thereby and that the Tenant will not be subject to additional obligations in connection therewith. This condition is a fundamental condition in this Agreement.

 

21.	Reliefs and remedies

 

21.1.

None of the provisions set forth in this Agreement shall be construed as derogating from the rights of any of the parties to this Agreement in accordance with the provisions set forth in the Contracts Law (Remedies for Breach of Contract), 5731-1970.

 

21.2.

Without derogating from its right to seek any other relief and/or remedy and/or to seek damages for a higher amount, in the event of a fundamental breach of this Agreement by the Tenant that was not cured in accordance with the provisions set forth in this Agreement, the Landlord shall be entitled to pre-estimated liquidated damages in an amount in new Israeli shekels

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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equal to the Rent for 2 months of lease, when the amount that will be paid will be linked to the Basic Index until its actual payment date (hereinafter: the “Liquidated Damages”), whether the Landlord opted to perform the Agreement and whether the Landlord opted to terminate the Agreement as a result of such a breach as said.

The parties declare that after making the necessary calculations the parties find that the Liquidated Damages constitute reasonable and adequate compensation and payment for the damage caused to the Landlord in consequence of the breach and in consequence of handling its consequences.

“Fundamental breach” in this Agreement shall mean – a breach in respect of which it is stated explicitly in the Agreement that it is a fundamental breach. This condition is a fundamental condition in this Agreement.

 

21.3.

Without derogating from any other provision set forth in this Agreement, it is agreed that breach of any of the provisions set forth hereunder shall be deemed as a fundamental breach:

Default in any of the payments the Tenant is obligated to pay in accordance with the provisions set forth in this Agreement to the Landlord and/or to the Management Company and/or to anyone acting on their behalf, for a period greater than 14 (fourteen) days and/or a default as said for a period of 7 days, however for more than three times during any year of lease (that will be counted as of the Lease Commencement Date henceforth – in each whole calendric year) (hereinafter: the “Year of Lease”).

 

21.4.

It is clarified that without derogating from any other provision in this Agreement – even in the event the Tenant terminates the operation of the business in the Leased Premises for any reason prior to the expiration of the Term of Lease, the Tenant shall be obligated to pay all payments applicable to the Tenant by virtue of this Agreement on time, without exception, until the expiration of the Term of Lease.

 

21.5.

Notwithstanding and despite any provision in the Agreement in connection with the Term of Lease and without derogating from the foregoing, the Landlord shall be entitled to terminate the Agreement, demand from the Tenant to vacate the Leased Premises forthwith by delivery of a thirty (30) days’ prior notice (hereinafter: the “Termination Notice”) and return full possession in the Leased Premises to the Landlord, upon the occurrence of any of the following events:

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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21.5.1.

The Tenant committed a fundamental breach of this Agreement and failed to cure the breach in 14 days as of the date of receiving a written notice from the Landlord.

 

21.5.2.

The Tenant committed a breach other than a fundamental breach of this Agreement and failed to cure the breach or failed to take action to cure the breach in 21 days as of the date the Tenant received a written demand from the Landlord to that effect.

 

21.5.3.

The Tenant or any member thereof, as the case may be, died and/or a motion was submitted in a competent court for the liquidation of the Tenant and/or for a declaration of the Tenant as bankrupt and/or for the appointment of a trustee and/or a liquidator and/or a temporary liquidator and/or a receiver (for the Tenant or for any of its primary assets) and/or a special administrator and/or a stay of proceedings against the Tenant and/or the imposition of an attachment on a material part of its assets, and the motion was not dismissed or withdrawn in 90 days from the date of its submission.

 

21.6.

In the event a Termination Notice of this Agreement was delivered upon the occurrence of any of the aforesaid events, the following provisions shall apply, inter alia:

 

21.6.1.

The Landlord may take possession in the Leased Premises and act in accordance with the provisions of the law for the purpose of this matter.

 

21.6.2.

Canceled.

 

21.6.3.

The Tenant undertakes to return to the Landlord and to the Management Company, immediately after making a decision to that effect based on a peremptory judgment, all expenses, damages and losses caused to them as a result of breach of the Agreement by the Tenant and as a result of the said breach including, and without derogating from the generality of the aforesaid, legal expenses, attorney fees, accountant fees and the fees of any other professional as said, and all assisted in the peremptory judgment as said.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

21.6.4.

Subject to the lawful termination of this Agreement, the Tenant shall have no right to defend in any manner and/or try and delay or prevent an engagement between the Landlord and any other tenant and/or try and prevent or delay the lease of the Leased Premises to any other substitute tenant or any other tenant. The aforesaid provisions shall apply both to the relationship between the Landlord and the Tenant and the relationship between the Tenant and the substitute tenant, and shall be deemed, inter alia, as contractual provisions made in favor of a third-party, within the meaning of this term in Chapter D of the Contracts Law (General Part) 5733-1973.

 

21.7.

Without derogating from any relief and/or remedy and/or right granted to the parties to the Agreement in accordance with the Agreement and/or in accordance with the provisions set forth in any law, the parties agree that any default in payment by any party and that is greater than 7 days shall carry Interest in Arrears within its meaning in Section 1 of the Agreement, calculated on daily basis, as of the first day of the default.

 

21.8.

Canceled.

 

21.9.

Any waiting period, a delay, waiver or avoidance from exercising any right by any of the parties in accordance with this Agreement and/or an attempt by that party to reach settlement or an arrangement with the other party shall not be deemed in any circumstances and in any case as waiver or as grounds for an argument of preclusion against the other party, and these shall not constitute precedent and/or waiver in advance with respect to similar or other circumstances in the future.

 

21.10.

This Section including all sub-sections thereof constitutes a material and fundamental section in this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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66

Unofficial English translation from Hebrew original

 

22.	Vacating the Leased Premises

 

22.1.

The Tenant undertakes that immediately upon expiration of the Term of Lease or upon the lawful termination of this Agreement for any reason (hereinafter: the “Evacuation Date of the Leased Premises”) the Tenant will vacate the Leased Premises and will deliver possession therein to the Landlord when the Leased Premises are free from any person and article owned by the Tenant and subject to natural and reasonable wear. The Leased Premises will be delivered to the Landlord when they include any renovation, improvement, addition, repair or fixture therein even if these were installed and/or added to the Leased Premises by the Tenant at its expense, including air-conditioning systems, mechanical systems, electrical systems etc. subject to the provisions of Section 19 above.

For the avoidance of doubt it is clarified that any object and/or equipment and/or accessories and/or inventory that are not part of the Landlord’s property in accordance with this Agreement and that are left in the Leased Premises after the Leased Premises are vacated by the Tenant shall become the property of the Landlord for no payment after the Tenant vacates the Leased Premises.

 

22.2.

The Tenant undertakes that in the event it does not vacate the Leased Premises on the Evacuation Date of the Leased Premises and not for a period of 7 (seven) additional days, the Tenant will pay to the Landlord for the period between the Evacuation Date of the Leased Premises and the actual evacuation date an amount equal to the multiple of two months of the Rent in respect of each month or any part thereof according to its relative part, during the period the Tenant does not vacate the Leased Premises. The Tenant declares that this amount was set and was agreed between the parties as pre-estimated liquidated damages that the parties set after applying their judgment as the reasonable amount of the damage caused to the Landlord as a result of failure to vacate the Leased Premises on the Evacuation Date of the Leased Premises.

For the avoidance of doubt the Tenant declares that the said in this Section shall be without prejudice to any right of the Landlord and any payment made in accordance with this Section will not release the Tenant from its obligation to vacate the Leased Premises.

 

22.3.

The Tenant declares and warrants that in the event it fails to vacate the Leased Premises on the Evacuation Date of the Leased Premises the Landlord and/or the Management Company shall be entitled, in addition to the reliefs granted to them under Section 22.2, in accordance with the

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

Agreement and in accordance with the provisions set forth in any law, to claim from the Tenant the entire sums that the Tenant is obligated to pay in accordance with this Agreement as if the Term of Lease continued, and without prejudice to the obligation of the Tenant to vacate the Leased Premises.

 

22.4.

For the avoidance of doubt, the Tenant declares that payment and/or receipt of adequate usage fees and/or payments made under Section 22.3 above shall not create a relationship of lease between the parties with respect to the period after the Evacuation Date of the Leased Premises.

 

22.5.

The Tenant declares that in any event it fails to vacate the Leased Premises in person, on the Evacuation Date of the Leased Premises and not even after receiving a 14 (fourteen) days’ additional written notice, the Landlord and/or anyone acting on its behalf shall be entitled to enter the Leased Premises and remove any person and article related to the Tenant and/or used by the Tenant at the absolute and sole discretion of the Landlord.

 

22.6.

Canceled.

 

22.7.

The Tenant declares that the Landlord and/or anyone acting on its behalf shall not be held liable in any manner for any damage of any kind caused to the Tenant, if caused, as a result of any activity related to the eviction of the Tenant and/or the removal of the equipment and the property from the Leased Premises and/or the storage of the equipment and the property that were made as a result of failure by the Tenant to vacate the Leased Premises on time and in contravention of the provisions set forth in this Agreement.

 

22.8.

Upon expiration of the Term of Lease or upon the termination of this Agreement for any reason the Landlord and the Tenant will perform a final settling of accounts.

For the purpose of performing the final settling of accounts the Tenant will provide to the Landlord a certificate issued by any municipal and/or governmental and/or other authority and/or from any other entity in respect of which the Tenant undertook directly to make different payments, or receipt in the event it is impossible to obtain an approval from the said entity, proving that as of the expiration date of the Term of Lease the Tenant made all payments relating to the Term of Lease including principal and/or interest and/or linkage differentials and/or fines and/or any other debt in respect of the said period.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

23.	Collateral

For the purpose of assuring the timely fulfillment of the entire undertakings of the Tenant in accordance with the Agreement, and without derogating from the entire undertakings of the Tenant in the Agreement, and without derogating from any relief and/or remedy and/or right granted to the Tenant in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law, the Tenant will provide the entire collateral to the Landlord on the following dates, as follows:

 

23.1.

Canceled.

 

23.2.

Autonomous bank guarantee

On the Delivery Date as said, and as a condition for delivery of possession as said the Tenant will provide to the Landlord on the Delivery Date an autonomous bank guarantee in the form attached as Appendix G (hereinafter: the “Bank Guarantee”).

Without derogating from the said in Appendix G, as said, the entire following provisions will apply to the Bank Guarantee:

 

23.2.1.

The Bank Guarantee will be autonomous, unconditional, assignable to a third-party that will purchase the Leased Premises solely from the Landlord, made in favor of the Landlord as a beneficiary, payable in installments, duly stamped at the Tenant’s expense and in effect during the entire Term of Agreement and up to 60 days after expiration of the Terms of Lease. The amount of the Bank Guarantee as said will be an amount equal to the monthly Rent (including the Rent for the Parking Spaces) and the management fees/maintenance fees and VAT in respect whereof, within their meaning in Section 14 above for a period of 6 (six) months, when the guarantee amount as said is linked to the Index starting from the Basic Index and up to the Index known on the actual payment date.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

It is clarified that the Tenant shall incur at its sole expense any commission and/or expense and/or payment in respect of the issuance and/or the extension and/or the maintenance of the Bank Guarantee.

 

23.2.2.

In the event the Agreement is extended and applies also in additional Terms of Lease the Tenant will provide to the Landlord the Bank Guarantee for the additional relevant Term of Lease in the form and under conditions that are identical to the Bank Guarantee that was provided in connection with the Term of Lease that preceded it.

 

23.2.3.

In the event the Tenant breaches any fundamental provision of the provisions set forth in the Agreement, including, but not limited to, in circumstances in which any overdue payment is due from the Tenant to the Landlord (including, and without derogating from the generality of the aforesaid, sums for an undertaking made by the Tenant to indemnify the Landlord) the Landlord shall be entitled to present the Bank Guarantee for payment, in whole or in part (at its discretion) after delivery of written notice to the Tenant at least 14 days in advance, and as long as the Tenant did not cure the breach during this period, without derogating from any relief and/or remedy and/or right granted to the Landlord in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law, and all at the absolute and sole discretion of the Landlord.

 

23.2.4.

It is clarified that in the event the Landlord realizes the Bank Guarantee as stated above the Tenant shall be obligated to deposit with the Landlord a new Bank Guarantee under terms and for an amount that is identical to the amount that was forfeited (linked to the Index), in 7 days as of the date the Landlord presented the Bank Guarantee for payment as said.

 

23.2.5.

To the extent that the Tenant provided a Bank Guarantee that is in effect for a period that expires before the expiration of the Term of Lease, the Tenant shall be responsible for extending the effect of the Bank Guarantee from time to time and provide the extended guarantee or its amendment in their original form to the Landlord

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

without receiving any demand or a reminder from the Landlord to that effect. In the event the Tenant failed to act in the said manner, during a period of 14 days prior to the expiration date of the guarantee, the Landlord shall be entitled to deliver a demand for the forfeiture or the extension of the effect of the guarantee to the bank that issued the guarantee.

 

23.3.

Promissory note

 

23.3.1.

At the time of signing this Agreement the Tenant will provide to the Landlord a negotiable, index-linked (without personal guarantors) promissory note, in the form attached as Appendix H, in an amount equal to the amount of the Rent for the Parking Spaces and management fees/maintenance fees and VAT in respect whereof for a period of 12 months, when the said promissory note will be blank (hereinafter: the “Promissory Note”). The Landlord and/or the Management Company shall be entitled to fill in the payment date and the redemption date in the Promissory Note and submit the note for its collection and/or to the Execution Office and/or to negotiate with the note without limitation in any event in which the Tenant breaches the Agreement and/or the Management Agreement and/or in any event in which any payments are due to the Landlord and/or the Management Company that were not fully paid and/or timely paid (including and without derogating from the generality of the aforesaid, sums for the undertaking of the Tenant to indemnify the Landlord). In addition, the Promissory Note will serve for the purpose of assuring payment of the debts and the payments of the Tenant to third-parties such as Rehovot Municipality and/or Israel Electric Corp. and/or the municipal water corporation etc. without derogating from any relief and/or remedy and/or right the Landlord and/or the Management Company may seek in accordance with the provisions set forth in this Agreement and/or in accordance with the provisions set forth in any law, and all at the absolute and sole discretion of the Landlord and/or the Management Company. It is agreed that the Promissory Note will be used only after delivery of written notice to the Tenant at least 14 days in advance, and as long as the breach was not cured during this period.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

In the event the amount collected by the Landlord in the realization of the Note is greater than the amount due to the Landlord in accordance with the Agreement in addition to collection expenses, the Landlord will keep the balance as a security in lieu of the Note until the security is no longer required, and shall be entitled to recover from the balance any amount due to it from the Tenant afterwards.

 

23.3.2.

It is clarified that in the event the Landlord uses the Promissory Note in one of the manners as stated in Section 23.3.1 above, the Tenant shall be obligated to deposit with the Landlord a new Promissory Note under terms and for an amount that are identical to the forfeited amount, in 7 days as of the date in which the Landlord made any use of the Note as said.

 

23.3.3.

The provision of the Promissory Note shall not be deemed as payment and only after the Promissory Note is fully paid-up the payment and/or any other amount that the Tenant owes shall be deemed as fully paid-up. The Tenant releases the Landlord and the Management Company from the obligations of the holder of the note.

 

23.3.4.

The Promissory Note will be returned to the Tenant on the date the Tenant receives the Bank Guarantee.

 

23.4.

In any event in which any of the collaterals that was provided by the Tenant to the Landlord under this Agreement is forfeited, the Tenant shall be obligated, in 30 days as of the forfeiture date of the security, to provide another identical security, for the full amount of the forfeited amount (hereinafter: the “Supplemental Security”). In the event the Supplemental Security was not provided in accordance with the provisions set forth above, this shall constitute a fundamental breach of this Agreement by the Tenant.

 

23.5.

The collaterals will be returned to the Tenant on the date that will be the earlier of the following two dates: (1) 60 days after the termination date of this Agreement and/or the expiration of the Term of Lease, as the case may be; (2) on the date the Tenant provides to the Landlord proof confirming that the Tenant made all payments it was obligated to pay in accordance with the provisions set forth in this Agreement until the Evacuation Date of the Leased Premises and returned the Leased Premises to the Landlord in accordance with the provisions set forth in this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

23.6.

It is clarified that the entire collaterals stated in this Section above are delivered cumulatively to the Landlord and are autonomous and independent.

 

24.	Inapplicability of tenancy protection laws

The parties agree that the provisions set forth in the Tenant Protection Law [Consolidated Version] 5732-1972 and other tenancy protection laws including their regulations and orders (hereinafter: the “Law”) shall not apply to the lease contemplated in this Agreement and that any law that confers on the Tenant the status of a protected tenant or that entitles the Tenant not to vacate the Leased Premises in circumstances and on dates in which the Tenant is obligated to vacate the Leased Premises in accordance with this Agreement shall not apply to the Leased Premises and/or this Lease Agreement.

The parties declare explicitly and confirm that the Leased Premises are situated in the building whose construction was completed after August 20, 1968 and that this lease is made under the express condition that the Law will not apply to the lease. The Tenant declares that it did not pay and will not pay to the Landlord any key money in connection with this Agreement or any other consideration other than the Rent and that the Tenant or anyone acting on its behalf including any member thereof and/or shareholders therein shall not be a protected tenant in the Leased Premises in accordance with the provisions set forth in any law and the Tenant shall be precluded from bringing any suits or claims in connection with protect tenancy or that the Tenant has in the Leased Premises more rights than the rights conferred on the Tenant expressly in this Agreement.

The Tenant declares that any investment that the Tenant will make in the Leased Premises and/or in the Commercial Center, including equipment and facilities and including its part in the air-conditioning system will be made solely for the Tenant’s purposes and the Tenant shall be precluded from arguing that the said investments constitute key money or substitute key money or payment made under Section 82 of the said Law or any payment conferring on the Tenant any rights in the Leased Premises and that the Tenant shall be precluded from demanding from the Landlord any participation or reimbursement, in whole or in part, in respect of the said investments.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

It is further agreed that the parties hereto do not intend to create a relationship of protected lease in accordance with tenancy protection laws and that this declaration of the parties is a prerequisite for obtaining the Landlord’s approval of this Agreement.

 

25.	Fulfillment of undertakings in lieu of another party

Whenever one of the parties to this Agreement is obligated to perform any action or work or pay any payment and the said party (hereinafter: the “Breaching Party”) did not perform the action or the work or made the said payment until the date set for that purpose in this Agreement, the other party shall be entitled, however not obligated, to perform the action or the work or make the payment in lieu of the Breaching Party and at the expense of the Breaching Party, whether by itself and whether by others. In such circumstances as said the Breaching Party shall be obligated to pay immediately upon receiving the demand of the executing party (the other party) all sums or losses or damages that the other party paid or incurred in connection with the performance of the action or the work or the payment as said in addition to the Interest in Arrears, within its meaning above, as of the date the other party incurred the expense and until the full amount is actually returned to the other party (principal in addition to Interest in Arrears).

 

26.

Canceled

 

27.	Miscellaneous

 

27.1.

This Agreement including Appendixes thereof expresses fully and exclusively the entire relationship, rights and obligations between the Landlord and the Tenant.

 

27.2.

Upon signing this Agreement, that constitutes the entire and binding agreement between the parties hereto, any prior agreement and/or written agreement and/or declaration and/or prospect and/or assurance and/or covenant and/or representation and/or publication that were made prior to the signing hereof, if and to the extent that made by the Landlord or its representatives or anyone acting on its behalf, are hereby null and void and the Landlord shall not be bound by any thereof.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

27.3.

The parties hereby declare that they sign this Agreement after inquiring all particulars in connection therewith and that none of the parties relied on any information however only the information stated expressly in this Agreement and all subject to the representations made by the Landlord.

 

27.4.

It is hereby agreed between the parties that in the event of discrepancy and/or non-conformance and/or ambiguity between any of the provisions set forth in the body of the Agreement and the technical specification, the priority between the documents shall be as follows:

With respect to technical matters – the technical specification shall take precedence over the body of the Agreement.

With respect to legal matters (including definitions) – the body of the Agreement shall take precedence over the technical specification.

 

27.5.

The headings of the Sections will serve for the purpose of orientation and convenience only and will not serve for the purpose of interpreting the Agreement.

 

27.6.

Prior drafts of this Agreement shall be inoperative in connection with the interpretation of this Agreement or any provision hereof. Such drafts shall not be admissible in any judicial or quasi-judicial proceeding.

 

27.7.

None of the provisions and terms set forth in this Agreement including Appendixes thereof shall derogate from any other term or provision of this Agreement however shall add thereto.

 

27.8.

Any modification and/or waiver and/or deviation from the provisions set forth in this Agreement shall be null and void unless executed in writing and signed by the parties. This Agreement, signed by the Tenant, shall be deemed as an offer made by the Tenant to the Landlord. Only the signing of this Agreement by the Landlord shall be deemed as acceptance of the Tenant’s offer and as the signing of a binding agreement between the parties.

 

27.9.

Consent by one of the parties to deviate from any of the terms set forth in this Agreement in particular circumstances shall not give rise to a precedent and no similar conclusions shall be drawn with respect to other circumstances. In the event a party did not exercise a right granted to it in

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

accordance with this Agreement in particular circumstances this shall not be deemed as waiver of the said right in the same circumstances and/or in other similar or different circumstances and no conclusion regarding a waiver with respect to the right of that party should be drawn. No conclusions shall be drawn with respect to a waiver that was made in particular circumstances in other circumstances.

 

27.10.

For the avoidance of doubt it is clarified that the rights granted to the Tenant in accordance with this Agreement, are granted to the Tenant solely with respect to the Leased Premises, to the extent granted, and the Tenant does not and will not have any right in connection with additional construction rights and/or additional built areas that will be approved and built by the Landlord or by any third-party, if any, and/or in connection with the use of any part of the Project and/or the Building that is not part of the Area of the Leased Premises including roofs, passageways and the like.

For the avoidance of doubt, it is further clarified that the Tenant shall not be entitled at any time to register a caveat by virtue of its rights in accordance with this Agreement.

 

27.11.

Any claims in connection with this Agreement or stemming therefrom will be submitted only to the court with the material jurisdiction in Tel Aviv – Yafo.

 

27.12.

The stamp duty (if any) applicable to this Agreement will be imposed on the party obligated to pay such expenses in accordance with the law.

 

27.13.

The Tenant declares and affirms that it is aware that the attorneys representing the Landlord represent only the Landlord and that the Tenant is entitled and may consult with an attorney on its behalf under no limitations.

 

27.14.

The Tenant shall not be entitled to offset any amount from the Rent and/or the management fees and/or from any other amount imposed on the Tenant in accordance with the provisions set forth in this Agreement. In addition, the Tenant shall have no right of lien with respect to the Leased Premises or any articles associated therewith or located therein and that are the property of the Landlord. This condition is a fundamental condition in this Agreement.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

27.15.

The parties hereby agree that the provisions of the Hire and Loan Law 5731-1971 shall not apply to this Agreement, except for provisions of the law that may not be qualified.

 

27.16.

The addresses of the parties for the purpose of this Agreement are as stated in the preamble hereto and any notice delivered by a party to the other party in registered mail to the aforesaid addresses, unless a party notified the other party in writing about a change of address, shall be deemed to have reached its recipient in 4 business days as of the date of its delivery from the post office, and in the event the notice is delivered in person (only to the addresses of the parties, when the Tenant’s address during the Term of Lease shall be the address of the Leased Premises).

The following are the addresses of the parties:

The Landlord – 3 Har Sinai St., Tel Aviv.

The Tenant – in the Leased Premises.

And in witness hereof the parties are hereby undersigned:

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]				[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]
The Landlord				The Tenant

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

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Unofficial English translation from Hebrew original

 

Attorney acknowledgement

I, the undersigned,                         , Adv. of                          St. hereby certify the signature of the Messrs.                         on behalf of the Landlord who are authorized to sign in its name and bind the Landlord.

 

, Adv.

Attorney acknowledgement

I, the undersigned, [handwritten: Einat Itzhak], Adv. of [handwritten: 16 Abba Hillel St., Ramat Gan] St. hereby certify the signature of the Messrs. [handwritten: Roni Mamluk and David Sipernski] on behalf of the Landlord who are authorized to sign in its name and bind the Landlord.

 

[Signature and Stamp: Einat Itzhak, Adv. 16 Abba Hillel St., Ramat Gan License No. 46122

Adv.

 

[Signature and Stamp: Ogen Yielding Real Estate Ltd.]

[Signature and Stamp: AYALA-ONCOLOGY ISRAEL Ltd., Company Reg. No. 515748697]

Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of the Effective Date, by and between Ayala Oncology Israel Ltd., a company organized under the laws of the State of Israel, P.C. No. 51-574869-7 (the “Company”) and Employee.

 

WHEREAS,		Company desires to employ Employee in the Employment Position and Employee desires to serve in such capacity on the terms and conditions hereinafter set forth herein; and
WHEREAS,		Employee represents that she has the requisite skill and knowledge to engage in the Employment Position and fulfill the duties and responsibilities set forth herein.

NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, the parties agree as follows:

 

1.	Definitions

All undefined terms herein shall have the meanings ascribed thereto in Exhibit A hereto, which exhibit constitutes an integral part hereof.

 

2.	Employment

 

(a)

Company agrees to employ Employee in the Employment Position, and Employee agrees to be employed by Company in the Employment Position, reporting to the Board of Directors of Company, on the terms and conditions hereinafter set forth. Notwithstanding the aforesaid, Employee acknowledges and agrees that Company may change Employee’s position to co-CEO or President in connection with hiring and/or engaging another Chief Executive Officer and/or co-CEO and/or President to Company and/or any of its affiliates (the “New Officer”). The selection and appointment of such New Officer shall be made by the Board of Directors of Company, following a diligent screening process in accordance with industry practice, of which, Employee shall be part. Employee hereby agrees to be employed by Company in such capacity and to discharge and perform faithfully and to the best of her ability such duties and services of an executive, administrative and managerial nature consistent with her Employment Position, as may be amended, as shall be specified and determined from time to time by the Board of Directors of Company. Notwithstanding the aforesaid, Employee shall continue to report directly to the Board of Directors of Company in the event New Officer is appointed. Subject to the aforesaid, Employee hereby waives and claims and/or suits with respect to the appointment of such New Officer. Employee’s duties and responsibilities shall be those duties and responsibilities customarily performed by an employee in the Employment Position.

 

(b)	During the term of Employment hereunder, Employee agrees to devote skill, labor, attention and time to the business and affairs of Company as required to discharge the responsibilities assigned to Employee hereunder.

 

Confidential

 

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(c)

Employee shall perform Employee’s duties diligently, conscientiously and in furtherance of Company’s best interests, exercising the authority, powers, functions, and duties that attach to the Employment Position. In the event that Employee shall discover that she has or might have any conflict of interest with the duties required of Employee by virtue of Employee s employment with Company, immediately upon such discovery Employee shall so inform the Board of Directors of Company in writing.

 

(d)

Employee’s duties shall be in the nature of management duties that demand a special level of loyalty and accordingly the Work Hours and Rest Law 1951, including any law amending or replacing such law, shall not apply to this Agreement. The parties hereto confirm that this is a personal services contract and that the relationship between the parties hereto shall not be subject to any general or special collective employment agreement or any industry custom or practice, or practice of Company in respect of any of its other employees or contractors. Employee agrees that the execution and delivery by Employee of this Agreement and the fulfillment of the terms hereof (i) does not conflict with any agreement or undertaking by which Employee is bound; and (ii) does not require the consent of any person or entity.

 

3.

Salary

 

(a)

In consideration for the services provided by Employee hereunder, Company shall pay to Employee the Salary, on a monthly basis during the term of this Agreement. All amounts specified in this Agreement are gross sums. Company shall deduct and withhold all required taxes and other statutory payments, including health insurance contributions and social security contributions from the Salary and from all other rights and benefits received by Employee. All income and other taxes shall be deducted as required by law. The Salary will be adjusted from time-to-time in accordance with the Cost of Living Index (“Tosefet Yoker”) and other adjustments as required by law.

 

(b)	The Salary shall be payable monthly in arrears, and shall be paid to Employee in accordance with Company policy.

 

(c)

The Salary includes remuneration for working overtime, and Employee shall not be entitled to any further remuneration or payment whatsoever other than the Salary and/or benefits, unless expressly specified in this Agreement. Employee acknowledges that the Salary to which Employee is entitled pursuant to this Agreement constitutes due consideration to Employee for for the requirements of the Employment Position, status and overtime.

 

(d)	It is hereby agreed that Employee’s determining pay for the purpose of severance pay is the Salary and all additional benefits, such as a vehicle and/or vehicle equivalent and/or vehicle maintenance, but excluding any other payments and/or reimbursement of expenses.

 

4.	Employee Benefits

Employee shall be entitled to the following benefits:

 

(i)

Sick Leave. Employee shall be entitled to 30 fully paid sick leave days per year.

 

Confidential

 

2

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(ii)

Vacation. Employee shall be entitled to paid vacation of up to the Annual Vacation Days, as set forth in Exhibit A, in coordination with Company. Accumulation and redemption of any unused Vacation Days due to Employee pursuant to the Annual Vacation Law – 1951 (the “Vacation Law”), shall be subject to the provisions of the Vacation Law. Vacation Days exceeding such number of Vacation Days due to Employee pursuant to the Vacation Law from time to time (the “Excess Vacation Days”), may be accumulated by Employee from time to time for use, provided, that, in any event, the number of Excess Vacation Days Employee may accumulate shall not exceed twice (x2) the Annual Vacation Days. Accrued Vacation Days shall be redeemed and paid for by Company only upon termination of Employee’s employment, up to twice (x2) the Vacation Days.

 

(iii)

Annual Recreation Allowance (“Dme’i Havra’a”). Employee shall be entitled to annual recreation allowance of 10 days per year.

 

(iv)

Additional Benefits. Company shall provide Employee with the Additional Benefits specified in Exhibit A.

 

5.	Term and Termination

 

(a)	The term of employment under this Agreement shall commence as of the Commencement Date, and will continue indefinitely unless terminated under any of the following circumstances:

 

(i)

Company may terminate the employment of Employee immediately for Cause. For purposes of this Agreement, the term “Cause” will be defined to include matters such as: (1) conviction of any crime involving moral turpitude or dishonesty; (2) willful refusal to perform the lawful instructions of the Board of Directors pertaining to Employee’s employment under this Agreement and/or to substantially perform Employee’s assigned duties, provided, however, that if such refusal and/or failure to perform is susceptible to cure, Employee shall not have cured such refusal and/or failure within 14 days of having been given written notice thereof; (3) the misappropriation of corporate assets or corporate opportunities by Employee or any other acts of dishonesty or breach of Employee’s fiduciary duties or duties of care to Company (except for conduct taken in good faith); (4) any conduct (other than conduct in good faith) materially detrimental to Company; (5) a material breach of the terms of this Agreement; and (6) any other act or omission that would legally entitle Company to dismiss Employee without payment of severance pay in connection with such dismissal.

 

(ii)

Company may terminate Employee’s employment with Company by sending a notice of termination to Employee, provided that such notice determines a date of termination no earlier than the end of the Notice Period, it being understood that Company may provide such notice at any time without cause. Alternatively, Company may terminate Employee’s employment forthwith and pay Employee the Salary and all other benefits, as if she was actually working during the notice period.

 

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(iii)

Employee may terminate Employee’s employment with Company by sending a written notice of termination to Company, provided that such notice determines a date of termination no earlier than the end of the Notice Period, it being understood that Employee may provide such notice at any time without cause and without the need to state the reason therefore.

 

(b)

During the Notice Period, Employee shall (i) cooperate with Company and use its best efforts to assist the integration into Company’s organization of the person or persons who will assume Employee’s responsibilities, if so requested by Company, and (ii) continue to receive the compensation set forth herein. At the option of Company, during the Notice Period, Employee shall continue to perform its duties as set forth herein or remain absent from the premises of Company during the Notice Period.

 

(c)

If the employment of Employee is terminated (for any reason) under Sections 5(a) (i), (ii) or (iii), then unless the parties otherwise mutually agree in writing, in full satisfaction of Company’s obligations under this Agreement and under applicable law, Employee shall only be entitled to: (A) earned but unpaid Salary provided for herein up to and including the effective date of termination, prorated on a daily basis; (B) release of the managers insurance policy and/or pension fund (unless the circumstances of such termination entitle Company to retain a portion of the managers insurance policy and/or pension fund); (C) release of the further education fund, if any; and (D) a cash payment for all unredeemed vacation days, if any, up to the maximum number specified above. Company and Employee agree and acknowledge that transfer of ownership of all the money accumulated in the manager’s insurance policy and/or pension fund to Employee as set forth in this Section 5(c) shall be in lieu of any right to receive severance pay under law.

 

(d)

In the event that Employee terminates Employee’s employment with Company by sending a written notice of termination to Company during the 24-month period following the Commencement Date, provided that: (i) such notice determines a date of termination no earlier than the end of the Notice Period; and (ii) such notice is provided within 30 days from the date of appointment of New Officer and in connection thereto, Employee shall be entitled, in addition to the aforesaid in Section 5 (c) above, to a 3-month Salary and all the additional benefits as if Employee was still actually working.

 

(e)

In the event of any termination of Employee’s employment, whether or not for cause and whatever the reason, Employee will promptly deliver to Company all documents, data, records and other information pertaining to Employee’s employment and any Proprietary Information (as defined in Section 6), and Employee will not take with her any documents or data, or any reproduction or excerpt of any documents or data, containing or pertaining to Employee’s employment or any Proprietary Information. Furthermore, Employee and Company agree and undertake that both parties will not make any statements, comments, or communications that constitute libel, slander, or disparagement of Employee and/or Company and/or any of its predecessors, subsidiaries, shareholders successors, affiliates, directors, officers employees, agents, representatives, attorneys, related entities, insurers, agents, representatives.

 

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6.	Proprietary Information

 

(a)

Employee represents and warrants that she will keep the terms and conditions of this Agreement strictly confidential and will not disclose it nor provide a copy of it or any part thereof to any third party unless and to the extent required by applicable law and/or to its legal and/or financial and/or tax advisors.

 

(b)

Employee acknowledges and agrees that she will have access to confidential and proprietary information concerning the business and financial activities of Company and/or any of its affiliates and information and technology regarding their product research and development, including without limitation, products, customer lists, pricing, trade secrets, patents, business methods and cost data, business plans, strategies, drawings, designs nonpublic information regarding product development, marketing plans, sales plans, manufacturing plans, management organization (including but not limited to nonpublic data and other information relating to members of the Board of Directors of Company and/or its affiliates Company and/or any of its affiliates or to management of Company and/or any of its affiliates), operating policies or manuals financial records, design or other nonpublic financial, commercial, business or technical information. Such information, whether documentary, written, oral or computer generated, shall be deemed to be and referred to as “Proprietary Information”.

 

(c)

Proprietary Information shall exclude information that (i) was known to Employee prior to its association with Company, provided it was received on a non-confidential basis from a source other than Company or any of its affiliates and/or in connection with the formation of Company, and can be so proven in writing· (ii) shall have appeared in any printed publication or patent or shall have become a part of the public knowledge except as a result of a breach of this Agreement by Employee; (iii) shall have been received by Employee from a third party having no obligation to Company, (iv) reflects general skills and experience gained during Employee’s engagement by Company, or (v) reflects information and data generally known within the industries in which Company transacts business.

 

(d)

Employee agrees and declares that all Proprietary Information, patents and other rights in connection therewith shall be the sole property of Company and its assigns. At all times, both during its engagement by Company and after its termination, Employee will keep in confidence and trust all Proprietary Information, and Employee will not use or disclose any Proprietary Information or anything relating to it without the written consent of Company except as may be necessary in the ordinary course of performing Employee’s duties hereunder and in the best interests of Company.

 

(e)

Employee recognizes that Company received and will receive confidential or proprietary information from third parties subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Such information shall be deemed “Proprietary Information” for all purposes hereunder, and shall, without limitation of the foregoing, be returned to Company upon termination of Employee’s employment with Company pursuant to Section 5(f) hereof.

 

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(f)	Employee’s undertakings in this Section 6 shall remain in full force and effect after termination of this Agreement or any renewal thereof.

 

7.	Non-Competition

 

(a)

Employee agrees and undertakes that, for as long as Employee is employed by Company and for the Non Compete Period – Employee shall not, directly or indirectly, become financially interested in, be employed by, or have any business connection with, any business or venture that is engaged in any activities directly competing with products or services offered by Company, in countries where Company is providing services, as owner, partner, joint venture, shareholder, employee, broker agent, principal, corporate officer, director, licensor or in any other capacity whatever; provided, however, that Employee may own securities of any corporation which is engaged in such business and is publicly owned and traded.

 

(b)

Employee agrees and undertakes that during the period of its employment with Company and for the Non Compete Period thereafter Employee will not solicit, canvass or approach or endeavor to solicit, canvass or approach any person or entity who was provided with services by Company or its subsidiaries on the date of Employee’s termination or during the preceding twelve months, for the purpose of offering services or products which compete with the services or products supplied by Company.

 

(c)	If any one or more of the terms contained in this Section 7 shall, for any reason, be held to be excessively broad with regard to time, geographic scope or activity, the term shall be construed in a manner to enable it to be enforced to the extent compatible with applicable law.

 

(d)	Employee declares that she is aware that the Salary includes special consideration paid to Employee for Employee’s undertakings set out in this section 7.

 

7A.

Simultaneously with the signing of this Agreement, Employee has also signed the Non-Disclosure, Unfair Competition and Ownership of Inventions Undertaking in favor of the Company, which is attached hereto as Exhibit D, which forms an integral part of this Agreement and is made in addition to and not in substitution for any provision to the same effect contained herein. Employee’s employment compensation has been calculated to include special consideration for his/her commitments under Exhibit D attached hereto.

 

8.	Miscellaneous

 

(a)	Company shall be entitled to set-off any amount owed to Company by Employee under the terms and provisions of this Agreement from any amount owed by Company to Employee under the terms and provisions of this Agreement or from any other source whatsoever.

 

(b)

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

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(c)	This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Israel, without giving effect to the rules with respect to conflicts-of-law.

 

(d)	The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

 

(e)

This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made either party which are not expressly set forth in this Agreement.

 

(f)	This Agreement shall be binding upon and shall inure to the benefit of Company, its successors and assigns.

 

(g)	Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Employee, his or her beneficiaries or legal representatives.

 

(h)	The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

 

(i)	Exhibit B attached hereto shall be deemed a Notice as defined in the Notice to Employee Law (Terms of Employment), 5762-2002.

 

(j)	For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered mail, postage prepaid.

[Signature Page Follow]

 

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IN WITNESS WHEREOF, Company has caused this Employment Agreement to be executed by its duly authorized officer and Employee has executed this Agreement as of the day and year first above written.

 

Company:				Employee:
/s/ Yuval Cabilly				/s/ Roni Mamluk
Ayala-Oncology Israel Ltd.				Signature
By: Yuval Cabilly				Name: Roni Mamluk
Title: Director

 

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EXHIBIT A

AYALA-ONCOLOGY ISRAEL LTD.

EMPLOYMENT AGREEMENT – RONI MAMLUK

 

TERM USED IN THE AGREEMENT		EXPLANATION		DETAILS
EFFECTIVE DATE		Date the agreement is signed		November 30 2017
EMPLOYEE		Name of employee: ID number of employee: Address of employee:		Name: Roni Mamluk ID: 022721336 Address: [XXXX]
EMPLOYMENT POSITION		Position Employee will hold in Company		CEO subject to Section 2 (a) of this Agreement
EMPLOYMENT BASIS		Part time / Full time basis		Part time basis equaling 80% (eighty percent) of a full-time employment
COMMENCEMENT DATE		The date Employee starts her employment with Company		November 15, 2017
SALARY		The monthly salary paid to Employee, before taxes and payments are deducted		NIS 60,000
ANNUAL VACATION DAYS		Number of vacation days per year to which employee is entitled		25 days
ANNUAL RECREATION DAYS		Number of recreation allowance days per year to which employees is entitled		10 days
NOTICE PERIOD		Number of days’ notice to be given for termination of Employment by Employee or Company		90 days

 

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NON COMPETE PERIOD		Period after termination of Employment in which Employee may not compete with Company or solicit employees		12 months
ADDITIONAL BENEFITS
EXPENSE REIMBURSEMENTS		Employee shall be entitled to receive prompt reimbursement of all direct expenses (“Expense Reimbursements”) properly and necessarily incurred by Employee in connection with the performance of Employee’s duties hereunder; provided, however, (i) that such expenses are in accordance with Company’s expense reimbursement policies; and (ii) that Employee has submitted such receipts and other documents as may be required by, and has otherwise complied with Company’s expense policy in effect at such time; provided further, that reimbursement of lunch expenses shall be solely subject to the relevant section herein or in Company’s policies.
TRAVEL		Employee shall be entitled to travel business class on business flights of more than 5 consecutive hours. All other terms shall be in accordance with Company’s travel policy.
PERSONAL MOBILE PHONE EXPENSE PARTICIPATION		According to Company’s policy.
MANAGERS INSURANCE POLICY (“Bituach Menahalim”) AND/OR PENSION FUND (“Keren Pensya”)		No later of the completion of 3 months of employment with Company, Company shall insure Employee (retroactively to the Commencement Date) with a manager’s insurance policy (the “Manager’s Insurance Fund”) or an extensive pension fund (the “Pension Fund”) (individually and collectively referred to as the “Policy”), or a combination of the two (whereby each will apply partially), subject to the percentages as follows:   6.5% of the Salary shall be contributed towards a pension savings component (which shall include payments on account of disability insurance and life/survivors insurance) and 8.33% from the Salary shall be contributed towards a severance pay component. Employee’s contribution to the pension savings component shall be equal to 6%, which shall be deducted from the Salary.   For the avoidance of the doubt, in the event that Employee has chosen a Manager’s Insurance Fund (for all or for only a part of the Policy), then at least 5% of the Salary (or in the case in which only a part of the Salary is apportioned towards a Manager’s Insurance Fund, then such part of the Salary) shall be calculated towards the pension savings component.

 

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		Furthermore, in order to ensure that 75% of the Salary shall be paid to Employee in the event Employee becomes 100% disabled (the “Disability Insurance”), Company shall be required to make additional contributions (in excess of an amount equal to up to 1.5% which is paid out of the 6.5% detailed above) towards the above mentioned Disability Insurance, such that the aggregate maximum employer contribution towards the pension savings component and the Disability Insurance shall not exceed in the aggregate, an amount equal to 7.5% of the Salary.   If the cost of the Disability Insurance (i.e., ensuring that 75% of the Salary shall be paid to Employee upon Employee becoming 100% disabled) shall be lower than 1.5% of the Salary, the remainder shall nevertheless still be contributed to the pension savings component for the benefit of Employee.   Employee shall notify Company within 30 days from the Commencement Date whether Company’s contribution shall be made wholly to the Pension Fund wholly to the Manager’s Insurance Fund or any combination of the two (the “Notification”). Furthermore, Employee shall notify Company whether he wishes to engage with a pension agent of his own (the “Pension Agent”). The Pension Agent (if there will be any) shall be responsible to transfer the pension allocations of Employee according to the Agreement and will not, at any time or for any reason, cause a waiver and/or diminution of Employee’s disability insurance and/or survivors insurance, as required by law. Should Employee fail to deliver a Notification to Company, Company shall be authorized to elect a pension scheme for Employee at its sole discretion (the “Approved Scheme”). Employee acknowledges and agrees that she shall not have any claim, suit or demand with respect to the Approved Scheme (if any) and the Approved Scheme shall be considered as a scheme which is acceptable to her.   Company shall deduct any and all taxes on behalf of Employee with respect to any of the contributions which exceed the ceiling provided under the income tax laws (should such contributions be permissible).

 

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		Employee’s rights shall be secured in accordance with the provisions of the Order published pursuant to Section 14 of the Severance Pay Law, 1963, as amended and as shall be amended from time to time (the “Order”). The Order as published up to the date of this Agreement is attached hereto as Exhibit C.   The parties agree that Company’s contributions and deductions to the Policy shall come in lieu of Company’s obligation to pay Employee (or in the event of his demise during the Term, Employee’s survivors under Section S of the severance Pay Law, 1963 (the “Severance Pay Law”), severance pay due pursuant to the Severance Pay Law, in accordance and subject to the provisions of the Order.   According to the provisions of the Order and without derogating therefrom, Company waives any right it may have to recover sums from its contributions, unless Employee’s entitlement to severance pay has been denied in a judgment under Sections 16 or 17 of the Severance Pay Law and/or in the event of Cause (as defined in Section S to the Agreement), or unless Employee withdraws sums from the Pension Fund or the Manager’s Insurance Fund other than in the case of an “entitling event” (as such term is defined in the Order).
FURTHER EDUCATION FUND		The Company shall contribute towards a Further Education Fund (‘Keren Hishtalmut’) (the “Education Fund”) in an amount equal to 7.5% of the Salary applicable to the month in respect of which such contribution is made and Employee shall contribute towards such Education Fund an amount equal to 2.5% of such applicable Salary (which contribution by Employee shall be made by way of a deduction by the Company of such amount from Employee’s monthly Salary and remitting same to such Education Fund), provided, however, that in no event shall such Company’s contribution towards the Education Fund exceed 7.5% of the ‘Effective Salary’ (as defined in Section 3(e) of the Income Tax Ordinance, 5721-1961) nor shall such Employee’s contribution towards the Education Fund exceed 2.5% of such ‘Effective Salary’.
BONUSES		a.   Employee shall be entitled to an annual bonus of 30% of her Salary subject to her meeting the annual criteria and/or milestones determined and approved annually by the Board of Directors of Company, after consultation with Employee.

 

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		b.  Employee shall be entitled to a one-time joining bonus in an amount to be determined by the Board of Directors of Company, payable in Q1 2018.
INCENTIVE PLAN		Subject to the approval of the Board of Directors and shareholders Ayala Pharmaceuticals, Inc., the parent company of the Company (“Parent”), and the adoption by Parent of an Incentive Stock Plan (the “Plan”), Parent will grant Employee options to purchase a total number of shares of Common Stock of Parent, par value US$0.01 each (“Common Stock”), equal to 1% of Company’s issued and outstanding share capital, on a fully diluted basis, immediately following the initial investment in Company (the “Initial Investment” and the “Options”) (currently, 141,331 shares of Common Stock, assuming the consummation of the Initial Closing under Parent’s Series A Preferred Stock Purchase Agreement dated as of or around December 5, 2017) provided however that the date of grant shall be immediately before the Initial Investment, at an exercise price determined by the Board of Directors of Parent. The Options shall be granted pursuant to the terms and conditions of the Plan, at an exercise price determined by the Board of Directors of Company, and subject to the execution of an option agreement thereunder and shall vest quarterly over a 4-year period with a 1-year cliff from the date of grant. The vesting of such Options shall be fully accelerated in the event of an M&A transaction of Company, as such term is defined in the Plan. If Employee’s employment with Company is terminated, the Options may be exercised only with respect to any remaining unexercised portion of the Options that has vested at the time of such termination within a 3-month period following such termination, provided however, that in the event of termination by Company in accordance with Section 5 (a) (ii) the exercise period shall be 12 months following termination. Upon termination of Employee’s employment with Company, for any reason whatsoever, the unvested portion of the Options shall immediately expire and be of no further force or effect.   Immediately prior to an initial public offering (“IPO”), to the extent an IPO materializes during Employee’s employment with the Company, Company will grant Employee (the “IPO Grant”):   a.   options to purchase such total number of shares of Common Stock of Parent, equal to 0.5% of Parent’s issued and outstanding share capital, on a fully diluted basis, on the date of such grant (the “Second Options”). The Second

 

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		Options shall be granted pursuant to the terms and conditions of the Plan and subject to the execution of an option agreement thereunder and shall vest quarterly over a 4-year period with a 1-year cliff from the date of grant, at an exercise price determined by the Board of Directors of Parent. The vesting of such Second Options shall be accelerated in the event of an M&A transaction of Company, as such term is defined in the Plan.   b.  A restricted stock award entitling Employee to purchase for $0 such total number of shares of Common Stock of Parent equal to 0.5% of Parent’s issued and outstanding share capital, on a fully diluted basis, on the date of such grant (the “RSUs”). The RSUs shall be granted pursuant to the terms and conditions of the Plan and subject to the execution of a restricted stock award agreement thereunder and shall vest quarterly over a 4-year period with a 1-year cliff from the date of grant. The vesting of such RSUs shall be accelerated in the event of an M&A transaction of Company, as such term is defined in the Plan.   Notwithstanding the aforesaid, the IPO Grant shall not be affected by any equity grant provided to New Officer immediately prior to and/or immediately after an IPO and with respect thereto. To that end, Employee shall be granted an additional equity grant in order to receive a total equity grant equal to that granted to New Officer with respect to an IPO.
COMPANY CAR		Company shall make available to Employee a leased Company car (the “Company Car”). The Company Car shall be of a “Group 3” type car as available to Company pursuant to its respective lease agreement(s) from time to time.   The Company Car shall be placed with Employee for her business and reasonable personal use and for the use of her immediate family members, in accordance with the Company’s respective lease agreement(s) from time to time. Employee shall take good care of the Company Car and ensure that the provisions of the insurance policy, the lease agreement and Company’s policies relating to the Company Car are strictly, lawfully and carefully observed.   The Company Car will be returned to Company by Employee upon the termination of the Employment, for any reason whatsoever.

 

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		Subject to applicable law, Company shall bear all fixed and ongoing expenses relating to the Company Car and to the use and maintenance thereof, excluding fines and expenses (including legal expenses) incurred in connection with violations of law or the insurance policy, which shall be borne and paid solely by Employee, and provided that Company shall bear fuel expenses in connection with the Company Car. In addition, Employee shall bear the cost of any deductible amount charged from Company for damages caused to the Company Car in connection of its use contrary to the insurance policy or in connection with violations of law. Employee shall indemnify and/or reimburse Company, upon its first demand, for all charges paid and expenses incurred by it in connection with any of the above.   Employee shall bear the taxes applicable in connection with the Company Car and the use thereof, in accordance with applicable income tax regulations and Social Security Provisions.

 

Company:				Employee:
/s/ Yuval Cabilly				/s/ Roni Mamluk
Ayala-Oncology Israel Ltd.				Signature
By: Yuval Cabilly				Name: Roni Mamluk
Title: Director

[Signature Page to Exhibit A to Employment Agreement/ November 2017]

 

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EXHIBIT B

 

 

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EXHIBIT C

General Approval Regarding Payments by Employers to a Pension Fund and Insurance Fund in lieu of Severance Pay

In accordance with the Severance Pay Law 5723-1963

By virtue of my authority under Section 14 of the Severance Pay Law 5723-1963 (hereinafter, the “Law”), I hereby confirm that payments made by an employer beginning on the date this authorization is publicized, for its employee, towards a comprehensive pension in a provident fund for benefit payments, which is not an insurance fund as implied in the Income Tax Regulations (Rules for Approving and Managing Provident Funds) 5724-1964 (hereinafter, a “Pension Fund”), or towards managers insurance that includes an option for benefit payments (hereinafter, an “Insurance Fund”) or a combination of payments towards a Pension Fund and an Insurance Fund (hereinafter, “Employer Payments”), shall be in lieu of the severance pay to which the said employee is entitled in respect of the wages of which the said payments were paid and the period for which they were paid (hereinafter, the “Exempted Salary”), provided that the following conditions shall be met:

1. Employer Payments-

1.1. To a Pension Fund are not less than 14.33% of the Exempted Salary or 12% of the Exempted Salary if the employer pays for its employee, in addition to this, supplementary severance payments towards a Severance Pay Fund or an Insurance Fund in the name of the employee at a rate of 2.33% of the Exempted Salary. If the employer does not pay the said 2.33% in addition to the 12%, its payments shall be only in lieu of 72% of the employee’s severance pay.

1.2. To an Insurance Fund are not less than one of the following:

1.2.1. 13^1⁄₃% of the Exempted Salary, if the employer pays for its employee payments for additional monthly income support in case of employee’s inability to work, through a plan approved by the Supervisor for Capital Markets, Insurance and Savings in the Ministry of Finance, at a rate necessary to guarantee at least 75% of the Exempted Salary, or at a rate of 2^1⁄₂% of the Exempted Salary, whichever is lower (hereinafter, “Loss of Work Capacity Insurance”).

1.2.2. 11% of the Exempted Salary, if the employer paid an additional Payment for the Loss of Work Capacity Insurance, and in such case the employer’s payments shall be only in lieu of 72% of the employee’s severance pay. If, in addition to such payments, the employer has also paid payments for the supplement of severance pay to a Severance Pay Fund or an Insurance Fund under the name of the employee at a rate of 2^1⁄₃% of the Exempted Salary, the employer’s payments shall be in lieu of 100% of the employee’s severance pay.

 

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2. Not later than three months following the commencement of the employer’s payments, a written agreement shall be executed by and between the employer and the employee, which shall include:

2.1. The employee’s agreement to an arrangement in accordance with this authorization, in wording that specifies the employer’s payments and the Pension Fund and the Insurance Fund, as relevant. The said agreement shall also include the wording of this authorization.

2.2. The employer’s prior waiver of any right it may have to a financial reimbursement for all or part of its payments, unless the employee’s right to severance pay is rescinded by a judicial decree or by virtue of Sections 16 or 17 of the Law, or that the employee withdrew funds from the Pension Fund or from the Insurance Fund not for a qualifying incident. In this regard a “Qualifying Incident” – death, disability or retirement at the age of 60 or older.

3. This authorization shall not derogate from the employee’s right to severance pay under the Law, collective agreement, expansion order or employment contract, for wages exceeding The Exempted Salary.

Eliyahu Yishai

Minister of Labor and Social Welfare

 

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EXHIBIT D

This CONFIDENTIALITY, UNFAIR COMPETITION, AND OWNERSHIP OF INVENTIONS UNDERTAKING (“Undertaking”) is made and given as of November 15, 2017 by Roni Mamluk, Israeli I.D. No. 022721336 (the “Employee”).

WHEREAS, the Employee wishes to be employed with and provide services that are of particular and special value to Ayala-Oncology Israel Ltd. (together with its direct or indirect parent (including Ayala Pharmaceuticals, Inc.), subsidiary and affiliated companies, and its and their respective successors and assigns – the “Company”); and WHEREAS, it is critical for the Company to preserve and protect its Confidential Information, and its rights in Inventions and in all related intellectual property rights; NOW, THEREFORE, as a condition to Employee’s employment with the Company, Employee hereby undertakes and warrants towards the Company as follows:

1. Confidentiality.

1.1. Employee acknowledges that during the term of the Employee’s employment with the Company, and including any period during which the Employee provided services to any Company entity at any time prior to the date hereof, the Employee may have (or may have had) access to information that relates to the Company, its business, assets, financial condition, affairs, activities, plans and projections, customers, suppliers, partners and other third parties with whom the Company agreed or may agree, from time to time, to hold information of such parties in confidence (the “Confidential Information”). Confidential Information shall include, without limitation, information, whether or not marked or designated as confidential, concerning technology, products, research and development, patents, copyrights, Inventions, trade secrets, test results, formulae, processes, data, know-how, marketing, promotion, business and financial plans, policies, practices, strategies, surveys, analyses and forecasts, financial information customer lists, agreements, transactions, undertakings and data concerning employees, consultants, officers, directors, and shareholders. Confidential Information includes information in any form or media, whether documentary, written, oral, magnetic, electronically transmitted, through presentation or demonstration or computer generated. Confidential Information shall not include information that has become part of the public domain not as a result of a breach of any obligation owed by the Employee.

1.2. Employee acknowledges and understands that the employment of Employee with the Company and the access to Confidential Information creates a relationship of confidence and trust with respect to such Confidential Information.

1.3. During the term of Employee’s employment with the Company and at any time after termination or expiration thereof, for whatever reason, Employee shall keep in strict confidence and trust, shall safeguard, and shall not disclose to any person or entity nor use for the benefit of any party other than the Company, any Confidential Information, other than with the prior express consent of the Company, unless the Employee has an independent right or obligation to make such disclosure pursuant to applicable local, state or federal law, provided, that Employee gives the Company prompt notice of such requirement to disclose so that the Company may seek a protective order or other appropriate remedy, and provided further, that Employee shall furnish only that portion of the Confidential Information which is legally required to be disclosed, and shall exercise all reasonable efforts to obtain confidential treatment for such information.

 

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1.4. All right, title and interest in and to Confidential Information are and shall remain the exclusive property solely of the Company or the property of the third party providing such Confidential Information to the Company, as the case may be. Without limitation of the foregoing, Employee agrees and acknowledges that all memoranda, books, notes, records, email transmissions, charts, formulae, specifications, lists and other documents (contained on any media whatsoever) made, reproduced compiled, received, held or used by Employee in connection with the employment with the Company or that otherwise relates to any Confidential Information (the “Confidential Materials”), shall be the exclusive property solely of the Company and shall be deemed to be Confidential Information. All originals, copies, reproductions and summaries of the Confidential Materials shall be delivered by Employee to the Company upon termination or expiration of Employee’s employment with the Company for any reason, or at any earlier time at the request of the Company, without Employee retaining any copies thereof.

1.5. During the term of Employee’s employment with the Company, Employee shall not remove from the Company’s offices or premises any Confidential Materials unless and to the extent necessary in connection with the duties and responsibilities of the Employee and permitted pursuant to the then applicable policies and regulations of the Company. In the event that any such Confidential Materials are duly removed from the Company’s offices or premises, Employee shall take all actions necessary in order to secure the safekeeping and confidentiality of such Confidential Materials and return the Confidential Materials to their proper files or location as promptly as possible after such use.

1.6. During the term of Employee’s employment with the Company, Employee will not use or disclose any trade secrets, proprietary or confidential information, and will not bring onto the premises of the Company any unpublished documents or any property, in each case belonging to any former employer or any other party to whom Employee has an obligation of confidentiality and/or non-use (including, without limitation, any academic institution or any entity related thereto), unless generally available to the public or consented to by such third party in a writing addressed to the Company.

2. Unfair Competition and Solicitation.

2.1. Employee undertakes that during the term of employment with the Company and for a period of twelve (12) months thereafter, (i) Employee shall not, directly or indirectly, engage in or establish or otherwise become involved in either as an employee owner, partner, agent, shareholder director, consultant or otherwise, any business, occupation, work or any other activity which competes with the business of the Company as conducted during the term of employment or planned, during such term, to be conducted, or which will have the likely effect of reducing the business volume or monetary profits of the Company; (ii) Employee shall not, directly or indirectly, solicit, hire or retain as an employee, consultant or otherwise, any employee of the Company or induce or attempt to induce any such employee to terminate or reduce the scope of such employee’s employment with the Company; and (iii) Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee, consultant, service provider, agent, distributor, supplier or customer of the Company, or third party with respect to which the Company took substantial steps to engage as an employee or as any of the foregoing during the period of Employee’s employment with the Company, to terminate, reduce or modify the scope of its or their employment with the Company.

 

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2.2. Employee acknowledges that in light of Employee’s position with the Company and in view of Employee’s exposure to, and involvement in, the Company’s sensitive and valuable proprietary information, intellectual property and technologies, Confidential Information and Confidential Materials (the “Company’s Material Assets”), the provisions of this Section above are reasonable and necessary to legitimately protect the Company’s Material Assets, and are being undertaken by Employee as a condition to the employment of Employee by the Company. Employee confirms that Employee has carefully reviewed the provisions of this Section 2, fully understands the consequences thereof and has assessed the respective advantages and disadvantages to Employee of entering into this Undertaking and, specifically, Section 2 hereof.

2.3. Employee hereby declares that he/she is aware that a portion of the payments or other consideration paid or granted to Employee by the Company contains additional consideration in exchange for the Employee fully undertaking the non-compete and non-solicitation provisions in Sections 2.1 and 2.2 above. Notwithstanding anything to the contrary, the Employee declares that he/she is financially capable of undertaking these non-compete and nonsolicitation provisions.

3. Ownership of Inventions.

3.1. Employee will notify and disclose in writing to the Company, or any persons designated by the Company from time to time, all information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, made or conceived or reduced to practice or learned by Employee, either alone or jointly with others, during Employee’s employment with the Company (including after hours, on weekends or during vacation time) (all such information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how, and data are hereinafter referred to as the ”Invention(s)”) immediately upon discovery, receipt or invention as applicable.

3.2. Employee agrees that all of the Inventions are, upon creation, considered Inventions of the Company, shall be the exclusive property solely of the Company and its assignees, and the Company and its assignees shall be the sole owner of all patents, copyrights, trade secrets and all other rights of any kind or nature, including moral rights, in connection with such Inventions. Employee hereby irrevocably and unconditionally assigns to the Company all the following with respect to any and all Inventions: (i) title, rights and interest in and to such Inventions, (ii) title, rights and interest in and to any patents, patent applications, and patent rights, including any and all continuations or extensions thereof; (iii) rights associated with works of authorship, including copyrights and copyright applications, Moral Rights (as defined below) and mask work rights; (iii) rights relating to the protection of trade secrets and confidential information; (v) design rights and industrial property rights; (vi) any other proprietary rights relating to intangible property including trademarks, service marks and applications therefor trade names and packaging and all goodwill associated with the same; and (vii) all rights to sue for any infringement of any of the foregoing rights and the right to all income, royalties damages and payments with respect to any

 

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of the foregoing rights. Employee also hereby forever waives and agrees never to assert any and all Moral Rights Employee may have in or with respect to any Inventions, even after termination of Employee’s employment with the Company. “Moral Rights” means any right to claim authorship of a work, any right to object to any distortion or other modification of a work, and any similar right existing under the law of any country in the world, or under any treaty. The Employee further acknowledges and agrees that all copyrightable works included in the Inventions shall be “works made for hire” within the meaning of the Copyright Act of 1976, as amended (17 U.S.C. §101) (the “Act”), and that the Company shall be the “author” within the meaning of the Act.

3.3. Employee represents that there are no information improvements inventions, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to Employee (whether made solely by the Employee or jointly with others) that: (i) were developed by the Employee prior to Employee’s employment with the Company, (ii) relate to the Company’s actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder.

3.4. Employee further agrees to perform, during and after Employee’s employment with the Company, all acts deemed reasonably necessary or desirable by the Company to permit and assist it, at the Company’s expense, in obtaining, maintaining, defending and enforcing the Inventions in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Employee’s agents and attorneys-in-fact to act for and on Employee’s behalf and instead of Employee, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Employee.

3.5. Employee shall not be entitled, with respect to any and all of the above to any monetary consideration or any other consideration except as explicitly set forth in the employment agreement between Employee and the Company. Without limitation of the foregoing, Employee irrevocably confirms that the consideration explicitly set forth in Employee’s employment agreement with the Company is in lieu of any rights for compensation that may arise in connection with the Inventions under applicable law and waives any right to claim royalties or other consideration with respect to any Invention including under Section 134 of the Israeli Patent Law, 1967 (or any successor or equivalent law). With respect to any and all of the above, any oral understanding, communication or agreement not memorialized in writing and duly signed by an authorized officer of the Company, shall be void.

4. General.

4.1. Employee represents that the performance of all the terms of this Undertaking and of all of Employee’s duties and services to the Company does not and will not breach any invention assignment, proprietary information, non-compete, confidentiality or similar agreements with, or rules, regulations or policies of, any former employer or other party (including, without limitation, any academic institution or any entity related thereto). Employee acknowledges that the Company is relying upon the truthfulness and accuracy of such representations in engaging Employee.

 

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4.2. Employee acknowledges that the provisions of this Undertaking serve as an integral part of the terms of Employee’s employment with the Company and reflect the reasonable requirements of the Company in order to protect its legitimate interests with respect to the subject matter hereof. The Employee hereby explicitly acknowledges that the restrictions set forth in this Confidentiality Agreement are not greater than required and do not unduly burden the Employee.

4.3. Employee hereby consents that following the termination or expiration of the employment relationship hereunder, the Company may notify the Employee’s new employer about the Employee’s rights and obligations under this Undertaking.

4.4. It is agreed and understood that if a court of law finds that the Employee has violated Section 2 of this Confidentiality Agreement, then the restrictions set forth in such section shall automatically be extended for any period of time for which the court finds that the Employee violated such restrictions.

4.5. Employee recognizes and acknowledges that in the event of a breach or threatened breach of this Undertaking by Employee the Company may suffer irreparable harm or damage and that under such circumstances monetary remedies would be inadequate to protect against any actual or threatened breach of this Confidentiality Agreement. Without prejudice to any other rights and/or remedies otherwise available to the Company, it is therefore agreed that the Company will be entitled to the granting of equitable relief, including but not limited to injunctive relief and specific performance, in favor of the Company without proof of actual damages to remedy or prevent any breach of this Undertaking (without limitation to any other remedy at law or in equity).

4.6. This Undertaking shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to any conflict of laws principles which may result in the application of the laws of any other jurisdiction. Any and all disputes in connection with this Undertaking shall be submitted to the exclusive jurisdiction of the competent courts or tribunals as applicable, located in Tel-Aviv-Jaffa, Israel. It is agreed that each party irrevocably consents to the exercise of personal jurisdiction over such party by such court, agrees that venue shall be proper in such court, and irrevocably waives and releases any and all defenses based on lack of personal jurisdiction, improper venue or forum non conveniens.

4.7. If any provision of this Undertaking is determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Undertaking only with respect to such jurisdiction in which such clause or provision cannot be enforced, and the remainder of this Undertaking shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Undertaking. In addition, if any particular provision contained in this Undertaking shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing the scope of such provision so that the provision is enforceable to the fullest extent compatible with applicable law.

 

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4.8. The provisions of this Undertaking shall continue and remain in full force and effect following the termination or expiration of the employment between the Company and Employee, for whatever reason. This Undertaking shall not serve in any manner so as to derogate from any of Employee’s obligations and liabilities under any applicable law.

4.9. This Undertaking constitutes the entire agreement between Employee and the Company with respect to the subject matter hereof and supersedes all prior agreements, proposals, understandings and arrangements, if any, whether oral or written, with respect to the subject matter hereof. No amendment, waiver or modification of any obligation under this Undertaking will be enforceable unless set forth in a writing signed by an authorized officer of the Company. No delay or failure to require performance of any provision of this Undertaking shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Undertaking as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

4.10. All notices and other communications under this Confidentiality Agreement shall be in writing and shall be given in person, by fax, electronic or certified or registered mail and shall be deemed to have been duly given twenty-four (24) hours after transmission of a fax or electronic email, three (3) days after sending a notice by certified or registered mail, or immediately upon delivery in person or explicit confirmation of receipt.

4.11. This Undertaking, the rights of the Company hereunder, and the obligations of Employee hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company may assign any of its rights under this Undertaking. Employee may not assign, whether voluntarily or by operation of law, any of its obligations under this Undertaking, except with the prior written consent of an authorized officer of the Company.

IN WITNESS WHEREOF, the undersigned executed and delivered this CONFIDENTIALITY, UNFAIR COMPETITION, AND OWNERSHIP OF INVENTIONS UNDERTAKING effective as of the date first mentioned above.

 

		Employee:		/s/ Roni Mamluk				Date: December 26 2017
				Roni Mamluk

 

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March 31, 2019Ron

Strictly Private & Confidential

Dear Roni Mamluk,

 

Re:	Change of Employment Terms; Special Bonus

Following an annual compensation review, we are very pleased to inform you as follows:

 

1.

Effective as of March 1, 2019, your Salary shall be increased to the total gross monthly amount of NIS 68,133, and, effective as of January 1, 2020, your Salary shall be increased to a gross monthly amount that is equal to the NIS equivalent of US$22,000 (based on the representative rate of exchange as of such date). The foregoing relates to your current employment scope of 80% of a full-time employment, and shall be increased proportionally if and when the scope of your employment is increased.

 

2.	The paragraph entitled “Further Education Fund” in Exhibit A of your Employment Agreement shall apply only with respect to the term of your employment until February 28, 2019, and - with respect to your employment on and after March 1, 2019 - shall be replaced in its entirety with the following:

“Further Education Fund. The Company shall contribute towards a Further Education Fund (‘Keren Hishtalmut’) (the “Education Fund”) an amount equal to 7.5% of the Salary applicable to the month in respect of which such contribution is made, and Employee shall contribute towards such Education Fund an amount equal to 2.5% of such applicable Salary (which contribution by Employee shall be made by way of a deduction by the Company of such amount from Employee’s monthly Salary and remitting same to such Education Fund).

 

3.	In addition, as a result of the Company’s performance against its goals and your personal performance in the year 2018, your annual bonus is a gross amount of NIS 288,000, to be paid together with your March 2019 salary.

Except as set out in Sections 1 and 2 above, there are no other changes to your Employment Agreement with the Company dated as of November 30, 2017 (capitalized terms used herein shall have the meaning ascribed thereto therein), and your confidentiality obligations under said Employment Agreement shall also apply to the content of this letter.

Again, we wish to thank you for your continuous contribution to the Company.

 

Yours sincerely,

/s/ Yuval Cabilly

Ayala-Oncology Israel Ltd.

Yuval Cabilly

Chairman of the Board of Directors

Confirmation

I acknowledge receipt of the above letter and my agreement with its terms.

 

/s/ Roni Mamluk

Roni Mamluk

 

Ayala Pharmaceuticals | info@ayalapharma.com | www.ayalapharma.com

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into effective as of March 15, 2019, by and between Ayala-Oncology Israel Ltd., an Israeli company P.C. No. 51-574869-7 (the “Company”), and Yossi Maimon, Israeli I.D. No. 024821233 (the “Employee”).

This Agreement replaces in its or their entirety any and all employment agreements (including without limitation that certain Employment Agreement dated as of February 1, 2019), which have or may have been signed by the Company and Employee but have never been acted upon or performed in any manner, all of which are null, void and have never been of any force or effect.

1. EMPLOYMENT AND COMPENSATION

1.1. The Company has agreed to employ Employee for an indefinite period and Employee has agreed to become so employed, on the terms and conditions set forth herein.

1.2. The commencement date of employment, the Employee’s position, the reporting duties and other work-related terms, including salary, entitlements and fringe benefits, are specified in Appendix A attached hereto, which Appendix forms an integral part hereof.

1.3. Employee undertakes to devote 80% (or, from and after the Full-Time Date (as defined in Appendix A) – all) of his/her full business and professional time, attention, skill, and best effort exclusively to the business and affairs of the Company, and undertakes not to engage during such employment time, whether as an employee or otherwise, in any business, commercial or professional activities, whether or not for compensation, without the prior written approval of the Company and subject to the terms of such an approval. Nothing contained herein shall derogate from Employee’s undertakings in Appendix B attached hereto.

2. TERM AND TERMINATION

2.1. Employee’s employment shall commence on the Commencement Date and shall continue for an un-fixed term until terminated in accordance with the terms of this Agreement. This Agreement may be terminated by either party at any time by giving the other party hereto prior written notice of such termination such time in advance as specified in Appendix A attached hereto (the “Notice Period”). During the Notice Period Employee must attend work, continue to perform his/her position within the Company and train his/her successor, unless the Company decides otherwise. Notwithstanding anything to the contrary, the provisions of Sections 2.4, 2.5 and 3 through 6 of this Agreement, Sections 8 (‘Taxes, etc.’), 9 (‘Notices’) and 11 (‘Pension Funds Release’) of Appendix A, and all of Appendix B, shall survive the termination of this Agreement and the employment hereunder, however occurs.

2.2. Notwithstanding the foregoing, the Company may, in its sole discretion: (a) terminate the Employee’s employment without Notice Period in whole or in part, by giving Employee notice together with payment in lieu of that part of the Notice Period that was waived by the Company as aforesaid (all or part, as the case may be), in accordance with law, in which case, Employee’s employment shall be deemed to have ceased on the termination date set forth in such notice by the Company; and/or (b) instruct Employee not to attend work during the Notice Period or any part of it.

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2.3. Notwithstanding anything to the contrary in this Section 2, the Company shall be entitled to terminate the Employee’s employment forthwith, without Notice Period or payment in lieu of notice and/or severance pay, where any of the following apply (“Cause”): (i) Employee has breached his/her fiduciary duty or duty of trust to the Company, or has misappropriated any of the Company’s property; or (ii) Employee has materially breached any term of this Agreement, including a breach of any of his/her representations or undertakings in Appendix B attached hereto or in Sections 1, 3 or 5 of this Agreement, provided however, that (only if such breach is curable) Employee has not cured such breach within 7 days following the Company’s notice to the Employee concerning such breach; or (iii) the Employee’s indictment in a criminal offense (other than an offense for which a fine or non-custodial penalty is imposed) or the Employee’s involvement in sexual harassment of another employee or third party; or (iv) any other act or circumstances under which prior notice could be denied from Employee upon termination of employment under any applicable law.

2.4. In the event this Agreement is terminated for any reason whatsoever, Employee shall cooperate with the Company and use his/her best efforts to assist in the orderly transition to, and the integration into the Company of, the person or persons who will assume Employee’s responsibilities.

2.5. Employee shall have no lien on any of the assets, properties, equipment, documents, information or any other materials in Employee’s possession or control, which belong to the Company or which have been entrusted with Employee by, on behalf of, or for the Company or in connection with his/her employment hereunder, including inter alia, computer/laptop, content of email box, Confidential Information and any car or cellular phone (as defined in Appendix B attached hereto) (collectively hereinafter – the “Company’s Equipment”). Employee shall immediately return to the Company all Company’s Equipment no later than the day of termination of employee-employer relationship, prior to any unpaid leave, or within 7 days following the Company’s demand, whichever comes first.

3. PERSONAL AGREEMENT; SPECIAL POSITION

3.1. This Agreement is a personal employment agreement and none of the Employee’s rights and obligations hereunder may be assigned or transferred by Employee to, or performed by Employee through, any third party. The terms and conditions of Employee’s employment shall be solely as set forth herein, and Employee shall not be entitled to any payment, right or benefit which is not expressly mentioned in this Agreement, including, without limitation, any payments, rights or benefits of any current or future general or special collective labor agreements or arrangements or extension orders, any custom or practice, and/or any other agreements between the Company and its employees; provided, however, that nothing herein shall confer upon Employee the right to continue to be employed with the Company, or to interfere with or limit in any way the right of the Company to terminate Employee’s employment (including, to immediately cease the Employee’s employment or to shorten all or part of the Notice Period); and, provided further, that nothing herein shall derogate from any mandatory right or obligation (which the law restricts from stipulating against) the Employee may have, if at all, under any applicable law, expansion order, collective bargaining agreement or any similar legally binding instrument, if any.

 

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3.2. The Employee confirms and agrees that his/her position is a management one and/or that requires a special degree of personal trust, as defined in the Working Hours and Rest Law, 1951 (such law or any successor or supplementing law, as in effect from time to time, the “Working Hours and Rest Law”), and which does not enable the Company to supervise his/her work and rest hours (among others since he/she is employed both in and outside the Company’s premises and creates his/her own schedule without practical possibility to supervise his/her work). Therefore, the Working Hours and Rest Law does not apply to Employee’s employment with the Company, and Employee shall not be entitled to any compensation or payment other than as expressly specified in Appendix A hereto. Employee undertakes not to claim that the Working Hours and Rest Law applies to Employee’s employment with the Company. Employee acknowledges the legitimacy of the Company’s requirement to work “overtime” or during “weekly rest-hours” without being entitled to “overtime compensation” or “weekly rest-hour compensation” (as these terms are defined in the Working Hours and Rest Law), and Employee undertakes to reasonably comply with such requirements of the Company. Employee acknowledges that the compensation to which Employee is entitled pursuant to this Agreement constitutes and includes within it the adequate compensation otherwise due under law for Employee’s work during “overtime” or “weekly rest-hours”.

4. NON DISCLOSURE, COMPETITIVE ACTIVITY AND OWNERSHIP OF INVENTIONS

Simultaneously with the signing of this Agreement, Employee has executed and delivered the Non-Disclosure, Unfair Competition, and Ownership of Inventions Undertaking in favor of the Company, which is attached hereto as Appendix B, which forms an integral part hereof. Employee’s employment compensation has been calculated to include special consideration for his/her commitments under Appendix B attached hereto.

5. EMPLOYEE’S REPRESENTATIONS AND UNDERTAKINGS

Employee represents, warrants, and undertakes all of the following:

5.1. Employee has the ability, knowledge and qualifications needed to perform Employee’s obligations under this Agreement. Employee does not suffer from any physical or mental health issues which may have an influence on the performance of Employee’s undertakings under this Agreement.

5.2. There are no provisions of any law, regulation, agreement or other undertakings preventing, restricting or limiting the ability of Employee to enter into this Agreement or the fulfillment of Employee’s obligations hereunder. Employee is not currently and shall not by entering into this Agreement and performing his/her obligations hereunder be (i) violating any right of Employee’s former (or, until the Full-Time Date – current) employer(s), or (ii) in breach of, or in conflict with any of Employee’s obligations towards his/her former (or, until the Full-Time Date – current) employer(s) or under any agreement or obligation to which Employee is a party or by which he/she is bound.

5.3. Employee shall inform the Company immediately upon becoming aware of any direct or indirect personal interest the Employee, his/her family, or any other related party has, or might at some point in the future have, in any of the Company’s business, or upon becoming aware of any conflict of interest with Employee’s duties under his/her employment hereunder.

 

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5.4. Employee shall not receive, directly or indirectly, any commission, rebate, discount, gratuity, payment or other benefit, whether in cash or in kind, from any third party in connection with Employee’s employment with the Company. In the event Employee breaches this undertaking, without derogating from any of the Company’s rights under law or contract, such benefit and its value shall become the property solely of the Company and the Company may deduct the value of such benefit from any payment to which Employee may be entitled.

5.5. In carrying out Employee’s duties, Employee shall not make any representations or undertake any obligations on behalf of the Company, except if, and to the extent, specifically authorized in accordance with the signatory rights that are binding upon the Company.

5.6. Employee acknowledges and agrees that he/she may be required by the Company to travel and stay abroad from time to time as part of Employee’s obligations under this Agreement as may be necessary to fulfill his/her duties hereunder. In such cases, travel and lodging arrangements shall be made through the Company seeking favorable rates.

5.7. Employee consents, of his/her own free will and although not required to do so under law, that the information in this Agreement and any and all other information concerning Employee as shall be gathered and held by the Company from time to time (the “Information”), will be held and managed by the Company or on its behalf, inter alia, on databases according to law, and that the Company shall be entitled to transfer such information to third parties, in Israel or abroad, subject to the following: (i) the Information may be transferred in order to comply with any relevant legal requirements, or for business purposes of the Company (without derogating from the generality of the above, such purposes may include human resources management and assessment of potential transactions); and (ii) the transferred Information shall be limited to the reasonable and necessary scope.

5.8. Unless otherwise provided under this Agreement or Company’s procedures, Employee will use the Company’s Equipment solely for the purpose of Employee’s employment hereunder. Thus, Employee shall not use the Company’s computers/laptops and e-mail system (including by smartphone) for personal purposes (collectively, the “Company’s Computers/Email”), shall not store any private material on any Company’s Computers/Email provided by the Company to Employee, and shall not store company documents on Employee’s cloud storage accounts. It is hereby clarified that nothing in this Section 5.9 shall prevent the Employee from using any of his/her personal e-mail accounts (such as Gmail, Yahoo Mail, etc.) or personal cloud storage accounts (such as Google Drive & Dropbox) for personal purposes.

5.9. Employee acknowledges and agrees as follows: (i) the Company shall have the right to allow other employees and other third parties to use the Company’s Computers/Email provided by the Company to the Employee; (ii) the Company’s systems (including telephone, computers, computer system, Internet server, electronic database and software, whether under your direct control or otherwise; the “Systems”), including any information and database stored in, or transmitted through, the Systems, are the property solely and exclusively of the Company, and are intended for the sole purpose of the Company’s business and activities; (iii) the Company shall

 

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have the right to monitor and examine, at any time, and without any prior notice, the content of any information transmitted by or stored in the Systems, including in any computer discs and other means for database storage, and shall have the right to use the findings of such inspections for the Company’s purposes at its sole discretion; (iv) in light of Employee’s undertaking that the sole use of any Company’s Computers provided to Employee by the Company, e-mail provided to him/her by the Company and other Systems shall be for the Company’s business purposes, Employee has no right to privacy in any of the Company’s Computers/Email and other Systems’ material, and hereby irrevocably waives any claims in connection with the information stored, received or transmitted through the Systems. The foregoing is for purposes of preserving any legitimate interests of the Company.

5.10. Employee hereby undertakes to comply with all Company disciplinary regulations, work rules, policies, procedures and objectives, as in effect from time to time, including the applicable Prevention of Sexual Harassment Rules.

5.11. Employee hereby undertakes to keep the contents of this Agreement confidential and not to disclose the existence or contents of this Agreement to any third party without the prior written consent of the Company.

5.12. Employee hereby confirms and agrees that the Employee is not owed any amounts or entitled to any benefits from the Company and/or its affiliates for any consulting or other services provided by the Employee to the Company and/or its affiliates prior to the Commencement Date, and that the Employee has been paid in full all amounts and benefits (if any) which have been or which may in the future be due to the Employee on the part of the Company and/or its affiliates, pursuant to any applicable law, agreement, or otherwise, in connection with, or on account of any such consulting or other services so provided or with respect to any other engagement (if any) of Employee with the Company and/or its affiliates during any time period prior to the Commencement Date. Employee further undertakes that neither Employee nor anyone on Employee’s behalf has or will have any claims and/or demands of any kind whatsoever towards the Company and/or its affiliates or anyone on its or their behalf regarding any previous engagements between Employee (or anyone on Employee’s behalf) and the Company and/or its affiliates during any time period prior to the Commencement Date, and that any such prior engagement is separate and distinct from Employee’s employment hereunder for all intents and purposes.

6. GENERAL PROVISIONS

6.1. All of the payments and benefits provided to Employee under this Agreement are gross amounts and shall be subject to the withholding of all applicable taxes and other deductions required by any applicable law.

6.2. The Company shall be entitled to set-off any amount owed to the Company by Employee under any employment-related agreement or other source whatsoever, from any amount owed by the Company to Employee under any source whatsoever.

 

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6.3. A form regarding General Authorization Regarding Employers Payments to a Pension Fund and Insurance Fund in lieu of Severance Pay is attached hereto as Appendix C attached hereto.

6.4. This Agreement and all Appendices attached hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof or otherwise to the Employee’s employment with the Company, and all prior agreements, promises, negotiations, proposals, discussions, understandings and arrangements, if any, whether oral or written, by and between the parties hereto with respect to such subject matters or otherwise to the Employee’s employment with the Company and not expressly contained herein, are hereby terminated and of no further force and effect. This Agreement may be amended, supplemented, modified or terminated only by a written instrument duly signed by or on behalf of both parties hereto.

6.5. This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to any conflict of laws principles which may result in the application of any other law. Any and all disputes in connection with this Agreement shall be submitted to the exclusive jurisdiction of the competent courts or tribunals, as applicable, located in Tel-Aviv-Jaffa, Israel.

6.6. Any notice or other communication in connection with this Agreement must be in writing to the address set forth in Appendix A attached hereto (or to such other address as shall be specified in a notice delivered in accordance herewith), and shall be deemed duly given and received (i) upon delivery in person (or refusal to receive), or (ii) four (4) Business Days after it is sent by registered or certified mail (postage prepaid), or (iii) one (1) Business Days after it is sent via courier or transmitted via e-mail (except where a notice is received stating that such email has not been successfully delivered). “Business Day” means Sunday to Thursday, inclusive, with the exception of holidays and official days of rest in the State of Israel.

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Employee acknowledges that: (1) he/she has read and fully understood all the provisions of this Agreement and its appendices; (2) he/she was given the opportunity to consult with third parties, including his/her attorneys; (3) he/she signed this Agreement at Employee’s own free will.

IN WITNESS WHEREOF, the parties have executed this Employment Agreement effective as of the date first written above (which agreement may be executed in any number of PDF or other counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts shall together constitute one and the same instrument).

 

Company:						Employee:
/s/ Roni Mamluk						/s/ Yossi Maimon
Ayala-Oncology Israel Ltd.						Yossi Maimon
By:		Roni Mamluk
		Chief Executive Officer

[Signature Page to Employment Agreement March 2019]

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APPENDIX A

TERMS OF EMPLOYMENT AND COMPENSATION

1. Commencement Date, Position and Reporting – Employee’s employment shall commence on March 15, 2019 (“Commencement Date”), in the position of Chief Financial Officer. Employee shall report to the Chief Executive Officer of the Company.

2. Scope of Employment – Employee shall be employed with the Company on a part-time basis of 80% of a full-time position; provided that, the Employee’s scope of employment shall be increased to a full-time basis commencing as of the earlier of the following dates (the “Full-Time Date”): (i) September 1, 2019, and (ii) the first day of the first calendar month that commences after the Company’s receipt of Employee’s notice of his decision to extend his scope of employment to a full-time position.

3. Notice Period – The Notice Period shall be 60 days. Notwithstanding the above, the Company shall be entitled to consider the Employee’s clear and unequivocal oral notice of resignation as binding, in the absence of written notice.

4. Salary – For Employee’s part-time position, the Company shall pay Employee a gross monthly salary of NIS 64,000 (the “Salary”); provided, that the Salary shall increase to a gross monthly sum of NIS 80,000 commencing as of the date on which Employee is employed with the Company on a full-time basis in accordance with Section 2 above of this Appendix A.

The Salary shall be payable on such dates as required by law.

Any payment or benefit under this Appendix A, other than the Salary, shall not be considered as a salary for any purpose whatsoever, and Employee shall not maintain or claim otherwise.

5. Vacation – Employee shall be entitled to 19 (or, from and after the Full-Time Date – 24) working days as vacation days (the “Vacation Days”), with respect to each full 12-month period of continuous employment with the Company but no less than the amount of vacation days required by the provisions of the Annual Leave Law, 1951, as in effect from time to time (the “Leave Law”). Employee shall be entitled to carry over any accrued but unused statutory Vacation Days in accordance with the terms set out in the Leave Law. Employee shall be entitled to carry over any accrued but unused contractual vacation days (annual leave days granted in excess of the amount required by law or by any applicable expansion order) from one 12-month period into the following 12-month period provided that at the end of such subsequent period 50% of any unused remainder thereof shall be forfeited against payment by the Company to Employee of a gross amount equal to the proportionate part of the Salary as applicable to such redeemed Vacation Days and the remaining 50% of such unused remainder shall be forfeited with no compensation payable.

6. Sick Leave – Employee shall be entitled to sick leave in accordance with the provisions of the Sick Pay Law-1976. In the event Employee is absent from work due to illness, Employee shall notify the Company of the illness on the first day of absence, unless Employee is unable to provide such notice due to Employee’s medical condition, in which case the notice will be delivered as soon as possible thereafter. Such notice shall include, inter alia, the estimated period in which Employee will be absent from work.

 

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7. Recuperation Pay – Employee shall be entitled to recuperation pay (‘Dmey Havra’a’) in accordance with the applicable expansion order.

8. Taxes; Other Payments not Salary; No Prior Employment – Employee shall bear any and all taxes and other compulsory payments imposed under law in respect of, or resulting from, the compensation and the benefits paid or granted to, or received by Employee, or contributed by the Company, or to which Employee is or may be entitled, pursuant to this Agreement or his/her employment with the Company (including without limitation, in connection with the car, any bonuses and lunch meals funding) and, except as explicitly indicated otherwise, shall not be entitled to a gross-up of any taxes, costs or expenses associated therewith, and the Company shall be entitled to withhold or deduct from any payment or compensation to which Employee is entitled any and all such taxes and other compulsory payments as required under applicable law or regulations.

Any payment or benefit under this Appendix A, other than the Salary, shall not be considered as salary for any purpose whatsoever, and Employee shall not maintain or claim otherwise.

The Commencement Date is the first day of the Employee’s employment with the Company for all intents and purposes whatsoever, including for the calculation of salaries, social benefits and severance payments, and neither Employee nor anyone on his/her behalf shall be entitled to any payments, benefit or other compensation from the Company with respect to any engagement he/she had or may had with the Company during the period preceding the Commencement Date.

9. Notices –

the Company:

Ayala-Oncology Israel Ltd.

Address: 7 Oppenheimer St., Rehovot, Israel

Attn: Chief Executive Officer

e-mail: Roni.M@Ayalapharma.com

If to Employee:

Yossi Maimon

[XXX]

 

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10. Pension Arrangements – The Company shall insure the Employee under an acceptable ‘Managers Insurance’ plan (the “Managers Insurance Policy”) or Pension Fund (the “Pension Fund”), or a combination of both, at Employee’s choice, as follows:

10.1. Manager Insurance Policy:

10.1.1. Disability Insurance – Company, at its own discretion and expense, shall purchase a disability insurance, under normal and acceptable conditions, which would insure 75% of the Salary, subject, however, to the consent of the Company’s insurer to underwrite such policy for Employee (the “Disability Insurance”). The Company’s contribution for such Disability Insurance shall, in no circumstances, exceed the amount of 2¹⁄₂% of the Salary.

10.1.2. Severance – an amount equal to 8¹⁄₃% of the Salary;

10.1.3. Pension – Company shall contribute towards pension an amount equal to the difference between 6.5% of the Salary and the actual percentage of the Salary contributed towards Disability Insurance, provided that the Company’s contribution towards pension shall not be less than 5% of the Salary; Employee shall contribute towards pension an amount equal to 6% of the Salary, which contribution shall be made by way of a deduction of such amount by the Company from Employee’s monthly Salary;

10.2. Pension Fund: (i) Severance – an amount equal to 8¹⁄₃% of the Salary; (ii) Pension – an amount equal to 6.5% of the Salary. In addition, the Company will deduct from Employee’s monthly Salary an amount equal to 6% of Employee’s Salary, and remit same to such Pension Fund, as Employee’s contribution to such Pension component of the Pension Fund.

11. Pension Funds Release – The Company and Employee agree to adopt the provisions of the “General Approval of the Minister of Labor and Social Welfare Regarding Payments by Employers to a Pension Fund and Insurance Fund in lieu of Severance Pay”, which was issued in accordance with the Severance Pay Law, 5723-1963, as in effect from time to time (“General Acknowledgement”). The General

Acknowledgment is attached as Appendix C to the Agreement to which this Appendix is attached. The Company waives any right that it may have for the repayment of any monies paid by it to the Managers Insurance Policy and/or the Pension Fund, except (i) if the right of Employee to severance has been revoked by a judicial decision;(ii) under Section 16 or 17 of the Severance Pay Law, 1963 (to the extent of such revocation) or; (iii) where Employee withdrew monies from the Pension Fund or the Managers Insurance Fund for any reason other than death, disability or retirement at the age of sixty or thereafter.

Employee hereby acknowledges and confirms that, pursuant to Section 14 of the Severance Pay Law, 1963 and in accordance with the General Acknowledgement, the Company’s contributions towards the Managers Insurance Policy and/or the Pension Fund are and shall be in lieu of any severance pay to which the Employee may have otherwise be entitled (if at all) pursuant to the Severance Pay Law, 1963 or otherwise.

12. Further Education Fund. The Company shall contribute towards a Further Education Fund (‘Keren Hishtalmut’) (the “Education Fund”) in an amount equal to 7.5% of the Salary applicable to the month in respect of which such contribution is made, and Employee shall contribute towards such Education Fund an amount equal to 2.5% of such applicable Salary (which contribution by Employee shall be made by way of a deduction by the Company of such amount from Employee’s monthly Salary and remitting same to such Education Fund).

 

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13. Cellular Phone – The Company shall provide Employee with a cellular phone for use in performing Employee’s obligations under this Agreement as well as for reasonable personal purposes. The Company shall bear the costs relating to such cellular phone according to the policy of the Company as in effect from time to time. All taxes and other compulsory payments imposed in connection with such cellular phone will be borne by Employee. Employee shall return the cellular phone (together with its accessories) to the Company upon the Company’s request or on the last day of Employee’s employment, whichever comes first.

14. Car – If at any time hereafter Employee elects, by way of a written notice to the Company, to receive a car in lieu of the travel allowance otherwise provided to him in accordance with Section 15 below of this Appendix A, then as soon as practicable thereafter the Company shall make available to Employee a leased car of a make and size to be determined by the Employee (the “Car”) and subject to the terms below, in lieu of paying to Employee a travel allowance in accordance with Section 15 below of this Appendix A, and in such case, the following terms shall apply:

The Company shall bear the following costs of the Car: purchase or lease costs (up to NIS 4,500 per month), governmental licenses, insurance, gasoline, toll road fees, ongoing maintenance repairs expenses, and no other cost or expense. All other costs and expenses relating to the Car, including without limitation purchase or lease costs (above such NIS 4,500 per month), tickets, fines of any kind, deductibles payable under any insurance policy in connection with damages, and any damages not covered by insurance policy, shall be borne and paid solely by Employee (the Company shall be entitled to deduct from the Salary or from any other payment due to Employee, and Employee shall indemnify and/or reimburse Company for, all costs and expenses, if any, incurred by the Company in connection with the foregoing, promptly after they were paid by the Company).

Employee shall bear all taxes (including income tax and social security payments) in connection with the Car and the use thereof, in accordance with applicable law and regulations, and shall be entitled to a gross-up of any and all taxes imposed in connection with the receipt and use of such Car.

Employee shall: (i) take good care of the Car and ensure that the terms and conditions of the insurance policies, the lease agreement and Company’s policies relating to the Car are strictly, lawfully and carefully observed (including terms relating to safeguarding of the Car); (ii) use the Car in accordance with the Company’s policy as in effect from time to time; and (iii) return the Car to the Company (together with all sets of keys, licenses and other documentation relating to the Car) on the last day of Employee’s employment with the Company (or earlier, as may be applicable under Section 15 below of this Appendix A). Employee shall not have any lien with respect to the Car or any document or property relating thereto.

The provision of the Car shall be in lieu of payment by the Company to Employee of any travel allowance.

 

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15. Travel Allowance – Employee shall be entitled to payment of a monthly travel allowance in the amount of the monthly fixed cost the Company would have incurred if Employee has received a Car in accordance with Section 14 above of this Appendix A. In addition, if at any time hereafter Employee elects, in accordance with Section 14 above of this Appendix A, to receive a Car in lieu of a travel allowance, and at any time thereafter Employee elects, by way of a written notice to the Company, to receive a travel allowance in lieu of such Car, then following return of such Car Employee shall be entitled to a travel allowance in accordance with this Section 15; provided, that, in such a case, to the extent applicable, Employee will be responsible for all payments associated with the early termination of the lease of the Car provided under Section 14 above of this Appendix A.

16. Expense Reimbursement – Employee shall be entitled to reimbursement, in accordance with Company’s expense reimbursement policy as in effect from time to time, for reasonable out-of-pocket business expenses incurred by Employee in performing his/her duties and responsibilities hereunder, against appropriate receipts or other appropriate supporting documentation.

17. Options – The Company will recommend to the Board of Directors of Ayala Pharmaceuticals, Inc. (“Parent”), the parent company of the Company (the “Parent Board”) to grant the Employee options to purchase 141,000 shares of Common Stock of Parent under the terms and conditions of its incentive stock plan, at an exercise price per share of $2.58 and upon such other terms and conditions (including with respect to vesting and exercisability) as may be determined by the Parent Board, if such grant is approved (the “Options”). The grant of the aforesaid Options and the terms thereof shall be subject to the sole discretion of the Parent Board, and shall be further subject to any approvals required under applicable tax or other laws, and to an execution by Employee of governing agreements and other pertinent documentation as shall be prescribed by the Parent Board. Any and all taxes due with respect to such grant and participation in the incentive share option plan shall be borne solely by the Employee. However, notwithstanding anything to the contrary, nothing herein is intended to constitute a grant of, or a right to, said Options or any share capital of the Company or Parent, and the only obligation of the Company is to make the aforesaid recommendation. The provisions of this Section 17 shall terminate, expire and of no force and effect upon the earlier to occur of the termination of employment hereunder, the making by the Company of the recommendation contemplated above in this Section 17 or the grant by the Parent Board to Employee of any Options.

18. IPO Bonus. The Employee shall be entitled, in addition to the Annual Target Bonus (as defined below), to a one-time bonus in a gross sum equal to six times the Salary as in effect prior to the closing of the sale of shares of Common Stock of the Parent to the public in a firm underwritten public offering (an “IPO” and the “IPO Bonus”, respectively), payable immediately following (and subject to) the consummation of an IPO, if and when occurs and provided that the Employee is continuously employed by the Company during the period until such IPO and on such applicable payment date. The foregoing IPO Bonus shall be calculated based on Employee’s Salary at the time immediately prior to the IPO without taking into account any increase of the Salary on account of the IPO. The IPO Bonus shall not be considered as part of the Salary, for any purpose whatsoever, including with respect to social benefits and contributions.

 

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19. Annual Target Bonus. In addition to the compensation set forth above elsewhere in this Appendix A, for each calendar year of employment, the Employee shall be eligible for an annual target bonus in a gross amount of up to six times of the Salary for the applicable target year, if and as determined by the Company’s Board of Directors (the “Board”) in its sole and absolute discretion, based on (and subject to) the attainment of written performance goals and milestones, as determined by the Board. The annual target bonus shall not be considered as part of the Salary, for any purpose whatsoever, including with respect to social benefits and contributions

20. Meal Expenses – The Company shall fund payment of the Employee’s lunch meal on each Business Day through use of a third party card or such other means as determined by the Company in its sole discretion from time to time. The lunch meal will be funded by the Company up to NIS 42 per Business Day, provided that the maximum amount of such lunch meal shall be no greater than NIS 70 for each Business Day and that the Employee will be responsible for payment or reimbursement to the Company, as applicable, of any amount which he spends on the Company’s account in excess of the aforesaid NIS 42 per Business Day.

 

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APPENDIX B

This CONFIDENTIALITY, UNFAIR COMPETITION, AND OWNERSHIP OF INVENTIONS UNDERTAKING (“Undertaking”) is made and given as of March 15, 2019 by Yossi Maimon, Israeli I.D. No. 024821233 (the “Employee”).

WHEREAS, the Employee wishes to be employed with and provide services that are of particular and special value to Ayala-Oncology Israel Ltd. (together with its direct or indirect parent, subsidiary and affiliated companies (including without limitation Ayala Pharmaceuticals, Inc.), and its and their respective successors and assigns – the “Company”); and

WHEREAS, it is critical for the Company to preserve and protect its Confidential Information, and its rights in Inventions and in all related intellectual property rights;

NOW, THEREFORE, as a condition to Employee’s employment with the Company, Employee hereby undertakes and warrants towards the Company as follows:

1. Confidentiality.

1.1. Employee acknowledges that during the term of the Employee’s employment with the Company, and including any period during which the Employee provided services to any Company entity at any time prior to the date hereof, the Employee may have (or may have had) access to information that relates to the Company, its business, assets, financial condition, affairs, activities, plans and projections, customers, suppliers, partners, and other third parties with whom the Company agreed or may agree, from time to time, to hold information of such parties in confidence (the “Confidential Information”). Confidential Information shall include, without limitation, information, whether or not marked or designated as confidential, concerning technology, products, research and development, patents, copyrights, Inventions, trade secrets, test results, formulae, processes, data, know-how, marketing, promotion, business and financial plans, policies, practices, strategies, surveys, analyses and forecasts, financial information, customer lists, agreements, transactions, undertakings and data concerning employees, consultants, officers, directors, and shareholders. Confidential Information includes information in any form or media, whether documentary, written, oral, magnetic, electronically transmitted, through presentation or demonstration or computer generated. Confidential Information shall not include information that has become part of the public domain not as a result of a breach of any obligation owed by the Employee.

1.2. Employee acknowledges and understands that the employment of Employee with the Company and the access to Confidential Information creates a relationship of confidence and trust with respect to such Confidential Information.

1.3. During the term of Employee’s employment with the Company and at any time after termination or expiration thereof, for whatever reason, Employee shall keep in strict confidence and trust, shall safeguard, and shall not disclose to any person or entity, nor use for the benefit of any party other than the Company, any Confidential Information, other than with the prior express consent of the Company, unless the Employee has an independent right or obligation to make such disclosure pursuant to applicable local, state or federal law, provided, that Employee gives the Company prompt notice of such requirement to disclose so that the Company may seek a protective order or other appropriate remedy, and provided further, that Employee shall furnish only that portion of the Confidential Information which is legally required to be disclosed, and shall exercise all reasonable efforts to obtain confidential treatment for such information.

 

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1.4. All right, title and interest in and to Confidential Information are and shall remain the exclusive property solely of the Company or the property of the third party providing such Confidential Information to the Company, as the case may be. Without limitation of the foregoing, Employee agrees and acknowledges that all memoranda, books, notes, records, email transmissions, charts, formulae, specifications, lists and other documents (contained on any media whatsoever) made, reproduced, compiled, received, held or used by Employee in connection with the employment with the Company or that otherwise relates to any Confidential Information (the “Confidential Materials”), shall be the exclusive property solely of the Company and shall be deemed to be Confidential Information. All originals, copies, reproductions and summaries of the Confidential Materials shall be delivered by Employee to the Company upon termination or expiration of Employee’s employment with the Company for any reason, or at any earlier time at the request of the Company, without Employee retaining any copies thereof.

1.5. During the term of Employee’s employment with the Company, Employee shall not remove from the Company’s offices or premises any Confidential Materials unless and to the extent necessary in connection with the duties and responsibilities of the Employee and permitted pursuant to the then applicable policies and regulations of the Company. In the event that any such Confidential Materials are duly removed from the Company’s offices or premises, Employee shall take all actions necessary in order to secure the safekeeping and confidentiality of such Confidential Materials and return the Confidential Materials to their proper files or location as promptly as possible after such use.

1.6. During the term of Employee’s employment with the Company, Employee will not use or disclose any trade secrets, proprietary or confidential information, and will not bring onto the premises of the Company any unpublished documents or any property, in each case belonging to any former employer or any other party to whom Employee has an obligation of confidentiality and/or non-use (including, without limitation, any academic institution or any entity related thereto), unless generally available to the public or consented to by such third party in a writing addressed to the Company.

2. Unfair Competition and Solicitation.

2.1. Employee undertakes that during the term of employment with the Company and for a period of twelve (12) months thereafter, (i) Employee shall not, directly or indirectly, engage in or establish or otherwise become involved in, either as an employee, owner, partner, agent, shareholder, director, consultant or otherwise, any business, occupation, work or any other activity which competes with the business of the Company as conducted during the term of employment or planned, during such term, to be conducted, or which will have the likely effect of reducing the business volume or monetary profits of the Company; (ii) Employee shall not, directly or indirectly, solicit, hire or retain as an employee, consultant or otherwise, any employee of the Company or induce or attempt to induce any such employee to terminate or reduce the scope of such employee’s employment with the Company; and (iii) Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee, consultant, service

 

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provider, agent, distributor, supplier or customer of the Company, or third party with respect to which the Company took substantial steps to engage as an employee or as any of the foregoing during the period of Employee’s employment with the Company, to terminate, reduce or modify the scope of its or their employment with the Company.

2.2. Employee acknowledges that in light of Employee’s position with the Company and in view of Employee’s exposure to, and involvement in, the Company’s sensitive and valuable proprietary information, intellectual property and technologies, Confidential Information and Confidential Materials (the “Company’s Material Assets”), the provisions of this Section 2 above of this Appendix B are reasonable and necessary to legitimately protect the Company’s Material Assets, and are being undertaken by Employee as a condition to the employment of Employee by the Company. Employee confirms that Employee has carefully reviewed the provisions of this Section 2 of this Appendix B, fully understands the consequences thereof and has assessed the respective advantages and disadvantages to Employee of entering into this Undertaking and, specifically, Section 2 of this Appendix B.

2.3. Employee hereby declares that he/she is aware that a portion of the payments or other consideration paid or granted to Employee by the Company contains additional consideration in exchange for the Employee fully undertaking the non-compete and non-solicitation provisions in Sections 2.1 and 2.2 above of this Appendix B. Notwithstanding anything to the contrary, the Employee declares that he/she is financially capable of undertaking these non-compete and non-solicitation provisions.

3. Ownership of Inventions.

3.1. Employee will notify and disclose in writing to the Company, or any persons designated by the Company from time to time, all information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, made or conceived or reduced to practice or learned by Employee, either alone or jointly with others, during Employee’s employment with the Company (including after hours, on weekends or during vacation time) (all such information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how, and data are hereinafter referred to as the “Invention(s)”) immediately upon discovery, receipt or invention as applicable.

3.2. Employee agrees that all of the Inventions are, upon creation, considered Inventions of the Company, shall be the exclusive property solely of the Company and its assignees, and the Company and its assignees shall be the sole owner of all patents, copyrights, trade secrets and all other rights of any kind or nature, including moral rights, in connection with such Inventions. Employee hereby irrevocably and unconditionally assigns to the Company all the following with respect to any and all Inventions: (i) title, rights and interest in and to such Inventions, (ii) title, rights and interest in and to any patents, patent applications, and patent rights, including any and all continuations or extensions thereof; (iii) rights associated with works of authorship, including copyrights and copyright applications, Moral Rights (as defined below) and mask work rights; (iii) rights relating to the protection of trade secrets and confidential information; (v) design rights and industrial property rights; (vi) any other proprietary rights relating to intangible property including trademarks, service marks and applications therefor, trade names and packaging and all goodwill

 

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associated with the same; and (vii) all rights to sue for any infringement of any of the foregoing rights and the right to all income, royalties, damages and payments with respect to any of the foregoing rights. Employee also hereby forever waives and agrees never to assert any and all Moral Rights Employee may have in or with respect to any Inventions, even after termination of Employee’s employment with the Company. “Moral Rights” means any right to claim authorship of a work, any right to object to any distortion or other modification of a work, and any similar right, existing under the law of any country in the world, or under any treaty. The Employee further acknowledges and agrees that all copyrightable works included in the Inventions shall be “works made for hire” within the meaning of the Copyright Act of 1976, as amended (17 U.S.C. §101) (the “Act”), and that the Company shall be the “author” within the meaning of the Act.

3.3. Employee represents that there are no information, improvements, inventions, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to Employee (whether made solely by the Employee or jointly with others) that: (i) were developed by the Employee prior to Employee’s employment with the Company, (ii) relate to the Company’s actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder.

3.4. Employee further agrees to perform, during and after Employee’s employment with the Company, all acts deemed reasonably necessary or desirable by the Company to permit and assist it, at the Company’s expense, in obtaining, maintaining, defending and enforcing the Inventions in any and all countries. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Employee’s agents and attorneys-in-fact to act for and on Employee’s behalf and instead of Employee, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Employee.

3.5. Employee shall not be entitled, with respect to any and all of the above, to any monetary consideration or any other consideration except as explicitly set forth in the employment agreement between Employee and the Company. Without limitation of the foregoing, Employee irrevocably confirms that the consideration explicitly set forth in Employee’s employment agreement with the Company is in lieu of any rights for compensation that may arise in connection with the Inventions under applicable law and waives any right to claim royalties or other consideration with respect to any Invention, including under Section 134 of the Israeli Patent Law, 1967 (or any successor or equivalent law). With respect to any and all of the above, any oral understanding, communication or agreement not memorialized in writing and duly signed by an authorized officer of the Company, shall be void.

4. General.

4.1. Employee represents that the performance of all the terms of this Undertaking and of all of Employee’s duties and services to the Company does not and will not breach any invention assignment, proprietary information, non-compete, confidentiality or similar agreements with, or rules, regulations or policies of, any former employer or other party (including, without limitation, any academic institution or any entity related thereto). Employee acknowledges that the Company is relying upon the truthfulness and accuracy of such representations in engaging Employee.

 

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4.2. Employee acknowledges that the provisions of this Undertaking serve as an integral part of the terms of Employee’s employment with the Company and reflect the reasonable requirements of the Company in order to protect its legitimate interests with respect to the subject matter hereof. The Employee hereby explicitly acknowledges that the restrictions set forth in this Confidentiality Agreement are not greater than required and do not unduly burden the Employee.

4.3. Employee hereby consents that, following the termination or expiration of the employment relationship hereunder, the Company may notify the Employee’s new employer about the Employee’s rights and obligations under this Undertaking.

4.4. It is agreed and understood that if a court of law finds that the Employee has violated Section 2 of this Appendix B, then the restrictions set forth in such section shall automatically be extended for any period of time for which the court finds that the Employee violated such restrictions.

4.5. Employee recognizes and acknowledges that in the event of a breach or threatened breach of this Undertaking by Employee, the Company may suffer irreparable harm or damage and that under such circumstances monetary remedies would be inadequate to protect against any actual or threatened breach of this Confidentiality Agreement. Without prejudice to any other rights and/or remedies otherwise available to the Company, it is therefore agreed that the Company will be entitled to the granting of equitable relief, including but not limited to injunctive relief and specific performance, in favor of the Company without proof of actual damages to remedy or prevent any breach of this Undertaking (without limitation to any other remedy at law or in equity).

4.6. This Undertaking shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to any conflict of laws principles which may result in the application of the laws of any other jurisdiction. Any and all disputes in connection with this Undertaking shall be submitted to the exclusive jurisdiction of the competent courts or tribunals, as applicable, located in Tel-Aviv-Jaffa, Israel. It is agreed that each party irrevocably consents to the exercise of personal jurisdiction over such party by such court, agrees that venue shall be proper in such court, and irrevocably waives and releases any and all defenses based on lack of personal jurisdiction, improper venue or forum non conveniens.

4.7. If any provision of this Undertaking is determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Undertaking only with respect to such jurisdiction in which such clause or provision cannot be enforced, and the remainder of this Undertaking shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Undertaking. In addition, if any particular provision contained in this Undertaking shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing the scope of such provision so that the provision is enforceable to the fullest extent compatible with applicable law.

 

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4.8. The provisions of this Undertaking shall continue and remain in full force and effect following the termination or expiration of the employment between the Company and Employee, for whatever reason. This Undertaking shall not serve in any manner so as to derogate from any of Employee’s obligations and liabilities under any applicable law.

4.9. This Undertaking constitutes the entire agreement between Employee and the Company with respect to the subject matter hereof and supersedes all prior agreements, proposals, understandings and arrangements, if any, whether oral or written, with respect to the subject matter hereof. No amendment, waiver or modification of any obligation under this Undertaking will be enforceable unless set forth in a writing signed by an authorized officer of the Company. No delay or failure to require performance of any provision of this Undertaking shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Undertaking as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

4.10. All notices and other communications under this Confidentiality Agreement shall be in writing and shall be given in person, by fax, electronic or certified or registered mail, and shall be deemed to have been duly given twenty-four (24) hours after transmission of a fax or electronic email three (3) days after sending a notice by certified or registered mail, or immediately upon delivery in person or explicit confirmation of receipt.

4.11. This Undertaking, the rights of the Company hereunder, and the obligations of Employee hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company may assign any of its rights under this Undertaking. Employee may not assign, whether voluntarily or by operation of law, any of its obligations under this Undertaking, except with the prior written consent of an authorized officer of the Company.

IN WITNESS WHEREOF the undersigned executed and delivered this CONFIDENTIALITY, UNFAIR COMPETITION, AND OWNERSHIP OF INVENTIONS UNDERTAKING effective as of the date first mentioned above.

 

Employee:		/s/ Yossi Maimon				Date:		March 15, 2019
		Yossi Maimon

 

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APPENDIX C

General Approval Regarding Payments by Employers to a Pension Fund and Insurance Fund in lieu of Severance Pay

In accordance with the Severance Pay Law 5723-1963

By virtue of my authority under Section 14 of the Severance Pay Law 5723-1963 (hereinafter, the “Law”), I hereby confirm that payments made by an employer beginning on the date this authorization is publicized, for its employee, towards a comprehensive pension in a provident fund for benefit payments, which is not an insurance fund as implied in the Income Tax Regulations (Rules for Approving and Managing Provident Funds) 5724-1964 (hereinafter, a “Pension Fund”), or towards managers insurance that includes an option for benefit payments (hereinafter, an “Insurance Fund”) or a combination of payments towards a Pension Fund and an Insurance Fund (hereinafter, “Employer Payments”), shall be in lieu of the severance pay to which the said employee is entitled in respect of the wages of which the said payments were paid and the period for which they were paid (hereinafter, the “Exempted Salary”), provided that the following conditions shall be met:

1. Employer Payments-

1.1. To a Pension Fund are not less than 14.33% of the Exempted Salary, or 12% of the Exempted Salary if the employer pays for its employee, in addition to this, supplementary severance payments towards a Severance Pay Fund or an Insurance Fund in the name of the employee at a rate of 2.33% of the Exempted Salary. If the employer does not pay the said 2.33% in addition to the 12%, its payments shall be only in lieu of 72% of the employee’s severance pay.

1.2. To an Insurance Fund are not less than one of the following:

1.2.1. 13¹/₃% of the Exempted Salary, if the employer pays for its employee payments for additional monthly income support in case of employee’s inability to work, through a plan approved by the Supervisor for Capital Markets, Insurance and Savings in the Ministry of Finance, at a rate necessary to guarantee at least 75% of the Exempted Salary, or at a rate of 2¹/₂% of the Exempted Salary, whichever is lower (hereinafter, “Loss of Work Capacity Insurance”).

1.2.2. 11% of the Exempted Salary, if the employer paid an additional Payment for the Loss of Work Capacity Insurance, and in such case the employer’s payments shall be only in lieu of 72% of the employee’s severance pay. If, in addition to such payments, the employer has also paid payments for the supplement of severance pay to a Severance Pay Fund or an Insurance Fund under the name of the employee at a rate of 2¹/₃% of the Exempted Salary, the employer’s payments shall be in lieu of 100% of the employee’s severance pay.

 

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2. Not later than three months following the commencement of the employer’s payments, a written agreement shall be executed by and between the employer and the employee, which shall include:

2.1. The employee’s agreement to an arrangement in accordance with this authorization, in wording that specifies the employer’s payments and the Pension Fund and the Insurance Fund, as relevant. The said agreement shall also include the wording of this authorization.

2.2. The employer’s prior waiver of any right it may have to a financial reimbursement for all or part of its payments, unless the employee’s right to severance pay is rescinded by a judicial decree or by virtue of Sections 16 or 17 of the Law, or that the employee withdrew funds from the Pension Fund or from the Insurance Fund not for a qualifying incident. In this regard a “Qualifying Incident” – death, disability or retirement at the age of 60 or older.

3. This authorization shall not derogate from the employee’s right to severance pay under the Law, collective agreement, expansion order or employment contract, for wages exceeding The Exempted Salary.

 

(-)

Eliyahu Yishai

Minister of Labor and Social Welfare

 

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January 1, 2020

Strictly Private & Confidential

Dear Yossi Maimon,

 

Re:	Change of Employment Terms

Following the approval of the board of directors of the Company, we wish to set forth in writing the changes of your employment terms, as follows:

 

1.

Effective as of January 1, 2020 (the “Effective Date”), Section 19 of Appendix A of your Employment Agreement with the Company dated March 15, 2019 (the “Employment Agreement”; capitalized terms used herein shall have the meaning ascribed thereto therein), shall apply only with respect to the term of your employment until the Effective Date, and - with respect to your employment on or after Effective Date - shall be replaced in its entirety to read as follows:

“19. Annual Target Bonus. In addition to the compensation set forth above elsewhere in this Appendix A, for each calendar year of employment, the Employee shall be eligible for an annual target bonus in a gross amount of up to 40% of the annual Salary for the applicable target year, if and as determined by the Company’s Board of Directors (the “Board”) in its sole and absolute discretion, based on (and subject to) the attainment of written performance goals and milestones, as determined by the Board. The annual target bonus shall not be considered as part of the Salary, for any purpose whatsoever, including with respect to social benefits and contributions.”

 

2.	The following Section 21 shall be added to Appendix A of your Employment Agreement:

“19. Special Termination Payment. If the Employee’s employment is terminated by the Company without Cause (as defined under the Parent’s 2017 Stock Incentive Plan, as amended (the “Plan”) or the Employee resigns for Good Reason (as defined below), subject to the provisions of the Plan including Section 6.6.4 thereof, in each case, on or without 12 months following a Merger/Sale (as defined in the Plan), then the Employee shall be entitled to receive a termination payment in the form of a cash amount equal to the sum of Employee’s annual Salary and Employee’s target annual bonus (if any) for the year of termination (the “Special Termination Payment”). The Employee’s entitlement to the Special Termination Payment shall be dependent upon the Employee properly executing (and not revoking, as applicable) a Waiver and Release Agreement in a form set forth by the Company.

A “Good Reason” means each of the following circumstances, if occurs without Employee’s consent and if Employee notifies the Company within 30 days thereafter that Employee shall resign on account of such circumstances, the Company fails to cure such circumstances within 30 days of receiving such written notice from Employee, and Employee resigns within 7 days following such cure failure deadline: (i) the Company requires Employee to relocate to a geographic area that is more than 80 kilometers from the residence of Employee; or (ii) Employee is demoted to a position that is of materially less authority and stature, and there is a material reduction in Employee’s duties and responsibilities, unless such demotion and reduction takes place within 12 months following an Merger/Sale and is implemented in connection with a contemporaneous change affecting other similarly ranked employees of the Company; or (iii) there is a material reduction in Employee’s annual base salary and benefits, unless such a reduction is implemented in connection with a contemporaneous reduction affecting other similarly ranked employees of the Company.”

Except as set out in Sections 1 and 2 above, there are no other changes to your Employment Agreement, and your confidentiality obligations under said Employment Agreement shall also apply to the content of this letter.

Ayala Pharmaceuticals | info@.com | www.ayalapharma.com

 

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Again, we wish to thank you for your continuous contribution to the Company.

 

Yours sincerely,

/s/ Roni Mamluk, PhD.

Ayala-Oncology Israel Ltd.

Roni Mamluk, PhD.

Chief Executive Officer

Confirmation

I acknowledge my receipt of the above letter and agreement with its terms.

 

/s/ Yossi Maimon

Yossi Maimon

[Signature Page to

Letter Amendment of Employment Agreement / January 2020]

Ayala Pharmaceuticals | info@.com | www.ayalapharma.com

 

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Exhibit 10.7

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”), dated as of July 24, 2019 (the “Effective Date”) is by and between Ayala Pharmaceuticals, Inc. (the “Company”), and Gary Gordon (the “Employee”) (individually, each a “Party” and collectively, the “Parties”).

WHEREAS, in recognition of the Employee’s experience and abilities, the Company desires to assure itself of the employment of the Employee in accordance with the terms and conditions provided herein; and

WHEREAS, the Employee seeks to be employed by the Company and to perform services for the Company and its affiliated entities in accordance with the terms and conditions provided herein.

NOW, THEREFORE, in consideration of the promises and the respective covenants and agreements of the Parties herein contained, and intending to be legally bound hereby, the Parties hereto agree as follows:

1. Employment. The Company hereby agrees to employ the Employee, and the Employee hereby agrees to be employed by the Company and to perform services for the Company, its subsidiaries and affiliates, on the terms and conditions set forth herein (the “Employment”).

2. Term. Unless otherwise mutually agreed by the Parties in writing, the Employment shall commence on August 1, 2019 (the “Start Date”), and shall continue until terminated by either the Employee or the Company, pursuant to Section 7 hereof (the period of Employment pursuant to this Agreement, the “Term”).

3. Position. During the Term, the Employee shall serve as the Company’s Chief Medical Officer (the “Position”).

4. Duties and Reporting Relationship. During the Term, the Employee shall devote eighty percent (80%) of the Employee’s regular business time and, on such a part-time basis, during not less than four (4) working days each week, use the Employee’s skills and render services to the best of the Employee’s abilities on behalf of the Company. The Employee shall report directly to the Chief Executive Officer of the Company (the “Supervisor”). The Employee agrees that to the best of the Employee’s ability, the Employee will make all efforts to loyally and conscientiously perform the duties and obligations required of and from the Employee pursuant to the terms of this Agreement. The Employee shall be responsible for all duties reasonably associated with the Position as detailed in Schedule A attached hereto and as determined by the Supervisor, or by the Supervisor’s designee, as may be updated from time to time. The Employee shall comply with all of the policies and procedures of the Company.

5. Place of Performance. The Parties agree that the Employee shall work from the Employee’s home office in the Chicago area or at the Company’s Chicago office upon the Company’s establishment of such office, or at another location as mutually agreed upon by the Parties. The Employee acknowledges and agrees that, in connection with the Employment for the Company, the Employee will be required to regularly travel throughout North America as well as outside of the North America geographical area, including but not limited to the State of Israel.

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6. Compensation and Related Matters.

(a) Annual Base Salary. During the Term, the Company shall pay to the Employee an annual base salary (the “Base Salary”) at a rate of Three Hundred and Seventy-Five Thousand United States Dollars ($375,000), to be paid on a prorated basis in conformity with the Company’s payroll policies relating to its employees, in each case less applicable withholdings and deductions, not less frequently than twice each month. The Position qualifies as exempt from overtime payments for hours worked in excess of forty (40) per week, and the Employee will therefore not be entitled to any such overtime compensation.

(b) Sign-On Bonus. The Employee shall be paid a sign-on bonus in the amount of Seventy Thousand United States Dollars ($70,000) (the “Sign-On Bonus”), which will be paid to the Employee (less applicable withholdings and deductions) in one (1) lump sum payment via the Employee’s first payroll of the Term. It is understood that in the event that the Employment is terminated by the Company for Cause (as defined below) prior to the two (2)-year anniversary of the Start Date, or in the event that the Employee resigns not for Good Reason (as defined below) prior to the twelve (12)-month anniversary of the Start Date, the Employee shall be obligated to repay the full amount of such Sign-On Bonus to the Company by no later than thirty (30) days following the Date of Termination (as defined below). In the event that the Employee resigns not for Good Reason on or following the twelve (12)-month anniversary of the Start Date, but prior to the two (2)-year anniversary of the Start Date, the Employee shall be obligated to repay to the Company a proportional sum of the Sign-On Bonus, prorated in accordance with the period of time for which the Employee was employed with the Company, as a percentage of two (2) full years, and the Employee shall be required to repay such sum to the Company by no later than thirty (30) days following the Date of Termination.

(c) Annual Target Bonus. In addition to the compensation set forth above in Section 6(a), following each calendar year during the Term (including the year 2019), the Employee shall be eligible for an annual target bonus of up to forty percent (40%) of the Base Salary as in effect at the start of that calendar year, upon the attainment of goals and targets established in writing by the Company’s Board of Directors (the “Board”), with such annual target bonus to be paid to the Employee less applicable withholdings and deductions. If Employee works less than a full calendar year, and unless the Employee resigns not for Good Reason or the Employment is terminated by the Company for Cause, then the Employee shall be eligible for the aforesaid annual target bonus (pro-rated for the portion of that year until his last day of employment) upon the attainment of goals and targets established in writing by the Board, with such pro-rated annual target bonus to be paid to the Employee less applicable withholdings and deductions.

(d) Benefits. During the Term hereof, the Employee shall be entitled to the following benefits:

 

(i)

Health Insurance. The Company shall make available to the Employee health insurance coverage for the Employee, in accordance with the policies obtained by the Company on behalf of similarly situated employees.

 

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(ii)

401(k). The Employee shall be eligible to participate in the Company’s 401(k) Plan, in accordance with the terms of such Plan.

 

(iii)

Paid Time Off.

 

(1)

Vacation. The Employee shall be entitled to take twenty (20) work days of vacation per calendar year, with such days to be prorated for partial years of employment. It is agreed that the Employee shall coordinate the timing of taking such vacation days with the Supervisor. The Employee shall be entitled to carry over accrued but unused vacation days from one calendar year into the following calendar year, but at no time shall the Employee accrue more than twenty (20) work days of vacation.

 

(2)

Holidays. In addition to vacation days, the Employee shall be entitled to take off the following paid holidays each calendar year: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Eve, Christmas Day and New Year’s Eve, and two (2) floating holidays of the Employee’s choice, as coordinated with the Supervisor. The Company does not pay out worked holidays, or carry over worked holidays from one year into the following year.

 

(3)

Sick Time. The Employee will be eligible to take paid sick time off from work in accordance with applicable law, up to a maximum of forty (40) hours per calendar year. Accrued but unused sick time shall be carried over from one calendar year to the following calendar year, with a maximum of forty (40) hours to be used for purposes of sick time in any given calendar year.

 

(4)

Separation from the Company. Upon the Employee’s termination of employment by the Company or the Employee’s resignation, the Employee will be entitled to the payout of any accrued but unused vacation days, but will not be eligible for payout on account of unused sick time or worked holidays.

 

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(iv)

Stock Options. The Company shall recommend to the Board that Employee be granted options to purchase 190,000 shares of Common Stock of the Company, par value US$0.01 each, pursuant to the terms of the Company’s Stock Incentive Plan and applicable grant agreements, as approved and adopted by the Board. All matters related to such options, including but not limited to the grant itself, vesting schedule, exercise price per share, and the required governing agreement and other documentation, shall be subject to the sole discretion of the Board, if such grant is approved; however, nothing herein is intended to constitute a grant of, or right to, any share capital of the Company, and the grant of the aforesaid options and the terms thereof shall be subject to the sole discretion of the Board, and shall be further subject to any approvals required under applicable tax or other laws, and to an execution of governing agreements and other pertinent documentation as shall be prescribed by the Board. It is understood that the Employee shall be solely responsible for any tax liability incurred in connection with the options, including but not limited to with respect to the grant, exercise, and/or sale of the shares underlying such options.

 

(v)

Company Property. The Company shall provide the Employee with Company property, including but not limited to a laptop, with all of such property to remain at all times the property of the Company and to be used by the Employee in accordance with Company guidelines. Upon the Employee’s termination of employment for any reason, the Employee will be obligated to immediately return the laptop to the Company.

 

(vi)

Business Expenses. The Employee will be eligible for reimbursement of preapproved reasonable business expenses, including cell phone expenses as per a mutually agreed upon cell phone plan, as well as other expenses incurred in accordance with the Company’s business expense reimbursement policies, as may be updated from time to time by the Company.

 

(vii)

Additional Employee Benefits. The Company shall make available to the Employee additional employee benefits, including Long Term Disability and Accidental Death and Dismemberment coverage, and the Employee shall have the option to elect such coverage in accordance with the terms of such benefit plans.

 

(viii)

Section 409A of the Internal Revenue Code of 1986. as amended. The Parties hereby affirm that with respect to any and all payments and benefits under this Agreement, the intent is that such payments and benefits either: (i) do not constitute “ nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code (“Section 409A”), and therefore are exempt from Section 409A, (ii) are subject to a “substantial risk of forfeiture” and are exempt from Section 409A under the “short-term deferral rule” set forth in Treasury Regulation §1.409A-l(b)(4), or (iii) are in compliance with Section 409A. In any event, the Parties further confirm that they intend to have all provisions of this Agreement construed, interpreted and administered in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.

 

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(e) The Employee shall be responsible for the payment of applicable taxes and other compulsory payments imposed by law on the Employee, in respect of, or resulting from, the compensation and the benefits paid or granted to, or received by the Employee, or contributed by the Company, or to which the Employee is or may be entitled, pursuant to this Agreement or the Employee’s employment with the Company. The Company shall withhold or deduct from any payment or compensation to which the Employee is entitled, applicable amounts as required by law.

7. Termination. The Employee’s Employment hereunder may be terminated without breach of this Agreement as set forth below:

(a) Death; Disability. The Employee’s Employment hereunder shall terminate upon the Employee’s death or “Disability” (as hereafter defined). Upon any such termination, the Employee (or, in the event of the Employee’s death, the Employee’s estate) shall receive the Base Salary through the “Date of Termination” (as hereafter defined), as well as reimbursement for unpaid business expenses through such date. The Employee (and, in the event of the Employee’s death, the Employee’s estate) shall not be entitled to any other amounts or benefits from the Company or otherwise. For purposes of this Agreement, “Disability” shall mean the inability of the Employee to perform the Employee’s duties on account of a physical or mental illness for a period of sixty (60) consecutive days, or for ninety (90) days in any six (6) month period. Notwithstanding anything contained herein to the contrary, during any period of Disability, the Company shall not be obligated to pay any compensation or other amounts to the Employee, except as mandated by applicable law.

(b) Cause. The Company may terminate the Employee’s Employment hereunder for Cause at any time without advance notice.

 

(i)

For purposes of this Agreement, the Company shall have “Cause” to terminate the Employee’s Employment hereunder upon the Employee’ s:

 

(1)

commission of fraud, embezzlement, gross negligence, malfeasance, an act or acts constituting a felony under the laws of the United States or any state thereof, or a willful or negligent act or omission which results in an assessment of a civil or criminal penalty against the Employee, or the Company or its affiliates;

 

(2)

willful or continued failure to substantially perform the Employee’s duties as directed by the Company; or

 

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(3)

violation of the terms of this Agreement or of the Undertaking (as defined below) attached hereto as Schedule B.

 

(ii)

In the event that the Company terminates the Employee’s Employment for Cause, the Employee shall receive the Base Salary through the Date of Termination, as well as reimbursement for approved but unpaid business expenses through such date. The Employee shall not be entitled to any other amounts or benefits from the Company.

(c) Termination without Cause/Resignation. The Employee’s Employment hereunder may be terminated (i) at any time following the Start Date, by the Company without Cause, or (ii) following the three (3) month anniversary of the Start Date, by the Employee upon the Employee’s resignation. It is agreed that in the event of the termination of the Employee’ s employment by the Company without Cause, or the Employee’s resignation, in either case prior to the three (3) month anniversary of the Start Date, the terminating Party shall give the other Party one (1) month notice of such termination; in the event of the termination of the Employee’s employment by the Company without Cause, or the Employee’s resignation, in either case after the three (3) month anniversary of the Start Date, then the terminating Party shall give the other Party three (3) months’ notice of such termination. In the event of the Employee’s Termination without Cause or resignation: (i) any notice of such termination or resignation shall be given in accordance with Section 7(d) hereunder; (ii) the Employee shall receive the Base Salary and reimbursement for any approved but unpaid business expenses through the Date of Termination, and (iii) the Company shall have the right to determine whether or not the Employee will actively work during the applicable notice period.

(d) Notice of Termination. Any termination of the Employee’s Employment by the Company or by the Employee (other than termination upon the death of Employee) shall be communicated by written Notice of Termination by such Party to the other in accordance with Section 9 of this Agreement. Such Notice of Termination shall specify the last day of the Employee’s Employment with the Company.

(e) Date of Termination. “Date of Termination” shall mean: (i) if the Employee’s Employment is terminated by the Employee’s death, the date of the Employee’s death, or (ii) if the Employee’s Employment is terminated pursuant to any of the other terms set forth herein, the date specified in the Notice of Termination.

(f) Transition. Regardless of the circumstances surrounding the Employee’s termination of Employment, the Employee hereby agrees that upon the Employee’s termination of Employment, the Employee will return to the Company al l Company property and will make every effort to facilitate the orderly transition of the Employee’s duties and responsibilities.

(g) Post-Termination Severance Pay. In the event that the Employee’s employment is terminated by the Company without Cause after the three (3) month anniversary of the Start Date, or by the Employee for Good Reason after the six (6) month anniversary of the Start Date, the Employee will be entitled to a monthly payment equal to the monthly rate of the Base

 

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Salary as in effect on the Date of Termination, which monthly payment shall be (i) for a period of three (3) months following the Date of Termination, if such termination is by the Company without Cause after the three (3) month anniversary of the Start Date but prior to the twelve (12) month anniversary of the Start Date, or (ii) for a period of six (6) months following the Date of Termination, if such termination is by the Company without Cause after the twelve (12) month anniversary of the Start Date, or (iii) for a period of three (3) months following the Date of Termination, if the Employee’s employment is terminated by the Employee for Good Reason (such payments, collectively, the “Severance Pay”). It is hereby clarified that the Employee shall not be entitled to the Severance Pay in the event that the Company terminates the Employee’s employment for Cause, or if the Company terminates the Employee’s employment without Cause prior to the three (3) month anniversary of the Start Date, or if the Employee resigns not for Good Reason, or if the Employee resigns for Good Reason prior to the six (6) month anniversary of the Start Date. The Employee’s entitlement to the Severance Pay shall be dependent upon the Employee properly executing (and not revoking, as applicable) a Release Agreement in a form set forth by the Board.

For purposes of this Agreement, in the event that without the Employee’s consent: (i) the Company requires the Employee to relocate to a geographic area that is more than 80 kilometers from the residence established by the Employee at the commencement of the Term; or (ii) as compared to the commencement of the Term, the Employee is demoted to a position that is of materially less authority and stature, and there is a material reduction in the Employee’s duties and responsibilities, unless such demotion and reduction takes place within six (6) months following an M&A Transaction and is implemented in connection with a contemporaneous change affecting other similarly ranked employees of the Company (in which case such demotion and reduction shall not qualify as Good Reason pursuant to this paragraph for any purpose whatsoever); or (iii) there is a material reduction in Employee’s annual base salary and benefits as set forth in this Agreement, unless such a reduction is implemented in connection with a contemporaneous reduction affecting other similarly ranked employees of the Company (in which case such reduction shall not qualify as Good Reason pursuant to this paragraph for any purpose whatsoever); then each one of such circumstances shall be considered grounds for the Employee to resign on account of “Good Reason,” (each circumstance, a “Good Reason Trigger”), as long as (1) within thirty (30) days of any Good Reason Trigger, the Employee issues a written notice to the Company informing the Company that the Employee shall resign on account of Good Reason if the Company does not cure the Good Reason Trigger, (2) the Company fails to cure the Good Reason Trigger within thirty (30) days of receiving such written notice from the Employee, and (3) the Employee issues a written notice of resignation for Good Reason, and such written notice is received by the Company by no later than seven (7) days following the Company’s deadline to cure the Good Reason Trigger. For purposes of this Section 7(g), an “M&A Transaction” shall be defined as the occurrence following the Start Date of any one of the following events: (i) the sale or transfer of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to a third party, except where such sale or transfer is to a wholly owned subsidiary of the Company, or (ii) the merger or consolidation of the Company with or into a third party, except any such merger or consolidation in which the shares of Company’s capital stock outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of the surviving or resulting corporation (or if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation).

 

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8. Employee Representations.

(a) The Employee hereby represents and warrants that the Employee’s performance of the terms of this Agreement will not breach any written or oral agreement entered into by the Employee with a former employer or with any other third party. The Employee further represents and warrants that the Employee will not engage in additional employment or recreational activities that would in any way pose a conflict of interest with the Employment.

(b) The Employee hereby confirms that the Employee is not owed any amounts or entitled to any benefits from the Company and/or its affiliates for any period (if any) of employment, consulting or services provided by the Employee prior to the Effective Date, whether to the Company or to any of its affiliated entities, and that the Employee has been paid in full any amounts which may be due to the Employee on the part of the Company and/or its affiliates on account of any such period of employment, consulting or services provided.

(c) The Employee hereby acknowledges that the Employee’s signing of the Confidentiality, Unfair Competition and Ownership of Inventions Undertaking attached hereto as Schedule B (the “Undertaking”) constitutes a precondition of the Employment. The Employee further affirms that this Agreement and the Undertaking constitute the entire understanding of the Parties with respect to the subject matter hereof and supersede any understanding or agreement, whether oral or written between the Company and the Employee.

(d) The Employee understands that the Employment and obligations of the Company pursuant to this Agreement are conditioned upon the Employee’s presenting to the Company and maintaining, in each case as required by applicable law, authorization to work in the United States. It is understood that absent such work authorization, the terms of this Agreement shall be null and void, and the Company shall have no obligations hereunder. In the event that the Employee is actively employed by the Company at the time of a lapse in the Employee’s work authorization for any reason, the Employment shall immediately terminate and the Company shall have no obligations with respect to the Employee or pursuant to this Agreement.

(e) The Employee acknowledges that the Employee has been advised to obtain independent counsel to evaluate the terms, conditions and covenants set forth in this Agreement and its attached Schedule B, and the Employee has been afforded ample opportunity to obtain such independent advice and evaluation. The Employee warrants to the Company that the Employee has relied upon such independent counsel and not upon any representation (legal or otherwise), statement or advice said or offered by the Company or the Company’s counsel in connection with this Agreement.

 

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9. Notices. All notices and other communications under this Agreement shall be in writing and shall be given by email or first-class mail, certified or registered, and shall be deemed to have been duly given three (3) days after mailing, twenty-four (24) hours after transmission of email, or immediately upon acknowledgement of receipt, as follows:

 

If to the Company:		Ayala Pharmaceuticals, Inc. c/o PHS Corporate Services 1313 N. Market Street, Suite 5100 Wilmington, DE 19801
If to the Employee:		Gary Gordon [XXX]

or as otherwise indicated as per the Company’s personnel records for the Employee.

10. Remedies of the Company. Upon any termination of the Employment for Cause, the reasons for which may cause irreparable harm to the Company, the Company shall be entitled to institute and prosecute proceedings to obtain injunctive relief and damages, costs and expenses, including, without limitation, reasonable attorneys’ fees and expenses.

11. Arbitration. Except as set forth above in Section 10 above and as set forth in the Undertaking, the Employee and the Company agree that any claim, controversy or dispute between the Employee and the Company (including, without limitation, its affiliates, officers, Employees, representative or agents) arising out of or relating to this Agreement, the Employment of the Employee, the cessation of Employment of the Employee, or any matter relating to the foregoing (with the exception of claims with respect to which a party is not permitted to waive the right to adjudicate in a court of law) shall be submitted to and settled by arbitration pursuant to the Federal Arbitration Act in a forum of the American Arbitration Association (“AAA”) located in the State of Illinois and applying the substantive law of the State of Illinois, unless otherwise mutually agreed upon by the Parties, and conducted in accordance with the National Rules for the Resolution of Employment Disputes. In such arbitration, the Parties shall agree upon a single arbitrator, who shall: (i) agree to treat as confidential evidence and other information presented by the Parties to the same extent as Confidential Information under the Undertaking must be held confidential by the Employee, (ii) have no authority to amend or modify any of the terms of this Agreement, and (iii) have ten (10) business days from the closing statements or submission of post-hearing briefs by the Parties to render his or her decision. Any arbitration award shall be final and binding upon the Parties, and any court, state or federal, having jurisdiction may enter a judgment on the award.

12. Enforceability of this Agreement.

(a) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereunder. If a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy only the portions of this Agreement that violate such statute or public policy shall be stricken, and all other portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, if any one or more of the provisions contained in this Agreement is determined by a court of competent jurisdiction in any State to be excessively broad as to duration, scope, activity or subject, or is unreasonable or unenforceable under the laws of such State, such provisions will be construed by limiting, reducing, modifying or amending them so as to be enforceable to the maximum extent permitted by the law of that State. If the Agreement is held unenforceable in any jurisdiction, such holding will not impair the enforceability of the Agreement in any other jurisdiction.

 

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(b) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

(c) No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either Party hereto at any time or any breach by the other Party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(d) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of law principles, unless otherwise mutually agreed upon by the Parties.

(e) The Company shall have the right to assign its rights and obligations under this Agreement to any individual, entity, corporation or partnership that succeeds to all or a portion of the relevant business or assets of the Company. This Agreement is personal to the Employee, and the Employee may not assign the Employee’s rights and obligations under this Agreement to any third party.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have executed this Employment Agreement as set forth below.

 

AYALA PHARMACEUTICALS, INC.

By:		/s/ Roni Mamluk
		Dr. Roni Mamluk, CEO

By:		/s/ David Sidransky
		Dr. David Sidransky, Director

Date:
GARY GORDON
/s/ Gary Gordon
Date:		23 July 2019

[Signature Page to Employment Agreement/ July 2019]

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SCHEDULE A:

EMPLOYEE DUTIES

During the Term (as defined in the employment agreement to which this Schedule A is attached), with respect to the Chief Medical Officer position for Ayala Pharmaceuticals Inc. (the “Company”), Gary B. Gordon (the “Employee”) shall have duties including but not limited to the following:

 

•

Take responsibility for the Company’s clinical and medical affairs strategy, resourcing and execution

 

•

Represent the Company’s clinical and medical aspects internally, with respect to regulatory authorities, and in business interactions (e.g., investors and business partners)

 

•

Design the Company’s clinical programs

 

•

Direct and oversee the Company’s clinical trial design and implementation

 

•

Oversee the scientific and medical aspects of the Company’s clinical programs

 

•

Prepare the Company’s official documents for regulatory agencies

It is understood that the above duties may be modified from time to time by the Company’s Board of Directors in accordance with the Company’s business needs.

AGREED TO AND ACKNOWLEDGED BY:

 

/s/ Gary Gordon

GARY GORDON

Date: 23 July 2019

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SCHEDULE B:

CONFIDENTIALITY, UNFAIR COMPETITION AND OWNERSHIP OF INVENTIONS

UNDERTAKING

This CONFIDENTIALITY, UNFAIR COMPETITION, AND OWNERSHIP OF INVENTIONS UNDERTAKING (“Undertaking”) is made and given as of July 24, 2019, by Gary Gordon (the “Employee”).

WHEREAS, the Employee wishes to be employed with and provide services that are of particular and special value to Ayala Pharmaceuticals, Inc. (together with its direct or indirect affiliates and subsidiaries (including Ayala-Oncology Israel Ltd.), and its and their respective successors and assigns – the “Company”); and

WHEREAS, it is critical for the Company to preserve and protect its Confidential Information, and its rights in Inventions and in all related intellectual property rights;

NOW, THEREFORE, as a condition to Employee’s engagement with the Company, Employee hereby undertakes and warrants towards the Company as follows:

1. Confidentiality.

1.1. Employee acknowledges that during the term of the Employee’s engagement with the Company, and including any period during which the Employee provided services to any Company entity at any time prior to the date hereof, the Employee may have (or may have had) access to information that relates to the Company, its business, assets, financial condition, affairs, activities, plans and projections, customers, suppliers, partners, and other third parties with whom the Company agreed or may agree, from time to time, to hold information of such parties in confidence (collectively, the “Confidential Information”). Confidential Information shall include, without limitation, information, whether or not marked or designated as confidential, concerning technology, products, research and development, patents, copyrights, Inventions, trade secrets (as defined by the Defend Trade Secrets Act, 18 U.S.C. § 1839(3) and any applicable state law), test results, formulae, processes, data, know-how, marketing, promotion, business and financial plans, policies, practices, strategies, surveys, analyses and forecasts, financial information, customer lists, agreements, transactions, undertakings and data concerning employees, consultants, officers, directors, and shareholders. Confidential Information includes information in any form or media, whether documentary, written, oral, magnetic, electronically transmitted, through presentation or demonstration or computer generated. Confidential Information shall not include information that has become part of the public domain not as a result of a breach of any obligation owed by the Employee to the Company or any third party.

1.2. Employee acknowledges and understands that the engagement of the Employee with the Company and the Employee’s access to Confidential Information creates a relationship of confidence and trust with respect to such Confidential Information.

1.3. During the term of the Employee’s engagement with the Company and at any time after termination or expiration thereof, for whatever reason, subject to Section 1.4 below, Employee shall keep in strict confidence and trust, shall safeguard, and shall not disclose to any person or entity, nor use for the benefit of any party other than the Company, any Confidential

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Information, other than with the prior express consent of the Company, unless the Employee has an independent right or obligation to make such disclosure pursuant to applicable local, state or federal law, provided, that Employee gives the Company prompt notice of such requirement to disclose such Confidential Information (unless Employee is prohibited by law from to issuing such notice, or unless issuing such notice is not practically feasible, and in the latter case the Employee shall issue notice to the Company as soon as it is practically feasible to do so) so that the Company may seek a protective order or other appropriate remedy, and provided further, that Employee shall furnish only that portion of the Confidential Information that is legally required to be disclosed, and shall exercise all reasonable efforts to obtain confidential treatment for such information.

1.4. Notice of Immunity: Employee acknowledges that via this paragraph the Company is providing the Employee with written notice that the Defend Trade Secrets Act, 18 U.S.C. § 1833(b), provides immunity for the disclosure of a trade secret for the purpose of reporting a suspected violation of law and/or in an anti-retaliation lawsuit, in that (i) an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, in each case solely for the purpose of reporting or investigating a suspected violation of law, or where such disclosure is made via a complaint or other document filed in a lawsuit or other proceeding, as long as such filing is made under seal, and (ii) an individual who files a lawsuit for retaliation by an employer or contracting party on account of the individual having reporting a suspected violation of law, may disclose the relevant trade secret to the individual’s attorney and may use such trade secret information in the applicable court proceeding, as long as any document containing such trade secret is filed under seal, and as long as the individual does not disclose such trade secret, except pursuant to court order.

1.5. All right, title and interest in and to Confidential Information are and shall remain the exclusive property solely of the Company or the property of the third party providing such Confidential Information to the Company, as the case may be. Without limitation of the foregoing, Employee agrees and acknowledges that all memoranda, books, notes, records, email transmissions, charts, formulae, specifications, lists and other documents (contained on any media whatsoever) made, reproduced, compiled, received, held or used by Employee in connection with the engagement with the Company or that otherwise relates to any Confidential Information (the “Confidential Materials”), shall be the exclusive property solely of the Company and shall be deemed to be Confidential information. All originals, copies, reproductions and summaries of the Confidential Materials shall be delivered by Employee to the Company upon termination or expiration of Employee’s engagement with the Company for any reason, or at any earlier time at the request of the Company, without Employee retaining any copies thereof.

1.6. During the term of Employee’s engagement with the Company, Employee shall not remove from the Company’s offices or premises any Confidential Materials unless and to the extent necessary in connection with the duties and responsibilities of the Employee and permitted pursuant to the then applicable policies and regulations of the Company. In the event that any such Confidential Materials are duly removed from the Company’s offices or premises, Employee shall take all actions necessary in order to secure the safekeeping and confidentiality of such Confidential Materials and return the Confidential Materials to their proper files or location as promptly as possible after such use.

 

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1.7. During the term of Employee’s engagement with the Company, Employee will not improperly use or disclose any Confidential Information, and will not bring onto the premises of the Company any unpublished documents or any property, in each case belonging to any former employer or any other party to whom Employee has an obligation of confidentiality and/or non-use (including, without limitation, any academic institution or any entity related thereto), unless generally available to the public or consented to by such third party in a writing addressed to the Company.

2. Unfair Competition and Non-Solicitation.

2.1. Employee undertakes that during the term of engagement with the Company and for a period of twelve (12) months thereafter, Employee shall not (i) work (whether independently or on behalf of another party) in a position similar to the position held by Employee when employed by the Company, if such involvement on the part of Employee will have the likely effect of reducing the business volume or monetary profits of the Company; (ii) solicit, hire or retain as an employee, consultant or otherwise, any management level employee of the Company, or other employee essential to the Company’s business, or induce or attempt to induce any such employee to terminate or reduce the scope of such employee’s employment with the Company; and/or (iii) solicit or induce, or attempt to solicit or induce, any party that is, at the time of such solicitation, a business partner, agent, distributor, supplier or customer of the Company, to terminate, reduce or modify the scope of its or their engagement with the Company or work for, in any capacity, a competitor of the Company. It is understood that the restrictions of this paragraph shall apply only to those states in the United States in which the Company engaged, or took active steps toward engaging, in such business during the period of Employee’s employment at the Company. By signing this Agreement, Employee represents and confirms that the restrictions set forth in this paragraph are reasonable, necessary for purposes of protecting the Company’s legitimate business interests, and are not unduly burdensome, financially or otherwise, for the Employee.

2.2. Employee acknowledges that Employee’s position with the Company is uniquely essential to the management and organization of the Company’s business, and in view of Employee’s exposure to, and involvement in, the Company’s sensitive and valuable proprietary information, intellectual property and technologies, Confidential Information and Confidential Materials (the “Company’s Material Assets”), the provisions of this Section 2 are reasonable and necessary to legitimately protect the Company’s Material Assets, and are being undertaken by Employee as a condition to the engagement of Employee by the Company. Employee confirms that Employee has carefully reviewed the provisions of this Section 2, fully understands the consequences thereof and has assessed the respective advantages and disadvantages to Employee of entering into this Undertaking and, specifically, Section 2 hereof. Employee understands that, Employee has the right to consult with counsel prior to signing this Undertaking. By signing this Undertaking, Employee confirms that Employee has had ample time to exercise such right.

2.3. It is agreed that the restrictions set forth in Section 2.1 include all cities, counties and states of the United States, and all other countries in which the Company conducted business during the time of Employee’s employment, whether or not the Company has or had an actual physical presence in such location. Employee acknowledges that the scope and period of restrictions and the geographical area to which the restrictions apply are fair and reasonable and are reasonably required for the protection of the legitimate business interests of the Company.

 

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3. Ownership of Inventions.

3.1. Employee will notify and disclose in writing to the Company, or any persons designated by the Company from time to time, all information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, made or conceived or reduced to practice or learned by Employee, either alone or jointly with others, during Employee’s engagement with the Company (including after hours, on weekends or during vacation time) (all such information, improvements, inventions, trademarks, works, designs, trade secrets, formulae, processes, techniques, know-how, and data are hereinafter referred to as the “Invention(s)”) immediately upon discovery, receipt or invention as applicable.

3.2. Employee agrees that all of the Inventions are, upon creation, considered Inventions of the Company, shall be the exclusive property solely of the Company and its assignees, and the Company and its assignees shall be the sole owner of all patents, copyrights, trade secrets and all other rights of any kind or nature, including moral rights, in connection with such Inventions. Employee hereby irrevocably and unconditionally assigns to the Company all the following with respect to any and all Inventions: (i) title, rights and interest in and to such Inventions, (ii) title, rights and interest in and to any patents, patent applications, and patent rights, including any and all continuations or extensions thereof; (iii) rights associated with works of authorship, including copyrights and copyright applications, Moral Rights (as defined below) and mask work rights; (iv) rights relating to the protection of trade secrets and confidential information; (v) design rights and industrial property rights; (vi) any other proprietary rights relating to intangible property including trademarks, service marks and applications therefor, trade names and packaging and all goodwill associated with the same; and (vii) all rights to sue for any infringement of any of the foregoing rights and the right to all income, royalties, damages and payments with respect to any of the foregoing rights. Employee also hereby forever waives and agrees never to assert any and all Moral Rights Employee may have in or with respect to any Inventions, even after termination of Employee’s engagement with the Company. “Moral Rights” means any right to claim authorship of a work, any right to object to any distortion or other modification of a work, and any similar right, existing under the law of any country in the world, or under any treaty. The Employee further acknowledges and agrees that all copyrightable works included in the Inventions shall be “works made for hire” within the meaning of the Copyright Act of 1976, as amended (17 U.S.C. §101) (the “Act”), and that the Company shall be the “author” within the meaning of the Act.

3.3. Employee represents that there are no information, improvements, inventions, formulae, processes, techniques, know-how and data, whether or not patentable or registerable under copyright or any similar laws, and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to Employee (whether made solely by the Employee or jointly with others) that: (i) were developed by the Employee prior to Employee’s engagement with the Company, (ii) relate to the Company’s actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder.

 

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3.4. Employee further agrees to perform, during and after Employee’s engagement with the Company, all acts deemed reasonably necessary or desirable by the Company to permit and assist it, at the Company’s expense, in obtaining, maintaining, defending and enforcing the Inventions in any and all countries, provided that, in the event that the Company requests that Employee perform any such acts once Employee is no longer employed at the Company, then the Company shall compensate Employee at a commercially reasonable hourly rate for Employee’s time spent with respect to such matters. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as Employee’s agents and attorneys-in-fact to act for and on Employee’s behalf and instead of Employee, to execute and file any documents and to do all other lawfully permitted acts to further the above purposes with the same legal force and effect as if executed by Employee.

3.5. Employee shall not be entitled, with respect to any and all of the above, to any monetary consideration or any other consideration except as explicitly set forth in the engagement agreement between Employee and the Company. Without limitation of the foregoing, Employee irrevocably confirms that the consideration explicitly set forth in Employee’s engagement agreement with the Company is in lieu of any rights for compensation that may arise in connection with the Inventions under applicable law and waives any right to claim royalties or other consideration with respect to any Invention, under any applicable law, including under Section 134 of the Israeli Patent Law, 1967 (or any successor or equivalent law in any jurisdiction). With respect to any and all of the above, any oral understanding, communication or agreement not memorialized in writing and duly signed by an authorized officer of the Company, shall be void.

4. General.

4.1. Employee represents that the performance of all the terms of this Undertaking and of all of Employee’s duties and services to the Company does not and will not breach any invention assignment, proprietary information, non-compete, confidentiality or similar agreements with, or rules, regulations or policies of, any former employer or other party (including, without limitation, any academic institution or any entity related thereto). Employee acknowledges that the Company is relying upon the truthfulness and accuracy of such representations in engaging Employee.

4.2. Employee acknowledges that the provisions of this Undertaking serve as an integral part of the terms of Employee’s engagement with the Company and reflect the reasonable requirements of the Company in order to protect its legitimate interests with respect to the subject matter hereof. The Employee hereby explicitly acknowledges that the restrictions set forth in this Undertaking are not greater than required and do not unduly burden the Employee.

4.3. The Employee hereby consents that, following the termination or expiration of the employment relationship hereunder, the Company may notify the Employee’s new employer about the Employee’s rights and obligations under this Undertaking.

4.4. It is agreed and understood that if a court of law finds that the Employee has violated Section 2 of this Undertaking, then the restrictions set forth in such section shall automatically be extended for any period of time for which the court finds that the Employee violated such restrictions.

 

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4.5. Employee recognizes and acknowledges that in the event of a breach or threatened breach of this Undertaking by Employee, the Company may suffer irreparable harm or damage and that under such circumstances monetary remedies would be inadequate to protect against any actual or threatened breach of this Undertaking. Without prejudice to any other rights and/or remedies otherwise available to the Company, it is therefore agreed that the Company will be entitled to the granting of equitable relief, including but not limited to injunctive relief and specific performance, in favor of the Company without proof of actual damages to remedy or prevent any breach of this Undertaking (without limitation to any other remedy at law or in equity).

4.6. This Undertaking shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any conflict of laws principles which may result in the application of the laws of any other jurisdiction. Any and all disputes in connection with this Undertaking shall be submitted to the exclusive jurisdiction of the competent courts or tribunals, as applicable, located in the State of Delaware. It is agreed that each party irrevocably consents to the exercise of personal jurisdiction over such party by such court, agrees that venue shall be proper in such court, and irrevocably waives and releases any and all defenses based on lack of personal jurisdiction, improper venue or Forum Non Conveniens.

4.7. If any provision of this Undertaking is determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Undertaking only with respect to such jurisdiction in which such clause or provision cannot be enforced, and the remainder of this Undertaking shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Undertaking. In addition, if any particular provision contained in this Undertaking shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing the scope of such provision so that the provision is enforceable to the fullest extent compatible with applicable law.

4.8. The provisions of this Undertaking shall continue and remain in full force and effect following the termination or expiration of the engagement between the Company and Employee, for whatever reason. This Undertaking shall not serve in any manner so as to derogate from any of Employee’s obligations and liabilities under any applicable law.

4.9. This Undertaking constitutes the entire agreement between Employee and the Company with respect to the subject matter hereof and supersedes all prior agreements, proposals, understandings and arrangements, if any, whether oral or written, with respect to the subject matter hereof. No amendment, waiver or modification of any obligation under this Undertaking will be enforceable unless set forth in a writing signed by an authorized officer of the Company. No delay or failure to require performance of any provision of this Undertaking shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Undertaking as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

 

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4.10. All notices and other communications under this Undertaking shall be in writing and shall be given in person, by fax, electronic or certified or registered mail, and shall be deemed to have been duly given twenty-four (24) hours after transmission of a fax or electronic email, three (3) days after sending a notice by certified or registered mail, or immediately upon delivery in person or explicit confirmation of receipt.

4.11. This Undertaking, the rights of the Company hereunder, and the obligations of Employee hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company may assign any of its rights under this Undertaking. Employee may not assign, whether voluntarily or by operation of law, any of its obligations under this Undertaking, except with the prior written consent of an authorized officer of the Company.

IN WITNESS WHEREOF, the undersigned has executed and delivered this CONFIDENTIALITY, UNFAIR COMPETITION AND OWNERSHIP OF INVENTIONS UNDERTAKING effective as of the date first mentioned above.

 

Employee:
/s/ Gary Gordon						Date: 23 July 2019
GARY GORDON

 

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Exhibit 10.8

Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

 

LICENSE AGREEMENT

between

AYALA PHARMACEUTICALS, INC.

and

BRISTOL-MYERS SQUIBB COMPANY

 

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this “Agreement”) is made and entered into as of the date last signed by a party below (the “Effective Date”), by and between Bristol-Myers Squibb Company, a Delaware corporation, headquartered at 345 Park Avenue, New York, New York 10154 (“BMS”), and Ayala Pharmaceuticals, Inc., a Delaware corporation, with its principal offices at c/o PHS Corporate Services 1313 N. Market Street, Suite 5100, Wilmington, DE 19801 (“Company”). BMS and Company are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, BMS and its Affiliates Control (as defined below) certain intellectual property rights with respect to the Licensed Compounds (as defined below); and

WHEREAS, Company desires to obtain from BMS the licenses set forth herein, and BMS desires to grant such licenses to Company, all on the terms and conditions set forth in this Agreement;

NOW, THEREFORE in consideration of the foregoing and the mutual agreements set forth below, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement.

1.1 “Act” means the United States Food, Drug and Cosmetic Act, as amended.

1.2 “Affiliate” of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control with such Person. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to a Person, shall mean the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and “control” shall be presumed to exist if either of the following conditions is met: (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the equity interests with the power to direct the management and policies of such entity.

1.3 “Approval” means, with respect to any Licensed Product in any regulatory jurisdiction, approval from the applicable Regulatory Authority sufficient for the manufacture, distribution, use, marketing, and sale of the Licensed Product in such jurisdiction in accordance with applicable Laws; provided, however that for purposes of the U.S., Approval means NDA Approval, for purposes of the EU, Approval means MAA Approval and for purposes of Japan, Approval means PMDA Approval.

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.4 “BMS Know-How” means Know-How that, as of the Effective Date, is Controlled by BMS and directly relates to and is reasonably necessary for, Company’s Development and Commercialization of the Licensed Compounds and/or Licensed Products in the Field.

1.5 “BMS Patent Rights” means (a) the patents and patent applications listed in Appendix 1, (b) all divisionals, continuations, continuations-in-part (excluding claims in continuations-in-part that necessarily rely on new matter invented by BMS after the Effective Date) thereof or any other patent application claiming priority directly or indirectly to (i) any of the patents or patent applications in subsection (a), or (ii) any patent or patent application from which the patents or patent applications in (a) claim direct or indirect priority, (c) all patents issuing on any of the foregoing in (a) and (b), (d) all foreign counterparts of any of the foregoing in (a) through (c), including any patent applications filed under the Patent Cooperation Treaty (“PCT Applications”), and (e) all registrations, reissues, re-examinations, supplemental protection certificates, or extensions of any of the foregoing in (a) through (d). BMS Patent Rights shall also include any claims in any patents or patent applications existing as of the Effective Date that are Controlled by BMS and cover the composition of matter of any intermediate or starting material reasonably necessary in or reasonably useful for the manufacture of any Licensed Compound as manufactured by BMS as of the Effective Date. BMS Patent Rights do not include any claims covering the composition of matter of any compound other than (i) a Licensed Compound or (ii) an intermediate or starting material reasonably necessary in or reasonably useful for the manufacture of any Licensed Compound as manufactured by BMS as of the Effective Date.

1.6 “Business Day” or “business day” means a day other than Saturday, Sunday or any day on which commercial banks located in New York, New York or Tel Aviv, Israel are authorized or obligated by Law to close.

1.7 “Calendar Quarter” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31.

1.8 “Calendar Year” means each one-year period commencing on January 1 and ending on December 31.

1.9 “cGMP” means as to the United States and the European Union, applicable good manufacturing practices as in effect in the United States and the European Union, respectively, during the term of this Agreement and, with respect to any other jurisdiction, manufacturing practices equivalent to good manufacturing practices as then in effect in the United States or the European Union.

1.10 “Clinical Trial” means any human clinical study of a pharmaceutical product.

1.11 “Combination Product” means a Licensed Product that includes at least one additional active ingredient other than the Licensed Compound. Drug delivery vehicles, adjuvants, and excipients shall not be deemed to be “active ingredients”, except in the case where such delivery vehicle, adjuvant, or excipient is recognized by the FDA as an active ingredient in accordance with 21 CFR 210.3(b)(7).

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.12 “Commercialization” or “Commercialize” means activities directed to commercially manufacturing, obtaining pricing and reimbursement approvals and regulatory activities pertaining to same, marketing, promoting, distributing, importing or selling a Licensed Product.

1.13 “Commercially Reasonable Efforts” means[***].

1.14 “Competitive Compound” means any molecule that is not a Licensed Compound and is a Notch Inhibitor as its primary mechanism of action.

1.15 “Conditional MAA Approval” means any conditional MAA Approval granted by the EMA for a Licensed Product pursuant to Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006, and each annual renewal thereof.

1.16 “Confidential Information” means all trade secrets, processes, formulae, data, Know-How, improvements, inventions, chemical or biological materials, techniques, marketing plans, strategies, customer lists, or other information (including all information and materials of a Party’s customers and any other Third Party and their consultants) that has been disclosed by a Party to the other Party, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form. “Confidential Information” of BMS shall include the BMS Know-How.

1.17 “Confirmed POC Clinical Trial” means a completed POC Clinical Trial that has met both its safety and primary efficacy endpoints.

1.18 “Controlled” or “Controls”, when used in reference to intellectual property, shall mean the legal authority or right of a Party (or any of its Affiliates) to grant a license or sublicense of intellectual property rights to the other Party or any Third Party, or to otherwise disclose proprietary or trade secret information to such other Party or to any Third Party, without breaching the terms of any agreement with any Third Party.

1.19 “Designated Approval” means NDA Approval, MAA Approval in any of France, Germany, Italy, Spain or the United Kingdom, or PMDA Approval in Japan.

1.20 “Development” means non-clinical and clinical drug development activities reasonably related to the development and submission of information to a Regulatory Authority, including toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, process development, formulation development, development manufacturing, delivery system development, quality assurance and quality control development, clinical studies (including pre- and post-Approval studies but specifically excluding regulatory activities directed to obtaining pricing and reimbursement approvals), statistical analysis, and post-marketing commitments/requirements. When used as a verb, “Develop” means to engage in Development.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.21 “Development Plan” means, with respect to a Licensed Product, a plan prepared by Company for the then current Calendar Year and [***] setting forth a summary of the Development activities to be conducted for such Licensed Product, including the indications expected to be targeted, a good faith estimate of reasonable timelines for completing key Development activities and filing of key regulatory submissions (including estimated timelines for commencement of each stage of clinical Development), and including, where known, the primary endpoints and any comparator or any agents used in combination with a Licensed Compound or Licensed Product for any such studies and any go-no-go decision criteria for any such studies. The initial Development Plan as of the Effective Date is attached hereto as Appendix 2, and may be amended by the Company from time to time at the Company’s sole discretion. A copy of the study protocol for a given study will be provided to BMS if available and if requested by BMS.

1.22 “Distributor” means, with respect to a country, any Third Party that is used by pharmaceutical manufacturers generally in such country on a non-exclusive basis, and without any intellectual property right or license grant from the pharmaceutical manufacturers, to distribute (but not to market or promote) finished, packaged pharmaceutical products to pharmacies, managed care organizations, governmental agencies (e.g., federal, state and local), and other group purchasing organizations (e.g., pharmaceutical benefits managers) and the like in such country. For clarity, a Distributor of a Licensed Product in a country shall not include any person or entity that has been granted a right, whether by license or otherwise and whether express or implied (including by subcontract or agency), by a Party or its Affiliates to research, Develop or manufacture any such Licensed Product or that otherwise assumes any regulatory or other responsibilities with respect to obtaining or maintaining regulatory approvals for such Licensed Product in such country.

1.23 “Dollar” or “$” means the lawful currency of the United States.

1.24 “EMA” means the European Medicines Agency, or any successor agency thereto.

1.25 “EU” means the member states of the European Union as of the Effective Date (including for the avoidance of doubt, the United Kingdom), and such other countries as may become part of the European Union after the Effective Date. For clarity, to the extent the United Kingdom and/or any other member state of the European Union would not anymore be a member of the European Union after the Effective Date, it shall still be included in this definition of EU for the purposes of this Agreement.

1.26 “FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.

1.27 “Field” means all uses including the prevention, treatment or control of any human or animal disease, disorder or condition.

1.28 “First Commercial Sale” means, with respect to any Licensed Product in a country in the Territory, the first sale for use or consumption by the general public of such Licensed Product in such country after Approval of such Licensed Product in such country has been granted, or such marketing and sale is otherwise permitted, by the Regulatory Authority of such country.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.29 “GAAP” means, for entities incorporated or organized in the U.S., generally accepted accounting principles, consistently applied, and for entities incorporated or organized outside the United States, either U.S. generally applicable accounting principles or International Financial Reporting Standards, as consistently used and applied by such entity for its other products.

1.30 “Generic Products” means with respect to a particular Licensed Product in a country, a pharmaceutical product that (a) contains the same or substantially the same active ingredient(s) as such Licensed Product, (b) is approved for use in such country by the applicable Regulatory Authority, whether approved under an NDA, ANDA, an application under 505(b)(2), or any equivalent thereof, or otherwise by a Regulatory Authority and (c) is sold in the same country as such Licensed Product by any Third Party that is not a Sublicensee of Company or its Affiliates and did not purchase such product in a chain of distribution that included any of Company or any of its Affiliates or its Sublicensees.

1.31 “Governmental Authority” means any multi-national, national, federal, state, local, municipal, provincial, county, or other political subdivision, agency or other body, domestic or foreign or other government authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, court, tribunal or other entity).

1.32 “IND” means an Investigational New Drug Application, as defined in the Act, filed with the FDA or its foreign counterparts, including as applicable clinical trial applications (CTAs), clinical trial exemptions (CTXs), and investigational medicinal product dossiers.

1.33 “Initiation” means, when used with respect to a Clinical Trial, the dosing of the first patient with the first dose in such Clinical Trial.

1.34 “Know-How” means tangible and intangible information, techniques, technology, practices, inventions (whether patentable or not), methods, knowledge, know-how, trade secrets, data and results (including all biological, chemical, pharmacological, toxicological, clinical, analytical and quality control data and methods (including any applicable reference standards), manufacturing assay and related data, data and results relating to drug substance, drug product, starting materials, and radiolabeled compounds, know-how and trade secrets), but excluding any Patent Rights.

1.35 “Knowledge” means, with respect to a Party or its Affiliates, the actual knowledge of its [***] without any duty to conduct any additional investigations with respect to such facts and information.

1.36 “Laws” means all applicable laws, statutes, rules, regulations and other pronouncements having the effect of law of any Governmental Authority that may be in effect from time to time, including for clarity any applicable rules, regulations and other requirements of any Regulatory Authority that may be in effect from time to time.

1.37 “Licensed Compounds” means the proprietary BMS compounds known as BMS-906024 and BMS-986115 and further described on Appendix 3, and any salt, free acid/base, solvate, hydrate, stereoisomer and polymorphic form thereof, and any prodrug, conjugate or complex thereof.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.38 “Licensed Product” means any pharmaceutical product containing a Licensed Compound (alone or with other active ingredients controlled by the Company), in all forms, presentations, formulations and dosage forms.

1.39 “MAA” means a marketing authorization application filed for Approval in the EU of the applicable Licensed Product.

1.40 “MAA Approval” means Approval by the EMA of a MAA filed with the EMA for the applicable Licensed Product under the centralized European procedure. If the centralized EMA filing procedure is not used, MAA Approval shall be achieved upon [***].

1.41 “MAA Filing” means the validation by the EMA of the filing of an MAA for the applicable Licensed Product. If the centralized EMA filing procedure is not used, MAA Filing shall be achieved upon [***].

1.42 “Major Market Countries” means the following countries: [***]. “Major Market Country” means any one of these countries.

1.43 “NDA” means a new drug application filed with the FDA required for marketing approval for the applicable Licensed Product in the U.S.

1.44 “NDA Approval” means the final approval of an NDA for a given indication by the FDA for the applicable Licensed Product in the U.S.; provided, that, for milestone payment purposes, NDA Approval shall in any event be deemed achieved upon First Commercial Sale in the U.S. for such Indication.

1.45 “NDA Filing” means the acceptance by the FDA of the filing of an NDA for the applicable Licensed Product.

1.46 “Net Sales” means, with respect to any Licensed Product, the gross amount of monies billed in arm’s-length transactions by a Party, an Affiliate of such Party, or any permitted Sublicensee (or such Sublicensee’s Affiliates) (all of the foregoing persons and entities, for purposes of this definition and Sections 8.4, 8.6, and 8.7), shall be considered a “Related Party”) for sales of such Licensed Product to a Third Party, less the sum of the following (to the extent separately stated on the invoice, actually paid or credited by Company and its Affiliates and Sublicensees in effecting such sale and not reimbursed by any Third Party):

(a) discounts (including cash discounts and quantity discounts), cash and non-cash coupons, retroactive price reductions, charge-back payments and rebates granted to managed care organizations or to federal, state and local governments, their agencies, and purchasers and reimbursers or to customers;

(b) credits or allowances actually granted upon claims, damaged goods, rejections or returns of such Product, including Product returned in connection with recalls or withdrawals;

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

(c) freight, postage, shipping, outbound transportation, and insurance charges, but only to the extent separately invoiced in a manner that clearly specifies the charges applicable to the applicable Licensed Products; and

(d) taxes or duties levied on, absorbed or otherwise imposed on sale of the Licensed Product, including import, export, excise and sales taxes, customs duties, value-added taxes, healthcare taxes or other governmental charges otherwise imposed upon the billed amount (to the extent not paid by the Third Party), as adjusted for rebates and refunds, in each case as accounted for by the Related Party recording such Net Sales.

No deduction shall be made for any item of cost incurred by any Related Party in Developing or Commercializing Licensed Products except as permitted pursuant to clauses (a) to (d) of the foregoing sentence; provided that, Licensed Products transferred to Third Parties in connection with clinical and non-clinical research and trials, Licensed Product samples, compassionate sales or use, or an indigent program or for similar bona fide business purposes in accordance with applicable local laws and regulations in which a Related Party agrees to forego a normal profit margin for good faith business purposes shall give rise to Net Sales only to the extent that any Related Party invoices or receives amounts therefor exceeding the cost of goods.

Such amounts shall be determined consistent with a Related Party’s customary practices and in accordance with GAAP.

It is understood that any accruals for individual items reflected in Net Sales are periodically (at least quarterly) trued up and adjusted by each Related Party consistent with its customary practices and in accordance with GAAP.

Sale or transfer of Licensed Products between any of the Related Parties shall not result in any Net Sales, with Net Sales to be based only on any subsequent sales or dispositions to a non-Related Party. To the extent that any Related Party receives consideration other than or in addition to cash upon the sale or disposition of a Licensed Product to a non-Related Party, Net Sales shall be calculated based on the average price charged for such Licensed Product, as applicable, during the preceding royalty period, or in the absence of such sales, based on the fair market value of the Licensed Products, as determined by the Parties in good faith. For clarity, (i) Net Sales shall not include amounts or other consideration received by a Related Party from a non-Related Party in consideration of the grant of a (sub)license or co-promotion or distribution right to such non-Related Party, provided that such consideration is not in lieu of all or a portion of the transfer price of the Licensed Product, (ii) sales to a Third Party Distributor, wholesaler, group purchasing organization, pharmacy benefit manager, or retail chain customer shall be considered sales to a non-Related Party and not to a Sublicensee, (iii) Net Sales by a Related Party to a non-Related Party consignee are not recognized as Net Sales by such Related Party until the non-Related Party consignee sells the Licensed Product and (iv) if a Related Party receives in-kind consideration for the sale of the Licensed Product, then Net Sales shall be calculated as the fair market value of the Licensed Product, as determined by the Parties in good faith.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

In the case of any Combination Product sold in the Territory, Net Sales for such Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where A is the invoice price of the Licensed Product if sold separately, and B is the total invoice price of the other active ingredient or ingredients in the Combination Product, if sold separately. If, on a country-by-country basis, the other active ingredient or ingredients in the Combination Product are not sold separately in said country, Net Sales for the purpose of determining royalties of the Combination Product shall be calculated by multiplying actual Net Sales of the Combination Product by the fraction C/D, where C is the invoice price of the Licensed Product if sold separately, and D is the invoice price of the Combination Product. If neither the Licensed Product nor the other active ingredient(s) are sold separately in a given country, the Parties shall determine Net Sales in accordance with the formulas provided above in this paragraph [***] where such Licensed Product or other active ingredient(s) are sold separately, or, if neither the Licensed Product nor the other active ingredient(s) are sold in any other countries, the Parties shall negotiate in good faith a reasonable adjustment to Net Sales in such country that takes into account [***].

Should Company, its Affiliates or Sublicensees enter into a Third Party agreement for the purchase of a Licensed Product that provides discounts or rebates on such Licensed Product that are conditioned on pricing terms or conditions for purchase of another product or products owned or Controlled by Company, its Affiliates or Sublicensees, as the case may be, then the discount or rebate on such Licensed Product under such agreement shall be determined, for purposes of determining Net Sales under this Agreement for a given accounting period, based on [***].

1.47 “Notch Inhibitor” means any molecule that acts through binding and inhibiting, one or more of Notch1, Notch2, Notch3, and/or Notch4 receptors.

1.48 “Patent Rights” means (a) patents and patent applications, (b) all divisionals, continuations, continuations-in-part thereof or any other patent application claiming priority directly or indirectly to (i) any of the patents or patent applications in subsection (a), or (ii) any patent or patent application from which the patents or patent applications in (a) claim direct or indirect priority, (c) all patents issuing on any of the foregoing in (a)-(b), (d) all foreign counterparts of any of the foregoing in (a)-(c), including PCT Applications, and (e) all registrations, reissues, re-examinations, supplemental protection certificates, or extensions of any of the foregoing in (a)-(d).

1.49 “Person” means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture, governmental authority, association or other entity.

1.50 “Phase II Trial” means a Clinical Trial of a Licensed Product on a sufficient number of subjects that is designed to explore a variety of doses, dose response, and duration of effect, and to generate initial evidence of clinical safety and activity in a target patient population, as described in 21 C.F.R. 312.21(b), or a similar clinical study prescribed by a Regulatory Authority outside the U.S.

1.51 “Phase III Trial” means a Clinical Trial of a Licensed Product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range and dose duration to be prescribed, which trial is intended to support Approval of a Licensed Product, as described in 21 C.F.R. 312.21(c), or a similar clinical study prescribed by a Regulatory Authority outside the U.S.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.52 “PMDA” means the Japanese Pharmaceutical and Medical Device Agency or its successor, or Ministry of Health, Labour and Welfare.

1.53 “PMDA Approval” means Approval by the PMDA of a MAA filed with the PMDA for the applicable Licensed Product in Japan; provided, that, for milestone payment purposes, PMDA Approval shall in any event be deemed achieved upon First Commercial Sale in Japan for such Indication.

1.54 “PMDA Filing” means the acceptance by the PMDA of the filing of an MAA for the applicable Licensed Product in Japan.

1.55 “POC Clinical Trial” means a Clinical Trial intended as a registration trial that will form the basis for obtaining Approval, whether or not such Clinical Trial is designated as a Phase III Trial.

1.56 “Regulatory Authority” means any Governmental Authority, including the FDA, PMDA or EMA, that has responsibility in countries in the Territory over the Development and/or Commercialization of the Licensed Compounds and/or Licensed Products.

1.57 “Sublicense Revenues” means all consideration Company and/or its Affiliates receives from a Sublicensee pursuant to any Sublicense, including any upfront payment, milestone payments and royalty payments, collaboration fee, and premiums on equity investments in Company (with the premium to be reasonably allocated to the value of the Licensed Compound and Licensed Product as compared the Company’s compounds and products (if any)), but excluding, for clarity, any amounts received by Company: (a) as bona fide, fair market value, actual reimbursement for research, Development or Commercialization activities performed or paid for by Company after the grant of a License, and only to the extent they are documented and are reasonably detailed in a written report provided to BMS; (b) for reimbursement of Company’s fully-burdened cost to manufacture and supply Licensed Products or Licensed Compounds; (c) in the form of bona fide loans made by Sublicensee to Company not forgiven by Sublicensee; (d) payment or reimbursement of reasonable patent expenses actually incurred or paid by Company and not otherwise reimbursed; or (e) payments to Company for the purchase of equity in Company at the fair market value of such equity. For clarity, in the event a Sublicense by Company includes both a grant of rights under any of the rights licensed to Company by BMS under Section 2.1 with respect to any Licensed Product or Licensed Compound and a grant of rights to Patent Rights Controlled by Company other than such rights licensed to Company by BMS under Section 2.1 (“Other Sublicensed IP”), the Parties shall negotiate in good faith a reasonable adjustment to the applicable Sublicense Revenue that takes into account the relative value of the Other Sublicensed IP; provided that if the Parties cannot agree on such adjustment then the Parties shall select an independent appraiser to determine such adjustment.

1.58 “Sublicense” means a grant of rights by Company to a Sublicensee under any of the rights licensed to Company by BMS under Section 2.1 with respect to the Development, manufacture, or Commercialization of any Licensed Product or Licensed Compound. For clarity, a Distributor is not considered a Sublicensee.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.59 “Sublicense Agreement” means a written, definitive agreement for a Sublicense.

1.60 “Sublicensee” means any Third Party to whom rights are granted under any of the rights licensed to Company by BMS under Section 2.1 with respect to any Licensed Product or Licensed Compound, including through any license, sublicense, co-development, co-discovery, co-promotion, distribution, joint venture, Development and Commercialization collaboration or similar transaction between Company (or an Affiliate of Company) and a Third Party.

1.61 “Territory” means worldwide.

1.62 “Third Party” means any Person other than Company, BMS, and their Sublicensees, and any Affiliates of Company, BMS and their Sublicensees.

1.63 “United States” or “U.S.” means the United States of America including Puerto Rico and any U.S. territories and possessions.

1.64 “Valid Claim” means a claim of (i) an issued and unexpired patent or a supplementary protection certificate, which claim has not been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise, or (ii) a pending patent application that has not been finally abandoned, finally rejected or expired; provided, however, that if a claim of a pending patent application shall not have issued within [***] years ([***]) after the earliest filing date from which such claim takes priority, such claim shall not constitute a Valid Claim for the purposes of this Agreement unless and until a patent issues with such claim.

Additional Definitions. In addition to those terms defined above, definitions for each of the following terms are found in the body of this Agreement as indicated below:

 

Defined Term		Section
BMS		Preamble
BMS Reversion Products		13.4.1
Company		Preamble
Effective Date		Preamble
Force Majeure		15.3
Indemnification Claim		12.3
Indemnitee		12.3
Indemnitor		12.3
Indication		8.2.1(v)

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Inventory Disposal Period		13.4.6
Joint Invention		10.1
Joint Patent Rights		10.1
Know-How Transfer Period		3.1.1
Liability Cap		9.5
Losses and Claims		12.1
“Party” or “Parties”		Preamble
PCT Application		1.5
Pharmacovigilance Agreement		3.5
Related Party		1.46
Reversion cGMP Clinical Materials		13.4.5
Reversion cGMP Commercial Materials		13.4.6
Royalty Term		8.4.2
Safety Reasons		13.3.4
Surviving Sublicensee		2.2.1(g)
TA Period		3.2
Third Party Compensation		8.4.4(a)
Title 11		13.9
Transferred Materials		4.1
Triggering Event		5.6.2

ARTICLE 2

LICENSE GRANT

2.1 BMS Patent Rights and BMS Know-How. Subject to all the terms and conditions set forth in this Agreement, BMS hereby grants to Company a non-transferable (except in accordance with Section 15.4), exclusive license, with the right to grant Sublicenses in accordance with Section 2.2, under the BMS Patent Rights and BMS Know-How solely to research, discover, Develop, make, have made, use, sell, offer to sell, export, import and Commercialize Licensed Compounds and/or Licensed Products in the Field in the Territory.

For clarification, nothing in this Section 2.1 or this Agreement shall be interpreted as a grant of rights to make, have made, sell, use, co-formulate or use in combination a Licensed Compound with any (i) molecule that is not a Licensed Compound and is proprietary to BMS or its Affiliates or would require a license from BMS with respect to the composition, method of use or manufacture of such other molecule, or (ii) that is or could be subject to a governmental grant providing marketing exclusivity with respect to such compound or such product (such as data

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

exclusivity under the FDA’s Orange Book or under national implementations of Article 10.1 of Directive 2001/EC/83), including but not limited to, in each case (i) and (ii), any such compound or such product that is being developed or sold (as of the Effective Date or in the future) by BMS or its Affiliates or by contractors or collaborators with or on behalf of BMS or its Affiliates.

2.2 Sublicenses. Prior to a Confirmed POC Clinical Trial, Company shall have no right to grant Sublicenses with respect to the rights licensed to Company under Section 2.1 without BMS’s prior written consent; provided that, in each case where BMS provides such prior written consent, such Sublicenses are granted solely in accordance with this Section 2.2. Following a Confirmed POC Clinical Trial, Company shall have the right to grant Sublicenses with respect to the rights licensed to Company under Section 2.1 as follows: (x) to an Affiliate, without the prior written consent of BMS, (y) to a Third Party [***] and (z) to a Third Party not included in (y), subject to BMS’ prior written consent (not to be unreasonably withheld), provided that, in each case (x), (y) and (z), such Sublicenses are granted solely in accordance with this Section 2.2. For the purposes of this Section 2.2, [***].

2.2.1 Company shall have the right to enter into a Sublicense Agreement with a Third Party, provided that:

(a) such Sublicense Agreement shall refer to this Agreement and shall be subordinate to and consistent with the terms and conditions of this Agreement, and, shall not limit Company’s ability to fully perform all of its obligations under this Agreement or BMS’ rights under this Agreement;

(b) in such Sublicense Agreement, the Sublicensee shall agree in writing to be bound to Company by terms and conditions that allow Company to fully perform the corresponding terms and conditions of this Agreement;

(c) within [***] days after the execution of such Sublicense Agreement, Company shall provide a copy of such Sublicense Agreement to BMS, redacted, only as necessary, to remove content unrelated to obligations due to BMS;

(d) Company shall remain primarily responsible for all payments due and the making of reports under this Agreement by its Sublicensees and for compliance by its Sublicensees with all applicable terms of this Agreement (including, without limitation, its payment obligations under Sections 11.1 and Articles 8 and 10 hereof), and shall use Commercially Reasonable Efforts to monitor such Sublicensees’ compliance with the terms of such License. Company shall remain jointly and severally liable with each of its Sublicensees (whether or not such Sublicensee is an Affiliate of Company) for any failure by such Sublicensee to comply with the terms and conditions of this Agreement;

(e) the Sublicensee shall assume and agree in writing to be bound by and comply with the terms and conditions of this Agreement in the same manner as Company, including, without limiting the generality of the foregoing, the Sublicensee shall agree in writing to (i) maintain insurance coverage at no less than the levels set forth in Section 12.4, (ii) keep books and records substantially in accordance with Section 8.7, including permitting audit and inspection rights in accordance with Sections 8.7.3 and 8.7.4, and (iii) the right of termination provided in Section 13.2;

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

(f) such Sublicensee shall not have the right to grant further Sublicenses with respect to the Development or Commercialization of Licensed Products, except in accordance with and subject to all of the terms and conditions of this Section 2.2 and all of the other terms and conditions of this Agreement;

(g) any Sublicense rights granted by Company in a Sublicense Agreement (to the extent such Sublicense rights are granted to Company in this Agreement) shall terminate effective upon the termination under Article 13 of the license from BMS to Company with respect to such sublicensed rights, provided that such Sublicense rights shall not terminate if, as of the effective date of such termination under Article 13, the Sublicensee is not in material breach of its obligations to Company under its Sublicense Agreement, the Sublicensee was previously granted an exclusive Sublicense to Develop and Commercialize the Licensed Products or Licensed Compounds, and within [***] days of such termination the Sublicensee agrees in writing to be bound directly to BMS under a license agreement substantially similar to this Agreement with respect to the rights Sublicensed hereunder, substituting such Sublicensee (a “Surviving Sublicensee”) for Company, and provided further that (A) such license agreement shall not prejudice any remedy either Party may have against the other in connection with such termination of this Agreement (in whole or in part); (B) the scope of the rights granted to the Surviving Sublicensee under such license agreement (with respect to licensed activities, Licensed Products and territory) shall be equal to the scope of the rights that had been sublicensed by Company to the Surviving Sublicensee pursuant to the Sublicense Agreement; (C) Company shall no longer be obligated under this Agreement to pay amounts set forth in this Agreement, to the extent such amounts are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees from and after the effective date of such termination; (D) such license agreement shall obligate the Surviving Sublicensee to pay directly to BMS amounts corresponding to those set forth in Article 8 which are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees from and after the effective date of such termination, as well as any additional financial consideration it had committed to pay Company or any of Company’s Affiliates as milestone and royalty obligations and other collaboration fees; (E) the Sublicensee cures any payment default of the Company to BMS as of the effective date of termination; and (F) such license agreement shall not modify the rights and obligations of the Parties following any termination of this Agreement in whole or in part; and

(h) the provisions of this Section 2.2 shall also apply in the event of any subsequent amendment or modification of any such Sublicense Agreement.

2.2.2 For clarity, where provisions of this Agreement provide that Company shall be “solely” responsible or the like with respect to a matter (for example, Sections 5.4, 5.5, or 7.1), it is understood that such responsibilities may be carried out or borne on Company’s behalf by an Affiliate of Company or by a permitted Sublicensee or contractor of Company.

2.2.3 It shall be a material breach of this Agreement for Company to enter into any Sublicense hereunder not in compliance with this Section 2.2.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

2.3 No Trademark License. No right or license, express or implied, is granted to Company to use any trademark, trade name, trade dress, domain name, logos, slogans, or service mark owned or Controlled by BMS or any of its Affiliates. Company, at its sole cost and expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with Licensed Products and its activities conducted pursuant to this Agreement, if any, and shall own and Control such trademarks.

2.4 No Implied Licenses. No license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise. All such licenses and rights are or shall be granted only as expressly provided in this Agreement.

2.5 Retained Rights. All rights not expressly granted by a Party hereunder are reserved by such Party and may be used by such Party for any purpose. Without limiting the foregoing, BMS retains all rights to use and for its Affiliates to use the Licensed Compounds, the BMS Know-How and the BMS Patent Rights for any internal research purposes in the Field to research, develop and commercialize any molecules other than the Licensed Compounds and Licensed Products, and for the manufacture of any compound that is not a Licensed Compound, provided that such molecules and/or compounds are not Notch Inhibitors as their primary mechanism of action. BMS also expressly reserves and retains the right to make, have made and use any Licensed Compound for use as an intermediate or starting material in the manufacture of any compound that is not a Licensed Compound. Nothing in this Agreement shall prevent BMS and its Affiliates from using for any purpose any BMS Know-How that is in the public domain as of the Effective Date (or enters the public domain thereafter) and is not covered by a Valid Claim of a BMS Patent Right licensed to Company hereunder.

ARTICLE 3

TRANSFER OF KNOW-HOW, TECHNICAL ASSISTANCE

3.1 Documentation.

3.1.1 During the [***] period following Company’s request (the “Know-How Transfer Period”), which request shall be made by Company within [***] following the Effective Date (provided that if Company does not provide such request within the [***] period following the Effective Date, the Know-How Transfer Period will automatically commence on the date that is [***] after the Effective Date), BMS shall provide Company with electronic (or tangible embodiments, if electronic is not available) of the Know-How listed on Appendix 6, including copies of originals of laboratory notebooks or pages thereof and, where required by Company to fulfill its duties under applicable Law, copies of manufacturing run records required to be maintained by BMS under applicable Law; provided that, with respect to BMS Know-How contained in laboratory notebooks, BMS shall be required to provide Company with copies of those laboratory notebook pages (electronic copies, if they exist) [***] that contain BMS Know-How relating to Licensed Compounds. Such documentation is Confidential Information of BMS shall not be used by Company for any purpose other than for the discovery, research, Development or Commercialization (including any import, manufacture, use, offer for sale, or sale) of Licensed Compounds and/or Licensed Products in accordance with this Agreement. Company shall assume full responsibility and liability to BMS for any unauthorized

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

use or disclosure of such Confidential Information. BMS shall be responsible for the cost of providing one (1) set of copies (electronic, where they exist) only. BMS shall have no obligation to reformat or otherwise alter or modify any materials, or to create materials in electronic form, in order to provide them to Company, provided that, such material will be delivered to Company unencrypted (or if encrypted, provided with a means for unencrypting). Any and all materials and other BMS Know-How delivered to Company pursuant to this Section 3.1 are and shall remain the sole property of BMS.

Without limiting the foregoing, if, within [***] after the Effective Date Company reasonably determines that there is additional, specific BMS Know-How Controlled by BMS and its Affiliates that existed as of the Effective Date that is reasonably necessary for the continued Development or manufacture (but only those manufacturing and formulation processes, techniques and trade secrets used by BMS for making such Licensed Compounds as of the Effective Date) of any Licensed Compound or Licensed Product that has not been provided during the Know-How Transfer Period, then Company may request within such [***] period that BMS transfer to Company such additional BMS Know-How and BMS will use Commercially Reasonable Efforts to locate and provide same, provided that BMS shall not be required to conduct an unreasonable search for any such additional BMS Know-How.

3.1.2 Notwithstanding Section 3.1.1 or 3.2, nothing herein shall require BMS to transfer, disclose or provide to Company (i) any reagents, assays or other tangible biological or chemical materials that are not listed on Appendix 4, and (ii) any general information or know-how that should reasonably be known to a pharmaceutical company engaged in the research, development, manufacture or commercialization of small molecules for the treatment of cancer.

3.1.3 Any data or information included in the INDs to be transferred under Section 3.3 does not need to be separately transferred pursuant to Section 3.1.1 or Section 3.2.

3.2 Technical Assistance. During the [***] period following the Effective Date (the “TA Period”), BMS shall reasonably cooperate with Company to assist Company with understanding and using the BMS Know-How provided to Company under Section 3.1. Such cooperation shall include, without limitation, providing Company with reasonable access by teleconference or in-person at BMS’ facilities (subject to BMS’ customary rules and restrictions with respect to site visits by non-BMS personnel) to BMS personnel who are appropriately qualified and experienced for such purpose, and to the extent reasonably available, to BMS personnel who were directly involved with the research or development of Licensed Compounds or Licensed Products prior to the Effective Date. In no event shall BMS be obligated to provide Company with more than (x) [***] hours of technical assistance and consultation in connection with the BMS Know-How transferred under Section 3.1 to the extent the Know-How does not relate to manufacturing Know-How, and (y) [***] hours technical assistance and consultation in connection with the BMS Know-How transferred under Section 3.1 to the extent it relates to manufacturing Know-How; provided that upon Company’s request, BMS shall provide additional technical assistance beyond the foregoing, at a mutually agreed commercially reasonable hourly rate, up to an additional [***] hours. Further: (i) such access shall be requested and coordinated through a single contact person to be designated by BMS, (ii) BMS makes no warranty, express or implied, that Company shall be able to successfully implement and use the BMS Know-How, and (iii) BMS shall not be in default hereunder for any inadvertent failure to disclose all pertinent

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

information related to the BMS Know-How, provided that such information shall be supplied to Company promptly upon discovery of such failure to disclose or upon request of Company identifying with reasonable specificity the nature of the information to be disclosed. Company shall be responsible for ensuring that its personnel who receive such assistance are appropriately qualified and experienced for such purpose.

3.3 INDs. BMS will use its Commercially Reasonable Efforts to assign and transfer within [***] days after Company’s request (which request by Company shall come within [***] days after the Effective Date) all of its rights, title and interests in and to any INDs for the Licensed Compounds. Company will cooperate in connection therewith and shall perform all duties under such INDs from and after such assignment. Subject to the foregoing, the Parties will reasonably cooperate to ensure an orderly transition of duties under such INDs and to fulfill applicable filing obligations with regulatory authorities.

3.4 Safety Database. BMS shall transfer to Company the safety database for the Licensed Compounds, in a mutually agreeable format, as soon as practicable subsequent to the Effective Date as agreed to by the Parties, and Company shall thereafter perform all responsibilities thereafter with respect to reporting of adverse events and pharmacovigilance relating to the Licensed Compounds.

3.5 Pharmacovigilance Agreement. Within [***] after the Effective Date, BMS and the Company (under the guidance of their respective Pharmacovigilance Departments, or equivalent thereof) shall define and finalize the responsibilities the Parties shall employ to protect patients and promote their well-being in connection with the use of the Licensed Compound(s) until such time that all pharmacovigilance responsibilities have transferred from BMS to Company. These responsibilities shall include mutually acceptable guidelines and procedures for the receipt, investigation, recordation, communication, and exchange (as between the Parties) of adverse event reports, pregnancy reports, and any other information concerning the safety of any Licensed Compound(s). Such guidelines and procedures shall be in accordance with, and enable the Parties and their Affiliates to fulfill, local and international regulatory reporting obligations to government authorities. Furthermore, such agreed procedures shall be consistent with relevant International Council for Harmonization (ICH) guidelines, except where said guidelines may conflict with existing local regulatory safety reporting requirements, in which case local reporting requirements shall prevail. Until such guidelines and procedures are set forth in a written agreement between the Parties (hereafter referred to as the “Pharmacovigilance Agreement”), the Party responsible for pharmacovigilance prior to execution of this Agreement shall have sole Pharmacovigilance responsibility for the Licensed Compound(s) subject to all applicable regulations and guidelines. In the event that this Agreement is terminated, the Parties agree to implement the necessary procedures and practices to ensure that any outstanding pharmacovigilance reporting obligations are fulfilled.

 

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ARTICLE 4

TRANSFER OF MATERIALS

4.1 Materials. Within [***] days after requested by Company, but no later than [***] days after the Effective Date, BMS shall transfer to Company those Licensed Compounds identified in Appendix 4, ex-works (EXW) at the applicable BMS facility(ies), in the quantities set forth in Appendix 4 (any such materials that are actually transferred, the “Transferred Materials”). Title and risk of loss shall be transferred to and borne by Company upon delivery of the Transferred Materials by BMS to a common carrier for shipment to Company, and Company shall be responsible for any indirect taxes levied upon the transfer, including customs duties and import VAT if applicable. Other than the Transferred Materials, or as otherwise included within the scope of BMS Know-How (but subject to Section 3.1.2), BMS shall have no other obligation to provide Company with any compounds or other materials, such as assays or biomaterials, under this Agreement. Any such Transferred Materials identified as cGMP materials in Appendix 4 (the “cGMP Materials”) shall be accompanied by a certificate of analysis, certificate of manufacturing, batch records and other such documentation, information materials as may be required under Applicable Law to enable use of such cGMP Material in human Clinical Trials, including written certification, and BMS hereby represents and warrants, that such cGMP Materials were both (a) manufactured, and (b) stored and handled at all times following such manufacture, in accordance with cGMP. Except for the express representations and warranties made above in this Section 4.1, BMS makes no other representations or warranties, express or implied, as to the Transferred Materials, including any warranty as to merchantability or fitness for a particular use or purpose. Any requalification required for Transferred Materials that are not cGMP Materials will be [***]. Company agrees that: (a) Company shall be fully responsible for its and its Affiliates’, Sublicensees’ and contractors’ use, storage, handling and disposition of the Transferred Materials, (b) under no circumstances shall BMS be liable or responsible for Company’s or its Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of the Transferred Materials, and (c) Company assumes sole responsibility for any claims, liabilities, damages and losses that might arise as a result of Company’s and its Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of any Transferred Material. Company shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all damages, liabilities, losses, costs and expenses (including reasonable legal expenses, costs of litigation and reasonable attorney’s fees) arising in connection with any claims, suits, proceedings, whether for money damages or equitable relief, of any kind, arising out of or relating to Company’s, or any of its Affiliates’, Sublicensees’ or contractors’ use, storage, handling or disposition of any Transferred Material. Transferred Materials may only be provided by Company to Affiliates of Company, Sublicensees and contractors of Company.

ARTICLE 5

DEVELOPMENT

5.1 Development. Company shall itself or through its Affiliates or Sublicensees use Commercially Reasonable Efforts to Develop at least one Licensed Product, including by (i) setting forth in the Development Plan a program of Development activities and reasonable estimated timelines therefor for each phase of pre-clinical and clinical Development for Licensed Compounds and Licensed Products, and (ii) assigning appropriately qualified and experienced personnel to perform and monitor the progress of, or overseeing Third Parties who perform, such Development activities on an on-going basis. The initial Development Plan as of the Effective

 

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Date is attached hereto as Appendix 2, and may be amended by the Company from time to time at the Company’s sole discretion. During the Term, Company shall (a) provide BMS no later than March 1 of each Calendar Year with a copy of the revised Development Plan for each Licensed Compound and Licensed Product for such Calendar Year and [***], and (b) within a reasonable period of time notify BMS if, as a result of interactions with Regulatory Authorities in relation to the Licensed Product, Company reasonably determines that the estimated timelines for Development and Commercialization for Licensed Products set forth in the Development Plan are likely to be delayed so as to have a material adverse effect on such Development and Commercialization of Licensed Products, and shall within a reasonable period of time thereafter update the Development Plan to reflect such revised estimated timelines. Company shall within [***] notify BMS of any change in any study that is likely to have a material adverse effect on the Development and Commercialization of Licensed Compounds or Licensed Products included in the Development Plan last provided to BMS of which it becomes aware and the reasons therefor.

5.2 Development Reports. Company shall provide BMS with written Development reports [***] each Calendar Year during the term of Development activities summarizing (but without disclosing specific data or results) such activities in reasonably sufficient detail to enable BMS to determine Company’s compliance with its diligence obligations in Section 5.1; provided that beginning in 2021, Company shall provide BMS with such written Development reports [***]. Such reports shall include without limitation (a) the research and other Development activities accomplished by Company under the existing Development Plan through the end of the immediately preceding six-month period ending December 31 or June 30, as the case may be, with respect to Licensed Compounds and Licensed Products (provided that Development reports beginning in 2021 shall instead include the research and other Development activities accomplished by Company under the existing Development Plan through the end of the immediately preceding Calendar Year with respect to Licensed Compounds and Licensed Products), (b) updates on Company’s progress against the existing Development Plan, and (c) any revisions proposed to be made to any Development Plan for the then current Calendar Year; provided, however, that the first such report shall be due no later than March 1, 2018. If any such Development obligations have been sublicensed to a Sublicensee, Company shall require the Sublicensee to provide to BMS the same information as required of Company hereunder with respect to the progress of the development of Licensed Compounds and Licensed Products by such Sublicensee. If requested by BMS, Company (and, if applicable, Sublicensee) personnel who prepared the report will meet with BMS at a reasonable time and place (which may be by teleconference) and upon reasonable advance written notice to discuss any reasonable questions or comments that BMS might have on the report and Company’s development activities.

5.3 Records. Company shall maintain complete and accurate records of all work conducted in furtherance of the research, Development and Commercialization of the Licensed Compounds and/or Licensed Products and all results, data and developments made in furtherance thereof to the extent required under applicable Laws. Such records shall properly reflect all work done and results achieved in sufficient detail and in good scientific manner to the extent required under applicable Laws.

 

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5.4 Development Responsibilities and Costs. As between the Parties, Company shall have sole responsibility for, and shall bear the cost of conducting, research and Development with respect to the Licensed Compounds and/or Licensed Products. Company shall research and Develop the Licensed Compounds and/or Licensed Products in compliance with all applicable Laws, including all legal and regulatory requirements pertaining to the design and conduct of Clinical Trials. For clarity, BMS shall be responsible for the payment of all payment obligations to any third Parties pursuant to licenses obtained by BMS with respect to any Third Party Know How or Third Party Patent Rights included in the BMS Know-How or BMS Patent Rights, respectively, except with respect to Third Party Compensation, which shall be determined pursuant to 8.4.4(a).

5.5 Regulatory Responsibilities and Costs. As between the Parties, Company shall have sole responsibility for, and shall bear the cost of preparing, all regulatory filings and related submissions with respect to the Licensed Compounds and/or Licensed Products. Except as set forth in Article 13, Company shall own all INDs, Approvals and submissions in connection therewith and all Approvals shall be obtained by and in the name of Company.

5.6 Competitive Compound.

5.6.1 During [***], neither Company nor its Affiliates (or any Sublicensee of Company or any Affiliate of such Sublicensee) shall itself or through any Third Party, or in collaboration with any Third Party, engage, directly or indirectly in the clinical Development or Commercialization of a Competitive Compound. [***].

5.6.2 Notwithstanding Section 5.6.1, if Company or any of its Affiliates, either through its own development efforts or by acquisition, or obtains ownership of or a license to, or is acquired by or otherwise merges with an entity (or an Affiliate of such entity) that owns or has a license to, a Competitive Compound, in all such cases that would result in a violation of Section 5.6.1 (any such event, a “Triggering Event”), then Company shall notify BMS in writing and elect (as applicable) one of the following actions within [***] after such Triggering Event:

(a) divest itself of such Competitive Compound and notify BMS in writing of such divestiture, which divestiture may occur by an outright sale to a Third Party of all of Company’s and its Affiliate’s rights to such Competitive Compound or by an outlicense arrangement under which Company has no continuing active involvement in the development or commercialization of such Competitive Compound [***]; or

(b) Company shall notify BMS in writing whether Company desires to negotiate terms under which the Competitive Compound would be included as a Product within this Agreement. [***].

ARTICLE 6

COMMERCIALIZATION

6.1 Company Obligations. Company shall use Commercially Reasonable Efforts to (i) obtain Approvals in [***] for at least one Licensed Product, (ii) effect the First Commercial Sale of each Licensed Product for which such Approvals are obtained into each of such Major Market Countries as soon as reasonably practicable after receipt of such Approvals and (iii)

 

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Commercialize each such Licensed Product in each of such Major Market Countries following such First Commercial Sale therein with the goal of maximizing the Net Sales of such Licensed Product in such Major Market Countries. As between the Parties, Company shall have sole responsibility for, and shall bear the cost of, Commercializing Licensed Products.

6.2 Continued Availability. Following the First Commercial Sale of a Licensed Product in a country in the Territory and until the expiration or termination of this Agreement, Company shall be responsible for manufacturing (or having manufactured) at its sole expense and using Commercially Reasonable Efforts to maintain supplies of such Licensed Product sufficient to satisfy Company’s expected Commercialization efforts in such country.

6.3 Reports. Following the First Commercial Sale of a Licensed Product in a country in the Territory, Company shall provide BMS with a written report within [***] days of the filing of the Company Annual Report with the U.S. Securities and Exchange Commission (or if no such report is filed, then within [***] days after the end of a Calendar Year), summarizing significant commercial activities with respect to Licensed Products during the just ended Calendar Year in countries in which there has been a First Commercial Sale of a Licensed Product, broken out separately for each applicable Major Market Country, [***]. If requested by BMS, Company personnel who prepared the report will meet with BMS, which may be by teleconference, to discuss and answer any questions or comments that BMS might have on the report and Company’s commercialization activities during the [***] day period following delivery of such written report to BMS.

ARTICLE 7

MANUFACTURE AND SUPPLY

7.1 Manufacture and Supply. As between the Parties, Company shall be solely responsible at its expense for all of its requirements for making or having made all of its requirements of the Licensed Compounds and/or Licensed Products, except for Transferred Materials.

ARTICLE 8

FINANCIAL TERMS

In consideration of the rights granted by BMS to Company pursuant to this Agreement, Company shall make the payments provided for in this Article 8.

8.1 Initial Payment. Company shall:

8.1.1 Within [***] after the Effective Date, pay to BMS a nonrefundable, noncreditable payment of Six Million Dollars ($6,000,000) in cash by wire transfer into an account designated in writing by BMS; and

 

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8.1.2 Within [***] after the Effective Date, issue to BMS preferred stock of Company equal to eight percent (8.0%) of Company’s capital stock on a fully-diluted basis at the time of issuance, and concurrent with any subsequent issuances of equity by Company, BMS shall be entitled to receive without any additional consideration that number of additional shares of Company preferred stock as is required for BMS to maintain its eight percent (8.0%) equity ownership in Company (on a fully-diluted basis); provided that this anti-dilution right shall apply only until the earlier to occur of (i) the date by which Company shall have raised [***] in proceeds from equity financings in the aggregate and (ii) the date by which Company’s pre-money valuation is equal to [***] or more in connection with the closing of an equity investment of not less than [***] that includes an investment of not less than [***] by external investors that are not, nor have ever been, Affiliates of Company or of any of the stockholders of Company prior to the closing of such equity financing; provided further that with respect to equity financings in excess of such [***] or pre-money valuations in excess of [***], BMS shall have the right (but not the obligation) to participate, in its sole discretion, in any such financings on the same terms and conditions (including price) as the other investors in order to maintain its eight percent (8.0%) ownership interest in Company (on a fully diluted basis). The shares of preferred stock issued by Company to BMS will have the same rights and privileges, and be subject to the same terms and conditions (e.g., voting rights, registration rights, rights of co-sale, etc.), as the preferred stock issued in connection with Company’s Series A financing, the term sheet for which is attached hereto as Appendix 7. For clarity, “fully-diluted” shall not include authorized but unissued options.

8.2 Milestone Payments.

8.2.1 Development Milestones. Company shall pay to BMS the following one-time milestone payments set forth in the table below within [***] after the first achievement of the specified milestone event by Company, its Affiliates, and Sublicensees for the first Licensed Product to achieve such milestone event. Company shall provide written notice to BMS within [***] after the first achievement of the specified milestone event by Company, Affiliates, and Sublicensees. Each milestone payment shall not be refundable or returnable in any event, nor shall it be creditable against royalties or other payments:

[***]

For purposes of this Section:

(i) The set of milestone payments in the table above shall be payable by Company to BMS upon the first achievement of each such milestone event for the first Licensed Compound to achieve the milestone event.

(ii) For each additional Licensed Compound that subsequently achieves the same milestone event that the first Licensed Compound achieved, the milestone payment for such additional Licensed Compound shall be (1) fifty percent (50%) of the payments set forth in the above table and (2) subject to credit or deferral as set forth in clause (iii) below.

(iii) If Development is discontinued for a Licensed Compound before the Regulatory Approval(s) is obtained in the U.S., the EU or Japan for that Licensed Compound, the milestone payments achieved for the next most advanced subsequent Licensed Compound in Development, will be waived for any previously paid milestone payments for that discontinued Licensed Compound.

 

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(iv) [***].

(v) [***].

(vi) [***].

(vii) [***].

(viii) [***].

(ix) [***].

(x) [***].

(xi) [***].

(xii) [***].

8.2.2 Sales-Based Milestones. The following sales based milestone payments shall be payable by Company to BMS when the annual worldwide Net Sales in a calendar year of Licensed Product by Company, its Affiliates and Sublicensees first reach or exceed the specified thresholds:

 

Annual Worldwide Net Sales		Milestone Payment
$[***]		$	[***]
$[***]		$	[***]
$[***]		$	[***]
$[***]		$	[***]
Total		$	50 million

Such milestone payments shall be payable one-time for a particular Licensed Product within [***] following the end of the calendar year after the Licensed Product first reaches the net sales threshold. Each milestone payment shall not be refundable or returnable in any event, nor shall it be creditable against royalties or other payments.

8.3 Sublicense Revenue Sharing. In addition to the milestones and royalty payments set forth in Sections 8.2 and 8.4, Company shall pay to BMS the following percentage of all Sublicense Revenues Company receives in connection with any Sublicense or any assignment of rights to the BMS Patents, the Licensed Compounds and/or Licensed Products, depending on the stage of Development of the most advanced Licensed Compound or Licensed Product that is subject to the applicable Sublicense or such assignment:

 

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DEVELOPMENT STAGE OF LICENSED COMPOUND OR LICENSED PRODUCT AS OF THE DATE OF THE SUBLICENSE

[***]

[***]

[***]

PERCENT OF SUBLICENSE REVENUES PAYABLE TO BMS

[

***]%

[

***]%

[

***]%

 

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		DEVELOPMENT STAGE OF LICENSED COMPOUND OR LICENSED PRODUCT AS OF THE DATE OF THE ASSIGNMENT
		[***]				[***]
PERCENT OF SUBLICENSE REVENUES PAYABLE TO BMS			[	***]%			[	***]%

Notwithstanding the foregoing, in the event Sublicense Revenue received by Company from a Sublicensee is for the same milestone event or royalty tier that Company pays BMS under this Agreement, the percent stated in the tables above shall apply only to Sublicense Revenue that is [***] the payment Company pays to BMS for the same milestone event or royalty tier under this Agreement ([***]).

[***]

For clarity, the percent stated in the above tables shall apply to any particular Sublicense Revenue that is not included in the Agreement (e.g., the upfront payment from the Sublicensee or a milestone payment for a milestone event not included in the Agreement).

8.4 Royalty Payments.

8.4.1 Subject to the terms of this Agreement Company shall pay to BMS tiered royalties based on the total annual worldwide Net Sales in the Territory of each Licensed Product (including all indications and formulations for such Licensed Product) during the applicable Royalty Term for such Licensed Product. The royalty payable with respect to each particular Licensed Product shall be calculated by multiplying the applicable royalty rate below by the portion of total annual worldwide Net Sales in the applicable tier in a Calendar Year of the applicable Licensed Product by Company, its Affiliates, and Sublicensees in the Territory, as follows.

 

Portion of total annual worldwide Net Sales in a Calendar Year for such Licensed Product that falls within the following tiers:		Royalty Rate
[***]			[***]	%
[***]			[***]	%
[***]			[***]	%

[***]

 

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8.4.2 Royalty Term. Royalties shall be payable on a Licensed Product-by-Licensed Product and country-by-country basis on Net Sales of Licensed Products from the First Commercial Sale of a particular Licensed Product in a country until the later of (i) ten (10) years after the First Commercial Sale of such Licensed Product in such country, (ii) the expiration of the last to expire Valid Claim in the BMS Patent Rights that would be infringed by the manufacture, use, sale, importation or offer for sale in such country of a given Licensed Product (including by reasons of extensions thereof under applicable Laws, including patent term extensions, pediatric exclusivity or supplemental protection certificates or their equivalents in any country), or (iii) the expiration of any regulatory or marketing exclusivity for such Licensed Product in such country, including but not limited to any data exclusivity (the “Royalty Term”); provided that, if (ii) does not apply or no longer applies, the royalty payable by Company to BMS for the remainder (if any) of the Royalty Term with respect to such Licensed Product shall be determined by a royalty rate equal to [***] percent ([***]%) of the royalty rate set forth in Section 8.4.1.

8.4.3 Royalty Conditions. The royalties under Section 8.4.1 shall be subject to the following conditions:

(a) only one royalty shall be due with respect to the same unit of Licensed Product;

(b) no royalties shall be due upon the sale or other transfer among any Related Party, but in such cases the royalty shall be due and calculated upon the Related Party’s Net Sales of Licensed Product to the first non-Related Party; and

(c) no royalties shall accrue on the disposition of Licensed Product in reasonable quantities by any Related Party as part of an expanded access program or as bona fide samples or as donations to non-profit institutions or government agencies for non-commercial purposes or for the performance of clinical trials, provided, in each case, that such Related Party does not receive any payment for such Licensed Product exceeding the cost of goods.

8.4.4 Royalty Reduction.

(a) If (i) Company, in its reasonable judgment, determines that it is required to obtain a license from any Third Party in order to avoid infringement of such Third Party’s Patent Rights as a result of the practice of the BMS Patent Rights and/or the BMS Know-How in connection with the Development and/or Commercialization (but excluding manufacturing) of any Licensed Product, (ii) such Third Party’s Patent Rights [***], and (iii) Company is required to pay to such Third Party a royalty or milestone payments in consideration for the grant or maintenance of such license (“Third Party Compensation”), then the amounts that would otherwise have been payable as royalties to BMS under this Agreement shall be reduced by [***] percent ([***]%) of all Third Party Compensation payable by or on behalf of Company to such Third Party, provided that, in no event shall the royalty reductions described in this Section 8.4.4(a) act to reduce the royalties payable by Company to less than [***] percent ([***]%) of the amounts payable by Company for a given [***] pursuant to Section 8.4.1.

 

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(b) If, during the Royalty Term in a particular country where one or more Generic Products with respect to a Licensed Product are sold in that country, the royalty rates set out in Section 8.4.1 shall be reduced:

(i) by [***], in the event that in any calendar quarter such Generic Product(s), by unit equivalent volume in such country, exceed a [***] share of the market;

(ii) by [***], in the event that in any calendar quarter such Generic Product(s), by unit equivalent volume in such country, exceed a [***] share of the market; and

(iii) by [***], in the event that in any calendar quarter such Generic Product(s), by unit equivalent volume in such country, exceed a [***] share of the market.

(c) Notwithstanding the foregoing, in no event shall the royalty reductions described in this Section 8.4.4 act to reduce the royalties payable by Company to less than [***].

8.4.5 Forecast. The Company shall provide on or before September 30 of each Calendar Year a non-binding good faith forecast of sales and royalties for the entire current and next Calendar Year.

8.4.6 Effect of Patent Challenge. In the event Company (or any of its Affiliates or Sublicensees) challenges or knowingly assists (other than in response to a subpoena or court order), including without limitation by providing information, documents, advice, and/or funding, a challenge to the validity, scope, patentability or enforceability of any of the BMS Patent Rights, and such challenge is unsuccessful either because (i) Company files a suit or initiates another legal proceeding challenging the validity or enforceability of any such BMS Patent Right and then withdraws or terminates the suit or proceeding, (ii) any challenged claim that would be infringed but for the license has been upheld, even in amended form, as determined by a court of competent jurisdiction or other legal tribunal, or (iii) Company, in connection with such challenge, fails to produce reasonably credible evidence demonstrating the invalidity or unenforceability of all applicable patent claims in the BMS Patent Rights in such country; then the royalty rates set forth in Section 8.4.1 above shall be increased by [***] of the percentages set forth above ([***]), retroactively effective to the date that such suit or other legal proceeding was filed or otherwise formally initiated.

8.5 Manner of Payment. All payments to be made by Company under this Agreement shall be made in U.S. Dollars by electric fund transfer of immediately available funds to such bank account as shall be designated by BMS. Late payments shall bear interest at the rate provided in Section 8.10.

 

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8.6 Sales Reports and Royalty Payments. After the First Commercial Sale of a Licensed Product and during the term of this Agreement, Company shall furnish to BMS a written report, within [***] days after the end of each [***] (or portion thereof, if this Agreement terminates during a [***]), showing the amount of royalty due for such [***] (or portion thereof). Royalty payments for each [***] shall be due at the same time as such written report for the [***]. With each [***] payment, Company shall deliver to BMS a full and accurate accounting to include at least the following information:

8.6.1 the total gross sales for each Licensed Product (by country) by Company and its applicable Related Parties, if any, and the calculation of Net Sales from such gross sales;

8.6.2 the deductions by category of permitted deductions set forth in the Net Sales definition;

8.6.3 the total Net Sales for each Licensed Product (by country) by Company and its applicable Related Parties, if any, and the calculation of Net Sales from such gross sales;

8.6.4 the calculation of royalties payable in Dollars which shall have accrued hereunder in respect of such Net Sales;

8.6.5 withholding taxes, if any, required by applicable Law to be deducted in respect of such royalties; and

8.6.6 the exchange rates used in determining the amount of Dollars payable hereunder.

If no royalty or payment is due for any royalty period hereunder, Company shall so report.

8.7 Sales Record Audit.

8.7.1 Company shall keep, and shall cause each of its applicable Related Parties, if any, to keep, complete, true and accurate books of accounts and records in accordance with GAAP, including gross sales in accordance with GAAP and any deductions thereto in accordance with this Agreement’s Net Sales definition in connection with the calculation of Net Sales, sufficient to determine and establish the amounts payable incurred under this Agreement, and compliance with the other terms and conditions of this Agreement.

8.7.2 Such books of accounting of Company and its Affiliates shall be kept at their principal place of business and, with all necessary supporting data and records, shall during all reasonable times for the [***] next following the end of the Calendar Year to which each shall pertain, be open for inspection not more than [***] per Calendar Year at reasonable times by an independent certified public accountant selected by BMS and as to which Company has no reasonable objection, at BMS’ expense, for the purpose of verifying royalty statements and payments for compliance with this Agreement for any period within the preceding [***].

8.7.3 Company shall include in its Sublicense Agreements with any Sublicensees, a right for Company to inspect or have such an accountant inspect, not more than [***] during any Calendar Year, the books of accounting and such supporting data and records of such Sublicensees for the purpose of verifying royalty statements and payments for compliance with this Agreement for any period within the preceding [***].

 

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8.7.4 Results of any inspection under Section 8.7.2 or 8.7.3 shall be made available to both Company and BMS. The independent, certified public accountant shall disclose to BMS only the amounts that the independent auditor believes to be due and payable hereunder to BMS, details concerning any discrepancy from the amount paid (including the reasons therefor) and the amount due, and shall disclose no other information revealed in such audit.

8.7.5 Such accountant must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to BMS such compliance or noncompliance by Company, and any applicable Related Parties (who must agree in the Sublicense Agreement that such audit report may be disclosed to BMS). The results of each inspection, if any, shall be binding on both Parties. BMS shall pay for such inspections, except that in the event there is any upward adjustment in aggregate royalties payable for any Calendar Year shown by such inspection of more than [***] of the amount paid, Company shall pay for such inspection. Any underpayments shall be paid by Company within [***] days after notification of the results of such inspection. Any overpayments shall be fully creditable against amounts payable in subsequent payment periods. If no further royalty payments are owed to BMS, BMS shall reimburse Company for the amount of the overpayment within [***] days.

8.8 Currency Exchange. The Company’s then current standard exchange rate methodology will be employed for the translation of foreign currency sales into Dollars, provided such methodology is used by the Company in the translation of its foreign currency operating results, is consistent with GAAP, and is audited by the Company’s independent certified public accountants in connection with the audit of the consolidated financial statements of Company, and is used for the Company’s external reporting of foreign currency operating results.

8.9 Taxes.

8.9.1 Each Party will pay any and all taxes levied on account of all payments it receives under this agreement.

8.9.2 If laws or regulations require that taxes be withheld with respect to any royalty payments by Company to BMS under this Agreement, Company will: (a) deduct those taxes from the remittable payment, (b) pay the taxes to the proper taxing authority, and (c) send evidence of the obligation together with proof of tax payment to BMS within [***] days following that tax payment. Each Party agrees to cooperate with the other Party in claiming refunds or exemptions from such deductions or withholdings under any relevant agreement or treaty which is in effect. The Parties shall discuss applicable mechanisms for minimizing such taxes to the extent possible in compliance with applicable Laws. BMS will pay any and all taxes levied on account of all payments it receives under this Agreement; provided, that notwithstanding the foregoing, in the event that payments are made by Company other than from the mainland U.S. (e.g., as a result of an assignment under Section 15.4.2), then Company shall, in addition to complying with the foregoing, pay an amount to BMS such that when any taxes that are required to be withheld have been deducted, BMS receives that amount it would have received had the payment been made from the mainland U.S.

 

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8.9.3 The Parties shall cooperate in accordance with applicable Laws to minimize indirect taxes (such as value added tax, sales tax, consumption tax and other similar taxes) in connection with this Agreement.

8.10 Interest Due. Without limiting any other rights or remedies available to BMS, Company shall pay BMS interest on any payments that are not paid on or before the date such payments are due under this Agreement at a rate of [***] per month or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.

8.11 Company Financial Report. Until Designated Approval of the first Licensed Product, Company shall send BMS (to the contact as specified in writing by BMS) an updated then-current financial statement for Company for each Calendar Year within [***] days following the end of such Calendar Year. The first such report shall be due with respect to partial Calendar Year ended December 31, 2017, provided such first report shall be unaudited.

ARTICLE 9

REPRESENTATIONS AND WARRANTIES;

DISCLAIMER; LIMITATION OF LIABILITY

9.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party that, as of the Effective Date: (i) it is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, (ii) execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized, (iii) this Agreement has been duly executed and delivered on behalf of such Party, and is legally binding and enforceable on each Party in accordance with its terms, (iv) the performance of this Agreement by it does not create a breach or default under any other agreement to which it is a Party, (v) the execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it is bound, nor violate any Law or regulation of any court, governmental body or administrative or other agency having jurisdiction over such Party, (vi) no government authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any Laws currently in effect, is or will be necessary for, or in connection with, the transaction contemplated by this Agreement or any other agreement or instrument executed in connection herewith, or for the performance by it of its obligations under this Agreement and such other agreements, and (vii) neither such Party, nor any of its employees, officers, subcontractors, or consultants who have rendered services relating to the Licensed Compounds: (a) has ever been debarred or is subject to debarment or convicted of a crime for which an entity or person could be debarred by the FDA under 21 U.S.C. Section 335a or (b) has ever been under indictment for a crime for which a person or entity could be so debarred.

 

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9.2 Representations, Warranties, and Covenants of BMS. BMS represents and warrants to Company that, as of the Effective Date:

9.2.1 BMS owns and Controls the BMS Patent Rights and BMS Know-How and has the full power and authority to grant the licenses under this Agreement, and no rights granted to Company pursuant to this Agreement are in violation of any existing agreement between BMS or any of its Affiliates and any Third Party;

9.2.2 there is no pending litigation or proceeding, or litigation or proceeding that has been threatened in writing, which alleges, or any written communication alleging, that BMS’ activities with respect to the research, Development or manufacture of the Licensed Compounds prior to the Effective Date have infringed or misappropriated, or would infringe or misappropriate, any of the intellectual property rights of any Third Party;

9.2.3 no Third Party has challenged in writing, and there is no pending litigation or proceeding, or litigation or proceeding that has been threatened in writing challenging, the ownership, scope, duration, validity, enforceability, priority or right to use any BMS Patent Rights (including, by way of example, through the institution of or written threat of institution of interference, inter partes review, reexamination, protest, opposition, nullity or similar invalidity proceeding before the United States Patent and Trademark Office or any foreign patent authority or court);

9.2.4 To BMS’ Knowledge, the BMS Patent Rights are valid and enforceable;

9.2.5 all fees required to be paid by BMS in any jurisdiction in order to maintain the Patent Rights licensed to Company hereunder have, to BMS’ Knowledge, been timely paid as of the Effective Date and, to BMS’ Knowledge, the claims included in any issued patents included in such Patent Rights are in full force and effect as of the Effective Date;

9.2.6 BMS has not previously assigned, transferred, conveyed, or granted any license or other rights to its right, title and interest in the BMS Patent Rights or the BMS Know-How, in any way that would conflict with or limit the scope of any of the rights or licenses granted to Company hereunder;

9.2.7 BMS’ right, title and interest to all the BMS Patent Rights are free of any lien or security interest;

9.2.8 none of the BMS Patent Rights listed in Appendix 1 is licensed from a Third Party and BMS is not subject to any contractual payment or other obligations to any Third Party as a result of the execution of this Agreement or the Development, manufacture or Commercialization of the Licensed Compounds and/or Licensed Products in the Field in the Territory;

9.2.9 none of the BMS Patent Rights, nor any of the Licensed Compounds or Licensed Products, were Developed using any U.S. Government or agency funding and are not subject to any obligations or restrictions under 35 USC §200-212 and 37 CFR 401;

9.2.10 except as set forth in Appendix 1, BMS and its Affiliates do not own or control any other Patent Rights that are necessary or, to BMS’s Knowledge as of the Effective Date, reasonably useful to carry out the Development of Licensed Compounds and/or Licensed Products as contemplated by the Development Plan attached as Appendix 2 hereto;

 

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9.2.11 subject to Section 3.1.2, to BMS’ Knowledge, the documents, data and information that are included in the BMS Know-How transferred to Company pursuant to Section 3.1 constitute all of the Know-How owned or Controlled by BMS that is reasonably necessary or useful for the Development or manufacture of the Licensed Compounds in accordance with the terms of this Agreement;

9.2.12 to BMS’ Knowledge, the BMS Patent Rights and BMS Know-How and the exercise of Company’s rights in connection therewith as contemplated by this Agreement, and the Licensed Compounds and Licensed Products as contemplated by this Agreement, including the use of the Licensed Compounds and Licensed Products by BMS prior to the Effective Date, did not and do not infringe, violate or misappropriate the intellectual property rights of any Third Party; and

9.2.13 to BMS’ Knowledge, BMS is not conducting any clinical Development of a Competitive Compound and is not actively exchanging written term sheets or draft agreements with a Third Party to in-license a Competitive Compound.

9.3 Representations and Warranties of Company. Company represents, warrants and covenants that

9.3.1 it shall not engage in any activities that use the BMS Patent Rights and/or BMS Know-How in a manner that is outside the scope of the license rights granted to it hereunder;

9.3.2 all of its activities related to its use of the BMS Patent Rights and BMS Know-How, and the research, Development and Commercialization of the Licensed Compounds and/or Licensed Products, pursuant to this Agreement shall comply with all applicable Law;

9.3.3 prior to filing the first drug application (i.e., an NDA or its foreign equivalent) for a Licensed Product, Company to its knowledge shall have all licenses that are necessary in order for the manufacture, use or sale of such Licensed Product not to infringe the intellectual property of any Third Party known to Company as of such date, but excluding licenses applicable to any Third Party issued patents for which Company shall have obtained a well-reasoned, written opinion of an outside patent attorney that Company’s activities under the scope of this Agreement are not reasonably likely to infringe any Valid Claim of such Third Party issued patent; and

9.3.4 it has sufficient resources, including without limitation, qualified personnel and contractors with the requisite skill and expertise, to Develop and Commercialize the Licensed Compounds and Licensed Products in accordance with the terms of this Agreement.

9.4 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR

 

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PURPOSE WITH RESPECT TO ANY LICENSED COMPOUNDS, LICENSED PRODUCTS, TRANSFERRED MATERIALS, THE BMS PATENT RIGHTS OR BMS KNOW-HOW OR ANY RIGHT OR LICENSE GRANTED BY BMS HEREUNDER, AND NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY BY BMS THAT ANY PATENT OR OTHER PROPRIETARY RIGHTS INCLUDED IN THE BMS PATENT RIGHTS ARE VALID OR ENFORCEABLE OR THAT USE OF THE BMS PATENT RIGHTS, BMS KNOW-HOW AND TRANSFERRED MATERIALS CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

9.5 Limitation of Liability. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL, OR LOSS OF BUSINESS); PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO ANY BREACH BY A PARTY OF ARTICLE 11 HEREOF, TO A BREACH BY COMPANY OF SECTION 5.6, THE WILLFUL BREACH, WILLFUL MISCONDUCT, OR GROSS NEGLIGENCE BY A PARTY, OR FOR AMOUNTS SOUGHT BY THIRD PARTIES IN CLAIMS THAT ARE SUBJECT TO THE PARTIES’ RESPECTIVE INDEMNITY OBLIGATIONS UNDER ARTICLE 12. EXCEPT FOR AMOUNTS SOUGHT BY THIRD PARTIES IN CLAIMS THAT ARE SUBJECT TO BMS’ INDEMNITY OBLIGATIONS UNDER ARTICLE 12, BMS SHALL NOT BE LIABLE FOR ANY DAMAGES OF ANY KIND (INCLUDING DIRECT DAMAGES) IN AN AMOUNT GREATER THAN [***]. FOR THE AVOIDANCE OF DOUBT, THE FOREGOING LIMITATION SHALL NOT APPLY TO OR LIMIT ANY INFRINGEMENT CLAIM BROUGHT BY A PARTY UNDER THE PATENT LAWS OF ANY COUNTRY.

ARTICLE 10

PATENT MAINTENANCE; INFRINGEMENT; PATENT

EXTENSIONS

10.1 Inventions. Inventorship of inventions conceived or reduced to practice in the course of research and other Development activities under this Agreement shall be determined by application of United States patent Laws pertaining to inventorship. If such inventions are jointly invented in the course of such Development activities by one or more employees or consultants or contractors of both Parties, such inventions shall be jointly owned (“Joint Invention”), and if one or more claims included in an issued patent or pending patent application which is filed in a patent office in the Territory claim such Joint Invention, such patent or patent application shall be jointly owned (“Joint Patent Rights”) provided that, BMS’ interest in any Joint Patent Rights shall be deemed to be and included within the BMS Patent Rights. If such an invention is solely invented by an employee or consultant of a Party, such invention shall be solely owned by such Party, and any patent filed claiming such solely owned invention shall also be solely owned by such Party,

 

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provided that, any such patent filed claiming an invention solely invented by an employee or consultant of BMS shall be deemed to be and included within the BMS Patent Rights. This Agreement shall be understood to be a joint research agreement in accordance with 35 U.S.C. § 103(c), as amended, to develop the Licensed Compounds and/or Licensed Products. Each Party shall enter into binding agreements obligating all employees and consultants performing activities under or contemplated by this Agreement, including activities related to the BMS Patent Rights, Licensed Compounds or Licensed Products, to assign his/her interest in any invention conceived or reduced to practice in the course of such activities to the Party for which such employee or consultant is providing its services. With respect to contractors, Company shall use good faith and reasonable efforts to secure an agreement from such contractor to assign or license (with the right to sublicense) to Company inventions (and patent rights covering such inventions) made by such contractor in performing such services for Company.

10.2 Filing, Prosecution and Maintenance of BMS Patent Rights. Company will have lead responsibility, using outside patent counsel selected by Company (such determination and outside patent selection to be subject to BMS’ approval, such approval not to be unreasonably withheld, delayed or conditioned), for the preparation, prosecution (including any interferences, reissue proceedings and reexaminations) and maintenance of the BMS Patent Rights (including the Joint Patent Rights). Company shall be responsible for the costs incurred with respect to the filing, prosecution and maintenance of the BMS Patent Rights. Company shall provide BMS with [***] updates of the filing, prosecution and maintenance status for each of the BMS Patent Rights, and shall within a reasonable period of time, but at least [***] days prior to the deadline to respond (and earlier if practicable) provide copies of any material and/or substantive official correspondence to or from patent offices. The Parties shall reasonably consult with and cooperate with respect to the preparation, prosecution, defense and maintenance of the BMS Patent Rights, including by providing assistance as described in Section 3.2, and will confer regarding where to prosecute the BMS Patent Rights. Company shall not take any action during prosecution and maintenance of the BMS Patent Rights that would materially adversely affect them (including reduction in claims scope), without BMS’ prior express written consent (which consent shall be considered to be given if Company notifies BMS of proposed claim amendments or cancellations and BMS fails to object within [***] days of such notification). BMS shall not take any action with respect to any BMS Patent Rights while Company is responsible for the prosecution and maintenance of such BMS Patent Rights, that would adversely affect such BMS Patent Rights (including express abandonment thereof), without Company’s prior express written consent. Company may file a notice with governmental patent offices of the exclusive license to the BMS Patent Rights granted to Company hereunder. Post-grant proceedings involving the BMS Patent Rights, including oppositions, cancellations, inter partes review, and the like, shall be conducted by Company at the expense of Company, and Company shall within a reasonable period of time notify BMS of the initiation of such proceeding (or vice versa) and BMS shall reasonably cooperate with Company in any such proceeding, and Company shall give BMS the reasonable opportunity to participate, [***], and BMS shall also participate and appear as necessary under the applicable rules governing the proceeding. Any settlement or compromise of such post-grant proceeding shall be subject to the approval of BMS, which approval shall not be unreasonably withheld, delayed or conditioned.

 

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10.3 Patent Abandonment.

10.3.1 The Parties will confer and must mutually agree before any of the BMS Patent Rights may be abandoned in any Major Market Country; provided that BMS shall not unreasonably withhold, delay or condition its consent to a request by Company to abandon a BMS Patent Right if such abandonment will not adversely affect the amount or duration of any royalty payable to BMS hereunder. Company shall provide BMS with notice of the allowance and expected issuance date of any patent within the BMS Patent Rights, or any of the deadline for filing a new patent application, and BMS shall provide Company with prompt notice as to whether BMS desires Company to file such new patent application.

10.3.2 Subject to Section 10.3.1, in the event that Company decides either (a) not to continue the prosecution or maintenance of a patent application or patent within the BMS Patent Rights in any country, or (b) not to file any new patent application requested to be filed by BMS, Company shall provide BMS with express written notice of this decision at least [***] days prior to any pending lapse or abandonment thereof, or if a decision not to continue prosecution or maintenance is responsive to an official communication from governmental agency that is received by Company less than [***] days prior to a deadline for taking action in response thereto, then the deadline for giving such notice to BMS shall be [***]% of the time remaining for response after such communication is received by Company. In such event, provided that the Parties have not expressly agreed to abandon a patent or not file a patent application under Section 10.3.1, then Company shall provide BMS with an opportunity to assume responsibility for all external costs reasonably associated with the filing and/or further prosecution and maintenance of such patent application and any patent issuing thereon (such filing to occur prior to the issuance of the patent to which the application claims priority or expiration of the applicable filing deadline, as set forth above). In the event that BMS assumes such responsibility for such filing, prosecution and maintenance costs, Company shall transfer the responsibility for such filing, prosecution and maintenance of such patent applications and patents to BMS and, except with respect to any Joint Patent Rights in which Company will retain its joint ownership interest as set forth in Section 10.1, Company shall no longer have any right or license in and to such patent application and patents issuing therefrom under this Agreement. In such case, Company shall provide BMS with an update of the filing, prosecution and maintenance status for each of such patent applications and patents, including copies of any material official correspondence to or from patent offices. Company shall reasonably consult with and cooperate with BMS with respect to the preparation, prosecution and maintenance of such patent applications and patents. Company shall not take any action during prosecution and maintenance of the BMS Patent Rights that would materially adversely affect them, without BMS’ prior express written consent, such consent not to be unreasonably withheld, delayed or conditioned if such action will not adversely affect the amount or duration of any royalty payable to BMS, and which consent shall be considered to be given if Company notifies BMS of proposed claim amendments or cancellations and BMS fails to object within [***] days of such notification.

10.4 Enforcement of BMS Patent Rights against Infringers.

10.4.1 Enforcement by Company. In the event that BMS or Company becomes aware of a suspected infringement of any BMS Patent Right in the Field, including actual or alleged infringement under 35 USC §271(e)(2) that is or would be infringing activity involving the using, making, importing, offering for sale or selling of articles that the Party reasonably

 

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believes infringes any of the Patent Rights conferred under this Agreement, such Party shall within a reasonable period of time notify the other Party , including all information available to such Party with respect to such alleged infringement, and following such notification, the Parties shall confer. Company shall have the first right, but shall not be obligated, to bring an infringement action for suspected infringement in the Field at its own expense, in its own name and entirely under its own direction and control, subject to the following: (a) BMS shall reasonably assist Company (at Company’s expense) in any action or proceeding being prosecuted for suspected infringement in the Field if so requested, including by being named or joined as a plaintiff to such actions or proceedings if requested by Company or required by Law, (b) BMS shall have the right to participate and be represented in any such suit by its own counsel [***] provided that Company shall continue to direct and control such actions or proceedings, (c) no settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right in the Field may be entered into by Company without the prior written consent of BMS, which consent shall not be unreasonably withheld, delayed or conditioned, and further, no settlement of any such action or proceeding which pertains to the infringement of the BMS Patent Rights by virtue of the Development or Commercialization of a Licensed Compound in the Field by a Third Party that is not a Sublicensee may be entered into by Company without the prior written consent of BMS, which consent shall not be unreasonably withheld, delayed or conditioned.

10.4.2 Timing; Enforcement by BMS. Company will have a period of [***] days after its receipt or delivery of notice and evidence pursuant to Section 10.4.1 or receipt of written notice from a Third Party that reasonably evidences such infringement of the BMS Patent Rights, to elect to so enforce such BMS Patent Rights in the applicable jurisdiction (or to settle or otherwise secure the abatement of such infringement in accordance with Section 10.4.1), provided however, that such period will be (i) more than [***] days to the extent applicable Law prevents earlier enforcement of such BMS Patent Right (such as the enforcement process set forth in or under the Hatch-Waxman Act), and provided further that if such period is extended because applicable Law prevents earlier enforcement, Company shall have until the date that is [***] days following the date upon which applicable Law first permits such proceeding, and (ii) less than [***] days to the extent that a delay in bringing such proceeding against such alleged Third Party infringer would limit or compromise the remedies (including monetary relief, and stay of regulatory approval) available against such alleged Third Party infringer. In the event Company does not so elect (or settle or otherwise secure the abatement of such infringement) before the first to occur of (A) the expiration of the applicable period of time set forth in the preceding subsections (i) and (ii), or (B) [***] days before the expiration of any time period under applicable Law, that would, if a proceeding was not filed within such time period, limit or compromise the remedies available from such proceeding, it will so notify BMS in writing and in the case where BMS then desires to commence a suit or take action to enforce the applicable BMS Patent Right in the applicable jurisdiction, BMS will thereafter have the right to commence such a suit or take such action to enforce the applicable BMS Patent Right, as applicable, [***], provided that BMS shall first consult with Company concerning the reasons Company elected not to bring such action and shall consider those reasons in good faith in deciding whether to bring such action. Company shall reasonably assist BMS ([***]) in any action or proceeding being prosecuted if so requested, including by being named or joined as a plaintiff to such actions or proceedings if requested by BMS or required by Law. Company shall have the right to participate and be represented in any such suit by its own counsel [***]. No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right may be entered into by BMS without the prior written consent of Company, which consent shall not be unreasonably withheld, delayed or conditioned.

 

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10.4.3 Withdrawal. If either Party brings an action or proceeding under this Section 10.4 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall within a reasonable period of time notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 10.4.

10.4.4 Damages. In the event that either Party exercises the rights conferred in this Section 10.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall [***].

10.5 Infringement of Third Party Rights

10.5.1 The Parties will within a reasonable period of time notify each other of any allegation that any activity under this Agreement infringes or may infringe the intellectual property rights of any Third Party.

10.5.2 In any legal allegation related to the infringement of a Third Party intellectual property right, Company will have the first right to control, at its expense, the defense of such allegation. BMS will have the right, [***] and with its own choice of counsel, to be represented in the defense of the allegation.

10.5.3 The Parties will reasonably cooperate with each other in all respects with all matters related to the defense of any legal allegation under this section.

10.6 Patent Extensions. BMS and Company shall each reasonably cooperate with one another and shall use Commercially Reasonable Efforts in obtaining patent term extension (including any pediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in any country with respect to Patent Rights covering the Licensed Products. If elections with respect to obtaining such patent term extensions are to be made, Company shall have the right, [***], to make the election to seek patent term extension or supplemental protection with respect to the Patent Right for which such extension or supplemental protection should be sought, provided that Company shall use Commercially Reasonable Efforts to make such election so as to maximize the period of marketing exclusivity for the Licensed Product. For such purpose, for all Approvals Company shall provide BMS with written notice of any expected Approval at least [***] days prior to the expected date of Approval, as well as notice within [***] Business Days following receipt of each Approval confirming the date of such Approval. Notification of the receipt of an Approval shall be in accordance with Section 15.2 except that the notification shall be sent to:

Bristol-Myers Squibb Company

P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000

Attention: Vice President and Chief Patent Counsel

Telephone: [***]

Facsimile: [***]

 

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10.7 Data Exclusivity and Orange Book Listings. With respect to data exclusivity periods (including any available pediatric extensions) or periods under national implementations of Article 10.1 of Directive 2001/EC/83 (and all international equivalents), Company shall use Commercially Reasonable Efforts consistent with its obligations under applicable Law to seek, maintain and enforce all such data exclusivity periods available for the Licensed Products. With respect to patent listing filings in any FDA Orange Book (and equivalents) for issued patents for a Licensed Product, Company shall, consistent with its obligations under applicable Law, list in a timely manner and maintain all applicable BMS Patent Rights. At least [***] days prior to an anticipated deadline for the filing of patent listing information for BMS Patent Rights, Company shall consult with BMS regarding the content of such filing, and shall consider BMS’s comments in good faith, provided that Company shall have the final decision right with respect to such filing, including the Patent Rights to be listed in any FDA Orange Book or equivalent. BMS shall provide, consistent with its obligations under applicable Law, reasonable cooperation to Company in filing and maintaining such Orange Book (and foreign equivalent) listings.

10.8 Notification of Patent Certification. Company shall notify and provide BMS with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a BMS Patent Right pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) or other similar patent certification by a Third Party, and any foreign equivalent thereof. Such notification and copies shall be provided to BMS within [***] days after Company receives such certification, and shall be sent to the address set forth in Section 10.4. Notwithstanding the foregoing, any such Paragraph IV Patent Certification shall be deemed to be an act of infringement hereunder of the BMS Patent Rights by a Third Party in the Field subject to the enforcement provisions of Section 10.4.

10.9 No Conflict Actions. BMS shall not be required to take any action pursuant to Sections 10.4, 10.7 or 10.8 that BMS reasonably determines in its sole judgment and discretion conflicts with or violates any court or government order or decree that BMS is then subject to or otherwise may create legal liability on the part of BMS.

10.10 Assignment of BMS Patent Rights. Notwithstanding any provision in this Agreement to the contrary, BMS shall have the right to transfer or assign ownership of any BMS Patent Rights as long as any such transfer or assignment is made expressly subject to the rights and licenses granted to Company under this Agreement and the transferee or assignee of the transferred or assigned BMS Patent Rights agrees in writing to prepare, prosecute, enforce and maintain such BMS Patent Rights in accordance with the terms of this ARTICLE 10.

 

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ARTICLE 11

NONDISCLOSURE OF CONFIDENTIAL INFORMATION

11.1 Nondisclosure. Each Party agrees that, for so long as this Agreement is in effect and for a period of [***] years thereafter, a Party receiving Confidential Information of the other Party (or that has received any such Confidential Information from the other Party prior to the Effective Date) shall (i) maintain in confidence such Confidential Information using not less than the efforts such Party uses to maintain in confidence its own proprietary industrial information of similar kind and value, (ii) not disclose such Confidential Information to any Third Party without the prior written consent of the other Party, except for disclosures expressly permitted below, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement (it being understood that this clause (iii) shall not create or imply any rights or licenses not expressly granted under Article 2).

11.2 Exceptions. The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information that the receiving Party can show by competent proof:

11.2.1 is publicly disclosed by the disclosing Party, either before or after it is disclosed to the receiving Party hereunder; or

11.2.2 was known to the receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the disclosing Party; or

11.2.3 is subsequently disclosed to the receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and is disclosed without any obligation to keep it confidential or any restriction on its use; or

11.2.4 is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the receiving Party; or

11.2.5 has been independently developed by employees or contractors of the receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the disclosing Party.

11.3 Authorized Disclosure. The receiving Party may disclose Confidential Information belonging to the other Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances:

11.3.1 filing or prosecuting patents as set forth in this Agreement;

11.3.2 Company’s research, Development or Commercialization (including any import, manufacture, use, offer for sale, or sale) activities, including Company’s regulatory filings, with respect to Licensed Compounds and/or Licensed Product, including any Approvals or applications therefor;

11.3.3 prosecuting or defending litigation in relation to the BMS Patent Rights, BMS Know How or this Agreement, including responding to a subpoena in a Third Party litigation, provided it has used good faith and reasonable efforts to obtain a protective order for such Confidential Information;

 

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11.3.4 subject to Section 11.4, complying with applicable Laws (including the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the receiving Party’s counsel, such disclosure is necessary for such compliance; provided, however, that except where impracticable, the receiving Party shall give the disclosing Party reasonable advance notice of such disclosure requirement (which shall include a copy of any applicable subpoena or order) and shall afford the disclosing Party a reasonable opportunity to oppose, limit or secure confidential treatment for such required disclosure, and in the event of any such required disclosure, the receiving Party shall disclose only that portion of the Confidential Information of the disclosing Party that the receiving Party is legally required to disclose;

11.3.5 disclosure, in connection with the performance of this Agreement and solely on a “need to know basis”, to Affiliates, existing or potential collaborators (including existing or potential co-marketing and co-promotion contractors), research collaborators, employees, consultants, or agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 11; provided, however, that the receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article 11 to treat such Confidential Information as required under this Article 11; and

11.3.6 made by such Party to existing or potential acquirers or merger candidates; investment bankers; public and private sources of funding; existing or potential investors, venture capital firms or other financial institutions or investors for purposes of obtaining financing, provided that such Party has used good faith and reasonable efforts to secure an agreement from any such Third Party to be bound by obligations of confidentiality and restrictions on use of Confidential Information that are no less restrictive than the obligations in this Agreement.

If and whenever any Confidential Information is disclosed in accordance with this Section 11.3, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 11.4, the receiving Party shall notify the disclosing Party of the receiving Party’s intent to make such disclosure pursuant to this Section 11.3 sufficiently prior to making such disclosure so as to allow the disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

11.4 Terms of this Agreement. The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. For the avoidance of doubt, this Section 11.4 shall in no way prevent a Party from disclosing the existence of this Agreement or any terms of this Agreement in order to seek legal advice whenever deemed appropriate by such Party or to enforce such Party’s rights under this Agreement, whether through arbitral proceedings, court proceedings or otherwise, or to defend itself against allegations or claims relating to this Agreement, or to comply with Applicable Law (except as provided in Section 11.5 below) when advised in a written opinion of outside counsel that terms of the Agreement are required to be disclosed to comply with Applicable Law.

11.5 Securities Filings. Notwithstanding anything to the contrary in this Agreement, in the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933,

 

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as amended, the Securities Exchange Act, of 1934, as amended, any other applicable securities Law or the rules of any national securities exchange, the Party shall notify the other Party of such intention and shall use reasonable efforts to provide such other Party with a copy of relevant portions of the proposed filing not less than [***] business days prior to (but in no event later than [***] business days prior to) such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to this Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by counsel is legally required to be disclosed. No such notice shall be required under this Section 11.5 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the either Party hereunder or otherwise approved by the other Party.

11.6 Publication by Company. Company may publish or present data and/or results relating to a Licensed Compound or Licensed Product developed in the Field in scientific journals and/or at scientific conferences, provided that Company shall notify BMS at least [***] days in advance of the intended submission for publication or presentation of any proposed abstract, manuscript or presentation which discloses Confidential Information of BMS or discloses a patentable invention by delivering a copy thereof to BMS. BMS shall have [***] days from its receipt of any such abstract, manuscript or presentation in which to notify Company in writing of any specific, reasonable objections to the disclosure, based on concern regarding the specific disclosure of Confidential Information of BMS, and Company will delete any BMS Confidential Information, and consider any other such objections in good faith, including whether it is necessary or advisable to delete any other information from such proposed publication. Once any such abstract or manuscript is accepted for publication, Company shall provide BMS with a copy of the final version of the manuscript or abstract.

ARTICLE 12

INDEMNITY

12.1 Company Indemnity. Company shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all damages, liabilities, losses, costs and expenses (including reasonable legal expenses, costs of litigation and reasonable attorney’s fees) arising in connection with any claims, suits, proceedings, whether for money damages or equitable relief, of any kind brought by any Third Party (collectively “Losses and Claims”) and arising out of or relating to (a) the research, Development, Commercialization (including promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound or any Licensed Product by or for Company or any of its Affiliates, Distributors, Sublicensees, agents and contractors, including claims and threatened claims based on product liability, bodily injury, risk of bodily injury, death or property damage, infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights (except to the extent such infringement or misappropriation results from a breach of Section 9.2), or the failure to comply with applicable Law related to the matters referred to in this

 

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subsection (a) with respect to any Licensed Compound or any Licensed Product, (b) the prosecution, maintenance, enforcement and defense of the BMS Patents by Company, its Affiliates, Sublicensees, representatives and agents; and/or (c) the gross negligence, recklessness or willful misconduct of Company or its Affiliates or its or their respective directors, officers, employees and agents, in connection with Company’s performance of its obligations or exercise of its rights under this Agreement; except in any such case for Losses and Claims to the extent reasonably attributable to any material breach by BMS of Article 11, or BMS having committed an act or acts of gross negligence, recklessness or willful misconduct, or to the extent BMS has an indemnification obligation to Company pursuant to Section 12.2.

12.2 BMS Indemnity. BMS shall indemnify, defend and hold harmless Company and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all Losses payable to a Third Party based on Claims brought by a Third Party arising out of or relating to (a) a material breach by BMS of Article 11 or the representations, warranties and covenants of BMS set forth in Section 4.1 and/or Article 9, (b) the gross negligence, recklessness or willful misconduct of BMS or its Affiliates or its or their respective directors, officers, employees and agents, in connection with BMS’s performance of its obligations or exercise of its rights under this Agreement, (c) personal injury arising out of the conduct by BMS of Clinical Trials for the Licensed Compound prior to the Effective Date, and/or (d) any Development, use, manufacture, or Commercialization of BMS Reversion Products by BMS following the reversion thereof to BMS pursuant to Section 13.4 in the Territory, including claims and threatened claims based on product liability, bodily injury, risk of bodily injury, death or property damage, infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights arising therefrom, or the failure to comply with applicable Law related to the matters referred to in this subsection (d) with respect to any BMS Reversion Product; except in any such case for Losses and Claims to the extent reasonably attributable to any material breach by Company of Article 11 of this Agreement, failure of Company to comply with Applicable Law with respect to its Development or Commercialization of the Licensed Compounds or Licensed Products, or Company having committed an act or acts of gross negligence, recklessness or willful misconduct, or to the extent Company has an indemnification obligation to BMS pursuant to Section 12.1.

12.3 Indemnification Procedure. A claim to which indemnification applies under Section 12.1 shall be referred to herein as an “Indemnification Claim”. If any Person or Persons (collectively, the “Indemnitee”) intends to claim indemnification under this Article 12, the Indemnitee shall notify the Party subject to the indemnification obligation (the “Indemnitor”) in writing no later than [***] days after becoming aware of any claim that may be an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice). The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such

 

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counsel in such proceedings. If the Indemnitor does not assume the defense of the Indemnification Claim as aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so. The Indemnitee shall not settle or compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise the Indemnification Claim in any manner which would have an adverse effect on the Indemnitee’s interests (including any rights under this Agreement or the scope or enforceability of the BMS Patents Rights or BMS Know-How), without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld, delayed or conditioned if the settlement or compromise would impose no financial or other obligations or burdens on the Indemnitee. The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitor’s expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be subject to Article 11.

12.4 Insurance. Company shall, beginning with the initiation of the first Clinical Trial for a Licensed Product, maintain at all times thereafter during the term of this Agreement, and until the later of (i) [***] years after termination or expiration of this Agreement or (ii) the date that all statutes of limitation covering claims or suits that may be brought for personal injury based on the sale or use of a Licensed Product have expired in all states in the U.S., insurance relating to the Licensed Product from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and for clinical trial and product liability, that is comparable in type and amount to the insurance customarily maintained by Company with respect to similar prescription pharmaceutical products that are marketed, distributed and sold in the Territory; provided that if Company does not market, distribute and sell any such similar pharmaceutical products, such insurance shall be comparable in type and amount to the insurance customarily maintained by a company within the bio-pharmaceutical industry. Company shall name BMS as an additional insured on all related insurance policies. Within [***] days following the initiation of the first Clinical Trial for a Licensed Product, and within [***] days following any material change or cancellation in coverage, Company shall furnish to BMS a certificate of insurance evidencing such coverage as of such date, and in the case of cancellation, provide a certificate evidencing that Company’s replacement coverage meets the requirements in the first sentence of this Section 12.4. The foregoing insurance requirement shall not be construed to create a limit on the Company’s liability hereunder.

ARTICLE 13

TERM AND TERMINATION

13.1 Term. This Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms hereof or by mutual written consent, shall expire on a country-by-country basis and Licensed Product-by-Licensed Product basis, upon the expiration of the Royalty Term with respect to a given Licensed Product in the applicable country.

 

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13.2 Termination by BMS. BMS shall have the right to terminate this Agreement, at BMS’ sole discretion, as follows:

13.2.1 Insolvency. To the extent permitted under applicable Laws, BMS shall have the right to terminate this Agreement in its entirety, at BMS’ sole discretion, upon delivery of written notice to Company upon the filing by Company in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Company or its assets, upon the proposal by Company of a written agreement of composition or extension of its debts, or if Company is served by a Third Party (and not by BMS) with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by Company of an assignment for the benefit of its creditors.

13.2.2 Breach. BMS shall have the right to terminate this Agreement in its entirety, at BMS’ sole discretion upon delivery of written notice to Company in the event of any material breach by Company of this Agreement (except that this Section 13.2.2 shall not apply to any breach of Sections 5.1 or 6.1, which are covered under Section 13.2.3), provided that such breach has not been cured within [***] after written notice is given by BMS to Company; provided, however, that if such breach relates to the failure to make a payment when due, such breach must be cured within [***] after written notice thereof is given by BMS. Any such termination of this Agreement shall become effective at the end of the applicable cure period, unless Company has cured any such breach or default prior to the expiration of such cure period. The cure period shall be tolled pending resolution of any bona fide dispute between the Parties as to whether any such material breach has occurred.

13.2.3 Termination for Failure to Develop or Commercialize. BMS shall have the right to terminate this Agreement in its entirety in the event that Company fails to fulfill its obligations to Develop Licensed Compounds and/or Licensed Products in accordance with Section 5.1, or to Commercialize Licensed Products in accordance with Section 6.1, provided that Company has not cured such breach within [***] following written notice by BMS which notice shall be labeled as a “notice of material breach for failure to use Commercially Reasonable Efforts,” and in the case of an alleged breach of Section 6.1, identifies the Major Market Country(ies) in which such breach has occurred. Any such termination of this Agreement shall become effective at the end of the applicable cure period, unless Company has cured any such breach or default prior to the expiration of such cure period. The cure period shall be tolled pending resolution of any bona fide dispute between the Parties as to whether any such material breach has occurred. If there is a dispute as to whether company has cured within the remaining cure period following such resolution, such dispute [***].

13.2.4 Termination for Patent Challenge.

(a) BMS shall have the right to terminate this Agreement in its entirety in the event Company (or any of its Affiliates) challenges or knowingly supports (other than as may be necessary or reasonably required to assert a cross-claim or a counter-claim, or in response to a subpoena or court or administrative law request or order), including by providing information, documents, and/or funding, a challenge to the validity, scope, enforceability or patentability of any of the BMS Patent Rights. BMS’s right to terminate this Agreement under this Section 13.2.4 may be exercised at any time after Company (or any of its Affiliates) may have challenged or knowingly supports (other than in response to a subpoena or court order) a challenge to the validity, scope, enforceability or patentability of any of the BMS Patent Rights. For the avoidance of doubt, an

 

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action by Company or any Affiliate in accordance with Article 10 to amend claims within a pending patent application within the BMS Patent Rights during the course of Company’s prosecution and maintenance of such pending patent application or in defense of a Third Party proceeding, or to make a negative determination of patentability of claims of a patent application of BMS or to abandon a patent application of BMS during the course of Company’s Prosecution and Maintenance of such pending patent application, shall not, where undertaken in accordance with Article 9 hereof, constitute a challenge under this Section 13.2.4.

(b) If a Sublicensee of Company challenges the validity, scope or enforceability of or otherwise opposes any of the BMS Patent Rights under which such Sublicensee is sublicensed, then Company shall, at BMS’ election and upon written notice from BMS, promptly terminate such Sublicense. The Company shall include within each License Agreement with each Sublicensee a right on the part of the Company to terminate such License Agreement in the event such Sublicensee challenges or knowingly supports a Third Party in challenging (other than in response to a subpoena or court order), in a judicial or administrative proceeding, including without limitation by providing information, documents, or funding, the validity, scope or enforceability of any of the BMS Patent Rights after grant of the patent and (ii) the Company shall exercise such right to terminate the License Agreement with a Sublicensee should such Sublicensee challenge or knowingly support a Third Party in challenging (other than in response to a subpoena or court order) in a judicial or administrative proceeding the validity or enforceability of any of the BMS Patent Rights after grant of the patent. If Company fails to exercise such termination right against such Sublicensee or is unable to do so because it did not include such a provision in its Sublicense, BMS may terminate this Agreement.

13.3 Termination by Company. Company shall have the right to terminate this Agreement, at Company’s sole discretion, as follows.

13.3.1 Convenience. Company may terminate this Agreement for any reason upon four (4) months prior written notice in the case where Approval has not been obtained for a Licensed Product or upon eight (8) months prior written notice in the case where Approval has been obtained for a Licensed Product, such termination to be effective at the end of such notice period.

13.3.2 Insolvency. To the extent permitted under applicable Laws, Company shall have the right to terminate this Agreement in its entirety, at Company’s sole discretion, upon delivery of written notice to BMS upon the filing by BMS in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of BMS or its assets, upon the proposal by BMS of a written agreement of composition or extension of its debts, or if BMS is served by a Third Party (and not by Company) with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by BMS of an assignment for the benefit of its creditors

13.3.3 Breach. Company may terminate this Agreement in the event of a material breach by BMS, provided that such breach has not been cured within [***] following written notice by Company. Any such termination of this Agreement shall become effective at the end of the applicable cure period, unless BMS has cured any such breach or default prior to the expiration of such cure period.

 

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13.3.4 Safety. Notwithstanding any other provision herein to the contrary, Company shall have the right to terminate this Agreement upon written notice to BMS on a Licensed Compound-by-Licensed Compound and/or Licensed Product-by-Licensed Product basis in the event that Company reasonably determines, based upon scientific data, that there are safety and public health issues relating to the Licensed Compound and/or Licensed Product that are not expected or are at a level not expected based on available data and/or in the Approval, such that the medical benefit/risk ratio of such Licensed Compound and/or Licensed Product is sufficiently unfavorable as to materially compromise the welfare of patients to Develop or Commercialize or to continue to Develop or Commercialize the Licensed Compound and/or Licensed Product and Company determines in that such safety issue cannot be ethically addressed by a change to the Summary of Medical Product Characteristics of the Approval (“Safety Reasons”). Upon such termination for Safety Reasons, Company shall be responsible, at its expense, for the wind-down of any Development of applicable Licensed Product (including any Clinical Trials for the applicable Licensed Product being conducted by or on behalf of Company) and any Commercialization activities for applicable Licensed Product. Such termination shall become effective upon the date that Company notifies BMS in writing that such wind-down is complete.

13.4 Effect of Termination. Upon termination of this Agreement in its entirety by BMS under Section 13.2 or by Company under Section 13.3.1:

13.4.1 All rights and licenses granted to Company in Article 2 shall terminate, all rights of Company under the BMS Patent Rights and BMS Know-How shall revert to BMS, and Company and its Affiliates shall cease all use of the BMS Patent Rights, the BMS Know-How and the Transferred Materials, and shall return to BMS all unused portions of the Transferred Materials, [***]. Following the effective date of such termination, all Licensed Compounds and/or Licensed Products shall thereafter be deemed “BMS Reversion Products”.

13.4.2 With respect to all regulatory filings (including all INDs and NDAs) and Approvals and all other regulatory documents necessary to further Develop and Commercialize the BMS Reversion Products, as they exist as of the date of such termination (and all of Company’s right, title and interest therein and thereto), BMS shall determine in its sole discretion subject to applicable Laws which of these shall be (i) assigned to BMS, and Company shall provide to BMS one (1) copy of the applicable documents and filings, all documents and filings contained in or referenced in any such filings, together with the raw and summarized data for any preclinical studies and Clinical Trials of the Licensed Products as well as any final documentation to inactivate any open INDs as BMS may elect to inactivate, [***], and preparing such items in connection with such transfer, or (ii) withdrawn or inactivated [***]. For clarity, BMS shall have the right to use the foregoing material information, materials and data developed by Company solely in connection with BMS’ development, manufacture and commercialization of BMS Reversion Products. BMS shall have the right to obtain specific performance of Company’s obligations referenced in this Section 13.4.2 and/or solely in the event of failure to obtain such assignment referenced in this Section 13.4.2, Company hereby consents and grants to BMS the right to access and reference (without any further action required on the part of Company, whose authorization to file this consent with any Regulatory Authority is hereby granted) any and all such regulatory filings

 

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relating to the BMS Reversion Products for any regulatory or other use or purpose in the Territory. Without limiting the foregoing in this paragraph, to the extent applicable, Company’s obligations under the previous sentence shall continue with respect to all countries in the Territory for which there is a failure to obtain assignment of all regulatory filings and Approvals.

13.4.3 All amounts due or payable to BMS that were accrued prior to the effective date of termination shall remain due and payable; but (except as otherwise expressly provided herein) no additional amounts shall be payable based on events occurring after the effective date of termination; provided, that the foregoing shall not be deemed to limit Company’s indemnification obligations under this Agreement for acts or omissions incurring prior to the termination date that are the subject of such indemnification even if the indemnification amount cannot be accrued or determined as of the termination date.

13.4.4 BMS shall have the right to retain all amounts previously paid to BMS by Company.

13.4.5 Should Company have any inventory of any Licensed Compound included in the BMS Reversion Products suitable for use in clinical trials, Company shall offer to sell such Licensed Compound to BMS [***] (but BMS shall be under no obligation to purchase same unless it agrees to do so in writing at such time). Any such Licensed Compound that are cGMP (the “Reversion cGMP Clinical Materials”) shall be accompanied by a certificate of analysis, certificate of manufacturing, batch records and other such documentation, information materials as may be required under Applicable Law to enable use of such Reversion cGMP Clinical Material in human Clinical Trials, including written certification that such Reversion cGMP Clinical Materials were both (a) manufactured, and (b) stored and handled at all times following such manufacture, in accordance with cGMP. Except as set forth in the previous sentence, Company makes no other representations or warranties, express or implied, as to any inventory of Licensed Compound sold to BMS pursuant to this Section 13.4.5, including any warranty as to merchantability or fitness for a particular use or purpose.

13.4.6 Should Company have any inventory of any Licensed Product included in the BMS Reversion Products approved and allocated prior to termination, Company shall have [***] thereafter in which to dispose of such inventory (subject to the payment to BMS of any royalties due hereunder thereon) (the “Inventory Disposal Period”), provided however, that (i) such right shall terminate at such time that BMS purchases all remaining stocks of inventory of such BMS Reversion Product as described in this Section 13.4.6, below, and (ii) such Licensed Product shall [***] provided to such purchaser for the Licensed Product in the applicable country during the [***] preceding such termination and, in addition, such sales [***] preceding such termination. Notwithstanding the foregoing, if BMS takes over responsibility for sale of the BMS Reversion Products in any country in the Territory prior to the end of the Inventory Disposal Period, BMS shall be required to purchase all remaining stocks of saleable inventory that meets BMS specifications and return policies of such BMS Reversion Product [***]. Any such Licensed Compound that are cGMP (the “Reversion cGMP Commercial Materials”) shall be accompanied by a certificate of analysis, certificate of manufacturing, batch records and other such documentation, information materials as may be required under Applicable Law to enable sale of such Reversion cGMP Commercial Material, including written certification that such Reversion cGMP Commercial Materials were both (a) manufactured, and (b) stored and handled at all times

 

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following such manufacture, in accordance with cGMP. Except as set forth in the previous sentence, Company makes no other representations or warranties, express or implied, as to any inventory of Licensed Compound sold to BMS pursuant to this Section 13.4.6, including any warranty as to merchantability or fitness for a particular use or purpose.

13.4.7 Company shall use Commercially Reasonable Efforts to provide to BMS the tangible embodiments of all Know-How owned or Controlled by Company and its Affiliates to the extent necessary for the Development and Commercialization of the BMS Reversion Products in existence as of the date of such termination, [***], and preparing and making such items in connection with such transfer (without duplicating any amounts reimbursed pursuant to Sections 13.4.2 and 13.4.10), including Company’s manufacturing processes, techniques and trade secrets for making such BMS Reversion Products and all Know-How specifically relating to any composition, formulation, method of use or manufacture of such BMS Reversion Products, such Know-How including all data generated during the term of this Agreement necessary for the development and/or commercialization of the relevant BMS Reversion Products, and BMS shall automatically have a perpetual, worldwide, transferable, sublicensable right and license under such Know-How solely for (a) researching, Developing, using, importing, selling and offering for sale BMS Reversion Products in the Territory, which license shall be exclusive for purposes of this subpart (a), and (b) making and having made BMS Reversion Products anywhere in the Territory for use, importation, sale and offer for sale in the Territory, which license shall be non-exclusive for purposes of this subpart (b). Company shall reasonably cooperate with BMS to assist BMS with understanding and using the Know-How provided to BMS under this Section 13.4.7. Such cooperation shall be limited to providing BMS with up to [***] hours of reasonable access to Company personnel by teleconference or in-person at Company’s facilities (subject to Company’s customary rules and restrictions with respect to site visits by non-Company personnel and [***]).

13.4.8 To the extent that Company owns any trademark(s) and/or domain names that pertain specifically to an BMS Reversion Product without any reference to the Company that BMS believes would be necessary for the Commercialization of a BMS Reversion Product (as then currently marketed, but not including any marks that include, in whole or part, any corporate name or logo of Company), Company shall assign (or, if applicable, cause its Affiliate to assign) to BMS all of Company’s (and such Affiliate’s) right, title and interest in and to any such registered or unregistered trademark, trademark application, trade name or internet domain name in each terminated country.

13.4.9 Company shall grant and hereby grants to BMS an exclusive, royalty-bearing (solely to the extent set forth in Section 13.4.16), non-transferable (except as provided in Section 15.4) license, with the right to grant sublicenses, under (a) any Patent Rights owned or Controlled by Company or its Affiliates as of the effective date of termination and (b) all Patent Rights owned or Controlled by Company or its Affiliates after the date of such termination claiming any invention conceived or reduced to practice by or on behalf of Company during the term of this Agreement, in each case of (a) and (b) solely to the extent covering the composition of matter, use, or manufacture of BMS Reversion Products (solely to the extent actually practiced in connection with the BMS Reversion Products as of such termination effective date) and that, in each case of (a) and (b), are necessary to Develop, manufacture or Commercialize BMS Reversion Products solely for (i) researching, Developing, using, importing, selling and

 

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offering for sale BMS Reversion Products in the Territory, (ii) making and having made BMS Reversion Products anywhere in the Territory for use, importation, sale and offer for sale in the Territory. All rights in the Patent Rights owned or Controlled by Company or its Affiliates not expressly granted to BMS under this Section 13.4.9 are reserved by Company and may be used by Company for any purpose.

13.4.10 Company shall provide to BMS a copy of all data generated during the term of this Agreement necessary for the development and/or commercialization of the relevant BMS Reversion Products and assign or license (or, if applicable, cause its Affiliate to assign or license) to BMS all of Company’s (and such Affiliate’s) entire right, title and interest in and to all such data [***], and preparing and making such items in connection with such transfer ([***]).

13.4.11 Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination.

13.4.12 Except as set forth in Section 13.4.16, BMS shall not owe any other compensation to Company for the research, Development and Commercialization of any BMS Reversion Product in the event of any such termination of the Agreement by BMS.

13.4.13 [***].

13.4.14 It is understood and agreed that BMS shall be entitled to specific performance as a remedy to enforce the provisions of this Section 13.4, in addition to any other remedy to which it may be entitled by applicable Law.

13.4.15 If Company has the capability in place as of the date of such termination to commercially manufacture and supply to BMS all or part of BMS’ requirements of the applicable BMS Reversion Products for use and sale in the Territory, if BMS so elects in its sole discretion, to the extent Company is reasonably able Company shall supply to BMS for a period not to exceed [***] (with the period of time being within the sole discretion of BMS) as much of BMS’ requirements of such BMS Reversion Products as possible for use and sale in the Territory, at a price equal to [***] (determined in accordance with GAAP) for such BMS Reversion Products, under terms and conditions as may be mutually agreed between the Parties. In the event that Company has, prior to the date of such termination, engaged a Third Party to manufacture and supply any BMS Reversion Products, Company shall use reasonable efforts, [***], to assist in the transfer of such supply arrangements to BMS. In the event that BMS terminates this Agreement under Section 13.2, to the extent Company is reasonably able Company shall supply BMS’ requirements of all such BMS Reversion Products in quantities manufactured for and supplied to Company by such Third Party for a period not to exceed [***] (with the period of time being within the sole discretion of BMS) as much of BMS’ requirements of such BMS Reversion Products as possible (not to exceed amounts needed by Company for Development and/or Commercialization by Company); provided however, if there are restrictions in the agreement between Company and such Third Party governing the manufacture and supply of such BMS Reversion Products that would preclude the period from being up to [***], then such period shall be up to as long a time as permitted under such agreement. Where Company has engaged a Third Party to manufacture and supply any BMS Reversion Products to Company and BMS elects to have Company supply any portion of BMS’ requirements of such BMS Reversion Products, then Company shall supply such BMS Reversion Products at a price equal to [***].

 

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13.4.16 BMS shall pay Company a royalty equal to [***] of net sales of such BMS Reversion Product in the applicable terminated country by BMS or BMS’ Affiliates, licensees or sublicensees, provided that such termination occurs any time [***]. For purposes of this Section 13.14.16, “net sales” shall be calculated in the same manner Net Sales are defined for sales made by Company, substituting “BMS, its Affiliates and (sub)licensees” for each reference to a Related Party in such Section.

13.4.17 Nothing in this Section 13.4 shall be deemed to limit any remedy to which either Party may be entitled by applicable Law.

13.5 Effect of Termination by Company for Breach by BMS. Upon termination of this Agreement by Company pursuant to Section 13.3.2:

13.5.1 All rights and licenses granted to Company in Article 2 shall terminate, all rights of Company under the BMS Patent Rights and BMS Know-How shall revert to BMS, and Company and its Affiliates shall cease all use of the BMS Patent Rights, the BMS Know-How and the Transferred Materials, and shall return to BMS all unused portions of the Transferred Materials.

13.5.2 All amounts due or payable to BMS that were accrued, or that arise out of acts or events occurring, prior to the effective date of termination or expiration shall remain due and payable; but (except as otherwise expressly provided herein) no additional amounts shall be payable based on events occurring after the effective date of termination or expiration.

13.5.3 BMS shall have the right to retain all amounts previously paid to BMS by Company.

13.5.4 Should Company have any inventory of any Licensed Product approved and allocated prior to termination for sale in a terminated country, Company shall have [***] thereafter in which to dispose of such inventory (subject to the payment to BMS of any royalties due hereunder thereon).

13.5.5 Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination or expiration.

13.5.6 Nothing in this Section 13.5 shall be deemed to limit any remedy to which Company may be entitled by applicable Law.

13.6 Effect of Expiration of this Agreement. Upon expiration of this Agreement:

13.6.1 All amounts due or payable to BMS that were accrued, or that arise out of acts or events occurring, prior to the effective date of expiration shall remain due and payable; but (except as otherwise expressly provided herein) no additional amounts shall be payable based on events occurring after the effective date of expiration.

 

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13.6.2 BMS shall have the right to retain all amounts previously paid to BMS by Company.

13.6.3 Neither Party shall be relieved of any obligation that accrued prior to the effective date of expiration.

13.6.4 The license with respect to BMS Patent Rights and BMS Know-How granted under Section 2.1 shall convert to a non-exclusive, perpetual, irrevocable, fully paid-up license.

13.7 Scope of Termination. Termination of this Agreement shall be as to all countries in the Territory and all Licensed Compounds and all Licensed Products.

13.8 Survival. The following provisions shall survive termination or expiration of this Agreement, as well as any other provisions which by their nature are intended to survive termination: Article 1 (as applicable), Sections 8.6 through 8.10 (for three (3) years after the end of the Calendar Year in which this Agreement was terminated), Section 9.4, Section 9.5, Section 10.1, Section 10.4 (with respect to an action, suit or proceeding commenced prior to termination), Section 10.8, Article 11, Article 12, whichever one of Sections 13.4, 13.5, 13.6 or 13.7 applies, this Section 13.8, Section 13.10, Article 14 and Article 15.

13.9 Bankruptcy. The Parties agree that in the event a Party becomes a debtor under Title 11 of the U.S. Code (“Title 11”), this Agreement shall be deemed to be, for purposes of Section 365(n) of Title 11, a license to rights to “intellectual property” as defined therein. Each Party as a licensee hereunder shall have the rights and elections as specified in Title 11. Any agreements supplemental hereto shall be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of Title 11.

13.10 No Limitation of Remedies. Except as herein expressly provided, notwithstanding anything to the contrary in this Agreement, except as otherwise set forth in this Agreement, termination or expiration of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration nor prejudice either Party’s right to obtain performance of any obligation. Each Party shall be free, pursuant to Article 14, to seek (without restriction as to the number of times it may seek) damages, costs and remedies that may be available under applicable Law or in equity and shall be entitled to offset the amount of any damages and costs obtained in a final determination under Article 14 of monetary damages or costs (as permitted by this Agreement) against the other Party against any amounts otherwise due to such other Party under this Agreement.

ARTICLE 14

DISPUTE RESOLUTION

14.1 Resolution by Senior Executives. Except as provided in Sections 8.7 and 14.3, in the event of any dispute between the Parties in connection with this Agreement, the construction hereof, or the rights, duties or liabilities of either Party hereunder, including any disagreement as to whether there has been a material breach of this Agreement pursuant to Sections 13.2.2, 13.2.3,

 

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or 13.3.2, the Parties shall first attempt in good faith to resolve such dispute by negotiation and consultation between themselves. In the event that such dispute is not resolved on an informal basis within [***] Business Days, either Party may, by written notice to the other Party, refer the dispute to (i) the Chief Executive Officer of Company and (ii) if a scientific matter, the Executive Vice President & Chief Scientific Officer of BMS or, if a commercial matter, the Chief Commercial Officer of BMS for attempted resolution by good faith negotiation within [***] days after such notice is received; provided, however, such executive officers of Company and BMS may each designate a senior manager to whom such dispute is delegated instead for such attempted resolution.

14.2 Remedies. Except as provided in Sections 8.7 and 14.3, if any dispute between the Parties relating to or arising out this Agreement cannot be resolved in accordance with Section 14.1, each Party shall be free to pursue any or all available remedies at law or in equity, consistent with Section 15.8.

14.3 Injunctive Relief. Notwithstanding anything in this Article 14, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 15.8 that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the dispute, including any breach or threatened breach of Article 11.

ARTICLE 15

MISCELLANEOUS

15.1 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement with respect to such provision may be realized.

15.2 Notices. Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail, return receipt requested and addressed as set forth below unless changed by notice so given:

If to Company:

Ayala Pharmaceuticals, Inc

c/o PHS Corporate Services

1313 N. Market Street, Suite 5100

Wilmington, DE 19801

 

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If to BMS:

Bristol-Myers Squibb Company

P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000

Attention: Vice President, Business Development

With a copy to:

Bristol-Myers Squibb Company

P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000

Attention: Vice President & Assistant General Counsel, Business Development and Licensing

Any such notice shall be deemed delivered on the date received. A Party may add, delete, or change the person or address to whom notices should be sent at any time upon written notice delivered to the Party’s notices in accordance with this Section 15.2.

15.3 Force Majeure. Neither Party shall be liable for delay or failure in the performance of any of its obligations hereunder if such delay or failure is due to causes beyond its reasonable control, including acts of God, fires, earthquakes, strikes and labor disputes, acts of war, terrorism, civil unrest or intervention of any governmental authority (“Force Majeure”); provided, however, that the affected Party notifies the other Party within a reasonable period of time and further provided that the affected Party shall use Commercially Reasonable Efforts to avoid or remove such causes of non-performance and to mitigate the effect of such occurrence, and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the Parties shall negotiate in good faith any modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution.

15.4 Assignment.

15.4.1 BMS may, without Company’s consent, (x) assign, delegate or transfer some or all of its rights and obligations hereunder to any Affiliate of BMS, and (y) assign or transfer, in connection with any transfer or assignment of all of the BMS Patent Rights and BMS Know-How, to any Third Party (including a successor in interest by reason of merger, consolidation or sale of substantially all of the assets of BMS to which this Agreement relates).

15.4.2 Company may assign or transfer all of its rights and obligations hereunder without BMS’s consent to a successor in interest by reason of merger, consolidation or sale of substantially all of the assets of Company (and so long as such assignment or transfer includes, without limitation, all Approvals, all manufacturing assets relating to this Agreement, and all rights and obligations under this Agreement); provided, however, that such successor in interest shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in a writing provided to BMS.

 

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15.4.3 Subject to the foregoing, this Agreement shall inure to the benefit of, and be binding on, the Parties’ permitted successors and assigns. Any assignment or transfer in violation of the foregoing shall be null and void and wholly invalid, the assignee or transferee in any such assignment or transfer shall acquire no rights whatsoever, and the non-assigning, non-transferring Party shall not recognize, nor shall it be required to recognize, such assignment or transfer.

15.4.4 In the event that BMS assigns, delegates or otherwise transfers this Agreement, in whole or in part, to an Affiliate of BMS, BMS hereby agrees to be jointly and severally liable with any such Affiliates for the actions of such Affiliates and for any and all amounts that become due and payable hereunder to Company. In the event that Company assigns or otherwise transfers or assigns this Agreement to an Affiliate of Company, Company hereby agrees to be jointly and severally liable with any such Affiliates for the actions of such Affiliates and for any and all amounts that become due and payable hereunder to BMS. If Company transfers or assigns this Agreement, and such transfer or assignment has an adverse tax consequence to BMS, then Company shall make additional payments BMS under this Agreement to provide BMS the payments that would have been due to BMS had such transfer or assignment not occurred. For clarity, the Company shall not be responsible for the payment of capital gains taxes incurred by BMS associated with BMS’s equity ownership in Company.

15.4.5 Notwithstanding anything to the contrary in this Agreement, in the event of any such transfer or assignment to a Third Party (including a successor in interest by reason of merger, consolidation or sale of assets permitted), the intellectual property rights of the acquiring party (if other than one of the Parties) or the acquired party (if acquired by a Party or its Affiliates) shall not be included in the technology licensed to the other Party hereunder to the extent (x) held by such Third Party that is acquired or is acquiring such Party prior to such transaction, or (y) such technology is developed thereafter outside the scope of activities conducted with respect to the Licensed Compounds or Licensed Products.

15.5 Further Assurances. Each Party agrees to do and perform all such further acts and things and shall execute and deliver such other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.

15.6 Waivers and Modifications. The failure of any Party to insist on the performance of any obligation hereunder shall not be deemed to be a waiver of such obligation. Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach of such provision or any other provision on such occasion or any succeeding occasion. No waiver, modification, release or amendment of any obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by each of the Parties.

15.7 Choice of Law. This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the State of Delaware without regard to its conflicts of law provisions.

 

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15.8 Jurisdiction. Each Party irrevocably submits to the exclusive jurisdiction and venue of the state and federal courts for the State of Delaware for the purposes of any suit, action, dispute, or other proceeding arising out of this Agreement or out of any transaction contemplated hereby. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the state and federal courts for the State of Delaware, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

15.9 Publicity. Upon execution of this Agreement, Company may issue the press release announcing the existence of this Agreement in the form and substance as set forth in Appendix 5. Each Party agrees not to issue any other press release or other public statement disclosing other information relating to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, such consent not to be unreasonably withheld, delayed or conditioned, provided, however, that any disclosure which is required by Law or the rules of a securities exchange, as reasonably advised by the disclosing Party’s outside counsel, and provided, further, that Company may from time to time issue public statements relating to the ongoing Development and/or Commercialization of Licensed Compounds and/or Licensed Products (excluding disclosure of the financial terms of this Agreement) pursuant to this Agreement without the prior written consent of BMS. The Parties agree that any such required disclosure shall not contain confidential business or technical information and, if disclosure of confidential business or technical information is required by Law, the Parties shall use appropriate diligent efforts to minimize such disclosure and obtain confidential treatment for any such information which is disclosed to a governmental agency. Each Party agrees to provide to the other Party a copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the circumstances prior to its scheduled release. Except under extraordinary circumstances, each Party shall provide the other with an advance copy of any such announcement at least [***] business days prior to its scheduled release. Each Party shall have the right to expeditiously review and recommend changes to any such announcement and, except as otherwise required by Law, the Party whose announcement has been reviewed shall remove any information the reviewing Party reasonably deems to be inappropriate for disclosure. The contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either Party without a requirement for re-approval.

15.10 Relationship of the Parties. Each Party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute BMS and Company as partners, agents or joint venturers. Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.

15.11 Headings. Headings and captions are for convenience only and are not be used in the interpretation of this Agreement.

15.12 Entire Agreement. This Agreement constitutes the entire agreement between the Parties as to the subject matter of this Agreement, and supersedes and merges all prior negotiations, representations, agreements and understandings regarding the same.

 

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15.13 Counterparts; Electronic Delivery. This Agreement may be executed in counter-parts with the same effect as if both Parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. Signatures to this Agreement transmitted by email in “portable document format” (“.pdf”), or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement shall have the same effect as physical delivery of the paper document bearing original signature.

15.14 Performance by Affiliates. Each Party recognizes that the other Party may perform some or all of its obligations under this Agreement through Affiliates to the extent permitted under this Agreement; provided, however, that such other Party shall remain responsible for the performance by its Affiliates as if such obligations were performed by such other Party.

15.15 Exports. Company agrees not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control Laws.

15.16 Interpretation.

15.16.1 Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties and their counsel. Accordingly, in interpreting this Agreement or any provision hereof, no presumption shall apply against any Party as being responsible for the wording or drafting of this Agreement or any such provision, and ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

15.16.2 The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. The word “any” shall mean “any and all” unless otherwise clearly indicated by context.

15.16.3 Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Laws herein shall be construed as referring to such Laws as from time to time enacted, repealed or amended, (c) any reference herein to any Person shall be construed to include the Person’s successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement; and (f) the term “and/or” in a sentence shall be construed such that the phrase “X and/or Y” means “X or Y, or both X and Y”.

 

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15.16.4 This Agreement should be interpreted in its entirety and the fact that certain provisions of this Agreement may be cross-referenced in a Section shall not be deemed or construed to limit the application of other provisions of this Agreement to such Section and vice versa.

* * *

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers.

 

AYALA PHARMACEUTICALS, INC.

By:		/s/ Roni Malmuk
		(Signature)
Name:		Roni Malmuk
Title:		Director & CEO
Date:		November 29, 2017

 

By:		/s/ David Sidransky
		(Signature)
Name:		David Sidransky
Title:		Chairman of the Board of Directors
Date:		November 29, 2017

 

BRISTOL-MYERS SQUIBB COMPANY

By:		/s/ Arthur H. Bertelsen
		(Signature)
Name:		Arthur H. Bertelsen
Title:		VP, Research Collaborations
Date:		29 Nov. 2017

 

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Appendix 1

BMS Patent Rights

[***]

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Appendix 2

Initial Development Plan

[***]

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Appendix 3

Licensed Compound

[***]

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Appendix 4

Transferred Materials to be provided by BMS

[***]

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Appendix 5

Press Release

Ayala Pharmaceuticals, founded by Israel Biotech Fund and aMoon, enters exclusive worldwide license agreement with Bristol-Myers Squibb (BMS)

Rehovot, Israel –                  2017 – Ayala, a biopharmaceutical company dedicated to developing targeted cancer therapies, announced today that they have entered into an exclusive worldwide license agreement with Bristol-Myers Squibb for two gamma secretase inhibitors in development for the treatment of cancers with altered Notch genes.

Under the terms of the license agreement, Ayala will have exclusive worldwide development and commercialization rights for BMS-906024 and 986115, two gamma secretase inhibitors previously developed by BMS as a Notch inhibitor for oncology indications. In connection with the license, Bristol-Myers Squibb received an upfront payment, became a shareholder of Ayala, and is eligible to receive certain development-, regulatory-, and sales-based milestones, as well as tiered annual net sales royalties. Ayala is responsible for all future development and commercialization of BMS-906024 and BMS986115.

Israel Biotech Fund identified the opportunity, led the due diligence and syndicated with aMoon in 2017 to form Ayala. The new company intends to develop BMS-906024 as a precision medicine for niche orphan patient populations harboring Notch activating mutations.

“We believe BMS-906024 is the best in class gamma secretase inhibitor” said Ayala’s Chairman of the Board of Directors, David Sidransky, MD. “Although most Notch targeted clinical trials have traditionally recruited non-selected populations, our approach is to target patients with specific Notch alterations whose tumors are expected to respond directly to this treatment”. Dr. Sidransky is a Co-Founder and Managing Partner of Israel Biotech Fund. He was Vice Chairman of ImClone Systems until its acquisition by Eli Lilly and the chairman and board member of several NASDAQ listed Biotech companies.

“This is an exciting opportunity in personalized therapy for Oncology, bringing new hope to cancer patients with no approved treatment options” said Roni Mamluk, PhD who joined Ayala as CEO. “We plan to initiate phase II clinical trials in 2018”. Roni Mamluk, is the former CEO of Chiasma and a member of its board of directors.

“Partnering with Ayala allows for the continued development of BMS-906024 and BMS986115 and demonstrates our commitment to seeking opportunities that enable the continued development of drug candidates that might benefit certain patients,” said Tim Reilly, Vice President, Head of Early Oncology Development at BMS. “Dr. Sidransky and Ayala are strategically positioned to focus their resources on the targeted development of these candidates for the treatment of cancers with altered Notch genes.”

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About Israel Biotech Fund

Israel Biotech Fund is a venture fund focused on at or near clinical stage biotechnology and pharmaceutical companies with exceptional technologies or product opportunities. The Fund provides its portfolio companies not only with capital, but with executive talent, strategic, operational, and business development resources, enabling them to design and execute clinical development programs efficiently and successfully. The Managing Partners are joined by a group of top-tier biotech industry experts who act as venture advisors of the Fund and its portfolio companies.

Additional information about Israel Biotech Fund is available at www.israelbiotechfund.com.

About aMoon

aMoon fund was founded in 2016 by Marius Nacht, Co-Founder and Chairman of the Israeli cyber security giant Check Point Software, and by Dr. Yair Schindel, former CEO of the National Gov’t Bureau “Digital Israel” and former CEO of Startup Nation Central. It is a venture capital firm operating in the Israeli healthcare and life science sector focusing on companies which offer either life-saving solutions or significant cost savings for global healthcare systems. The goal of the fund is to turn Israel into a major contributor in global healthcare and to fuel the development of cutting edge healthcare innovations that will increase the number of individuals leading healthier, longer and more productive lives.

About BMS-906024

BMS-906024 is a gamma secretase inhibitor developed as a Notch inhibitor for oncology indications. Preclinical studies have shown low nM inhibitory activity for all four Notch receptors (1-4) and robust, broad-spectrum efficacy was seen in traditional and PDX (Patient Derived Xenograft) models, including T-ALL, TNBC, NSCLC, Colorectal and Pancreatic carcinoma. In phase 1b clinical studies, given once a week by iv injection, the molecule has shown remarkable PK/PD attributes and was tolerable with manageable side effects in 205 cancer patients.

Forward Looking Statements

This press release includes forward-looking statements. Because such statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from Ayala’s current expectations. Forward-looking statements are identified by words such as “anticipates,” “projects,” “expects,” “plans,” “intends,” “believes,” “may,” “estimates,” “targets,” “hopes,” and other similar expressions that indicate trends and future events.

Factors that could cause Ayala’s results to differ materially from those expressed in forward-looking statements include, without limitation, delays in receiving regulatory guidance for the development of BMS-906024, uncertainties inherent in the initiation of future clinical trials, availability of data from previous clinical trials, satisfactory quantities of clinical drug product, availability of patients who meet the clinical trial enrollment criteria, availability of sufficient funding for foreseeable and unforeseeable operating expenses and capital expenditure requirements, and other matters that could affect the availability or commercial potential of BMS-906024. Ayala undertakes no obligation to revise or update forward-looking statements as a result of new information, since these statements may no longer be accurate or timely.

 

2

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Appendix 6

Documentation to be provided

[***]

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Appendix 7

Series A Term Sheet

[***]

Exhibit 10.9

Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

EXECUTION VERSION

EVALUATION, OPTION AND LICENSE AGREEMENT

This Evaluation, Option and License Agreement (the “Agreement”) is made as of December 19, 2018 (the “Effective Date”) by and between Ayala Pharmaceuticals, Inc., a Delaware corporation, with its principal offices at c/o PHS Corporate Services, 1313 N. Market Street, Suite 5100, Wilmington, DE 19801 (“Ayala”) and Novartis International Pharmaceutical Limited, with its principal offices at Lichtstrasse 35, CH-4056 Basel, Switzerland (“Novartis”). Ayala and Novartis are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, each of Ayala and Novartis are in the business of discovering, developing and commercializing pharmaceutical products;

WHEREAS, the Novartis’ Affiliate, Novartis Institutes for BioMedical Research, Inc. (“NIBRI”), and Ayala, contemporaneously with this Agreement, are entering into a Stock Purchase Agreement and associated investment agreements, dated as of the date hereof, pursuant to which NIBRI will acquire a $10 million equity stake in Ayala (the “SPA”);

WHEREAS, Ayala and its Affiliates Control (as defined below) certain intellectual property rights with respect to the Compound (as defined below);

WHEREAS, Novartis wishes to have access to the Compound and certain other related materials and related intellectual property rights in order for Novartis and its Affiliates to evaluate the Compound and its possible use in the Field (as defined below) in combination with certain proprietary Novartis pharmaceutical products, and to obtain an option to license the Compound pursuant to and on the terms set forth in this Agreement; and

WHEREAS, in connection with the foregoing, Novartis desires to obtain from Ayala, and Ayala desires to grant to Novartis, the right to access the Compound and the license option set forth herein with respect to the Compound, subject to and in accordance with the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth below, the Parties agree as follows:

ARTICLE I

DEFINITIONS

For purposes of this Agreement, the following definitions apply:

1.1 “Accounting Standards” means (a) with respect to Novartis, IFRS (International Financial Reporting Standards), as generally and consistently applied throughout Novartis’ organization and (b) with respect to Ayala, U.S. GAAP, as generally and consistently applied throughout Ayala’s organization.

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.2 “Acquirer” shall have the meaning given to it in Section 12.2.2(a).

1.3 “Acquiring Party” shall have the meaning given to it in Section 12.2.2(b).

1.4 “Acquisition Third Party” shall have the meaning given to it in Section 12.2.2(b).

1.5 “Acquisition Transaction” shall have the meaning given to it in Section 12.2.2(b).

1.6 “Act” shall mean the United States Food, Drug and Cosmetic Act of 1938, as amended from time to time, and its implementing regulations.

1.7 “Additional Indication” shall have the meaning given to it in Section 4.3(a).

1.8 “Additional Indication Notice” shall have the meaning given to it in Section 4.3(a).

1.9 “Affiliate” means, with respect to a Party, any Person that controls, is controlled by, or is under common control with that Party. For the purpose of this definition, “control” or “controlled” means, direct or indirect, ownership of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors in the case of a corporation or fifty percent (50%) or more of the equity interest in the case of any other type of legal entity; status as a general partner in any partnership; or any other arrangement whereby the Person controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity or the ability to cause the direction of the management or policies of a corporation or other entity. The Parties acknowledge that in the case of entities organized under the laws of certain countries where the maximum percentage ownership permitted by law for a foreign investor is less than fifty percent (50%), such lower percentage shall be substituted in the preceding sentence, provided that such foreign investor has the power to direct the management and policies of such entity. With respect to the definitions of Ayala Patents and Ayala Know-How, and with respect to the grant of license rights by Ayala to Novartis under Section 4.1 in respect thereof, “Affiliates” of Ayala shall exclude any Third Party that becomes an Affiliate due to such Third Party’s acquisition of Ayala.

1.10 “Agreement” shall have the meaning given to it in the preamble.

1.11 “Alliance Manager” shall have the meaning given to it in Section 6.1.

1.12 “Applicable Laws” means all applicable laws, statutes, rules, regulations, codes, administrative or judicial orders, judgments, decrees, injunctions and/or ordinances of any Governmental Authority, and common law or other legal requirements of any kind, whether currently in existence or hereafter promulgated, enacted, adopted or amended.

1.13 “Ayala” shall have the meaning given to it in the preamble.

1.14 “Ayala Improvements” has the meaning set forth in Section 8.2.1.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.15 “Ayala Indemnified Party” shall have the meaning given to it in Section 15.1.

1.16 “Ayala Intellectual Property” shall mean the Ayala’s rights in Ayala Patents and Ayala Know-How.

1.17 “Ayala Know-How” shall mean any Know-How Controlled by Ayala as of the Effective Date and/or during the Option Term that is necessary for the Development, Manufacture, use or Commercialization of the Compound or Product, including any applicable Ayala Improvements.

1.18 “Ayala Patents” shall mean the Patents set forth on Exhibit A hereto, together with any Patents included in the Ayala Improvements.

1.19 “Bi-Annual Evaluation Report” shall have the meaning given to it in Section 2.3.1(c).

1.20 “BMS” means Bristol-Myers Squibb Company.

1.21 “BMS License Agreement” shall mean the License Agreement between BMS and Ayala, dated November 29, 2017.

1.22 “Business Day” means a day other than a Saturday, Sunday, or any day on which commercial banks located in Cambridge, Massachusetts, Basel, Switzerland, or Tel Aviv, Israel are authorized or obligated by Applicable Law to close.

1.23 “Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30, and December 31; provided, however, that the last Calendar Quarter of the Product Term will end upon the expiration or termination of this Agreement.

1.24 “Calendar Year” means a period of twelve (12) consecutive calendar months ending on December 31; provided, however, that the last Calendar Year of the Product Term will begin on January 1 of the Calendar Year in which this Agreement expires or terminates and end upon the expiration or termination of this Agreement.

1.25 “Claim” shall mean any action, appeal, petition, plea, charge, complaint, claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry, investigation or similar event, occurrence, or proceeding.

1.26 “Clinical Evaluation Materials” shall have the meaning given to it in Section 2.1(a).

1.27 “Clinical Study” means any clinical testing of Product in human subjects, including any Phase I Clinical Study, Phase II Clinical Study, Phase III Clinical Study, or Registration or Pivotal Study.

1.28 “Commercialization” or “Commercialize” shall mean any and all activities directed to and including marketing, promoting, advertising, distributing, disposing, offering for sale, selling, Labeling and Packaging, final product release testing, exporting and importing of a pharmaceutical product for commercial sale (to the extent applicable).

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.29 “Commercially Reasonable Efforts” means [***].

1.30 “Competing Program” shall have the meaning given to it in Section 12.2.2(a).

1.31 “Compound” shall mean Ayala’s proprietary compound known as AL102 and described in Exhibit B, and any salt, free acid/base, solvate, hydrate, stereoisomer and polymorphic form thereof, and any prodrug, metabolite, conjugate or complex thereof.

1.32 “Compound Specifications” shall mean, with respect to the research grade Compound provided for the Evaluation Studies, those specifications set forth on Schedule 1.32 hereto.

1.33 “Confidential Information” shall mean the terms of this Agreement and all information or data of a proprietary or confidential nature which is owned or Controlled and provided or otherwise made available by or on behalf of one Party (“Disclosing Party”) to the other Party to this Agreement (the “Receiving Party”) either in connection with the discussions and negotiations pertaining to this Agreement or in the course of performing under this Agreement (or the Confidentiality Agreement). Confidential Information shall include, in the case of Ayala, Ayala Know-How and financial or other non-scientific or non-technical business information regarding Ayala made available to Novartis in connection with this Agreement; and in the case of Novartis, any and all Know-How of Novartis relating to Novartis’ or Novartis’ collaborators’ products (i.e., other than Compounds and/or Products), whether commercialized or in development, or the Development, Manufacture or Commercialization of any of the foregoing, or related clinical or regulatory affairs; information generated in the Program relating to the Compound and/or Products; and financial or other non-scientific or non-technical business information regarding Novartis, its Affiliates, or their collaborators made available to Ayala in connection with this Agreement. Confidential Information will be deemed not to include:

(a) information which is or becomes part of the public domain through no breach of this Agreement by the Receiving Party or any of its Affiliates;

(b) information which the Receiving Party can demonstrate by its written records was known by the Receiving Party or any of its Affiliates prior to the disclosure thereof by the Disclosing Party;

(c) information which is independently developed by the Receiving Party or any of its Affiliates, so long as such development does not result from use of Confidential Information of the Disclosing Party, and such independent development can be demonstrated by written records of the Party claiming such independent development or any of its Affiliates; and

(d) information that becomes available to the Receiving Party or its Affiliates on a non-confidential basis, whether directly or indirectly, from a Third Party who has the right to make such disclosure.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

The fact that a particular item of information is not or has ceased to be Confidential Information by virtue of one or more of the exclusions specified above shall not relieve the Party who obtained or received such excluded item from that Party’s obligation of confidentiality and non-use (i) as to any other item of Confidential Information of the other Party or (ii) as to the relationship of such excluded item to any other item of Confidential Information of the other Party.

1.34 “Confidentiality Agreement” shall mean the Confidentiality Agreement (Mutual) between Ayala and Novartis Institutes for BioMedical Research, Inc., dated as May 3, 2018.

1.35 “Control” or “Controlled” shall mean, with respect to any compound, material, information or intellectual property right, that the Party owns or has a license to such compound, material, information or intellectual property right and has the ability to grant to the other Party a license or a sublicense (as applicable under this Agreement) to such compound, material, information or intellectual property right as provided for herein without violating (a) the terms of any agreement or other arrangements with any Third Party existing at the time such Party would be first required hereunder to grant the other Party such license or sublicense or (b) any Applicable Laws with respect to such license or sublicense.

1.36 “CTA” means a Clinical Trial Application, filed with a Regulatory Authority other than the FDA.

1.37 “Damages” shall mean all damages, losses (including any diminution in value), liabilities, payments, amounts paid in settlement, obligations, fines, penalties, costs or expenses of any kind or nature whatsoever incurred or paid in connection with any Claim or threatened Claim (including reasonable fees and expenses of outside attorneys, accountants and other professional advisors and of expert witnesses and other costs of investigation, preparation and litigation in connection with such Claim or threatened Claim).

1.38 “Debtor” shall have the meaning given to it in Section 17.1(c).

1.39 “Development” or “Develop” shall mean all activities that relate to (a) obtaining or maintaining Regulatory Approval for a pharmaceutical product or (b) developing the process for the Manufacture of clinical and commercial quantities of a pharmaceutical product. This includes (i) the conduct of non-human animal studies, including preclinical studies and toxicology studies, and clinical studies of all phases and (ii) the preparation, submission, review and development of data or information in support of a submission to a Regulatory Authority to obtain or maintain Regulatory Approval of a pharmaceutical product, including the services of outside advisors in connection therewith, including its legal counsel and regulatory consultants, but excludes (x) Commercialization and (y) the Manufacture and accumulation of commercial inventory of a pharmaceutical product.

1.40 “Effective Date” shall have the meaning given to it in the preamble.

1.41 “EMA” shall mean the European Medicines Agency or any successors to its responsibilities with respect to pharmaceutical products such as the Products.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.42 “European Union” means the countries that are members of the European Union as of the Effective Date or that become members of the European Union thereafter, and includes, for the avoidance of doubt, any countries that as of the Effective Date, or at any point during the Product Term thereafter, cease being members of the European Union, but that remain subject to any Applicable Law of the European Union.

1.43 “Evaluation Committee” shall have the meaning given to it in Section 2.2.

1.44 “Evaluation Materials” shall mean the Nonclinical Evaluation Materials and the Clinical Evaluation Materials.

1.45 “Evaluation Studies” shall mean the studies described on Exhibit C attached hereto.

1.46 “Exclusivity Product” shall mean any compound having an IC₅₀ for inhibition of BCMA shed by gamma secretase of no greater than 1 micromolar, as measured by effect on BCMA in KMS11 cell line models, or any pharmaceutical product containing such a compound.

1.47 “FDA” shall mean the United States Food and Drug Administration or any successors to its responsibilities with respect to pharmaceutical products such as the Products.

1.48 “Field” shall mean the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans.

1.49 “Final Evaluation Report” shall have the meaning given to it in Section 2.3.1(e).

1.50 “First Commercial Sale” means, with respect to any Product in the Field in any country in the Territory, the first sale for use or consumption by the general public of such Product in the Field in such country after Regulatory Approval of such Product in the Field in such country has been granted, or such marketing and sale is otherwise permitted, by the Regulatory Authority of such country. Sales or transfers of reasonable quantities of a Product for research or Development, including proof of concept studies or other clinical trial purposes, or for compassionate or similar use, shall not be considered a First Commercial Sale.

1.51 “Follow-On Press Release” shall have the meaning given to it in Section 13.2.

1.52 “GMPs” shall mean current Good Manufacturing Practices as defined from time to time by the Act and related regulations or any successor laws or regulations or the equivalent foreign Applicable Laws governing the manufacture, handling, storage and control of the Compound including as required in the United States and the European Union.

1.53 “Governmental Authority” means any multi-national, federal, state, local, municipal or other government authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal, as well as any securities exchange or securities exchange authority).

1.54 “IND” means an Investigational New Drug Application filed with the FDA.

1.55 “Initial Press Release” shall have the meaning given to it in Section 13.2.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.56 “Know-How” shall mean any proprietary or non-public technical, scientific or clinical information, in any tangible or intangible form, including know-how, information, ideas, inventions, works of authorship, trade secrets, technology, data (including pharmacological, toxicological and clinical test data), results, materials, expertise, trade secrets, practices, techniques, methods, processes, developments, specifications, formulations and formulae, including any intellectual property rights embodying any of the foregoing, but excluding Patents.

1.57 “Label” means, with respect to a Product, all labels and other written, printed, or graphic matter (a) on the Product containers or wrappers, or (b) accompanying the Product.

1.58 “Labeling and Packaging” means the final product labeling and packaging of the Product, including materials to be inserted such as patient inserts, patient medication guides, professional inserts and any other written, printed or graphic materials accompanying the Product.

1.59 “License” shall have the meaning given to it in Section 4.1.

1.60 “MAA” means a marketing authorization application filed for Regulatory Approval in the European Union of the applicable Product.

1.61 “Manufacture” or “Manufacturing” means all activities related to the manufacturing of a pharmaceutical compound or product, and/or any ingredient thereof, including manufacturing for clinical use or commercial sale, in-process and finished product testing, warehousing, storage and release of product, quality assurance activities related to manufacturing and release of product and ongoing stability tests and regulatory activities related to any of the foregoing.

1.62 [NOTE USED]

1.63 “NDA” shall mean, for a particular Product, its United States New Drug Application, filed with the FDA, as such application may be amended or supplemented from time to time, or an analogous application or filing with any Regulatory Authority outside of the United States (including any supra-national entity such as the European Union) for the purpose of obtaining approval to market and sell a drug product in such jurisdiction.

1.64 “Net Sales” means the net sales recorded by Novartis or any of its Affiliates or sublicensees (excluding distributors and wholesalers) for any Product sold to Third Parties other than such sublicensees as determined in accordance with Novartis’ Accounting Standards as consistently applied, less a deduction of [***] percent ([***]%) for direct expenses related to the sales of the Product, distribution and warehousing expenses and uncollectible amounts on previously sold products. The deductions booked on an accrual basis by Novartis and its Affiliates under its Accounting Standards to calculate the recorded net sales from gross sales are the following, applied without duplication:

(a) normal and customary trade and cash discounts;

(b) amounts repaid or credited by reasons of defects, rejections, recalls or returns;

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

(c) rebates and chargebacks to customers and third parties (including Medicare, Medicaid, Managed Healthcare and similar types of rebates);

(d) amounts provided or credited to customers through coupons and other discount programs;

(e) delayed ship order credits, discounts or payments related to the impact of price increases between purchase and shipping dates or retroactive price reductions;

(f) fee for service payments to customers for any non-separable services (including compensation for maintaining agreed inventory levels and providing information); and

(g) other reductions or specifically identifiable amounts deducted for reasons similar to those listed above in accordance with Novartis’ Accounting Standards.

With respect to the calculation of Net Sales:

(i) Net Sales only include the value charged or invoiced on the first arm’s length sale to a Third Party and sales between or among Novartis and its Affiliates and Sublicensees shall be disregarded for purposes of calculating Net Sales;

(ii) If a Product is delivered to the Third Party before being invoiced (or is not invoiced), Net Sales will be calculated at the time all the revenue recognition criteria under Novartis Accounting Standards are met; and

(iii) In the event that the Product is sold in a finished dosage form containing the Compound in combination with one or more other active ingredients (a “Combination Product”), the Net Sales will be calculated by multiplying the Net Sales of the Combination Product by the fraction, A/(A+B) where A is the weighted (by sales volume) average sale price in the relevant country of the Product containing the Compound as the sole active ingredient in finished form, and B is the weighted average sale price (by sales volume) in that country of the product(s) containing the other component(s) as the sole active ingredient(s) in finished form. Regarding prices comprised in the weighted average price when sold separately referred to above, if these are available for different dosages from the dosages of Compound and other active ingredient components that are included in the Combination Product, then Novartis shall be entitled to make a proportional adjustment to such prices in calculating the royalty- bearing Net Sales of the Combination Product. If the weighted average sale price cannot be determined for the Product or other product(s) containing the single Compound or component(s), the calculation of Net Sales for Combination Products will be agreed by the Parties based on the relative value contributed by each component (each Party’s agreement not to be unreasonably withheld or delayed).

1.65 “Nonclinical Evaluation Materials” shall have the meaning given to it in Section 2.1(a).

1.66 “Novartis” shall have the meaning given to it in the preamble.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.67 “Novartis Group” shall mean, collectively, Novartis and its Affiliates and sublicensees (including distributors or commercial partners).

1.68 “Novartis Indemnified Party” shall have the meaning given to it in Section 15.2.

1.69 “Option” shall have the meaning given to it in Section 3.1.

1.70 “Option Exercise Date” shall have the meaning given to it in Section 3.2.

1.71 “Option Term” shall have the meaning given to it in Section 3.1.

1.72 “Other Information” shall mean (a) information relating to a disapproval or cancellation of Regulatory Approval of a Compound and/or Product by the relevant Regulatory Authority of any jurisdiction; (b) information on modifications required to be made in the contents of a Regulatory Approval of a Product or an application therefor in any jurisdiction in order to prevent, or to warn against risks of, death, bodily harm or other severe adverse event; (c) information on withdrawal of a Product from the marketplace in any jurisdiction; (d) information on important revisions of the warnings or precautions in the usage of a Product as set forth in the Label pursuant to a Regulatory Approval or an application therefor in any jurisdiction; and (e) any information about the Compound or Product which would reasonably be expected to impact the continued Development or Commercialization of a Product in any jurisdiction.

1.73 “Parties” shall have the meaning given to it in the preamble.

1.74 “Patents” shall mean all issued patents and patent applications, whether domestic or foreign, including all continuations, continuations-in-part, divisions, provisionals and renewals, any application for patent filed hereafter or patent issued hereafter in any jurisdiction claiming priority to any such application for patent, letters patent granted with respect to any of the foregoing, patents of addition, supplementary protection certificates, registration or confirmation patents and all reissues, re-examination and extensions thereof.

1.75 “Person” means any corporation, limited or general partnership, limited liability company, joint venture, trust, unincorporated association, governmental body, authority, bureau or agency, any other entity or body, or an individual.

1.76 “Pharmacovigilance Agreement” shall have the meaning given to it in Section 12.1.2.

1.77 “Phase I Clinical Studies” shall mean those studies that include the initial introduction of a drug into humans, to determine the metabolic and pharmacologic actions of the drug (as a single agent or in combination) in humans, as more fully defined in 21 C.F.R. §312.21(a), or its successor regulation, or the equivalent in any foreign country.

1.78 “Phase II Clinical Studies” shall mean early controlled human clinical studies conducted to obtain some preliminary data on the appropriate dose range and effectiveness of a drug (as a single agent or in combination) in a disease or condition under study, as more fully defined in 21 C.F.R. §312.21(b) or its successor regulation, or the equivalent in any foreign country.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.79 “Phase IIb Clinical Studies” shall mean controlled, multicenter Phase II Clinical Studies in patients with the disease or condition under study which are conducted after a proof of concept study to further evaluate efficacy and safety in the Field.

1.80 “Phase III Clinical Studies” shall mean expanded and controlled human clinical studies involving administration of a drug to sufficient numbers of human patients with the goal of establishing that a drug (as a single agent or in combination) is safe and efficacious for its intended use, and to be considered as a pivotal study for submission of an NDA, as more fully defined in 21 C.F.R. §312.21(c) or its successor regulation, or the equivalent in any foreign country.

1.81 “Pre-Acquisition Agreement” shall have the meaning given to it in Section 12.2.2(b).

1.82 “Product” shall mean any pharmaceutical product containing the Compound as the sole active ingredient, in all forms, presentations, formulations, and dosage forms.

1.83 “Product Specifications” means those Manufacturing, performance, quality- control release, and other specifications for Compound (including the Compound Specifications) or Product in the Territory, which are agreed by the Parties in writing, as such specifications may be amended from time to time pursuant to the terms of this Agreement.

1.84 “Product Term” shall mean the period beginning as of the Effective Date and extending until the earlier of (a) such time as no Product is being Developed or Commercialized by any member of the Novartis Group or (b) termination of this Agreement as provided herein (including pursuant to Section 3.1 or Article XIV).

1.85 “Program” shall mean all activities related to the Development and Commercialization of Compound or Products in the Territory in the Field performed by or on behalf of Ayala (or its Affiliates) or Novartis (or its Affiliates) pursuant to this Agreement.

1.86 “Program Improvements” shall mean any and all Know-How, Patents and all other intellectual property developed by or on behalf of Novartis (or its Affiliates) or jointly by Novartis and Ayala or any of their respective Affiliates, in connection with the Program.

1.87 “Program Transfer Provisions” shall have the meaning given to it in Section 14.2.5.

1.88 “Protective Action” shall have the meaning given to it in Section 9.2.1.

1.89 “Quality Agreement” shall have the meaning set forth in Section 3.3.

1.90 “Registration or Pivotal Study” shall mean a Phase III Clinical Study, a combined Phase II Clinical Study/Phase III Clinical Study, or any Phase II Clinical Study in lieu of a Phase III Clinical Study, or any well-controlled study intended to provide the substantial evidence of efficacy necessary and sufficient to support an NDA filing.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

1.91 “Regulatory Approval” shall mean: (a) in the United States, written notice of marketing approval by the FDA based on approval of an NDA and satisfaction of any related applicable FDA registration and notification requirements (if any) which are required before a product may be commercially sold in the United States; and (b) in any other country in the Territory, written notice of required marketing approval by the Regulatory Authority having jurisdiction in such country and satisfaction of related applicable registration and notification requirements (if any) which are required before a product may be commercially sold in such country (including, where commercially necessary, satisfactory Label and pricing approval, and, if commercially necessary or for commercial sale of a pharmaceutical, governmental or Third Party reimbursement approval and/or inclusion on any governmental formularies effective in such country).

1.92 “Regulatory Authority” shall mean, in a particular country or regulatory jurisdiction, any applicable Governmental Authority involved in granting Regulatory Approval or, to the extent required in such country or regulatory jurisdiction, pricing or reimbursement approval for a pharmaceutical product, including (a) the FDA, (b) the EMA, and (c) the European Commission, or the successor of any such Governmental Authority.

1.93 “Sales & Royalty Report” has the meaning set forth in Section 5.2.4.

1.94 “Senior Officers” means the Chief Executive Officer of Ayala and the Global Head, BD&L, Novartis Institutes of Biomedical Research.

1.95 “SPA” shall have the meaning given to it in the recitals.

1.96 “Supply Agreement” has the meaning set forth in Section 3.3.

1.97 “Territory” shall mean the world.

1.98 “Third Party” shall mean any individual, estate, trust, partnership, joint venture, association, firm, corporation, company or other entity, other than Ayala or Novartis or an Affiliate or an employee of Ayala or Novartis.

1.99 “United States” or “U.S.” means the United States of America, including its territories and possessions.

1.100 “Valid Claim” shall mean any claim of (a) an issued and unexpired Patent that has not been held unenforceable, unpatentable or invalid by a final decision of a court or a Governmental Authority of competent jurisdiction (including any competent Patent office), from which no further appeal is possible or (b) a pending Patent application that has not been finally abandoned or finally rejected or expired and that has been pending for no more than [***] ([***]) years from the date of filing of the earliest Patent application to which such pending Patent application is entitled to claim priority.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

ARTICLE II

MATERIALS TRANSFER AND EVALUATION STUDY

Section 2.1. Materials Manufacture and Use.

(a) As soon as reasonably practicable after the later of the execution of this Agreement and the SPA, Ayala will supply to Novartis such quantities of Compound, Product and other materials as are described in Exhibit C for purposes of conducting Evaluation Studies not comprising human clinical trials (the “Nonclinical Evaluation Materials”), together with such Ayala Know-How as may reasonably be necessary in order for Novartis to conduct such Evaluation Studies, solely for use for the limited purpose and extent set forth in Section 2.1(c). Ayala will use Commercially Reasonable Efforts to supply Novartis from time to time with such additional quantities of Nonclinical Evaluation Materials reasonably necessary to complete the nonclinical Evaluation Studies as Novartis may reasonably request. Compound supplied to Novartis as part of the Nonclinical Evaluation Materials will consist of the supplies of Compound which Ayala currently has available to it and shall meet the applicable Compound Specifications for the intended use. All supply of Nonclinical Evaluation Materials pursuant to this Section 2.1 shall be invoiced on a per-shipment basis to Novartis at Ayala’s Manufacturing Cost as reflected in Ayala’s accounting records kept in accordance with its Accounting Standards, and invoiced amounts shall be paid to Ayala within [***] of Novartis’ receipt of the applicable invoice. Ayala Know-How to be provided to Novartis will include a Material Safety Data Sheet and relevant information available and known to Ayala concerning the safety, handling, use, disposal and environmental effects of the Compound and Product. With respect to the conduct of any human clinical trials included in the Evaluation Studies, all Product supplied as part of the Evaluation Materials provided in connection therewith (the “Clinical Evaluation Materials”) will be Manufactured by or on behalf of Ayala in accordance with Novartis’ specifications (as approved by Ayala), the Supply Agreement and Quality Agreement, and Applicable Law, and invoiced and priced as further detailed in the Supply Agreement. Such materials shall be provided solely for use for the limited purpose and extent set forth in Section 2.1(c).

(b) Solely for use for the limited purpose and extent set forth in Section 2.1(c), Novartis may make (or direct Ayala to make) the Evaluation Materials available to one or more of its Affiliates and service providers providing services in relation to the Evaluation Studies, and Novartis will continue to have primary responsibility and liability for compliance by any such Affiliate(s) and/or service providers, with all of Novartis’ obligations under, and its acts or omissions in relation to, this Agreement.

(c) Notwithstanding anything herein to the contrary, during the Option Term, Novartis will use (and will cause any Affiliate(s) and service providers provided with access to any Evaluation Materials in accordance with Section 2.1(b) to use) the Evaluation Materials and Ayala Know-How solely for the limited and express purpose of performing the Evaluation Studies and for preparing for the subsequent Development of the Compound and Product following the exercise of the Option. No other rights, express or implied, are granted to Novartis with respect to the Evaluation Materials and/or Ayala Know-How pursuant to this Article II.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

(d) In connection with the other activities contemplated by this Agreement, Novartis may also request in writing permission to perform further drug substance synthesis and drug product formulation research and development activities with respect to the Compound and Product (“CMC Development”) during the Option Period if Novartis anticipates potential significant clinical timeline delays following its exercise of the Option, and such permission will not unreasonably be withheld by Ayala.

Section 2.2. Evaluation Committee.

2.2.1 Formation. Within [***] after the Effective Date, the Parties will  form an evaluation committee composed of three (3) representatives appointed by each of Ayala or its Affiliates and Novartis or its Affiliates; provided that at least one (1) individual appointed by each Party is vested with the appropriate decision-making and resource- allocating authority, and the requisite experience, to participate in discussion of, and decide on, matters relating to the conduct of the Evaluation Studies (the “Evaluation Committee”). The chairperson of the Evaluation Committee will be one of [***] representatives. From time to time, each Party may substitute its representatives on the Evaluation Committee in its sole discretion, effective upon written notice to the other Party of such change.

2.2.2 Meetings. The Evaluation Committee will meet periodically during the Option Term (but no less frequently than [***]) to review and discuss matters relating to the conduct of the Evaluation Studies. All Evaluation Committee meetings may be conducted in person, by videoconference or by teleconference at such times and such Ayala or Novartis locations as shall be determined by the Evaluation Committee chairperson; provided that in- person meetings of the Evaluation Committee shall be held at least [***] (unless otherwise agreed by the Parties) and will alternate between appropriate offices of each Party. The Parties shall each bear all expenses of their respective representatives relating to their participation on the Evaluation Committee. The members of the Evaluation Committee also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate. The Evaluation Committee may request other employees or consultants of Novartis or Ayala or their Affiliates to attend its meetings to present information or participate in discussions on an ad hoc basis as it deems appropriate.

2.2.3 Duties of the Evaluation Committee. The Evaluation Committee will review and discuss the activities of the Parties with respect to the conduct of the Evaluation Studies, including review and discussion of (a) any reports and/or plans exchanged pursuant to Sections 2.3.1(c)-(g) and (b) any proposed updates to Exhibit C regarding the Evaluation Studies, including any updates required or recommended based on review and discussion of the materials described in the foregoing clause (a). For the avoidance of doubt, the plan for the Evaluation Studies as set forth in Exhibit C may be modified only by unanimous approval of the Evaluation Committee, acting reasonably and in accordance with this Section 2.2.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Section 2.3. Performance Obligations.

2.3.1 Novartis Obligations.

(a) Novartis will commence the Evaluation Studies promptly after Novartis’ receipt of the amounts of Evaluation Materials specified in Exhibit C as necessary to commence such studies and will use Commercially Reasonable Efforts to complete the Evaluation Studies during the Option Term.

(b) Novartis will be responsible for compliance by itself and its Affiliates with all Applicable Laws with respect to the Evaluation Studies.

(c) Novartis shall provide the Evaluation Committee with reports not later than [***] following the end of every other Calendar Quarter, in reasonable detail and in a mutually agreed-upon format, regarding the progress and results of the Evaluation Studies (each, a “Biannual Evaluation Report”). Each Biannual Evaluation Report shall include at a minimum information regarding (i) the number of active sites in each Evaluation Study, (ii) the number of patients enrolled in each Evaluation Study, (iii) any safety issues or adverse experiences of which Novartis has been notified or become aware during the course of conducting the Evaluation Studies and (iv) a high level summary of any findings that Novartis has discovered in the immediately preceding Calendar Quarter as well as an updated information package as described on Exhibit F hereto with respect to such Calendar Quarter. After delivery of each Biannual Evaluation Report to Evaluation Committee, the Evaluation Committee will meet to discuss the results.

(d) Ayala shall provide the Evaluation Committee with a report two times per year, in reasonable detail and in a mutually agreed-upon format, regarding safety and manufacturing developments arising in Ayala’s Development efforts outside the Field that could potentially materially affect the Evaluation Studies.

(e) Notwithstanding any termination of this Agreement, within [***] after the earlier of [***] following the last visit of the last subject in the Evaluation Studies (each as specified in the plan for the Evaluation Studies set forth in Exhibit C, as may be amended and reviewed by the Evaluation Committee) or the end of the Option Term (i.e., if the Evaluation Studies are not completed), Novartis will provide the Evaluation Committee with a final written report summarizing in reasonable detail the results of, and the performance of the Compound in, the Evaluation Studies (the “Final Evaluation Report”).

(f) Notwithstanding the foregoing, the Biannual Evaluation Report and the Final Evaluation Report will not include any information that is primarily associated with any Novartis- or Third Party- proprietary compound or product that might be used in such studies in combination with the Compound and/or Product.

(g) During the Option Term, Novartis will prepare an initial Development plan for the activities to be conducted by or on behalf of Novartis with respect to the Program for the first twelve (12) months following Novartis’ exercise of the Option. Such initial Development plan will describe the specific tasks to be undertaken and objectives to be achieved by Novartis during such period. If Novartis exercises the Option, not later than [***] following the Option Exercise Date, Novartis will provide a draft to the Evaluation Committee for review and comment.

 

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2.3.2 Ayala Rights and Obligations.

(a) Ayala shall use Commercially Reasonable Efforts to provide reasonable support and assistance to Novartis with respect to its conduct of the Evaluation Studies during the Option Term as requested by Novartis, and at Novartis’ expense.

(b) During the Option Term, Ayala may, but is not obliged to, continue Development of the Compound and/or Products, outside the Field. If Ayala elects to perform such work, Ayala will do so [***].

Section 2.4. Other Information.

(a) Prior to the commencement of any human clinical trial included in the Evaluation Studies, the Parties will enter into the Pharmacovigilance Agreement as set forth in Section 12.1.2.

(b) In addition to the reporting obligation set forth above, during the Option Term, Ayala will promptly notify the Novartis if it becomes aware of any Other Information. If any such Other Information relates to fatal, life threatening or other serious adverse events (as defined in ICH-E2A, Section II.B.), Ayala will promptly advise Novartis by telephone, telex or other instantaneous method of communication and shall within [***] thereafter provide written confirmation of such Other Information.

(c) Each Party will also inform the other within [***] of any information that might reasonably affect either Party’s efforts to obtain Regulatory Approval for the Compound and/or Product and/or might impact Novartis’ ability to Develop the Compound and/or Product as required by this Agreement.

ARTICLE III

OPTION

Section 3.1. Option Grant. Effective upon the later of the Effective Date and the execution of the SPA, Ayala hereby grants to Novartis an exclusive option during the Option Term to obtain the License specified in Section 4.1 hereof on the terms and conditions specified in this Agreement (the “Option”), which may be exercised in accordance with Section 3.2. “Option Term” means the period commencing on the later of the Effective Date and the execution of the SPA, and ending on the date that is the earlier of (a) sixty (60) days following the last visit of the last subject in the Evaluation Studies (as specified in the plan for the Evaluation Studies set forth in Exhibit C, as may be amended and reviewed by the Evaluation Committee in accordance with Section 2.2), (b) termination of this Agreement and (c) thirty six months following the delivery of sufficient amounts of the Clinical Evaluation Materials to conduct the anticipated clinical studies; provided that to the extent any delays occur that result directly from Ayala’s delay in providing Evaluation Materials reasonably requested by Novartis during the Option Term beyond the periods set forth in the plan for the Evaluation Studies set forth in Exhibit C, the Option Term shall be automatically extended for a time period equal to the aggregate amount of any such delays. If not earlier terminated, failure by Novartis to exercise the Option prior to the expiration of the Option Term will result in the termination of this Agreement (including the Option) on the first date following the expiration of the Option Term.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Section 3.2. Option Exercise. At any time during the Option Term, Novartis may in its sole discretion exercise the Option by (a) delivery of written notification to Ayala of its intent to exercise the Option (the “Option Exercise Notice”), and (b) payment of a one-time non- refundable, non-recoupable, non-creditable Option exercise fee of [***] dollars ($[***]) via wire transfer in immediately available funds to the account specified in writing by Ayala, to be made no later than [***] after Novartis’ receipt of an invoice for the same, which will be transmitted to Novartis on or after Ayala’s receipt of the Option Exercise Notice. Failure to pay the fee set forth in this Section 3.2 in a timely manner will be deemed to be a material breach of this Agreement. Upon receipt by Ayala of the Option exercise fee in accordance with this Section 3.2, the date of the Option Exercise Notice shall thereafter be the “Option Exercise Date” under this Agreement.

Section 3.3. Quality Agreement and Supply Agreement. Within [***] after the Effective Date, the Parties shall negotiate in good faith and enter into a mutually agreed-upon Supply Agreement (“Supply Agreement”) and Quality Agreement (the “Quality Agreement”) with respect to Product to be Manufactured by or on behalf of Ayala for the Clinical Studies as set forth in Article XVI.

Section 3.4. Effect of Expiration of Option Term Without Exercise. Upon the expiration of the Option Term without Novartis having exercised its Option:

(a) Effective as of the effective date of termination or expiration of this Agreement, Novartis hereby grants to Ayala a worldwide, royalty-free, non-exclusive, irrevocable license (with right to sublicense) to use the information and data included in any Biannual Evaluation Report and/or Final Evaluation Report, solely to research, Develop, Manufacture, have Manufactured and Commercialize the Compound and/or Products; provided, however, that such license is limited to the data generated from the Evaluation Studies and does not include any other information relating to any other compound or product (other than the Compound and Product, e.g., any Novartis-proprietary or Third Party-proprietary compound or product) and does not include a license to any Patents or Patent applications Controlled by Novartis or any Novartis Affiliate;

(b) At Ayala’s request, Novartis will return or cause to be returned to Ayala all unused Compound and all physical embodiments of Ayala Know-How, and any other Evaluation Materials provided by or on behalf of Ayala to Novartis in connection with the Evaluation Studies (or, if Ayala so requests in writing, destroy them or cause them to be destroyed) [***]. Novartis may keep one complete record of Ayala Know-How as reasonably necessary to comply with Applicable Laws or its continuing obligations under this Agreement; and

(c) Novartis will grant the license set forth in Section 8.2.2, if applicable.

 

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ARTICLE IV

LICENSE

Section 4.1. License Grant. If Novartis exercises its Option within the Option Term, then, subject to the terms and conditions of this Agreement, and except with respect to the rights retained by BMS pursuant to the BMS License Agreement and the retained rights of Ayala set forth in this Section 4.1, Ayala hereby grants to Novartis, and Novartis hereby accepts, effective immediately upon the Option Exercise Date an exclusive (including as to Ayala and its Affiliates) right and license or sublicense (as applicable) under the Ayala Intellectual Property to research, Develop and Commercialize the Compound and/or Product, solely in the Field and in the Territory and (b) subject to Article XVI, Manufacture the Compound and/or Product, solely for use in the Field in the Territory ((a) and (b) collectively, the “License”). For the avoidance of doubt, Ayala will retain the right to Manufacture the Compound and/or Product, on an exclusive basis for use outside of the Field worldwide, and on a non-exclusive basis for use within the Field in the Territory in accordance with the terms of this Agreement and the Supply Agreement, as necessary to comply with any obligations as set forth in Article XVI.

Section 4.2. Sublicensing. Novartis will have the right to sublicense its rights under the License, but solely: (a) to its Affiliates, (b) to its service providers, distributors, and/or vendors solely with respect to Development and Commercialization of the Products by or on behalf of Novartis and its Affiliates, or (c) subject to Ayala’s prior written consent (not to be unreasonably withheld) to a Third Party in connection with a sublicense of Novartis’ rights to Develop and/or Commercialize the Compound and/or Product in one or more jurisdictions in the Territory, in each case: (i) in a manner which is consistent with the terms and provisions of this Agreement; (ii) where Novartis is and remains liable for the acts or omissions of any such sublicensee and remains responsible for its obligations under this Agreement; (iii) pursuant to a written agreement containing terms no less protective of Ayala Intellectual Property and Ayala’s Confidential Information as those contained herein; and (iv) where any such sublicense terminates upon any termination of the License.

Section 4.3. Right of First Negotiation for Additional Indications.

(a) During the Product Term, in the event that Ayala intends to license to a Third Party rights to conduct, or Ayala receives from a Third Party a proposed term sheet or agreement to license rights to conduct, Development or Commercialization activities with respect to the Compound in any indication outside of the Field and for which license rights have not been granted prior to the Option Exercise Date (each, an “Additional Indication”), then, prior to entering into negotiations with or offering to any Third Party any license or rights to Develop or Commercialize the Compound for any Additional Indication, Ayala will deliver to Novartis notice of Ayala’s intent to offer such a license or rights to a Third Party (the “Additional Indication Notice”) together with (a) any information or data relating to the Compound that had been provided to the relevant Third Party, and (b) any other information or data in Ayala’s Control that would be important to Novartis with respect to its decision whether or not to exercise any of the rights granted to it in this Section 4.3; provided that Ayala shall be under no obligation to provide any commercially sensitive information that it has not also provided to any such applicable Third Party. Such notice is not required to contain any information about the Third Party or the proposed arrangement other than specifying Ayala’s intent to license or a Third Party’s desire to receive a license (as applicable) with respect to the Compound in an Additional Indication.

(b) [***].

(c) [***].

 

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(d) [***].

(e) Notwithstanding the foregoing, nothing in this Section 4.3 waives any rights under Section 12.2.1.

Section 4.4. Reservation of Rights. Except for the licenses and other rights expressly granted to Novartis herein, all right, title and interest in and to the Ayala Patents and Ayala Know-How (and all modifications, derivatives and improvements thereof), and any other rights of Ayala and its Affiliates not expressly granted to Novartis hereunder (including, for clarity, all of the foregoing with respect to the Compound or Products outside of the Field, and with respect to compounds or products other than the Compound and Products in any field, subject to Section 12.2), shall remain solely with Ayala, its Affiliates and its Third Party licensors, as applicable. To the extent any such rights vest in Novartis, then Novartis shall, and hereby does, irrevocably assign all such right, title and interest in and to the Ayala Patents and Ayala Know-How to Ayala, and hereby acknowledges and agrees that any such rights are and shall remain owned solely by Ayala; provided, however, that for the avoidance of doubt, Novartis will have no obligation to assign to Ayala any intellectual property rights created, conceived of, or reduced to practice solely by Novartis, its Affiliates, or agents or jointly by Novartis, its Affiliates, and its agents together with Ayala and its Affiliates and agents. Except as expressly provided in this Section 4.4 or elsewhere in this Agreement, neither Party will be deemed by this Agreement to have been granted any license or other rights to the other Party’s intellectual property rights, either expressly or by implication, estoppel or otherwise. Notwithstanding anything to the contrary in this Agreement, the Parties acknowledge and agree that the Development and Commercialization of the Compound and/or Product outside of the Field shall not be within the scope of the licenses or any other rights granted to Novartis hereunder (except as expressly provided in Section 4.3).

ARTICLE V

CONSIDERATION

As partial consideration for the rights and licenses granted to Novartis in this Agreement, Novartis’ Affiliate, NIBRI, will enter into the SPA and Novartis will pay the following amounts:

Section 5.1. Milestone Payments.

5.1.1 Developmental Milestones. Novartis will notify Ayala of the first achievement of any of the Milestone Events set forth below within [***] after their achievement. In addition to (and not in lieu of) royalty payments due under this Agreement, Novartis shall pay to Ayala the following one-time, non-refundable, non-recoupable, non- creditable milestone payments no later than [***] after receipt of an invoice for the same, which will be issued following receipt of Novartis’ notice, via wire transfer in immediately available funds to the account specified in writing by Ayala:

 

Milestone Event		Milestone Payment
[***]		$	[***	]
[***]		$	[***	]
[***]		$	[***	]

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

5.1.2 Sales Milestones. Novartis will notify Ayala of the first achievement of any of the Milestone Events set forth below in a given Calendar Year via the delivery of the relevant Sales & Royalty Report. In addition to (and not in lieu of) royalty payments due under this Agreement, Novartis shall pay to Ayala the following one-time, non-refundable, non- recoupable, non-creditable milestone payments no later than [***] following receipt of an invoice for the same, which will be issued following receipt of Novartis’ Sales & Royalty Report, via wire transfer in immediately available funds to the account specified in writing by Ayala:

 

Milestone Event		Milestone Payment
[***]		$	[***	]
[***]		$	[***	]
[***]		$	[***	]
[***]		$	[***	]

5.1.3 General. For the avoidance of doubt, each milestone payment (in Section 5.1.1 and Section 5.1.2) shall be payable only on the first occurrence of the corresponding milestone event, no matter how many Products achieve the specified milestone event, and none of the milestone payments shall be payable more than once.

Section 5.2. Royalties.

5.2.1 Royalties and Royalty Term. Subject to the terms and conditions of this Agreement and in partial consideration of the License granted to Novartis, commencing on the First Commercial Sale of a particular Product in a country, Novartis will pay to Ayala royalties equal to the applicable percentages of aggregate Net Sales of Products in the Territory as described in the table immediately below, on a Product-by-Product and country-by-country basis, until the later of (a) ten (10) years after the First Commercial Sale of such Product in such country, (b) the date of expiry of the last to expire Valid Claim of the Ayala Patents covering (i.e., which would otherwise be infringed by) the manufacture, use, sale, importation or offer for sale in such country of such Product (including by reasons of extensions thereof under Applicable Laws, including patent term extensions, pediatric exclusivity or supplemental protection certificates or their equivalents in any country) and (c) the expiration of any regulatory or marketing exclusivity for such Product in such country, including but not limited to any data exclusivity (“Royalty Term”). Upon expiration of the Royalty Term as set forth in the immediately preceding sentence, the License will convert to a fully paid-up License, but solely as to the specific Product at issue and in the country at issue. For all Products, the royalty percentages will be equal to the following:

 

Aggregate Net Sales		Royalty Percentage
[***]			[***]	%
[***]			[***]	%
[***]			[***]	%
[***]			[***]	%
[***]			[***]	%

 

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5.2.2 Payments to Third Parties

(a) The Parties acknowledge that certain intellectual property rights owned or controlled by Third Parties that have been previously identified by the Parties and listed in the Parties’ data room relating to this transaction (“Identified Potential Third Party Intellectual Property Rights”) may be relevant to the Development and/or Commercialization of Compounds and/or Products. In addition to any amounts set forth in Section 5.2.2(b), if Novartis determines that it is required to obtain a license to such Identified Potential Third Party Intellectual Property Rights to Develop and/or Commercialize the Compound and/or Product, Novartis may offset against the royalties otherwise payable to Ayala pursuant to Section 5.2.1, an amount equal to [***]; provided, however, that (a) such offset is limited solely as to that portion of the royalties attributable to the Compounds and/or Product(s) at issue and in respect of the country(ies) at issue, the amount of any royalties and other payments paid by Novartis to the Third Party for such license to the extent that it relates to the Compound and/or Product; and (b) the provisions of this Section 5.2.2(a) will not have the effect of reducing the royalty percentage set forth above by more than [***]% ([***]).

(b) If a Third Party (other than as described in Section 5.2.2(a)) has or receives a Patent in any country that covers the Development, Manufacture or Commercialization of the Compound or Product anywhere in the Territory and Novartis reasonably determines after consultation with Ayala that it is required to obtain a license to such Patent as to one or more Compounds and/or Products in one or more countries for a royalty or other payment to such Third Party (including, for example, that any Product at issue cannot be reasonably Manufactured differently so as to avoid the requirement), Novartis may offset against the royalties otherwise payable to Ayala pursuant to Section 5.2.1, but solely as to that portion of the royalties attributable to the Compounds and/or Product(s) at issue and in respect of the country(ies) at issue, the amount of any royalties and other payments paid by Novartis to the Third Party for such license to the extent that it relates to the Compound and/or Product; provided, however, that all the offsets set forth in this Section 5.2.2(b) shall be subject to a cap as to any [***] of [***] percent ([***]%) in the aggregate of the royalties otherwise payable for the Product(s) at issue and in respect of the country(ies) at issue.

 

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5.2.3 BMS License Agreement. As between the Parties hereto, Ayala will be responsible for payment of all royalties and any other payments, if any, due to BMS for any activities under this Agreement with respect to (a) the Ayala Patents, (b) the License, or (c) the BMS License Agreement, and Ayala will promptly pay all such amounts in accordance with the BMS License Agreement and will otherwise maintain the BMS License Agreement in full force and effect during the Term. Ayala will notify Novartis within [***] if it becomes aware of any uncured material breach of the BMS License Agreement or alleged breach of the BMS License Agreement that it disputes or does not intend to cure in accordance with the terms of the BMS License Agreement.

5.2.4 Payment and Reports. Within [***] after each [***] during the Product Term following the First Commercial Sale of a Product and ending at the end of the Royalty Term, Novartis will provide to Ayala a report in writing specifying the [***] to which such royalty payment applies and detailing the calculation of the royalties due to Ayala for such [***] (the “Sales & Royalty Report”), and Ayala will submit an invoice to Novartis with respect to the royalty amount shown therein. Novartis will pay such royalty amount within [***] after receipt of the invoice.

5.2.5 Foreign Exchange. Any sales incurred in a currency other than U.S. Dollars shall be converted to the U.S. Dollar equivalent using Novartis’ then-current standard exchange rate methodology for conversion of foreign currency sales to U.S. Dollars as applied in its external reporting.

5.2.6 Records. Each Party will keep, and will require any Affiliates and sublicensees selling Product to keep, for [***] from the date of each payment of royalties, complete and accurate records of Net Sales or Combined Net Sales of each Product or proprietary Novartis pharmaceutical product sold in combination therapy with a Product, as applicable, in sufficient detail to allow the royalties and sales milestones to be determined accurately. Each Party will have the right for a period of [***] after receiving any report or statement with respect to royalties due and payable and a period of [***] after receiving any report or statement with respect to any sales milestones due and payable to appoint an independent certified public accountant reasonably acceptable to the other Party to inspect the relevant records to verify such report or statement. Each Party will make its records and the records of its Affiliates and sublicensees available (including any Net Sales reports received from its sublicensees selling Products or proprietary Novartis pharmaceutical product sold in combination therapy with a Product, as applicable) for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from the other Party, to verify the accuracy of the reports and payments. Such inspection right will not be exercised more than [***] in any calendar year. The Party requesting the audit will bear all costs and expenses associated with an audit conducted pursuant to this Section 5.2.6, provided, however, that if the designated auditor discovers an underpayment of [***] or more for any year between the amount the Party owing the other Party has paid to the other Party under this Agreement, and the amount of royalties actually owed to the other Party under this Agreement, then the Party being audited will bear all costs and expenses associated with such audit. Each Party agrees to hold in confidence all information concerning royalty payments and reports of the other Party, and all information learned in the course of any audit or inspection, except to the extent necessary for such

 

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Party to (a) reveal such information in order to enforce its rights under this Agreement, (b) in the case of Ayala, provide information to BMS pursuant to the BMS License Agreement, (c) in the case of Novartis, provide information to its Affiliates, or (d) if disclosure is required by law. Neither Party will have any obligation to maintain records pertaining to such report or statement beyond said [***] period. The results of each inspection, if any, will be binding on both Parties. Each Party will include substantially the same audit rights in any sublicense it grants in order to verify the correctness of payments due hereunder.

Section 5.3. Taxes.

5.3.1 Generally. The Parties will make all payments under this Agreement without deduction or withholding for taxes except to the extent that any such deduction or withholding is required by law in effect at the time of payment.

5.3.2 Withholding. Any tax required to be withheld on amounts payable under this Agreement will be paid by the Party making the payment (“Paying Party”) on behalf of the Party receiving the payment (“Recipient Party”) to the appropriate Governmental Authority in a timely manner, and the Paying Party will furnish the Recipient Party with an official tax certificate or other evidence of such tax obligations together with proof of payment from the relevant Governmental Authority of all amounts deducted and withheld sufficient to enable the Recipient Party to claim such payment of such tax. Any such tax required to be withheld will be an expense of and borne by the Recipient Party. The Paying Party will provide Recipient Party with reasonable assistance and necessary documents to enable Recipient Party to recover such Tax as permitted by Law.

5.3.3 Indirect Tax. All payments are exclusive of value added taxes, sales taxes, consumption taxes and other similar taxes (the “Indirect Taxes”). If any Indirect Taxes are chargeable in respect of any payments, the paying Party shall pay such Indirect Taxes at the applicable rate in respect of such payments following receipt, where applicable, of an Indirect Taxes invoice in the appropriate form issued by the receiving Party in respect of those payments or supply exemption documentation. The Parties shall issue invoices for all amounts payable under this Agreement consistent with Indirect Tax requirements and irrespective of whether the sums may be netted for settlement purposes.

Section 5.4. Maximizing Sales of Product. In the event that Ayala has a bona fide concern that Novartis’ actions that are detrimental to maximizing sales of the Product, Ayala shall promptly notify Novartis of such concern and the Parties shall meet within [***] of such notice to discuss and address Ayala’s concern.

Section 5.5. Financial Reporting. Within [***] after the end of each fiscal year of Ayala, Ayala shall deliver to NIBRI (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders’ equity as of the end of such year; all such financial statements audited and certified by independent public accountants of nationally recognized standing. As soon as practicable but in any event within [***] after the end of each of the first three (3) quarters of each fiscal year of Ayala, Ayala shall deliver to NIBRI unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in

 

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accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP). The covenants set forth in this Section 5.5 shall terminate and be of no further force or effect upon the earliest to occur of (i) immediately before, but subject to, the consummation of the Company’s first underwritten public offering of its shares, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, (iii) a Deemed Liquidation Event (as defined in the Certificate of Incorporation of the Company in effect from time to time); or (iv) such date that Novartis and its Affiliates no longer hold any of the shares purchased in the SPA.

ARTICLE VI

ALLIANCE MANAGERS; REPORTING OBLIGATIONS

Section 6.1. Alliance Managers. Promptly following the Effective Date, each Party shall appoint an appropriately qualified individual to serve as such Party’s alliance manager (“Alliance Manager”) under this Agreement. Such individuals shall serve as a single point of contact for all matters arising under this Agreement. Each Party may change its designated Alliance Manager from time to time upon written notice to the other Party.

Section 6.2. Reporting.

6.2.1 Within [***] after the Option Exercise Date, Novartis will provide Ayala with a high level summary development plan setting forth the anticipated Development activities to be conducted by Novartis and its Affiliates and sublicensees related to the Compound and/or Products during the following 18 month period (the “Development Plan”). No later than [***] after each anniversary of the Option Exercise Date, until the First Commercial Sale of a Product, Novartis will update the Development Plan and provide, in reasonable detail, the anticipated Development activities conducted by Novartis and its Affiliates and sublicensees during the following [***] period. For clarity, the Development Plan is intended to outline anticipated activities, and the Parties acknowledge that actual Development of the Compounds and/or Product may differ from the Development Plan due to unforeseen or unknown developments or information.

6.2.2 On every six month anniversary of the Option Exercise Date until the First Commercial Sale of a Product, Novartis will provide to Ayala a high level summary of all Development activities that Novartis and its Affiliates or their agents or sublicensees have conducted in the prior six month period (each, a “Development Report”). The Development Report will include sufficient information to reasonably determine if Novartis has fulfilled its obligations under Section 7.1 and Section 7.4 of this Agreement.

 

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ARTICLE VII

PRODUCT DEVELOPMENT, CLINICAL TRIALS AND REGULATORY APPROVALS

Section 7.1. Product Development.

7.1.1 Responsibilities. Following the exercise of the Option, Novartis will be responsible for conducting, [***], research and preclinical, clinical and other Development of any Compounds or Products in the Field in the Territory using Commercially Reasonable Efforts. Novartis (a) will determine the regulatory plans and strategies for any Compounds and/or Products in the Field in the Territory, (b) make all regulatory filings with respect to the Compounds and/or Products in the Field in the Territory, either itself or through its Affiliates, and its or their licensees and sublicensees, and (c) be responsible for obtaining and maintaining regulatory approvals throughout the world in the Field in the Territory in the name of Novartis or its Affiliates, and its or their licensees or sublicensees. Notwithstanding the foregoing, following the exercise of the Option, Novartis will use Commercially Reasonable Efforts to Develop and obtain Regulatory Approval for the Compound and/or Product in the Field in the Territory, it being understood that the use of Commercially Reasonably Efforts may not require Novartis to Develop, seek or obtain Regulatory Approval, or Commercialize Compounds and/or Products in all jurisdictions in the Territory.

7.1.2 Disputes. Without limiting Ayala’s other remedies, if Ayala notifies Novartis that it reasonably believes Novartis is not using Commercially Reasonable Efforts to Develop Products as required pursuant to Section 7.1.1: (a) the Senior Officers will meet within [***] of any such notice and, at such meeting, Ayala will provide its rationale regarding why it believes Novartis’ efforts are not Commercially Reasonable Efforts and Novartis will provide its rationale regarding why it believes Novartis’ efforts are Commercially Reasonable Efforts, based on the facts then existing for the Program; and (b) the Parties will use good faith efforts for a period of up to [***] following such meeting to attempt to resolve any such disputes, following which the provisions of Section 17.3 may be invoked by either Party.

7.1.3 Records. During the Product Term, Novartis will prepare and maintain accurate records and books relating to the progress and status of its activities respect to the Development of the Compound and Product in the Field in the Territory.

Section 7.2. Trademarks. Novartis (or its designated Affiliate) will own any trademarks used in commercializing Products in the Field in the Territory by or on behalf of itself or its Affiliates. Neither Party will use the name, symbol, trademark, trade name or logo of the other Party or its Affiliates in any press release, publication or other form of public disclosure without the prior written consent of the other Party, except for those disclosures for which consent has already been obtained or in accordance with Section 13.2.

Section 7.3. Regulatory Activities; Responsibility and Ownership.

7.3.1 Ayala owns and shall continue to own and control the IND and all non-U.S. equivalents that exist as of the Effective Date for the Compound (the “Existing Regulatory Filings”). Ayala will promptly, but not earlier than [***] after the Effective Date, provide Novartis and/or the FDA with a letter of authorization for cross-reference of the Existing Regulatory Filings relating to the Compound and/or Products in the United States in the Field. Ayala will also provide to Novartis (in the format and scope of data included, as agreed upon by the Parties) additional information and data deemed necessary to permit Novartis to submit its own regulatory filings (i.e., INDs or CTAs) for the Compound and/or Product in the Field in the Territory, and will provide any updates to such information to Novartis promptly during the Product Term. Ayala

 

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shall, and hereby does, grant to Novartis a right of reference to and use of the Existing Regulatory Filings in the United States in connection with seeking and maintaining Regulatory Approval relating to the Compound and/or Products in the United States in the Field. During the Product Term, Ayala will update the Existing Regulatory Filings as required by Applicable Law and maintain the Existing Regulatory Filings in full force and effect in the jurisdictions of their submission and provide a copy to Novartis of any sections of such Regulatory Filings (and any associated documentation, data and information) that may be reasonably applicable to Novartis. If requested by Novartis, Ayala will use its Commercially Reasonable Efforts to make itself and its representatives reasonably available to answer questions from Novartis and/or the Regulatory Authorities in a timely manner relating to the Existing Regulatory Filings, and any data included in the Existing Regulatory Filings, and any updates thereto. To the extent that any Regulatory Authority raises concerns or questions to Ayala relating to the Compound and/or Product that could reasonably affect the Development and/or Commercialization of the Compound and/or Product in the Field, Ayala will promptly inform Novartis and provide a copy of any associated correspondence to Novartis for Novartis’ use in the Field. [***].

7.3.2 Novartis will be solely responsible for implementing all pre-Regulatory Approval regulatory plans and strategies for and preparing and submitting applications for all Regulatory Approvals for the Development and Commercialization of the Compound and/or Product in the Field in the Territory, including INDs and NDAs (and all non-U.S. equivalents), and will own all such associated regulatory filings in which Novartis and/or its Affiliates is the sponsor. To the extent that any Regulatory Authority raises concerns or questions to Novartis relating to the Compound and/or Product that could reasonably affect the Development and/or Commercialization of the Compound and/or Product outside the Field, Novartis will promptly inform Ayala and provide a copy of any associated correspondence to Ayala for Ayala’s use outside the Field and Novartis shall otherwise provide Ayala a copy of any correspondence with any Regulatory Authority related to the Compound and/or Product generated by Novartis as soon as reasonably practicable; provided, that in all such cases, Novartis shall have the right to redact from such document provided to Ayala any portions thereof relating to any compound or material other than the Compounds and Products or to the extent such information or correspondence relates solely to the Field.

7.3.3 Ayala will be solely responsible for implementing all pre-Regulatory Approval regulatory plans and strategies for and preparing and submitting applications for all Regulatory Approvals for the Development and Commercialization of the Compound and/or Product worldwide outside of the Field, including INDs and NDAs (and all non-U.S. equivalents), and will own all such associated regulatory filings in which Ayala and/or its Affiliates is the sponsor. To the extent that any Regulatory Authority raises concerns or questions to Ayala relating to the Compound and/or Product that could reasonably affect the Development and/or Commercialization of the Compound and/or Product in the Field, Ayala will promptly inform Novartis and provide a copy of any associated correspondence to Novartis generated by Novartis. In no event will Ayala provide, or be required to provide, any information or correspondence relating to any compound or material other than the Compounds and Products. [***].

 

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Section 7.4. Commercialization. Novartis (itself or through an Affiliate) will be responsible for Commercialization activities for Products in the Field in the Territory and [***] (although such activities may be performed through an Affiliate or Third Party). Novartis will use Commercially Reasonable Efforts to Commercialize Products in in the Field in the Territory.

ARTICLE VIII

OWNERSHIP AND INTELLECTUAL PROPERTY

Section 8.1. Ownership. Except as expressly provided in this Agreement, each Party shall retain and own all right, title and interest in and to all Intellectual Property Controlled by such Party or its Affiliates as of the Effective Date or acquired, in-licensed or generated, invented or discovered by such Party or its Affiliates outside the Program. As between the Parties, Ayala is and will be sole owner of the Ayala Intellectual Property that exists as of the Effective Date.

Section 8.2. Ayala Improvements and Program Improvements.

8.2.1 Ayala will own any inventions relating to the Compound and/or Product and its use created, conceived of, or reduced to practice solely or jointly by or on behalf of it or its Affiliates in the conduct of its own Development of the Compound and/or Product outside of the Program (“Ayala Improvements”). All such Ayala Improvements arising in the Option Term will be deemed to be Ayala Intellectual Property and subject to the Option and license as set forth in this Agreement.

8.2.2 Novartis will own any Program Improvements, provided that, Novartis hereby grants to Ayala and its Affiliates an exclusive, worldwide, fully paid and royalty free license and right (with the right to grant sublicenses through multiple tiers without the consent of or any accounting to Novartis) to practice such Program Improvements solely in connection with the research, Development and Commercialization of the Compound and/or Product after termination of this Agreement for any reason. Novartis will retain all other rights to such Program Improvements.

Section 8.3. Ayala Patents.

8.3.1 Solely with respect to those Ayala Patents of which Ayala has control over maintenance and/or prosecution, as applicable, and subject in all cases to the terms and conditions of the BMS License Agreement:

(a) Ayala shall have the right, but not the obligation, to (i) prosecute and maintain Ayala Patents by duly filing all necessary papers and [***] required for such purpose by the Patent laws of the particular country in which such Ayala Patent was granted, and (ii) obtain such Patent extensions or restorations of Patent terms as may become available from time to time in any country regarding Ayala Patents. Ayala will keep Novartis reasonably informed of the status of the prosecution and maintenance of the Ayala Patents in the Territory and will provide copies of any correspondence received from patent agencies with respect to such Ayala Patents. If either Party receives any information indicating or otherwise determines that the Ayala Patents may be invalid or unenforceable, anywhere in the Territory, the Party receiving the information or otherwise making that determination will give the other Party prompt written notice of such information.

 

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(b) Ayala shall bear the [***] responsibility for maintenance of issued Patents included within the Ayala Patents. If Ayala elects not to support (or to continue the support of) the preparation, filing or prosecution of one or more patent applications included in the Ayala Patents or the maintenance of one or more issued Ayala Patents (whether worldwide or on a country-by-country basis), Ayala shall give prompt written notice to Novartis and Novartis may, at its election, assume title to and responsibility for (including responsibility for [***]) the preparation, filing and prosecution of the relevant patent application or the maintenance of the issued patent in one or more of such jurisdictions; provided that following receipt of Novartis’ election to assume title to such patents, (a) Ayala shall promptly assign all of its right, title, and interest to such patent application and/or patents to Novartis or its designee; and (b) such patents will cease to be deemed Ayala Patents for the purpose of this Agreement.

Section 8.4. Novartis Patents Included in Program Improvements. If Novartis elects not to support (or to continue the support of) the preparation, filing or prosecution of one or more patent applications included in the Program Improvements or the maintenance of one or more issued patents included in the Program Improvements (whether worldwide or on a country-by- country basis), Novartis shall give prompt written notice to Ayala and Ayala may, at its election, assume title to and responsibility for (including responsibility for all costs for) the preparation, filing and prosecution of the relevant patent application or the maintenance of the issued patent in one or more of such jurisdictions; provided that following receipt of Ayala’s election to assume title to such patents, (a) Novartis shall promptly assign all of its right, title, and interest to such patent application and/or patents to Ayala or its designee; and (b) such patents will cease to be deemed Program Improvements for the purpose of this Agreement.

ARTICLE IX

INFRINGEMENT BY OR CLAIMS AGAINST THIRD PARTIES

Section 9.1. Notices. Each Party will advise the other promptly upon its becoming aware of: (a) any unlicensed activities which such Party believes may be an actual or impending infringement in the Territory of any Ayala Intellectual Property or otherwise with respect to the Compound or a Product or the Development, Manufacture or Commercialization thereof in the Field in the Territory; (b) any attack on or appeal of the grant of any Ayala Patent; (c) any application for Patent by, or the grant of a Patent to, a Third Party in respect of rights which may be related to the Compound or a Product so as to potentially affect the Development, Manufacture or Commercialization thereof in the Field or which may claim the same subject matter as or conflict with any Ayala Patent; or (d) any application made for a compulsory license under any Ayala Patent. Novartis acknowledges and agrees that any such information may be shared with BMS in accordance with the BMS License Agreement and that BMS has certain rights and obligations thereunder with respect to enforcement of any such matters.

 

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Section 9.2. Control of Defense. Subject in all cases to the terms and conditions of the BMS License Agreement:

9.2.1 Prior to Option Exercise Date. Prior to the Option Exercise Date, Ayala will have the right [***] to take whatever legal or other action is required in response to activities requiring notice under Section 9.1 (“Protective Action”) and will notify Novartis as promptly as practicable of its determination whether or not to take such action. If Ayala engages in such Protective Action, Novartis will [***] cooperate fully with Ayala in such action. Each Party, as well as BMS, may participate and be represented by counsel of its own selection [***] in such Protective Action (except as provided above), but Ayala will have the right to control such action. Any recovery obtained by Ayala as a result of such Protective Action, whether by judgment, award, decree or settlement, will be [***]. If Ayala determines it will not engage in such Protective Action, and BMS does not elect to undertake such Protective Action pursuant to the terms of the BMS License Agreement, following the Option Exercise Date, Novartis shall thereafter have the right to take such Protective Action and will notify Ayala as promptly as practicable of its determination whether or not to take such action, provided that Novartis shall first consult with Ayala concerning the reasons Ayala elected not to bring such action and shall consider those reasons in good faith in deciding whether to bring such action. Ayala and BMS shall have the right to participate and be represented in any such suit by its own counsel [***].

9.2.2 Following Option Exercise Date. Following the Option Exercise Date, Novartis will have the right [***] to take Protective Action and will notify Ayala as promptly as practicable of its determination whether or not to take such action. If Novartis engages in such Protective Action, Ayala will [***] cooperate fully with Novartis in such action. Each Party, as well as BMS, may participate and be represented by counsel of its own selection [***] in such Protective Action (except as provided above), but Novartis will have the right to control such action. Any recovery obtained by Novartis as a result of such Protective Action, whether by judgment, award, decree or settlement, will be [***]. If Novartis notifies Ayala that it will not engage in such Protective Action, Ayala shall thereafter have the right to take such Protective Action and will notify Novartis as promptly as practicable of its determination whether or not to take such action, provided that Ayala shall first consult with Novartis concerning the reasons Novartis elected not to bring such action and shall consider those reasons in good faith in deciding whether to bring such action. Novartis and BMS shall have the right to participate and be represented in any such suit by its own counsel [***].

9.2.3 Settlements. No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a Ayala Patent in the Field may be entered into by Novartis without the prior written consent of Ayala and BMS, which consent shall not be unreasonably withheld, delayed or conditioned, and further, no settlement of any such action or proceeding which pertains to the infringement of the Ayala Patents by virtue of the Development or Commercialization of a Compound in the Field by a Third Party may be entered into by Novartis without the prior written consent of Ayala or BMS, which consent shall not be unreasonably withheld, delayed or conditioned.

9.2.4 Withdrawal. After the Option Exercise Date, if either Party brings an action or proceeding under this Section 9.2 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall within a reasonable period of time notify the other Party and the other Party (or, in the case of Novartis, BMS or Ayala) may substitute itself for the withdrawing Party under the terms of this Section 9.2.

 

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ARTICLE X

INFRINGEMENT OF THIRD PARTY RIGHTS

Section 10.1. Third Party Claims, Infringement and Misappropriation. During the Product Term, Novartis and Ayala will each promptly notify the other of (a) any Claim by a Third Party against Novartis or Ayala, or any Affiliate or sublicensee of Ayala or Novartis, alleging infringement of such Third Party’s intellectual property rights as a result of the Development, Manufacture or Commercialization of the Compound or a Product anywhere in the Territory; and (b) any information or notice that would reasonably indicate that the Compound could infringe any Third Party’s Patent rights or misappropriate any Third Party’s Know How. With respect to clause (a) of the prior sentence, the Parties will cooperate and use their good faith, commercially reasonable efforts to resolve such claimed infringement and will consult together as to the action to be taken and as to how the defense will be handled, with each Party entitled to participate in the defense and to be represented by counsel of its choice ([***]); provided, however, that if it appears reasonably likely that the claimed infringement will give rise to a Claim for indemnification hereunder, then the Party against whom such Claim for indemnification would be made will have the first right to defend against such Claim in accordance with Article XV below.

ARTICLE XI

REPRESENTATIONS AND WARRANTIES

Section 11.1. Representations and Warranties of Both Parties. Ayala and Novartis each hereby represents and warrants to the other, as of the Effective Date of this Agreement (and it shall be a condition to exercise of the Option that, as of the date of exercise of the Option, each is able to confirm to the other) as follows:

(a) It is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement.

(b) Neither it, nor any of its employees or consultants who shall be undertaking any activities related to this Agreement or the subject matter thereof, has been debarred or is the subject of debarment or other disciplinary proceedings by the FDA or any Regulatory Authority in the Territory.

(c) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to such Party in connection with its execution, delivery and performance of this Agreement.

(d) The execution, delivery and performance by it of this Agreement and the transactions contemplated thereby have been duly authorized by all necessary corporate action and stockholder action and will not (i) violate any Applicable Laws or (ii) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a Party or by which it or its properties may be bound or affected.

 

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(e) This Agreement is a legal, valid and binding obligation of such Party, enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditors’ rights generally and general principles of equity.

(f) It is not under any obligation to any Third Party, contractual or otherwise, that conflicts with the terms of this Agreement or that limits the rights of such Party to fulfill its obligations hereunder.

Section 11.2. Representations and Warranties of Ayala. Ayala hereby represents and warrants to Novartis, as of the Effective Date of this Agreement, as follows:

(a) Ayala owns or has the lawful right to grant the License.

(b) Ayala has received no notice of any Claim by any Third Party or any Ayala employee that (a) such Third Party or employee has any rights to the Ayala Intellectual Property or the Compound that prevent Ayala from granting to Novartis the License; Manufacture or Commercialization of the Compound within the Field as contemplated hereby infringes any Third Party rights; or (c) the Ayala Patents (to the extent representing issued Patents) are invalid or unenforceable.

(c) Product supplied by Ayala hereunder (a) will meet the applicable Product Specifications for the intended use, (b) will not be adulterated or misbranded within the meaning of the Act, and (c) will be Manufactured in accordance with GMPs; provided, however, that Ayala may supply Product not Manufactured in accordance with GMPs if specifically intended for non-human testing and as agreed to in writing by Novartis.

(d) Ayala has provided to Novartis a redacted text of the BMS License Agreement. None of the terms redacted from the BMS License Agreement impair, or have the ability to impair, Ayala’s ability to perform its obligations under this Agreement or Novartis’ rights under the License. Ayala has not received any notice or other communication from BMS regarding any breach by Ayala of its obligations under the BMS License Agreement.

(e) Other than the BMS License Agreement, to Ayala’s knowledge as of the Effective Date, after reasonable inquiry of existing information reasonably available to Ayala, there are no other agreements to which Ayala is a Party or to which Ayala is subject which impair, or have the ability to impair, Ayala’s ability to perform its obligations under this Agreement or Novartis’ rights under the License.

(f) To Ayala’s actual knowledge as of the Effective Date (without any inference or duty of investigation), there are no errors in the inventorship set forth in any of the Patent applications comprising Ayala Patents.

 

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(g) To Ayala’s actual knowledge as of the Effective Date (without any inference or duty of investigation), there is no litigation threatened, impending or existing relating to the Ayala Intellectual Property.

(h) To Ayala’s actual knowledge as of the Effective Date (without any inference or duty of investigation), and except for any items cited or referred to in any of the Ayala Patents, there are no publications, issued Patents, published Patent applications or public disclosures that could reasonably be expected to provide a sufficient basis to render invalid or unenforceable any of the Ayala Patents.

(i) To Ayala’s actual knowledge as of the Effective Date (without any inference or duty of investigation), there are no Third Party Patents, published Patent applications, or publications not yet disclosed to Novartis that could reasonably be expected to impair Novartis’ rights under the License.

Section 11.3. MUTUAL LIMITATIONS ON WARRANTIES. EXCEPT AS SET FORTH IN SECTIONS 11.1 AND 11.2, OR OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, THE PARTIES MAKE NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY AS TO NON-INFRINGEMENT, VALIDITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF TRADE.

ARTICLE XII

COVENANTS; EXCLUSIVITY

Section 12.1. Covenants of the Parties.

12.1.1 Compliance with Laws. Throughout the Product Term, Ayala and Novartis will comply in all material respects with all Applicable Laws, including the Act, concerning the Development, Manufacture and Commercialization of the Compound and the Products in the Field in the Territory.

12.1.2 Pharmacovigilance. Prior to the dosing of the first patient in any human clinical trial in the Program, the Parties will enter into a commercially reasonable pharmacovigilance agreement (the “Pharmacovigilance Agreement”), which will govern the exchange, sharing, and reporting of adverse event information. From the Effective Date until entry into the Pharmacovigilance Agreement, Ayala shall retain sole responsibility for and be the primary contact for pharmacovigilance matters in respect of the Product outside the Field, subject to the terms of Section 2.4. After the Option Exercise Date and following entry into the Pharmacovigilance Agreement, Ayala will allow Novartis to comply (and Novartis will be responsible for complying) with the adverse reaction reporting requirements of the Act, and other comparable Applicable Laws outside the United States, with respect to Compound or Products in the Field.

 

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12.1.3 Further Assurances. The Parties will execute and deliver any further or additional instruments or documents and perform any acts which may be reasonably necessary in order to effectuate and carry out the purposes of this Agreement.

Section 12.2. Exclusivity.

12.2.1 Non-Compete. During the period commencing on the Option Exercise Date and continuing until the end of the Product Term, except as explicitly contemplated in this Agreement with respect to the Compound and Products, (a) each Party agrees not to, and shall cause its Affiliates not to, directly or indirectly, alone or with any Third Party (including by license or assignment of Patents), research, Develop or Commercialize any Exclusivity Product in the Field in the Territory; and (b) Ayala agrees not to, and shall cause its Affiliates not to, directly or indirectly, alone or with any Third Party (including by license or assignment of Patents), research, Develop or Commercialize the Compound and/or Product in the Field.

12.2.2 Acquired Programs.

(a) Notwithstanding anything to the contrary in this Agreement, in the event of an acquisition of a Party or its business after the Option Exercise Date by a Third Party (an “Acquirer”) whether by merger, asset purchase or otherwise and such Acquirer controls any program(s) that but for this Section 12.2.2, would violate Section 12.2.1 (each such program, a “Competing Program”), then the Acquirer and any Affiliate of the Acquirer that becomes an Affiliate of the acquired Party as a result of such acquisition (but excluding the acquired Party), shall not be subject to the restrictions in Section 12.2.1 as to any such Competing Programs in existence prior to the closing date of such acquisition, or for the subsequent Development and Commercialization of such Competing Programs (including new products from any such Competing Programs); provided, however, that no Know-How or Patents of the other Party are used by or on behalf of the Acquirer of the acquired Party (or any Affiliate of such Acquirer) in more than a de minimis fashion in connection with such subsequent Development and Commercialization of any Competing Programs.

(b) Notwithstanding anything to the contrary in this Agreement, in the event a Party or any of its Affiliates (the “Acquiring Party”) acquires or otherwise obtains rights to Develop or Commercialize any Exclusivity Product as the result of any license, merger, acquisition, reorganization, consolidation or combination with or of a Third Party or change of control of such Party or any other transaction (each, an “Acquisition Transaction”, and the Third Party involved in such transaction, the “Acquisition Third Party”) and, on the date of the completion of such Acquisition Transaction, such Exclusivity Product is being Developed or Commercialized in or by such Acquisition Third Party in a matter that, if done by such Party, would violate such Party’s exclusivity obligations in Section 12.2.1, then the Acquiring Party or such Affiliate will, within [***] after the closing of such Acquisition Transaction, provide written notice to the other Party that the Acquiring Party or such Affiliate has acquired rights to Develop or Commercialize a Exclusivity Product as a result of an Acquisition Transaction. Within [***] after the receipt of such notice, the Acquiring Party will (i) give notice of its intent to divest its rights to such Exclusivity Product, or (ii) cease the Development and Commercialization of such Exclusivity Product. Alternatively, the Parties may, upon mutual written agreement, elect to include such Exclusivity Product as if it were a “Product” for all purposes of this Agreement (including determination of Net Sales, milestone payments, and other payments, consistent with the terms of this Agreement, provided that any such payments will be payable on such Exclusivity Product in addition to being payable on all Products), which election will be effective retroactively to the date of the closing of such Acquisition Transaction. [***].

 

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ARTICLE XIII

CONFIDENTIAL INFORMATION

Section 13.1. Confidentiality.

13.1.1 General Obligations of Non-Use and Non-Disclosure. Each Party agrees that during the Product Term and at all times thereafter, it shall keep, and cause its Affiliates and sublicensees, if any, to keep confidential all Confidential Information of the other Party using not less than the efforts such Party uses to maintain in confidence its own proprietary industrial information of similar kind and value, and neither Party nor any of its Affiliates or sublicensees, if any, will use or disclose to any Third Party the Confidential Information of the other Party except as expressly permitted in this Agreement. The Parties acknowledge that Confidential Information may have been disclosed by either Party or its Affiliates to the other Party or its Affiliates pursuant to the Confidentiality Agreement. All information disclosed pursuant to the Confidentiality Agreement will be deemed Confidential Information of the Disclosing Party within the meaning of this Agreement and subject to the terms hereof.

13.1.2 Permitted Disclosures. Notwithstanding the foregoing, the Receiving Party may (a) disclose it to government agencies and others where such information may be required to be included in Patent applications or regulatory filings permitted under the terms of this Agreement; (b) provide it to Third Parties solely on a “need to know” basis under agreements including confidentiality and non-use provisions at least as restrictive as those in this Agreement for consulting, market research, Manufacturing, Development, and preclinical and clinical testing with respect to the Products in connection with performance under this Agreement; (c) prosecuting or defending litigation in relation to the Ayala Intellectual Property or this Agreement, including responding to a subpoena in a Third Party litigation, provided it has used good faith and reasonable efforts to obtain a protective order for such Confidential Information or (d) publish it if and to the extent such publication has been approved in writing by the Disclosing Party. In each of the foregoing cases, the Receiving Party will use diligent efforts to limit the disclosure and maintain confidentiality to the extent possible and the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article XIII to treat such Confidential Information as required under this Article XIII. If and whenever any Confidential Information is disclosed in accordance with this Section 13.1.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 13.1.3, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to this Section 13.1.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

 

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13.1.3 Required Disclosures. The Receiving Party will be entitled to disclose Confidential Information where such disclosure is reasonably necessary to enforce its rights pursuant to this Agreement or where demand for such disclosure is made on the Receiving Party pursuant to: (a) a valid order of a court or other Governmental Authority or (b) any other Applicable Laws; provided that if the Receiving Party intends to make such disclosure or receives such demand, the Receiving Party shall give the Disclosing Party prompt notice of such fact to enable the Disclosing Party to seek a protective order or other appropriate remedy concerning any such disclosure. The Receiving Party will fully co-operate with the Disclosing Party at the Disclosing Party’s expense in connection with the Disclosing Party’s efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude disclosure, the Receiving Party will make such disclosure only to the extent that such disclosure is legally required.

13.1.4 Terms of this Agreement. The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. For the avoidance of doubt, this Section 13.1.4 shall in no way prevent a Party from disclosing the existence of this Agreement or any terms of this Agreement in order to seek legal advice whenever deemed appropriate by such Party or to enforce such Party’s rights under this Agreement, whether through arbitral proceedings, court proceedings or otherwise, or to defend itself against allegations or claims relating to this Agreement, or to comply with Applicable Law (except as provided in Section 13.3 below) when advised in a written opinion of outside counsel that terms of the Agreement are required to be disclosed to comply with Applicable Law.

13.1.5 Acknowledgment. Each Party hereby acknowledges that the Confidential Information of the other Party is highly valuable, proprietary and confidential and that any disclosure to any officer, employee, or agent of such Party or any of its Affiliates will be made only to the extent necessary to carry out its responsibilities under this Agreement and only if such officer, employee or agent is informed of the confidential nature thereof and shall have agreed to hold such information in confidence under confidentiality provisions at least as stringent as those provided in this Agreement.

13.1.6 Remedies. The Parties agree that the obligations of this Section 13.1 are necessary and reasonable in order to protect the Parties’ respective businesses, and that monetary damages alone may be inadequate to compensate a Party for any breach by the other Party of its covenants and agreements set forth herein. The Parties agree that any breach or threatened breach of this Section 13.1 may cause irreparable injury to the injured Party for which damages may not be an adequate remedy and that, in addition to any other remedies that may be available, in law and equity or otherwise, such Party will be entitled to seek equitable relief against the breach or threatened breach of the provisions of this Section 13.1.

13.1.7 Destruction or Return. Following termination or expiration of this Agreement for any reason and at the request of the other, each Party will destroy all physical records or embodiments of Confidential Information of the other Party or return such information to the other Party, at the returning Party’s expense, and an officer of such Party shall certify to the other Party that all such items have been so returned or destroyed; provided, however, that each Party will be entitled to maintain one copy of the Confidential Information of the other Party solely for the purpose of monitoring its continuing obligations hereunder.

 

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Section 13.2. Disclosure to Investors; Public Announcements. The Parties have agreed on an initial press release of the transaction contemplated by this Agreement which is attached hereto as Exhibit D-1 (the “Initial Press Release”) and a conditional follow-on press release for issuance following exercise of the Option hereunder which is attached hereto as Exhibit D-2 (the “Follow-On Press Release”). The Initial Press Release may be issued by Ayala or Novartis after the Effective Date, and the Follow-On Press Release may be issued or used by Ayala or Novartis solely after the Option Exercise Date. Other than the Initial Press Release, and, if applicable, the Follow-On Press Release, neither Party will originate any publicity, news release or public announcement, written or oral, whether to the public, the press, stockholders or otherwise, disclosing the performance under this Agreement or any of its specific terms and conditions without the prior written approval of the other Party, except such announcements, as in the opinion of the counsel for the Party making such announcement, are required by law. If a Party decides to make an announcement it believes to be required by Applicable Laws with respect to this Agreement, it will give the other Party such notice as is reasonably practicable and the Parties will work together in good faith to attempt to agree on the content of the disclosure. Notwithstanding the foregoing, Ayala will also have the right to provide investors and potential investors in Ayala with information regarding this Agreement and the terms thereof either (a) pursuant to confidentiality restrictions at least as stringent as those set forth herein which are binding on such Persons or (b) in disclosure documents filed in connection with a public offering or as a public company, provided that Novartis has approved such disclosure (such approval not to be unreasonably withheld or delayed) and Ayala has made all permitted redactions under applicable regulatory requirements. Notwithstanding the foregoing, or anything in this Agreement to the contrary, nothing in this Agreement will prevent Ayala or its designee from disclosing Program Improvements or from filing Patent applications which may include Program Improvements or Novartis’ Confidential Information.

Section 13.3. Securities Filings. Notwithstanding anything to the contrary in this Agreement, in the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act, of 1934, as amended, any other securities Applicable Law or the rules of any national securities exchange, the Party shall notify the other Party of such intention and shall use reasonable efforts to provide such other Party with a copy of relevant portions of the proposed filing not less than [***] prior to (but in no event later than [***] prior to) such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to this Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which is legally required to be disclosed. No such notice shall be required under this Section 13.3 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the either Party hereunder or otherwise approved by the other Party.

 

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ARTICLE XIV

TERM AND TERMINATION

Section 14.1. Term. This Agreement will remain in effect for the Product Term.

Section 14.2. Termination by Ayala.

14.2.1 For Material Breach. Ayala may terminate this Agreement immediately in the event of a material breach by Novartis or its Affiliates of this Agreement, provided that Novartis has received written notice from Ayala of such breach, specifying in reasonable detail the particulars of the alleged breach, and such breach has not been cured within sixty (60) days after the date of the relevant notice. In the event that such a breach (other than the nonpayment of a material amount due where such amount is subject to a bona fide dispute between the Parties) may not be reasonably cured in sixty (60) days, then such cure period will be extended for an additional period during which Novartis is making good faith efforts to cure such breach.

14.2.2 For Patent Challenge. If Novartis (or any of its Affiliates) challenges or knowingly supports a Third Party in challenging (other than in response to a subpoena or court order), in a judicial or administrative proceeding, including by providing information, documents, or funding, the validity, scope or enforceability of or otherwise opposes any of the Ayala Patents, this Agreement will continue in full force and effect; provided, however, that the milestone payments set forth in Section 5.1.1 and 5.1.2 for any unachieved milestones, and the royalties payable as set forth in Section 5.2, will be [***], and [***].

14.2.3 For Failure to Develop or Commercialize. Ayala shall have the right to terminate this Agreement in its entirety in the event that Novartis fails to fulfill its obligations to Develop Compounds and/or Products in accordance with Section 7.1.1 or to Commercialize Products in accordance with Section 7.4, provided that Novartis has not cured such breach within four (4) months following written notice by Ayala which notice shall be labeled as a “notice of material breach for failure to use Commercially Reasonable Efforts,” and in the case of an alleged breach of Section 7.4, identifies the countries in the Territory in which such breach has occurred. Any such termination of this Agreement shall become effective at the end of the applicable cure period, unless Novartis has cured any such breach or default prior to the expiration of such cure period. The cure period shall be tolled pending resolution of any bona fide dispute between the Parties as to whether any such material breach has occurred.

14.2.4 Consequences of Termination Pre-Option Exercise Date. If Ayala terminates this Agreement pursuant to Section 14.2.1, or Section 14.2.3 before the Option Exercise Date, (a) all rights to Ayala Intellectual Property granted to Novartis, and any other rights granted by Ayala hereunder, will automatically terminate and (b) Ayala will have the rights specified in Section 3.4.

 

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14.2.5 Consequences of Termination Post-Option Exercise Date. If Ayala terminates this Agreement pursuant to Section 14.2.1 or Section 14.2.3 after the Option Exercise Date, the License granted to Novartis, and any other rights granted by Ayala hereunder, will automatically terminate and the following obligations will apply (the “Program Transfer Provisions”):

(a) Novartis will promptly provide to Ayala complete documentation of all preclinical and clinical data and all regulatory data, in each case regarding Compound or any Product and generated by or on behalf of Novartis, and Novartis shall grant and does hereby grant to Ayala a worldwide, irrevocable, exclusive license (with the right to sublicense) for the use of all such data solely to research, Develop, Manufacture, have Manufactured and Commercialize Compound and Products whether within or outside the Field; provided, however, that Novartis will not be required to transfer or grant a license to any CMC, preclinical and clinical data and all regulatory data relating to any Novartis-or Third Party-proprietary compound or product or the combination of the Compound and/or Product with a Novartis- or Third Party-proprietary compound or product. For the avoidance of doubt, in no event will Novartis be required to transfer Regulatory Approvals for the Compound or Product or to otherwise maintain such Regulatory Approvals in force or effect other than with respect to an NDA in the United States or an equivalent marketing authorization elsewhere in the Territory, or to provide any information or data (or transfer any regulatory filings, regulatory correspondence, or Regulatory Approvals) relating to any compound or product other than the Compound and/or Product. If, at the time of termination, patients are enrolled in a Novartis-sponsored study or studies involving the Compound or any Product as single agent or in combination, and such patients are required for ethical or otherwise legal reasons to be offered continued treatment, both Parties will seek a joint solution to ensure that such patients continue to receive the necessary treatment, which may include the need for Novartis to maintain the sponsorship of such clinical study or studies until approval for an alternative access mechanism is obtained and/or such patients discontinue participation in the studies, whichever comes first.

(b) Where any Third Party rights have been obtained by Novartis or its Affiliates for purposes of the Program, and in each case solely for purposes of Developing, Manufacturing, having Manufactured and Commercializing Compound and any Products, Novartis will, if practical, provide Ayala the opportunity to acquire a non-exclusive license under such Third Party rights where Controlled by Novartis, such terms, to the extent reasonably practicable, to be on the same financial terms as Novartis or its Affiliates have with respect to such Third Party rights.

(c) Novartis will offer to sell to Ayala, [***], any supplies of Compound and any other inventories or supplies obtained by Novartis or its Affiliates for purposes of the Program. Ayala will have [***] following the effective date of termination to notify Novartis in writing that it elects to purchase any such Compound or supplies.

(d) Novartis will make personnel (as well as the personnel of its Affiliates) reasonably available to Ayala to effect an orderly transition to Ayala of the information and rights contemplated above in this Section 14.2.5 for a period of up to [***] following the transfer of the documentation set forth in Section 14.2.5(a).

 

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(e) As to any Product which is being marketed under a trademark Controlled by Novartis or its Affiliates used exclusively with Products, Novartis will offer to grant (or cause its Affiliate to offer to grant) Ayala a worldwide, exclusive license (with the right to sublicense) for the use of such trademark solely to make, have made, use, import, offer to sell, sell, and have sold such Products, on mutually agreeable terms. Ayala will notify Novartis in writing prior to the effective date of termination if it elects (on a Product-by-Product basis, if applicable) to enter into a license with respect to such trademark.

Section 14.3. Termination by Novartis.

14.3.1 For Material Breach or Bankruptcy Event. Novartis may terminate this Agreement upon written notice to Ayala (a) in its entirety or on a country-by-country basis for any reason, upon sixty (60) days’ written notice to Ayala, (b) immediately in the event of a material breach by Ayala or its Affiliates of this Agreement, provided that Ayala has received written notice from Novartis of such breach, specifying in reasonable detail the particulars of the alleged breach, such breach is continuing for sixty (60) days after such notice and such breach has not been cured within such sixty (60) day period (except that, in the event such breach may not be reasonably cured in sixty (60) days, then such cure period will be extended for an additional period during which Ayala is making good faith attempts to cure such breach); and (c) immediately in the event (i) that Ayala becomes insolvent or is unable to pay its debts when due; (ii) Ayala files a petition in bankruptcy, reorganization or similar proceeding, or, if such a petition is filed against Ayala, such petition is not dismissed within [***]; (iii) Ayala discontinues its business; or (iv) a receiver is appointed or there is an assignment for the benefit of Ayala’s creditors.

14.3.2 Consequences of Termination Pre-Option Exercise Date. If Novartis terminates this Agreement pursuant to Section 14.3.1(a) before the Option Exercise Date, Ayala will have the rights specified in Section 3.4.

14.3.3 Consequences of Termination Post-Option Exercise Date. If Novartis terminates this Agreement pursuant to Section 14.3.1(a) after the Option Exercise Date, the Program Transfer Provisions will apply.

14.3.4 Certain Sell-Off Rights. For the avoidance of doubt, upon Novartis’ termination of this Agreement pursuant to Section 14.3.1(a), Novartis’ rights included in the relevant licenses granted by Ayala to Novartis under this Agreement will immediately and automatically revert to Ayala; provided, however, that Novartis will have [***] from Novartis’ termination of this Agreement to complete the sale of any Product then in inventory, subject to payment of royalties and milestone payments pursuant to Article V. Any such Compounds that are GMP shall be accompanied by a certificate of analysis, certificate of manufacturing, batch records and other such documentation, information materials as may be required under Applicable Laws to enable sale of such materials, including written certification that such materials were both (a) manufactured, and (b) stored and handled at all times following such manufacture, in accordance with GMP.

14.3.5 Certain Consequences of Termination. If Novartis terminates the Agreement pursuant to Section 14.3.1(b) or (c), then (a) Ayala’s License grant to Novartis will convert to an irrevocable exclusive License, with the right to sublicense, and will survive termination, and (b) the obligations of the Parties under Article V will also survive such termination in addition to the other Sections identified in Section 14.5; provided, however, that if the facts that form the basis of the termination have, or are likely to have, a material adverse effect

 

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on the Development or Commercialization of the Compound or Products, Novartis may elect to pursue, through dispute resolution as contemplated by Section 17.3, a downward adjustment of the amount of any royalty or milestone payments otherwise due from Novartis to Ayala under Article V following the effective date of such termination, with the intent of the Parties being that in this limited circumstance the arbitrator(s) will have the authority to lower such payment amounts (if the arbitrators determine that, in fact, any adjustment is warranted) to those which are determined by the arbitrator(s) to be reasonable (i.e., such as would have prevailed at the time of the original negotiation of this Agreement) in light of the facts leading to the termination and the economic expectations of Novartis in entering into this Agreement (with the Parties expressly acknowledging that any such adjustment will not, with reference to any other provision of this Agreement, be construed as consequential or otherwise impermissible damages); This provision is not intended as an exclusive remedy and Novartis will retain any other rights it may have under such circumstances under Applicable Law.

Section 14.4. Rights and Duties Upon Termination or Expiration. Upon the termination or expiration of this Agreement, each Party will have the right to retain all payments from the other Party properly made pursuant to this Agreement, and each Party shall pay to the other all sums accrued hereunder which are then due.

Section 14.5. Survival. Upon termination or expiration of the Product Term, except as specifically provided herein to the contrary, all rights and obligations of the Parties under this Agreement will cease, except for the following rights and obligations which will survive such termination or expiration:

(a) If termination occurs prior to Novartis’ exercise of the Option, (i) Section 2.3.1(e), and (ii) the rights and obligations of the Parties under Section 3.4, as well as those provisions identified in Section 14.5(d) to Section 14.5(g) below.

(b) If termination occurs after the License to Novartis becomes an irrevocable License pursuant to Section 14.3.5, Novartis’ rights to the License under Section 4.1 (as converted to an irrevocable License) and right to sublicense under Section 4.2, the Parties’ rights and obligations pursuant to Article V, Section IX, Article IX and Sections 12.2 and 17.1, as well as those provisions identified in Section 14.5(c) to Section 14.5(g) below.

(c) All obligations for record keeping and accounting reports and inspection rights described in Section 5.2.6.

(d) The Parties’ rights and obligations with respect to intellectual property as described in Section 8.1 and Section 8.2.

(e) The Parties’ rights and obligations (including with respect to any representations or warranties made herein) arising prior to the effective date of such termination, or as a result of such termination, or which may thereafter come into being as the result of the breach of any of the terms or conditions of this Agreement that survive the termination or expiration of this Agreement pursuant to this Section 14.5.

 

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(f) The Parties’ rights and immunities pursuant to the disclaimers set forth in Section 11.3.

(g) The Parties’ rights and obligations under the following additional provisions: Article I (Definitions); Section 5.3 (Taxes); Section 5.5 (Financial Reporting); Article XIII (Confidential Information); Article XIV (Term and Termination); Article XV (Indemnification and Limitation of Liability); Section 17.2 (Governing Law); Section 17.3 (Dispute Resolution); Section 17.7 (Notices); Section 17.13 (Interest on Late Payments); Section 17.15; (Headings and References); Section 17.16 (Construction) and Section 17.17 (No Strict Construction).

ARTICLE XV

INDEMNIFICATION AND LIMITATION OF LIABILITY

Section 15.1. Indemnification by Novartis. In addition to any other rights Ayala may have at law or in equity, Novartis will indemnify, defend and hold harmless Ayala and its Affiliates and their respective employees, officers and directors, and their successors and assigns (each, a “Ayala Indemnified Party”), from and against any and all Damages which the Ayala Indemnified Party may incur, suffer or be required to pay to the extent resulting from or arising out of Claims by Third Parties and not subject to indemnification by Ayala pursuant to Section 15.2, arising out of or relating to: (a) the research, Development, Commercialization (including promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Compound or any Product by or for Novartis or any of its Affiliates, distributors, sublicensees, agents and contractors, including claims and threatened claims based on product liability, bodily injury, risk of bodily injury, death or property damage, infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights (except to the extent such infringement or misappropriation results from a breach of Section 11.2), or the failure to comply with Applicable Laws related to the matters referred to in this subsection (a) with respect to any Compound or any Product; (b) the enforcement and defense of the Ayala Patents by Novartis, its Affiliates, sublicensees, representatives and agents; (c) any breach of any representation, warranty or covenant of Novartis in this Agreement; and/or (d) the gross negligence, recklessness or willful misconduct of Novartis or its Affiliates or its or their respective directors, officers, employees and agents, in connection with Novartis’ performance of its obligations or exercise of its rights under this Agreement.

Section 15.2. Indemnification by Ayala. In addition to any other rights Novartis may have at law or in equity, Ayala will indemnify, defend and hold harmless Novartis and its Affiliates and their respective employees, officers and directors, and their successors and assigns (each, an “Novartis Indemnified Party”), from and against any and all Damages which the Novartis Indemnified Party may incur, suffer or be required to pay to the extent resulting from or arising out of Claims by Third Parties and not subject to indemnification by Novartis pursuant to Section 15.1, arising out of or relating to: (a) the research, Development, Commercialization (including promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Compound or any Product by or for Ayala or any of its Affiliates, distributors, sublicensees, agents

 

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and contractors outside of the Field, including claims and threatened claims based on product liability, bodily injury, risk of bodily injury, death or property damage, infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or the failure to comply with Applicable Laws related to the matters referred to in this subsection (a) with respect to any Compound or any Product; (b) based on any material breach of any representation, warranty or covenant of Ayala in this Agreement; and/or (c) the gross negligence, recklessness or willful misconduct of Ayala or its Affiliates or its or their respective directors, officers, employees and agents, in connection with Ayala’s performance of its obligations or exercise of its rights under this Agreement.

Section 15.3. Conditions of Indemnification of Third-Party Claims. The obligations and liabilities of an indemnifying Party under Section 15.1 or 15.2 hereof with respect to Damages resulting from Claims by Third Parties will be subject to the following terms and conditions:

(a) Promptly after the delivery of a notice seeking indemnification in respect of a Claim and subject to Section 15.3(c), the indemnifying Party may elect, by written notice to the indemnified Party, to undertake the defense thereof, at the sole cost and expense of the indemnifying Party. If the indemnifying Party chooses to defend any Claim, the indemnified Party shall cooperate with all reasonable requests of the indemnifying Party and shall make available to the indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense.

(b) In the event that the indemnifying Party, within a reasonable time after receipt of a notice seeking indemnification, does not so elect to defend such Claim, the indemnified Party will have the right (upon further notice to the indemnifying Party) to undertake the defense, compromise or settlement of such Claim for the account of the indemnifying Party, subject to the right of the indemnifying Party to assume the defense of such Claim pursuant to the terms of Section 15.3(a) at any time prior to settlement, compromise or final determination thereof, provided, that the indemnifying Party reimburses in full all costs of the indemnified Party (including reasonable attorney’s fees and expenses) incurred by it in connection with such defense prior to such assumption.

(c) Notwithstanding anything in this Section 15.3 to the contrary, if the indemnifying Party assumes the defense of any Claim, any indemnified Party will be entitled to participate in the defense, compromise or settlement of such Claim with counsel of its own choice at its own expense, provided, however, if the representation by the indemnifying Party’s counsel would present a conflict of interest, then such indemnified Party shall be entitled to participate in the defense, compromise or settlement of such Claim with counsel of its own choice at the expense of the indemnifying Party.

Section 15.4. Insurance. Novartis shall, beginning with the initiation of the first Clinical Study for a Product, maintain at all times thereafter during the Product Term, and until the later of (a) [***] after termination or expiration of this Agreement or (b) the date that all statutes of limitation covering claims or suits that may be brought for personal injury based on the sale or use of a Product have expired, insurance relating to the Product from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and for clinical trial and product liability, that is comparable in type and amount to the insurance

 

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customarily maintained by Novartis with respect to similar prescription pharmaceutical products that are marketed, distributed and sold in the Territory or otherwise participate in a commercially reasonable comparable program of self-insurance; provided that if Novartis does not market, distribute and sell any such similar pharmaceutical products, such insurance or program of self-insurance shall be comparable in type and amount to the insurance customarily maintained by a company within the bio-pharmaceutical industry. Novartis shall name Ayala as an additional insured on all related third party insurance policies relating to the Compound and/or Product. Within [***] following the initiation of the first clinical trial for a Product, and within [***] following any material change or cancellation in coverage, Novartis shall furnish to Ayala a certificate of insurance evidencing third party insurance coverage as of such date (if applicable), and in the case of cancellation, provide a certificate evidencing that Novartis’ replacement coverage meets the requirements in the first sentence of this Section 15.4. The foregoing insurance requirement shall not be construed to create a limit on the Novartis’ liability hereunder.

Section 15.5. Settlements. No Person who has undertaken to defend a Claim under Sections 15.3(a) or 15.3(b) will, without written consent of all indemnified Parties, settle or compromise any Claim or consent to entry of any judgment, provided, however, that such consent will not be required if such settlement, compromise or judgment (a) includes as an unconditional term thereof the release by the claimant or the plaintiff of all indemnified Parties from all liability arising from events which allegedly gave rise to such Claim and (b) contains no restriction, limitation or prohibition of any kind on the manner in which any indemnified Party conducts its business. Any payment made by a Party to settle a Claim against it without obtaining consent of the indemnifying Party will be [***]. Notwithstanding the foregoing, the indemnifying Party will be liable under this Article XV for any settlement effected without its consent if the indemnifying Party has refused to acknowledge liability for indemnification hereunder and/or declines to defend the indemnified Party in any such Claim, action or proceeding and it is determined that the indemnifying Party was liable to the indemnified Party for indemnification related to such settlement.

Section 15.6. Limitation of Liability. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL, OR LOSS OF BUSINESS); PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO ANY BREACH BY A PARTY OF Article XIII OR Section 12.2 HEREOF, THE WILLFUL BREACH, WILLFUL MISCONDUCT, OR GROSS NEGLIGENCE BY A PARTY, OR FOR AMOUNTS SOUGHT BY THIRD PARTIES IN CLAIMS THAT ARE SUBJECT TO THE PARTIES’ RESPECTIVE INDEMNITY OBLIGATIONS UNDER THIS Article XV.

 

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ARTICLE XVI

MANUFACTURING AND SUPPLY TERMS

Section 16.1. Manufacture and Supply of Product. Ayala (itself or through an Affiliate or a Third Party that is selected by Ayala and acceptable to Novartis) (the “Approved Manufacturer”) shall have the exclusive right and responsibility to Manufacture and supply Product for Novartis’ requirements and use in Development in the Field in the Territory prior to exercise of the Option, including the Clinical Evaluation Materials, in accordance with the terms and conditions of this Article XVI, the Supply Agreement, and the Quality Agreement. To the extent that Novartis requires additional supply of Product following the exercise of the Option to prevent disruption of supply for subsequent clinical trials, the Parties will negotiate in good faith the terms of a mutually acceptable supply agreement.

Section 16.2. Pass-Through Costs. Ayala shall have the right to invoice Novartis on a monthly basis for the costs associated with Development and contracting for Manufacture of the Compound and/or Product by any Approved Manufacturer.

ARTICLE XVII

MISCELLANEOUS

Section 17.1. Certain Events.

(a) It is the intention of Novartis and Ayala that Novartis’ rights under this Agreement will remain in place if Ayala files a petition in bankruptcy, is adjudicated as bankrupt or files a petition or otherwise seeks relief under any bankruptcy, insolvency or reorganization statue or proceeding, or a petition in bankruptcy is filed against it or is not dismissed within [***], or it becomes insolvent or makes an assignment for the benefit of creditors or a custodian, receiver or trustee is appointed for it or a substantial portion of its business or assets or it admits in writing its inability to pay its debts as they become due. It is the intention of Novartis and Ayala that Novartis’ exclusive rights and licenses to commercialize and market Products in the Field in the Territory continue, without impairment, if and after any bankruptcy event described in this Section 17.1(a).

(b) All rights and licenses granted under this Agreement by Ayala to Novartis are, and will otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses or other rights to “intellectual property” as defined under Section 101(52) of the Bankruptcy Code. Ayala and Novartis agree that Novartis, as licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code. Ayala and Novartis further agree that, in the event of the commencement of a bankruptcy proceeding by or against Ayala under the Bankruptcy Code, Novartis will be entitled, to the extent practicable, to a complete duplicate of all embodiments of such intellectual property, and such items, if not already in its possession, will be promptly delivered to Novartis upon (i) any such commencement of a bankruptcy proceeding unless Ayala elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, immediately upon the rejection of this Agreement by or on behalf of Ayala.

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

(c) If, under the Bankruptcy Code or successor similar law, a trustee in bankruptcy of Ayala, or Ayala, as debtor, desires to assign this Agreement to a Third Party in accordance with the Bankruptcy Code, the trustee or Ayala, as the case may be (in either case, the “Debtor”), shall notify Novartis. The notice will set out the name and address of the proposed assignee, the proposed consideration for the assignment and all other relevant data about the proposed assignment. The giving of this notice will constitute the grant to Novartis of an option to have this Agreement assigned to Novartis or to Novartis’ designee for the consideration, or its equivalent in money, and upon the terms specified in the notice. The option may be exercised only by notice given by Novartis to the Debtor no later than [***] after Novartis’ receipt of the notice from the Debtor unless a shorter period is deemed appropriate by the court in the bankruptcy proceeding. If Novartis does not exercise its option in a timely manner, then the Debtor may complete the assignment, but only if the assignment is to the entity named in the notice and for the consideration and upon the terms specified in the notice. Nothing in this Section 17.1 is intended to impair any rights which Novartis may have as a creditor in the bankruptcy proceeding.

Section 17.2. Governing Law. For all matters other than the scope and validity of Patents, this Agreement shall be deemed to have been made in the State of New York and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of law thereof and the Parties agree to the personal jurisdiction of and venue in any federal court located in the Southern District of New York or state court located in New York County, New York. The application of the United Nations Convention for Contracts for the International Sales of Goods is hereby expressly excluded.

Section 17.3. Dispute Resolution. Any dispute, claim or controversy arising out of or relating to this Agreement will be resolved in accordance with Exhibit E attached hereto.

Section 17.4. Assignment and Binding Effect.

(a) This Agreement may not be assigned by either Party without the prior written consent of the other, except as otherwise permitted under this Section 17.4.

(b) Either Party may assign this Agreement to an Affiliate or to a Third Party without such prior written consent as part of a merger, consolidation, sale, or transfer of all or substantially all its assets relating to the Program, but only if the assignee (i) has or simultaneously acquires all of the necessary rights and other assets to perform such Party’s obligations under this Agreement and (ii) agrees that it will have no right to participate in any activity or require the other Party to perform any obligation under this Agreement that would require the other Party or its Affiliates to disclose Confidential Information to such Third Party (other than the information required to be disclosed pursuant to Section 5.2.4 or following any termination pursuant to Article XIV) and to waive any rights with respect thereto, unless the other Party consents to such assignment (such consent not to be unreasonably withheld or delayed); and provided, that, with respect to Novartis, such Third Party shall not be, at the time of such assignment, a licensee or sublicensee of any other Third Party’s Exclusivity Product.

 

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(c) No assignment under this Section 17.4 shall be effective unless the intended assignee executes and delivers to the Party which is not the assignor a writing whereby the assignee expressly undertakes to perform and comply with all of its assignor’s obligations hereunder (including, for clarity, any requirements for the assignor to exercise Commercially Reasonable Efforts with respect to any obligations hereunder). Notwithstanding such undertaking, such assignor shall continue to be primarily liable for such assignee’s performance hereof and compliance herewith.

(d) Any assignment in violation of this Section 17.4 shall be void and of no effect.

(e) This Agreement, and the rights and duties of the Parties therein contained, shall be binding upon, and shall inure to the benefit of, the Parties and their respective legal representatives, successors and permitted assigns.

Section 17.5. Independent Contractor Status. The relationship of the Parties hereto is that of independent contractors. Nothing in this Agreement will be construed to constitute, create, give effect or otherwise imply a joint venture, agency, partnership or other formal business organization or any employer/employee relationship of any kind between the Parties.

Section 17.6. Extension to Affiliates. Novartis will have the right to extend the rights, immunities and obligations granted in this Agreement to one or more of its Affiliates. All applicable terms and provisions of this Agreement will apply to any such Affiliate to which this Agreement has been extended to the same extent as such terms and provisions apply to Novartis. Novartis will remain primarily liable for any acts or omissions of its Affiliates.

Section 17.7. Notices. All notices, requests and other communications required or permitted to be given hereunder or with respect hereto will be in writing, and may be given by (a) personal service, (b) registered first-class United States mail, postage prepaid, return receipt requested, or (c) overnight delivery service, charges prepaid, and in each case addressed to the other Party at the address for such Party as set forth below, and shall be effective upon receipt in the case of clauses (a) or (c) above, and five (5) days after mailing in the case of clause (b) above.

If to Novartis, a copy to Novartis’ Alliance Manager by email and to:

Novartis International Pharmaceutical Ltd

Lichtstrasse 35

CH-4056 Basel

Switzerland

With a required copy to:

Novartis Institutes for BioMedical Research, Inc.

250 Massachusetts Avenue

Cambridge, MA 02139 USA

Attn: General Counsel

 

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

If to Ayala, a copy to Ayala’s Alliance Manager by email and to:

Ayala Pharmaceuticals, Inc.

c/o PHS Corporate Services

1313 N. Market Street, Suite 5100

Wilmington, DE 19801

The address of either Party set forth above may be changed from time to time by written notice in the manner prescribed herein from the Party requesting the change.

Section 17.8. Waivers. The waiver by either Party of a default or a breach of any provision of this Agreement by the other Party will not operate or be construed to operate as a waiver of any subsequent default or breach. The continued performance by either Party with knowledge of the existence of a default or breach will not operate or be construed to operate as a waiver of any default or breach. Any waiver by a Party of a particular provision or right will be in writing, will be as to a particular matter and, if applicable, for a particular period of time and will be signed by such Party.

Section 17.9. Entire Agreement. This Agreement (including the Exhibits hereto), together with the Confidentiality Agreement, Pharmacovigilance Agreement, Supply Agreement, and the Quality Agreement, constitutes the entire agreement between the Parties with respect to the subject matter hereof, superseding all prior agreements and negotiations, and may be modified only by written agreement executed by both Parties.

Section 17.10. Severability. If any provision in this Agreement is deemed to be, or becomes, invalid, illegal, void or unenforceable under Applicable Laws, then: (a) it will be deleted and the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way, and (b) the Parties will use endeavor to substitute for the invalid, illegal or unenforceable provision a valid, legal and enforceable provision which conforms as nearly as possible with the original intent of the Parties.

Section 17.11. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed to be an original but all of which taken together shall be deemed a single instrument. A facsimile transmission of the signed Agreement will be legal and binding on both Parties.

Section 17.12. Force Majeure. Neither Party to this Agreement will be liable for failure or delay in the performance of any of its obligations hereunder (other than the failure to pay monies owed), if such failure or delay is due to causes beyond its reasonable control, including acts of God, earthquakes, fires, strikes, acts of war, or intervention of any Governmental Authority, but any such delay or failure will be remedied by such Party as soon as practicable after the removal of the cause of such failure or delay. Upon the occurrence of an event of force majeure, the Party failing or delaying performance will promptly notify the other Party in writing, setting forth the nature of the occurrence, its expected duration and how such Party’s performance is affected.

Section 17.13. Interest on Late Payments. If any Party fails to pay in full on or before the date due any royalty, fee or other amount that is required to be paid to the other Party under this Agreement, the paying Party will also pay to the other Party (or its designee), on demand, interest compounded daily on any such amount beginning [***] after such due date at an annual rate equal to the lowest prime rate as published by The Wall Street Journal (or, if The Wall Street Journal is not then published, such other financial periodical of general circulation in the United States) on or nearest to such due date plus [***] to be assessed from the date payment of the amount in question first became due.

 

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Section 17.14. Amendment. This Agreement may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both Parties that specifically refers to this Agreement.

Section 17.15. Headings and References. All section headings contained in this Agreement are for convenience of reference only and will not affect the meaning or interpretation of this Agreement.

Section 17.16. Construction. Except where expressly stated otherwise in this Agreement, the following rules of interpretation apply to this Agreement: (a) “include”, “includes” and “including” are not limiting and mean include, includes and including, without limitation; (b) definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (c) references to an agreement, statute or instrument mean such agreement, statute or instrument as from time to time amended, modified or supplemented; (d) references to a Person are also to its permitted successors and assigns; (e) the terms “hereof,” “herein,” “herewith,” and “hereunder,” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement; (f) references to an “Article”, “Section”, “Exhibit” or “Schedule” refer to an Article or Section of, or any Exhibit or Schedule to, this Agreement unless otherwise indicated; (g) the word “will” shall be construed to have the same meaning and effect as the word “shall”; (h) the word “any” shall mean “any and all” unless otherwise indicated by context; and (i) all references to “dollars” or “$” herein shall mean U.S. Dollars.

Section 17.17. No Strict Construction. This Agreement has been prepared jointly and will not be strictly construed against either Party.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

 

AYALA PHARMACEUTICALS, INC.
By:		/s/ Roni Mamluk
		Name: Roni Mamluk
		Title: CEO
NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.
By:		/s/ Simone Pfirter
		Name: Simone Pfirter
		Title: Authorized Signatory
By:		/s/ Sylvain Belteung
		Name: Sylvain Belteung
		Title: Authorized Signatory

 

[Signature Page to Evaluation, Option and License Agreement]

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

EXHIBIT A

AYALA PATENTS

[***]

 

A-1

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EXHIBIT B

COMPOUND

[***]

 

B-1

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

EXHIBIT C

EVALUATION STUDIES

[***]

 

C-1

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EXHIBIT D-1

INITIAL PRESS RELEASE

 

D-1-1

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DRAFT PRESS RELEASE

CONFIDENTIAL, NOT FOR DISTRIBUTION

December 16, 2018

Ayala Pharmaceuticals Signs Deal to Develop and Commercialize AL102 in Combination

with BCMA Targeting Agents in Multiple Myeloma

- Licensing agreement includes equity investment and potential development, clinical,

regulatory and commercial milestones and tiered royalties

- Ayala Retains Worldwide Rights to All Other Indications for AL102

REHOVOT, Israel & WILMINGTON, Del., ***, 2018 — Ayala Pharmaceuticals, Inc., a clinical-stage company developing medicines for cancers that are genetically identified, announced today that it entered into an option to license agreement with Novartis for its investigational agent AL102 in multiple myeloma. Under the terms of the deal, Ayala will receive a $10 million equity investment from Novartis and is eligible to receive development, clinical, regulatory and commercial milestones along with tiered royalties on net sales of AL102.

Novartis will conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen (BCMA) therapies in multiple myeloma. Ayala will provide the drug supply. All development costs associated with the above studies will be fully born by Novartis. Ayala retains worldwide license rights for AL102 for all other indications.

“We are extremely pleased to enter this agreement with Novartis on AL102. Novartis has a strong commitment and expertise in oncology, and a proven record of success in drug development, making them an ideal strategic partner for AL102 in multiple myeloma,” said Roni Mamluk, PhD, chief executive officer at Ayala. “This collaboration is important to Ayala as it immediately strengthens our balance sheet, further validates our technology and accelerates the clinical development of AL102 as a combination therapy in hematologic cancers.”

AL102 is an oral small-molecule that inhibits gamma secretase, an enzyme which may be targeted to increase levels of BCMA, which is expressed in most multiple myeloma patients. BCMA is actively shed from multiple myeloma cells by gamma secretase, hence its inhibition by AL102 may increase BCMA levels on multiple myeloma cells. Therefore, AL102 is being studied to evaluate its clinical role in enhancing anti-BCMA therapies.

Ayala is committed to developing new targeted therapies for genomically-defined cancers in patient populations with high unmet medical need. In addition to investigating AL102 as an anti-BMCA therapy in multiple myeloma, Ayala is evaluating AL102 as an inhibitor of the Notch pathway in other hematologic cancers.

Multiple myeloma is a rare and aggressive blood cancer that accounts for approximately one percent of all cancers. In the U.S., there are nearly 90,000 people living with, or in remission from, multiple myeloma. Approximately, 26,850 Americans are diagnosed with multiple myeloma each year and 11,240 patient deaths are reported on an annual basis.

 

D-1-2

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

About Ayala Pharmaceuticals

Ayala Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company dedicated to developing targeted cancer therapies for people living with genetically defined cancers. Ayala is broadly developing its product candidates, AL101 and AL102, best-in-class gamma secretase inhibitors, with clinical and nonclinical studies underway in both solid tumors (AL101) and hematologic malignancies (AL102). The company’s lead agent, AL101, is currently in Phase 2 for adenoid cystic carcinoma patients with tumor bearing Notch activating mutations.

As a precision oncology company, Ayala was founded in November 2017 with an experienced global management team and a strong investor base. For more information, visit www.ayalapharma.com.

Forward Looking Statements

This press release includes forward-looking statements. Because such statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from Ayala’s current expectations. Forward-looking statements are identified by words such as “anticipates,” “projects,” “expects,” “plans,” “intends,” “believes,” “may,” “estimates,” “targets,” “hopes,” and other similar expressions that indicate trends and future events. Factors that could cause Ayala’s results to differ materially from those expressed in forward-looking statements include, without limitation, delays in receiving regulatory guidance for the development of BMS-906024, uncertainties inherent in the initiation of future clinical trials, availability of data from previous clinical trials, satisfactory quantities of clinical drug product, availability of patients who meet the clinical trial enrollment criteria, availability of sufficient funding for foreseeable and unforeseeable operating expenses and capital expenditure requirements, and other matters that could affect the availability or commercial potential of BMS-906024. Ayala undertakes no obligation to revise or update forward-looking statements as a result of new information, since these statements may no longer be accurate or timely.

# # #

Contact:

Ayala Pharmaceuticals

+1-857-444-0553

info@ayalapharma.com

 

D-1-3

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EXHIBIT D-2

FOLLOW-ON PRESS RELEASE

TO COME

 

D-2-1

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

EXHIBIT E

DISPUTE RESOLUTION

[***]

 

E-1

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EXHIBIT F

INFORMATION PACKAGE FOR BIANNUAL EVALUATION REPORT

[***]

 

F-1

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Schedule 1.32

Compound Specifications

[***]

 

F-2

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Certain information marked as [***] has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

Section 16.2

Pass-Through Costs

[***]

 

F-3

Exhibit 21.1

SUBSIDIARIES OF AYALA PHARMACEUTICALS, INC.

 

Legal Name of Subsidiary		Jurisdiction of Organization
Ayala-Oncology Israel Ltd.		Israel

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 6, 2020, in the Registration Statement (Form S-1) and related Prospectus of Ayala Pharmaceuticals, Inc dated March 6, 2020.

/s/ Kost Forer Gabbay & Kasierer

Tel-Aviv, Israel

March 6, 2020