A. Reserved.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider
the risks described below, together with all of the other information in this Annual Report on Form 20-F. The risks and uncertainties
described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment
in our securities. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us. If any
of these risks materialize, our business, results of operations or financial condition could suffer, and the price of our ordinary shares
could decline substantially.
Summary Risk Factors
Investing in our ordinary
shares involves a high degree of risk, as fully described below. The principal factors and uncertainties that make investing in our ordinary
shares risky, include, among others:
Risks Related to Our Financial Position and
Capital Requirements
● We have generally incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
● We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain additional capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
● Management has concluded that there is substantial doubt about our ability to continue as a going concern, and the report of our independent registered public accounting firm contains an explanatory paragraph as to our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Risks Related to Commercialization of Our Products
● The commercial success of any current or future product, if approved, will depend upon the degree of market acceptance by physicians, patients, third-party payors, pharma companies and others in the medical community.
● We have only limited clinical data to support sales of our products, which may make physicians, patients, third-party payors, and others in the medical community reluctant to accept or purchase our products.
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● We have low scale experience in producing our rhCollagen, and if we are unable to manufacture our rhCollagen in high commercial quantities successfully and consistently to meet demand, our growth will be limited.
● If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any of our products that obtain regulatory approval, we may be unable to generate material revenue.
● We face competition and rapid technological change and the possibility that our competitors may develop therapies or products that are more advanced or effective than ours, which could impair our ability to successfully commercialize our products.
Risks Related to the Clinical Development and
Regulatory Approval of the Products
● We currently depend heavily on the future success of our medical aesthetics, 3D bioprinting product candidates and bioink products. Any failure to successfully develop, obtain regulatory approval for, and commercialize these products, independently or in cooperation with a third-party collaborator, or the experience of significant delays in doing so, would compromise our ability to generate revenue and become profitable.
● Our products are based on novel technology, which makes it difficult to predict the time and cost of product development and potential regulatory approval.
● We or our strategic partners may find it difficult to enroll patients in future clinical trials, and patients could discontinue their participation in our future clinical trials, which could delay or prevent clinical trials of our products and product candidates.
● Clinical trials conducted by us or by our strategic partners may not be successful or may be delayed.
● Even if we or our strategic partners obtain regulatory approval for a product, our products will remain subject to regulatory scrutiny.
● In addition to the level of commercial success of our products, our future prospects are also dependent on our ability to successfully develop a pipeline of additional products, and we may not be successful in our efforts in using our platform technologies to identify or discover additional products.
Risks Related to Our Reliance on Third Parties
● We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize our rhCollagen based products in 3D bioprinting and medical aesthetics, including 3D-bioprinted breast implants and bioinks.
● We expect to depend upon third-party collaborators, distributors and resellers for a significant portion of our sales.
● We expect to rely on third parties to conduct some aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and these third parties may not perform satisfactorily.
Risks Related to Our Business Operations
● Our future success depends on our ability to retain senior management, consultants, and advisors and to attract, retain, and motivate qualified personnel.
● Our collaborations with outside scientists and consultants may be subject to restriction and change.
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● Our business and operations would suffer in the event of computer system failures or security breaches.
● Our development and production of rhCollagen relies upon the continued availability of tobacco plants, and any interruption in availability or supply of tobacco plants may delay production and adversely affect commercial utilization of our rhCollagen-based products.
● If our existing rhCollagen production sites or any new facilities are damaged or destroyed, or production at these facilities is otherwise interrupted, our business and prospects would be negatively affected.
● If we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse impact on the success of our business.
● We may use our financial and human resources to pursue a particular research program or product and fail to capitalize on programs or products that may be more profitable or for which there is a greater likelihood of success.
● Our business, operating results and growth rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated liquidity risk.
● Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
Risks Related to Our Intellectual Property
● We have an extensive worldwide patent portfolio. The cost of maintaining our worldwide patent protection is high and requires continuous review and compliance with procedural and documentary requirements. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world.
● If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to obtain exclusivity for our products or prevent others from developing similar competitive products.
Risks Related to the Ownership of our Ordinary
Shares
● The market price of our ordinary shares may be highly volatile.
● We may not be able to maintain our listing on the Nasdaq Capital Market.
● Our principal shareholders, management and directors beneficially own a significant percentage of our ordinary shares and will be able to exert significant influence over matters subject to shareholder approval.
● If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ordinary shares.
● Sales of a substantial number of our ordinary shares in the public market could cause our share price to fall.
Risks Related to Our Operations in Israel
● We are a “foreign private issuer” and intend to follow certain home country corporate governance practices, and our shareholders may not have the same protections afforded to shareholders of companies that are subject to all corporate governance requirements under the listing rules of the Nasdaq Stock Market LLC, or the Nasdaq Listing Rules.
● The security situation in the State of Israel, where the majority of our senior management and our research and development facilities are located, may adversely impact our results of operations.
3
Risks Related to Our Financial Position and
Capital Requirements
We have generally incurred significant losses
since our inception and anticipate that we will continue to incur losses for the foreseeable future.
We are a regenerative and
aesthetic medicine company focused on medical aesthetics and 3D bioprinting of tissues and organs. Except for the year ended December
31, 2021, we have incurred losses in each year since our inception in 2004. We incurred a total comprehensive loss of $11.5 million for
the year ended December 31, 2025 and a total comprehensive loss of $16.6 million for the year ended December 31, 2024. As of December
31, 2025, we had an accumulated deficit of $124.8 million.
We have devoted most of our
financial resources to research and development, including our clinical and preclinical development activities. In recent years, we have
financed our operations primarily with revenues from sales of our products, licensing of our technology, development milestone achievement
payments from strategic partners as well as from net proceeds from private and public offerings. Prior to this, we financed our operations
primarily from public offerings of our securities on the TASE, participation of business partners in product development collaborations,
and government grants from the Israeli Innovation Authority, or the IIA. The amount of our future net losses will depend, in part, on
the success of our collaborations and on the rate of our future expenditures. If and when we or our strategic partners will obtain regulatory
approval to market products, our future revenues will depend upon the size of any markets in which the products have received approval,
and the ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for the products
in those markets.
We expect to continue to incur
significant expenses and operating losses in the foreseeable future. We anticipate that our expenses will increase substantially if and
as we:
● continue our research and preclinical and clinical development of our products and product candidates;
● initiate additional preclinical, clinical, or other studies for our products and product candidates;
● seek marketing approvals for any of our products and product candidates that successfully complete clinical trials;
● further develop and expand the manufacturing process for our products and product candidates;
● establish a sales, marketing, and distribution infrastructure to commercialize our products and product candidates for which we may obtain marketing approval;
● seek to identify and validate additional products and product candidates;
● maintain, protect, and expand our intellectual property portfolio;
● attract and retain skilled personnel;
● create additional infrastructure to support our operations as a public company; and
● experience any delays or encounter issues with any of the above.
The net losses we incur may
fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations
may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the
expectations of securities analysts or investors, which could cause our share price to decline.
4
We will need to raise additional funding,
which may not be available on acceptable terms, or at all. Failure to obtain additional capital when needed may force us to delay, limit,
or terminate our product development efforts or other operations.
We are conducting preclinical
development of our products and product candidates, and we intend to continue advancing their development. Developing medical products
is expensive, and we expect our research and development expenses to continue to be a material part of our expenses and may increase substantially
in connection with our ongoing activities, particularly as we or our strategic partners advance our products or product candidates in
clinical trials.
As of December 31, 2025, our
cash and cash equivalents were $5.6 million. Although in the past we have received payments under the AbbVie Development Agreement, including
$2 million in February 2025, $10 million in June 2023 and $14 million in February 2021, there can be no assurance that we will receive
any further payments under the AbbVie Development Agreement. Except for the year ended December 31, 2021, in which we incurred a total
comprehensive income of $0.2 million, we had recurring losses from operations and negative operating cash flows since our inception. We
recently implemented a cost cutting and workforce reduction plan and will need to raise additional capital to support our operations and
product development activities.
Our operating plan may change
as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private
equity or debt financings, third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances,
and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future
operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Conversely,
we may need to seek additional funds at times when the market conditions for doing so are less favorable. Any debt financing obtained
by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities and could require us to use a portion of our cash flows to make debt service payments,
which could place us at a competitive disadvantage relative to our less leveraged peers. If we raise additional funds through further
issuances of equity, convertible debt securities, or other securities convertible into equity, our existing stockholders could suffer
significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences,
and privileges senior to those of holders of our common stock, including registration rights. If we are unable to obtain adequate financing
or financing on terms satisfactory to us when we require it, our ability to support our business and to respond to business challenges
could be significantly limited, and our business, operating results, financial condition, and prospects could be harmed.
Any additional fundraising
efforts may divert our management from their day-to-day activities, which may compromise our ability to develop and commercialize our
products and product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on
terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders,
and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price
of our ordinary shares to decline. The sale of additional equity or convertible securities would dilute all of our shareholders. The incurrence
of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants,
such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property
rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to
seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we
may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us.
5
If additional capital is not
available to us when needed or on acceptable terms, we may be required to significantly curtail, delay, or discontinue one or more of
our research or development programs or the commercialization of any products or product candidates, and we may be unable to expand our
operations or otherwise capitalize on our business opportunities, as desired.
Management has concluded that there is substantial
doubt about our ability to continue as a going concern, and the report of our independent registered public accounting firm contains an
explanatory paragraph as to our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable
terms or at all.
Based on the Company’s
cash position as of March 15, 2026, alongside projected continued negative cash flows from operating activities, substantial doubt exists
regarding our ability to remain as a going concern. Accordingly, the report of Kost Forer Gabbay and Kasierer, a member firms of Ernst
and Young Global, our independent registered public accounting firm, with respect to our financial statements for the year ended December
31, 2025, includes an explanatory paragraph as to our inability to continue as a going concern. The doubts regarding our ability to continue
as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all.
The IIA grants we have received in the past
for research and development expenditures may restrict our ability to manufacture products and transfer IIA funded know-how outside of
Israel and require us to satisfy specified conditions.
Our research and development
efforts have been financed, in part, through the grants that we have received in the past from the IIA. We, therefore, must comply with
the requirements of, and are subject to certain restrictions under, the Israeli Encouragement of Research, Development and Technological
Innovation in the Industry Law of 1984, or the Innovation Law and the IIA’s rules and guidelines with respect to the use of intellectual
property and other know-how resulting, directly or indirectly, in whole or in part, in accordance with or as a result of, research and
development activities made according to a research and development program funded by the IIA, or the Approved Program, as well as any
rights associated with such know-how (including later developments, which derive from, are based on, or constitute improvements or modifications
of such know-how), or the IIA Funded Know-How. These restrictions involve obligations relating to royalty payments, reporting and local
manufacturing, and limitations on the transfer of IIA Funded Know-How and the licensing of IIA Funded Know-How for research and development,
or R&D, purposes.
Such restrictions may impair
our ability to perform or outsource manufacturing rights outside of Israel, granting licenses for R&D purposes or otherwise transfer
outside of Israel our IIA Funded Know-How. These restrictions may also require us to obtain the approval of the IIA for certain actions
and transactions and pay additional royalties and other amounts to the IIA. We cannot be certain that any approval of the IIA will be
obtained on terms that are acceptable to us, or at all. Furthermore, the consideration available to our shareholders in a transaction
involving the transfer outside of Israel of IIA Funded Know-How (such as a merger or similar transaction) or a transaction involving the
licensing of IIA Funded Know-How for R&D purposes outside of Israel, may be reduced by any amounts that we are required to pay to
the IIA.
If we fail to comply with
the requirements of the Innovation Law, we may be subject to financial sanctions, to mandatory repayment of grants received by us (together
with interest and penalties), as well as expose us to criminal proceedings. For additional information regarding the Innovation Law and
the IIA, see “Item 4.B. Business Overview-Other Approvals-The Innovation Law and the IIA.”
Until 2019 we have applied
and received grants from the IIA as part of the research and development programs for our rhCollagen technology and our products. These
IIA grants are subject to repayment through future royalty payments on any products resulting from these research and development programs,
including VergenixSTR and VergenixFG. Under the IIA’s rules and guidelines royalties of 3% on the income deriving from products
and from related know-how and services developed in whole or in part, directly or indirectly, under the Approved Programs are payable
to the IIA, up to the total amount of grants received, linked to the U.S. dollar plus interest at an annual rate based on SOFR. The total
gross amount of grants actually received by us from the IIA as of December 31, 2025 totaled approximately $10.1 million. As of December
31, 2025, we paid royalties to the IIA in the total amount of $3.2 million.
6
We may not be able to correctly estimate
or control our future operating expenses, which could lead to cash shortfalls.
Our operating expenses may
fluctuate significantly in the future for various reasons, many of which are outside of our control. These reasons may include:
● the time, resources, and expenses required to conduct pre-clinical and clinical trials of, seek regulatory approvals for, manufacture, market, and sell our current products and any additional products we may develop;
● the time, resources, and expenses required to research and develop additional indications of our current products;
● the costs of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent-related costs, including litigation costs or the results of such litigation;
● any product liability or other lawsuits related to our products and the costs associated with defending them or the results of such lawsuits;
● the costs to attract and retain personnel with the skills required for effective operations; and
● the costs associated with being a public company in the United States.
It is difficult to forecast our future performance,
which may cause our financial results to fluctuate unpredictably.
Because we do not yet have
an established commercial operating history, and because the market for our products and product candidates may rapidly evolve, it is
hard for us to predict our future performance. A number of factors, many of which are outside of our control, may contribute to fluctuations
in our financial results assuming that we receive marketing authorizations and begin selling our products. These factors may include variations
in:
● market demand for, and acceptance of, our products;
● our ability to obtain or maintain regulatory approvals;
● our sales and marketing operations, or the effectiveness of these operations;
● performance of our third-party contractors;
● the availability of procedures or products that compete with our products;
● media coverage of our technologies, the procedures or products of our competitors or our industry; and
● natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency), boycotts, adoption or expansion of government trade restrictions, and other business restrictions).
Risks Related to Commercialization of Our Products
The commercial success of any current or
future product, if approved, will depend upon the degree of market acceptance by physicians, patients, third-party payors, pharma and
medical device companies and others in the medical community.
Even if we or our strategic
partners obtain the requisite regulatory approvals, the commercial success of our products will depend in part on physicians, patients,
third party payors, pharma and medical device companies and others in the medical community accepting our products as medically useful,
cost-effective, and safe. Any product that we or our strategic partners bring to the market may not gain market acceptance by physicians,
patients, third-party payors, and others in the medical community. If these products do not achieve an adequate level of acceptance, we
may not generate significant product revenue and may not become profitable. The degree of market acceptance of these products, if approved
for commercial sale, will depend on a number of factors, including:
● the cost, safety, efficacy, and convenience of our products in relation to alternative treatments and products;
● the ability of third parties to enter into relationships with us without violating their existing agreements;
7
● the effectiveness of our sales and marketing efforts;
● the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
● the prevalence and severity of any side effects resulting from the procedure by which our products are administered;
● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
● the strength of marketing and distribution support for, and timing of market introduction of, competing products;
● publicity concerning our products or competing products and treatments; and
● sufficient third-party insurance coverage or reimbursement.
Even if a potential product
displays a favorable safety and efficacy profile in clinical trials, market acceptance of the product will not be known until after it
is launched. Our efforts or those of our strategic partners to educate the medical community and third-party payors on the benefits of
the products may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources
than are required by conventional technologies.
We have only limited clinical data to support
sales of our products, which may make physicians, patients, third-party payors, and others in the medical community reluctant to accept
or purchase our products.
Physicians, patients, third
party payors, and others in the medical community will only accept or purchase our products if they believe them to be safe and effective,
with advantages over competing products or procedures. To date, we have collected only limited clinical data with which to assess the
clinical and economic value of VergenixFG and VergenixSTR. The collection of clinical and economic data and the process of generating
peer review publications in support of our product and procedure is an ongoing focus for us. If future publications of clinical studies
indicate that procedures using our products, or other products that contains our rhCollagen, are less safe or less effective than competing
products or procedures, patients may choose not to undergo our procedure, and physicians or others in the medical community may choose
not to use our products. Furthermore, unsatisfactory patient outcomes or patient injury could cause negative publicity for our products,
particularly in the early phases of product introduction.
We have low scale experience in producing
our rhCollagen, and if we are unable to manufacture our rhCollagen in high commercial quantities successfully and consistently to meet
demand, our growth will be limited.
We have experience manufacturing
limited quantities of rhCollagen, the recombinant human type I collagen used for development with collaborators and in our products and
product candidates. Our manufacturing capabilities will need to be further improved to meet the standard requirements for future clinical
studies and for commercialization of our products and product candidates. To manufacture our rhCollagen in quantities that we believe
will be sufficient to produce our end products and meet anticipated market demand, we will need to increase manufacturing capacity or
engage third party manufacturers, which will involve significant challenges. In addition, the development of commercial-scale, regulation-compliant
manufacturing capabilities will require us to invest substantial additional funds and our efforts to establish these capabilities may
not meet our requirements as to scale-up, yield, cost, potency, or quality in compliance with applicable regulatory standards. Even an
experienced third-party manufacturer may encounter difficulties in production, including:
● costs and challenges associated with scale-up and attaining sufficient manufacturing yields;
● supply chain issues, including the timely availability and shelf-life requirements of raw materials and supplies;
● quality control and assurance;
● shortages of qualified personnel and capital required to manufacture large quantities of product;
8
● compliance with regulatory requirements that vary in each country where a product might be sold;
● capacity limitations and scheduling availability in contracted facilities; and
● natural disasters or war and terrorism that affect facilities and possibly limit production.
The regulatory authorities
also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors.
If any such inspection or audit identifies a failure to comply with applicable regulations or our product specifications or if a violation
of applicable regulations, including a failure to comply with the product specifications, occurs independent of such an inspection or
audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party
to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent
closure of a facility.
If we or any third-party manufacturer
fails to maintain regulatory compliance, the U.S. Food and Drug Administration, or the FDA, or the European authorities can impose regulatory
sanctions including, among other things, refusal to approve a pending application for a new product or revocation of a pre-existing approval.
If there is a disruption to
our internal manufacturing operations, we will have no other means of production for the components and products from such operations
until we restore the affected facilities or develop alternative manufacturing facilities, which would delay our or our strategic partners’
clinical trials or cause us to be unable to meet commercial demand for our products. In such case, we may need to arrange for third-party
manufacturing of our components and products, which would be expensive and time consuming, assuming we can identify an appropriate third
party manufacturer. Additionally, any damage to or destruction of our facilities or equipment may significantly impair our ability to
manufacture our components and products on a timely basis. During early 2024, we had a mechanical failure at our Yessod Hama’ala
facility that occurred during the production process resulting in the temporary shutdown of our manufacturing operations. In addition,
during 2024, we took precautionary measures to close our facility in Yessod Hama’ala for an extended period, due to the war and
its proximity to the border with Lebanon. See “-Risks Related to Our Operations in Israel - Potential political, economic, and military
instability in the State of Israel, where the majority of our senior management and our research and development facilities are located,
may adversely impact our results of operations.”
If we are unable to produce
our products in sufficient quantities to meet anticipated customer demand, our revenues, business, and financial prospects would be harmed.
The lack of experience we have in producing commercial quantities of our components and products may also result in quality issues and
product recalls. Any product recall could be expensive and generate negative publicity, which could impair our ability to market our products
and further affect our results of operations. Manufacturing delays related to quality control could negatively impact our ability to bring
our technologies to market, harm our reputation, and decrease our revenues.
Any delay or interruption
in the supply of our products could have a material adverse effect on our business and operations.
If we are unable to establish sales and
marketing capabilities or enter into agreements with third parties to market and sell any of our products, we may be unable to generate
material revenue.
We have limited experience
in selling and marketing our products or any other products. To successfully commercialize our products, we will need to develop these
capabilities, either on our own or with others. We are seeking to enter commercial alliances with third-party collaborators and distributors
to utilize their development, marketing and distribution capabilities, but we may be unable to do so on favorable terms, if at all. If
any future collaboration or distribution partners do not commit sufficient resources to commercialize our future products, and if we are
unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain
our business. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without
an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against
these more established companies or successfully commercialize any of our products.
9
We face competition and rapid technological
change and the possibility that our competitors may develop therapies or products that are more advanced or effective than ours, which
could impair our ability to successfully commercialize our products.
We operate in the regenerative
and aesthetic medicine fields, which are rapidly changing. We have competitors both in the United States and internationally, including
major multinational pharmaceutical companies, biotechnology companies, medical technology companies, and universities and other research
institutions.
Many of our potential competitors
have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing
and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of technologies
and greater availability of capital for investment in these industries. Our potential competitors may succeed in developing, acquiring,
or licensing on an exclusive basis, products that are more effective or less costly than any products that we may develop, or achieve
earlier patent protection, regulatory approval, product commercialization, and market penetration than us. Additionally, technologies
developed by others may render our potential products uneconomical or obsolete, and we may not be successful in marketing our products
against competitors.
We are not aware of any competitors
that produce collagen from plants or that produce recombinant type I human collagen.
A variety of risks associated with international
operations could harm our business.
Our intention is to market
our products on a regional or worldwide basis, either alone or in collaboration with third parties. In addition, we may conduct development
activities in various jurisdictions throughout the world. We expect that we will be subject to additional risks related to engaging in
international operations, including:
● different regulatory requirements for product approval in foreign countries;
● reduced protection for intellectual property rights;
● unexpected changes in tariffs, trade barriers, and regulatory requirements;
● economic weakness, including inflation, or political instability in particular foreign economies and markets;
● compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad;
● foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
● workforce uncertainty in countries where labor unrest is more common than in the United States and Israel;
● production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, fires, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency).
10
The insurance coverage and reimbursement
status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for any of our products
could limit our ability to market those products and compromise our ability to generate revenue.
The availability of reimbursement
by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our products will
depend substantially, both in Europe and in the United States, on the extent to which the costs of our products will be paid by health
maintenance organizations, managed care, pharmacy benefit managers, and similar healthcare management organizations, or reimbursed by
government health administration authorities, private health coverage insurers, and other third-party payors. If reimbursement is not
available, or is available only to limited levels, we may not be able to successfully commercialize our products. Even if we obtain coverage
for our products, third-party payors may not establish adequate reimbursement amounts, which may reduce the demand for, or the price of,
our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of
our products.
Furthermore, publication of
discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of
publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at
unacceptable levels, we or our partner may elect not to commercialize our products in such countries, and our business and financial condition
could be adversely affected.
Promotion of off-label uses of our products
by physicians could adversely affect our business.
Any regulatory approval of
our products is limited to those specific indications for which our products have been deemed safe and effective by the regulatory authorities.
In addition, any new indication for an approved product also requires regulatory approval. If we produce an approved product, we will
rely on physicians to use and administer it as we have directed and for the indications described on the labeling. It is not, however,
uncommon for physicians to use in unapproved, or “off-label,” uses or in a manner that is inconsistent with the manufacturer’s
directions. To the extent such off-label uses and departures from our administration directions become pervasive and produce results such
as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer. In addition, off-label uses
may cause a decline in our revenue or potential revenue, to the extent that there is a difference between the prices of our product for
different indications.
Furthermore, while physicians
may choose to use our products for off-label uses, our ability to promote the products is limited to those indications that are specifically
approved by the regulators. Although regulatory authorities generally do not regulate the behavior of physicians, they do restrict communications
by companies with respect to off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may
be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow regulation authorities’
rules and guidelines relating to promotion and advertising can result in the regulation authorities’ refusal to approve a product,
the suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions,
injunctions, or criminal prosecution.
Risks Related to the Clinical Development and
Regulatory Approval of Our Products
We currently depend heavily on the future
success of our medical aesthetics, 3D-bioprinting product candidates and our bioink products. Any failure to successfully develop, obtain
regulatory approval for, and commercialize these products, independently or in cooperation with a third-party collaborator, or the experience
of significant delays in doing so, would compromise our ability to generate revenue and become profitable.
We have invested a significant
portion of our efforts and financial resources in the development of rhCollagen, medical aesthetics and 3D-bioprinting product candidates,
bioinks and our Vergenix line of products. We currently depend heavily on the future success of our medical aesthetics, 3D-bioprinting
product candidates and our bioink products. Our ability to generate revenues from our products and product candidates depends heavily
on the successful development, approval, and commercialization of our products, which, in turn, depend on several factors, including the
following:
● our ability to continue and support our rhCollagen platform technology and programs;
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● our ability to establish and maintain strategic partnerships, including the AbbVie Development Agreement;
● our or our strategic partners successfully initiating and completing preclinical, clinical and other studies required for our products and product candidates;
● demonstrating and maintaining the safety and efficacy of our products at a sufficient level of statistical or clinical significance and otherwise obtaining marketing approvals from regulatory authorities;
● establishing successful sales and marketing arrangements for our products; and
● the availability of coverage and reimbursement by healthcare payors for our products in the jurisdictions where they may be approved.
Our products are based on novel technology,
which makes it difficult to predict the time and cost of product development and potential regulatory approval.
We have concentrated our product
research and development efforts on our novel rhCollagen technology. The FDA has approved very few plant-expressed products. We may experience
development challenges in the future related to our technology, which could cause significant delays or unanticipated costs, and we may
not be able to solve such development challenges. We may also experience delays in developing a sustainable, reproducible, and scalable
manufacturing process or transferring that process to commercial partners, if we decide to do so.
In addition, the clinical
trial requirements of European regulatory authorities, the FDA, and other regulatory authorities and the criteria these regulators use
to determine the safety and efficacy of a product vary substantially according to the type, complexity, novelty, and intended use and
market of the potential products. The regulatory approval process for novel products such as ours can be more expensive and take longer
than for other, better known or extensively studied products. Our products may also be designated by the FDA or other regulatory authorities
as combination products, which include: (1) a product comprised of two or more regulated components, e.g., drug/device, biologic/device,
drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity;
(2) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device
and biological products, or biological and drug products; (3) a drug, device, or biological product packaged separately that according
to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological
product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the
labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of
administration, or significant change in dose; or (4) any investigational drug, device, or biological product packaged separately that
according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product
where both are required to achieve the intended use, indication, or effect. Combination products containing a biologic/device then may
be regulated as a biologic product, resulting in a longer regulatory approval process than the regulatory approval process for a medical
device alone. Approvals by any regulatory authorities may not be indicative of what the FDA or other regulatory agencies may require for
approval, and vice versa.
The term “combination
product” does not exist as an official legal term in European law. Neither the Medical Devices Regulation (MDR) nor Directive 2001/83/EC
on medicinal products for human use explicitly refer to the term. Nevertheless, the MDR establishes a clearly structured regulatory principle
for products consisting of an active substance and a medical device. Article 1(8) of the MDR expressly stipulates that products containing
a substance which, taken on its own, would be a medicinal product within the meaning of Directive 2001/83/EC, shall be assessed and authorized
as a medical device if that substance merely performs a supporting function within the product. If, on the other hand, this substance
has the main function, the entire product is assessed and authorized in accordance with pharmaceutical law, i.e., Directive 2001/83/EC
or Regulation (EC) No. 726/2004; At the same time, the requirements of the MDR for the medical device component must still be met, in
particular the essential safety and performance requirements set out in Annex I. This system shows that the MDR takes the principle of
combined products into account by clearly dividing regulatory responsibility based on the main function of the medicinal component. Further,
such products in Europe are always assigned to a primary regulatory regime: either the MDR applies if the medical device function predominates,
or pharmaceutical law applies if the active ingredient determines the main purpose. There is no parallel regulation of equal rank by both
legal acts.
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Regulatory requirements governing
medical devices and other products for medical use have changed frequently and may continue to change in the future. Also, before a clinical
trial can begin, an institutional review board, or IRB, at each institution at which a clinical trial will be performed must review the
proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of comparable products
conducted by others may cause European regulatory authorities, the FDA, or other regulatory authorities to change the requirements for
approval of any of our products.
These regulatory agencies
and additional or new requirements may lengthen the regulatory review process, require us to perform additional studies, increase our
development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our
products, or lead to significant approval and post-approval limitations or restrictions. As we advance our products, we will be required
to consult with these regulatory authorities, and comply with applicable requirements. If we fail to do so, we may be required to delay
or discontinue development of our products. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary
to bring a potential product to market could impair our ability to generate product revenue and to become profitable.
We or our strategic partners may find it
difficult to enroll patients in clinical trials, and patients could discontinue their participation in clinical trials, which could delay
or prevent clinical trials of our products and product candidates.
Identifying and qualifying
patients to participate in clinical trials of our products and product candidates is critical to our success. The timing of clinical trials
depends on the ability to recruit patients to participate in our or our strategic partners’ clinical trials. We or our strategic
partners may experience delays in patient enrollment in the future. If patients are unwilling to participate in clinical trials because
of negative publicity from adverse events in the biotechnology, pharmaceutical or medical technology industries, or for other reasons,
including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials, and obtaining
regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product
development, delays in testing the effectiveness of our technology, or termination of the clinical trials altogether.
We or our strategic partners
may not be able to identify, recruit, and enroll a sufficient number of patients, or those with required or desired characteristics to
achieve diversity in a trial, to complete clinical trials in a timely manner, or at all. Patient enrollment is affected by factors including:
● design of the trial protocol;
● size of the patient population;
● eligibility criteria for the trial in question;
● severity of the disease/wounds under investigation;
● perceived risks and anticipated benefits of the product under study;
● proximity and availability of clinical trial sites for prospective patients;
● availability of competing therapies, products, and clinical trials;
● efforts to facilitate timely enrollment in clinical trials;
● patient referral practices of physicians; and
● ability to monitor patients adequately during and after treatment.
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While we are currently not
conducting any clinical trials, the dermal and soft tissue filler product candidate for the medical aesthetics market is in the clinical
phase, and the trials are designed, planned, and executed by AbbVie, in accordance with the AbbVie Development Agreement. We and/or our
strategic partners may not be able to initiate or continue future clinical trials if a sufficient number of eligible patients to participate
in the clinical trials required by European regulatory authorities, the FDA, or other regulatory authorities cannot be enrolled.
In
addition, patients enrolled in ours, or our strategic partners’ clinical trials may discontinue their participation at any time
during the trial as a result of a number of factors, including withdrawing their consent or experiencing adverse clinical events, which
may or may not be related to our products under evaluation. The discontinuation of patients in any one of the trials may cause delay or
abandonment of such clinical trial, or cause the results from that trial not to be positive or sufficient to support a filing for regulatory
approval of the applicable product.
Clinical trials conducted by us or our strategic
partners may not be successful or may be delayed.
Before obtaining marketing
approval from regulatory authorities for the sale of our products or product candidates or any future product, we or our strategic partners
must conduct clinical trials to demonstrate the safety in humans for European CE marking certification, and the safety and efficacy in
humans for other regulatory authorities such as the United States. While we are currently not conducting any clinical trials, the dermal
and soft tissue filler product candidate for the medical aesthetics market is in the clinical phase, and the trials are designed, planned,
and executed by AbbVie. AbbVie is conducting a review of interim results from the first cohort of patients enrolled
under the trials initiated in 2023 and next steps for the program are to be determined by AbbVie upon concluding their assessment. In
addition, we expect to rely on a number of contract research organizations, or CROs, and other third parties, to assist in undertaking,
managing, monitoring, and executing future clinical trials. Clinical trials are expensive, time consuming, and uncertain as to outcome.
We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. We or our strategic partners
may not receive FDA regulatory approval for the conduct of any particular clinical trial in the United States or regulatory approval for
conduct of such clinical trial in other countries. A failure of one or more clinical trials can occur at any stage of testing. Events
that may prevent successful or timely completion of clinical development include:
● delays in reaching a consensus with regulatory agencies on trial design;
● delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
● delays in obtaining required IRB approval at each clinical trial site;
● delays in recruiting suitable patients to participate in our clinical trials;
● failure by our strategic partners, CROs, other third parties or us to perform in accordance with clinical trial requirements or the FDA’s good clinical practices, or GCP, or applicable regulatory requirements in other countries;
● delays in the testing, validation, manufacturing, and delivery of our products to the clinical sites;
● delays in having patients complete participation in a trial or return for post-treatment follow-up;
● clinical trial sites or patients dropping out of a trial;
● occurrence of serious adverse events associated with the products that are viewed to outweigh their potential benefits;
● holds on clinical trials by the FDA or other regulatory bodies; or
● changes in regulatory requirements and guidance that require amending or submitting new clinical trial protocols.
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Any inability to successfully
complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from product
sales, milestone payments or royalties. In addition, if we or our strategic partners make manufacturing or design changes to our products
or product candidates, additional studies may be required to bridge our modified products to earlier versions. Clinical trial delays could
also shorten any periods during which we may have the exclusive right to commercialize our products or product candidates or allow our
competitors to bring products to market before we do, which could impair our ability to successfully commercialize our products.
If the results of clinical
trials are inconclusive or if there are safety concerns or adverse events associated with our products or product candidates, we or our
strategic partners may:
● fail to obtain, or be delayed in obtaining, marketing approval for our products or product candidates;
● obtain approval for indications or patient populations that are not as broad as intended or desired;
● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
● be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
● have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution;
● be subject to the addition of labeling statements, such as warnings or contraindications;
● terminate any ongoing collaboration agreement;
● be sued; or
● experience damage to our reputation.
Any of these events could
prevent us from achieving or maintaining market acceptance of our products or product candidates and impair our ability to commercialize
our products.
Success in early clinical trials may not
be indicative of results obtained in later trials.
There is a high failure rate
for medical devices, drugs, and biologics proceeding through clinical trials. A number of companies in the pharmaceutical, biotechnology,
and medical technology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results
in earlier stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which
may delay, limit, or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many
factors, including the novelty of the product and changes in regulatory policy during the period of product development.
Even if we or our strategic partners complete
the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize
a product, or the approval may be for a more narrow indication than we expect.
We or our strategic partners
cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product. Even if our products
or product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete their review processes
in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or
other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based
upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during
the period of product development, clinical trials, and the review process. Regulatory agencies also may approve a treatment for fewer
or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory
agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our treatment.
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Side effects may occur following treatment
with our products or product candidates which could make it more difficult for our products to receive regulatory approval.
Treatment with our products
or product candidates may cause side effects or other adverse events. In addition, since our products may be administered in combination
with other therapies, patients or clinical trial participants may experience side effects or other adverse events that are unrelated to
our product, but may still impact the success of our clinical trials. Additionally, our products or product candidates could potentially
cause other adverse events that have not yet been predicted. The experience of side effects and adverse events in our clinical trials
could make it more difficult to achieve regulatory approval of our products or, if approved, could negatively impact the market acceptance
of such products.
Even if we or a strategic partner obtains
regulatory approval for a product, our products will remain subject to regulatory scrutiny.
Even if we or a strategic
partner obtain regulatory approval in a jurisdiction, the regulatory authority may still impose significant restrictions on the indicated
uses or marketing of our products, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
Advertising and promotional materials must comply with FDA, Federal Trade Commission, or FTC, and European and other countries’
regulatory requirements and are subject to review by the FDA, FTC or other governmental authorities, in addition to other potentially
applicable federal and state laws.
The laws that may affect our
operations in the United States include:
● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
● federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals, or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
● HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information;
● the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and
● foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or the FCPA, and anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.
The scope of these laws and
our lack of experience in establishing the compliance programs necessary to comply with this complex and evolving regulatory environment
increase the risks that we may violate the applicable laws and regulations.
In addition, product manufacturers
and their facilities are subject to continual review and periodic inspections by the European regulatory authorities, the FDA, and other
regulatory authorities for compliance with cGMP or any applicable European or other governmental regulations. If we or a regulatory agency
discover previously unknown problems with a product such as adverse events of unanticipated severity or frequency or problems with the
facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing
facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
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If we fail to comply with
applicable regulatory requirements following approval of any of our products, one or more regulatory authorities could:
● issue a warning letter asserting that we are in violation of the law;
● seek an injunction or impose civil or criminal penalties or monetary fines;
● suspend or withdraw regulatory approval;
● suspend any ongoing clinical trials;
● seek a voluntary or mandatory recall;
● refuse to approve pending applications or supplements to approved applications that we submit;
● seize our product; or
● refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation
of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity
and potentially lead to private litigation. The occurrence of any event or penalty described above may inhibit our ability to commercialize
our products and generate revenues.
We have only limited experience in regulatory
affairs and intend to rely on consultants and other third parties for regulatory matters, which may affect our ability or the time we
require to obtain necessary regulatory approvals.
We have limited experience
in preparing and filing the applications necessary to gain regulatory approvals for our products and product candidates to the extent
that we decide to make such applications ourselves. Moreover, the products that are likely to result from our development programs are
based on new technologies that have not been extensively used in humans. The regulatory requirements governing these types of products
may be less well defined or more rigorous than for conventional products. As a result, we may experience a longer regulatory review process
in connection with obtaining regulatory approvals, if any, of products that we develop. We intend to rely on independent consultants for
regulatory services and compliance and product development and filings in Europe, the United States and elsewhere. Any failure by our
consultants to properly advise us regarding, or properly perform tasks related to, regulatory submission and other requirements could
compromise our ability to develop and obtain regulatory approval of our products.
We and our strategic partners are subject
to stringent regulation and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our and our strategic partners’
products, development activities, and manufacturing processes are subject to extensive and rigorous regulation by numerous government
agencies, including European regulatory authorities, the FDA, and other regulatory authorities. To varying degrees, each of these agencies
monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing,
and distribution of our products. The process of obtaining marketing approval or clearance in Europe, the United States, and other countries
for new products or enhancements or modifications to existing products could:
● take a significant amount of time;
● require the expenditure of substantial resources;
● involve rigorous and expensive preclinical and clinical testing, as well as increased post-market surveillance;
● involve modifications, repairs, or replacements of our products; and
● result in limitations on the indicated uses of our products.
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We cannot be certain that
we, or our strategic partners, will receive required approval or clearance from European regulatory authorities, the FDA, or other regulatory
authorities for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for
significant new products or modifications to existing products on a timely basis could have a material adverse effect on our financial
condition and results of operations.
Both before and after a product
is commercially released, we and our strategic partners have ongoing responsibilities under FDA regulations. For example, we are required
to comply with the FDA’s Quality System Regulation, or QSR, which are the good manufacturing requirements that the FDA applies to
medical devices, and which mandate that manufacturers adhere to certain requirements pertaining to, among other things, development of
our products, validation of manufacturing processes, controls for purchasing product components, and documentation practices. As another
example, FDA regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a product
may have caused or contributed to a death or serious injury, or that a malfunction occurred which would be likely to cause or contribute
to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is
monitored rigorously through, among other things, periodic inspections by the FDA, which may result in observations on Form 483 that require
corrective action, and in some cases warning letters, and potentially stopping the manufacturing until issues are remedied. If the FDA
were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose
an unreasonable health risk, the Company may withdraw or recall the product or the FDA could ban such products, detain or seize such products,
order a recall, repair, replacement, or refund of such products, or require us to notify health professionals and others that the devices
present unreasonable risks of substantial harm to the public health.
The FDA has been increasing
its scrutiny of the medical device, drugs, and biologics industries, and regulatory agencies are expected to continue to scrutinize the
industry closely with inspections, with possible enforcement actions by the FDA or other agencies. Additionally, the FDA may restrict
manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical
products, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the
Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing,
and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could
have a material adverse effect on our financial condition and results of operations.
The FDA’s regulations
regarding “Current Good Manufacturing Practice Requirements for Combination Products” may apply to some of our products if
they are designated by the FDA as combination products, which are products composed of two or more regulated components, such as a drug
and a medical device. There have been and will be additional costs associated with compliance with the FDA Good Manufacturing Practice
Requirements regulations for Combination Products.
The FDA and the FTC also require
that our sales and marketing efforts, as well as promotions, be consistent with various laws and regulations. Approved medical device
promotions must be consistent with and not contrary to labeling, balanced, truthful and not false or misleading, adequately substantiated
(when required), and include adequate directions for use and any warnings that may be required in the use of the device. In addition to
the requirements applicable to approved products, we may also be subject to enforcement action in connection with any promotion of an
investigational new device. A sponsor or investigator, or any person acting on behalf of a sponsor or investigator, may not represent
in a promotional context that an investigational new device is safe or effective for the purposes for which it is under investigation
or otherwise promote the device.
If the FDA or FTC investigates
our marketing and promotional materials or other communications and finds that any of our investigational devices, or future commercial
products, if any, are being marketed or promoted in violation of the applicable regulatory restrictions, we could be subject to the enforcement
actions listed above, among others. Any enforcement action (or related lawsuit, which could follow such action) brought against us in
connection with alleged violations of applicable device promotion requirements, or prohibitions, could harm our business and our reputation,
as well as the reputation of any devices that may be approved for marketing in the U.S. in the future.
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Governmental regulations have
become increasingly stringent and more common, and we may become subject to even more rigorous regulation by governmental authorities
in various countries in the future. Penalties for a company’s non-compliance with governmental regulation could be severe, including
revocation or suspension of a company’s business license and criminal sanctions.
The impact of healthcare reform and other
changes in the healthcare industry and in healthcare spending is currently unknown, and may adversely affect our business model.
The commercial potential for
our approved products, if any, could be affected by changes in healthcare spending and policy in Europe, in the United States, and in
other countries. We operate in a highly regulated industry and new laws, regulations, or judicial decisions, or new interpretations of
existing laws, regulations, or decisions, related to healthcare availability, the method of delivery, or payment for healthcare products
and services could negatively impact our business, operations, and financial condition.
Since its enactment, there
have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, to modify, repeal or otherwise invalidate
all, or certain provisions of, the Affordable Care Act. The enactment of the Tax Act, on December 14, 2018, removed penalties for not
complying with the Affordable Care Act’s individual mandate to carry health insurance. The regulatory process of implementation
of the Affordable Care Act will remain ongoing and may also increase our regulatory burdens and operating costs. Litigation and legislation
related to the Affordable Care Act are likely to continue, with unpredictable and uncertain results. We cannot predict with certainty
what affect further changes to the Affordable Care Act, and other similar health care laws that are enacted, would have on our business.
In addition, other legislative
changes have been proposed and adopted since the Affordable Care Act was enacted. These changes included aggregate reductions to Medicare
payments to providers of up to two percent per fiscal year, which will remain in effect through 2031 unless additional Congressional action
is taken. It is unclear what impact new quality and payment programs may have on our business, financial condition, results of operations
or cash flows. Individual states in the United States have also become increasingly aggressive in passing legislation and implementing
regulations designed to control product pricing, including price or patient reimbursement constraints, and discounts, and require marketing
cost disclosure and transparency measures. We believe that additional state and federal health care reform measures may be adopted in
the future that could have a material adverse effect on our industry generally and on our customers. Any changes in, or uncertainty with
respect to, future reimbursement rates could impact our customers’ demand for our products, which in turn could have a material
adverse effect on our business, financial condition, results of operations, or cash flows. Further, the federal, state and local governments,
Medicare, Medicaid, managed care organizations, and foreign governments have in the past considered, are currently considering, and may
in the future consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly
affect both private and public reimbursement for healthcare services. For example, the One Big Beautiful Bill Act of 2025, or OBBBA, went
into effect on July 4, 2025, and greatly modified Medicaid reimbursements and enrollment to include work requirements and periodic eligibility
determinations, all of which could reduce Medicaid enrollment. Future significant changes in the healthcare systems in the United States
or other countries, including changes intended to reduce expenditures along with uncertainty about whether and how changes may be implemented,
could have a negative impact on the demand for our products. We are unable to predict with certainty whether other healthcare policies,
including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future; what effect
such policies would have on our business; or the effect ongoing uncertainty about these matters will have on our customers’ purchasing
decisions.
Third-party payors are developing
increasingly sophisticated methods of controlling healthcare costs and increasingly challenging the prices charged for medical products
and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices
of drugs have been a focus in this effort. The United States government, state legislatures and foreign governments have shown significant
interest in implementing cost-containment programs, including price controls and transparency requirements, restrictions on reimbursement
and requirements for substitution of generic products. For example, HHS began implementation in 2025 of “Most Favored Nation”
drug pricing by setting the Medicare price of single-source brand drugs without generic or biosimilar competition to the lowest price
available in wealthy countries with a per capita GDP of at least 60% of that in the United States. Adoption of price controls and
cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit
our revenue and operating results.
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We cannot predict the impact
that such actions against the Affordable Care Act and other laws enacted after its enactment will have on our business, and there is uncertainty
as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the United States, or
the effect of any future legislation or regulation. However, it is possible that such initiatives could have an adverse effect on our
ability to obtain approval and/or successfully commercialize products in the United States in the future. For example, any changes that
reduce, or impede the ability to obtain, reimbursement for the type of products we intend to commercialize in the United States (or our
products more specifically, if approved) or reduce medical procedure volumes could adversely affect our business plan to introduce our
products in the United States.
In addition to the level of commercial success
of our products, our future prospects are also dependent on our ability to successfully develop a pipeline of additional products, and
we may not be successful in our efforts in using our platform technologies to identify or discover additional products.
The success of our business
depends primarily upon our ability to identify, develop, and commercialize products based on our platform technology. Our research programs
may fail to identify other potential products for clinical development for a number of reasons. Our research methodology may be unsuccessful
in identifying potential products or our potential products may be shown to have harmful side effects or may have other characteristics
that may make the products unmarketable or unlikely to receive marketing approval.
If any of these events occur,
we may be forced to abandon our development efforts for a program or programs. Research programs to identify new products require substantial
technical, financial, and human resources. We may focus our efforts and resources on potential programs or products that ultimately prove
to be unsuccessful.
Inadequate funding for
the FDA and other government agencies and/or potentially shifting priorities under the current administration could hinder their ability
to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared,
approved or commercialized in a timely manner or at all, or otherwise prevent those agencies from performing normal business functions
on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to
review and clear or approve new products, provide feedback on clinical trials and development programs, meet with sponsors and otherwise
review regulatory submissions can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory,
and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that
may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years
as a result. In addition, government funding of other government agencies that fund research and development activities is subject to
the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and
other agencies may also increase the time necessary for new medical devices or modifications to cleared or approved medical devices to
be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, the Trump administration
has discussed several changes to the reach and oversight of the FDA, which could affect its relationship with the pharmaceutical industry,
transparency in decision making and ultimately the cost and availability of prescription drugs. Additionally, over the last several years,
the U.S. government has shut down multiple times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and
other government employees and stop critical activities. If funding for the FDA is reduced, FDA priorities change, or a prolonged government
shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could
have a material adverse effect on our business.
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Even if one or more of our products are
approved by the FDA, we may fail to obtain an adequate level of reimbursement for our products by third party payors, such that there
may be no commercially viable markets for our products, or the markets may be much smaller than expected.
The availability and levels
of reimbursement by governmental and other third-party payors affect the market for our products. The efficacy, safety, performance and
cost-effectiveness of our products and of any competing products are factors that may impact the availability and level of reimbursement.
Reimbursement and healthcare payment systems in international markets vary significantly by country and include both government sponsored
healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce clinical
data, which may involve one or more clinical trials that compares the cost-effectiveness of our products to other available therapies.
We may not obtain international reimbursement or pricing approvals in a timely manner, if at all. Our failure to receive international
reimbursement or pricing approvals would negatively impact market acceptance of our products in the international markets in which those
approvals are sought.
We believe that future reimbursement
may be subject to increased restrictions both in the U.S. and in international markets. There is increasing pressure by governments worldwide
to contain healthcare costs by limiting both the coverage and the level of reimbursement for therapeutic products and by refusing, in
some cases, to provide any coverage for products that have not been approved by the relevant regulatory agency. Future legislation, regulation
or reimbursement policies of third-party payors may adversely affect the demand for our products and limit our ability to sell our products
on a profitable basis. In addition, third party payors continually attempt to contain or reduce the costs of healthcare by challenging
the prices charged for healthcare products and services. If reimbursement for our products is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, market acceptance of our products would be impaired, and future revenues, if any, would
be adversely affected.
Risks Related to Our Reliance on Third Parties
We may not be successful in establishing
and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize rhCollagen based products
in 3D bioprinting and medical aesthetics and future products for medical and aesthetics markets.
To successfully develop and
commercialize our products and product candidates, we will need substantial financial resources as well as expertise and physical resources
and systems. We may elect to develop some or all of these physical resources and systems and expertise ourselves, or we may seek to collaborate
with another company that can provide some or all of such physical resources and systems as well as financial resources and expertise.
For example, in February 2021, we entered into the AbbVie Development Agreement pursuant to which dermal and soft tissue filler products
are being developed for commercialization in the medical aesthetics market, using our rhCollagen technology in combination with AbbVie’s
technology. AbbVie is conducting a review of interim results from the first cohort of patients enrolled in the dermal
and soft tissue filler clinical trials initiated in 2023 and next steps for the program are to be determined by AbbVie upon concluding
their assessment.
We face significant competition
in seeking appropriate partners for our products and product candidates, and the negotiation process is time-consuming and complex. In
order for us to successfully partner our products and product candidates, potential partners must view our products and product candidates
as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other available products
for licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree
upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval
of a product is delayed or sales of an approved product are disappointing. Any delay in entering into strategic partnership agreements
related to our products could delay the development and commercialization of our products and reduce their competitiveness even if they
reach the market. If we fail to establish and maintain strategic partnerships related to our products, we will bear all of the risk and
costs related to the development and commercialization of our products, and we will need to seek additional financing, hire additional
employees and otherwise develop expertise which we do not have and for which we have not budgeted.
The risks in a strategic partnership
include the following:
● the strategic partner may not apply the expected financial resources, efforts, or required expertise in developing the physical resources and systems necessary to successfully develop and commercialize a product or product candidate;
● the strategic partner may not invest in the development of a sales and marketing force and the related infrastructure at levels that ensure that sales of the products reach their full potential;
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● we may be required to undertake the expenditure of substantial operational, financial, and management resources;
● we may be required to issue equity securities that would dilute our existing shareholders’ percentage ownership;
● we may be required to assume substantial actual or contingent liabilities;
● we, or our strategic partner, may not receive requisite regulatory approvals;
● strategic partners could decide to withdraw a development program, or move forward with a competing product developed either independently or in collaboration with others, including our competitors;
● disputes may arise between us and a strategic partner that delay the development or commercialization or adversely affect the sales or profitability of the product; or
● the strategic partner may independently develop, or develop with third parties, products that could compete with our products.
In addition, a strategic partner
for one or more of our products or product candidates may have the right to terminate the collaboration at its discretion. For example,
AbbVie may terminate the AbbVie Development Agreement upon 60 days’ written notice to us for any or no reason. Any early termination
in a manner adverse to us could have a material adverse effect on our liquidity, financial condition and results of operations. Any termination
may require us to seek a new strategic partner, which we may not be able to do on a timely basis, if at all, or require us to delay or
scale back our development and commercialization efforts. The occurrence of any of these events could adversely affect the development
and commercialization of our products or product candidates and materially harm our business and stock price by delaying the development
of our products, and the sale of any products that may be approved by the FDA or other regulatory agencies, by slowing the growth of such
sales, by reducing the profitability of the product and/or by adversely affecting the reputation of the product.
Further, in case of a breach
of an agreement with us by a strategic partner, or upon termination by either party to the agreement for any reason, we may not be able
to adequately protect our rights under these agreements, including intellectual property rights, or maintain exclusive rights to shared
intellectual property rights. Furthermore, a strategic partner will likely negotiate for certain rights to control decisions regarding
the development and commercialization of our products, if approved, and may not conduct those activities in the same manner as we would.
We may be dependent upon third-party collaborators,
distributors, and resellers for a significant portion of our sales.
We depend upon sales through
independent collaborators, distributors and resellers. While we are highly dependent upon acceptance of our products and solutions by
such third parties and their active marketing and sales efforts relating to our products, most of our distributors and resellers may not
be obligated to deal with us exclusively and are not contractually subject to minimum purchase requirements. In addition, some of our
distributors and resellers may sell competing products or solutions. As a result, our distributors and resellers may give higher priority
to products or services of our competitors, thereby reducing their efforts in selling our products and services.
There can be no assurance
that such distributors and resellers will act as effective sales agents for us, that they will remain our partners, or that, if we terminate
or lose any of them, we will be successful in replacing them. Any disruption in our distribution channels could adversely affect our business,
operating results, and financial condition.
We expect to rely on third parties to conduct
some aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and these third parties
may not perform satisfactorily.
We do not expect to independently
conduct all aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing. We currently rely,
and expect to continue to rely, on third parties, including strategic partners, with respect to parts of these items.
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Any of these third parties
may terminate their engagements with us at any time or upon advance notice. If we need to enter into alternative arrangements, it could
delay our product development activities. Our reliance on these third parties for research and development activities will reduce our
control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study
protocols.
If these third parties do
not successfully carry out their contractual duties, meet expected deadlines, or conduct our studies in accordance with regulatory requirements
or our stated study plans and protocols, we may not be able to complete, or may be delayed in completing, the preclinical studies and
clinical trials required to support future FDA, European, or other approvals of our products.
Reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured the products ourselves, including:
● the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
● reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;
● termination or non-renewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
● disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.
Any of these events could
lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products.
Some of these events could be the basis of action from European regulatory authorities, the FDA, or other regulatory authorities, including
injunction, recall, seizure, or total or partial suspension of production.
We are relying on third parties to conduct,
supervise, and monitor our existing pre-clinical studies, and our future clinical trials, and if these third parties perform in an unsatisfactory
manner, it may harm our business.
We rely on our CROs and other
consultants and third parties to conduct, supervise, and monitor our pre-clinical studies. In addition, as part of our future clinical
trials, we expect to rely heavily on hospitals, clinic centers, and other institutions and third parties, including the principal investigators
and their staff, to carry out our future clinical trials in accordance with our clinical protocols and designs. As part of our future
clinical trials, we also expect to rely on a number of CROs to assist in undertaking, managing, monitoring, and executing future clinical
trials as well as clinical data management organizations, medical institutions, and clinical investigators to conduct our development
efforts in the future. We compete with many other companies for the resources of these third parties, and large pharmaceutical and medical
device companies often have significantly more extensive agreements and relationships with such third-party providers, and such third-party
providers may prioritize the requirements of such large pharmaceutical and medical device companies over ours. The third parties on whom
we rely on may terminate their engagements with us at any time, which may cause delay in the development and commercialization of our
products or product candidates. If any such third party terminates its engagement with us or fails to perform as agreed, we may be required
to enter into alternative arrangements, which would result in significant cost and delay to our product development program. Moreover,
our agreements with such third parties generally do not provide assurances regarding employee turnover and availability, which may cause
interruptions in the research on our products by such third parties.
Moreover, while our reliance
on these third parties for certain development, trial and management activities will reduce our control over these activities, it will
not relieve us of our responsibilities. For example, European regulatory authorities, the FDA, and other regulatory authorities require
compliance with regulations and standards, including GCP requirements, for designing, conducting, monitoring, recording, analyzing, and
reporting the results of clinical trials to ensure that the data and results from trials are credible and accurate and that the rights,
integrity, and confidentiality of trial participants are protected. Although we expect to rely on third parties to conduct our clinical
trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational
plan and protocol under legal and regulatory requirements. Regulatory authorities enforce these GCP requirements through periodic inspections
of trial sponsors, principal investigators, and trial sites. If we or any of our CROs or these other third parties fail to comply with
applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable, and European regulatory authorities,
the FDA, or other regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical
trials comply with GCP requirements.
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If CROs and other third parties
do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised
due to their failure to adhere to trial protocols or to regulatory requirements, or if they otherwise fail to comply with regulations
and trial protocols or meet expected standards or deadlines, the trials of our products or product candidates may not meet regulatory
requirements. If trials do not meet regulatory requirements or if these third parties need to be replaced, the development of our products
or product candidates may be delayed, suspended, or terminated, or the results may not be acceptable. If any of these events occur, we
may not be able to obtain regulatory approval of our products on a timely basis, at a reasonable cost, or at all.
Our reliance on third parties may require
us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be
misappropriated or disclosed.
Because we rely on third parties
to manufacture our products, and because we collaborate with various organizations and academic institutions on the advancement of our
technology, we must, at times, share trade secrets with them. We seek to protect our proprietary technology, rights and information in
part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements,
consulting agreements, or other similar agreements with our strategic partners, service providers, advisors, employees, and consultants
prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to
use or disclose our confidential information, such as proprietary information and trade secrets. Despite these contractual provisions,
the need to share trade secrets and other confidential information increases the risk that such trade secrets and information become known
by potential competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these
agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, discovery by a third party of our
trade secrets or other unauthorized use or disclosure would impair our intellectual property rights and protections in our products.
In addition, these agreements
typically restrict the ability of our collaborators, advisors, employees, and consultants to publish data potentially relating to our
trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication
rights are controlled exclusively by us, although in some cases we may share these rights with other parties. Despite our efforts to protect
our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development,
or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the
time of publication.
It could be difficult to replace some of
our suppliers and equipment vendors.
Outside vendors provide key
components, raw materials, and equipment used in the manufacture of our products. An uncorrected defect or supplier’s variation
in a component or raw material, either unknown to us or incompatible with our manufacturing process, could harm our ability to manufacture
products or conduct research and developments activities. We may not be able to find a sufficient alternative supplier in a reasonable
time period, or on commercially reasonable terms, if at all, and our ability to conduct research and development activities or produce
and supply our products could be impaired.
If we were suddenly unable
to purchase from one or more of these companies, we would need a significant period of time to qualify a replacement, and the production
of any affected products could be disrupted. While it is our policy to maintain sufficient inventory of components so that our development
programs and production will not be significantly disrupted even if a particular component or material is not available for a period of
time, we remain at risk that we will not be able to qualify new components or materials quickly enough to prevent a disruption if one
or more of our suppliers ceases production of important components or materials, or if we are unable to quickly procure replacement equipment.
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Risks Related to Our Business Operations
Our future success depends on our ability
to retain senior management, consultants, and advisors and to attract, retain, and motivate qualified personnel.
We are dependent on principal
members of our executive team listed under “Management” in this Annual Report, the loss of whose services may adversely impact
the achievement of our objectives. While we have entered into employment agreements with each member of our senior management, any of
them could leave our employment at any time, subject to advance notice periods. Recruiting and retaining other qualified employees, consultants,
and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently
a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense
and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among
numerous pharmaceutical and medical device companies for individuals with similar skill sets. In addition, failure to succeed in clinical
trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any
executive, key employee, consultant, or advisor may impede the progress of our research, development, and commercialization objectives.
Our collaborations with outside scientists
and consultants may be subject to restriction and change.
We work with medical experts,
chemists, biologists, and other scientists at academic and other institutions, and consultants who assist us in our research, development,
and regulatory efforts, including the members of our scientific advisory board. In addition, these scientists and consultants have provided,
and we expect that they will continue to provide, valuable advice regarding our programs and regulatory approval processes. These scientists
and consultants are not our employees and may have other commitments that would limit their future availability to us. If a conflict of
interest arises between their work for us and their work for another entity, we may lose their services. In addition, we are limited in
our ability to prevent them from establishing competing businesses or developing competing products. For example, if a key scientist acting
as a principal investigator in any of our clinical trials identifies a potential product that is more scientifically interesting to his
or her professional interests, his or her availability to remain involved in our clinical trials could be restricted or eliminated.
Our business and operations would suffer
in the event of computer system failures or security breaches.
Despite the implementation
of security measures, our internal computer systems, and those of our strategic partners, CROs and other third parties on which we rely,
are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war, and telecommunication
and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our
development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our
or our strategic partners’ regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To
the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or
inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees
or former employees, access to our clinical data, or disruption of the manufacturing process, we could incur liability and the further
development of our product candidates could be delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This
type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect
our business or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may result
in decreased market value and erode public trust.
We may in the future need to expand our
organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As of March 15, 2026, we had
39 employees. While we recently undertook certain cost cutting measures including reducing our workforce however, as we mature and undertake
the activities required to advance our products and product candidates, we may expand our full-time employee base and to hire more consultants
and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and
devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our
operations, which may result in weaknesses in our infrastructure, operational setbacks, loss of business opportunities, loss of employees,
and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert
financial resources from other projects, such as the development of additional products. If our management is unable to effectively manage
our growth, our expenses may increase more than expected, our ability to generate or grow revenue could be compromised, and we may not
be able to implement our business strategy. Our future financial performance and our ability to commercialize products and compete effectively
will depend, in part, on our ability to effectively manage any future growth.
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Our employees, principal investigators,
consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards
and requirements and insider trading.
We are exposed to the risk
of fraud or other misconduct by our employees, principal investigators, consultants, commercial and strategic partners and other third
parties. Misconduct by these parties could include intentional failures to comply with regulations, provide accurate information to European
regulatory authorities, the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations, report
financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements
in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing,
and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs, and other business arrangements. Such misconduct could also involve the improper use of
information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation.
We have adopted a code of business conduct and ethics applicable to all of our employees, but it is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure
to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines
or other sanctions.
We face potential product liability, and,
if successful claims are brought against us, we may incur substantial liability and costs. If the use of our products harm patients, or
is perceived to harm patients even when such harm is unrelated to our products, our regulatory approvals could be revoked or otherwise
negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our products in
clinical trials and the sale of any products exposes us to the risk of product liability claims. Product liability claims might be brought
against us by consumers, healthcare providers, pharmaceutical and medical device companies, or others that sell or otherwise come into
contact with our products. There is a risk that our products may induce adverse events. If we cannot successfully defend against product
liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability
claims may result in:
● impairment of our business reputation;
● withdrawal of clinical trial participants;
● costs due to related litigation;
● distraction of management’s attention from our primary business;
● substantial monetary awards to patients or other claimants;
● the inability to commercialize our products;
● decreased demand for our products, if approved for commercial sale; and
● impairment of our ability to obtain product liability insurance coverage.
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We currently carry product
liability insurance of $5.0 million for sales of VergenixFG and VergenixSTR. If we obtain marketing approval for additional products,
we intend to obtain insurance coverage to include the sale of those commercial products, but we may not be able to obtain product liability
insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits
based on medical treatments that had unanticipated adverse effects. A product liability claim or series of claims brought against us could
cause our ordinary share price to decline and, if judgments exceed our insurance coverage, could materially and adversely affect our financial
position.
Our development and production of rhCollagen
relies upon the continued availability of tobacco plants, and any interruption in availability or supply of tobacco plants may delay production
and adversely affect commercial utilization of our rhCollagen-based products.
Our products are all based
on our rhCollagen extracted from tobacco plants. Any disruption to the supply of tobacco plants or any change in its availability for
use would delay our production of collagen and adversely affect commercial utilization of our products. The occurrence of severe adverse
weather conditions, soil salination or crop diseases may have a potentially devastating impact upon our tobacco production. The effect
of severe adverse weather conditions or the occurrence and effect of crop disease may reduce yields in our plants or require higher levels
of investment to maintain yields, even when only a portion of the crop is damaged. We cannot assure you that severe future adverse weather
conditions, crop diseases or any other interruption in availability or supply of tobacco plants will not adversely impact our operating
results and financial condition.
If our existing rhCollagen production sites
or any new facilities are damaged or destroyed, or production at these facilities is otherwise interrupted, our business and prospects
would be negatively affected.
We currently have two production
sites in Israel where we manufacture rhCollagen. During 2024, we had a mechanical failure at our Yessod Hama’ala facility that occurred
during the production process resulting in the temporary shutdown of our manufacturing operations. In addition, during 2024, we took precautionary
measures to close our facility in Yessod Hama’ala for an extended period, although it is now operational, due to the war and its
proximity to the border with Lebanon. See “-Risks Related to Our Operations in Israel - Potential political, economic, and military
instability in the State of Israel, where the majority of our senior management and our research and development facilities are located,
may adversely impact our results of operations.”
If our existing production
facilities or any new facility, or the equipment in it, are damaged or destroyed, we likely would not be able to quickly or inexpensively
replace our production capacity. Any new facility needed to replace our existing production facility would need to comply with the necessary
regulatory requirements and be tailored to our production requirements and processes. We would need regulatory approval before using any
products manufactured at a new facility in clinical trials or selling any products that are ultimately approved. Such an event could delay
our or our strategic partners’ clinical trials or, if any of our products are approved by the regulator, reduce or eliminate our
product sales.
If we fail to comply with environmental,
health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse
impact on the success of our business.
We are subject to numerous
environmental, health, and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage,
treatment, and disposal of hazardous materials and wastes. These laws, regulations, and permits could potentially require the expenditure
by us of significant amounts for compliance or remediation. If we fail to comply with such laws, regulations, or permits, we may be subject
to fines and other civil, administrative, or criminal sanctions, including the revocation of permits and licenses necessary to continue
our business activities. See “Item 4.B. Environmental, Health, and Safety Matters” for additional information.
Our operations involve the
use of hazardous materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally
contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from
these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any
resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal
fines and penalties.
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Although we maintain workers’
compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous
materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition,
we may incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations. These
current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and
regulations also may result in substantial fines, penalties, or other sanctions.
We may use our financial and human resources
to pursue a particular research program or product and fail to capitalize on programs or products that may be more profitable or for which
there is a greater likelihood of success.
Because we have limited resources,
we may forego or delay pursuit of opportunities with certain programs or products or for indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable
market opportunities. Our spending on current and future research and development programs for products may not yield any commercially
viable products. If we do not accurately evaluate the commercial potential or target market for a particular product, we may relinquish
valuable rights to that product through strategic collaboration, licensing, or other royalty arrangements in cases in which it would have
been more advantageous for us to retain sole development and commercialization rights to such product, or we may allocate internal resources
to a product in a therapeutic area in which it would have been more advantageous to enter into a collaboration arrangement.
We are subject to foreign currency exchange
risk, and fluctuations between the U.S. dollar and the NIS, the Euro, and other non-U.S. currencies may adversely affect our earnings
and results of operations.
We currently operate in two
different currencies. While the U.S. dollar is our functional and reporting currency, we incur a portion of our expenses in NIS. As a
result, our financial results may be adversely affected by fluctuations in currency exchange rates.
We are exposed to the risks
that the NIS may appreciate relative to the U.S. dollar, in such event, the dollar-denominated results of operations would be adversely
affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against
the dollar. For example, the average exchange rate of the dollar against the NIS decreased in 2021, but increased in 2022 through 2024
and decreased again in 2025. Market volatility and currency fluctuations may limit our ability to cost-effectively hedge against our foreign
currency exposure. Hedging strategies may not eliminate our exposure to foreign exchange rate fluctuations and may involve costs and risks
of their own, such as devotion of management time, external costs to implement the strategies, and potential accounting implications.
Foreign currency fluctuations, independent of the performance of our underlying business, could lead to materially adverse results or
could lead to positive results that are not repeated in future periods.
We or the third parties upon whom we depend
may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster recovery plans may not
adequately protect us from a serious disaster.
Natural disasters could severely
disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If
a natural disaster, power outage, health epidemic or other event occurred that prevented us from using all or a significant portion of
our office, manufacturing and/or lab spaces, that damaged critical infrastructure, such as the manufacturing facilities of our third-party
contract manufacturers, CROs, clinical sites, tobacco plants growers, third parties ongoing activities and schedules or that otherwise
disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our plans and business for a substantial
period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster
or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity
plans, which could have a material adverse effect on our business.
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Our business, operating results and growth
rates may be adversely affected by current or future unfavorable economic and market conditions and adverse developments with respect
to financial institutions and associated liquidity risk.
Our business depends on the
economic health of the global economies. If the conditions in the global economies remain uncertain or continue to be volatile, or if
they deteriorate, including as a result of the impact of military conflict, such as the war between Russia and Ukraine, military conditions
in Israel, terrorism or other geopolitical events, our business, operating results and financial condition may be materially adversely
affected. Economic weakness, inflation and increases in interest rates, limited availability of credit, liquidity shortages and constrained
capital spending have at times in the past resulted, and may in the future result, in challenging and delayed sales cycles, slower adoption
of new technologies and increased price competition, and could negatively affect our ability to forecast future periods, which could result
in an inability to satisfy demand for our products and a loss of market share.
In addition, increases in
inflation raise our costs for commodities, labor, materials and services and other costs required to grow and operate our business, and
failure to secure these on reasonable terms may adversely impact our financial condition. Additionally, increases in inflation, along
with the uncertainties surrounding geopolitical developments and global supply chain disruptions, have caused, and may in the future cause,
global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly or dilutive
for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse impact on our financial
condition, results of operations or cash flows.
There can be no assurance
that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general
business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued
unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or if adverse developments are experienced
by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult,
more costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any necessary financing
in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock
price and could require us to alter our operating plans. In addition, there is a risk that one or more of our service providers, financial
institutions, manufacturers, suppliers and other partners may be adversely affected by the foregoing risks, which could directly affect
our ability to attain our operating goals on schedule and on budget.
Environmental, social and corporate governance
(ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition
and results of operations and damage our reputation.
In recent years, there is
growing attention from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally,
public interest and legislative pressure related to public companies’ ESG practices has grown. If our ESG practices fail to meet
regulatory requirements or investor, customer, consumer, employee or other shareholders’ evolving expectations and standards for
responsible corporate citizenship in areas including environmental stewardship, support for local communities, board of directors and
employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate
governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers
may be unwilling to continue to do business with us.
Customers, consumers, investors
and other shareholders are increasingly focusing on environmental issues, including climate change, energy and water use, plastic waste
and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory requirements to reduce
or mitigate impacts to the environment. Changing customer and consumer preferences or increased regulatory requirements may result in
increased demands or requirements regarding plastics and packaging materials, including single-use and non-recyclable plastic products
and packaging, other components of our products and their environmental impact on sustainability, or increased customer and consumer concerns
or perceptions (whether accurate or inaccurate) regarding the effects of substances present in certain of our products. Complying with
these demands or requirements could cause us to incur additional manufacturing, operating or product development costs.
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If we do not adapt to or comply
with new regulations, which may require us to incur significant additional costs to comply and impose increased oversight obligations
on our management and board of directors, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding
ESG issues, investors may reconsider their capital investment in our company, we may become subject to penalties, and customers and consumers
may choose to stop purchasing our products, if approved for commercialization, which could have a material adverse effect on our reputation,
business or financial condition.
Risks Related to Our Intellectual Property
We have an extensive worldwide patent portfolio.
The cost of maintaining our worldwide patent protection is high and requires continuous review and compliance with procedural and documentary
requirements. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world.
The U.S. Patent and Trademark
Office, or U.S. PTO, and foreign patent authorities require maintenance fees and payments as well as continued compliance with several
procedural and documentary requirements. Non-compliance may result in abandonment or lapse of the subject patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments
for lack of patent coverage in a particular jurisdiction from our collaboration partners or may result in competition, either of which
could have a material adverse effect on our business.
We have made, and will continue
to make, certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries.
As a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or from
selling or importing products made using our inventions in and into the United States or other countries. Third parties may use our technologies
in territories in which we have not obtained patent protection to develop their own products and, further, may infringe our patents in
territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such third-party products may compete
with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
If we are unable to obtain or protect intellectual
property rights related to our products and product candidates, we may not be able to obtain exclusivity for our products or prevent others
from developing similar competitive products.
We rely upon a combination
of granted patents, pending patent applications, trade secret protection, and confidentiality agreements to protect the intellectual property
related to our products and product candidates. The strength of patents in the field of regenerative medicine involves complex legal and
scientific questions and can be uncertain. The patent applications that we own may fail to result in issued patents with claims that cover
our products in the United States or in other countries. There is no assurance that all of the potentially relevant prior art relating
to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent
application. Even if patents do successfully issue and even if such patents cover our products, third parties may challenge their validity,
enforceability, or scope, which may result in the patent claims being narrowed or invalidated. Furthermore, even if they are unchallenged,
our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our products, or prevent
others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties.
Our ability to attract third
parties to collaborate with us to develop products and our ability to commercialize future products may be adversely affected if the patent
applications we hold with respect to our techniques or products fail to issue, if the breadth or strength of our patent protection is
threatened, or if our patent portfolio fails to provide meaningful exclusivity for our products. Third parties may challenge their validity
or enforceability of our patents or patents that issue in the future from our patent applications, which may result in such patents being
narrowed, invalidated, or held unenforceable. Even if our patents and patent applications are not challenged by third parties, they may
not prevent others from designing around our claims and may not otherwise adequately protect our products. If the breadth or strength
of protection provided by the patents and patent applications we hold with respect to our products is threatened, our ability to commercialize
our products may be adversely affected.
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Discoveries are generally
published in the scientific literature well after their actual development, and patent applications in the United States and other countries
are typically not published until 18 months after filing and in some cases are never published. Therefore, we cannot be certain that we
were the first to make the inventions claimed in our owned granted patents or patent applications, or that we were the first to file for
patent protection covering such inventions. Subject to meeting other requirements for patentability, for United States patent applications
filed prior to March 16, 2013, the first to invent the claimed invention is entitled to receive patent protection for that invention while,
outside the United States, the first to file a patent application encompassing the invention is entitled to patent protection for the
invention. In addition, patents have a limited lifespan. In the United States, the expiration of a patent is generally 20 years from the
earliest non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is
limited. Once the patent life has expired for a product, we may be open to competition from third party products, including products that
are copies of our products. This risk is material in light of the length of the development process of our products and lifespan of our
current patent portfolio.
In addition to the protection
afforded by patents, we rely on trade secret protection and confidentiality agreements to protect our proprietary know-how and other proprietary
information that is not patentable or that we elect not to patent. For example, many of our discovery, development, and manufacturing
processes involve proprietary know-how, information, or technology that is not covered by patents. We seek to protect our trade secrets
and proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific
advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our information technology systems. Security measures may be breached,
and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered
by competitors. Although we contractually require all of our employees and consultants to assign their inventions to us, and all of our
employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information, or technology to enter
into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that our trade secrets
and other confidential proprietary information will not be disclosed, or that competitors will not otherwise gain access to our trade
secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our
trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps
taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating
the trade secret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA,
as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine
basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present
time how the FDA’s disclosure policies may change in the future, if at all.
Further, the laws of some
countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we
may encounter significant problems in protecting and defending our intellectual property both in the United States and in other countries.
If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties,
and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain
a competitive advantage in our market.
Third-party claims of intellectual property
infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends
in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation,
both within and outside the United States, involving patents and other intellectual property rights in the biotechnology and pharmaceutical
industries, including patent infringement lawsuits, interferences, oppositions, and inter partes review proceedings before the
U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which we are pursuing development technologies. As the biotechnology and pharmaceutical
industries expand and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent
rights of third parties.
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Third parties may assert that
we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims
to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our products. Because
patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued
patents that our products may be accused of infringing. In addition, third parties may obtain patents in the future and claim that use
of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the
manufacturing process of any of our products or any final product itself, the holders of any such patents may be able to block our ability
to commercialize such product unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any
third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture, or
methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product unless
we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms
or at all.
The patent landscape in competitive
product areas is highly complex and there may be patents of third parties of which we are unaware that may result in claims of infringement.
Accordingly, there can be no assurance that our products do not infringe the proprietary rights of third parties. Parties making claims
against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize
one or more of our products. Defense of such claims, regardless of their merit, would involve substantial litigation expenses and would
be a substantial diversion of financial and employee resources from our business. In the event of a successful claim of infringement against
us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties,
redesign our infringing products, or obtain one or more licenses from third parties, which may be impossible or require substantial time
and monetary expenditure.
We intend, if necessary, to
vigorously enforce our intellectual property to protect the proprietary position of our products. Active efforts to enforce our patents
may include litigation, post-grant patent challenges, administrative proceedings, or all of the foregoing, depending on the potential
benefits that might be available from those actions and the costs associated with undertaking those efforts against third parties. We
review and monitor publicly available information regarding products that may be competitive with our products and intend to assert our
intellectual property rights where appropriate.
We may enter into license agreements with
third parties, and if we fail to comply with our obligations in such agreements under which we license intellectual property rights from
third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that
are important to our business.
We may need to obtain licenses
from third parties to advance our research or allow commercialization of our products and product candidates. We may fail to obtain any
of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time
and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the
affected products.
We may be involved in lawsuits or administrative
proceedings to obtain, protect or enforce our patents, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our
patents. To counter infringement or unauthorized use, we may be required to file an infringement suit, which can be expensive and time
consuming. In addition, in an infringement proceeding, the defendant may file a countersuit, challenging the validity or enforceability
of our patent. In that case, a court may decide that a patent of ours is not valid, is unenforceable, or is not infringed, or it may refuse
to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not issuing.
We may not be able to prevent
misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights.
Furthermore, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results
of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative,
it could have a material adverse effect on the trading price of our ordinary shares.
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Recent patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
On September 16, 2011, the
Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes
to U.S. patent law, including provisions that affect the way patent applications are prosecuted and also affect patent litigation. The
U.S. PTO has developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes
to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions which were enacted March 16, 2013.
However, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. The Leahy-Smith Act and
its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents. We may become involved in post-grant proceedings challenging our patents or the patents of others, and
the outcome of any such proceedings is highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope of, or
invalidate, our patent rights, allow third parties to commercialize our technology and compete directly with us, or result in our inability
to manufacture, develop, or commercialize our products without infringing the patent rights of others.
We may be subject to claims that our employees,
consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or, that our employees
have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain of our employees and
personnel were previously employed at universities, medical institutions, or other biotechnology or pharmaceutical companies. Although
we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others
in their work for us, we may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently
or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s
former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims,
in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Furthermore,
universities or medical institutions who employ some of our key employees and personnel in parallel to their engagement by us may claim
that intellectual property developed by such person is owned by the respective academic or medical institution under the respective institution,
intellectual property policy or applicable law.
We may become subject to claims for remuneration
or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our
intellectual property has been developed by our employees in the course of their employment for us. Section 134 of the Israeli Patents
Law, 5727-1967, or the Patents Law, grants employees the right to receive consideration for service inventions unless otherwise provided
in an agreement between the parties. According to a decision by the special Committee for Compensations and Royalties formed under the
Patents Law, or the Committee, an employee’s right to receive consideration for service inventions is a personal right and is entirely
separate from the proprietary rights in such invention. A decision in May 2014 by the Committee clarifies that the right to receive consideration
under Section 134 can be waived and that such waiver does not necessarily have to be explicit. However, the Committee has the authority
to examine, on a case by case basis, the general contractual framework between the parties, using interpretation rules of the general
Israeli contract laws. Although such decision seems to alleviate the requirement to obtain an explicit waiver for royalties for service
inventions under Section 134 of the Patents Law, to the extent that there is no explicit waiver in an employment agreement, the existence
of such waiver will be subject to the interpretation of the Committee. Further, the Committee has not yet determined one specific formula
for calculating this remuneration (but rather uses the criteria specified in the Patents Law) nor the criteria or circumstances under
which an employee’s waiver of his right to remuneration will be disregarded. We generally enter into assignment-of-invention agreements
with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment
or engagement with us. Although our employees have agreed to assign to us service invention rights, we may face claims demanding remuneration
in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties
to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
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We may be subject to claims challenging
the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims
that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property.
Ownership disputes may arise in the future, for example, from conflicting obligations of consultants or others who are involved in developing
our products. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive
ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even
if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees.
Obtaining and maintaining our patent protection
requires compliance with various procedural, document submissions, fee payments, and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees,
renewal fees, annuity fees, and various other governmental fees on patents and applications are and will be due to be paid to the U.S.
PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications.
The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment,
and other similar provisions during the patent application process. There are situations in which non-compliance can result in abandonment
or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Issued patents covering our products or
product candidates could be found invalid or unenforceable if challenged in court or in administrative proceedings.
If we initiate legal proceedings
against a third party to enforce a patent covering one of our products or product candidates, the defendant may contend that the patent
covering our product is invalid, unenforceable, or fails to cover the product or the infringing product. In patent litigation in the United
States, defendants commonly allege that asserted patent claims are invalid and unenforceable. Grounds for a validity challenge could be
an alleged failure to meet one or more of several statutory requirements, including lack of novelty, obviousness, lack of written description,
indefiniteness, and non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution
of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also
raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms
include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions, such as opposition proceedings. Such proceedings
could result in revocation, amendments to our patent claims, or statements being made on the record such that our claims may no longer
be construed to cover our products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect
to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner
were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity, unenforceability, or non-infringement,
we would lose at least part, and perhaps all, of the patent protection on our products. For example, as further described below, in July
2017, Fibrogen, Inc., or Fibrogen, prevailed in an administrative challenge to one of our patents in Europe, resulting in the revocation
of the patent and the abandonment of another patent. Even if resolved in our favor, litigation, or other legal proceedings relating to
intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from
their normal responsibilities. Moreover, third parties may continue to initiate new proceedings in the United States and foreign jurisdictions
to challenge our patents from time to time.
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In addition, there could be
public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or
investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our ordinary shares.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities
or any future sales, marketing, or distribution activities.
Changes in U.S. patent law could diminish
the value of patents in general, thereby impairing our ability to protect our products or product candidates.
As is the case with other
companies in our industry, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents
in the biotechnology industry involve both technological and legal complexity, and therefore is costly, time consuming, and inherently
uncertain. In addition, in recent years, the United States enacted and implemented wide-ranging patent reform legislation. Recent U.S.
Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent
owners in some 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 that had already been granted. The patent laws and regulations
may change in unpredictable ways through actions of the U.S. Congress, the federal courts, and the U.S. PTO, in the future, and any changes
may adversely affect our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting, and defending
patents on products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some
countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries
do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not
be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing
products made using our inventions in and into the United States or other jurisdictions. Potential competitors may use our technologies
in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products
to territories where we have patent protection, but enforcement is not as strong as in the United States. These products may compete with
our products, if approved, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection,
particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary rights generally. 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, could put our
patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third
parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if
any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Intellectual property rights do not address
all potential threats to any competitive advantage we may have.
The degree of future protection
afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property
rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
● Others may be able to make products that are the same as or similar to our current or future products but that are not covered by the claims of the patents that we own or have exclusively licensed.
● We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
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● We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
● Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
● The prosecution of our pending patent applications may not result in granted patents.
● Granted patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
● Patent protection on our products may expire before we are able to develop and commercialize the product, or before we are able to recover our investment in the product.
● Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in markets where we intend to market our products.
Risks Related to the Ownership of our Ordinary
Shares
The market price of our ordinary shares
may be highly volatile.
The trading price of our ordinary
shares has been, and is likely to continue to be, volatile. The following factors, some of which are beyond our control, in addition to
other risk factors described in this Annual Report may have a significant impact on the market price of our ordinary shares:
● adverse results or delays in preclinical studies or clinical trials;
● reports of adverse events in other similar products or clinical trials of such products;
● inability to obtain additional funding;
● any delay in filing a regulatory submission for any of our products or product candidates and future products and any adverse development or perceived adverse development with respect to the FDA’s review or European authorities’ review of that regulatory submission;
● failure to develop successfully and commercialize our products or product candidates and future products;
● failure to enter into or maintain strategic collaborations;
● failure by us or strategic collaboration partners to prosecute, maintain, or enforce our intellectual property rights;
● changes in laws or regulations applicable to future products;
● inability to scale up our manufacturing capabilities, inability to obtain adequate supply for our products, or the inability to do so at acceptable prices;
● adverse regulatory decisions, including by the IIA under the Innovation Law;
● introduction of new products, services, or technologies by our competitors;
● failure to meet or exceed financial projections we may provide to the public;
● failure to meet or exceed the financial expectations of the investment community;
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● the perception of the biotechnology industry by the public, legislatures, regulators, and the investment community;
● announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;
● disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;
● additions or departures of key scientific or management personnel;
● significant lawsuits, including patent or shareholder litigation;
● changes in the market valuations of similar companies;
● sales of our ordinary shares by us or our shareholders in the future; and
● trading volumes of our ordinary shares.
In addition, companies trading
in the stock market in general, and life science companies in particular, have experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively
affect the market price of our ordinary shares, regardless of our actual operating performance. In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation has often been instituted against that company.
If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could
be diverted, which could affect our business, financial condition and results of operations.
We may not be able to maintain our listing
on the Nasdaq Capital Market.
Our ordinary shares currently
trade on the Nasdaq Capital Market under the symbol “CLGN”. If we fail to adhere to Nasdaq’s strict listing criteria,
including with respect to share price, market capitalization and stockholders’ equity, our stock may be delisted. Our results of
operations and our fluctuating stock price directly affect our ability to satisfy these listing standards. If we fail to do so, we may
be subject to delisting. A delisting could adversely affect our ability to obtain financing for our operations or result in a loss of
confidence by investors, customers, suppliers or employees. A delisting from the Nasdaq Capital Market could result in our ordinary shares
being listed on an over-the-counter market, which is generally considered to be a less efficient market than the Nasdaq Capital Market.
Although we currently satisfy the listing criteria for Nasdaq, if our stock price declines dramatically, we could be at risk of failing
to meet the Nasdaq continued listing criteria.
On January 26, 2026, Nasdaq
filed a rule proposal with the SEC that would permit the immediate suspension and delisting of a company listed on the Nasdaq Capital
Market if its market value of listed securities remains below $5 million for 30 consecutive business days. As of the date of this Annual
Report, our market value of listed securities is above $5 million; however, if this rule were to go into effect and we are unable to maintain
our market value of listed securities above $5 million, we would become subject to immediate suspension and delisting.
Further, on March 23, 2026, we received
a written notice from Nasdaq indicating that we are not in compliance with the minimum bid price requirement for continued listing set
forth in Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. Under Nasdaq
Listing Rule 5810(c)(3)(A), we were granted a period of 180 calendar days to regain compliance with the minimum bid price requirement,
or until September 21, 2026. There is a risk that we could be subject to additional notices of delisting for failure to comply with Nasdaq
Listing Rule 5550(a)(2) or other Nasdaq Listing Rules and no assurance can be given that we will remain eligible to be listed on Nasdaq.
If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2), our Ordinary Shares will be subject to delisting. A delisting from
Nasdaq would likely result in a reduction in some or all of the following, each of which could have a material adverse effect on shareholders:
● the liquidity of our Ordinary Shares;
● the market price of our Ordinary Shares;
● the availability of information concerning the trading prices and volume of our Ordinary Shares;
37
● our ability to obtain financing or complete a strategic transaction;
● the number of institutional and other investors that will consider investing in our Ordinary Shares; and
● the number of market markers or broker-dealers for our Ordinary Shares.
We intend to monitor the closing
bid price of our Ordinary Shares and may, if appropriate, consider implementing available options to regain compliance with the minimum
bid price rule under the Nasdaq Listing Rules, including initiating a reverse stock split.
We incur significant additional costs as
a result of being a public company subject to SEC reporting requirements in the United States, and our management is required to devote
substantial additional time to new compliance initiatives as well as to compliance with ongoing United States reporting requirements.
As a U.S. public reporting
company, we are incurring significant additional accounting, legal, and other expenses in the future. Our management and other personnel
need to devote substantial time to the compliance requirements of being a U.S. public company; in addition, the implementation of such
compliance processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the
laws and regulations affecting public companies in the United States and the rules and regulations adopted by the SEC and the Nasdaq Capital
Market, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules, and regulations
could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance,
and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board
of directors, on our board committees, if any, or as senior management.
Our principal shareholders, management and
directors beneficially own a significant percentage of our ordinary shares and will be able to exert significant influence over matters
subject to shareholder approval.
As of March 15, 2026, our
senior management, directors, and five percent or more shareholders and their affiliates beneficially owned approximately 25.4% of our
ordinary shares and an additional 5.5% in options exercisable into ordinary shares. These shareholders will be able to significantly influence
all matters requiring shareholder approval, except for decisions that require a special majority at a shareholders’ meeting. For
example, these shareholders, if they were to act together, may be able to significantly influence elections of directors (other than our
external directors, within the meaning of Israeli law, as described under “Management-External Directors”), amendments of
our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage
unsolicited acquisition proposals or offers for our ordinary shares that you may believe are in your best interest as one of our shareholders.
If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result,
our shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price
of our ordinary shares.
Effective internal controls
over financial reporting are necessary for us to provide reliable financial reports. Together with adequate disclosure controls and procedures,
effective internal controls are designed to prevent fraud. Any failure to implement required new or improved controls or difficulties
encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted
in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, may reveal deficiencies in our internal controls
over financial reporting that are deemed to be material weaknesses, may require prospective or retroactive changes to our financial statements,
or may identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence
in our reported financial information, which could have a negative effect on the trading price of our ordinary shares.
38
Section 404 of the Sarbanes-Oxley
Act requires our management to report on the effectiveness of our internal control structure and procedures for financial reporting. In
addition, as long as we do not become an accelerated or large accelerated filer, we are exempt from 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 our management’s
assessment of our internal control over financial reporting until the date we are no longer a non-accelerated filer. We have an ongoing
program to perform the system and process evaluation and testing necessary to continue to comply with these requirements. 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 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 share to fall.
To build our finance infrastructure,
we may need to 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 are a “foreign private issuer,”
and we cannot be certain if the reduced reporting requirements applicable to foreign private issuers will make our ordinary shares less
attractive to investors.
As a foreign private issuer,
we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Securities Exchange Act
of 1934, as amended, or the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and
less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue proxy statements that comply
with the requirements applicable to U.S. domestic reporting companies. We will also have four months after the end of each fiscal year
to file our Annual Reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting
companies. Furthermore, while Section 8103 of the National Defense Authorization Act for Fiscal Year 2026 named, the “Holding Foreign
Insiders Accountable Act” which was signed into law on December 18, 2025, requires our officers and directors to make insider reports
under Section 16(a) effective March 18, 2026, our principal shareholders remain exempt from the requirements to report transactions in
our equity securities. Our directors, officers and principal shareholders also continue to remain exempt from the short-swing profit liability
provisions contained in Section 16(b) of the Exchange Act. These exemptions and leniencies, along with other corporate governance exemptions
resulting from our ability to rely on home country rules, will reduce the frequency and scope of information and protections to which
you may otherwise have been eligible in relation to U.S. domestic reporting companies. See “Item 16G. Corporate Governance Practices”
for more information, including regarding reliefs relating to general meetings for companies whose securities are traded outside of Israel.
We cannot predict if investors
will find our ordinary shares less attractive because we may rely on these reduced requirements. If some investors find our ordinary shares
less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
Sales of a substantial number of our ordinary
shares in the public market could cause our share price to fall.
If our existing shareholders
sell, indicate an intention to sell, or the market perceives that they intend to sell, substantial amounts of our securities on the Nasdaq
Capital Market after the date of this Annual Report on Form 20-F, the market price of our securities could decline significantly. As of
March 15, 2026, we had 14,415,128 ordinary shares outstanding. In addition, as of March 15, 2026, an aggregate of 1,385,992 ordinary shares,
that are issuable pursuant to exercise of outstanding options, will become eligible for sale in the public market to the extent permitted
by the provisions of various vesting schedules, Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities
Act. If these additional ordinary shares are sold, or if it is perceived that they will be sold, in the public market, the market price
of our ordinary shares could decline.
39
Future sales and issuances of our securities
or rights to purchase securities, including pursuant to our equity incentive plans, could result in additional dilution of the percentage
ownership of our shareholders and could cause the prices of our securities to fall.
Additional capital will be
needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our shareholders
may experience substantial dilution. We may sell ordinary shares, convertible securities, or other equity securities in one or more transactions
at prices and in a manner we determine from time to time. If we sell ordinary shares, convertible securities, or other equity securities
in one or more transactions, existing investors may be materially diluted by subsequent sales, and new investors could gain rights superior
to our existing shareholders.
Pursuant to our Share Ownership
and Option Plan (2010), or the 2010 Plan, and our 2024 Share Award Plan, or the 2024 Plan, our management is authorized to grant share
options, restricted share units and other equity-based awards to our employees, officers, directors, and consultants. As of March 15,
2026, our officers, directors, employees and consultants hold options to purchase 1,432,332 and 95,250 ordinary shares under the 2010
Plan and the 2024 Plan, respectively. Additionally, as of March 15, 2026, our officers, directors, and certain employees hold 430,109
unvested restricted share units under the 2024 Plan. If our board of directors elects to issue additional options, restricted share units
or other equity-based awards under the 2010 Plan or the 2024 Plan, our shareholders may experience additional dilution, which could cause
our share price to fall.
We do not intend to pay dividends on our
securities in the foreseeable future, so any returns will be limited to the value of our shares.
We have never declared or
paid any cash dividends on our share capital. We currently anticipate that we will retain future earnings for the development, operation
and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders
will therefore be limited to the appreciation of their shares. In addition, Israeli law limits our ability to declare and pay dividends,
and may subject our dividends to Israeli withholding taxes; see “Item 10.B. Memorandum and Articles of Association-Dividend and
Liquidation Rights” and “Item 16G. Corporate Governance Practices” for additional information. As a result, investors
in our ordinary shares will not be able to benefit from owning these securities unless their market price becomes greater than the price
paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities
at a price in excess of the price paid.
Your percentage ownership in us may be diluted
by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.
Our board of directors will
have the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued
shares, including ordinary shares issuable upon the exercise of outstanding options and warrants. Issuances of additional shares would
reduce your influence over matters on which our shareholders vote.
If equity research analysts do not publish
research reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary
shares could decline.
The trading market for our
ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. The price
of our ordinary shares could decline if we do not obtain research analyst coverage or if one or more securities analysts downgrade our
ordinary shares, issue other unfavorable commentary, or cease publishing reports about us or our business.
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Risks Related to Our Operations in Israel
We are a “foreign private issuer”
and intend to follow certain home country corporate governance practices, and our shareholders may not have the same protections afforded
to shareholders of companies that are subject to all corporate governance requirements under the listing rules of the Nasdaq Stock Market
LLC, or the Nasdaq Listing Rules.
As a foreign private issuer,
we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the Nasdaq Stock
Market for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to the quorum requirement for shareholder
meetings. As permitted under the Israeli Companies Law of 1999, or the Companies Law, our articles of association provide that the quorum
for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy, or by a voting instrument,
who hold at least 20% of the voting power of our shares. In addition, we follow home country practices in Israel (and consequently avoid
the requirements that would otherwise apply to a U.S. company listed on the Nasdaq Capital Market) with regard to the requirement to obtain
shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans,
issuances that will result in a change of control of the company, certain transactions, and certain acquisitions of the stock or assets
of another company). We may in the future (or may be required to) elect to follow home country practices in Israel with regard to other
matters. 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 Nasdaq Listing Rules applicable
to domestic U.S. issuers. See “Item 16G. Corporate Governance Practices” for more information.
In addition, as a foreign
private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements.
Under regulations promulgated under the Companies Law, we will be required to disclose in the notice for our annual meetings of shareholders
if we had not already done so in our annual report, the annual compensation of our five most highly compensated officers on an individual
basis, rather than aggregate. However, this disclosure will not be as extensive as the disclosure required by a U.S. domestic issuer.
We will also have four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file
current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, as a foreign private issuer, while Section
8103 of the National Defense Authorization Act for Fiscal Year 2026 named, the “Holding Foreign Insiders Accountable Act”
which was signed into law on December 18, 2025, requires our officers and directors to make insider reports under Section 16(a) effective
March 18, 2026, our principal shareholders remain exempt from the requirements to report transactions in our equity securities. Our directors,
officers and principal shareholders also continue to remain exempt from the requirements to report short-swing profit recovery contained
in Section 16(b) of the Exchange Act. Also, as a foreign private issuer, we are 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 available to you in comparison to those applicable to U.S. domestic reporting companies.
In order to maintain our current
status as a foreign private issuer, more than 50% of our outstanding voting securities must not be directly or indirectly owned by residents
of the U.S., and we must not have any of the following: (i) a majority of our executive officers or directors being U.S. citizens or residents,
(ii) more than 50% of our assets being located in the U.S., or (iii) our business being principally administered in the U.S. Although
we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions
mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic reporting company may be significantly
higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic
reporting company forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may
also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic reporting
companies. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions
from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.
41
The security situation in the State of Israel, where the majority of our senior management and our research and development facilities are located,
may adversely impact our results of operations.
We are incorporated under
Israeli law and our offices and operations are located in the State of Israel. In addition, our employees, officers, and all but two of
our directors are residents of Israel. Accordingly, political, economic, and military conditions in Israel directly affect our business.
Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries.
In particular, in October
2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and
military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s
border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in thousands of deaths and injuries,
and Hamas additionally kidnapped many Israeli civilians and soldiers. As a result of the events of October 7, 2023, the Israeli government
declared that the country was at war and several hundred thousand Israeli military reservists were drafted to perform immediate military
service, including at the time about 10% of our workforce in Israel. Although many of such military reservists have since been released,
they may be called up for additional reserve duty, depending on developments in the war in Gaza and along Israel’s other borders.
Military service call ups that result in absences of personnel for an extended period of time may materially and adversely affect our
business, prospects, financial condition and results of operations. As of March 15, 2026, 38 of our 39 employees were located in Israel.
In January 2025, Israel and
Hamas entered into a ceasefire agreement, which remained in effect until March 18, 2025, when hostilities resumed. As of October 9, 2025,
Israel and Hamas entered into a renewed ceasefire agreement calling for a permanent end of the war. However, there are no assurances that
such as agreement will hold. While the conflict has created heightened security concerns, disruptions to business operations, and economic
instability, the ceasefire may contribute to improved regional stability. However, the security situation remains fluid, and any renewed
military actions, restrictions, or government-imposed measures could adversely affect our operations, supply chains, and financial condition.
Since the commencement of
these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization)
and on other fronts from various extremist groups in region, such as the Houthis in Yemen and various rebel militia groups in Syria and
Iraq. In October 2024, Israel began limited ground operations against Hezbollah in Lebanon, and in November 2024, a ceasefire was brokered
between Israel and Hezbollah, but there are no guarantees as to whether the agreement will hold or whether further hostilities will resume.
In addition, in April 2024
and October 2024, Iran launched direct attacks on Israel involving hundreds of drones and missiles and has threatened to continue to attack
Israel and is widely believed to be developing nuclear weapons. In June 2025, Israel launched a strike against Iran, aimed to disrupt
Iran’s capacity to coordinate or launch hostilities against Israel. Iran has retaliated in response, firing missiles and drones
at Israeli military and civilian infrastructure. A ceasefire was reached between Israel and Iran in June 2025 after 12 days of hostilities.
In February 2026, Israel and the United States commenced military operations against Iran, and the conflict subsequently expanded to involve
additional regional actors, including escalations on Israel’s northern border with Lebanon. The security situation has been volatile and
continues to evolve, with ongoing hostilities and the risk of further widening of the conflict across the Middle East.
These developments have heightened
uncertainty and may adversely affect the regional operating environment, including through disruptions to transportation and logistics,
constraints on workforce availability, increased security measures and costs, and adverse impacts on market conditions and investor sentiment.
The scope, intensity, and duration of the conflict remain uncertain, and further escalation could materially and adversely affect our
business, results of operations, and financial condition. A broader regional conflict involving additional state and non-state actors
remains a significant risk. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza,
Hezbollah in Lebanon, the Houthi movement in Yemen and various rebel militia groups in Syria and Iraq. These situations may further escalate
in the future to more violent events which may affect Israel and us.
While to date, we have not
experienced any major disruptions in our operations due to the war, during 2024 we took precautionary measures to close our facility in
Yessod Hama’ala, which is located approximately 9km from Israel’s northern border with Lebanon, for an extended period although
it is now operational. Due to the close proximity of our facility in Yessod Hama’ala to the border, if our Yessod facility were
to sustain damage and/or we are required to partially or completely close the facility for an indefinite period of time it could have
a material impact on our business and results of operations. While the intensity and duration of the security situation in Israel have
been difficult to predict, as were the economic implications on our business and operations and on Israel’s economy in general,
the ceasefire marks a potential shift towards stability in the region. If sustained, this could reduce the risk of disruptions to our
business and the Israeli economy in general. We continue to monitor the situation closely and examine the potential disruptions that could
adversely affect our operations.
42
Our commercial insurance does
not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers
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 that it will sufficiently cover our potential damages. 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 and could harm our results of operations.
The continued political instability
and hostilities between Israel and its neighbors and any armed conflict, terrorist activity or political instability in the region could
adversely affect our operations in Israel and adversely affect the market price of our shares of common stock. In addition, several organizations
and countries may restrict doing business with Israel and Israeli companies have been and are today subjected to economic boycotts. The
interruption or curtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition
and results of operations.
Finally, political conditions
within Israel may affect our operations. Israel has held five general elections between 2019 and 2022, and prior to October 2023, the
Israeli government pursued extensive changes to Israel’s judicial system, which sparked extensive political debate and unrest. To
date, the main initiatives have been substantially put on hold. Actual or perceived political instability in Israel or any negative changes
in the political environment, may individually or in the aggregate adversely affect the Israeli economy and, in turn, our business, financial
condition, results of operations and growth prospects.
The tax benefits that are available to us
if and when we generate taxable income require us to meet various conditions and may be prevented or reduced in the future, which could
increase our costs and taxes.
If and when we generate taxable
income, we may be eligible for certain tax benefits provided to “Preferred Enterprises” under the Israeli Law for the Encouragement
of Capital Investments, 5719-1959, as amended, or the Investment Law. The benefits that may be available to us under the Investment Law
are subject to the fulfillment of conditions stipulated in the Investment Law. Further, in the future these tax benefits may be reduced
or discontinued. If these tax benefits are reduced, cancelled, or discontinued, our Israeli taxable income would be subject to regular
Israeli corporate tax rates. The standard corporate tax rate for Israeli companies is currently 23%. Additionally, if we increase our
activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future
Israeli tax benefit programs. See “Item 10.E. Taxation-Israeli Tax Considerations and Government Programs-Law for the Encouragement
of Capital Investments, 5719-1959.”
It may be difficult to enforce a U.S. judgment
against us, our officers and directors, and the Israeli experts named in this Annual Report on Form 20-F in Israel or the United States,
or to assert U.S. securities laws claims in Israel or serve process on our officers and directors and these experts.
We were incorporated in Israel,
and our corporate headquarters, research facilities and substantially all of our operations are located in Israel. All of our senior management
and a majority of our directors are located outside the United States. All of our assets are located outside the United States. Therefore,
it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions
of the U.S. federal securities laws against us or any of these persons in a U.S. or Israeli court, or to effect service of process upon
these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities
law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities
laws against us or our officers and directors on the grounds that Israel is not the most appropriate forum in which to bring such a claim.
Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming
and costly process. Certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing
the matters described above.
43
Your rights and responsibilities as our
shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of
U.S. corporations.
Because we are incorporated
under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These
rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders of U.S. corporations.
In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights
and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the company’s articles
of association, an increase of the company’s authorized share capital, a merger of the company, and approval of related party transactions
that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In
addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote
or to appoint or prevent the appointment of an officer of the company has a duty of fairness towards the company. However, Israeli law
does not define the substance of this duty of fairness. There is limited case law available to assist us in understanding the nature of
this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities
on our shareholders that are not typically imposed on shareholders of U.S. corporations. See “Item 6.C. Board Practices-Approval
of Related Party Transactions under Israeli Law-Shareholders’ Duties.”
Provisions of Israeli law and our amended
and restated articles of association could make it more difficult for a third party to acquire us or increase the cost of acquiring us,
even if doing so would benefit our shareholders.
Israeli 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 tender
offer for all of a company’s issued and outstanding shares, or a Full Tender Offer, can only be completed if the acquirer receives
approval of the holders of at least 95% of the issued share capital. Completion of the Full Tender Offer also requires approval of a majority
of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the company’s outstanding shares
are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the Full Tender Offer (unless the acquirer
stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights), may, at any time within six months
following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. In case the Full
Tender Offer has not been accepted by the required threshold, the offeror is limited to acquire shares that will confer on the offeror
a holding of not more than 90% of the issued share capital of the company. In addition, special tender offer requirements may also apply
upon a purchaser becoming a holder of 25% or more of the voting rights in a company (if there is no other shareholder of the company holding
25% or more of the voting rights in the company) or upon a purchaser becoming a holder of more than 45% of the voting rights in the company
(if there is no other shareholder of the company who holds more than 45% of the voting rights in the company), See “Item 10.B. Memorandum
and Articles of Association-Acquisitions under Israeli Law” for additional information.
Further, Israeli tax considerations
may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty
with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share
exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances
but makes the deferral contingent on the fulfilment of a number of conditions, including, in some cases, a holding period of two years
from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions.
Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes
payable even if no disposition of the shares has occurred.
We have received grants from
the IIA for certain research and development expenditures. The terms of these grants may require us to satisfy specified conditions in
order to manufacture products and transfer technologies outside of Israel. For more information, see “-Risks Related to Our Financial
Condition and Capital Requirements-The IIA grants we have received in the past for research and development expenditures may restrict
our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.”
44
We may be classified as a passive foreign
investment company for U.S. federal income tax purposes, and our U.S. shareholders may suffer adverse tax consequences as a result.
Generally, if, for any taxable
year, either, at least 75% of our gross income is passive income (including our pro-rata share of the gross income of our 25% or more-owned
corporate subsidiaries), or at least 50% of the average value of our assets (including our pro-rata share of the assets of our 25% or
more-owned corporate subsidiaries) is attributable to assets that produce passive income or are held for the production of passive income,
we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Passive income generally
includes dividends, interest, and gains from disposition of passive assets and rents and royalties.
If we are characterized as
a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder (as defined below) of our securities,
such U.S. holder generally will be subject to certain adverse U.S. federal income tax consequences, including increased tax liability
on gains from dispositions of our securities and certain distributions and a requirement to file annual reports with the Internal Revenue
Service, or IRS. Certain adverse consequences of PFIC status may be alleviated if a U.S. holder makes a “mark to market” election
or an election to treat us as a qualified electing fund, or QEF. These elections would result in an alternative treatment (such as mark-to-market
treatment) of our ordinary shares. 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 “Item 10.E. Taxation-Certain Material U.S. Federal
Income Tax Consequences-Passive Foreign Investment Company Consequences.”
Since PFIC status depends
on the composition of our income and the composition and value of our assets (which may be determined in large part by reference to the
market value of our ordinary shares, which may be volatile) from time to time, there can be no assurance that we will not be considered
a PFIC for any taxable year. However, based on our non-passive revenue-producing operations for the year ended December 31, 2025, we do
not believe we were a PFIC for our 2025 taxable year. Because the PFIC determination is highly fact intensive, there can be no assurance
that we were not a PFIC in 2025 and will not be a PFIC in 2026 or any other year.
U.S. investors are urged to
consult their own tax advisors regarding the possible application of the PFIC rules. For more information, see “Item 10.E. Taxation-Certain
Material U.S. Federal Income Tax Consequences-Passive Foreign Investment Company Consequences.”
Our facilities in Israel are subject to
local Business Licensing and Planning and Zoning regulations and we may be subject to fines if not complied with.
Under the Israeli Licensing
of Businesses Law, operating a business without a license or temporary permit is a criminal offense. Both our sites in Rehovot, Israel,
and our production site at Yessod Hama’ala, Israel, have valid business licenses in effect.
In addition, the Israeli Planning
and Zoning Law, sets provisions and obligations, inter alia, regarding the licensing process for a new building, including building
permits, non-conforming use and easements, the supervision over its construction, and the required occupancy permits. According to the
Planning and Zoning Law, work or use of land without a permit, where such permit is required, a deviation from the permit granted, or
use of agricultural land in violation of the law constitute criminal offenses. We have recently learned upon internal inspection that
permits for certain of the structures on our production site at Yessod Hama’ala are missing. We are in correspondence with the relevant
authorities, including the regional council, and are in the process of obtaining the necessary permits. Nevertheless, the absence of such
permits could lead to the halt or closure of the site, may expose us to legal proceedings and may constitute a criminal offence, and as
such, could adversely impact our operations and results, including our production capabilities. To date, the site remains open and fully
operational, and we have not experienced any adverse effects resulting from our need to obtain the said permits.
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