Filed pursuant to Rule 424(b)(4)
Registration No. 333-193792
Registration No. 333-194526

2,837,400 ORDINARY SHARES

GALMED PHARMACEUTICALS LTD.

 

Galmed Pharmaceuticals Ltd. is offering its ordinary shares, NIS 0.01 par value, or the Shares, in a firm commitment underwritten initial public offering. Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price is $13.50 per Share.

The Shares have been approved for listing on the Nasdaq Capital Market under the symbol “GLMD.”

		Per Share				Total
Initial public offering price		$	13.50			$	38,304,900
Underwriting discounts and commissions(1)		$	0.945			$	2,681,343
Proceeds to us (before expenses)		$	12.555			$	35,623,557

We have granted a 45 day option to the underwriters to purchase up to an additional 425,610 Shares solely to cover over-allotments, if any.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements.

Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that should be carefully considered in connection with an investment in our ordinary shares.

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

The underwriters expect to deliver the Shares to purchasers in the offering on or about March 18, 2014.

Sole Book-Running Manager

Maxim Group LLC

 

Co-Managers

MLV & Co.		Feltl and Company

Prospectus dated March 12, 2014.

TABLE OF CONTENTS

TABLE OF CONTENTS

		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			11
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			49
USE OF PROCEEDS			50
CAPITALIZATION			51
DILUTION			52
SELECTED CONSOLIDATED FINANCIAL DATA			54
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			55
BUSINESS			65
MANAGEMENT			111
PRINCIPAL SHAREHOLDERS			138
DESCRIPTION OF SHARE CAPITAL			141
SHARES ELIGIBLE FOR FUTURE SALE			147
TAXATION			149
UNDERWRITING			160
EXPENSES RELATED TO THE OFFERING			166
LEGAL MATTERS			166
EXPERTS			166
ENFORCEABILITY OF CIVIL LIABILITIES			166
WHERE YOU CAN FIND ADDITIONAL INFORMATION			167
INDEX OF FINANCIAL STATEMENTS			F-1

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

You should rely only on the information contained in, or incorporated by reference in, this prospectus and any free writing prospectus prepared by, or on behalf of, us or to which we have referred you to or otherwise authorized. Neither we nor any of the underwriters have authorized anyone to provide you with information that is different. We are offering to sell our ordinary shares, and seeking offers to buy our ordinary shares, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date hereof, regardless of the time of delivery of this prospectus or any sale of the Shares. Our business, financial condition, results of operations and prospectus may have changed since that date. Neither we nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information in this prospectus and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy these ordinary shares in any circumstances under which such offer or solicitation is unlawful.

Before you invest in the Shares, you should read the registration statement (including the exhibits thereto and documents incorporated by reference therein) of which this prospectus forms a part.

For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and observe any restrictions relating to this offering and the distribution of this prospectus.

Our reporting currency and functional currency is the U.S. dollar or “$”. All amounts in this prospectus are in U.S. dollars, unless otherwise indicated.

Throughout this prospectus, unless otherwise designated, the terms “we,” “us,” “our,” “the Company” and “our company” refer to Galmed Pharmaceuticals Ltd. and its subsidiaries. With respect to all financial data and the financial statements and related notes, such terms also refer to Galmed Holdings Inc. prior to the completion of the Reorganization, receipt of the Tax Pre-Ruling and consummation of this offering, each as defined under “Prospectus Summary — Corporate Information,” “Business — Historical Background and Corporate Structure” and “Israeli Tax Considerations — Pre-Ruling Regarding a Reorganization of Our Corporate Structure,” as applicable, and as further described elsewhere in this prospectus.

EXPLANATORY NOTE

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys commissioned by the Company, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys commissioned by the Company and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. However, this information may prove to be inaccurate because of the method by which some of the data for the estimates is obtained or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, the market and industry data and forecasts included or incorporated by reference in this prospectus, and estimates and beliefs based on that data, may not be reliable. We have relied on certain data from third-party sources, including internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry. However, we have not ascertained the underlying economic assumptions relied upon therein. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the forecasts we cite. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus. Notwithstanding the foregoing, we remain responsible for the accuracy and completeness of the historical information presented in this prospectus, as of the date of the prospectus.

TABLE OF CONTENTS

PROSPECTUS SUMMARY

This summary highlights selected information presented in greater detail elsewhere in this prospectus. This summary does not include all the information you should consider before investing in the Shares. You should read this summary together with the more detailed information appearing in this prospectus, including our audited financial statements and related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of a novel, once-daily, oral therapy for the treatment of liver diseases and cholesterol gallstones utilizing our proprietary first-in-class family of synthetic fatty-acid/bile-acid conjugates, or FABACs. We believe that our product candidate, aramchol, has the potential to be a disease modifying treatment for fatty liver disorders, including Non-Alcoholic Steato-hepatitis, or NASH, which is a chronic disease that constitutes a large unmet medical need. NASH is a severe form of Non-Alcoholic Fatty Liver Disease, or NAFLD, which is characterized by inflammation in the liver in addition to the presence of excess liver fat. NASH is often discovered incidentally, often times by elevated liver enzyme levels in blood tests. NASH patients may be asymptomatic or suffer from fatigue, with other symptoms occurring as the liver disease advances. As the disease progresses, persistent fatty infiltration and inflammation cause liver damage marked by fibrosis and the gradual loss of normal liver cells, which dramatically increases the risk of late-stage severe liver diseases, such as cirrhosis, carcinoma and end-stage liver disease, each potentially requiring liver transplantation. In addition to its serious hepatic complications, NASH is also associated with an increased risk of cardiovascular complications, adding to the risks associated with metabolic syndrome. Metabolic syndrome is a serious health condition caused by obesity, physical inactivity and genetic factors that results in a higher risk of cardiovascular disease, diabetes, stroke and NASH. Patients with NASH have an increased overall mortality rate, as compared to control populations, and independent third-party epidemiological studies have shown that such increased mortality is a result of liver-related mortality and a higher risk of cardiovascular disease associated with NASH, independently of the risks associated with metabolic syndrome.

We are initially developing aramchol for the treatment of NASH in patients who also suffer from obesity and insulin resistance. These patients are at the highest risk of developing both the cardiovascular and hepatic complications associated with NASH. Aramchol is a first-in-class conjugate of cholic acid, or a type of bile acid, and arachidic acid, or a type of saturated fatty acid. The conjugated molecule acts upon important metabolic pathways and has been shown in a 60-patient Phase IIa clinical trial to reduce fat accumulation in the liver as well as regulate the transport of cholesterol, which is essential for maintaining cholesterol balance in the body. Independent third-party epidemiologic studies have shown that fat reduction reduces, and eventually eliminates, liver inflammation in patients who have undergone bariatric surgery or other weight loss programs. We believe that aramchol’s ability to reduce liver fat without observable adverse side effects in our studies to date will be central in the treatment of NASH and the hepatic and cardiovascular complications associated therewith. In the near future, we intend to submit an Investigational New Drug, or IND, application to the U.S. Food and Drug Administration, or the FDA, regarding aramchol, which, if approved, would allow us to conduct part of our clinical development in the United States.

During the second half of 2014, we intend to begin a multi-center, randomized, double-blind, placebo-controlled, dose-ranging Phase IIb clinical trial of aramchol in 240 NASH patients who also suffer from obesity and insulin resistance. Our development of aramchol to date has been deemed appropriate by the FDA, the United Kingdom’s Medicines and Healthcare Products Regulatory Agency, or MHRA, Germany’s Bundesinstitut für Arzneimittel und Medizinprodukte, or BfArM, and deemed satisfactory by France’s Agence Nationale de Sécurité du Médicament et des Produits de Santé, or ANSM. Our planned Phase IIb clinical trial for aramchol in NASH patients is in accordance with the study design recommended by the MHRA, deemed acceptable by BfArM, and deemed satisfactory by ANSM. Recently, the FDA confirmed in a written pre-IND advisory letter that such study design is acceptable for a Phase IIb study. BfArM and ANSM also confirmed, in minutes of each of their respective scientific advisory meetings, that if successful, this Phase IIb trial may serve as a basis for Phase III pivotal trials of aramchol. The FDA and MHRA invited us to discuss the next steps in the development of aramchol after the results of the Phase IIb study are analyzed. If the Phase III trials are successful, we intend to submit a New Drug Application, or NDA, to the FDA and a Marketing Authorization Application, or MAA, to the EMA for the approval of aramchol for the treatment of NASH in

TABLE OF CONTENTS

patients who also suffer from obesity and insulin resistance in the United States and Europe. We currently expect results from the Phase IIb trial to be available in the second half of 2016. During this Phase IIb trial, and once 120 patients complete six months of treatment, we intend to conduct an interim analysis of the efficacy and safety of aramchol based on blood markers of inflammation. We currently expect results from the interim analysis to be available in the second half of 2015. We also currently plan to conduct, but provide no assurance that we will conduct, an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of NASH in children, which will be preceded by further preclinical studies and pharmacokinetic, or PK, studies, and an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of cholesterol gallstones.

To date, we have successfully completed three clinical trials of aramchol. The first was a single dose, placebo-controlled, double-blind Phase Ia study with ascending doses of aramchol in healthy volunteers in one center in Israel. All doses proved to be well-tolerated, and no adverse side effects were observed in our studies to date. An additional Phase Ib repeated dose trial completed in healthy volunteers in one center in Israel also showed that aramchol has no significant observable adverse side effects at the doses tested and confirmed the suitability of a once-daily dose of aramchol. A multi-center, randomized, double-blind, placebo-controlled Phase IIa trial of aramchol in 60 NAFLD and NASH patients in 12 centers in Israel, whose study design was deemed acceptable by the FDA in 2007 at a pre-IND scientific advisory meeting, demonstrated that aramchol reduced liver fat in a dose dependent manner, as evidenced by a statistically significant reduction of liver fat measured by Nuclear Magnetic Resonance Spectroscopy, or NMRS, which measures tissue chemical components, over a three month treatment period of once-daily 300 mg doses of aramchol, and induces positive trends in several metabolic parameters. We have submitted the Phase IIa study results for publication in a peer reviewed medical journal and expect such results to be published in 2014. The following diagram illustrates the clinical trials that we have completed to date and those that we intend to undertake with respect to aramchol for NASH patients who also suffer from obesity and insulin resistance.

Aramchol: Results to date in, and future objectives of, clinical trials

According to the Journal of Gastroenterology and Hepatology in 2013, NAFLD is believed to affect up to 30% of the population in developed countries and up to 75% of Western populations with diabetes and obesity. Also according to the Journal of Gastroenterology and Hepatology in 2013, approximately 12% of the general population in the United States and in the five most-populated countries in the European Union, or EU, the United Kingdom, France, Spain, Germany and Italy, has NASH. According to the Journal of

TABLE OF CONTENTS

Hepatology in 2008, and as summarized in the Journal of Hepatology in 2010, the risk that persons with NASH will suffer a liver disease-related death is ten-times higher than that of the general population, and according to these sources, as well as the Journal of Gastroenterology in 2005, NASH increases overall mortality by between 35% and 85%. Additionally, according to the Journal of Gastroenterology and Hepatology in 2013, approximately one third of all NASH patients will develop liver cirrhosis, and nearly one million people with NASH are projected to progress to liver cirrhosis between 2006 and 2015. According to the Journal of Gastroenterology in 2011, the proportion of liver transplants attributed to NASH in the United States increased from 1.2% in 2001 to 9.7% in 2011, establishing NASH as the third leading cause of liver transplantation in the United States. Furthermore, according to the Journal of Digestive Diseases in 2011 and the Journal of Hepatology in 2010, NASH will become the leading cause of liver transplantation in the United States by 2020. Michael Charlton and other scientists at the Mayo Clinic project NASH to surpass hepatitis C as the leading cause of hepatocellular carcinoma in the near future. NASH patients are also twice as likely to die from cardiovascular disease as the global general population.

According to GlobalData, the growing global rate of obesity and diabetes, as well as the expected launch of new NASH specific treatments, will increase the NASH market from $233.0 million in off-label sales in the United States and the five most-populated EU countries in 2012 to $863.0 million in total sales by 2017, with a compounded annual growth rate, or CAGR, of 30%. Based on our extrapolation from the estimated total direct economic cost over the respective lifetimes of the current NASH population in the United States aged 45 to 74, which cost was presented in the Journal of Hepatology in 2006, we estimate that the financial burden of NASH in the United States alone may reach approximately $41 billion within the next decade. Furthermore, according to studies published in the Journal of Gastroenterology in 2008, the progression to NASH increases the five year direct and indirect healthcare costs for patients with NAFLD by 26%.

We believe that aramchol’s ability to reduce liver fat content without observable adverse side effects in our studies to date, and convenient once-daily oral administration make aramchol a potentially valuable drug for the treatment of NASH and cholesterol gallstones and the potential prevention of severe hepatic and cardiovascular complications associated with NASH, including cirrhosis and carcinoma, that would otherwise lead to liver transplantation. Aramchol has not been approved for commercial sale or marketing and, to date, there have been no commercial sales of aramchol.

Our Development Pipeline

The table below sets forth our current pipeline with respect to aramchol, including target indications and the current phase of development for each such indication.

Indication		Planned Next Clinical Trial		Expected Number of Patients		Anticipated Key Events
Non-Alcoholic Steatohepatitis (NASH)		Phase IIb		240 patients		• Initiate Phase IIb trial in the second half of 2014
						• Conduct interim analysis of 120 patients in Phase IIb trial who have completed six months of treatment in the second half of 2015
						• Release top-line results from Phase IIb trial in the second half of 2016
Cholesterol Gallstones		Phase IIa		20 patients		• Initiate Phase IIa trial in the second half of 2014
						• Release top-line results from Phase IIa trial in the second half of 2014
NASH in Children		Preclinical		To be determined		• Pediatric Investigational Plan submission in the first half of 2014
						• Initiate Phase I trial in the second half of 2015

TABLE OF CONTENTS

In addition to NASH in adults, we intend to pursue other indications in our aramchol development program, including the treatment of NASH in children, cholesterol gallstones, chemotherapy-associated steatohepatitis, or CASH, and feline hepatic lipidosis, or feline fatty liver.

We are also collaborating with Enterome Bioscience, a French company, or Enterome, on the development of a non-invasive biomarker which, if successful, would predict individual responses to aramchol. Currently, liver biopsy is the standard approach for the diagnosis of inflammation and fibrosis associated with NASH. However, use is limited due to the procedure-related morbidity, sample errors and costs. We believe that the current lack of specific and non-invasive diagnostic tools for NASH presents a major challenge to the scientific and medical communities. Both preventive care and treatment depend on an accurate diagnosis of NASH, with a biopsy being the only diagnostic method currently available, thus limiting patient care and prognosis. Enterome is developing a non-invasive proprietary test seeking to stratify patients according to their bacterial gut composition. We intend, as part of our Phase IIb study of aramchol, to correlate the findings of Enterome’s test with liver biopsies in the patients enrolled in our studies in order to explore and validate the test as a biomarker based on the profiling of patients treated with aramchol. We will not receive any financial payment from Enterome and we are not obligated to make any financial payment to Enterome in respect of such activities. We agreed to enter into a definitive agreement with Enterome on the basis of the principles detailed in a certain memorandum of understanding, but no such definitive agreement has been executed as of yet.

We also intend to collaborate, as part of our Phase IIb study of aramchol, with a Finnish company working on lipidomics, Zora Biosciences Oy, or Zora, in order to identify the profile of NASH patients responding to aramchol treatment. We will not receive any financial payment from Zora in respect of such activities. We agreed to enter into a definitive agreement with Zora on the basis of the principles detailed in a certain memorandum of understanding, but no such definitive agreement has been executed as of yet.

We hope that these efforts will lead to the identification of a specific biomarker which will differentiate NASH from NAFLD patients without the need for liver biopsy, and serve as a tool for the prediction and assessment of aramchol’s efficacy. We believe that the identification of such a specific biomarker may facilitate the market penetration of aramchol however, we do not expect to generate any revenue directly from such biomarker.

Our Competitive Strengths

We believe we are strategically positioned to address the unmet medical needs of NASH patients who also suffer from obesity and insulin resistance. Our competitive strengths include:

TABLE OF CONTENTS

Our Strategy

Our strategy is to build a specialized biopharmaceutical company that discovers, develops and commercializes novel FABAC drugs and other lipid molecules for the treatment of liver diseases and cholesterol gallstones, beginning with the treatment of fatty liver disorders, primarily NASH, and cholesterol gallstones. Key elements of our strategy include:

Risk Factors

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read and carefully consider these risks, together with the risks set forth under the section entitled “Risk Factors” and all of the other information in this

TABLE OF CONTENTS

prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our ordinary shares. If any of the risks discussed in this prospectus actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. In particular, our risks include, but are not limited to, the following:

Corporate Information

Our Company was incorporated in Israel on July 31, 2013 as an Israeli privately held company. However, our business has been operating since 2000 under a different group of companies established in the same year, or the Group. Originally, we operated under the parent company, Galmed Holdings Inc., or GHI, a holding company incorporated in the British Virgin Islands. GHI held all of the rights in Galmed 2000 Inc., or GTTI, also a holding company incorporated in the British Virgin Islands. GTTI held substantially all of the rights in Galmed International Limited, or GIL, which is incorporated in Malta, an EU member state (other than one share held by GRD for our benefit). GIL held all of the rights in Galmed Medical Research Ltd., or GMR, an Israeli company. Our intellectual property was held by GIL. The research and development was conducted by GMR as a service to GIL on a cost plus basis. GIL was responsible for all product development.

On February 2, 2014, we underwent a reorganization, or the Reorganization, pursuant to which all of our business, including our intellectual property, was transferred to the Company. The Group was reorganized by share transfers and asset transfers, resulting in the Company as the parent company and 100% equity-owner of the following companies: (1) Galmed Research and Development Ltd., or GRD, a newly formed Israeli company, which holds all the Group’s intellectual property, including the Company’s patent portfolio; (2) GIL, which may provide research and development services to GRD on a cost plus basis; and (3) GTTI, which is

TABLE OF CONTENTS

an inactive company that we expect to liquidate at or following the end of 2015. GIL holds GMR, which will become an inactive company before the end of 2014. For a more detailed description of the Reorganization see “Business — Historical Background and Corporate Structure” below.

Immediately prior to the Reorganization, all our shareholders collectively held 9,739 ordinary shares of GHI. In connection with the Reorganization, and in accordance with the Tax Pre-Ruling, we issued to all such shareholders ordinary shares of the Company, such that upon the Reorganization all our shareholders collectively held 7,099,731 ordinary shares of the Company, in the same proportion among all shareholders, which reflected a ratio of 729 ordinary shares of the Company for each ordinary share of GHI.

In connection with the Reorganization, we obtained a pre-ruling from the Israeli Tax Authority, or the Tax Pre-Ruling, which includes certain restrictions and limitations, as detailed in “Taxation — Israeli Tax Considerations” below.

Our principal executive offices and registered office in Israel are located at 8 Shaul Hamelech Blvd., Amot Hamishpat Bldg., Tel Aviv, Israel, and our telephone number is +972 3-6938448. Our website address is http://www.galmedpharma.com. Following the completion of this offering, we will post on our website any materials required to be posted on such website under applicable securities laws and regulations, including posting any XBRL interactive financial data required to be filed with the SEC, and notices of general meetings of our shareholders. The information contained on, or that can be accessed through, our website is neither a part of nor incorporated into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to, and intend to, take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies.”

Lastly, upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act of 1934, as amended, or the Exchange Act, that are applicable to “foreign private issuers,” and under those requirements we will file reports with the U.S. Securities and Exchange Commission, or SEC. Those other reports, or other information, may be inspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Although we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, we intend to do so. As such, we will file with the SEC, within 90 days after the end of each fiscal year, or such other applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and within 45 days after the end of each of the first three fiscal quarters, or such other applicable time as required by the SEC, unaudited quarterly financial information on Form 6-K. We also intend to furnish to the SEC under cover of Form 6-K certain other material information.

TABLE OF CONTENTS

THE OFFERING

TABLE OF CONTENTS

The number of our ordinary shares to be outstanding immediately after this offering is based on 7,659,955 ordinary shares outstanding as of February 27, 2014 and 177,488 ordinary shares issuable upon the exercise of a warrant granted under our 2013 Plan to our Chairman, Mr. Chaim Hurvitz, or the Warrant, which will be exercised automatically upon the completion of this offering, by way of cashless exercise, based upon the initial public offering price of $13.50 per Share. This number excludes 1,298,173 ordinary shares issuable upon the exercise of share options outstanding as of February 27, 2014 under our 2013 Incentive Share Option Plan, or our 2013 Plan, 17,166 ordinary shares issuable upon the exercise of options which will be granted upon the consummation of the offering under our 2013 Plan to Mr. Marth, 38,637 shares issuable upon the exercise of a certain option granted to a service provider that is not subject to our 2013 Plan and 784,304 ordinary shares reserved for future grants under our 2013 Plan. These issued options have a weighted average exercise price of $1.28 per share and expire in September 2023, with the exception of the option to purchase 38,637 shares granted to the service provider, which has no expiration date.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

TABLE OF CONTENTS

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table summarizes our financial data (which reflects the financial data of GHI, our predecessor, prior to the Reorganization). We have derived the following statements of operations data for the years ended December 31, 2013, 2012 and 2011, as well as the balance sheet data as of December 31, 2013 and 2012 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

		Year ended December 31,
		2011				2012				2013
		(In thousands, except share and per share data)
Statements of Operations Data:
Research and development expenses		$	1,326			$	2,443			$	7,207
General and administrative expenses			151				694				7,355
Capital Loss			—				—				10
Operating loss			1,477				3,137				14,572
Financial expenses, net			3				6				2,912
Operating loss post-finance expense & other income, net			1,480				3,143				17,484
Taxes on income			2				6				1
Net loss		$	1,482			$	3,149			$	17,485
Deemed dividend			0				0
Net loss per share		$	216.26			$	459.51			$	2,514.38
Weighted average number of ordinary shares used in computing basic and diluted net loss per share(1)			6,853				6,853				6,954

		As of December 31, 2013
		Actual				Pro Forma(1)				Pro Forma as Adjusted(2)
						(unaudited)				(unaudited)
		(In thousands, except per share data)
Balance Sheet Data:
Cash and cash equivalents		$	137			$	2,137			$	36,768
Working capital			(1,536	)			464				35,095
Total assets			166				2,166				36,797
Total liabilities			2,117				2,117				2,117
Shareholders’ equity (deficit)			(1,951	)			49				34,680

TABLE OF CONTENTS

RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information in this prospectus, including the audited financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our ordinary shares. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our ordinary shares to decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position and Capital Requirements

We are a clinical-stage biopharmaceutical company with a history of operating losses. We expect to incur additional losses in the future and may never be profitable.

We are a clinical-stage biopharmaceutical company with a limited operating history and no approved products. To date, we have focused almost exclusively on developing our product candidate, aramchol. We have funded our operations to date primarily through proceeds from the private placement of ordinary shares and convertible debt. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. We have no products and have not generated any revenue from product sales to date. We have incurred losses in each year since the inception of our predecessor in 2000. Our loss attributable to holders of our ordinary shares for the years ended December 31, 2012 and 2013 was approximately $3.1 million and $17.5 million, respectively. As of December 31, 2013, we had an accumulated deficit of $27.6 million. Substantially all of our operating losses resulted from costs incurred in connection with our development program and from general and administrative costs associated with our operations.

We expect our research and development expenses to increase in connection with our planned clinical trials. In addition, if we obtain marketing approval for aramchol, we will likely initially incur significant outsourced sales, marketing and manufacturing expenses, as well as continued research and development expenses. Furthermore, in the period following this offering, we expect to incur additional costs associated with operating as a public company, which we estimate will be at least several hundred thousand dollars annually. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

Our limited operating history makes it difficult to evaluate our business and prospects.

We have a limited operating history and our operations to date have been limited primarily to research and development, raising capital and recruiting scientific and management personnel and third-party partners. As such, it may be difficult to evaluate our business and prospects. We have not yet demonstrated an ability to commercialize or obtain regulatory approval for any product candidate. Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess our ability to complete development and/or commercialize our product candidate, or any future product candidate, obtain regulatory approvals or achieve market acceptance or favorable pricing for our product candidate or any future product candidate.

TABLE OF CONTENTS

We have not generated any revenue from aramchol, or any other product candidate, and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue in excess of our expenses. To date, we have not generated any revenue from our development stage product candidate, aramchol, or any other product candidate. We do not know when, or if, we will generate any revenue. We do not expect to generate revenue unless and until we obtain regulatory and marketing approval of, and commercialize, aramchol. We will continue to incur research and development and general and administrative expenses related to our operations. As of December 31, 2013, the Company had an accumulated deficit of approximately $27.6 million. We expect to continue to incur losses for the foreseeable future, and these loses will likely increase as we:

We may out-license our ability to generate revenue depending on a number of factors, including our ability to:

Even if aramchol is approved for commercial sale for the treatment of NASH in patients who also suffer from obesity and insulin resistance, or any other indications, it may not gain market acceptance or achieve commercial success. In addition, we anticipate incurring significant costs associated with commercialization. We may not achieve profitability soon after generating product revenue, if ever. If we are unable to generate product revenue, we will not become profitable and would be unable to continue operations without additional funding.

We have not yet commercialized any products and we may never become profitable.

We have not yet commercialized any products and we may never be able to do so. We do not know when or if we will complete any of our product development efforts, obtain regulatory approval for any product candidates or successfully commercialize any approved products. Even if we are successful in developing products that are approved for marketing, we will not be successful unless these products gain market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products will depend on a number of factors, including:

TABLE OF CONTENTS

Physicians, patients, third-party payors or the medical community in general may be unwilling to accept, utilize or recommend, and in the case of third-party payors, cover any of our products. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all. Even if we successfully develop one or more products, we may not become profitable.

We will need substantial additional capital in the future. If additional capital is not available, we will have to delay, reduce or cease operations.

We will need to raise substantial additional capital to fund our operations and to develop and commercialize aramchol. As of December 31, 2013, we had a negative working capital of $1.5 million and cash and cash equivalents of $137,000. Our future capital requirements may be substantial and will depend on many factors including:

Based on our current operating plan, we anticipate that the net proceeds of this offering, together with our existing resources, will be sufficient to enable us to maintain our currently planned operations, including our continued product development, through 2016. We believe these funds will enable us to complete any preparatory clinical and non-clinical work, as well as the Phase IIb clinical trial of aramchol for the treatment of NASH patients who also suffer from obesity and insulin resistance. We will require significant additional funds to initiate and complete the FDA and EMA approval process. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, such as losing our Small and Medium Enterprise status at the EMA, which entitles us to significant fee reductions. Because the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amount of increased capital outlays and operating expenditures associated with our anticipated clinical trials. We have no committed external sources of funds. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. If adequate funds are not

TABLE OF CONTENTS

available to us on a timely basis, or at all, we may be required to terminate or delay planned clinical trials or other development activities for aramchol and the Phase III clinical trials.

Raising additional capital may be costly or difficult to obtain and will dilute current shareholders’ ownership interests.

Any debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our technologies, products or marketing territories. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business, and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.

Any additional capital raised through the sale of equity or equity-linked securities may dilute our current shareholders’ ownership in us and could also result in a decrease in the market price of our ordinary shares. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect.

We are unable to estimate our long-term capital requirements due to uncertainties associated with the development and commercialization of our product candidate. If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our intellectual property and technology, and we will be unable to develop and commercialize our product candidate.

Our long-term capital requirements are expected to depend on many potential factors, including, among others:

TABLE OF CONTENTS

If we are unable to obtain the funds necessary for our operations, we will be unable to maintain and improve our intellectual property and technology, and we will be unable to develop and commercialize aramchol, or other product candidates, which would materially and adversely affect our business, liquidity and results of operations.

Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.

As of December 31, 2013, we had an accumulated deficit of approximately $27.6 million. Our recurring operating losses and lack of revenue raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements include a note describing the conditions which raise this substantial doubt. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2013 with respect to this uncertainty. We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve aramchol and we successfully commercialize (including out-licensing) aramchol. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations. According to our estimates and based on our budget, if we are not successful in obtaining additional capital resources, there is a substantial doubt that we will be able to continue our activities beyond 2014. The perception of our inability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

We may become subject to the payment of taxes in connection with the Reorganization.

On February 2, 2014, we underwent the Reorganization, pursuant to which all of our business (including our intellectual property) was transferred to us. The Reorganization was effected by way of share transfers and asset transfers, as follows: first, GHI transferred GTTI’s entire share capital to the Company; next, GTTI transferred GIL’s entire share capital to the Company; then, GIL transferred and assigned all of its intellectual property to GRD. In connection with the Reorganization, we obtained the Tax Pre-Ruling. The Tax Pre-Ruling confirms that the transfer of shares and assets resulting in the Company as the parent company and 100% equity-owner of GRD, which holds all of the Group’s intellectual property, including the Company’s patent portfolio, GIL and GTTI, is not taxable pursuant to the provisions of the Israeli Tax Ordinance as long as certain requirements are met. However, we have not obtained a tax pre-ruling from the tax authorities in the British Virgin Islands with respect to the transfer of the shares of GTTI and the transfer of the shares of GIL to the Company, or from the tax authorities in Malta with respect to the transfer of the intellectual property of GIL to GRD. We believe that such transfers of shares and assets are not taxable in the British Virgin Islands and Malta, respectively. However, there can be no assurance that we will not become subject to the payment of taxes in the British Virgin Islands, with respect to the transfers of shares as aforesaid, or in Malta, in connection with the transfer of the intellectual property as mentioned above. For a more detailed description of the Reorganization see “Business — Historical Background and Corporate Structure” below.

Risks Related to Our Business, Industry and Regulatory Requirements

We depend entirely on the success of our product candidate, aramchol, and we may not obtain regulatory approval of aramchol.

We have invested almost all of our efforts and financial resources in the research and development of aramchol, which is currently our only product candidate. As a result, our business is entirely dependent on our ability to complete the development of, obtain regulatory approval for and successfully commercialize aramchol in a timely manner. The process to develop, obtain regulatory approval for and commercialize aramchol is long, complex, costly and uncertain as to its outcome.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drugs are subject to extensive regulation by the FDA and other regulatory agencies in other countries. These regulations

TABLE OF CONTENTS

differ from jurisdiction to jurisdiction. We are not permitted to market aramchol, or any other product candidate, in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from the respective regulatory agencies in such countries. We have not received regulatory clearance to conduct the clinical trials that are necessary to file an NDA with the FDA or comparable applications to other regulatory authorities in other countries or received marketing approval for aramchol. The results of clinical trials may be unsatisfactory, even if we believe those clinical trials to be successful, the FDA, or other regulatory authorities, may not approve our NDA should we be in a position to file one.

Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries outside the United States, it is required that a product receives pricing and reimbursement approval before the product can be commercialized. This can result in substantial delays in such countries. In other countries, product approval depends on showing superiority to an approved alternative therapy. This can result in significant expense for conducting complex clinical trials. Finally, we do not have any products approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Marketing approval in one jurisdiction does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for aramchol. This would reduce our target market and limit the full commercial potential of aramchol.

We might be unable to develop aramchol to achieve commercial success in a timely and cost-effective manner, or ever.

Even if regulatory authorities approve aramchol, it may not be commercially successful. Aramchol may not be commercially successful because government agencies and other third-party payors may not provide reimbursement for the costs of the product or the reimbursement may be too limited to be commercially successful; physicians and others may not use or recommend aramchol, even following regulatory approval. In addition, a product approval, assuming one issues, may limit the uses for which aramchol may be distributed thereby adversely affecting the commercial viability of the product. Moreover, third parties may develop superior products or have proprietary rights that preclude us from marketing aramchol. We also expect that aramchol will be expensive, if approved. Physician and patient acceptance of, and demand for, aramchol, if we obtain regulatory approval, will depend largely on many factors, including, but not limited to, the extent, if any, of reimbursement of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with aramchol. If physicians, government agencies and other third-party payors do not accept the use or efficacy of aramchol, we will not be able to generate significant revenue, if any.

We may be forced to abandon development of aramchol, or other future product candidates, which will significantly impair our ability to generate product revenues.

Upon the completion of any clinical trial, the results might not support the claims sought by us. Further, success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that aramchol is safe and effective for the indicated uses. Any such failure may cause us to abandon aramchol and may delay development of other product candidates. Any delay in, or termination or suspension of, our clinical trials will delay the requisite filings with the FDA or other regulatory agencies and, ultimately, our ability to commercialize our product candidates and generate

TABLE OF CONTENTS

product revenues. If the clinical trials do not support our product claims, the completion of development of such product candidate may be significantly delayed or abandoned, which will significantly impair our ability to generate revenues and will materially adversely affect our results of operations.

If we acquire or in-license additional technologies or product candidates, we may incur a number of costs, may have integration difficulties and may experience other risks that could harm our business and results of operations.

We may acquire and in-license additional product candidates and technologies. Any product candidate or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate, or product developed based on in-licensed technology, will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any product candidate that we develop based on acquired or in-licensed technology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted or competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.

The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.

We may not be able to commence or complete the clinical trials that would support our submission of an NDA to the FDA, a MAA to the EMA or any similar submission to regulatory authorizes in other countries. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. The fact that the FDA, EMA or other regulatory authorities permit a company to conduct human clinical trials is no guarantee that the trial will be successful. To the contrary, most candidate drugs that enter clinical trials do not prove to be successful and do not result in the filing of an NDA, MAA or similar filing. Drug candidates that prove successful at one clinical trial phase may prove unsuccessful at a subsequent phase. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Regulatory authorities, such as the FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process is time-consuming, and failure can occur at any stage of the trials. We may encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:

TABLE OF CONTENTS

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities, the institutional review boards at the sites where such boards are overseeing a trial or a data safety monitoring board overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including:

Although we have not experienced the risks involved with conducting clinical trials, including but not limited to, increased expense and delay, to date, there can be no assurance that we will not experience such risks in the future as we progress with our planned clinical trials.

In addition, we or regulatory authorities may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of such trials. Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability to develop products and generate revenue.

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

Positive results in previous clinical studies of aramchol may not be predictive of similar results in future clinical trials. Also, interim results during a clinical trial do not necessarily predict final results. 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 aramchol 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 FDA or EMA, or other regulatory agency, approval for their products.

Lack of a reliable non-invasive method for the diagnosis of NASH is likely to present a major challenge to our product candidate’s market penetration, if ever commercialized.

Liver biopsy is the standard approach for the diagnosis of inflammation and fibrosis associated with NASH. However, the procedure-related morbidity, sample errors and costs limit its use. As such, only patients with a high risk of NASH, which includes patients with metabolic syndrome and an indication of NAFLD by non-invasive diagnostic methods, most of which are not very reliable, are sent for liver biopsy. Because NASH is mostly asymptomatic, until the disease progresses, many individuals with NASH go undiagnosed until the disease has reached its late stages. The lack of a reliable non-invasive method for the diagnosis of NASH is likely to present a major challenge to aramchol’s market penetration, as many practitioners and patients may not be aware that a patient suffers from NASH and requires treatment. As such, use of aramchol might not be as wide-spread as our actual target market and this may limit the commercial potential of aramchol.

A further challenge to market penetration is that currently a liver biopsy is the standard approach for measuring improvement in NASH patients. Because it would be impractical to subject all aramchol users to regular and repeated liver biopsies, it will be difficult to demonstrate aramchol’s effectiveness to practitioners and patients unless and until a reliable non-invasive method for the diagnosis and monitoring of NASH is available, as to which there can be no assurance.

TABLE OF CONTENTS

Obtaining approval of an NDA, or other regulatory approval, even after clinical trials that are believed to be successful is an uncertain process.

Even if we complete our planned clinical trials and believe the results to be successful, all of which are uncertain, obtaining approval of an NDA, or similar regulatory application, is an extensive, lengthy, expensive and uncertain process, and the FDA and other regulatory agencies may delay, limit or deny approval of aramchol for many reasons, including:

Before we can submit an NDA, or similar regulatory application, to the FDA, or other regulatory authorities, as applicable, we must conduct a Phase IIb clinical trial and pivotal Phase III clinical trials that will be substantially broader than our Phase IIa trial. We will also need to agree on a protocol with the FDA for the clinical trials before commencing those trials in the United States. Phase III clinical trials frequently produce unsatisfactory results even though prior clinical trials were successful. Therefore, the results of the additional trials that we conduct may or may not be successful. The applicable regulatory agencies may suspend all clinical trials or require that we conduct additional clinical, nonclinical, manufacturing, validation or drug product quality studies and submit those data before considering or reconsidering the NDA or similar regulatory application. Depending on the extent of these, or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have

TABLE OF CONTENTS

available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the applicable regulatory agencies to provide regulatory approval. If any of these outcomes occur, we would not receive approval for aramchol and may be forced to cease operations.

Even if we obtain regulatory approval for aramchol, the approval might contain significant limitations related to the intended uses for which the drug is approved, use restrictions including, without limitation, for certain labeled populations, age groups, warnings, precautions or contraindications, or may be subject to significant post-marketing studies or risk mitigation requirements. If we are unable to successfully commercialize aramchol, we may be forced to cease operations.

Aramchol may produce undesirable side effects that we may not detect in our clinical trials, which could prevent us from achieving or maintaining market acceptance of this product candidate and could substantially increase commercialization costs or even force us to cease operations.

Even if aramchol receives marketing approval, we or others may later identify undesirable side effects caused by the product, and in that event, a number of potentially significant negative consequences could result, including:

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase commercialization costs or even force us to cease operations.

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, which may result in necessary changes to clinical trial protocols, which could result in increased costs to us, delay our development timeline or reduce the likelihood of successful completion of our clinical trials.

Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to IRBs for review and approval, which may adversely affect the cost, timing or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for aramchol would be harmed and our ability to generate product revenue would be delayed, possibly materially.

We cannot be certain that the results of our Phase III clinical trials, even if all endpoints are met, will support regulatory approval of aramchol for the treatment of NASH.

Currently, the FDA and other regulatory agencies do not have any clear guidance on which endpoints of a Phase III clinical trial would be sufficient for approval of a drug for the treatment of NASH. Therefore, the development pathway for aramchol is not completely clear beyond Phase IIb, for which the measurement of liver fat content by NMRS is an endpoint validated by the FDA.

For example, the FDA recognizes that because NASH is characterized by a long asymptomatic natural history, it may be difficult to demonstrate efficacy in a Phase III clinical trial. However, it is precisely this type of demonstration, evidencing the “substantive evidence of effectiveness” of a drug, that is required for drug approval.

In certain limited and rare circumstances, the FDA permits drug developers to use a “surrogate endpoint” to demonstrate the clinical benefits of their drugs in the short term, the demonstration of which is sufficient

TABLE OF CONTENTS

for initial marketing approval. A surrogate endpoint is defined as a biomarker that is intended to substitute for a clinical endpoint, and which is expected to predict the clinical benefit or harm associated with a drug. Once marketing approval has been received, the drug developer is required to conduct post-approval clinical trials that demonstrate clinical benefit.

Although the FDA has indicated at a workshop held in association with the American Association for the Study of Liver Diseases, or AASLD, that an acceptable surrogate endpoint for drugs targeting the early stages of NASH (i.e., fat infiltration and inflammation, as opposed to fibrosis) is clearance or improvement of NASH in liver biopsy, this has not been confirmed by any formal guidelines. It is possible that even if the results of our Phase III clinical trial demonstrate the clearance or improvement of NASH in liver biopsy, the FDA will require longer-term studies of aramchol prior to granting marketing approval.

Even if aramchol, or any other product candidate that we may develop, receives marketing approval, we will continue to face extensive regulatory requirements and any such product may still face future development and regulatory difficulties. In addition, we are subject to government regulations and we may experience delays in obtaining required regulatory approvals to market our proposed product candidates.

Even if we receive regulatory approval to market a particular product candidate, any such product will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. In addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number and more diverse group of patients after approval than during clinical trials, side effects and other problems may be observed over time after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed after the approval and marketing of a product candidate could result in limitations on the use of or withdrawal of any approved products from the marketplace. Absence of long-term safety data may also limit the approved uses of our products, if any. If we fail to comply with the regulatory requirements of the FDA, and other applicable U.S. and foreign regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including the following:

In addition, various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect our business operations and financial performance.

TABLE OF CONTENTS

Delays in regulatory approval, limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on the Company. If we experience significant delays in testing or receiving approvals or sign-offs to conduct clinical trials, our product development costs or our ability to out-license product candidates will increase.

If we obtain approval to commercialize aramchol outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If aramchol is approved for commercialization outside the United States, we will likely enter into agreements with third parties to commercialize aramchol outside the United States. We expect that we will be subject to additional risks related to entering into or maintaining international business relationships, including:

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from aramchol and any other future product candidate. If regulatory sanctions are applied, or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.

If we receive marketing approval for aramchol, sales will be limited unless the product achieves broad market acceptance.

The commercial success of aramchol and any other future product candidate for which we obtain marketing approval from the FDA, or other regulatory authorities, will depend on the breadth of its approved labeling and upon the acceptance of the product by the medical community, including physicians, patients and healthcare payors. The degree of market acceptance of any approved product will depend on a number of factors, including:

TABLE OF CONTENTS

If aramchol is approved, but does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from the product, and we may not become profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of the product may require significant resources and may never be successful.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA, or such other regulatory agencies as reflected in the product’s approved labeling. In particular, any labeling approved by such regulatory agencies for aramchol may also include restrictions on use. Such regulatory agencies may impose further requirements or restrictions on the distribution or use of aramchol as part of a mandatory plan, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. If we receive marketing approval for aramchol, physicians may nevertheless prescribe aramchol to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. In particular, the U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

We may be subject to extensive environmental, health and safety, and other laws and regulations in multiple jurisdictions.

Our business involves the controlled use, through our service providers, of hazardous materials, various biological compounds and chemicals, and as such, we, our agents and our service providers may be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We may incur substantial capital costs and operating expenses and may be required to obtain consents to comply with any environmental and health laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs incurred by us to install new or updated pollution control equipment for our service providers, modify our operations or perform other corrective actions at our facilities or the facilities of our service providers. In addition, fines and penalties may be imposed on us, our agents and/or our service providers for noncompliance with environmental, health and

TABLE OF CONTENTS

safety and other laws and regulations or for the failure to have, or comply with the terms and conditions of, required environmental or other permits or consents.

We expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, which could adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer our products.

In both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from third-party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services.

Increasing expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the U.S. healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. The Centers for Medicare & Medicaid Services, or CMS, has issued and will continue to issue regulations to implement the new law which will affect Medicare, Medicaid and other third-party payors. Medicare, which is the single largest third-party payment program and which is administered by CMS, covers prescription drugs in one of two ways. Medicare part B covers outpatient prescription drugs that are administered by physicians and Medicare part D covers other outpatient prescription drugs, but through private insurers. Medicaid, a health insurance program for the poor, is funded jointly by CMS and the states, but is administered by the states; states are authorized to cover outpatient prescription drugs, but that coverage is subject to caps and to substantial rebates. The CMS also has the authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. While the Medicare Modernization Act and Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, or the Affordable Care Act, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. The Affordable Care Act expanded manufacturers' rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% of AMP. The Affordable Care Act and subsequent legislation also narrowed the definition of AMP. Furthermore, the Affordable Care Act imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective. Although it is too early to determine the effect of the Affordable Care Act, it appears likely to continue to put pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

TABLE OF CONTENTS

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. More recently, in August 2011, the President of the U.S. signed into law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory approval and commercialization of aramchol, these new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of aramchol may be.

Although we cannot predict the full effect on our business of the implementation of existing legislation or the enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales.

It will be difficult for us to profitably sell aramchol if reimbursement for the product is limited by government authorities and third-party payor policies.

In addition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of aramchol will depend on the reimbursement policies of government authorities and third-party payors. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for aramchol and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-party payors are likely to impose strict requirements for reimbursement in order to limit off-label use of a higher priced drug. Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product is:

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our future products. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future products. If reimbursement is not

TABLE OF CONTENTS

available, or is available only to limited levels, we may not be able to commercialize our product candidate, or any future product candidates, profitably, or at all, even if approved.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

In some countries, particularly the countries of the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

We are subject to federal anti-kickback laws and regulations. Our failure to comply with these laws and regulations could have adverse consequences to us.

There are extensive U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties. These federal laws include: the anti-kickback statute, which prohibits certain business practices and relationships, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program; the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government, including the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts. In addition, the Affordable Care Act requires drug manufacturers to report to the government any payments to physicians for consulting services and the like.

Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties, imprisonment, denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both, and debarment. As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. A violation of any of these federal and state fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. An investigation into the use by physicians of any of our products, once commercialized, may dissuade physicians from either purchasing or using them, and could have a material adverse effect on our ability to commercialize those products.

If we or our manufacturers fail to comply with manufacturing regulations, our financial results and financial condition could be adversely affected.

Before an NDA is approved, or before we begin the commercial manufacture of aramchol, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost effective manner.

The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to confirm compliance with requirements that the FDA or foreign regulators establish. We do not intend to engage in the manufacture of our products other than for preclinical and clinical studies, but we or our materials suppliers may face manufacturing or quality control

TABLE OF CONTENTS

problems causing product production and shipment delays or a situation where we or the supplier may not be able to maintain compliance with the FDA’s or foreign regulators’ requirements necessary to continue manufacturing our product candidate. Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the U.S. Drug Enforcement Agency, or DEA, and corresponding foreign regulators to ensure strict compliance with requirements and other governmental regulations and corresponding foreign standards. Any failure to comply with DEA, FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop and market our product candidate and any future product candidates.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

Our market is subject to intense competition. If we are unable to compete effectively, aramchol or any other product candidate that we develop may be rendered noncompetitive or obsolete.

There are a number of products in development for NASH in patients who also suffer from obesity and insulin resistance, most of which are being developed by pharmaceutical companies that are far larger, with significantly greater resources and more experienced than we are. Further, our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large, fully-integrated pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. All of these competitors currently engage in, have engaged in or may engage in the future in the development, manufacturing, marketing and commercialization of new pharmaceuticals, some of which may compete with aramchol or other product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. These companies may have products in development that are superior to aramchol. Key competitive factors affecting the commercial success of aramchol and any other product candidates that we develop are likely to be efficacy, time of onset, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.

Many of our potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than us in obtaining FDA and other marketing approvals for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render aramchol or any other product candidates that we develop obsolete or non-competitive before we can recover the expenses of developing and commercializing the product. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render aramchol, or any other product candidate that we develop, non-competitive or obsolete. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.

Our competitors currently include companies with marketed products and/or an advanced research and development pipeline. The majority of competitors in the liver disease therapeutic field include Intercept Pharmaceuticals Inc., Genfit S.A., Gilead Sciences, Inc., Raptor Pharmaceutical Corp. and Novo Nordisk. See also “Business — Competition.” Moreover, several companies have reported the commencement of research projects related to NASH, including those mentioned in the preceding sentence. However, we are not aware if such projects are ongoing or have been completed and, to the best of our knowledge, there is no approved drug currently on the market which is similar to aramchol, nor are we aware of any product candidate targeting NASH similar to aramchol with respect to chemical profile and mechanism of action.

TABLE OF CONTENTS

We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.

Our products and product candidates could cause adverse events. These adverse events may not be observed in clinical trials, but may nonetheless occur in the future. If any of these adverse events occur, they may render our product candidates ineffective or harmful in some patients, and our sales would suffer, materially adversely affecting our business, financial conditions and results of operations.

In addition, potential adverse events caused by our product candidates, or products, could lead to product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others coming into contact with our products. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

Although our clinical data indicates that aramchol is safe and well-tolerated at doses up to 900 mg, administered once-daily for up to four days and at doses up to 300 mg administered once-daily for up to three months, there were incidences of adverse events in three completed and fully analyzed clinical trials with respect to a total of 102 patients.

In our Phase Ia clinical trial with 16 healthy volunteers, elevated systolic blood pressure was the only adverse event reported by three patients. Adverse events that were reported by two or less patients included lymphophenia, tachycardia, asthenia, decreased diastolic blood pressure, headache, pharyngeal edema, increased alanine aminotransferase, increased gamma glutamyl transferase and proteinuria. Nausea and orthostatic hypotension was reported by one subject in each of the aramchol and placebo groups. The adverse events were considered non-severe and possibly drug-related.

In our Phase Ib placebo-controlled clinical trial with 25 healthy and mildly overweight male volunteers, the placebo group had a higher incidence of overall adverse events than the aramchol-treated groups, as well as a higher incidence of drug-related adverse events than the aramchol-treated groups. Adverse events reported by more than two patients included elevated systolic blood pressure, headache (reported by a similar proportion of subjects in the aramchol-treated and placebo groups), orthostatic hypotension (reported by a larger proportion of subjects in the placebo group), tachypnea, tachycardia, increased alanine aminotransferase (reported by a larger proportion of subjects in the placebo group), hematuria (reported by a similar proportion of subjects in the aramchol-treated and placebo groups) and decreased diastolic blood pressure.

Adverse events that were reported only once in any treatment group but considered related to aramchol included increased blood pressure and dizziness. Eosinophilia and increased aspartate aminotransferase were reported only once and only in the placebo group.

In a phase IIa placebo-controlled trial with 60 patients with steatosis due to NAFLD or NASH, the placebo group had a higher incidence of overall adverse events than any aramchol-treated group, as well as a higher incidence of drug-related adverse events than any aramchol-treated group. Incidents reported in more

TABLE OF CONTENTS

than two patients included abdominal pain, upper abdominal pain and respiratory tract infection. Back pain, constipation and asthenia were reported only in the placebo group. In this trial, there were no adverse events in the aramchol-treated groups that were considered to be drug-related. Only one serious adverse event was reported during the trial, acute appendicitis, by a subject in the placebo group.

If we are unable to obtain adequate insurance to protect our business and property against damage, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.

We may not be able to obtain insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss or claims by third parties. To the extent our business or property suffers any damages, losses or claims by third parties, which are not covered, or adequately covered, by insurance, our financial condition may be materially adversely affected.

We may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage the Company.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate.

We have obtained liability insurance coverage for our clinical trials with a $5,000,000 annual aggregate coverage limit. However, our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for aramchol, or any other product candidate, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial. A successful product liability claim, or series of claims, brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

The product liability insurance we will need to obtain in connection with the commercial sales of our product candidates, if and when they receive regulatory approval, may be unavailable in meaningful amounts or at a reasonable cost. If we are the subject of a successful product liability claim that exceeds the limits of any insurance coverage we obtain, we would incur substantial charges that would adversely affect our earnings and require the commitment of capital resources that might otherwise be available for the development and commercial launch of our product programs.

We manage our business through a small number of senior executive officers. We depend on them even more than similarly-situated companies.

Our future growth and success depends on our ability to recruit, retain, manage and motivate our senior executive officers. The loss of the services of our Chief Executive Officer, Chief Medical Officer, Dr. Maureen Graham and Dr. Antony Appleyard or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified senior executive officers with scientific and technical experience. In particular, the loss of one or more of our senior executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of senior management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

TABLE OF CONTENTS

Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal control requirements for publicly traded companies.

As a public company, we will operate in an increasingly challenging regulatory environment which requires us to comply with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the related rules and regulations of the SEC and securities exchanges, expanded disclosures, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, until the date we are no longer an “emerging growth company” as defined in the JOBS Act, because we are taking advantage of the exemptions contained in the JOBS Act. We will remain an emerging growth company until, subject to certain conditions, the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700.0 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall.

To build our finance infrastructure, we will need to hire additional accounting personnel and improve our accounting systems, disclosure policies, procedures and controls. If we are unsuccessful in building an appropriate accounting infrastructure, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the Nasdaq Capital Market or other adverse consequences that would materially harm our business. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

We may experience rapid and substantial growth in order to achieve our operating plans, which will place a strain on our human and capital resources. Successful implementation of our business plan will require management of growth, which will result in an increase in the level of responsibility for management personnel. We currently have a minimum number of employees and in order to continue the development and the commercialization of our products, we will need to substantially increase our operations, including expanding our employee base of managerial, operational and financial personnel. We currently intend to establish our infrastructure in the United States and therefore we may require additional funds. Any future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. To that end, we must be able to:

TABLE OF CONTENTS

If we are unable to establish, scale-up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, investors may choose not to invest in us, which could cause our share price to decline and negatively impact our ability to successfully commercialize our product candidate and future product candidates.

Failure to attract and retain sufficient numbers of talented employees will further strain our human resources and could impede our growth or result in ineffective growth. If we are unable to manage our growth effectively, our losses could materially increase and it will have a material adverse effect on our business, results of operations and financial condition.

Our business may be affected by macroeconomic conditions.

A deterioration in global economic conditions and uncertainties may have an adverse effect on our business. For instance, interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments, if any, and our ability to liquidate such investments in order to fund our operations. Interest rates and the ability to access credit markets could also adversely affect the ability of patients and distributors to purchase, pay for and effectively distribute our products.

Recent disruptions in the financial markets and economic conditions could affect our ability to raise capital and could disrupt or delay the performance of our third-party contractors and suppliers.

In past years, the U.S. and global economies have taken a dramatic downturn as the result of the deterioration in the credit markets and related financial crisis as well as a variety of other factors including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. The U.S. and certain foreign governments have recently taken actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to the financial markets. If the actions taken by these governments are not successful, the continued economic decline may cause a significant impact on our ability to raise capital, if needed, on a timely basis and on acceptable terms or at all. In addition, we rely and intend to rely on third-parties, including our clinical research organizations, third-party manufacturers and second source suppliers, and certain other important vendors and consultants. As a result of the current volatile and unpredictable global economic situation, there may be a disruption or delay in the performance of our third-party contractors and suppliers. If such third-parties are unable to satisfy their contractual commitments to us, our business could be severely adversely affected.

Risks Related to Our Reliance on Third Parties

We have no manufacturing capacity and anticipate reliance on third-party manufacturers for our products.

We do not currently operate manufacturing facilities for the production of aramchol or its active pharmaceutical ingredients, or APIs. We still have not, and may never, develop facilities for the manufacture of product candidates or products for clinical trials or commercial purposes. We rely, and for the foreseeable future, will continue to rely, on third-party manufacturers to produce bulk drug products required for our clinical trials. We plan to initially rely upon contract manufacturers and, potentially, collaboration partners, to manufacture commercial quantities of our product candidates, if and when approved for marketing by the applicable regulatory authorities. Our contract manufacturers have not completed process validation for the drug substance manufacturing process. If our contract manufacturers and their facilities, as applicable, are not approved by the FDA, or other applicable regulatory authorities, our commercial supply of the drug substance will be significantly delayed and may result in significant additional costs. We purchase finished aramchol from a third-party under a clinical supply agreement. If we need to identify an additional finished product manufacturer, we would not be able to do so without significant delay and likely significant additional cost.

Our contract manufacturer’s failure to achieve and maintain high manufacturing standards, in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury or death, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery,

TABLE OF CONTENTS

cost overruns or other problems that could seriously harm our business. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

Our existing manufacturers and any future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of aramchol would be interrupted, resulting in delays and additional costs.

We intend to rely primarily on third parties to market and sell aramchol.

We have no sales or distribution capabilities. To the extent we rely on third parties to commercialize aramchol, if marketing approval is obtained, we may receive less revenue than if we commercialize aramchol ourselves. In addition, we would have less control over the sales efforts of any third parties involved in our commercialization efforts. In the event we are unable to collaborate with a third-party marketing and sales organization to commercialize aramchol, particularly for broader patient populations, our ability to generate revenue will be limited.

Although we may ultimately develop a marketing and sales force with technical expertise and supporting distribution capabilities in the longer term, we do not currently intend to do so and as such, we will be unable to market our product candidate directly in the near future. To promote any of our potential products through third parties, we will have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms, and we may not be able to do so. Any third-party arrangements we are able to enter into may result in lower revenues than we could achieve by directly marketing and selling our potential products. In addition, to the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, as well as the terms of our agreements with such third parties, which cannot be predicted in most cases at this time. As a result, we might not be able to market and sell our products in the United States or overseas, which would have a material adverse effect on us.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.

We intend to seek collaboration arrangements with pharmaceutical or biotechnology companies for the development and commercialization of our current and potential future product candidates. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.

Collaborations with pharmaceutical or biotechnology companies and other third parties are often terminated or allowed to expire by the other party. Any such termination or expiration could adversely affect us financially and could harm our business reputation.

We depend on third parties to conduct our clinical trials.

We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to oversee most of the operations of our clinical trials and to perform data collection and analysis. As a result, we may face additional delays outside of our control if these parties

TABLE OF CONTENTS

do not perform their obligations in a timely fashion or in accordance with regulatory requirements. If these third parties do not successfully carry out their contractual duties or obligations and meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other reasons, our financial results and the commercial prospects for aramchol or any other potential product candidates could be harmed, our costs could increase and our ability to obtain regulatory approval and commence product sales could be delayed.

Risks Related to Our Intellectual Property

The failure to obtain or maintain patents, licensing agreements and other intellectual property could impact our ability to compete effectively.

To compete effectively, we need to develop and maintain a proprietary position with regard to our own technologies, intellectual property, licensing agreements, product candidates and business. Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical fields are still evolving. Therefore, the degree of future protection for our proprietary rights in our core technologies and any product candidates or products that might be developed using these technologies is also uncertain. The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

We cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents, whether issued pursuant to our pending applications or licensed from third parties, will give us adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions. If any of our composition of matter patents, or pending applications, was subject to a successful challenge or failed to issue, our business and competitive advantage could be significantly affected. 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.

The composition of matter patents pertaining to aramchol will expire on March 25, 2019 worldwide outside of Israel and on April 8, 2018 in Israel. We do not expect that we will be able to submit an NDA seeking approval of aramchol prior to the composition of matter patents’ expiration date. However, because aramchol may be a new chemical entity, or NCE, following approval of an NDA, if we are the first applicant to obtain NDA approval, we may be entitled to five years of data and market exclusivity in the United States with respect to such NCE. Analogous data and market exclusivity provisions, of varying duration, may be available in Europe and other foreign jurisdictions. The Company also has rights under its pharmaceutical use issued patents with respect to aramchol, which provide patent exclusivity within the Company’s field of

TABLE OF CONTENTS

activity until the last of such patents expires in 2030. While the Company believes that it may be able to protect its exclusivity in its field of activity through such use patent portfolio and such period of exclusivity, the lack of composition of matter patent protection may diminish the Company’s ability to maintain a proprietary position for its intended uses of aramchol. Moreover, the Company cannot be certain that it will be the first applicant to obtain an FDA approval for any indication of aramchol and it cannot be certain that it will be entitled to NCE exclusivity. Such diminution of its proprietary position could have a material adverse effect on our business, results of operation and financial condition.

Others may obtain issued patents that could prevent us from commercializing our product candidates or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.

In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We also require our employees and consultants to disclose and assign to us their ideas, developments, discoveries and inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure.

We cannot predict the scope and extent of patent protection for aramchol because the patent positions of pharmaceutical products are complex and uncertain.

Any patents issued will not ensure the protection of our intellectual property for a number of reasons, including without limitation the following:

We may not be able to enforce our intellectual property rights throughout the world. This risk is exacerbated for us because we expect aramchol will be manufactured and used in a number of foreign countries.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This risk is exacerbated for us because we expect aramchol will be manufactured and used in a number of foreign countries.

The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our other intellectual property rights. For example, several foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In

TABLE OF CONTENTS

addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Although most jurisdictions in which the Company has applied for, intends to apply for, or has been issued patents have patent protection laws similar to those of the United States, some of them do not. For example, the Company expects to do business in South America, Eurasia, China and Indochina in the future and the countries in these regions may not provide the same or similar protection as that provided in the United States. Additionally, due to uncertainty in patent protection law, the Company has not filed applications in many countries where significant markets exist, including South American countries, Eurasian countries, African countries and Taiwan.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

We may be unable to protect the intellectual property rights of the third parties from whom we may license certain of our intellectual property or with whom we have entered into other strategic relationships, which could have a material adverse effect on our business, results of operations and financial condition.

Certain of our intellectual property rights may be licensed from third parties, including universities and/or strategic partners. Such third parties may determine not to or fail to protect the intellectual property rights that we license from them and we may be unable to defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property rights of such third parties. There can be no assurances that we will continue to have proprietary rights to any of the intellectual property that we license from such third parties or otherwise have the right to use through similar strategic relationships. Any loss or limitations on use with respect to such intellectual property licensed from third parties or otherwise obtained from third parties with whom we have entered into strategic relationships could have a material adverse effect on our business, results of operations and financial condition.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing, or increase the costs of commercializing, our products.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes.

Third parties may assert that we are employing their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize our product candidates or products unless we obtained a license under the applicable patents, or until the patents expire. In addition to litigation proceedings which may be filed against us, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us.

TABLE OF CONTENTS

We may be unable to adequately prevent disclosure and unauthorized use of trade secrets and other proprietary information by third parties.

Our ability to obtain and maintain patent protection and trade secret protection for our intellectual property and proprietary technologies, our products and their uses is important to our commercial success. We rely on a combination of patent, copyright, trademark and trade secret laws, non-disclosure and confidentiality agreements, licenses, assignment of inventions agreements and other restrictions on disclosure and use to protect our intellectual property rights.

We also rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our product candidates or products or cause additional material adverse effects upon our competitive business position.

We cannot be certain that the steps that we have taken will prevent the misappropriation or other violation of our confidential information and other intellectual property, particularly in foreign countries in which laws may not protect our proprietary rights as fully as in the United States and other developed economies. Moreover, if we lose any key personnel, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by those former employees. If we are unable to maintain the security of our proprietary technology, this could materially adversely affect our competitive advantage, business and results of operations.

Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.

We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. 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 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 secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.

In addition, Chapter 8 to the Israeli Patents Law, 5727-1967, or the Patents Law, deals with inventions made in the course of an employee’s service and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law, sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012 that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for it from their employer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for

TABLE OF CONTENTS

royalties and compensation in connection with service inventions does not rule out the right of the employee to claim their right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Court for further discussion and therefore the ultimate outcome has yet to be resolved. As a result, it is unclear if, and to what extent, our research and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims are successful, which in turn could impact our future profitability.

Any lawsuits relating to infringement of intellectual property rights necessary to defend ourselves or enforce our rights will be costly and time consuming.

We may be required to initiate litigation to enforce our rights or defend our activities in response to alleged infringement of a third-party. In addition, we may be sued by others who hold intellectual property rights and who claim that their rights are infringed by aramchol or any of our future products or product candidates. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally.

A third-party may claim that we are using inventions claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research, development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources. There is a risk that such court will decide that we are infringing the third-party’s patents and will order us to stop the activities claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses, which may not be available on commercially reasonable terms. In addition, there is a risk that a court will order us to pay the other party damages for infringement.

Moreover, there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product candidates, technologies or other matters.

In addition, our patents and patent applications could face other challenges, such as interference proceedings, opposition proceedings and re-examination proceedings. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management’s time and attention.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. In particular, the United States has recently enacted, and is currently implementing, wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, and could do so again in the future, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by applicable courts and legislatures in the countries in which we may pursue patent protection, including those of the U.S. Congress, the federal courts and the U.S. Patent and Trademark Office, or the USPTO, the laws and regulations governing patents and the interpretations of such laws could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

TABLE OF CONTENTS

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

Risks Related to this Offering and Ownership of Our Ordinary Shares

The market price of our ordinary shares may be highly volatile, you may not be able to resell your Shares at or above the initial public offering price and you may sustain a complete loss of your investment.

Prior to this offering, there has not been a public market for our ordinary shares. Although the Shares have been approved for listing on the Nasdaq Capital Market, an active trading market for our ordinary shares may never develop or may not be sustained if one develops. If an active trading market for our ordinary shares does not develop following this offering, you may not be able to sell your Shares quickly or at the market price. The initial public offering price for the Shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

The trading price of our ordinary shares is likely to be volatile. The following factors, some of which are beyond our control, in addition to other risk factors described in this section, may have a significant impact on the market price of our ordinary shares:

TABLE OF CONTENTS

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses by our investors.

In addition, the stock market in general, and the Nasdaq Capital Market and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. Further, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly. Price volatility of our ordinary shares might be worse if the trading volume of our ordinary shares is low. Following periods of market volatility, shareholders may institute securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business, even if we are successful. Future sales of our ordinary shares could also reduce the market price of such stock.

Moreover, the liquidity of our ordinary shares will be limited, not only in terms of the number of shares that can be bought and sold at a given price, but by delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if any. These factors may result in lower prices for our ordinary shares than might otherwise be obtained and could also result in a larger spread between the bid and ask prices for our ordinary shares. In addition, without a large float, our ordinary shares are less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our ordinary shares may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate its investment in our ordinary shares. Trading of a relatively small volume of our ordinary shares may have a greater impact on the trading price of our stock than would be the case if our public float were larger. We cannot predict the prices at which our ordinary shares will trade in the future.

We may be subject to securities litigation, which may be expensive and could divert management attention.

Companies have experienced volatility and other negative fluctuations in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

Our principal shareholders, Chief Executive Officer and directors currently own approximately 70.17% of our outstanding ordinary shares and will own approximately 52.76% of our ordinary shares upon the closing of this offering. They will therefore be able to exert significant control over matters submitted to our shareholders for approval.

After this offering, our Chief Executive Officer, directors and shareholders who own more than 5% of our outstanding ordinary shares before this offering will, in the aggregate, beneficially own approximately 52.76% of our ordinary shares upon the closing of this offering (assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options). As a result, these shareholders, if they acted together, could significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of other shareholders. This significant concentration of share ownership may adversely affect the trading price for our ordinary shares because investors often perceive disadvantages in owning stock in companies with controlling shareholders.

TABLE OF CONTENTS

If you purchase Shares in this offering, you will incur immediate and substantial dilution in the book value of your Shares.

The initial public offering price is substantially higher than the net tangible book value per share of our ordinary shares. Investors purchasing Shares in this offering will pay a price per share that substantially exceeds the net tangible book value of our ordinary shares. As a result, investors purchasing Shares in this offering will incur immediate dilution of $10.25 per Share, based on the initial public offering price of $13.50 per Share, and our pro forma, as adjusted net tangible book value as of December 31, 2013. In addition, as of that date, options and warrants to purchase 1,499,553 of our ordinary shares at a weighted average exercise price of $1.13 per share were outstanding. The exercise of these options and warrants would result in additional dilution. As a result of this dilution, investors purchasing Shares in this offering may receive significantly less than the purchase price paid in this offering in the event of liquidation. For more information, please refer to the section of this prospectus entitled “Dilution.”

Sales of a substantial number of our ordinary shares in the public market by our existing shareholders could cause our share price to fall.

Sales of a substantial number of our ordinary shares in the public market, or the perception that these sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ordinary shares. Substantially all of the shares owned by our existing shareholders and option holders are subject to lock-up agreements with the underwriters of this offering that restrict the shareholders’ ability to transfer our ordinary shares for at least six months from the date hereof. In addition, the holders of substantially all of our outstanding ordinary shares and options have agreed, in accordance with the terms of the Tax Pre-Ruling, not to sell or dispose of our ordinary shares for a period of two years following the consummation of the Reorganization, subject to certain exceptions. Substantially all of our outstanding shares will become eligible for unrestricted sale upon expiration of such lockup periods, as described in the section of this prospectus entitled “Underwriting” and “Taxation — Israeli Tax Considerations — Pre-Ruling Regarding a Reorganization of Our Corporate Structure.” In addition, shares issued or issuable upon exercise of options and warrants vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of shares by these shareholders could have a material adverse effect on the trading price of our ordinary shares.

All of our Shares sold in this offering that are not subject to lock-up agreements will be freely tradable without restrictions or further registration under the Securities Act, except for any Shares purchased by our affiliates, as such term is defined in Rule 144 under the Securities Act, which shares will be eligible for resale subject to the volume and manner of sale limitations of Rule 144. See “Shares Eligible for Future Sale” for a discussion of the ordinary shares that may be sold into the public market in the future.

Raising additional capital would cause dilution to our existing shareholders, and may restrict our operations or require us to relinquish rights.

We may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

Our management will have broad discretion in the use of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used

TABLE OF CONTENTS

appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders.

Our U.S. shareholders may suffer adverse tax consequences if we were to be characterized as a passive foreign investment company, or PFIC.

Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. There can be no assurance that we will not be classified as a PFIC in any year. If we were to be characterized as a PFIC for U.S. federal income tax purposes in any taxable year during which a U.S. Holder, as defined in “Taxation — U.S. Federal Income Tax Consequences,” owns ordinary shares, such U.S. Holder could face adverse U.S. federal income tax consequences. For example, such U.S. Holder could be liable to additional taxes and interest charges upon certain distributions by us and any gain recognized on a sale, exchange or other disposition of our shares, whether or not we continue to be characterized as a PFIC. One way in which certain of the adverse consequences of PFIC status can be mitigated is for a U.S. Holder to make an election to treat us as a qualified electing fund, or QEF. A shareholder making the QEF election is required for each taxable year to include in income a pro rata share of the ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. An election to treat us as a QEF will not be available if we do not provide the information necessary to make such an election. It is not expected that a U.S. Holder will be able to make a QEF election because we do not intend to provide U.S. Holders with the information necessary to make a QEF election. See “Taxation — U.S. Federal Income Tax Consequences.”

If we are unable to satisfy the requirements of Section 404 as they apply to a foreign private issuer and emerging growth company that is listing on a U.S. exchange for the first time, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our share price may suffer.

We will become subject to the requirements of the Sarbanes-Oxley Act when our ordinary shares are listed on the Nasdaq Capital Market. Section 404 requires companies subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal controls over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures and our management will be required to assess and issue a report concerning our internal controls over financial reporting. Pursuant to the JOBS Act, we will be classified as an “emerging growth company.” Under the JOBS Act, emerging growth companies are exempt from certain reporting requirements, including the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Under this exemption, our auditor will not be required to attest to and report on management’s assessment of our internal controls over financial reporting during a five year transition period. We will need to prepare for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, as our business continues to grow both domestically and internationally, our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During the course of its testing, our management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the market price of our securities may suffer. 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 for up to five fiscal years after the date of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Jumpstart Our Business Startups Act of 2012” for more detail regarding our status as an emerging growth company.

TABLE OF CONTENTS

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could be negatively impacted.

The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact our share price or trading volume.

Because we do not intend to declare cash dividends on our ordinary shares in the foreseeable future, shareholders must rely on appreciation of the value of our ordinary shares for any return on their investment.

We have never declared or paid cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Moreover, the Israeli Companies Law, as amended, or the Companies Law, imposes certain restrictions on our ability to declare and pay dividends. See “Description of Share Capital — Dividend and Dividend Policy” for additional information.

The requirements associated with being a public company will require significant company resources and management attention.

Following this offering, we will become subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our ordinary shares are traded and other applicable securities rules and regulations. The Exchange Act requires that we file periodic reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and the Nasdaq Capital Market may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses that we did not incur as a privately-held company, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. In the period following this offering, we estimate that these expenses will be at least several hundred thousand dollars annually. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our development plans. We have made changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations and applicable law. The measures we take, however, may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation.

The recently enacted JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our ordinary shares.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

TABLE OF CONTENTS

We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. 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 become more volatile and decline.

As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq Capital Market 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, and intend, to follow certain home country corporate governance practices instead of those otherwise required under the Listing Rules of the Nasdaq Capital Market for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to, among other things, director nomination procedures, quorum requirements and approval of compensation of officers. In addition, we may follow our home country law instead of the Listing Rules of the Nasdaq Capital Market that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or greater 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 Capital Market may provide less protection to you than what is accorded to investors under the Listing Rules of the Nasdaq Capital Market applicable to domestic U.S. issuers. See “Management — Nasdaq Capital Market Listing Rules and Home Country Practices.”

In addition, as a “foreign private issuer,” we will be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements and certain individual executive compensation information, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Furthermore, as a “foreign private issuer,” we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor. Notwithstanding, although we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic U.S. issuers whose securities are registered under the Exchange Act, we intend to do so.

Because our ordinary shares may be a “penny stock,” it may be more difficult for investors to sell their ordinary shares, and the market price of our ordinary shares may be adversely affected.

Our ordinary shares may be a “penny stock” if, among other things, the stock price is below $5.00 per share, it is not listed on a national securities exchange or we have not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the

TABLE OF CONTENTS

purchaser, and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back.

If applicable, the penny stock rules may make it difficult for investors to sell their ordinary shares. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our ordinary shares may be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell their ordinary shares publicly at times and prices that they feel are appropriate and the market price of our ordinary shares may be adversely affected.

The Shares are approved for listing on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our ordinary shares, which could make it more difficult for us to sell securities in a financing and for you to sell your ordinary shares.

The Shares are approved for listing on the Nasdaq Capital Market. As such, we are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders' equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed ordinary shares of $1.00 per share. If we do not meet these continued listing requirements, our ordinary shares could be delisted. Delisting of our ordinary shares from the Nasdaq Capital Market would cause us to pursue eligibility for trading on other markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, our ordinary shares would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our ordinary shares, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, the Over-The-Counter Markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence. In addition, as a consequence of any such delisting, our share price could be negatively affected and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, our ordinary shares.

Risks Related to Israeli Law and Our Operations 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 executive offices are located in Tel-Aviv, Israel. In addition, the majority of our 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. 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 November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. In December 2008 and January 2009 there was an escalation in violence among Israel, Hamas, the Palestinian Authority and other groups, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missiles being fired from the Gaza Strip into Southern Israel. Similar hostilities accompanied by missiles being fired from the Gaza Strip into Southern Israel, as well at areas more centrally located near Tel Aviv and at areas surrounding Jerusalem, occurred during November 2012. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Since February 2011, Egypt has experienced

TABLE OF CONTENTS

political turbulence and an increase in terrorist activity in the Sinai Peninsula following the resignation of Hosni Mubarak as president. This included protests throughout Egypt, and the appointment of a military regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previously outlawed by Egypt), and the subsequent overthrow of this elected government by a military regime instead. Such political turbulence and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countries in the region, including Syria which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflict in Syria has escalated, and evidence indicates that chemical weapons have been used in the region. Intervention may be contemplated by outside parties in order to prevent further chemical weapon use. This instability and any intervention may lead to deterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering 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 or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.

Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty until they reach the age of 40 (or older, for reservists who are officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of our employees or the employees of our Israeli business partners. Such disruption could materially adversely affect our business, financial condition and results of operations.

Exchange rate fluctuations between the U.S. dollar, Euro and the New Israeli Shekel currencies may negatively affect our earnings.

Our functional currency is the U.S. dollar. We incur expenses in U.S. dollars, Euros and New Israeli Shekels, or NIS. As a result, we are exposed to the risks that the Euro and the NIS may appreciate relative to the U.S. dollar, or, if either the Euro and the NIS devalue relative to the U.S. dollar, that the inflation rate in the EU and in Israel may exceed such rate of devaluation of the Euro and the NIS, or that the timing of such devaluation may lag behind inflation in the EU and in Israel. In any such event, the U.S. dollar cost of our operations in the EU and in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. The average exchange rate for the year ended December 31, 2013 was

TABLE OF CONTENTS

$1.00 = Euro 1.3292 and $1.00 = NIS 3.61. We cannot predict any future trends in the rate of inflation in the EU and in Israel or the rate of devaluation, if any, of either the Euro or the NIS against the U.S. dollar. As of the date hereof, neither the inflation rate in the EU nor in Israel has exceeded the rate of devaluation of the Euro or the NIS, respectively, during the calendar years 2011, 2012 or 2013.

The Tax Pre-Ruling imposes restrictions and limitations that may adversely affect our ability to raise funds by selling our ordinary shares and our ability to commercialize our product candidate.

The Tax Pre-Ruling we obtained from the Israeli Tax Authority in connection with the Reorganization includes certain restrictions and limitations. Under the Tax Pre-Ruling, during the two year period following the consummation of the Reorganization, or the Restriction Period, we may not sell or otherwise dispose of our intellectual property, other than in the ordinary course of business, which may prevent us from completing collaboration arrangements with pharmaceutical or biotechnology companies necessary for the commercialization of our product candidate.

Pursuant to the Tax Pre-Ruling, at any time following this offering and until the end of the Restriction Period, we may not issue more than 49% of our share capital in a public or private offering, including the Shares to be sold in this offering. Such restrictions and limitations may limit our ability to raise funds by selling and issuing our ordinary shares, which in turn could delay the development and commercialization of our product candidate or could force us to cease our operations.

In addition, pursuant to the Tax Pre-Ruling, our shareholders and optionholders as of immediately after the consummation of the Reorganization may not sell or otherwise transfer or dispose of more than 10% of their respective shares and options, subject to a certain exemptions. Substantially all of such shareholders and option holders agreed, in accordance with the terms of the Tax Pre-Ruling, not to sell or dispose of our ordinary shares for a period of two years following the consummation of the Reorganization.

If during the Restriction Period, we or our shareholders or optionholders who held rights immediately after the consummation of the Reorganization, or the Rights Holders, violate one or more of the restrictions described under “Taxation — Israeli Tax Considerations — Pre-Ruling Regarding a Reorganization of Our Corporate Structure” below, or a Violation, the transfer of shares and assets in connection with the Reorganization will become subject to taxation based on the greater of the transferred assets’ fair market value on the day of such Violation or taxes that, but for the Tax Pre-Ruling, would be payable in connection with the transfer of such assets and shares plus Israeli consumer price index linkage differentials and interest from the day of the actual transfer of such assets and shares until the day of payment of such taxes, unless the Israeli Tax Authority is satisfied that such Violation was a result of special circumstances beyond our control.

Provisions of Israeli law and our Articles may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, 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 above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, 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, following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, 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, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.

TABLE OF CONTENTS

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. See “Taxation — Israeli Tax Considerations” for additional information.

Our Articles, which will be in effect immediately prior to the consummation of this offering, also contain provisions that could delay or prevent changes in control or changes in our management without the consent of our Board. These provisions will include the following:

Provisions of the Companies Law and anti-takeover provisions in our Articles could make it difficult for our shareholders to replace or remove our current Board and could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our ordinary shares.

Under the Companies Law, as amended, a merger is generally required to be approved by the shareholders and board of directors of each of the merging companies. Unless an Israeli court determines differently, a merger will not be approved if it is objected to by shareholders holding a majority of the voting rights participating and voting at the meeting, after excluding the shares held by the other party to the merger, by any person who holds 25% or more of the other party to the merger or by anyone on their behalf, including by the relatives of or corporations controlled by these persons. In addition, upon the request of a creditor of either party to the proposed merger, an Israeli court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. Further, a merger generally may not be completed until the passage of certain time periods. In addition, subject to certain exceptions, an acquisition of shares in a public company must be made by means of a tender offer to the extent that as a result of such acquisition the acquirer will hold 25% or more of the voting rights in the company if there is no other holder of 25% or more of the company’s voting rights, or hold 45% or more of the voting rights in the company if there is no other holder of 45% or more of the company’s voting rights. In addition, Israeli tax law treats some acquisitions, including stock-for-stock swaps between an Israeli company and a foreign company, less favorably than U.S. tax law. Israeli tax law may, for instance, subject a shareholder who exchanges ordinary shares for shares in a non-Israeli corporation to immediate taxation.

Certain provisions of our Articles may have the effect of rendering more difficult or discouraging an acquisition of the Company deemed undesirable by the Board. Those provisions include:

Moreover, the classification of our Board into three classes with terms of approximately three years each, which was approved by shareholders of the Company, the requirement of affirmative vote of at least 75% of the voting rights represented personally or by proxy and voting thereon at a general meeting in order to amend or replace our Articles and the requirement under the Companies Law to have at least two external directors who cannot readily be removed from office, together with the other provisions of the Articles and Israeli law, could deter or delay potential future merger, acquisition, tender or takeover offers, proxy contests or changes in control or management of the Company, some of which could be deemed by certain shareholders to be in their best interests and which could affect the price some investors are willing to pay for our ordinary shares.

TABLE OF CONTENTS

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

We were and continue to be organized in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all 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 necessarily 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. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States 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 United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States 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 United States or foreign court. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.

Your rights, liabilities and responsibilities as a shareholder will be governed by Israeli law and differ in some material respects from those under U.S. law.

Because we are an Israeli company, the rights and responsibilities of our shareholders are governed by the Articles and Israeli law. These rights, liabilities and responsibilities differ in some material respects from the rights, liabilities and responsibilities of shareholders in a U.S. corporation. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his, her or its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable to shareholder votes on, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. Because Israeli corporate law has undergone extensive revisions in recent years, there is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior. See “Management — Approval of Related Party Transactions under Israeli Law — Shareholder Duties” for additional information. 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.

Any of the risk factors referred to above could significantly and negatively affect our business, results of operations or financial condition, which may reduce our ability to pay dividends and lower the trading price of our ordinary shares. The risks referred to above are not the only ones that may exist. Additional risks not currently known by us or that we deem immaterial may also impair our business operations. You may lose all or a part of your investment.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized below.

Forward-looking statements may also include, but are not limited to, statements about:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. Given these uncertainties, you should not rely upon forward-looking statements as predictions of future events.

All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date hereof and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.

TABLE OF CONTENTS

USE OF PROCEEDS

We estimate that we will receive approximately $34,385,199 in net proceeds from the sale of 2,837,400 Shares offered by us in this offering (or approximately $39,728,733 if the underwriters exercise their over-allotment option in full), based on the public offering price of $13.50 per Share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from this offering for clinical trials and product development, working capital and general corporate purposes of the Company. In particular, we expect to use the net proceeds as follows: (i) approximately $10.0 million for the initiation and completion of the Phase IIb clinical trial of aramchol for the treatment of NASH in patients who also suffer from obesity and insulin resistance; (ii) in connection with such clinical trial, approximately $5.0 million for establishing and building a research and development infrastructure in the United States, including for the engagement of a new vice president for North America, Phase III clinical trials, pre-commercialization activities, raising disease awareness for NASH, communications with the scientific and medical communities, physicians, third-party payors, future partners and collaborators and investor relations, which we believe may increase our operations and presence within the United States; (iii) approximately $5.0 million for the performance of other studies in connection with our product candidate, including, but not limited to, PK studies and food effect studies, each prior to the consummation of our proposed Phase IIb clinical trial, proof of concept studies with respect to the use of aramchol for the treatment of cholesterol gallstones, the development of salt formulations of aramchol, as opposed to the free acid form, and bioequivalence studies with existing formulations of aramchol; and (iv) for working capital and general corporate purposes of the Company. Pending such usage, we expect to invest the proceeds in short term interest-bearing instruments.

We will require significant additional funds to initiate and complete the approval process of the FDA, EMA or any other applicable regulatory authority. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our development and commercialization efforts, the status of and results from our clinical trials, whether or not we enter into strategic collaborations or partnerships, and our operating costs and expenditures.

We have no current understandings, commitments or agreements with respect to any material acquisition of or investment in any technologies, products or companies.

TABLE OF CONTENTS

CAPITALIZATION

The following table sets forth our cash and cash equivalents, total debt and capitalization as of December 31, 2013:

You should read this table in conjunction with the sections titled “Use of Proceeds,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

		As of December 31, 2013 (In thousands, except share and per share data)
		Actual				Pro Forma (unaudited)				Pro Forma as Adjusted (unaudited)
Cash and cash equivalents		$	—			$	2,137			$	36,768
Convertible notes			—				—				—
Ordinary shares of NIS 0.01 par value – 50,000,000 shares authorized; 7,099,731 shares issued and outstanding, actual; 7,837,443 shares issued and outstanding, pro forma; and 10,674,843 shares issued and outstanding, pro forma as adjusted			—				22				30
Additional paid-in capital			—				27,669				62,292
Accumulated deficit			—				(27,642	)			(27,642	)
Total shareholders’ equity (deficiency)			—				49				34,680
Total capitalization		$	—			$	49			$	34,680

The number of our ordinary shares to be outstanding immediately after this offering is based on 7,659,955 ordinary shares outstanding as of March 12, 2014 and 177,488 ordinary shares issuable upon the exercise of the Warrant, which will be exercised automatically upon the completion of this offering, by way of cashless exercise, at an exercise price per share of $3.57, based upon the initial public offering price of $13.50 per Share. This number excludes 1,298,173 ordinary shares issuable upon the exercise of share options outstanding as of March 12, 2014 under our 2013 Incentive Share Option Plan, or our 2013 Plan, 17,166 ordinary shares issuable upon the exercise of options which will be granted upon the consummation of the offering under our 2013 Plan to Mr. Marth, 38,637 shares issuable upon the exercise of a certain option granted to a service provider that is not subject to our 2013 Plan and 784,304 ordinary shares reserved for future grants under our 2013 Plan. These issued options have a weighted average exercise price of $1.13 per share and expire in September 2023, with the exception of the option to purchase 38,637 shares granted to the service provider, which has no expiration date.

TABLE OF CONTENTS

DILUTION

If you invest in the Shares, you will experience immediate and substantial dilution to the extent of the difference between the initial public offering price of the Shares and the pro forma as adjusted net tangible book value (deficit) per share of our ordinary shares immediately after, and giving effect to, the offering. Dilution results from the fact that the per share offering price of the Shares is substantially in excess of the book value per share attributable to the ordinary shares held by existing shareholders.

Our historical net tangible book value (deficit) per share is determined by dividing our total tangible assets, less total liabilities, by the actual number of outstanding ordinary shares. The historical net tangible book value (deficit) of our ordinary shares as of December 31, 2013 and as of December 31, 2012 was $(0), or $0 per share. On a pro forma basis, giving effect to (i) the Reorganization; (ii) the issuance immediately upon the consummation of this offering of 177,488 ordinary shares upon the exercise of the Warrant, based upon the initial public offering price of $13.50 per Share; and (iii) the issuance of 560,224 ordinary shares for a total consideration of $2.0 million that took place on February 3, 2014, our historical net tangible book value per share was $0.01.

The pro forma as adjusted net tangible book value of our ordinary shares as of December 31, 2013 was $34,680,000, or $3.25 per share. The pro forma as adjusted net tangible book value gives effect to clauses (i), (ii) and (iii) above and the sale of the Shares in this offering at the initial public offering price of $13.50 per Share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted net tangible book value per share after the offering is calculated by dividing the pro forma as adjusted net tangible book value of $34,680,000 by 10,674,843, which is equal to the pro forma as adjusted issued and outstanding ordinary shares of the Company. The difference between the initial public offering price and the pro forma as adjusted net tangible book value (deficit) per share represents an immediate increase in the net tangible book value of $3.24 per share to existing shareholders and immediate dilution of $10.25 per Share to new investors purchasing Shares in this offering.

The following table illustrates this dilution on a per share basis to new investors (in thousands, except per share data):

Initial public offering price per share						$	13.50
Net tangible book value per share before this offering (as of December 31, 2013)		$	—
Decrease in net tangible book value per share attributable to existing investors due to the Reorganization		$	(0.27	)
Increase in net tangible book value per share attributable to existing investors due to the issuance of ordinary shares on February 3, 2014		$	0.28
Increase in net tangible book value per share attributable to exercise of the Warrant (as of the date of this offering)		$	—
Pro forma net tangible book value per share before this offering (as of December 31, 2013)		$	0.01
Increase in net tangible book value per share attributable to new investors in this offering		$	3.24
Pro forma as adjusted net tangible book value per share after offering						$	3.25
Dilution per share to new investors						$	10.25

If the underwriters’ over-allotment option to purchase additional Shares from us is exercised in full, and based on the initial public offering price of $13.50 per Share, the pro forma as adjusted net tangible book value per share after this offering would be approximately $3.61 per share, the increase in the pro forma net tangible book value per share attributable to new investors would be approximately $3.60 per Share and the dilution to new investors purchasing Shares in this offering would be approximately $9.89 per Share.

The table below summarizes as of December 31, 2013, on the pro forma as adjusted basis described above, the number of ordinary shares we issued and sold, the total consideration we received and the average

TABLE OF CONTENTS

price per share (1) paid by our existing shareholders and (2) to be paid by new investors purchasing the Shares in this offering at the initial public offering price of $13.50 per Share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

		Shares Purchased								Total Consideration								Average Price
		Number				Percent				Amount				Percent				Per Share
Existing shareholders			7,837,443	(1)			73	%		$	16,633,181				30	%		$	2.12
New investors			2,837,400				27	%			38,304,900				70	%			13.50
Total			10,674,843				100	%		$	54,938,081				100	%

The number of our ordinary shares to be outstanding immediately after this offering is based on 7,659,955 ordinary shares outstanding as of March 12, 2014 and 177,488 ordinary shares issuable upon the exercise of the Warrant, which will be exercised automatically upon the completion of this offering, by way of cashless exercise, based upon the initial public offering price of $13.50 per Share. This number excludes 1,298,173 ordinary shares issuable upon the exercise of share options outstanding as of March 12, 2014 under our 2013 Plan, 17,166 ordinary shares issuable upon the exercise of options which will be granted upon the consummation of the offering under our 2013 Plan to Mr. Marth, 38,637 shares issuable upon the exercise of a certain option granted to a service provider that is not subject to our 2013 Plan and 784,304 ordinary shares reserved for future grants under our 2013 Plan. These issued options have a weighted average exercise price of $1.13 per share and expire in September 2023, with the exception of the option to purchase 38,637 shares granted to the service provider, which has no expiration date.

To the extent that new options are granted under the 2013 Plan or any future adopted equity incentive plan, there will be further dilution to investors purchasing the Shares in this offering.

TABLE OF CONTENTS

SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes our financial data (which reflects the financial data of GHI, our predecessor, prior to the Reorganization). We have derived the following statements of operations data for the years ended December 31, 2011, 2012 and 2013, as well as the balance sheet data as of December 31, 2012 and 2013 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

		Year ended December 31,
		2011				2012				2013
		(In thousands, except share and per share data)
Statements of Operations Data:
Research and development expenses		$	1,326			$	2,443			$	7,207
General and administrative expenses			151				694				7,355
Capital Loss			—				—				10
Operating loss			1,477				3,137				14,572
Financial expenses, net			3				6				2,912
Operating loss post-finance expense & other income, net			1,480				3,143				17,484
Taxes on income			2				6				1
Net loss		$	1,482			$	3,149			$	17,485
Deemed dividend			0				0				0
Loss attributable to holders of ordinary shares		$	216.26			$	459.51			$	2,514.38
Weighted average number of ordinary shares used in computing basic and diluted net loss per share(1)			6,853				6,853				6,954

		As of December 31, 2012				As of December 31, 2013
		Actual				Actual				Pro forma(1)				Pro forma as adjusted(2)
		(In thousands, except per share data)								(unaudited)				(unaudited)
						(In thousands, except per share data)
Balance Sheet Data:
Cash and cash equivalents		$	718			$	137			$	2,137			$	36,768
Working capital			219				(1,536	)			464				35,095
Total assets			762				166				2,166				36,797
Convertible debt			1,824				—				—				—
Total liabilities			2,741				2,117				2,117				2,117
Shareholders’ equity (deficit)			(1,979	)			(1,951	)			49				34,680

TABLE OF CONTENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Consolidated Financial Data” item above and our financial statements and related notes that appear elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Forward-Looking Statements.”

Overview

We are an emerging clinical-stage biopharmaceutical company primarily focused on the development and commercialization of novel therapeutics to treat liver diseases and cholesterol gallstones utilizing our proprietary family of synthetic fatty-acid/bile-acid conjugates, or FABACs. Our product candidate, aramchol, has the potential to be a disease modifying treatment for fatty liver disorders, specifically Non-Alcoholic Steato-hepatitis, or NASH, which constitutes a large unmet medical need.

We have successfully completed three clinical trials of aramchol. During the second half of 2014, we intend to begin a multi-center, double-blind, randomized Phase IIb placebo-controlled clinical trial of aramchol in NASH patients who also suffer from obesity and insulin resistance. Our current regulatory path for the development of aramchol for NASH is in accordance with the study design recommended by the MHRA, which has been deemed acceptable or satisfactory, respectively, by two European medical agencies, BfArM and ANSM. These two agencies have confirmed that if successful, this Phase IIb trial may serve as a basis for Phase III pivotal trials of aramchol. If the Phase III trials are completed successfully, we intend to seek regulatory approval of aramchol for the treatment of NASH in the United States and Europe. We currently expect results from the Phase IIb trial to be available in the second half of 2016. During this Phase IIb trial and once 120 patients complete six months of treatment, we intend to conduct an interim analysis of the efficacy and safety of aramchol based on blood markers of inflammation. We currently expect results from such interim analysis to be available in the second half of 2015. We also currently plan to conduct, but provide no assurance that we will conduct, an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of NASH in children, which will be preceded by further preclinical studies and PK studies, and an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of cholesterol gallstones. To date, we have not generated revenue from the sale of any product, and we do not expect to generate any significant revenue unless and until we commercialize aramchol. As of December 31, 2013, the company had a deficit of approximately $27.6 million.

Our financing activities are described below under “Liquidity and Capital Resources.” Obtaining approval of an NDA, MMA, or other similar application is an extensive, lengthy, expensive and uncertain process, and the FDA, EMA and other regulatory agencies may delay, limit or deny approval of our product.

Financial Overview

Since inception, we have incurred significant losses in connection with our research and development. At December 31, 2012, we had an accumulated deficit of $10.2 million and at December 31, 2013, we had an accumulated deficit of $27.6 million. We will continue to incur operating losses, which may be substantial over the next several years, and we may need to obtain additional funds to further develop our research and development programs.

Since inception, we have not generated any revenue. We have funded our operations primarily through the sale of equity and debt securities in private equity offerings and debt financings in Israel to our affiliates, shareholders and third-party investors. As of December 31, 2013, we had $137,000 in cash and cash equivalents and an accumulated deficit of approximately $27.6 million. Although we provide no assurance, we believe that such existing funds and the proceeds from this offering will be sufficient to continue our business and operations as currently conducted through 2016.

TABLE OF CONTENTS

Costs and Operating Expenses

Our current costs and operating expenses consist of two components: (i) research and development expenses; and (ii) general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist primarily of outsourced development expenses, salaries and related personnel expenses and fees paid to external service providers, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop our products. Increases or decreases in research and development expenditures are attributable to the number and/or duration of the preclinical and clinical studies that we conduct.

We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development processes, we are unable to estimate with any certainty the costs we will incur in the continued development of aramchol for NASH and other indications in our pipeline for potential commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to test our product candidate in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for our product candidate.

While we are currently focused on advancing our product development, our future research and development expenses will depend on the clinical success of our product candidate, as well as ongoing assessments of the candidate’s commercial potential. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for our product candidate in certain indications in order to focus our resources on more promising indications for such product candidate. Completion of clinical trials may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.

We expect our research and development expenses to increase in the future from current levels as we continue the advancement of our clinical product development and to the extent we in-license new product candidates. The lengthy process of completing clinical trials and seeking regulatory approval for our product candidate requires the expenditure of substantial resources. Any failure or delay in completing clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Because of the factors set forth above, we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and operational roles, including accounting, finance, legal, investor relations, information technology and human resources. Our other significant general and administrative expenses include facilities costs (including, the rental expense for our offices in Tel Aviv, Israel), professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.

We expect our general and administrative expenses, such as accounting and legal fees, to increase after we become a public company, and we expect increases in the number of our executive, accounting and administrative personnel due to the anticipated growth of our company.

Financial Expenses, Net

Our financial expense consists of bank fees and loan interest, resulting from the modification of convertible notes. We do not have, and for the last two fiscal years, have not had financial income.

TABLE OF CONTENTS

Critical Accounting Policies and Estimate

We prepare our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. For further significant accounting policies please see Note 2 to our audited consolidated financial statements, beginning on page F-21 of this prospectus. We believe that our accounting policies contained therein are critical in fully understanding and evaluating our financial condition and operating results.

Jumpstart Our Business Startups Act of 2012

We are an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. Such exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404, (ii) being exempt from adoption of new or revised financial accounting standards until they would apply to private companies, (iii) being exempt from compliance with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements and (iv) reduced disclosure obligations regarding executive compensation. We could remain an “emerging growth company” for up to five years from the date of our first sale of common equity securities pursuant to an effective registration statement under the Securities Act, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion (as such amount is indexed for inflation every five years by the Securities and Exchange Commission, or the SEC, to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1.0 million) or more, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the U.S. Securities Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three year period.

The JOBS Act also permits us, as an “emerging growth company,” to take advantage of an extended transition period to comply with certain new or revised accounting standards if such standards apply to companies that are not issuers. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by issuers. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Stock-Based Compensation and Fair Value of Ordinary Shares

We apply ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options under the Company's stock plans, based on estimated fair values. ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of the grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statement of operations. The foregoing estimates of fair value that the Company has made are highly complex and subjective. The estimates of the fair value of the Company’s ordinary shares will not be necessary to estimate the fair value of new awards once the underlying shares begin trading following the consummation of the offering.

We recognize compensation expense for the value of non-employee awards, which have graded vesting, based on the accelerated attribution method over the requisite service period of each award, net of estimated forfeitures. We recognize compensation expense for the value of employee awards that have graded vesting, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures.

TABLE OF CONTENTS

In determining the fair value of our ordinary shares that was used to value previous equity issuances, we relied upon previous offering valuations while taking into account the clinical development of the Company’s product candidate. We believe that the fair value of our ordinary shares has continuously increased since inception as the development of our product candidate has continuously progressed.

The valuations were performed contemporaneously with the offerings of ordinary shares to which such valuations relate. Such valuations were conducted by us and were directly observable in the marketplace. Such valuations were in accordance with the provisions of ASC 820-35 and based on the purchase price paid by new external and independent investors with pharmaceutical or financial expertise, who purchased our convertible notes contemporaneously with or around the time of our equity issuances. Increases in the Company’s valuations were based upon the progress in the clinical development of our product candidate, submissions of new families of patent applications for new potential indications and new formulations of our product candidate, an investment round and the anticipated initial public offering of the Company.

We believe that the fair value of our ordinary shares changed for each grant date because of the continued clinical development and advancement of our product candidate, which we believe resulted in a greater overall company valuation at each grant date. Information regarding each such issuance, on a pre-Reorganization basis, is included in the following table:

Year of issuance of equity		Instrument issued				Number of shares derived from the instrument issued				Number of options/warrants				Consideration ($)				Exercise price ($)
2000			Ordinary shares				5,150				—				650,000				—
2002			Options				—				53				—				1,075
2005 – 2008			Ordinary shares upon conversion of convertible notes				1,703				—				3,596,778				—
2012			Warrant				—				331				—				2,601
2012			Options				—				331				—				2,601
2013			Ordinary shares upon conversion of the Convertible Loan Agreement				1,432				—				3,724,462				—
2013			Ordinary shares upon conversion of the Bridge Loans				701				—				1,824,300				—
2013			Ordinary shares upon conversion of the Convertible Security Notes				707				—				4,717,641				—
2013			Options				—				1,673				—				0.01 – 2,601
2013			Ordinary shares				46				—				120,000				—

TABLE OF CONTENTS

Information regarding each such issuance, on a post-Reorganization basis, is included in the following table:

Year of issuance of equity		Instrument issued				Number of shares derived from the instrument issued				Number of options/warrants				Consideration ($)				Exercise price ($)
2000			Ordinary shares				3,754,350				—				650,000				—
2002			Options				—				38,637				—				1.47
2005 – 2008			Ordinary shares upon conversion of convertible notes				1,241,487				—				3,596,778				—
2012			Warrant				—				241,299				—				3.57
2012			Options				—				241,299				—				3.57
2013			Ordinary shares upon conversion of the Convertible Loan Agreement				1,043,928				—				3,724,462				—
2013			Ordinary shares upon conversion of the Bridge Loans				511,029				—				1,824,300				—
2013			Ordinary shares upon conversion of the Convertible Security Notes				515,403				—				4,717,641				—
2013			Options				—				1,219,617				—				0.01 – 3.571
2013			Ordinary shares				33,534				—				120,000				—

We believe that a significant factor contributing to the increase in the estimated fair value of our ordinary shares in this offering of $13.50 per Share is a result of our prior successful completion of a Phase IIa clinical trial of aramchol and the anticipated commencement of the proposed Phase IIb clinical trial of aramchol during 2014. Our last financing round was based upon our Phase I data and prior to the successful completion of our Phase IIa study. As such, the Company was valued as a Phase I clinical development stage company. This price per Share in this offering is based on the Company’s valuation as a Phase II clinical development stage company with proof of concept and the potential for an additional 20 years of patent protection for our product candidate with respect to a new composition of matter patent application recently submitted by the Company, as opposed to a valuation based merely on safety data, as is the case for Phase I clinical development companies.

The intrinsic value of the Company’s vested and unvested options outstanding as of February 27, 2014, based on the price per Share in this offering, was $16,482,318 and $2,803,120, respectively.

TABLE OF CONTENTS

Results of Operations

The table below provides our results of operations (which reflect the results of operations of GHI, our predecessor, prior to the Reorganization) for the year ended December 31, 2013 as compared to the year ended December 31, 2012 and for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

		Year ended December 31,
		2011				2012				2013
		(audited)				(audited)				(audited)
		(In thousands, except per share data)
Research and development expenses		$	1,326			$	2,443			$	7,207
General and administrative expenses			151				694				7,355
Capital Loss			—				—				10
Operating loss			1,477				3,137				14,572
Financial expenses, net			3				6				2,912
Operating loss post-finance expense & other income, net			1,480				3,143				17,484
Taxes on income			2				6				1
Net loss		$	1,482			$	3,149			$	17,485
Loss per share		$	216.26			$	459.51			$	2,514.38

Research and Development Expenses

Our research and development expenses amounted to $7.2 million during the year ended December 31, 2013, representing an increase of $4.8 million, or 195%, as compared to such expenses for the comparable prior year. This increase primarily resulted from stock based compensation of $4.3 million and increased studies in connection with aramchol for the treatment of NASH in obese patients with insulin resistance.

Our research and development expenses amounted to $2.4 million for the year ended December 31, 2012, representing an increase of $1.1 million, or 84%, as compared to such expenses for the year ended December 31, 2011. This increase primarily resulted from additional chemistry and drug formulation studies in connection with aramchol for the treatment of NASH in obese patients with insulin resistance.

General and Administrative Expenses

Our general and administrative expenses amounted to $7.4 million during the year ended December 31, 2013, representing an increase of $6.7 million, or 960%, as compared to such expenses for the comparable prior year period. This increase primarily resulted from an increase in salaries and benefits as a result of greater non-cash stock-based compensation to employees of $6.4 million and greater professional fees of $496,000.

Our general and administrative expenses amounted to $694,000 for the year ended December 31, 2012, representing an increase of $543,000, or 360%, as compared to such expenses for the year ended December 31, 2011. This increase primarily resulted from an increase in salaries and benefits as a result of greater non-cash stock-based compensation to our Chairman of $208,000, greater payroll expenses of $154,000 and greater professional fees of $58,000.

Operating Loss

As a result of the foregoing research and development and general and administrative expenses as well as our failure to generate revenues since our inception, for the year ended December 31, 2013 our operating loss was $14.6 million, representing an increase of $11.4 million, or 364%, as compared to our operating loss for the comparable prior year period. This increase primarily resulted from an increase in non-cash stock-based compensation to employees of $10.8 million as compared to $208,000 for the comparable prior year period.

Our operating loss for the year ended December 31, 2012 was $3.1 million, representing an increase in our operating loss of $1.7 million, or 112%, as compared to our operating loss for the year ended December 31, 2011. The increase was primarily due to an increase in research and development expenses.

TABLE OF CONTENTS

Financial Expense, Net

In addition to bank fees and loan interest, the Company recorded new convertible notes at fair value. The difference between the fair value of the new convertible notes and the net carrying amount of the extinguished notes, in the amount of approximately $2.9 million was recorded in the statement of operations report as a financial expense for the year ended December 31, 2013.

Net Loss

As a result of the foregoing research and development and general and administrative expenses as well as our failure to generate revenues since our inception, for the year ended December 31, 2013 our net loss was $17.5 million, representing an increase of $14.3 million, or 455%, as compared to our net loss for the comparable prior year period. The increase was primarily due to an increase in non-cash stock-based compensation to employees and finance expenses.

Our net loss for the year ended December 31, 2012 was $3.1 million, representing an increase of $1.7 million, or 112%, as compared to our net loss for the year ended December 31, 2011. The increase was primarily due to an increase in research and development expenses in connection with chemistry and drug formulation studies.

Liquidity and Capital Resources

Overview

We have incurred substantial losses since our inception. As of December 31, 2013, we had an accumulated deficit of approximately $27.6 million and negative working capital (current assets less current liabilities) of $1.5 million. We expect that losses will continue for the foreseeable future.

As of December 31, 2013, we had cash and cash equivalents of $137,000 as compared to $718,000 as of December 31, 2012. This decrease of $581,000 is primarily due to our net loss of $17.5 million during the year ended December 31, 2013, an increase in trade payables in the amount of $954,000, an increase in accounts receivable in the amount of $228,000, the issuance of a convertible note in the amount of $1.8 million, a non-cash financial expense due to convertible note modification in the amount of $2.9 million and a stock based compensation expense in the amount of $10.9 million.

As of December 31, 2012, we had cash and cash equivalents of $718,000 as compared to $146,000 as of December 31, 2011. This increase of $572,000 is primarily due to the issuance of a capital note in the amount of $3.7 million and a net loss of $3.1 million in the year ended December 31, 2012.

We had negative cash flow from operating activities of $2.5 million for the year ended December 31, 2013 as compared to a negative cash flow from operating activities of $3.1 million for the year ended December 31, 2012. The negative cash flow from operating activities for the year ended December 31, 2013 is mainly attributable to our net loss of $17.5 million, a non cash financial expense due to convertible note modification in the amount of $2.9 million and a stock based compensation expense in the amount of $10.9 million.

We had negative cash flow from operating activities of $3.1 million for the year ended December 31, 2012 as compared to a negative cash flow from operating activities of $721,000 for the year ended December 31, 2011. The negative cash flow from operating activities for the year ended December 31, 2012 is mainly attributable to our net loss of $3.1 million less a non-cash share-based compensation expense of $208,000.

We had positive cash flow from investing activities of $3,000 for the year ended December 31, 2013 as compared to a negative cash flow from investing activities of $32,000 for the year ended December 31, 2012. The positive cash flow from investing activities for the year ended December 31, 2013 was due to the sale of equipment in the amount of $16,000 less the investment in such equipment in the amount of $13,000, while the negative cash flow from investing activities for the year ended December 31, 2012 was due to the investment in such equipment.

We had negative cash flow from investing activities of $32,000 for the year ended December 31, 2012 as compared to a positive cash flow from investing activities of $84,000 for the year ended December 31, 2011.

TABLE OF CONTENTS

The negative cash flow from investing activities for the year ended December 31, 2012 was due to the purchase of equipment, while the positive cash flow from investing activities for the year ended December 31, 2011 was due to the sale of negotiable securities.

We had positive cash flow from financing activities of $1.9 million for the year ended December 31, 2013 as compared to a positive cash flow from financing activities of $3.7 million for the year ended December 31, 2012. The positive cash flow from financing activities for the year ended December 31, 2013 was primarily due to the issuance of a convertible note in the amount of $1.8 million, while the positive cash flow from financing activities for the year ended December 31, 2012 was primarily due to the issuance of a capital note in the amount of $3.7 million.

We had positive cash flow from financing activities of $3.7 million for the year ended December 31 2012 as compared to a positive cash flow from financing activities of $650,000 for the year ended December 31, 2011. The positive cash flow from financing activities for the year ended December 31, 2012 was primarily due to the issuance of a capital note in the amount of $3.7 million, while the positive cash flow from financing activities for the year ended December 31, 2011 was primarily due to the issuance of convertible notes in the amount of $589,000.

We believe that our existing cash resources and the net proceeds from the current offering will be sufficient to fund our projected cash requirements approximately through 2016. Nevertheless, we will require significant additional financing in the future to fund our operations if and when we progress into Phase III trials of aramchol and clinical trials for other indications, obtain regulatory approval of aramchol and commercialize the drug.

Current Outlook

Our independent registered public accounting firm’s report to our financial reports for the fiscal year ended December 31, 2013, states that there is a substantial doubt that we will be able to continue as a going concern. Furthermore, according to our estimates and based on our budget, if we are not successful in obtaining additional capital resources, there is substantial doubt that we will be able to continue our activities beyond 2014. Even if we are able to raise funds in the offering contemplated herein, we believe that we will need to raise significant additional funds before we have any cash flow from operations, if at all.

Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. We believe that our existing cash resources and the net proceeds from the current offering will be sufficient to fund our projected cash requirements approximately through 2016. Nevertheless, we will require significant additional financing in the future to fund our operations, including if and when we progress into Phase III trials of aramchol for the treatment of NASH in patients who also suffer from obesity and insulin resistance and clinical trials for other indications, obtain regulatory approval for aramchol and commercialize the drug. We currently anticipate that, assuming consummation of the current offering, we will utilize approximately $10.0 million for clinical trial activities over the course of the next 12 months. Our future capital requirements will depend on many factors, including:

TABLE OF CONTENTS

Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds from the current offering, debt or equity financings or by out-licensing applications of our product candidate. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our product candidate. This may raise substantial doubts about the Company’s ability to continue as a going concern.

Contractual Obligations

The following table summarizes our significant contractual obligations (which reflect the significant contractual obligations of GHI, our predecessor, prior to the Reorganization) at December 31, 2013.

		Total				Less than 1 year				1 – 3 years				More than 3 years
		(in thousands)
Facility Leases		$	33			$	33			$	—			$	—
Termination payment			153				—				—				153
Total		$	186			$	33			$	—			$	153

We did not have any material commitments for capital expenditures, including any anticipated material acquisition of plant and equipment, as of either December 31, 2012 or 2013.

Off-Balance Sheet Arrangements

The Company currently does not have any off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign exchange rates, of financial instruments. Our market risk exposure is primarily a result of foreign currency exchange rates. Approximately 47% of our expenses are denominated in Euros. Changes of 5% and 10% in the U.S. dollar to Euro exchange rate will increase/decrease our operation expenses by 2.4% and 4.7%, respectively.

Foreign Currency Exchange Risk

Our foreign currency exposures give rise to market risk associated with exchange rate movements of the Euro mainly against the U.S. dollar because most of our expenses are denominated in Euros. Our Euro expenses consist principally of payments made to sub-contractors and consultants for preclinical studies, clinical trials and other research and development activities. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the U.S. dollar. Our financial position, results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange

TABLE OF CONTENTS

rates. Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for the periods under review.

To date, we have not engaged in hedging our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.

Trend Information

We are a development stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

TABLE OF CONTENTS

BUSINESS

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of a novel, once-daily, oral therapy for the treatment of liver diseases and cholesterol gallstones utilizing our proprietary first-in-class synthetic fatty-acid/bile-acid conjugate, or FABAC, called aramchol. We believe that aramchol has the potential to be a disease modifying treatment for fatty liver disorders, including Non-Alcoholic Steato-hepatitis, or NASH, which is a chronic disease that we believe constitutes a large unmet medical need.

NASH is a severe form of Non-Alcoholic Fatty Liver Disease, or NAFLD, in which patients suffer from inflammation and fat accumulation in the liver. NAFLD, which is the first stage of liver disease, is characterized by an accumulation of more than 6% of fat in the liver of people who drink little or no alcohol, and it is mostly associated with obesity or genetic predisposition, as well as in people with a combination of a high fat, fructose-rich diet and a sedentary lifestyle. Recent studies suggest that whereas NAFLD can be a benign condition, NASH may lead to progressive fibrosis that dramatically increases the risk of late-stage severe liver diseases, such as cirrhosis, carcinoma and end-stage liver disease, each potentially requiring liver transplantation. NASH is also associated with increased risk for metabolic and cardiovascular diseases. Both the medical community’s and the public’s awareness of NASH and its complications, as well as its economic burden, have increased in recent years. According to a recent workshop held by the AASLD and the FDA entitled “Trial Designs and Endpoints for Liver Disease Secondary to Nonalcoholic Fatty Liver Disease (NAFLD),” the FDA is currently working on guidelines for the development of therapies for the treatment of NASH. There is currently no approved medical treatment for NASH.

According to the Journal of Gastroenterology and Hepatology in 2013, NAFLD is believed to affect up to 30% of the population in developed countries and up to 75% of Western populations with diabetes and obesity. Also according to the Journal of Gastroenterology and Hepatology in 2013, approximately 12% of the general population in the United States and in the five most-populated countries in the EU, the United Kingdom, France, Spain, Germany and Italy, has NASH. According to the Journal of Hepatology in 2008, and as summarized in the Journal of Hepatology in 2010, the risk that persons with NASH will suffer a liver disease-related death is ten-times higher than that of the general population, and according to these sources, as well as the Journal of Gastroenterology in 2005, NASH increases overall mortality by between 35% and 85%. Also according to the Journal of Gastroenterology and Hepatology in 2013, approximately one third of all NASH patients will develop liver cirrhosis, and nearly one million people with NASH are projected to progress to liver cirrhosis between 2006 and 2015. Additionally, according to the Journal of Gastroenterology in 2011, the proportion of liver transplants attributed to NASH in the United States increased from 1.2% in 2001 to 9.7% in 2011, establishing NASH as the third leading cause of liver transplantation in the United States. Furthermore, according to the Journal of Digestive Diseases in 2011 and the Journal of Hepatology in 2010, NASH will become the leading cause of liver transplantation in the United States by 2020. Michael Charlton and other scientists at the Mayo Clinic project NASH to surpass hepatitis C as the leading cause of hepatocellular carcinoma in the near future. NASH patients are also twice as likely to die from cardiovascular disease as the global general population.

According to Global Data, the growing global rate of obesity and diabetes as well as the expected launch of new NASH specific treatments will increase the NASH market from $233.0 million in off-label sales in the United States and the five most-populated EU countries in 2012 to $863.0 million in total sales by 2017, with a CAGR of 30%. Based on our extrapolation from the estimated total direct economic cost over the respective lifetimes of the current NASH population in the United States aged 45 to 74, which cost was presented in the Journal of Hepatology in 2006, we estimate that the financial burden of NASH in the United States alone may reach approximately $41 billion within the next decade. Furthermore, according to studies published in the Journal of Gastroenterology in 2008, the progression to NASH increases the five year direct and indirect healthcare costs for patients with NAFLD by 26%.

TABLE OF CONTENTS

The estimated size of the NASH patient population in the United States and in the five most-populated EU countries is presented in the diagram below.

We are initially developing aramchol for the treatment of NASH in patients who also suffer from obesity and insulin resistance. These patients are at the highest risk of developing both the cardiovascular and hepatic complications associated with NASH. Aramchol is a synthetic conjugate of cholic acid, or a type of bile acid, and arachidic acid, or a type of saturated fatty acid, both of which, in their non-synthetic forms, are naturally occurring. The conjugated molecule acts upon important metabolic pathways, reducing fat accumulation in the liver and regulating the transport of cholesterol, which is essential for maintaining cholesterol balance in the body. The ability of aramchol to decrease liver fat content may also reduce the risk of cardiovascular complications associated with NASH. Independent third-party epidemiologic studies have shown that certain levels of fat reduction may reduce, and ultimately eliminate, liver inflammation in patients who have undergone bariatric surgery or other weight loss programs. We believe that aramchol’s ability to reduce liver fat without observable adverse side effects in our studies to date will enable it to be an effective treatment for NASH and the hepatic and cardiovascular complications associated therewith.

During the second half of 2014, we intend to begin a multi-center, randomized, double-blind, placebo-controlled, dose-ranging Phase IIb clinical trial of aramchol in 240 biopsy-diagnosed NASH patients who also suffer from obesity and insulin resistance. Our planned Phase IIb clinical trial for aramchol in NASH patients is in accordance with the study design recommended by the MHRA and has been deemed acceptable by BfArM and deemed satisfactory by ANSM. The study design has recently been confirmed by the FDA in a written pre-IND advice as acceptable for a Phase IIb study. The BfArM and ANSM also confirmed, in minutes of each of their respective scientific advisory meetings, that if successful, this Phase IIb trial may serve as a basis for Phase III pivotal trials of aramchol. The FDA and MHRA invited us to discuss the next steps in the development of aramchol after we analyze the results of the Phase IIb study. If the Phase III trials are successful, we intend to submit an NDA to the FDA and an MAA to the EMA for the approval of aramchol for the treatment of NASH in patients who also suffer from obesity and insulin resistance in the United States and Europe. We currently expect results from the Phase IIb trial to be available

TABLE OF CONTENTS

in the second half of 2016. During this Phase IIb trial and once 120 patients complete six months of treatment, we intend to conduct an interim analysis of the efficacy and safety of aramchol based on blood markers of inflammation. We currently expect results from the interim analysis to be available in the second half of 2015. We also currently plan to conduct, but provide no assurance that we will conduct, an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of NASH in children, which will be preceded by further preclinical studies and PK studies, and an open-label Phase IIa proof-of-concept clinical trial of aramchol for the treatment of cholesterol gallstones.

To date, we have successfully completed three clinical trials of aramchol. The first was a single dose, double-blind, placebo-controlled, Phase Ia study with ascending doses of aramchol in healthy volunteers in one center in Israel. All doses proved to be well-tolerated and no adverse side effects were observed in our studies to date. An additional Phase Ib repeated dose trial completed on healthy volunteers in one center in Israel also showed that aramchol has no observable adverse side effects and confirmed the suitability of a once-daily dose of aramchol. A multi-center, randomized, double-blind, placebo-controlled Phase IIa trial of aramchol in 60 NAFLD and NASH patients in 12 centers in Israel, whose study design was deemed acceptable by the FDA in 2007 at a pre-IND scientific advisory meeting, demonstrated that aramchol reduced liver fat in a dose dependent manner, as evidenced by a statistically significant reduction of liver fat over a three month treatment period of once-daily 300 mg doses of aramchol, and induces positive trends of changes in several metabolic parameters.

Based on our Phase IIa proof-of-concept results, we established a development plan that we believe may confirm that aramchol (i) is safe, (ii) can be administered as a once-daily oral therapy, (iii) targets NASH, (iv) can effectively treat inflammation and thus prevent the progression of NASH and (v) can treat the underlying condition of NASH, metabolic syndrome, by improving insulin resistance and other parameters of metabolic syndrome, such as HOMA levels, or homeostatic model assessment levels, which is a method used to quantify insulin resistance and beta-cell function, which are each biological markers of metabolic syndrome, and adiponectin levels. In the future and as part of our vision for aramchol, we intend to conduct long-term studies to demonstrate that aramchol may prevent the progression of NASH to end-stage liver disease, thus reducing the occurrence of liver transplantations, liver and cardiovascular morbidity and the overall economic burden of NASH and its late-stage complications on global health systems and society in general. This vision is illustrated in the following diagram.

Our Development Pipeline

Based on the potential fat-reducing effects of aramchol in the human liver, we are considering additional indications with meaningful potential market opportunities, with the view of expanding aramchol’s therapeutic

TABLE OF CONTENTS

applications to the treatment of NASH in children, cholesterol gallstones, CASH and feline fatty liver. The pipeline chart below shows the current stage of development of aramchol for each of these indications and the next planned clinical trial in respect of each such indication, as applicable, as well as the preclinical programs for aramchol.

Indication		Planned Next Clinical Trial		Expected Number of Patients		Anticipated Key Events
Non-Alcoholic Steatohepatitis (NASH)		Phase IIb		240 patients		|B2 Initiate Phase IIb trial in the second half of 2014
						|B2 Conduct interim analysis of 120 patients in Phase IIb trial who have completed six months of treatment in the second half of 2015
						|B2 Release top-line results from Phase IIb trial in the second half of 2016
Cholesterol Gallstones		Phase IIa		20 patients		|B2 Initiate Phase IIa trial in the second half of 2014
						|B2 Release top-line results from Phase IIa trial in the second half of 2014
NASH in Children		Preclinical		To be determined		|B2 Pediatric Investigational Plan submission in the first half of 2014
						|B2 Initiate Phase I trial in the second half of 2015

Our Competitive Strengths

The pharmaceutical industry is characterized by rapidly evolving technology, intense competition and a highly risky, costly and lengthy research and development process. Adequate protection of intellectual property, successful product development, adequate funding and retention of skilled, experienced and professional personnel are among the many factors critical to success in the pharmaceutical industry. We believe we are strategically positioned to address the unmet medical needs of NASH patients who also suffer from obesity and insulin resistance. Our competitive strengths include:

TABLE OF CONTENTS

Our Strategy

Our strategy is to build a specialized biopharmaceutical company that discovers, develops and commercializes novel FABAC drugs and potentially other molecules for the treatment of liver diseases and cholesterol gallstones, beginning with the treatment of fatty liver disorders, primarily NASH, and cholesterol gallstones. We focus on drugs and drug conjugates for liver diseases and cholesterol gallstones with global market potential and we seek to create global partnerships with academic institutions and biotechnology or pharmaceutical companies to effectively assist us in developing our portfolio and marketing our products. Using this approach, we have successfully advanced aramchol into various stages of clinical development. Key elements of our strategy include:

TABLE OF CONTENTS

We believe that our strategy will increase the likelihood of advancing clinical development and potential commercialization of aramchol, as well as increase awareness of liver disease and cholesterol gallstones, our brand and our potential market share.

Overview of NAFLD and NASH

NAFLD.  NAFLD is a spectrum of conditions characterized by the accumulation of fat in the liver, encompassing fatty liver, a relatively benign increase in liver fat content, NASH, or fat infiltration and inflammation of the liver, and liver cirrhosis, or scarring of the liver tissue. Although some fat in the liver is normal, if fat comprises more than 6% of the liver, it may lead to inflammation and subsequent liver disease. In some cases, over time, liver cells may be replaced by scar tissue, which causes cirrhosis. When this happens, the liver is unable to function properly, necessitating a liver transplant or leading to liver cancer, and potentially liver-related death. The following diagram demonstrates the progression of liver disease.

According to the Journal of Gastroenterology and Hepatology in 2013, NAFLD is believed to affect up to 30% of the population in developed countries, and up to 75% of Western populations with diabetes and obesity. According to the World Gastroenterology Organization, in 2012, 30%, 25%, 25% and 15%, respectively, of the general population in each of the United States, Europe, the Middle East and Asia, respectively, had NASH.

Associated with the Western diet, which is rich in processed foods with high fat and sugar content, and a sedentary lifestyle, NAFLD’s prevalence is rapidly growing in parallel with metabolic syndrome, obesity and diabetes, each of which are on the rise in Western countries. Metabolic syndrome is a serious health condition caused by obesity, physical inactivity and genetic factors that results in a higher risk of cardiovascular disease, diabetes, stroke and NAFLD. According to the Journal of Gastroenterology and Hepatology in 2013, NAFLD is associated with insulin resistance and its physical and biochemical manifestations, such as obesity, visceral adiposity, type 2 diabetes, hypertriglyceridemia and arterial hypertension. Recently, the medical community has widely come to consider NAFLD as the liver disease of metabolic syndrome, which is the cause of atherosclerosis and its associated complications. Concordant studies over the last five years in Europe and Japan have demonstrated that over a follow-up period of five to six years, individuals with NAFLD also develop major cardiovascular complications, such as myocardial infarction, more frequently than those without NAFLD. Further, the Journal of Gastroenterology and Hepatology in 2013 suggests a causal relationship between the progression of metabolic syndrome and the occurrence of NAFLD. The Journal of Gastroenterology and Hepatology also notes that the amount of liver fat influences the severity of insulin resistance, such that patients with fat accumulation in the liver have substantially more insulin resistance than

TABLE OF CONTENTS

those without such accumulation. Moreover, according to the Journal of Gastroenterology and Hepatology in 2013, patients with NAFLD develop atherosclerosis, or hardening of the arteries, approximately five to ten times earlier than those without NAFLD. It is therefore considered by the medical community that NAFLD is not only a manifestation of metabolic syndrome, but may also be involved in its development and severity. The current management of NAFLD demands lifestyle changes such as weight reduction and physical activity, which are hard to achieve and long-term compliance is difficult.

NASH.  NASH is a severe form of NAFLD characterized by inflammation in the liver in addition to the presence of excess fat. A subset of approximately 30% to 50% of individuals with NAFLD in all age groups, including children, develop NASH, although this more often occurs in obese individuals. Independent third-party studies suggest that whereas simple fatty liver can be a benign condition, in NASH patients, for reasons that are still not completely understood, the fat build-up in the liver induces chronic inflammation which leads to progressive fibrosis that can lead to cirrhosis with a high risk of carcinoma and to end-stage liver disease. According to the Journal of Gastroenterology, NASH is currently the third leading indication for liver transplantation in the United States, and according to the Journal of Digestive Diseases in 2011 and the Journal of Hepatology in 2010, NASH will become the leading cause for liver transplantation in the United States by 2020.

According to GlobalData, the growing global rate of obesity and diabetes as well as the expected launch of new NASH specific treatments will increase the NASH market from $233.0 million in off-label sales in the United States and the five most-populated EU countries in 2012 to $863.0 million in total sales by 2017, or a CAGR of 30%.

NASH is often discovered incidentally, frequently by observation of elevated liver enzyme levels in blood tests. NASH patients may be asymptomatic or suffer from fatigue, with other symptoms occurring as the liver disease advances. Diagnosis of NASH is based on the exclusion of other reasons for liver disease, such as the use of medications, viral hepatitis or excessive use of alcohol; followed by non-invasive imaging tests, such as ultrasound, Computed Tomography scan, or CT scan, and Magnetic Resonance Imaging, or MRI. Liver biopsy is currently the standard procedure for the diagnosis of NASH.

The underlying pathophysiology, or the explanation of the physiological processes or mechanisms whereby abnormal or undesired conditions develop and progress, of NASH is not well understood. The disease is multifactorial, involving both genetic and environmental factors that regulate lipid metabolism and the transportation of fat to, within and from the liver cells. Insulin resistance and subsequent hyperinsulinemia, or increased blood insulin levels as compared to blood glucose levels, lead to alterations in the hepatic metabolism of free fatty acids and ultimately to an accumulation of lipids in the liver cells. As the disease progresses, persistent fatty infiltration and inflammation cause liver damage marked by fibrosis and gradual loss of normal liver cells, which in turn could lead to cirrhosis with a high risk of carcinoma and end-stage liver disease.

Beside its hepatic complications, NASH is also associated with increased risk for the cardiovascular complications associated with metabolic syndrome. A position statement on NAFLD and NASH from the European Association for the Study of the Liver’s, or the EASL, 2009 Special Conference found extra-hepatic complications of NAFLD and NASH. The EASL position statement noted that “[b]eyond damage to the liver, steatosis can also worsen and/or induce insulin resistance, worsen glycemic control in patients with type 2 diabetes, and predict subsequent development of metabolic syndrome; it is also associated with increased cardiovascular risk and events. The long-term outcomes of patients with NASH have been reported in several studies, whose findings can be summarized as follows: (a) patients with NAFLD have increased overall mortality compared to matched control populations; (b) the most common cause of death in patients with NASH is cardiovascular disease; and (c) patients with NASH have an increased liver-related mortality rate.”

Currently Available Treatment Options for NASH

Modification of risk factors, such as obesity and hyperlipidemia, and proper diabetic control is generally recommended for the treatment of NASH, and the standard of care includes lifestyle changes to promote weight loss, including low-calorie, low-fat diets and physical activity. Although weight loss can be potentially significant in delaying the progression of NASH, we believe that for most individuals, it is generally very difficult to maintain over the long-term, even following bariatric surgery.

TABLE OF CONTENTS

There are currently no drugs approved by regulatory authorities for the treatment of NASH. Even though certain drugs, such as insulin sensitizers and antihyperlipidemic agents, are prescribed for some NASH patients, they are not approved for the treatment of NASH and their efficacy has not been proven in well-designed clinical studies. Such prescription or use of unapproved drugs is typically known as “off-label” prescription or use. According to press releases issued in mid-2011 by the FDA and EMA, the use of other drugs that have historically also been used off-label to treat NASH has been restricted due to their severe side effects, including adverse cardiovascular effects and liver toxicity, or suspected carcinogenicity. Bariatric surgery can be performed in obese patients with NASH, but is not an established procedure to treat NASH. Lastly, vitamin E was found to be beneficial for non-diabetic patients with biopsy proven NASH, but not for diabetics with NASH, NAFLD or liver cirrhosis. As such, the use of vitamin E is fairly limited.

Based on the foregoing, we believe that there is a significant unmet need for a NASH-specific therapy. We believe that aramchol has the potential to provide significant benefits in the treatment of this liver disease due to its ability to reduce liver fat in a dose dependent manner, lack of observable adverse side effects in our studies to date and ease of use through once-daily oral administration. Moreover, based in part on the Journal of Gastroenterology and Hepatology, we believe the increasing rates of diabetes and obesity worldwide likely means that a significant number of patients will be eligible for, and will be interested in, receiving a new therapy for the treatment of NASH if it becomes available on the market.

Aramchol for NASH

Overview

Our product candidate, aramchol, is a first-in-class synthetic FABAC which we are initially developing for the once-daily oral treatment of NASH in patients who also suffer from obesity and insulin resistance.

Early in its development, aramchol’s ability to modulate hepatic lipid metabolism was observed and validated in numerous preclinical trials with different animal species. Mice fed a high fat diet and treated with aramchol did not develop fatty liver, as opposed to the control mice that were fed a high fat diet, but were not treated with aramchol, in which fatty liver was observed. In such early studies, we also observed that the mechanism of this effect was not a result of malabsorption of fat in the intestines because the FABAC-treated mice gained weight throughout the test periods to a similar degree as the control mice. This led us to conclude that FABAC therapy triggers a beneficial modulation of intra-hepatic lipid metabolism and thus reduces liver fat content. The images below show the reduction of liver fat content in rodents after treatment with aramchol.

In in vitro studies, aramchol partially inhibited the Stearoyl-Coenzyme A Desaturase1, or the SCD1 enzyme, an enzyme recognized as playing an important role in the metabolism of fatty acids. The SCD1 enzyme is essentially the gateway that regulates the use and storage of fat in the body by converting saturated fatty acids to monounsaturated fatty acids. Experimental animal studies showed that inhibition of the SCD1 enzyme protects against diet-induced obesity, hepatic steatosis, or fatty liver, and insulin resistance by

TABLE OF CONTENTS

instructing the body to use, rather than store, all fatty acids. However, various animal studies have indicated that complete SCD1 enzyme inhibition has dangerous side effects, such as inflammation, atherosclerosis and pancreatic beta cell dysfunction. As observed by us in our studies and subsequently published in the European Journal of Gastroenterology and Hepatology and Archives of Medical Research in 2008 and 2010 respectively, one of aramchol’s unique characteristics is that it triggers a partial SCD1 enzyme inhibition without any significant adverse events.

Aramchol also has the ability to up-regulate ABCA1, an enzyme that induces “reverse cholesterol transport.” Each cell in the body has a specific receptor for cholesterol entry, the LDL receptor, and a transporter, the ABCA1 transporter, that pumps cholesterol out of the cell towards the HDL lipoprotein which transports it towards the liver to be excreted into the intestine. This pathway from the cell to the liver is called the “reverse cholesterol transport” and is essential for maintaining cholesterol balance in the body. Excess levels of “bad” cholesterol are deposited mainly in vascular walls, causing atherosclerosis, or a vascular disease in which an artery wall thickens as a result of the accumulation of calcium and fatty materials, such as cholesterol. Activation of the reverse cholesterol transport reduces the bad cholesterol deposited in vascular walls and is therefore beneficial. As published in the Biochemical Journal, the Archives of Medical Research and the Current Opinion in Lipidology in 2006, 2010 and 2010, respectively, in several experimental models in animals, aramchol has been shown in independent studies to increase ABCA1 activity by between 300% and 400%, thereby stimulating reverse cholesterol transport, reducing cholesterol levels and preventing atherosclerosis.

The Company expects aramchol to reduce and eventually eliminate liver inflammation by the mechanism of action described above, while also mitigating cardiovascular comorbidities.

We are currently planning a Phase IIb trial to evaluate the efficacy and determine the safest and most efficient dose of aramchol as a novel treatment for NASH patients with obesity and insulin resistance. We plan to file an IND application with the FDA in the first quarter of 2014 in order to use the results of our previously conducted, and to be conducted clinical studies in Europe, Latin America and Israel, as a basis for the FDA's future approval to conduct the pivotal Phase III clinical trials and other clinical trials in the United States. We believe that filing the IND application could enable the first patent family covering aramchol’s composition of matter to enjoy longer patent protection.

TABLE OF CONTENTS

Summary of Aramchol Clinical Trials

Aramchol: Results to date in, and future objectives of, clinical trials

Phase IIb Trial for Aramchol

We are currently planning our Phase IIb trial to determine the safest and most effective dose of aramchol for the treatment of NASH. In order to be eligible to participate in the Phase IIb trial, patients must be affected by NASH, as diagnosed by a biopsy, and also suffer from obesity, measured by a Body Mass Index between 26 and 35, and insulin resistance, measured by fasting plasma glucose levels of 100 mg/dl or greater. We are targeting this specific population as it is at the greatest risk of developing the complications that are associated with NASH. Although we do not expect aramchol to reduce the fibrosis levels of such patients, we intend to include both fibrotic and non-fibrotic patients in the trial. Patients will be randomized into one of three trial groups taking either one of two different once-daily oral doses of aramchol or a placebo. The treatment part of the trial is designed to be 12 months in duration and patients completing this phase will be observed for a three month follow-up period. This trial is designed to enroll 240 patients (89 patients in the 400 mg aramchol group, 89 patients in the 600 mg aramchol group and 62 patients in the placebo group) across approximately 40 clinical sites in Israel, Europe and Latin America, and we currently expect results from the trial to be available in the second half of 2016.

The primary endpoint of the 12 month double-blind portion of the trial is the achievement of a statistically significant reduction in liver fat concentration, which according to the trial design, would be a reduction in liver fat of 10% more than the placebo group, as measured by NMRS, which is a surrogate endpoint that is generally accepted by the FDA with respect to Phase I and Phase II NASH studies.

Secondary endpoints of the trial are the improvement in, or clearance of, NASH, as measured by biopsy and the NAFLD activity score, or NAS, which is defined as the improvement by a minimum of two points in the NAS with the contribution from more than one parameter, the achievement of improved liver and metabolic biomarker levels or, alternatively, the clearance of inflammation and no worsening of fibrosis. Exploratory endpoints such as FibroMax, which is a non-invasive comprehensive biomarker for the diagnosis of the most common liver diseases, including NASH, lipidomics, which is profiling that maps lipid structures, proteins and genes related to lipid composition in different body components, such as blood and liver tissue, and microbiota, which are microorganisms in the gut, are also included in order to assess the effect of aramchol by new non-invasive tests. The Company believes that finding a non-invasive test which correlates

TABLE OF CONTENTS

well with biopsy findings would significantly increase the likelihood of the future use of aramchol in an outpatient setting, where biopsies, which are expensive and painful, are not the standard of care.

During the trial, we will conduct an interim analysis for efficacy and safety with respect to 120 participants who have completed six months of treatment. An independent expert committee, the Data Safety and Monitoring Board, will review the interim safety data to determine whether emergent safety issues are present, and if so, whether they are dose-related. Depending on its severity, any emergent safety issues may warrant a suspension of the higher dose used in the trial or of the entire trial itself. Our pre-specified interim criterion for efficacy, which is based on inflammatory markers in blood tests, will be met if we observe a statistically significant (p-value 0.5) trend in at least one of the treatment groups as compared to the placebo group. If the interim criterion for efficacy is met, the trial will continue for the full period and number of patients as planned. If this result is not reached, however, the trial will be suspended and a futility analysis will be conducted.

On December 13, 2013, in connection with a pre-IND meeting that we requested with the FDA for aramchol for the treatment of NASH in obese patients with insulin resistance, the FDA provided a written response, or the FDA Response, regarding our planned Phase IIb study design, including its primary and secondary endpoints and inclusion and exclusion criteria. The FDA Response and prior correspondence confirmed that we may conduct our planned Phase IIb clinical trial, but recommended that we perform a PK and a food effect study prior to doing so. We currently plan to commence such PK and food effect studies in April 2014 and expect to obtain the results of such studies in the second half of 2014. Although we do not expect the results of these studies would prevent us from conducting our planned Phase IIb clinical trial, it is possible that we may be required to postpone the commencement of such clinical trial if the results of the PK and food effect studies indicate that we need to alter the dosage of aramchol to be administered in such clinical trial. The FDA also indicated that it will require data from nine month toxicology studies in animals prior to the initiation of any year-long clinical trial conducted within the United States. We are currently performing such a study. However, an interim analysis will be performed after six months, to support our planned Phase IIb clinical trial that will be performed in the EU, Israel and Latin America, where only six month toxicology data is required. We plan to commence the Phase IIb clinical trial immediately following the interim results of such toxicology study, in compliance with applicable EU, Israeli and Latin American guidelines, and anticipate continuing such study for an additional three months to obtain the data required by the FDA to conduct year-long clinical trials in the United States. The FDA also recommended that future clinical studies should be discussed at an end-of-Phase II meeting with the FDA to take place within three months from the date we complete the analysis of the results of the completion of our Phase IIb trial, where the data captured in such trial will be taken into consideration. The FDA Response further noted that we must discuss with the FDA a methodology for our drug development processes as our development of aramchol progresses to determine which surrogate endpoints, if any, the FDA will allow us to use to predict the clinical benefit of aramchol.

Potential Phase III Program for Aramchol

The development work we completed to date with regard to aramchol was deemed appropriate by the FDA, MHRA, BfArM and ANSM, and our Phase IIb study design is in accordance with the study design recommended by the MHRA, deemed acceptable by BfArM and deemed satisfactory by ANSM. In, addition, the FDA recently confirmed in a written pre-IND advisory letter that such study design is acceptable for a Phase IIb study. BfArM and ANSM also confirmed, in minutes of each of their respective scientific advisory meetings, that, if the Phase IIb trial is successful in reaching its primary endpoint, we may proceed to pivotal randomized, double-blind, placebo-controlled, Phase III trials. We expect the primary end-points of such trials to be the elimination of inflammation in the liver. The FDA, in the FDA Response, and the MHRA invited us to discuss the next steps in the development of aramchol after we complete the analysis of the results of our Phase IIb trial, where the data captured in such trial will be taken into consideration. By the time we complete the Phase IIb study, we expect to have completed our ongoing nine-month chronic toxicity studies and planned PK and food-effect studies of aramchol, each as required by the FDA prior to initiating pivotal Phase III studies, as set forth in the FDA Response. We believe, but cannot be certain and do not provide assurance, that such approval in the United States will be considered under the FDA’s Fast Track Development Program,

TABLE OF CONTENTS

which designation accelerates the development process and expedites the review of INDs that show promise in treating serious, life-threatening medical conditions for which no other drug either exists or is as effective.

Phase IIa Trial: Aramchol Treatment in NAFLD or NASH Patients

In January 2012, we completed a 60 patient multi-center, randomized, double-blind, placebo-controlled Phase IIa clinical trial of aramchol in patients with NAFLD or NASH between the ages of 18 and 75 in 12 centers in Israel. We have submitted the Phase IIa study results for publication in a peer reviewed medical journal and expect such results to be published in 2014. In accordance with the AASLD’s guidelines for Phase IIa studies in NAFLD or NASH, the trial was performed in patients with either NAFLD or NASH, rather than only in NASH patients. The trial's primary efficacy endpoint was a reduction in liver fat content, and did not consider the inflammation or fibrosis, which can only be diagnosed by liver biopsy. We believe that the short study duration of three months of treatment followed by a one-month follow-up period did not warrant repeated biopsies. A summary of the demographic and baseline characteristics of the study population is presented in the following table. This table shows there were no significant differences in demographic baseline characteristics between the patients included in the study.

Summary of Demographic and Baseline Characteristics
				Aramchol 300 mg/d		Aramchol 100 mg/d		Placebo
Gender		Male, N (%)		14 (70.0)		15 (75.0)		14 (70.0)
		Female, N (%)		6 (30.0)		5 (25.0)		6 (30.0)
Race		Caucasian, N (%)		20 (100.0)		20 (100.0)		20 (100.0)
Age, mean ± SD (N), years				38.4 ± 14.6 (20)		39.8 ± 11.1 (20)		43.7 ± 13.2 (20)
Weight ± SD (N), kg				84.4 ± 15.5 (20)		88.2 ± 11.5 (20)		84.4 ± 11.3 (20)

N = number of patients

SD = standard deviation

The table below presents the NAFLD/NASH status, levels of fibrosis, alcohol use history and percentage of liver cells showing fatty change across the three treatment groups in the study, as well as the mean NAFLD activity score of each of the treatment groups in the study. The NAFLD activity score is an ordinal scoring system that takes into account the following elements: steatosis, or the amount of fat in the liver; lobular inflammation, or inflammation occurring in the lobes of the liver; and ballooning, or a form of liver cell death during which the cells increase in size. A higher NAFLD activity score reflects a more active disease. The data in the table shows there were no statistically significant differences at baseline in these parameters between the three treatment groups.

Disease History and Baseline Disease Status
				Aramchol 300 mg/d		Aramchol 100 mg/d		Placebo
Diagnosis, N (%)		NAFLD		18 (90.0)		17 (85.0)		18 (90.0)
		NASH		2 (10.0)		2 (10.0)		2 (10.0)
		Other		.		1 (5.0)		.
Fibrosis, N (%)		0