NDRM Neuroderm Ltd. - Ordinary Shares

Our historical financial statements are prepared in accordance with IFRS, and are presented in U.S. dollars. The selected historical financial information as of December 31, 2015 and 2016, and for each of the three years ended December 31, 2014, 2015 and 2016, have been derived from, and should be read in conjunction with, our audited financial statements and the notes thereto appearing elsewhere in this annual report. The selected statement of operations data for the years ended December 31, 2012 and 2013, and the selected balance sheet data as of December 31, 2012, 2013 and 2014, have been derived from our audited financial statements not included in this annual report.

Until January 1, 2016, our functional currency was the NIS; however, our presentation currency was and remains the U.S. dollar. As a result, for all periods through December 31, 2015, our financial statements are translated into the presentation currency as follows: equity accounts are translated using historical exchange rates (as reported by the Bank of Israel). All other statements of financial position accounts are translated using the year-end exchange rate (as reported by the Bank of Israel). Statement of comprehensive loss amounts were translated using the exchange rates prevailing at the dates of the transactions. The resulting translation differences relating to the conversion from the functional currency to the presentation currency are reported in other comprehensive loss.

Effective January 1, 2016, we determined that our functional currency changed to U.S. dollars. This determination resulted from a change in relevant circumstances of which, based on our projected level of spending on research and development expenses (mainly related to advanced clinical trials) and other operating expenses, we concluded that spending in U.S. dollars will exceed that in NIS for the foreseeable future. As we do not foresee a reversal of this trend, we transitioned the functional currency to the U.S. dollar effective January 1, 2016.

Foreign currency transactions in currencies different from the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recorded to the statement of comprehensive loss among finance income or expenses.

As of December 31, 2015, the representative exchange rate last published by the Bank of Israel was $1.00 = NIS 3.9020.

The information presented below is qualified by the more detailed historical financial statements set forth in this annual report, and should be read in conjunction with those financial statements, the notes thereto and the discussion under “ITEM 5 - Operating and Financial Review and Prospects” included elsewhere in this annual report.

(1) Includes equity-based compensation expenses as follows:

(2) Basic and diluted loss per ordinary share is computed based on the basic and diluted weighted average number of ordinary shares outstanding during each period. For additional information, see Note 16 to our financial statements included elsewhere in this annual report.

(1) Working capital is defined as total current assets minus total current liabilities.

Not applicable.

Not applicable.

Our business involves a high degree of risk. Please carefully consider the risks we describe below in addition to the other information set forth elsewhere in this annual report and our other filings with the SEC. These material risks could adversely affect our business, financial condition and results of operations. See “Cautionary Note Regarding Forward-Looking Statements”.

Risks Related to Our Financial Position

We have a history of net losses and we expect to continue to incur substantial and increasing net losses for the foreseeable future.

We are a clinical-stage pharmaceutical company with a limited operating history. In the United States, we are currently pursuing a comparative bioavailability regulatory path for our lead product candidate, ND0612, based on comparative pharmacokinetic, or PK, trials. In the European Union, or EU, we are concurrently pursuing a clinical, efficacy based regulatory development strategy for ND0612. We curently expect to submit applications for regulatory approval in the U.S. and in the EU in 2018. We are also planning to pursue a comparative bioavailability regulatory path for ND0701 in the EU and plan to discuss this approach with EU authorities in the first half of 2017 . We are at earlier stage of clinical development of product candidate ND0801. Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risks that any or all potential product candidates will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. We are still in the clinical development process of our product candidates; as a result, we are not profitable and have incurred significant operating losses, including operating losses of $13.4 million, $18.0 million and $33.1 million for the years ended December 31, 2014, 2015 and 2016, respectively.

As of December 31, 2016, we had an accumulated deficit of $180.7 million (which includes $99.8 million of non-cash financial expenses incurred since January 1, 2013 related to the increase in the value of loans that had been provided to us, fair value of embedded derivatives and warrants, the issuance of new shares to noteholders that was treated as an induced conversion expense, and convertible loans designated at fair value through profit or loss). We expect to continue to incur significant expenses and suffer substantial operating and net losses and negative cash flow for the foreseeable future. These losses and negative cash flows have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. We anticipate that our expenses and future capital requirements may increase substantially if we:

We may never achieve profitability.

Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to accurately predict the timing or amount of future revenue or expenses or when, or if, we will be able to achieve profitability. We have financed our operations primarily through convertible shareholders’ loans, issuance and sale of equity, including ordinary shares, preferred shares and warrants and government and third-party grants. The size of our future net losses will depend, in part, on the rate of growth or contraction of our expenses and the level and rate of growth, if any, of our revenues. If we are unable to successfully commercialize our product candidates or if revenue from any of our product candidates that receives marketing approval is insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.

We may need substantial additional capital in the future, which may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our product candidates or intellectual property. If additional capital is not available, we may have to delay, reduce or cease operations.

In the past two years, we raised an aggregate of $152.7 million of net proceeds in two public offerings. In order to continue the development of our clinical trials for our product candidates, we may need to seek additional funding through additional equity offerings, debt financings, collaborations, licensing arrangements or any other means to conduct clinical trials, develop our product candidates and expand our sales and marketing capabilities or other general corporate purposes. Securing additional financing may divert our management’s attention from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Additional funding may not be available to us on acceptable terms, or at all. We believe that based on our current business plan and our existing cash and cash equivalents, we will have sufficient funds to meet our currently anticipated cash requirements through at least the next 12 months.

To the extent that we raise additional capital through, for example, the sale of equity or convertible debt securities, ownership interest of our shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect our shareholders’ rights as a shareholder. The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur debt or to issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline. In the event that we enter into collaborations or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to product candidates or intellectual property that we otherwise would seek to develop or commercialize ourselves or reserve for future potential arrangements when we might be able to achieve more favorable terms.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

Any such consequence will have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.

Risks Related to Our Business and Our Industry

Even if our products obtain regulatory approval, they may cause undesirable side effects or have other properties, which may limit market acceptance.

We are planning and/or conducting clinical trials, including our ongoing long-term safety trial “BeyoND”, to determine the safety and efficacy of our product candidates. Through such trials we will continue to add to our current collection of data of local tolerability and side effects related to our product candidates. However, some of our patients have only used our product candidates for up to 21-day periods during our clinical trials with ND0612L and up to 28-day peroids during our clinical trials with ND0612H. Based on the results of our completed Phase II studies, ND0612H and ND0612L were generally well tolerated, with no particular systemic adverse events. Patients may decide to use other currently available treatments instead of our product candidates based on the prevalence and severity of any side effects associated with our product candidates. For example, patients suffering from moderate Parkinson’s disease may be less tolerant of inconveniences that may be associated with the use of ND0612L and may instead continue using currently available orally administered LD/CD. Similarly, if patients experience adverse side effects from our other Parkinson’s disease product candidates, patients who suffer from moderate to severe Parkinson’s disease may opt for other treatments. In addition, certain patients may find our belt pump administration systems to be unduly burdensome or restrictive.

Upon the conclusion of our trials, and if we receive marketing authorization for a product candidate, we will be required to list side effects associated with the product candidates. However, if after we receive marketing authorization, we or others identify previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, problems with our manufacturers or manufacturing processes, or failure to comply with regulatory requirements, the following consequences, among others, may occur:

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, which would adversely affect our business, prospects, financial condition and results of operations.

If clinicial trials of our product candidates fail to demonstrate safety and bioavailability and/or efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

We have invested a significant portion of our efforts and financial resources in the identification and preclinical development of product candidates. Our ability to generate product revenues, if ever, will depend heavily on our ability to advance our product candidates through clinical trials. We have also conducted, and will continue to conduct, at our own expense, clinical trials for our product candidates to demonstrate that the products are safe, including our ongoing long-term BeyoND safety trial, iNDiGO phase III efficacy study and PK studies . Even if we believe that our clinical trials demonstrate the safety and efficacy of our product candidates, only the FDA, EMA and other comparable regulatory agencies may ultimately make such determination.

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process. Even if preclinical or clinical trials are successful, we still may be unable to commercialize the product, as success in preclinical trials, early clinical trials, including Phase II and Phase IIa trials, or previous clinical trials, does not ensure that later clinical trials will be successful.

Additionally, based on our ongoing and planned clinical trials, we may alter the concentration of carbidopa in our LC/CD product candidates. If we were to alter the carbidopa concentrations, the completion of our clinical trials may be delayed. Any requirement to conduct additional trials or failure to follow an abbreviated regulatory pathway for our product candidates would delay receiving marketing approval for our product candidates and adversely affect our business, prospects, financial condition and results of operations.

Based on our End-of-Phase 2 meeting with the FDA, we have amended our clinical development strategy for ND0612H and ND6012L to a comparative bioavailability 505(b)(2) regulatory pathway in the U.S.; however, we may be unsuccessful in meeting the requirements set forth by the FDA.

In late October 2016, we held an End-of-Phase 2 meeting with the FDA, during which we discussed the regulatory development strategy for ND0162H and ND0612L. Based on such discussions and responses from the FDA, we have amended our clinical development strategy for these product candidates. Instead of conducting large Phase 3 clinical efficacy trials, we intend to pursue marketing approval in the United States for ND0612L and ND0612H via a comparative bioavailability 505(b)(2) regulatory pathway. In order to submit an 505(b)(2)-based NDA, we plan on conducting comparative PK studies against Duodopa /Duopa , an FDA-approved drug for the treatment of “late stage” and “advanced” Parkinson’s disease. We will continue to preview our trial designs with the FDA in order to ensure compliance with the FDA’s proposed recommendations for such PK studies; however, we may be unable to conduct these trials in a timely manner, achieve the trials’ objectives or comply with the FDA’s recommendations, which may result in us having to conduct extended PK studies or efficacy-based trials or even being unable to rely on such 505(b)(2) regulatory pathway, resulting in an inability to timely enter the U.S. market. For the risks associated with conducting clinical trials, see “—If clinical trials of our product candidates fail to demonstrate safety and bioavailability and/or efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates” and “— If we experience delays in our clinical trials, our costs may increase and our business may be harmed.”

Even if we are successful in such PK studies and submit an 505(b)(2)-based NDA, we may be excluded from marketing our product candidates in the United States given the orphan-designated status of existing Parkinson’s disease drugs. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a seven-year period of market exclusivity, which, subject to certain exceptions, precludes the FDA from approving another marketing application for the same drug for the same indication during such period. See the risk factor entitled, “— If our competitors are able to obtain orphan drug exclusivity for their products that are the same drug as our product candidates, or can be classified as a similar medicinal product within the meaning of EU law, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time. ” In this instance, we would need to show that ND0612 is clinically superior (by means of greater effectiveness or greater safety, or that it provides a major contribution to patient care) to an existing Parkinson’s disease drug with orphan-designated status to ensure that its orphan drug exclusivity will not block the approval of ND0612H or ND0612L. If we are unable to prove that ND0612H or ND0612L is clinically superior to such existing orphan-designated drug, we may need to amend our regulatory development strategy for ND0612H and ND0612L and restart preparations to launch the previously planned Phase III clinical efficacy trials, which could require a significant portion of our efforts and financial resources.

We may be unsuccessful in our clinicial studies for marketing approval of our product candidates in Europe.

In January 2017, we held a meeting with EMA’s Scientific Advice Working Party to discuss ND0612. Based on this meeting and on the preliminary results of trial 006, we have modified our EU clinical and regulatory development path. Upon the completion of our ongoing trials, we plan to submit a marketing application based on the results of an amended iNDiGO phase III efficacy study and the ongoing long-term BeyoND safety trial, seeking to obtain a broader label for ND0612 than the label that could have been granted under a PK regulatory route in the EU.If we are successful in such studies and the EMA accepts our clinical study results, we expect to seek marketing approval in the EMA in 2018. Although we believe that we have developed our clinical trials based on a framework that would allow for marketing approval submission in 2018, the EMA or other drug regulators in the EU may require us during interim consulations or following submission to modify our existing trials or to conduct additional, small or large PK efficacy or safety trials. Thus, our ongoing clinical trials may be delayed or fail to provide adequate results, which could delay our submission. See “— If clinicial trials of our product candidates fail to demonstrate safety and bioavailability and/or efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates. ”

If our competitors are able to obtain or maintain orphan drug exclusivity for their products that are, for the purposes of the FDA approvals in the U.S., the same drug as our product candidates, or can be classified as a similar medicinal product within the meaning of EU law, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of market exclusivity, which, subject to certain exceptions, precludes the FDA from approving another marketing application for the same drug for the same indication for that time period or precludes the EMA and other national drug regulators in the EU, from accepting another marketing application for a similar medicinal product for the same indication. The applicable market exclusivity period is seven years in the United States and 10 years in the European Union. See “ITEM 4. Information on the Company —B. Business Overview—Government Regulation—United States—Orphan Drug Designation and Exclusivity” and “ITEM 4. Information on the Company —B. Business Overview— Government Regulation—European Union—Orphan Drug Designation.” If a competitor obtains orphan drug exclusivity for, and approval of, a product with the same indication as any of our product candidates before we do and if the competitor’s product is the same drug or a similar medicinal product as ours, we could be excluded from the market during the market exclusivity period. However, if a product candidate that is the same drug or a similar medicinal product as an approved, orphan-designated product is shown to be clinically superior (by means of greater effectiveness, greater safety, or that it provides a major contribution to patient care) to such orphan-designated product, the orphan drug exclusivity will not block the approval of such competitive product. In addition, orphan drug exclusivity will not prevent the approval of a product candidate that is the same drug as such orphan-designated product if the FDA or EMA finds that the product sponsor or marketing authorization holder cannot assure the availability of sufficient quantities of the orphan-designated product to meet the needs of the persons with the disease or condition for which the drug was designated.

For example, AbbVie Inc.’s product Duopa, approved in the United States, has received orphan drug designation in the United States for the treatment of “late stage Parkinson’s disease” and “advanced idiopathic Parkinson’s disease with severe motor complications and not responding to oral treatment.” Because Duopa received marketing authorization as an orphan drug in the United States, if the FDA determines that ND0612 is limited by Duopa’s potential market exclusivity, we may be precluded from receiving marketing approval for ND0612 until the expiration of the orphan drug market exclusivity period, which will occur seven years after Duopa’s approval.

In the European Union, Duodopa received marketing authorization via the mutual recognition procedure for “treatment of advanced levodopa-responsive Parkinson’s disease with severe motor fluctuations and hyper-dyskinesia when available combinations of Parkinson medicinal products have not given satisfactory results.” See “ITEM 4. Information on the Company —B. Business Overview— Government Regulation—European Union—Marketing authorization.” In May 2001, the EMA granted NeoPharma Production AB orphan drug designation for LD/CD (gastroenteral use) for the treatment of “advanced idiopathic Parkinson’s disease with severe motor fluctuations and not responding to oral treatment.” The sponsorship of this orphan designation was transferred to AbbVie Ltd. in February 2013. As the orphan indication is different from the approved indication for Duodopa, it is possible that AbbVie Ltd. could still seek approval of a product for that orphan indication. If that occurs, and we wish to market a product with the same indication but are unable to show that our product candidates are clinically superior (due to greater efficacy, greater safety or a major contribution to patient care) to the approved orphan drug, we may be precluded from receiving marketing approval for product candidates seeking to treat advanced idiopathic Parkinson’s disease with severe motor fluctuations and not responding to oral treatment until the expiration of the orphan drug market exclusivity period, which is at least 10 years after the orphan drug is centrally approved, unless the EMA exercises its discretion to reduce that period to six years on the basis that the product no longer fulfills the orphan criteria when the authorization is renewed after five years.

If we experience delays in our clinical trials, our costs may increase and our business may be harmed.

We do not know whether clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. Our product development costs will increase if we experience delays in clinical testing. Significant delays could also shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates or could allow our competitors to bring products to the market before we do, impairing our ability to commercialize our product candidates. Events may delay or prevent our ability to complete necessary clinical trials for our product candidates, including:

For example, in June 2014, the FDA placed a hold on the U.S. clinical development of ND0612H and ND0612L, requesting additional information on the accuracy, safety, and compatibility of the devices used to deliver the drug. We subsequently completed the required compatibility study and submitted the requested additional information to the FDA. In May 2015, the FDA lifted the clinical hold and our U.S. clinical development program was cleared to proceed, with several studies accordingly commencing in late 2015 and throughout 2016. Although we have not experienced other risks involved with conducting clinical trials, including increased expense and delay, to date, there can be no assurance that we will not experience delays or such risks in the future as we progress with our planned clinical trials. Any delay in receiving regulatory clearance to commence our clinical trials or any suspension of clinical trials may delay possible regulatory approval, if any, and adversely impact our ability to develop products and generate revenue.

Positive results in previous preclinical or clinical trials of our product candidates may not be replicated in future clinical trials of our product candidates, which could result in development delays or a failure to obtain marketing approval.

Positive results in previous preclinical or clinical studies of our product candidates may not be predictive of similar results in future clinical trials. In addition, interim results during a clinical trial do not necessarily predict final results. Interim data are also 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. As a result, preliminary and interim data should be viewed with caution until the final data are available. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical studies and clinical trials for our product candidates may not be predictive of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials.

Moreover, 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 have nonetheless failed to obtain approval from the FDA, the EMA or other regulatory agencies for their products.

Development and commercialization of our product candidates in the United States and elsewhere requires successful completion of the regulatory approval process, and may suffer delays or fail.

We are required to apply for and receive marketing authorization in a jurisdiction, including the United States and Europe, before we can market our product candidates in such jurisdiction. This process can be time consuming and complicated and may result in unanticipated delays. To secure marketing authorization, an applicant generally is required to submit an application that includes the data supporting preclinical and clinical safety and efficacy as well as detailed information on the manufacture and composition of the product candidate, control of product development, proposed labeling and other additional information. Before marketing authorization is granted, regulatory authorities generally require the inspection of manufacturing facilities and quality systems of our third-party manufacturers at which the product candidate is produced, to assess compliance with strictly enforced current good manufacturing practices, or cGMP, as well as potential audits of the non-clinical and clinical trial sites that generated the data cited in the marketing authorization application.

We cannot predict how long the applicable regulatory authority or agency will take to grant marketing authorization or whether any such authorizations will ultimately be granted. Regulatory agencies, including the FDA and the EMA, have substantial discretion in the approval process, and the approval process and the requirements governing clinical trials vary from country to country. The policies of the FDA, the EMA or other regulatory authorities may change or may not be explicit, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, in the United States, Europe or elsewhere. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Any delays or failures in obtaining regulatory and marketing approval for our product candidates in the United States, Europe or worldwide would adversely affect our business, prospects, financial condition and results of operations.

We may be unsuccessful in commercializing our products due to unfavorable pricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives.

If we receive marketing approval for any of our product candidates, we cannot guarantee that we will receive favorable pricing and reimbursement in any jurisdiction. The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from country to country. In some foreign jurisdictions, including the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these jurisdictions, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in our product candidates, even after obtaining regulatory approval.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that may affect our ability to sell our product candidates profitably, if approved.In the United States, there have been proposed in Congress a number of legislative initiatives regarding healthcare, including the possible repeal and replacement of the Patient Protection and Affordable Care Act . In addition, in January 2017, an Executive Order was issued allowing administrative agencies to roll back certain provisions of the healthcare reform law. The effect of these developments is uncertain and any changes to, or replacement of, the Patient Protection and Affordable Care Act could impact the degree of health insurance coverage for treatment with our product candidates, if and when they are commercialized. With growing pressures on government budgets due to the current economic downturn, government efforts to contain or reduce health care spending are likely to gain increasing emphasis. It is uncertain what impact the incoming U.S. presidential administration will have on healthcare spending. If enacted and implemented, any measures to restrict health care spending could result in decreased revenue from our products, when they are commercialized, and decrease potential returns from our research and development initiatives. For example, the new U.S. president recently signed an executive order directing federal agencies with authorities and responsibilities under the Patient Protection and Affordable Care Act, or the PPACA, to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on certain entities, and members of the U.S. Congress have drafted legislation to repeal and potentially replace the PPACA. Changes to the PPACA, including any legal uncertainty surrounding rules governing reimbursements, could make it more difficult for us to sell our products profitably in the United States, thus materially and adversely affecting our business, financial condition and results of operations.

The continuing efforts of governments, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

Additionally, we cannot be sure that reimbursement will be available for any of our product candidates that we commercialize in the future and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may affect the demand for, or the price of, any product for which we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any of our product candidates that we successfully develop. Eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which the product is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in certain other countries, such as the United States. In the United States, third-party payors often rely upon other payors, such as Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any of our product candidates could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

The commercial success of our product candidates will depend upon their degree of market acceptance.

Even if we obtain marketing authorization for a product candidate, it may not gain market acceptance by physicians and their teams, healthcare payors and others in the medical community. Each of our product candidates is being developed to treat diseases for which there are established standards of care. For example, the “gold standard” of care for Parkinson’s disease for the past 30 years has been oral administration of the drugs levodopa and carbidopa, or LD/CD, and physicians and patients have grown accustomed to such treatment. Although many physicians throughout the United States, Europe and other international markets may use our product candidates as part of our clinical trials, we cannot guarantee that use of our product candidates will be accepted in the market. If our product candidates do not achieve an adequate level of acceptance, we may not generate revenue and we may not achieve or sustain profitability. The degree of market acceptance of our product candidates in a jurisdiction in which we receive marketing approval will depend on a number of factors, some of which are beyond our control, including:

Failure to achieve market acceptance for our product candidates, if and when they are approved for commercial sale, will have a material adverse effect on our business, financial condition and results of operations.

We face competition from the existing standard of care and potential changes in medical practice and technology. In addition, our competitors may develop products, treatments or procedures that are similar, more advanced, safer or more effective than ours.

The medical, biotechnology and pharmaceutical industries are intensely competitive and subject to significant technological and practice changes. We expect to face competition from many different sources with respect to our product candidates or any product candidates that we may seek to develop or commercialize in the future. Possible competitors may be pharmaceutical companies, academic and medical institutions, governmental agencies and public and private research institutions, among others. Should any competitor’s product candidates receive regulatory or marketing approval prior to ours, they may establish a strong market position and be difficult to displace, or will diminish the need for our products.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products, treatments or procedures that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product that we may develop. Specifically, we may compete with companies that attempt to decrease the sharp fluctuations and improve the bioavailability and half-life associated with orally administered LD/CD, such as Impax Laboratories Inc., XenoPort, Inc., Intec Pharma Ltd. and Depomed, Inc., which have developed or are developing oral LD/CD drugs that include a controlled release or gastric retention attribute in order to decrease the gastronomical tract’s impact on the concentration of levodopa. Similarly, Synagile Corporation is developing a new intra-oral semi-contionus delivery device for the administration of a liquid formulation of LD/CD ester, and Abbvie is developing a liquid levodopa formaultion for continuous subcutaneous administration. If such products are approved and successfully improve the bioavailability of LD/CD or an alternative drug, the demand for our Parkinson’s disease product candidates may be significantly reduced.

Companies may also develop products that address other aspects of Parkinson’s disease, such as Acorda Therapeutics, Inc., which is developing a levodopa product to address “off” episodes commonly associated with levodopa therapy, or Sunovion Pharmaceuticals, Inc., which is also developing an apomorphine product to address “off” episodes. While such products would not directly compete with our Parkinson’s disease product candidates, as they address specific effects of Parkinson’s disease, such treatment may reduce the demand for our Parkinson’s disease product candidates.

Moreover, if one of our Parkinson’s disease product candidates obtains approval in the future, we believe that we would compete with existing drug treatments of Parkinson’s disease, including the “gold standard” of treatment for the past 30 years, oral administration of LD/CD. We may also directly compete with traditional surgery such as deep brain stimulation, or DBS, and AbbVie Inc.’s product, Duodopa, a LD/CD drug in a gel form administered directly into the duodenum via a surgically inserted tube, is approved in several jurisdictions including the United States, Europe, Canada and Australia.

In addition, if approved, our apomorphine-based product candidate, ND0701, would directly compete with other non-LD/CD treatments. For example, in Europe, Britannia Pharmaceuticals Limited (part of the STADA Arzneimittel AG group of companies) currently markets a Parkinson’s disease therapy called Apo-Go that administers apomorphine via a belt pump.

Similarly, if ND0801 obtains approval in the future, we would compete with currently existing products. For example, we are aware that a number of existing treatments for ADD/ADHD are currently on the market and are marketed by pharmaceutical companies that may be far larger and more experienced than us. Current competitor drugs to ND0801 include stimulants such as Ritalin and Adderall, as well as the non-stimulant drugs Strattera, Intuniv and Kapvay. We recognize that patients and doctors are often unwilling to change medications, and this factor may make it difficult for ND0801 to penetrate the market, even if it receives FDA approval.

Many of our current or future competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we may have. Mergers and acquisitions in the pharmaceutical and biotechnology industries markets may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

We rely on third-party manufacturers to supply the drug substances and the medical devices necessary for administration of our product candidates. We do not have long-term contracts with most of such manufacturers or suppliers.

We depend on third-party manufacturers for the supply of the drug products and associated medical devices for our product candidates for use in our clinical trials. Any problems we experience with any such third parties could delay the manufacturing of our product candidates, which could harm our results of operations.

In February 2015, we entered into a long-term manufacturing contract with a reputable U.S. cGMP drug production manufacturer for the reformulated LD/CD drug product used in our LD/CD product candidates. We expect these drug products to be sufficient to support our clinical studies through commercialization of ND0612H and ND0612L. In parallel, we entered into an agreement with a European manufacturer as alternative supplier for the LD/CD drug product.

We also source from third-party developers and manufacturers the CRONO ND and CRONO Twin ND belt pumps, which are the current delivery devices for our Parkinson’s disease product candidates, and we engage third-party developers and designers to develop the patch-pump, which is intended to be the second-generation delivery device for certain of our product candidates in the future. We currently purchase the belt pump devices from an Italian manufacturer, Cane S.p.A., on a purchase order basis. While we have not entered into supply agreements with any medical device suppliers, we are in discussions with medical device suppliers to establish long-term supply agreements.

As we do not have agreements in place that guarantee the supply or the price of the medical devices necessary to produce our product candidates, any significant delay in the acquisition or decrease in the availability of such materials could considerably delay the manufacturing of our product candidates, which could adversely impact the timing of any planned trials or the regulatory approval of that product candidate. If we are unable to arrange for alternative third-party sources, or to do so on commercially reasonable terms or in a timely manner, we may be delayed in the development of our product candidates.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of an agreement by the third party because of factors beyond our control (including a failure to manufacture our product candidates or any products we may eventually commercialize in accordance with our specifications) and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. We may therefore be subject to unexpected increases in the cost of devices, which may far exceed the cost of producing drug substances and require increased capital expenditures.

We are subject to a number of manufacturing risks, any of which could substantially increase our costs and limit supply of our products.

If our offices, which house all of our research and development facilities, or any facility of our third-party drug and device manufacturers or suppliers were to suffer an accident or a force majeure event such as war, missile or terrorist attack, earthquake, major fire or explosion, major equipment failure or power failure lasting beyond the capabilities of its backup generators or similar event, we could be materially adversely affected and any of our clinical trials could be materially delayed. Such an extended shut down may force us to procure a new research and development facility or another manufacturer or supplier, which could be time-consuming. During this period, we may be unable to receive our product candidates.

The process of manufacturing the active drug in our product candidates and related medical devices is complex, highly regulated and subject to the risk of product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes or quality requirements for our product candidates could result in reduced production yields, product defects and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are or will be made, such manufacturing facilities may need to be closed to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product candidates. We may also have charges and expenses for our product candidates that fail to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives.

The ability of our third-party manufacturers to continue manufacturing and supplying our product candidates depends on their continued adherence to current good manufacturing practices regulations.

The manufacturing processes for our product candidates are governed by detailed cGMP regulations. Failure by third-party manufacturers and quality operations units to adhere to established regulations or to meet a specification or procedure set forth in cGMP requirements could require that a product or material be rejected and destroyed. Adherence to cGMP regulations and the effectiveness of our quality control systems are periodically assessed through inspections of manufacturing facilities by regulatory authorities. Such inspections could result in deficiency citations, which would require action to correct those deficiencies to the satisfaction of the applicable regulatory authorities. If critical deficiencies are noted or if recurrences are not prevented, we may have to recall products or suspend operations until appropriate measures are implemented. Since cGMP reflects ever-evolving standards, manufacturing processes and procedures must be regularly updated to comply with cGMP. These changes may cause us to incur additional costs and may adversely impact our results of operations. For example, more sensitive testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time-consuming and could delay or prevent the manufacturing of our product candidates or launch of a new product.

If we change the manufacturers of our product candidates, we may be required to conduct comparability studies evaluating the manufacturing processes of the product candidates.

The FDA and other regulatory agencies maintain strict requirements governing the manufacturing process for medical devices, such as the pumps used in our product candidates. For example, when a manufacturer seeks to modify or change that process, the FDA typically requires the applicant to conduct non-clinical and, depending on the magnitude of the changes, potentially clinical comparability studies that evaluate the potential differences in the product candidates resulting from the change in the manufacturing process. If we were to change manufacturers of our drug substances or our devices during or after the clinical trials and regulatory approval process for ND0612L or any of our other product candidates, we will be required to conduct comparability studies assessing product candidates manufactured at the new manufacturing facility. Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory agencies could delay or preclude our development plans and, thereby, delay our ability to receive marketing approval or limit our revenue and growth, once approved. In addition, in the event that the FDA or other regulatory agencies do not accept non-clinical comparability data, we may need to conduct a study involving dosing of patients comparing the two products. That study may result in a delay of the approval or launch of any of our product candidates.

We rely on third parties to conduct our preclinical and clinical trials. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines, could substantially harm our business because we may not obtain regulatory approval for or commercialize our product candidates in a timely manner or at all.

We rely upon third-party CROs to conduct, monitor and manage data for our current and future preclinical and clinical programs. We expect to continue to rely on these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with current Good Clinical Practices, or GCP, which are regulations and guidelines enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, we must conduct our clinical trials with products produced under cGMP requirements. Failure to comply with these regulations may require us to repeat preclinical and clinical trials, which would delay the regulatory approval process.

Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or 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, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our business may be adversely affected.

We currently have limited sales and marketing staff and no product distribution network. If we are unable to develop sales and marketing infrastructure, we will not be successful in commercializing our products.

We do not currently have a sales or marketing infrastructure and do not have experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for our product candidates in the United States, the European Union and other jurisdictions, we may enter sales, marketing and distribution agreements with third parties in respect of the commercialization of our product candidates in such jurisdictions. Entering into arrangements with third parties to perform these services may result in lower product revenues and profitability, if any, than if we were to market, sell and distribute our product candidates ourselves. In addition, we may not be successful in entering into arrangements with third parties in the future to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.

Risks Related to Government Regulation and Other Legal Compliance Matters

Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.

Any regulatory approval that we receive may also contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the approved product. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. For any clinical trials that we conduct post-approval, these requirements include submission of safety and other post-marketing information and reports, registration and continued compliance with cGMP. Although the manufacturing facilities of the third parties from whom we order are cGMP-certified, they may face difficulties in maintaining regulatory approval for the manufacturing and quality control process of our product candidates.

We may not benefit from the regulatory data protection and/or market exclusivity period afforded to our underlying drug substances in the European Union.

There is no formal “grant” of regulatory data exclusivity under EU law. The rules are complex and are constantly evolving. For example, the issue of regulatory data protection and market exclusivity for combination products is the subject of litigation involving Teva Pharmaceutical Industries Ltd., or Teva, before the Court of Justice of the European Union, or CJEU. The outcome of this case or other cases or changes in policy may impact the regulatory data exclusivity period of combination drugs that rely on the standard “8+2(+1)” marketing and regulatory data exclusivity protection of their underlying components under EU law. The standard “8+2(+1)” exclusivity protection provides that data exclusivity applies during the first eight years from the grant of the innovator company’s marketing authorization. After the eight years have expired, a generic company can make use of the preclinical and clinical trial data of the originator in its regulatory applications but still cannot market its product until the end of 10 years. Additional market exclusivity of one further year can be obtained if during the first eight of those 10 years, the marketing approval holder obtains approval for one or more new therapeutic indications which, during the scientific evaluation prior to their approval, are determined to bring a significant clinical benefit in comparison with existing therapies. Our product candidates may be negatively impacted by a decision of the CJEU or a change in policy that precludes combination drugs from benefitting from such a period of market and/or regulatory data exclusivity beyond that of their component parts.

Products developed and approved based on a complete, free-standing marketing authorization dossier may benefit from the standard “8+2(+1)” period of regulatory data exclusivity protection notwithstanding that products containing the same active substances have existed in the European Union for some time. Even where products benefit from regulatory data exclusivity, however, the exclusivity will only attach to the novel data that the company generates. For example, one possible regulatory route in the European Union is to compile a complete “mixed data” application dossier comprising a mixture of the company’s own data and data compiled from peer-reviewed literature. The company may benefit from exclusivity in respect of the dossier it submits, but it may be relatively easy for a competitor to repeat the study or studies that the company has done and compile the same additional data from peer-reviewed literature, as well.

Approvals based on a hybrid generic application (e.g., using an oral or gastrointestinal LD/CD product as the reference, supplemented by bridging data for subcutaneous or transdermal administration) are currently not valid reference products for the purpose of generic applications. However, potential generic competitors could seek to rely on data for the LD/CD reference product, supplemented with their own bridging data for subcutaneous or transdermal administration.

The medical devices associated with our product candidates are subject to extensive governmental regulation, and failure to comply with applicable requirements could cause delay or prevent approval of our product candidates.

The medical device industry is regulated extensively by governmental authorities. The regulations are complex and are subject to rapid change and varying interpretations. Regulatory restrictions or changes could limit our ability to carry on or expand our operations or result in higher than anticipated costs or lower than anticipated sales. We intend to submit an NDA for the administration of our product candidate ND0612 for use with the CRONO Twin ND and CRONO ND devices. While such clearance is not required in order for us to receive marketing authorization for our product candidates, any delay in such process may delay the approval process for our product candidates.

Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some customers from using our products and adversely affect our reputation and the perceived safety and efficacy of our products and the devices we use to administer them.

Furthermore, in light of the stated policies of the incoming U.S. presidential administration, there is uncertainty with respect to the impact, if any, on the regulatory initiatives affecting us. While any legislative and regulatory changes will likely take time to develop, and may or may not have an impact on the regulatory regime to which we are subject, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

Regulatory approval for our product candidates would be limited to specific indications and conditions for which clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely affect our business.

Any regulatory approval of our product candidates would be limited to those specific indications for which such product candidates had been deemed safe and effective by the FDA, the EMA or other regulatory authority. Additionally, labeling restrictions may also limit the manner in which a product is approved to be used. It is not, however, unusual for physicians to prescribe medication or use medical devices for unapproved, or “off-label,” uses or in a manner that is inconsistent with the manufacturer’s labeling. To the extent such off-label uses are pervasive and produce results such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition, should any of our future products have a significant price difference and if they are used interchangeably, off-label uses may cause a decline in our revenues or potential revenues.

Furthermore, while physicians may choose to prescribe treatments for uses that are not described in the products’ labeling and for uses that differ from those approved by regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA, the EMA or other regulatory authorities. Although regulatory authorities generally do not regulate the behavior of physicians, they do restrict communications by companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In the United States, “off-label promotion” by pharmaceutical companies has resulted in significant litigation under the federal False Claims Act, violations of which may result in substantial civil penalties and fines. More generally, failure to follow the rules and guidelines of regulatory agencies relating to promotion and advertising, such that promotional materials are not false or misleading, can result in refusal to approve a product, the suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions, injunctions or criminal prosecution.

Certain of our business practices could become subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens.

The laws governing our conduct in the United States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the Federal Food, Drug and Cosmetic Act, or the FDCA, the Public Health Service Act, the federal False Claims Act, provisions of the U.S. Social Security Act, including the provision known as the “Anti-Kickback Law,” or any regulations promulgated under their authority, may result in various administrative, civil and criminal sanctions, jail sentences, fines or exclusion from federal and state programs, as may be determined by Medicare, Medicaid, other regulatory authorities and the courts. There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities or that our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws.

For example, under the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, can result in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs. As a result, arrangements with potential referral sources must be structured with care to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits to avoid any possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or of rewarding past prescribing.

In addition, significant enforcement activity has taken place under federal and state false claims act statutes and violations of the federal False Claims Act can result in treble damages, and penalties of up to $11,000 for each false claim submitted for payment. The federal False Claims Act, as well as certain state false claims acts, permit relators to file complaints in the name of the United States (and if applicable, particular states). These relators may be entitled to receive up to 30% of total recoveries and have been active in pursuing cases against pharmaceutical companies. Where practices have been found to involve improper incentives to use products, the submission of false claims, or other improper conduct, government investigations and assessments of penalties against manufacturers have resulted in substantial damages and fines. In addition, to avoid exclusion from participation in federal healthcare programs, many manufacturers have been required to enter into Corporate Integrity Agreements that prescribe allowable corporate conduct. Failure to satisfy requirements under the FDCA can also result in a variety of administrative, civil and criminal penalties, including injunctions or consent decrees that prescribe allowable corporate conduct.

To enhance compliance with applicable healthcare laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG, have recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance and ethics program described in Section 8B2.1 of the U.S. Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based pharmaceutical companies have such programs. As our product candidates are not yet approved for marketing in the United States, we have not adopted U.S. healthcare compliance and ethics programs that generally incorporate the OIG’s recommendations, but even if we do, having such a program can be no assurance that we will avoid any compliance issues.

In addition, we are subject to analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances. Many of these laws differ from each other in significant ways and often are not preempted by the U.S. Health Insurance Portability and Accountability Act of 1996 thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business.

As a public company with securities registered under the Exchange Act, we are subject to the U.S. Foreign Corrupt Practices Act, or FCPA. The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. We have adopted an Anti-Corruption Compliance Policy in furtherance of our compliance with the FCPA and such other similar worldwide laws. However, we may operate in parts of the world that have experienced governmental corruption to some degree and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state-controlled, in a manner that is different than in the United States. Our internal control policies and procedures may not be sufficient to effectively protect us against reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

We could be subject to product liability lawsuits, which could result in costly and time-consuming litigation and significant liabilities.

The development of pharmaceutical products involves an inherent risk of product liability claims and associated adverse publicity. Our product candidates may be found to be harmful or to contain harmful substances. This exposes us to substantial risk of litigation and liability or may force us to discontinue production of certain product candidates. Although we usually obtain approximately $10.0 million in clinical trial liability insurance, this coverage may not adequately cover all liabilities that we may incur. Such insurance is costly and often limited in scope. There can be no assurance that we will be able to obtain or maintain insurance on reasonable terms or to otherwise protect ourselves against potential product liability claims that could impede or prevent commercialization of our product candidates. Furthermore, a product liability claim could damage our reputation, whether or not such claims are covered by insurance or are with or without merit. A product liability claim against us or the withdrawal of a product from the market could have a material adverse effect on our business or financial condition. Additionally, product liability lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, which could seriously harm our business.

We are subject to extensive environmental, health and safety, and other laws and regulations.

Our business involves the controlled use of chemicals. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any such chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures. Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and penalties may be imposed for noncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents.

Risks Related to Our Intellectual Property

Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to or incorporated into our technology and products.

Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our intellectual property and proprietary technologies, our products and their uses, as well as our ability to operate without infringing upon the proprietary rights of others. We rely on a combination of patent, trademark and trade secret laws, non-disclosure and confidentiality agreements, licenses, assignments of invention agreements and other restrictions on disclosure and use to protect our intellectual property rights.

However, any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information and we may not be able to obtain adequate remedies for such breaches. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and financial condition.

We have 38 issued patents, including in Australia, Canada, Chile, China, Japan, Israel, Mexico, New Zealand, Russia, Singapore, South Africa and the United States, and have over 70 pending patent applications worldwide, including nine national phase international applications filed under the Patent Cooperation Treaty, or PCT. However, there can be no assurance that patent applications relating to our product candidates, processes or technologies will result in patents being issued, or that any patents that have been issued will be adequate to protect our intellectual property or that we will enjoy patent protection for any significant period of time. Additionally, any issued patents may be challenged by third parties, and patents that we hold may be found by a judicial authority to be invalid or unenforceable. Other parties may independently develop similar or competing technology or design around any patents that may be issued to or held by us. Our current patents will expire or they may otherwise cease to provide meaningful competitive advantage, and we may be unable to adequately develop new technologies and obtain future patent protection to preserve our competitive advantage or avoid adverse effects on our business.

Patents that claim specific molecules or active ingredients are generally considered to be the strongest form of intellectual property protection. However, as our product candidates are formulations based on existing drugs, those types of claims are limited for our products. Instead, our main patents and patent applications underlying our product candidates cover specific compositions and methods of use of the active drug substance in ND0612H, ND0612L, ND0701, ND680 and ND0801. If our patents or pending applications in various jurisdictions were subject to a successful challenge or failed to issue, or if our competitors were able to design around the claims of our issued patents, our business and competitive advantage could be significantly affected.

In addition, we may fail to apply for or be unable to obtain patents necessary to protect our technology or products or enforce our patents due to lack of information about the exact use of our process by third parties. Even if patents are issued to us, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to prevent competitors from using similar technology or marketing similar products, or limit the length of time our technologies and products have patent protection.

Unauthorized use of our intellectual property may have occurred or may occur in the future. Any reported adverse events involving counterfeit products that purport to be our products could harm our reputation and the sale of our products. Moreover, if we are required to commence litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time-consuming, force us to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn, result in lower revenue and higher expenses. Lawsuits may ultimately be unsuccessful and may also subject us to counterclaims and cause our intellectual property rights to be challenged, narrowed, invalidated or held to be unenforceable. Any failure to identify unauthorized use of, and otherwise adequately protect, our intellectual property could adversely affect our business, including by reducing the demand for our products.

Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.

A significant invasion, interruption, destruction or breakdown of our information technology systems and/or infrastructure by persons with authorized or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage from cyber attacks, which may compromise our systems and lead to data leakage either internally or at our third-party providers. Our systems may be the target of malware and other cyber attacks. Although we have invested in measures to reduce these risks, we cannot assure you that these measures will be successful in preventing compromise and/or disruption of our information technology systems and related data.

Our material patents also may not afford us adequate protection against competitors with similar technology.

Patent applications in the United States and many other jurisdictions are typically not published until 18 months after their filing, if at all, and because publications of discoveries in scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our or their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in such patent applications. As a result, our patents may be invalidated in the future, and our patent applications may not be granted. For example, if a third party has also filed a patent application covering an invention similar to one covered in one of our patent applications, we may be required to participate in an adversarial proceeding known as an “interference proceeding,” declared by the U.S. Patent and Trademark Office, or the USPTO, or its foreign counterparts, to determine priority of invention. The costs of these proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated patent position. In addition, if a third party prevails in such a proceeding and obtains an issued patent, we may be prevented from practicing technology or marketing products covered by that patent without obtaining a license from such third party, which we may not be able to obtain on commercially reasonable terms. Additionally, patents and patent applications owned by third parties may prevent us from pursuing certain opportunities such as entering into specific markets or developing certain products. Finally, we may choose to enter into markets where certain competitors have patents or patent protection over technology that may impede our ability to compete effectively.

Absent patent-term extensions, our existing patents for our product candidates will expire between 2028 and 2033. However, because of the extensive time required for development, testing and regulatory review of a potential product, and although such delays may entitle patent term extensions, it is possible that, before our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercial launch, thereby reducing any advantages of the patent. Our pending and future patent applications may not lead to the issuance of patents or, if issued, the patents may not be issued in a form that will provide us with any competitive advantage. We also cannot guarantee that:

Effective protection of our intellectual property rights may be unavailable or limited in some countries.

The patent landscape in the pharmaceutical and biotechnology fields is highly uncertain and involves complex legal, factual and scientific questions, and changes in either patent laws or in the interpretation of patent laws in the United States and other countries may diminish the value and strength of our intellectual property or narrow the scope of our patent protection. Effective protection of our intellectual property rights may also be unavailable or limited in some countries, and even if available, we may fail to pursue or obtain necessary intellectual property protection in such countries because filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. In addition, the legal systems of certain countries, particularly of certain developing countries, do not favor the aggressive enforcement of patents and other intellectual property rights, and the laws of foreign countries do not protect our rights to the same extent as the laws of the United States. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and we may be unable to prevent those competitors from importing those infringing products into territories where we have patent protection but enforcement is not as strong as in the United States or into jurisdictions in which we do not have patent protection. These products may compete with our product candidates and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions. Moreover, competitors or others in the chain of commerce may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect.

Proceedings to enforce our patent rights in the United States or foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, 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 from third parties.

In addition to patents, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.

We rely on proprietary information (such as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we believe is best protected by means that do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors, scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our suppliers, manufacturers and service providers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, scientific advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our and relevant third parties’ proprietary rights, failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position and if third parties are able to establish that we are using their proprietary information without their permission, we may be required to obtain a license to that information, or if such a license is not available, re-design our products to avoid any such unauthorized use or temporarily delay or permanently stop manufacturing or sales of the affected products. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets.

We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce our intellectual property rights.

Some of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including potential competitors. While we take steps to prevent our employees from using the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.

We are in the process of registering our trademarks. Failure to secure those registrations could adversely affect our business.

We have registered our trademarks in the United States and Israel, and we are in the process of obtaining trademark registrations, including for the trademark “NeuroDerm,” in certain jurisdictions that we consider material to the marketing of our product candidates. While we intend for our applications to mature into registrations, we cannot be certain that we will obtain such registrations or that the permissible use of those marks will not be limited in scope. For example, the USPTO has informed us that a third party has a prior trademark registration for “neuroderm” classified in the same class of goods as our product candidates. While we believe that our product candidates under this trademark are different from the products of such third party and unlikely to cause any confusion, we cannot guarantee the USPTO will withdraw the citation of such prior trademark. Consequently, we might not be able to secure trademark registration for “NeuroDerm” in the United States. In addition, in the USPTO or its foreign counterparts, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for each of our trademarks, we may not be able to use such trademarks in conducting our business (including forfeiting any goodwill we have built-up related to such trademarks), and if we are able to use them, then we may encounter more difficulty in enforcing them against third parties than we otherwise would, each of which could adversely affect our business.

We may be subject to claims that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties.

Our development, manufacturing, marketing or sale of our product candidates may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights. Our product candidates are reformulated versions of existing approved drugs, and we may be subject to claims that such reformulations, our proposed uses or label claims, violate the intellectual property rights of others relating to the underlying drugs. In such case, we may not be able to design around such third party intellectual property rights or obtain licenses to use such intellectual property on acceptable terms, or at all, especially if our reformulated version is perceived to be a competitive threat to the pre-existing product. We may also be subject to claims that we are infringing, misappropriating or otherwise violating other intellectual property rights, such as trademarks, copyrights or trade secrets. Third parties could therefore bring claims against us or our third-party manufacturers or partners that would cause us to incur substantial expenses, including litigation costs or costs associated with settlement, and, if successful against us, could cause us to pay substantial damages. Further, if such a claim were brought against us, we could be forced to temporarily delay or permanently stop manufacturing or sales of our product candidates that is the subject of the suit.

If we are found to be infringing, misappropriating or otherwise violating the patent or other intellectual property rights of a third party, or in order to avoid or settle claims, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on terms acceptable to us, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened claims, we or our partners are unable to enter into licenses on acceptable terms. If we cannot operate without infringing on the proprietary rights of others, we will not earn revenues on our product candidates and our business would be materially adversely affected.

There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition, to the extent that we gain greater visibility and market exposure as a public company in the United States, we face a greater risk of being involved in such litigation. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, opposition, re-examination and similar proceedings, such as the America Invents Act post grant proceedings, before the USPTO and its foreign counterparts, regarding intellectual property rights with respect to our product candidates. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. A negative outcome could result in liability for monetary damages, including treble damages and attorneys’ fees if, for example, we are found to have willfully infringed a patent. A finding of infringement could prevent us or our collaborators from developing, marketing or selling a product or force us to cease some or all of our business operations. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace, and patent litigation and other proceedings may also absorb significant management time.

Risks Related to Our Management and Employees

We depend on our executive officers and key clinical and technical personnel to operate our business effectively, and we must attract and retain highly skilled employees in order to succeed.

Our success depends upon the continued service and performance of our executive officers who are essential to our growth and development. The loss of one or more of our executive officers could delay or prevent the continued successful implementation of our growth strategy, could affect our ability to manage our company effectively and to carry out our business plan, or could otherwise be detrimental to us. As of December 31, 2016, we had 55 full-time employees. Therefore, knowledge of our product candidates and clinical trials is concentrated among a small number of individuals. Members of our executive team as well as key clinical, scientific and technical personnel may resign at any time and there can be no assurance that we will be able to continue to retain such personnel. If we cannot recruit suitable replacements in a timely manner, our business will be adversely impacted.

Our growth and continued success will also depend on our ability to attract and retain additional highly qualified and skilled research and development, operational, managerial and finance personnel. However, we face significant competition for experienced personnel in the pharmaceutical field. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to quality candidates than what we have to offer. If we cannot retain our existing skilled scientific and operational personnel and attract and retain sufficiently-skilled additional scientific and operational personnel, as required, for our research and development and manufacturing operations on acceptable terms, we may not be able to continue to develop and commercialize our existing product candidates or new products. Further, any failure to effectively integrate new personnel could prevent us from successfully growing our company.

Under applicable employment laws, we may not be able to enforce covenants not to compete.

We generally enter into non-competition agreements with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property.

If we fail to manage our growth effectively, our business could be disrupted.

Our future financial performance and ability to successfully commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. We have made and expect to continue to make significant investments to enable our future growth through, among other things, new product development and clinical trials for new indications. We may acquire or make investments in businesses, technologies or products, whether complementary or otherwise, as a means to expand our business, if appropriate opportunities arise. We cannot give assurances that we will be able to identify future suitable acquisition or investment candidates, or, if we do identify suitable candidates, that we will be able to make the acquisitions or investments on reasonable terms or at all. In addition, we have no prior experience in integrating acquisitions and we could experience difficulties incorporating an acquired company’s personnel, operations, technology or product offerings into our own or in retaining and motivating key personnel from these businesses. We may also incur unanticipated liabilities. The financing of any such acquisition or investment, or of a significant general expansion of our business, may not be readily available on favorable terms. Any significant acquisition or investment, or major expansion of our business, may require us to explore external financing sources, such as an offering of our equity or debt securities. We cannot be certain that these financing sources will be available to us or that we will be able to negotiate commercially reasonable terms for any such financing, or that our actual cash requirements for an acquisition, investment or expansion will not be greater than anticipated. In addition, any indebtedness that we may incur in such a financing may inhibit our operational freedom, while any equity securities that we may issue in connection with such a financing would dilute our shareholders.

We must also be prepared to expand our work force and train, motivate and manage additional employees as the need for additional personnel arises. Even following expansion, our facilities, personnel, systems, procedures and controls may not be adequate to support our future operations, or we may expand, but then fail to grow our sales of our product candidates sufficiently to support such operational growth. Any failure to manage future growth effectively could have a material adverse effect on our business and results of operations.

Our results of operations may be adversely affected by fluctuations in currency exchange rates and we may not adequately hedge against them.

Through December 31, 2015, our functional currency was the NIS but our presentation currency was and remains the U.S. dollar. Even after we transitioned to the U.S. dollar as our functional currency effective as of January 1, 2016, a significant portion of our operating expenses have continued to be incurred in NIS. The portion of our expenses that have been denominated in U.S. dollars has accounted for 16.0%, 45.0% and 55% of our expenses in the years ended December 31, 2014, 2015 and 2016, respectively. As a result, we are exposed to the risks that the shekel may appreciate relative to the dollar, or, if the shekel instead devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the shekel against the dollar. For example, the dollar appreciated relative to the shekel by 12.0% in 2014 and 0.3% in 2015, respectively, eclipsing the 0.5% rate of inflation in 2014 and compounding the negative rate of inflation (-1.0%) in Israel in 2015. In 2016, however, the shekel appreciated relative to the dollar by 1.5%, and the inflation rate was neutral (0%), thereby increasing our dollar-denominated costs slightly. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.

Changes in laws, regulations or governmental policies in jurisdictions in which we operate or where our products are sold may impact our business.

We may depend on distributors and agents outside of Israel for compliance and adherence to local laws and regulations.  Significant political or regulatory developments, such as those stemming from the recent change of the presidential administration in the U.S. or the U.K.’s “Brexit” referendum could have a material adverse effect on us.

In the United States, the new presidential administration has expressed support for and may implement greater restrictions on free trade and increases tariffs on goods imported into the United States, as well as a comprehensive tax reform, including in corporate and income taxation. We cannot predict whether quotas, duties, tariffs, taxes or other similar restrictions will be imposed by the United States or other countries upon the import or export of our products in the future. However, given our significant sales, distribution, import and manufacturing operations in the U.S., changes in U.S. political, regulatory and economic conditions or in its policies governing international trade and foreign manufacturing and investment in the U.S. could adversely affect our business. 

In the United Kingdom, a recent referendum was held in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” On February 8, 2017, the U.K.’s House of Commons approved a bill authorizing the government to start exit talks with the E.U. The impact on us from Brexit will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. As a result of the referendum, the global markets and certain currencies have been adversely impacted, including a sharp decline in the value of the British pound as compared to the U.S. dollar, which led to decrease in our revenues generated from sales in the U.K. A potential devaluation of the local currencies of our buyers in the U.K. and the E.U. relative to the U.S. dollar may impair the purchasing power of our international buyers and could cause international buyers to decrease their participation in our marketplaces or use of our services.

Volatility in the foregoing exchange rates resulting from Brexit may continue as the U.K. negotiates its exit from the E.U. We translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international sales and earnings would be reduced because these currencies would translate into fewer U.S. dollars. Furthermore, brexit could also lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, any of which could adversely affect our business, financial condition, operating results and cash flows. Any of these effects of Brexit, among other factors, could adversely affect our business, financial condition, operating results and cash flows.

Risks Related to Our Ordinary Shares

Our share price has been, and may continue to be, volatile, and you may lose all or part of your investment.

Our ordinary shares were first offered publicly in our initial public offering in November 2014, at a price of $10.00 per share, and our ordinary shares have subsequently traded as high as $30.45 per share and as low as $5.67 per share through March 15, 2017. In addition, the market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:

In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation we could incur substantial costs and our management’s attention and resources could be diverted.

If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, our stock price could decline. Moreover, the price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

A small number of significant beneficial owners of our shares, if acting together, would possess a controlling influence over matters requiring shareholder approval, which could delay or prevent a change of control.

Three of our directors beneficially own approximately 33.7% of our ordinary shares. As a result, these shareholders, acting together, could exercise a controlling influence over our operations and business strategy and will have sufficient voting power to control the outcome of various matters requiring shareholder approval. These matters may include:

This concentration of ownership of our ordinary shares could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our ordinary shares. This concentration of ownership may also adversely affect our share price.

As a foreign private issuer, we are permitted to follow, and have been following, certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

As a foreign private issuer, we are permitted to follow, and have been following, certain home country corporate governance practices instead of those otherwise required under the Listing Rules of NASDAQ, for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to the quorum requirement for shareholder meetings. As permitted under the Companies Law, our articles of association provide that the quorum for any meeting of shareholders is the presence of at least two shareholders present in person, by proxy or by a voting instrument, who hold at least 25% of the voting power of our shares instead of 33 1/3% of the issued share capital, as required under the Listing Rules of NASDAQ. We may in the future elect to follow home country practices in Israel with regard to other matters, including the formation and composition of the compensation committee and nominating and governance committee, separate executive sessions of independent directors and the requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Global Market may provide less protection to you than what is accorded to investors under the Listing Rules of NASDAQ applicable to domestic U.S. issuers. See “ITEM 16G. Corporate Governance.”

As a foreign private issuer, we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports, which reduces the frequency and scope of information and protections to which you are entitled as an investor.

In addition, as a foreign private issuer, we are exempt from a number of requirements under U.S. securities laws that apply to public companies that are not foreign private issuers. In particular, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and are generally exempt from filing quarterly reports with the SEC under the Exchange Act. We are also exempt from the provisions of Regulation FD, which prohibits the selective disclosure of material nonpublic information to, among others, broker-dealers and holders of a company’s securities under circumstances in which it is reasonably foreseeable that the holder will trade in the company’s securities on the basis of the information. Even though we intend to comply voluntarily with Regulation FD, these exemptions and leniencies reduce the frequency and scope of information and protections to which you are entitled as an investor.

If we lose our status as a foreign private issuer under the SEC’s rules, that will increase our compliance costs.

We would lose our foreign private issuer status if (i) a majority of our shares are held of record by U.S. residents, and either (ii)(A) a majority of our directors or executive officers are U.S. citizens or residents or (ii)(B) we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We would also be required to follow U.S. proxy disclosure requirements, including the requirement to disclose more detailed information about the compensation of our senior executive officers on an individual basis. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

We are an “emerging growth company” and we cannot be certain whether the reduced requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 effective on April 5, 2012, or the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging growth companies.” Most of such requirements relate to disclosures that we would only be required to make if we cease to be a foreign private issuer in the future. Nevertheless, as a foreign private issuer that is an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, for up to five fiscal years after the date of our initial public offering. We will remain an emerging growth company until the earliest of: (a) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering; (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.

The market price of our ordinary shares could be negatively affected by future sales of our ordinary shares.

As of March 15, 2017, there were 26,338,138 of our ordinary shares outstanding. Sales by us or our shareholders of a substantial number of ordinary shares in the public market, or the perception that these sales might occur, could cause the market price of our ordinary shares to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. Shares held by our pre-IPO shareholders are now eligible for sale under Rule 144 of the Securities Act, which could facilitate additional downward pressure on the market price of our ordinary shares.

The holders of 8,057,760 of our ordinary shares are entitled to require that we register under the Securities Act the resale of their shares into the public markets. All shares sold pursuant to an offering covered by such registration statement will be freely transferable. See “ITEM 7.B — Related Party Transactions — Registration Rights”.

In addition to these registration rights, approximately 3.1 million ordinary shares are subject to outstanding options granted to employes and office holders under our equity incentive plans, including approximately 1.5 million ordinary shares issuable under currently exercisable share options as of March 15, 2017. Upon issuance, such shares may be freely sold in the public market, except for shares held by affiliates who have certain restrictions on their ability to sell.

We believe we were a passive foreign investment company, or PFIC, for the taxable year ending December 31, 2016 and expect to be classified as a PFIC for the taxable year ending December 31, 2017.

A non-U.S. corporation will be classified as a PFIC for federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of subsidiaries, either at least 75% of its gross income is “passive income,” or at least 50% of the average quarterly value of its total gross assets (which, in our case, may be determined in part by the market value of our ordinary shares, which is subject to change) is attributable to assets that produce “passive income” or are held for the production of passive income. Based on certain estimates of our gross income and gross assets and the nature of our business, we believe, and you should assume, that we were classified as a PFIC for the taxable year ending December 31, 2016. We furthermore expect to be classified as a PFIC for the 2017 tax year. Because we must determine our PFIC status annually based on tests, which are factual in nature, our status in 2017 and future years will depend on our income, assets and activities in those years. There can be no assurance that we will not be considered a PFIC for any taxable year.

Our classification as a PFIC may result in material adverse consequences for you if you are a U.S. taxable investor, including having gains realized on the sale of the ordinary shares treated as ordinary income, rather than capital gains, having potentially punitive interest charges apply to those gains, and the denial of the taxation of certain dividends we pay at the lower rates applicable to long-term capital gains. If we are classified as a PFIC, a U.S. investor may be able to mitigate some of the adverse U.S. federal income tax consequences described above with respect to owning our ordinary shares, provided that such U.S. investor is eligible to make, and successfully makes, a “mark-to-market” election. U.S. investors could also mitigate some of the adverse U.S. federal income tax consequences of us being classified as a PFIC by making a “qualified electing fund” election, provided that we provide the information necessary for a U.S. investor to make such an election. We intend to make available to U.S. investors upon request the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC. Prospective U.S. investors should consult their own tax advisers regarding the potential application of the PFIC rules to them. For more information related to classification as a PFIC, see “ITEM 10.E Taxation and Government Programs—U.S. Federal Income Taxation—Passive Foreign Investment Company Considerations.”

As a public company we may become subject to further compliance obligations, which may strain our resources and divert management's attention.

Changes in the laws and regulations affecting public companies would result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. If our efforts to comply with new laws and regulations differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a publicly traded company in the United States and being subject to U.S. rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.

We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.

We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be an investor’s sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes, and our payment of dividends (out of tax-exempt income) may subject us to certain Israeli taxes, to which we would not otherwise be subject (see “ITEM 8. FINANCIAL INFORMATION—A. Consolidated Statements and Other Financial Information—Dividend Distribution Policy,” “ITEM 10. Additional Information —B. Articles of Association—Dividend and Liquidation Rights” and “ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS—A. Operating Results—Israeli Tax Structure and Tax Programs That May Become Applicable to Our Company”).

If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or if our internal controls over financial reporting are not effective, investors may lose confidence in the accuracy and the completeness of our financial report,s the reliabiliyt of our financial statements may be questioned and our share price may suffer.

We are required to comply with the internal control, evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act as of this annual report. Pursuant to Section 404(a) of the Sarbanes-Oxley Act, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting. Pursuant to Section 404(b) of the Sarbanes-Oxley Act, unless we lose our status as an “emerging growth company” under the JOBS Act prior to the end of the fiscal year in which the fifth anniversary of our initial public offering occurred, we will not be required to obtain an auditor attestation under Section 404 of the Sarbanes-Oxley Act until the year ended December 31, 2019.

To maintain the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, we expect that we will need to continue enhancing existing, and implement new, financial reporting and management systems, procedures and controls to manage our business effectively and support our growth in the future. The process of evaluating our internal control over financial reporting requires an investment of substantial time and resources, including by our Chief Financial Officer and other members of our senior management. The determination and any remedial actions required could divert internal resources and take a significant amount of time and effort to complete and could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants.

Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently, it could adversely affect our operations, financial reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors. Further, if our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our share price may suffer.

Risks Relating to Our Incorporation and Location in Israel

Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.

Our headquarters and principal research and development facilities are located in Rehovot, Israel. In addition, the majority of our key employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Although Israel is a party to peace agreements with Egypt and Jordan and agreements with the Palestinian Authority, it is unclear whether any negotiations that may occur between Israel and the Palestinian Authority will result in any additional agreements. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.

During the Second Lebanon War of 2006, between Israel and Hezbollah, a militant Islamic movement, rockets were fired from Lebanon into Israel causing casualties and major disruption of economic activities in northern Israel. An escalation in tension and violence between Israel and the militant Hamas movement (which controls the Gaza Strip) and other Palestinian Arab groups, has led to Israeli military campaigns in Gaza in December 2008, in November 2012 and from July through August 2014, in an endeavor to prevent continued rocket attacks in Israel’s southern and central regions. In addition, Israel faces threats from more distant neighbors, in particular, Iran, an ally of Hezbollah and Hamas, which has threatened to attack Israel and is believed to be developing nuclear weapons. Iran is also believed to have a strong influence among parties hostile to Israel, such as the Syrian government, Hamas in Gaza and Hezbollah in Lebanon.

Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria are affecting the political stability of those countries. This instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could materially and adversely affect our operations and product development, detrimentally affect our potential to generate revenues and adversely affect the share price of publicly traded companies having operations in Israel, such as us. Similarly, Israeli corporations are limited in conducting business with entities from several countries. For example, in 2008, an Israeli law was enacted forbidding any investments in entities engaged in business with Iran.

Although Israeli legislation requires the Israeli government to cover the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts, terrorist activities or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.

Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to conduct business.

Certain Israeli governmental grants that we received for certain of our research and development activities in Israel may restrict our ability to transfer manufacturing operations or technology outside of Israel without obtaining a pre-approval from the relevant authorities and, in certain circumstances, payment of significant amounts to the authorities.

Our research and development efforts were and are financed in part through grants from the National Technological Innovation Authority, or the Innovation Authority (formerly operating as Office of the Chief Scientist of the Ministry of Economy of the State of Israel, or the OCS). As of December 31, 2014, 2015 and 2016, we had received, cumulatively, $1.9 million, $2.8 million and $2.8 million, respectively, from the OCS and/or the Innovation Authority for our research and development programs. As of December 31, 2016, we had not paid any royalties to the OCS and/or the Innovation Authority.

We must comply with the requirements of the Israeli Encouragement of Research, Development and Technological Innovation Law, 5744-1984, or the Innovation Law (formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, or the Research Law), and related regulations, with respect to those grants.

When a company develops know-how, technology or products using grants provided by the Innovation Authority, the terms of those grants and the Innovation Law restrict the transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel. Even after the repayment of such grants in full, we will remain subject to the restrictions set forth under the Innovation Law, including:

Therefore, if aspects of our technologies are deemed to have been developed with Innovation Authority funding, the discretionary approval of an Innovation Authority committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the Innovation Authority may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.

The transfer of Innovation Authority -supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred technology or know-how, the amount of Innovation Authority support, the time of completion of the Innovation Authority -supported research project and other factors. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with Innovation Authority funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the Innovation Authority.

An extensive amendment to the Innovation Law came into effect as of January 1, 2016, or the Amendment, which may also affect the terms of existing grants. The Amendment provides for an interim transition period (which has not yet expired), after which time our grants will be subject to terms of the Amendment. Under the Innovation Law, as amended by the Amendment, the Innovation Authority is provided with a power to modify the terms of existing grants. Such changes, if introduced by the Innovation Authority in the future, may impact the terms governing our grants.

We may not be eligible for tax benefits that may be available to us under Israeli law and such benefits may be terminated or reduced in the future.

We may be eligible for certain tax benefits provided to “Preferred Enterprises” under the Israeli Law for the Encouragement of Capital Investments, 1959, referred to as the Investment Law. In order to be eligible for the tax benefits for “Preferred Enterprises,” we must meet certain conditions stipulated in the Investment Law and its regulations, as amended. If we do not satisfy these conditions, our Israeli taxable income would be subject to regular Israeli corporate tax rates, which in 2017 is set at 24% and as of 2018 will be 23% (the corporate tax rate was 26.5% and 25% in 2015 and 2016, respectively). Even if we were to become eligible for these tax benefits, they may be reduced, cancelled or discontinued. See “ITEM 5.A Operating Results—Israeli Tax Structure and Tax Programs That May Become Applicable to Our Company—Law for the Encouragement of Capital Investments, 5719-1959.”

We may be required to pay monetary remuneration to employees for their service inventions, even if the rights to such inventions have been assigned to us.

We enter into assignment-of-invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us. A significant portion of our intellectual property has been developed by our employees during the course of their employment by us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the scope of his or her employment with a company are regarded as  “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. 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.

Provisions of Israeli law and/or our articles of association may delay, prevent or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and our shareholders.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares and voting rights above specified thresholds, requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the company’s outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights), may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. See “ITEM 10 Additional Information —B. Articles of Association—Acquisitions under Israeli Law” for additional information.

Our articles of association provide that our directors (other than external directors) are elected on a staggered basis, such that a potential acquiror cannot readily replace our entire board of directors at a single annual general shareholder meeting. This could prevent a potential acquiror from receiving board approval for an acquisition proposal that our board of directors opposes.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. These provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

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

We are incorporated in Israel. The majority of our directors and executive officers reside outside of the United States, and most of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court.

Your rights and responsibilities as a shareholder are governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.

The rights and responsibilities of the holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.