UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549










FORM 20-F



| ̈  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Or
|x  | ANNUAL REPORT PURSUANT TO SECTION 13
        OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the fiscal year ended December
        31, 2016
|Or
| ̈  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                
|Or
| ̈  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                             



Commission File No. 001-37521










INTEC PHARMA LTD.

(Exact name of Registrant as specified
in its charter)



N/A

(Translation of Registrant’s name
into English)



State of Israel

(Jurisdiction of incorporation or organization)



12 Hartom Street, Har Hotzvim, Jerusalem
9777512, Israel

(Address of principal executive offices)



Zeev Weiss

Chief Executive Officer

12 Hartom Street, Har Hotzvim

Jerusalem 9777512, IsraelTel: (+972) (2) 586-4657

(Name, Telephone, E-mail and/or Facsimile
number and Address of Company Contact Person)



Securities registered or to be registered
pursuant to Section 12(b) of the Act:



|Title
        of each class   |  | Name
        of each exchange on which registered
|----------------------------- |  | -------------------------------------------------
|Ordinary shares, no par value |  | Nasdaq Capital Market                            



Indicate the number
of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by
the annual report: 11,448,191



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ̈ No
x



If this report
is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes  ̈ No x



Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No  ̈



Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ̈
No  ̈



Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  ̈
Accelerated filer  ̈ Non-accelerated filer x



Indicate by check
mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

|U.S. GAAP  ̈ | International Financial Reporting Standardsas issued by the International Accounting Standards Board x | Other  ̈
|----------- | ------------------------------------------------------------------------------------------------------ | -------



If “Other”
has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has
elected to follow: Item 17  ̈ Item 18  ̈



If this is an annual
report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈
No x



(APPLICABLE ONLY
TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)



Indicate by check
mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ̈
No  ̈











TABLE OF CONTENTS



|PART I                                                                                | 6  
|------------------------------------------------------------------------------------- | ---
|ITEM 1. Identity of Directors, Senior Management and Advisers                         | 6  
|ITEM 2. Offer Statistics and Expected Timetable                                       | 6  
|ITEM 3. Key Information                                                               | 6  
|ITEM 4. Information on the Company                                                    | 46 
|ITEM 4A. Unresolved Staff Comments                                                    | 80 
|ITEM 5. Operating and Financial Review and Prospects                                  | 80 
|ITEM 6. Directors, Senior Management and Employees                                    | 89 
|ITEM 7. Major Shareholders and Related Party Transactions                             | 111
|ITEM 8. Financial Information                                                         | 112
|ITEM 9. The Offer and Listing                                                         | 113
|ITEM 10. Additional Information                                                       | 114
|ITEM 11. Quantitative and Qualitative Disclosures About Market Risk                   | 134
|ITEM 12. Description of Securities Other Than Equity Securities                       | 135
|                                                                                      |    
|PART II                                                                               | 136
|ITEM 13. Defaults, Dividend Arrearages and Delinquencies                              | 136
|ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 136
|ITEM 15. Controls and Procedures                                                      | 136
|ITEM 16. [RESERVED]                                                                   | 137
|ITEM 16A. Audit Committee Financial Expert                                            | 137
|ITEM 16B. Code of Ethics                                                              | 137
|ITEM 16C. Principal Accountant Fees and Services                                      | 138
|ITEM 16D. Exemptions from the Listing Standards for Audit Committees                  | 138
|ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 138
|ITEM 16F. Change in Registrant’s Certifying Accountant                                | 138
|ITEM 16G. Corporate Governance                                                        | 139
|ITEM 16H. Mine Safety Disclosure                                                      | 141
|                                                                                      |    
|PART III                                                                              | 142
|ITEM 17. Financial Statements                                                         | 142
|ITEM 18. Financial Statements                                                         | 142
|ITEM 19. Exhibits                                                                     | 144



2







ABOUT THIS ANNUAL REPORT



All references to
“we,” “us,” “our,” “Intec”, “the Company” and “our Company”,
in this Annual Report on Form 20-F, or our annual report, are to Intec Pharma Ltd., unless the context otherwise requires. All
references to “ordinary shares” and “share capital” refer to ordinary shares and share capital of Intec.
All references to “Israel” are to the State of Israel. Our financial statements are prepared and presented in accordance
with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
Our historical results do not necessarily indicate our expected results for any future periods. Any discrepancies in any table
between totals and sums of the amounts listed are due to rounding. Unless otherwise indicated, or the context otherwise requires,
references in this annual report to financial and operational data for a particular year refer to the fiscal year of our company
ended December 31 of that year.



In this annual report,
“NIS” means New Israeli Shekel, and “$,” “US$” and “U.S. dollars” mean United States
dollars.



CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report
on Form 20-F contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things,
our product development efforts, business, financial condition, results of operations, strategies, plans and prospects. In addition,
from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking
statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,”
“plan,” “may,” “should,” “anticipate,” “could,” “might,”
“seek,” “target,” “will,” “project,” “forecast,” “continue”
or their negatives or variations of these words or other comparable words or by the fact that these statements do not relate strictly
to historical matters. These forward-looking statements may be included in, among other things, various filings made by us with
the Securities and Exchange Commission, or the SEC, press releases or oral statements made by or with the approval of one of our
authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results
as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially
from the activities and results anticipated in forward-looking statements, including, but not limited to, the factors summarized
below:



| | · | We are a clinical stage biopharmaceutical company
    with a history of operating losses, are not currently profitable, do not expect to become profitable in the near future and
    may never become profitable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                   
| | · | Our independent registered public accounting firm has expressed substantial doubt regarding our ability to continue as a going concern.                                                                           
| |   |                                                                                                                                                                                                                   
| | · | We may not be able to raise additional funds unless we increase our registered share capital.                                                                                                                     



| | · | Because of our limited operating history, we may not be able to successfully operate our business or execute our business plan.
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | We face continuous technological change, and developments by competitors may render our products or technologies obsolete or non-competitive. If our new or existing product candidates are rendered obsolete or non-competitive, our marketing and sales will suffer and we may never be profitable.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We license our core technology on an exclusive basis from Yissum (Hebrew University), and we could lose our rights to this license if a dispute with Yissum arises or if we fail to comply with the financial and other terms of the license.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | If we fail to adequately protect, enforce or secure rights to the patents which were licensed to us or any patents we may own in the future, the value of our intellectual property rights would diminish and our business and competitive position would suffer.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3







| | · | Our product candidates are at various stages of preclinical and clinical development and may never be commercialized.
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | We cannot be certain that the results of our potential Phase III clinical trials, even if all endpoints are met, will support regulatory approval of any of our product candidates for any indication.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our product candidates are subject to extensive regulation and are at various stages of regulatory development and may never obtain regulatory approval.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | Potential political, economic and military instability in the State of Israel, where our senior management, our head executive office, research and development, and manufacturing facilities are located, may adversely affect our results of operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



4







EXPLANATORY NOTE



Market data and certain
industry data and forecasts used throughout this annual report were obtained from market research databases, consultant surveys
commissioned by us, publicly available information, reports of governmental agencies and industry publications and surveys. Industry
surveys, publications, consultant surveys commissioned by us and forecasts generally state that the information contained therein
has been obtained from sources believed to be reliable. We have relied on certain data from third-party sources, including internal
surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the
industry. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements
regarding the industry data presented in this annual report, our estimates involve risks and uncertainties and are subject to change
based on various factors, including those discussed under the heading “Risk Factors” in this annual report. Notwithstanding
the foregoing, we remain responsible for the accuracy and completeness of the historical information presented in this annual report,
as of the date on the front cover of this annual report.



5







PART
I



ITEM 1. Identity of Directors, Senior Management and Advisers.



Not applicable.



ITEM 2. Offer Statistics and Expected Timetable.



Not applicable.



ITEM 3. Key Information.



| | A. | Selected Financial Data.
| | -- | ------------------------



The following tables
summarize our financial data. We have derived the selected statements of comprehensive loss data for the years ended December 31,
2014, 2015 and 2016 and the statements of financial position as of December 31, 2014, 2015 and 2016 from our audited financial
statements included elsewhere in this annual report. The selected statements of comprehensive loss data for the year ended December
2013,andthe statements of financial position as of December 31, 2013have been derived from otheraudited financial statements not included in this Form
20-F. The following selected financial data for our company should be read in conjunction with the financial information,
“Item 5. Operating and Financial Review and Prospects” and other information provided elsewhere in this Annual Report
on Form 20-F and our financial statements and related notes. The selected financial data in this section is not intended to replace
the financial statements and is qualified in its entirety thereby.



Our financial statements
included in this annual report were prepared in accordance with IFRS, as issued by the IASB.



Our functional and
reporting currency for the years ended December 31, 2015 and earlier was the New Israeli Shekel. Effective January 1, 2016, our
functional and reporting currency is the U.S. dollar as a result of the significant increase in our expenses denominated in U.S.
dollars, primarily due to expenses associated with our Phase III clinical trial. Due to the change in our functional and reporting
currency from the NIS to the dollar, effective January 1, 2016, the amounts for 2014 through 2015 have been restated in dollars
using the methodology set forth in Note 2b to our financial statements for the year ended December 31, 2016.



Unless otherwise noted,
for the purposes of annual financial data, all conversions from NIS to U.S. dollars and from U.S. dollars to NIS were made at a
rate of 3.845 NIS to $1.00 U.S. dollar, the daily representative rate in effect as of December 31, 2016. For the periods in which
our functional currency was the NIS, the financial data presented in the following discussion has been translated into U.S. dollars
using the method of conversion used to translate our financial statements, see Note 2b to our financial statements. No representation
is made that the NIS amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular
rate or at all.



As of December 31,
2016, the daily representative rate of NIS per U.S. dollars was 3.845. The following table sets forth information regarding the
exchange rates of NIS per U.S. dollars for the periods indicated. Average rates are calculated by using the daily representative
rates as reported by the Bank of Israel on the last day of each month during the periods presented.



|                        |  | NIS per U.S. $ |      
|----------------------- |  | -------------- | -----
|Year Ended December 31, |  | High           |      
|2016                    |  |                | 3.983
|2015                    |  |                | 4.053
|2014                    |  |                | 3.994
|2013                    |  |                | 3.791



6







|              |  | NIS per U.S. $ |      
|------------- |  | -------------- | -----
|Month Ended   |  | High           |      
|March 2017    |  |                | 3.693
|February 2017 |  |                | 3.768
|January 2017  |  |                | 3.860
|December 2016 |  |                | 3.867
|November 2016 |  |                | 3.876
|October 2016  |  |                | 3.856



The following selected
financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with
our financial statements and related notes and “Operating and Financial Review and Prospects,” both of which are included
elsewhere in this annual report.



|                                                                                   |  | Year ended December 31, |       
|---------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                   |  | 2013                    |       
|                                                                                   |  | USD in thousands        |       
|Statements of comprehensive loss data:                                             |  |                         |       
|Research and development expenses                                                  |  | $                       | (5,065
|Less-participation in research and development expenses                            |  |                         | 2,325 
|Research and development expenses, net                                             |  |                         | (2,740
|General and administrative expenses                                                |  |                         | (2,427
|Other gains, net                                                                   |  |                         | 131   
|Operating loss                                                                     |  |                         | (5,036
|Financial income                                                                   |  |                         | 120   
|Financial expenses                                                                 |  |                         | (180  
|Financial income, net                                                              |  |                         | (60   
|Net loss                                                                           |  |                         | (5,096
|Other comprehensive income (loss)- currency translation differences                |  |                         | 406   
|Loss and comprehensive loss                                                        |  | $                       | (4,690
|                                                                                   |  |                         |       
|                                                                                   |  |                         |       
|Basic and diluted loss per ordinary share                                          |  | $                       | (1.18 
|Number of ordinary shares used in computing loss per ordinary share (in thousands) |  |                         | 4,322 



7







|                                                      |  | December 31,     |       
|----------------------------------------------------- |  | ---------------- | ------
|                                                      |  | 2013             |       
|                                                      |  | USD in thousands |       
|Statement of financial position:                      |  |                  |       
|Cash and cash equivalents                             |  | $                | 3,389 
|Short term bank deposits                              |  |                  | -     
|Financial assets at fair value through profit or loss |  |                  | 5,153 
|Restricted bank deposits                              |  |                  | 75    
|Other receivables                                     |  |                  | 744   
|Property and equipment                                |  |                  | 4,319 
|Total assets                                          |  |                  | 13,680
|Accounts payable and accruals                         |  |                  | 1,418 
|Derivative financial instruments                      |  |                  | 2,967 
|Total liabilities                                     |  |                  | 4,385 
|Total equity                                          |  | $                | 9,295 



B. Capitalization and Indebtedness.



Not applicable.



C. Reasons for the Offer and Use of Proceeds.



Not applicable.



D. Risk Factors.



Risks Related to
Our Company and Its Business



An investment in
our securities involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks
and uncertainties. You should carefully consider the factors described below, together with all of the other information contained
in this annual report on Form 20-F, including the audited financial statements and the related notes included in this annual report
beginning on page F-1, before deciding whether to invest in our ordinary shares. If any of the risks discussed below actually occur,
our business, financial condition, operating results and cash flows could be materially adversely affected. The risks described
below are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations. This could cause the trading price of our ordinary shares to decline, and you
may lose all or part of your investment.



8







We are a clinical stage biopharmaceutical
company with a history of operating losses, are not currently profitable, do not expect to become profitable in the near future
and may never become profitable.



We are a clinical
stage biopharmaceutical company that was incorporated in 2000. Since our incorporation, we have primarily focused our efforts on
research and development and clinical trials. Our two most advanced therapeutic candidates are in clinical stages. We are not profitable
and have incurred losses since inception, principally as a result of research and development, clinical trials and general administrative
expenses in support of our operations. We have not generated any revenue, expect to incur substantial losses for the foreseeable
future and may never become profitable. We also expect to incur significant operating and capital expenditures and anticipate that
our expenses and losses will increase substantially in the foreseeable future as we:



| | • | initiate and manage preclinical development and clinical trials for our current and any new product candidates;
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | prepare NDAs for our product candidates, assuming that the clinical trial data support an NDA;
| | - | ----------------------------------------------------------------------------------------------



| | • | seek regulatory approvals for our current product candidates, or future product candidates, if any;
| | - | ---------------------------------------------------------------------------------------------------



| | • | implement internal systems and infrastructure;
| | - | ----------------------------------------------



| | • | seek to in-license additional technologies for development, if any;
| | - | -------------------------------------------------------------------



| | • | hire additional management and other personnel; and
| | - | ---------------------------------------------------



| | • | move towards commercialization of our product candidates and future product candidates, if any.
| | - | -----------------------------------------------------------------------------------------------



We may out-license
our ability to generate revenue from one or more of our product candidates, depending on a number of factors, including our ability
to:



| | • | obtain favorable results from and progress the clinical development of our product candidates;
| | - | ----------------------------------------------------------------------------------------------



| | • | develop and obtain regulatory approvals in the countries and for the uses we intend to pursue for our product candidates;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | • | subject to successful completion of registration, clinical trials and perhaps additional clinical trials of any product candidate, apply for and obtain marketing approval in the countries we intend to pursue for such product candidate; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | contract for the manufacture of commercial quantities of our product candidates at acceptable cost levels, subject to the receipt of marketing approval.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



For the years ended
December 31, 2015 and 2016, we had net losses of $ 7.8 million and $ 13.4 million, respectively, and we expect such losses to continue
for the foreseeable future. As a result, we will ultimately need to generate significant revenues in order to achieve and maintain
profitability. We may not be able to generate these revenues or achieve profitability in the future. If our product candidates
fail in clinical trials or do not gain regulatory clearance or approval, or if our product candidates do not achieve market acceptance,
we may never become profitable. Our failure to achieve or maintain profitability, or substantial delays in achieving profitability,
could negatively impact the value of our ordinary shares and our ability to raise additional financing. A substantial decline in
the value of our ordinary shares would also affect the price at which we could sell shares to secure future funding, which could
dilute the ownership interest of current shareholders.



9







Even if we achieve
profitability in the future, we may not be able to sustain profitability in subsequent periods. Accordingly, it is difficult to
evaluate our business prospects. Moreover, our prospects must be considered in light of the risks and uncertainties encountered
by an early-stage company in highly regulated and competitive markets, such as the biopharmaceutical market, where regulatory approval
and market acceptance of our products are uncertain. There can be no assurance that our efforts will ultimately be successful or
result in revenues or profits. As a result, our 2016 annual financial statements note that there is a substantial doubt about our
ability to continue as a going concern.



Our independent registered public
accounting firm has expressed substantial doubt regarding our ability to continue as a going concern.



Our independent registered
public accounting firm has issued its report on our financial statements for the year ended December 31, 2016 and included an explanatory
paragraph stating that the Company has suffered recurring losses from operations and negative cash outflows from operating activities
that raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. We have no current source of revenue to sustain our present activities,
and we do not expect to generate revenue until, and unless, the U.S. Food and Drug Administration, or the FDA or other regulatory
authorities approve, and we successfully commercialize, our product candidates. Accordingly, our ability to continue as a going
concern will require us to obtain additional financing to fund our operations, such as public or private offerings. There can be
no assurance that we will succeed in obtaining the necessary financing to continue our operations. The perception that we might
be unable to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations
and could result in the loss of confidence by investors, suppliers and employees. If we cannot successfully continue as a going
concern, our shareholders may lose their entire investment in our ordinary shares.



We may not be able to raise additional
funds unless we increase our registered share capital.



As of the date of
this annual report on Form 20-F, we have 16,000,000 registered share capital, out of which 13,737,829 ordinary shares are issued
and outstanding and 1,371,052 are reserved for future issuance under outstanding options and warrants. Our need for additional
financing in order to fund our operations will require us to raise funds by either public or private offerings (or a combination
of both), and based on our share price at the time we initiate such a transaction, we might also be required to increase our registered
share capital prior to initiating any such financing transaction.



Increasing our share
capital is subject to the approval of our shareholders. In the event we fail to obtain the approval of our shareholders to such
increase in our registered share capital, our ability to raise sufficient funds, if at all, might be adversely effected. Further,
if we are unsuccessful in raising sufficient capital, we may need to curtail or cease operations.



Because of our limited operating
history, we may not be able to successfully operate our business or execute our business plan.



We have a limited
operating history upon which to evaluate our proposed business and prospects. Our proposed business operations will be subject
to numerous risks, uncertainties, expenses and difficulties associated with early-stage enterprises. Such risks include, but are
not limited to, the following:



| | • | the absence of a lengthy operating history;
| | - | -------------------------------------------



| | • | insufficient capital to fully realize our operating plan;
| | - | ---------------------------------------------------------



| | • | our ability to obtain U.S. Food and Drug Administration, or the FDA, approvals in a timely manner, if ever, or that the approved label indications are sufficiently broad to make sale of the products commercially feasible;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | expected continual losses for the foreseeable future;
| | - | -----------------------------------------------------



10







| | • | operating in an environment that is highly regulated by a number of agencies;
| | - | -----------------------------------------------------------------------------



| | • | social and political unrest;     
| | - | ---------------------------------
| |   |                                  
| | • | operating in multiple currencies;



| | • | our ability to anticipate and adapt to a developing market(s);
| | - | --------------------------------------------------------------



| | • | acceptance of the Accordion Pill by the medical community and consumers;
| | - | ------------------------------------------------------------------------



| | • | limited marketing experience;
| | - | -----------------------------



| | • | a competitive environment characterized by well-established and well-capitalized competitors;
| | - | ---------------------------------------------------------------------------------------------



| | • | the ability to identify, attract and retain qualified personnel; and
| | - | --------------------------------------------------------------------



| | • | reliance on key personnel.
| | - | --------------------------



Because we are subject
to these risks, evaluating our business may be difficult, our business strategy may be unsuccessful and we may be unable to address
such risks in a cost-effective manner, if at all. If we are unable to successfully address these risks our business could be harmed.



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



We have not yet commercialized
any products or technologies, and we may never be able to do so. We do not know when or if we will complete any of our product
development efforts, obtain regulatory approval for any product candidates incorporating our technologies or successfully commercialize
any approved products. We are currently seeking a potential strategic partner for further clinical development and commercialization
of AP–ZP. If we are not able to enter into a relationship with a strategic partner for further clinical development and commercialization
of AP–ZP, we may not be able to obtain sufficient capital to independently develop and commercialize AP–ZP. Even if
we are successful in developing products that are approved for marketing, we will not be successful unless these products gain
market acceptance for appropriate indications at favorable reimbursement rates. The degree of market acceptance of these products
will depend on a number of factors, including, but not limited to:



| | • | the timing of regulatory approvals in the countries, and for the uses, we intend to pursue with respect to the commercialization of our product candidates;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the competitive environment;
| | - | ----------------------------



| | • | the establishment and demonstration in, and acceptance by, the medical community of the safety and clinical efficacy of our products and their potential advantages over other therapeutic products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our ability to enter into strategic agreements with pharmaceutical and biotechnology companies with strong marketing and sales capabilities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | • | the adequacy and success of distribution, sales and marketing efforts;
| | - | ----------------------------------------------------------------------



| | • | the establishment of external, and potentially, internal, sales and marketing capabilities to effectively market and sell our product candidates in the United States and other countries; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11







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



Our business is currently in the
research and development stage, and we have not yet generated revenues from our operations.



Our business is currently
in the research and development stage, and we have not yet generated revenues from our operations. Our financial statements include
a note describing our current operations and the incurrence of future losses from our research and development activities. As of
December 31, 2016, we had incurred cumulative losses of approximately $63 million. We have no current source of revenue to sustain
our present activities, and we do not expect to generate revenue until, and unless, the FDA or other regulatory authorities approve
one of our product candidates and/or we successfully commercialize (including out-licensing) such product candidate. These factors
raise substantial doubt about our ability to continue as a going concern. Accordingly, our ability to continue as a going concern
will require us to obtain additional financing to fund our operations. If we are unsuccessful in raising capital, we may need to
curtail or cease operations.



If we are unable to establish sales,
marketing and distribution capabilities, we may not be successful in commercializing our product candidates if and when they are
approved.



We do not have a sales
or marketing infrastructure and have no experience in the sale, marketing or distribution of products. To achieve commercial success
for any product for which we have obtained marketing approval, we will need to establish a sales and marketing organization.



In the future, we
may consider building a focused sales and marketing infrastructure to market AP-CDLD and, potentially, other product candidates
in the United States, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution
capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch.
If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed
or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may
be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.



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



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



| | • | the inability of sales personnel to obtain access to physicians;
| | - | ----------------------------------------------------------------



| | • | the lack of adequate numbers of physicians to prescribe any future products;
| | - | ----------------------------------------------------------------------------



| | • | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



If we are unable to
establish our own sales, marketing and distribution capabilities and enter into arrangements with third parties to perform these
services, our product revenues and our profitability, if any, are likely to be lower than if we were to market, sell and distribute
any products that we develop ourselves.



In addition, we may
not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates outside
of the United States or may be unable to do so on terms that are favorable to us. We likely will have little control over such
third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with
third parties, we will not be successful in commercializing our product candidates.



12







The members of our management team
are important to the efficient and effective operation of our business, and we may need to add and retain additional leading experts.
Failure to retain our management team and add additional leading experts could have a material adverse effect on our business,
financial condition or results of operations.



Our executive officers
and our management team are important to the efficient and effective operation of our business. Our failure to retain our management
personnel, who have developed much of the technology we utilize today, or any other key management personnel, could have a material
adverse effect on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly-trained
technical and management personnel, among others, to continue the development and commercialization of our current and future products.



As such, our future
success highly depends on our ability to attract, retain and motivate personnel required for the development, maintenance and expansion
of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified
personnel. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a
material adverse effect on our business, financial condition and results of operation.



We expect to face significant competition.
If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.



If any of our products
are approved, we expect to compete against fully-integrated pharmaceutical and biotechnology companies and smaller companies that
are collaborating with pharmaceutical companies, academic institutions, government agencies and other public and private research
organizations. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger
research and development programs than we do, and have substantially greater financial resources than we do, as well as significantly
greater experience in:



| | • | developing drugs;
| | - | -----------------



| | • | undertaking preclinical testing and human clinical trials;
| | - | ----------------------------------------------------------



| | • | obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals of drugs;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | formulating and manufacturing drugs; and
| | - | ----------------------------------------



| | • | launching, marketing and selling drugs.
| | - | ---------------------------------------



Our competitors are
likely to include companies with marketed products and/or an advanced research and development pipeline. The competitive landscape
of improving Levodopa for the treatment of Parkinson’s disease symptoms includes Novartis AG, Orion Corporation, AbbVie,
Impax Laboratories, Inc., XenoPort Inc., which was acquired by Arbor Pharmaceuticals in July 2016 and more. The competitive landscape
in the insomnia field includes Sanofi S.A., Sunovion Pharmaceuticals Inc., King Pharmaceuticals, Merck, Somnus Therapeutics, Inc.,
Neurim Pharmaceuticals, Ltd., and more. The competitive landscape in the gastric retention system field includes Depomed, Inc.,
Merrion Pharmaceuticals, Flamel Technologies S.A., XenoPort Inc., Sun Pharma and more. Management is not aware of any companies
that are developing or planning to develop a drug delivery system similar to our Accordion Pill platform technology.



There is a substantial risk of product
liability claims in our business. We currently do not maintain product liability insurance and a product liability claim against
us could adversely affect our business.



We may incur substantial
liabilities and may be required to limit commercialization of our products in response to product liability lawsuits, which may
result in substantial losses.



13







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



In addition, potential
adverse events caused by our product candidates could lead to product liability lawsuits. If product liability lawsuits are successfully
brought against us, we may incur substantial liabilities and may be required to limit the marketing and commercialization of our
product candidates. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing,
marketing and sale of pharmaceutical products. We may not be able to avoid product liability claims. Product liability insurance
for the pharmaceutical and biotechnology industries is generally expensive, if available at all. If, at any time, we are unable
to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims,
we may be unable to clinically test, market or commercialize our product candidates. A successful product liability claim brought
against us in excess of our insurance coverage, if any, may cause us to incur substantial liabilities, and, as a result, our business,
liquidity and results of operations would be materially adversely affected. In addition, the existence of a product liability claim
could affect the market price of our ordinary shares.



We face continuous technological
change, and developments by competitors may render our products or technologies obsolete or non-competitive. If our new or existing
product candidates are rendered obsolete or non-competitive, our marketing and sales will suffer and we may never be profitable.



If our competitors
develop and commercialize products faster than we do, or develop and commercialize products that are superior to our product candidates,
our commercial opportunities will be reduced or eliminated. The extent to which any of our product candidates achieve market acceptance
will depend on competitive factors, many of which are beyond our control. Competition in the biotechnology and biopharmaceutical
industry is intense and has been accentuated by the rapid pace of technology development. Our potential competitors include large
integrated pharmaceutical companies, biotechnology companies that currently have drug and target discovery efforts, universities,
and public and private research institutions. Almost all of these entities have substantially greater research and development
capabilities and financial, scientific, manufacturing, marketing and sales resources than we do. These organizations also compete
with us to:



| | • | attract parties for acquisitions, joint ventures or other collaborations;
| | - | -------------------------------------------------------------------------



| | • | license proprietary technology that is competitive with the technology we are developing;
| | - | -----------------------------------------------------------------------------------------



| | • | attract funding; and
| | - | --------------------



| | • | attract and hire scientific talent and other qualified personnel.
| | - | -----------------------------------------------------------------



Our competitors may
succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA more rapidly than we
do. Our competitors may also develop products or technologies that are superior to those we are developing, and render our product
candidates or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing
and sales could suffer and we may never be profitable.



We may encounter difficulties in
managing our growth. Failure to manage our growth effectively could have a material adverse effect on our business, results of
operations and financial condition.



We may not be able
to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially
rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place
a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve
our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations
and growth effectively requires us to continue to expend funds to enhance our operational, financial and management controls, reporting
systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up and implement improvements
to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then
we may not be able to make available the products required to successfully commercialize our technology. Failure to attract and
retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective
growth. Moreover, the management, systems and controls currently in place or to be implemented may not be adequate for such growth,
and the steps taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage
our growth effectively, it could have a material adverse effect on our business, results of operations and financial condition.



14







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



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



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



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



The global economy
continues to experience significant volatility and the economic environment may continue to be, or become, less favorable than
that of past years. Among other matters, the continued risk of a default on sovereign debt by one or more European countries, related
financial restructuring efforts in Europe, and/or evolving deficit and spending reduction programs instituted by the U.S. and other
governments could negatively impact the global economy and/or the pharmaceutical industry. This economic volatility and/or decline
in the economic environment may adversely affect our ability to raise capital, if needed, on a timely basis and on acceptable terms
or at all. In addition, we rely and intend to rely on third parties, including our clinical research organizations, third-party
manufacturers and second-source suppliers, and certain other important vendors and consultants. As a result of the current volatile
and unpredictable global economic situation, there may be a disruption or delay in the performance of our third-party contractors
and suppliers. If such third parties are unable to satisfy their contractual commitments to us, our business could be materially
adversely affected.



Our current management team only
has experience in managing and operating a publicly traded U.S. company since August 2015. Any failure to comply or adequately
comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial condition.



Although our ordinary
Shares trade on the NASDAQ Capital Market and the TASE and we previously filed reports in Israel as an Israeli public company,
our current management team only has experience managing and operating a publicly-traded U.S. company since August 2015. Failure
to comply or adequately comply with any laws, rules or regulations applicable to our business may result in fines or regulatory
actions, which may materially adversely affect our business, results of operation or financial condition and could result in delays
in achieving the development of an active and liquid trading market for our ordinary shares.



We incur significant costs as a result
of the listing of our ordinary shares for trading on the NASDAQ Capital Market and thereby being a public company in the United
States as well as in Israel, and our management is required to devote substantial additional time to new compliance initiatives
as well as to compliance with ongoing U.S. and Israeli reporting requirements.



As a public company
in both Israel and the U.S., we incur significant accounting, legal and other expenses in order to comply with requirements of
the Securities and Exchange Commission, or the SEC, and the NASDAQ Capital Market, including requirements under Section 404 and
other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations have increased our legal
and financial compliance costs, introduced new costs such as investor relations, stock exchange listing fees and shareholder reporting,
and made some activities more time consuming and costly. Any future changes in the laws and regulations affecting public companies
in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, 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.



15







Failure to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results
of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting,
which could have a material adverse effect on the price of our ordinary shares.



Effective internal
controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We are required to document
and test our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting. If we fail to maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that
we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section
404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a
timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence
in our reported financial information, which could have a material adverse effect on the price of our ordinary shares. If we cannot
provide reliable financial reports or prevent fraud, our operating results could be harmed.



As an “emerging growth company”
under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.



As an “emerging
growth company” under the Jumpstart Our Business Startups Act of 2012, or theJOBS Act, we are permitted to, and intend
to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of: (i) the last
day of the fiscal year during which we have total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal
year following the fifth anniversary of the date of the first sale of our ordinary shares pursuant to an effective registration
statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible
debt or (iv) the date on which we are deemed a “large accelerated issuer” as defined in Regulation S-K of the Securities
Act. For so long as we remain an emerging growth company, we will not be required to:



| | • | have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | • | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and instead may provide a reduced level of disclosure concerning executive compensation.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although we intend
to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretations
and guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may no longer satisfy the conditions
of an emerging growth company under the JOBS Act. We are currently evaluating and monitoring developments with respect to these
new rules and we cannot assure you that we will be able to take advantage of all of the benefits from the JOBS Act.



16







In addition, as an
“emerging growth company,” we may elect under the JOBS Act to delay adoption of new or revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to private companies. We are choosing to “opt
out” of this provision and, as a result, we will comply with new or revised pronouncements applicable to public companies
when they are required to be adopted by public companies. This decision to opt out of the extended transition period under the
JOBS Act is irrevocable.



We are a “foreign private issuer”
and have disclosure obligations that are different from those of U.S. domestic reporting companies.



We are a foreign private
issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under 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 quarterly reports or proxy statements that comply with
the requirements applicable to U.S. domestic reporting companies. Furthermore, although under regulations promulgated under the
Israeli Companies Law, 5759-1999, or the Companies Law, as an Israeli public company listed overseas, we are required to disclose
the compensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was
previously permitted for Israeli public companies listed overseas), however this disclosure will not be as extensive as that required
of 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,
our officers, directors and principal shareholders will be exempt from the requirements to report short-swing profit recovery contained
in Section 16 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 a U.S. domestic reporting companies.



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



As a “foreign
private issuer,” we are permitted to follow certain home country corporate governance practices instead of those otherwise
required under the Listing Rules of the NASDAQ Capital Market for domestic U.S. issuers. For instance, we currently follow home
country practice in Israel with regard to, among other things, board independence requirements, director nomination procedures
and quorum requirements. In addition, we may follow our home country law instead of the Listing Rules of the NASDAQ Capital Market
that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain
equity based compensation plans, an issuance that will result in a change of control of our Company, certain transactions other
than a public offering involving issuances of a 20% or greater interest in our Company, and certain acquisitions of the stock or
assets of another company. We also currently follow our home country practices with respect to our compensation committee, which
conducts itself in accordance with the provisions governing its composition and responsibilities as set forth in the Companies
Law, not the Listing Rules of the NASDAQ Capital Market. We may in the future elect to follow home country corporate governance
practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements
that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market may provide less protection to you than what is
accorded to investors under the Listing Rules of the NASDAQ Capital Market applicable to domestic U.S. issuers. See “Management
— NASDAQ Capital Market Listing Rules and Home Country Practices.”



17







Risks Related to Our Intellectual Property



We license our core technology on
an exclusive basis from Yissum (Hebrew University), and we could lose our rights to this license if a dispute with Yissum arises
or if we fail to comply with the financial and other terms of the license.



We license our core
intellectual property from Yissum, an affiliate of Hebrew University. We initially entered into an exclusive license agreement
with Yissum in 2000 and, in 2004 and 2005, we amended the license, which we refer to, as amended, as the License Agreement. According
to the License Agreement, we hold an exclusive license for developing, manufacturing and/or world marketing of products that are
directly or indirectly based on the patent owned by Yissum and/or other related intellectual property (including any information,
research results and related know-how). Yissum is not permitted to transfer such intellectual property to third parties without
our prior written consent. Yissum may obtain future financing from other entities for its research, provided that such entities
will not be granted rights in its results (including other intellectual property rights) in a way prejudicing the rights granted
to us in accordance with the License Agreement. We are entitled to grant perpetual sublicenses of this intellectual property to
third parties, and such third parties will not be required to assume any undertaking towards Yissum. We are obligated to research
and develop products that are based on the intellectual property of Yissum and to pay Yissum from the date of first sale an amount
equal to 3% of our net sales of products based on the intellectual property and 15% from all other payments or benefits received
from any such sublicense. In addition, also in consideration of the exclusive license granted to us pursuant to the License Agreement,
we issued 5,618 ordinary shares to Yissum. As of the date of this annual report, no payments were paid and/or are due under the
License Agreement. The License Agreement will be in effect until the latest of: (1) the expiration of the last registered patent
within the relevant territory in November 2020; and (2) 15 years from the date of the first commercial sale. We also contracted
with Yissum for laboratory services. In January 2008, we signed an addendum to the License Agreement to conduct an additional joint
development and study regarding a technology, different from the Accordion Pill, for the gastric retention, or GR, of a drug. This
addendum provides that the intellectual property rights produced as a result of the joint development and study will be jointly
owned and we are entitled to receive a license for Yissum’s share in these rights in return for payment of royalties. One
patent application has been filed by Yissum and us as a result of the development related to that joint project, but this patent
application was abandoned.



The License Agreement
imposes certain payment, reporting, confidentiality and other obligations on us. In the event that we were to breach any of our
obligations under the License Agreement and fail to cure such breach, Yissum would have the right to terminate the License Agreement
upon 30 days’ notice. In addition, Yissum has the right to terminate the License Agreement upon our bankruptcy or receivership.
If any dispute arises with respect to our arrangement with Yissum, such dispute may disrupt our operations and would likely have
a material and adverse impact on us if resolved in a manner that is unfavorable to us. Most of our current product candidates are
partly based on the intellectual property licensed under the License Agreement, and if the License Agreement was terminated, it
would have a material adverse effect on our business, prospects and results of operations.



If we fail to adequately protect,
enforce or secure rights to the patents which were licensed to us or any patents we may own in the future, the value of our intellectual
property rights would diminish and our business and competitive position would suffer.



Our success, competitive
position and future revenues, if any, depend in part on our ability to obtain and successfully leverage intellectual property covering
our products and product candidates, know-how, methods, processes and other technologies, to protect our trade secrets, to prevent
others from using our intellectual property and to operate without infringing the intellectual property rights of third parties.



The risks and uncertainties
that we face with respect to our intellectual property rights include, but are not limited to, the following:



| | • | the degree and range of protection any patents will afford us against competitors;
| | - | ----------------------------------------------------------------------------------



| | • | if and when patents will be issued;
| | - | -----------------------------------



| | • | whether or not others will obtain patents claiming aspects similar to those covered by our own or licensed patents and patent applications;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | we may be subject to interference proceedings;
| | - | ----------------------------------------------



| | • | we may be subject to opposition or post-grant proceedings in foreign countries;
| | - | -------------------------------------------------------------------------------



| | • | any patents that are issued may not provide sufficient protection;
| | - | ------------------------------------------------------------------



| | • | we may not be able to develop additional proprietary technologies that are patentable;
| | - | --------------------------------------------------------------------------------------



18







| | • | other companies may challenge patents licensed or issued to us or our customers;
| | - | --------------------------------------------------------------------------------



| | • | other companies may independently develop similar or alternative technologies, or duplicate our technologies;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | other companies may design around technologies we have licensed or developed;
| | - | -----------------------------------------------------------------------------



| | • | enforcement of patents is complex, uncertain and expensive; and
| | - | ---------------------------------------------------------------



| | • | we may need to initiate litigation or administrative proceedings that may be costly whether we win or lose.
| | - | -----------------------------------------------------------------------------------------------------------



If patent rights
covering our products and methods are not sufficiently broad, they may not provide us with any protection against competitors with
similar products and technologies. Furthermore, if the United States Patent and Trademark Office, or the USPTO, or foreign patent
offices issue patents to us or our licensors, others may challenge the patents or design around the patents, or the patent office
or the courts may invalidate the patents. Thus, any patents we own or license from or to third parties may not provide any protection
against our competitors.



We cannot be certain
that patents will be issued as a result of any pending applications, and we cannot be certain that any of our issued patents or
patents licensed from Yissum (or any other third party in the future), will give us adequate protection from competing products.
For example, issued patents, including the patents licensed by us, may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope.



In addition,
since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain
that we were the first to make our inventions or to file patent applications covering those inventions.



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



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



We 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. Under the Israeli Patent
Law, 5727-1967, or the Patent Law, inventions conceived by an employee in the course and as a result of or arising from his or
her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific
agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if
there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee,
a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. Recent
case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee and
that in certain circumstances, such waiver does not necessarily have to be explicit. The Committee will examine, on a case-by-case
basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws.
Further, the Committee has not yet determined one specific formula for calculating this remuneration (but rather uses the criteria
specified in the Patent Law). Although 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,
we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be
required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims,
which could negatively affect our business.



19







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



Periodic maintenance
fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be
cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
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. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market,
which could have a material adverse effect on our business.



Costly litigation may be necessary
to protect our intellectual property rights, and we may be subject to claims alleging the breach of license or other agreements
that we have entered into with third parties or the violation of the intellectual property rights of others.



We may face significant
expense and liability as a result of litigation or other proceedings relating to patents and other intellectual property rights
of others. In the event that another party has also filed a patent application or been issued a patent relating to an invention
or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared by
the USPTO to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual
outcome were favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving
issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to
cease using the technology or to license rights from prevailing third parties.



The cost to us of
any patent litigation or other proceeding relating to our licensed patents or patent applications, even if resolved in our favor,
could be substantial and could divert management’s resources and attention. Our ability to enforce our patent protection
could be limited by our financial resources, and may be subject to lengthy delays. A third party may claim that we are using inventions
claimed by their patents and may go to court to stop us from engaging in our normal operations and activities, such as research,
development and the sale of any future products. Such lawsuits are expensive and would consume time and other resources. There
is a risk that the court will decide that we are infringing the third party’s patents and will order us to stop the activities
claimed by the patents, redesign our products or processes to avoid infringement or obtain licenses (which may not be available
on commercially reasonable terms or at all). In addition, there is a risk that a court will order us to pay the other party damages
for having infringed their patents.



Moreover, there is
no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed
by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition,
third parties may, in the future, assert other intellectual property infringement claims against us with respect to our product
candidates, technologies or other matters. Any claims of infringement asserted against us, whether or not successful, may have
a material adverse effect on us.



We entered into a
feasibility and option agreement with a pharmaceutical company and engaged in a feasibility study over a period of several months
during the early stage of formulation of the Accordion Pill for Carbidopa/Levodopa. The agreement included a right of first offer,
under certain circumstances. In 2012, the pharmaceutical company asserted that it has a right of first refusal in the event that
we seek to grant a license to certain intellectual property contained in AP-CDLD to any third party. We believe that the pharmaceutical
company does not have such right and that the right of first offer included in the agreement terminated in 2008. In addition, we
believe that such right of first offer only applied to licenses for use in the United States. If we seek to grant a license to
certain intellectual property contained in AP-CDLD to any third party, we can, in our discretion, either first offer the main terms
of such license to the other pharmaceutical company pursuant to the alleged right of first offer, which we believe terminated in
2008, or seek to grant such license to a third party without first offering the main terms of such license to the other pharmaceutical
company, in which case the other pharmaceutical company may seek to challenge such third-party license or claim damages. Although
we would intend to vigorously defend against any such challenge or claim, there can be no guarantee that we would be successful
in such defense. Any such challenge or claim for damages made by the other pharmaceutical company, if we choose not to make a first
offer, could adversely affect our ability to develop, or the timing of our development of, AP-CDLD. Further, the allegation that
any such right exists, even though we believe that any such right has terminated, could discourage other potential licensees from
working with us. Either of these events could have a material adverse effect on our business, prospects and results of operations.



20







We rely on confidentiality agreements
that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to
compete against us.



Although we believe
that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure
of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us
of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the
agreements can be difficult and costly to enforce. Although we seek to obtain these types of agreements from our contractors, consultants,
advisors and research collaborators, to the extent that employees and consultants utilize or independently develop intellectual
property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with our
products. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights
can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality
agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still
face the risk that:



| | • | these agreements may be breached;
| | - | ---------------------------------



| | • | these agreements may not provide adequate remedies for the applicable type of breach;
| | - | -------------------------------------------------------------------------------------



| | • | our trade secrets or proprietary know-how will otherwise become known; or
| | - | -------------------------------------------------------------------------



| | • | our competitors will independently develop similar technology or proprietary information.
| | - | -----------------------------------------------------------------------------------------



International patent protection is
particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend substantial
sums and management resources.



Patent law outside
the United States may be different than in the United States. Further, the laws of some foreign countries may not protect our intellectual
property rights to the same extent as the laws of the United States, if at all. A failure to obtain sufficient intellectual property
protection in any foreign country could materially and adversely affect our business, results of operations and future prospects.
Moreover, we may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’
foreign patents, which could result in substantial costs and divert management’s resources and attention. Additionally, due
to uncertainty in patent protection law, we have not filed applications in many countries where significant markets exist.



Risks Related to the Regulation of our Company and Its Business



Our product candidates are at various
stages of preclinical and clinical development and may never be commercialized.



The progress and results
of any future preclinical testing or future clinical trials are uncertain, and the failure of our product candidates and additional
product candidates which we may license, acquire or develop in the future to receive regulatory approvals could have a material
adverse effect on our business, operating results and financial condition to the extent we are unable to commercialize any such
products. None of our product candidates have received regulatory approval for commercial sale. In addition, we face the risks
of failure inherent in developing therapeutic products. Our product candidates are not expected to be commercially available for
several years, if at all.



21







Our product candidates are subject
to extensive regulation and are at various stages of regulatory development and may never obtain regulatory approval.



Our product candidates
must satisfy certain standards of safety and efficacy for a specific indication before they can be approved for commercial use
by the FDA or foreign regulatory authorities. The FDA and foreign regulatory authorities have full discretion over this approval
process. We will need to conduct significant additional research, including testing in animals and in humans, before we can file
applications for product approval. Typically, in the pharmaceutical industry, there is a high rate of attrition for product candidates
in preclinical testing and clinical trials. Also, even though we believe that some of our product candidates may be eligible for
FDA review under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA may not agree with that assessment,
and may require us to submit the application under Section 505(b)(1) which usually requires more comprehensive clinical data than
applications submitted under Section 505(b)(2). Even under Section 505(b)(2), satisfying FDA’s requirements typically takes
many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources.
Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. For example,
a number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials. In addition, delays or rejections may be encountered
based upon additional government regulation, including any changes in legislation or FDA policy, during the process of product
development, clinical trials and regulatory reviews. After clinical trials are completed, the FDA has substantial discretion in
the drug approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing
studies.



In order to receive
FDA approval or approval from foreign regulatory authorities to market a product candidate or to distribute our products, we must
demonstrate through preclinical testing and through human clinical trials that the product candidate is safe and effective for
its intended uses (e.g., treatment of a specific condition in a specific way subject to contradictions and other limitations).
We anticipate that some foreign regulatory agencies will have different testing and approval requirements from those of the FDA.
Even if we comply with all FDA requests, the FDA may ultimately reject or decline to approve one or more of our new drug applications,
or it may grant approval for a narrowly intended use that is not commercially feasible. We might not obtain regulatory approval
for our product candidates in a timely manner, if at all. Failure to obtain FDA approval of any of our product candidates in a
timely manner or at all could severely undermine our business by delaying or halting commercialization of our products, imposing
costly procedures, diminishing competitive advantages and reducing the number of salable products and, therefore, corresponding
product revenues.



We have collected limited clinical
data about the safety and efficacy of AP-CDLD in an open-label Phase II clinical trial that was not conducted under an FDA issued
IND and we may be unable to replicate these results in large-scale and double-blind controlled clinical trials.



Although the clinical
trials performed to date using AP-CDLD have shown promising results, these results were generated from open-label studies not performed
under an FDA issued IND and were conducted at a limited number of clinical sites on a limited number of patients. An “open-label”
trial is one where both the patient and investigator know whether the patient is receiving the test article or either an existing
approved drug or placebo. Open-label trials are subject to various limitations that may exaggerate any therapeutic effect as patients
in open-label studies are aware that they are receiving treatment. Open-label trials may be subject to a “patient bias”
where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Patients
selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding
the new treatment. In addition, open-label trials may be subject to an “investigator bias” where those assessing and
reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret
the information of the treated group more favorably given this knowledge.



Given that these were
open label studies, not conducted under an FDA issued IND, the FDA may decide not to consider the data that we collected from these
open-label studies, even though we are obligated to submit these data to the FDA.



22







Our Phase II clinical
trial for AP-CDLD was conducted at several medical centers in Israel. Patients in Israel are genetically similar to European and
North American patients, but there may be unidentified genetic differences that may result in variable therapeutic response in
patients in other countries. Furthermore, although our initial safety profile has been favorable, safety could be dependent on
operator skills. It is possible that we may experience a higher rate of adverse events in the future with wider application of
our Accordion Pill technology in real-world practice outside of clinical trials.



If the FDA does not conclude that
a given product candidate using our Accordion Pill technology satisfies the requirements for approval under the Section 505(b)(2)
regulatory approval pathway, or if the requirements for approval of our product candidates under Section 505(b)(2) are not as we
expect, the approval pathway will likely take significantly longer, cost significantly more and entail significantly greater complications
and risks than anticipated, and in any case may not be successful.



We intend to seek
FDA approval for our product candidates implementing our Accordion Pill technology through the Section 505(b)(2) regulatory pathway.
Pursuant to Section 505(b)(2) of the FDCA, a new drug application, or NDA, under Section 505(b)(2) is permitted to reference safety
and effectiveness data submitted by the original manufacturer of the underlying approved drug as part of its NDA, or rely on FDA’s
prior conclusions regarding the safety and effectiveness of that previously approved drug, or rely on in part on data in the public
domain. Reliance on data collected by others may expedite the development program for our product candidates by potentially decreasing
the amount of clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue
the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional
data and information, and meet additional standards for product approval. If this were to occur, the time and financial resources
required to obtain FDA approval, and complications and risks associated with regulatory approval of our product candidates, would
likely substantially increase. Moreover, our inability to pursue the Section 505(b)(2) regulatory pathway may result in new competitive
products reaching the market more quickly than our product, which would likely materially adversely impact our competitive position
and prospects. Even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this will ultimately
lead to accelerated product development or earlier approval.



In addition, the pharmaceutical
industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights
of sponsors of previously approved drugs that may be referenced in a Section 505(b)(2) NDA. These requirements may give rise to
patent litigation and mandatory delays in approval of our NDA for up to 30 months or longer depending on the outcome of any litigation.
Further, it is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay
approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly
delay, or even prevent, the approval of a new product. Even if the FDA ultimately denies such a petition, the FDA may substantially
delay approval while it considers and responds to the petition. Amendments to the FDCA attempt to limit the delay that can be caused
by a citizen petition to 150 days, although court action by a dissatisfied petitioner is a possibility and this could, in theory,
adversely affect the approval process.



Moreover, even if
product candidates implementing our Accordion Pill technology are approved under Section 505(b)(2), the approval may be subject
to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain
requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.



We will seek approval
in the European Union, or the EU, on a product-by-product basis, either by ourselves or with a third-party licensee.



A fast track designation by the FDA
may not actually lead to a faster development or regulatory review or approval process.



We may seek fast track
designation for some of our product candidates and may seek such designation for future product candidates. The FDA has broad discretion
whether to grant this designation, and even if we believe a particular product candidate is eligible for this designation, we cannot
assure you that the FDA would decide to grant it. Even if we apply for and receive fast track designation for one or more of our
product candidates or future product candidates, we may not experience a faster development process, review or approval compared
to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported
by data from our clinical development program.



23







We might be unable to develop any
of our product candidates to achieve commercial success in a timely and cost-effective manner, or ever.



Even if regulatory
authorities approve any of our product candidates, they may not be commercially successful. Our product candidates may not be commercially
successful because government agencies or other third-party payors may not provide reimbursement for the costs of the product or
the reimbursement may be too low to be commercially successful. In addition, physicians and others may not use or recommend our
products candidates, even following regulatory approval. A product approval, even if issued, may limit the uses for which such
product may be distributed, which could adversely affect the commercial viability of the product. Moreover, third parties may develop
superior products or have proprietary rights that preclude us from marketing our products. We also expect that our product candidates,
if approved, will generally be more expensive than the non-Accordion Pill version of the same medication available to patients.
Physician and patient acceptance of, and demand for, any product candidates for which we obtain regulatory approval or license
will depend largely on many factors, including, but not limited to, the extent, if any, of reimbursement of costs by government
agencies and other third-party payors, pricing, competition, the effectiveness of our marketing and distribution efforts, the safety
and effectiveness of alternative products, and the prevalence and severity of side effects associated with such products. If physicians,
government agencies and other third-party payors do not accept the use or efficacy of our products, we will not be able to generate
significant revenue, if any.



We cannot be certain that the results
of our current or potential Phase III clinical trials, even if all endpoints are met, will support regulatory approval of any of
our product candidates for any indication.



Endpoints for most
Phase III clinical trials may vary from drug candidate to drug candidate and from indication to indication; therefore, there are
no universally accepted endpoints for Phase III clinical trials. Accordingly, the development pathway for AP-CDLD, which is being
developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients,
and our other product candidates, is not completely clear yet.



It is possible that
even if the results of our current or potential Phase III clinical trial meet the primary endpoints, the FDA will require other
data of our product candidates prior to granting marketing approval.



Our product candidates and future
product candidates will remain subject to ongoing regulatory requirements even if they receive marketing approval, and if we fail
to comply with these requirements, we may not obtain such approvals or could lose those approvals that have been obtained, and
the sales of any approved commercial products could be suspended.



Even if we receive
regulatory approval to market a particular product candidate, any such product will remain subject to extensive regulatory requirements,
including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion,
distribution and record keeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations
on the uses for which the product may be marketed or the conditions of approval, or may contain requirements for costly post-marketing
testing and surveillance to monitor the safety or efficacy of the product, which could negatively impact us or our collaboration
partners by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. In
addition, as clinical experience with a drug expands after approval, typically because it is used by a greater number and more
diverse group of patients after approval than during clinical trials, side effects and other problems may be observed over time
after approval that were not seen or anticipated during pre-approval clinical trials or other studies. Any adverse effects observed
after the approval and marketing of a product candidate could result in limitations on the use of or withdrawal of FDA approval
of any approved products from the marketplace. Absence of long-term safety data may also limit the approved uses of our products,
if any. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities,
or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered,
we could be subject to administrative or judicially imposed sanctions or other setbacks, including, without limitation, the following:



24







| | • | suspension or imposition of restrictions on the products, manufacturers or manufacturing processes, including costly new manufacturing requirements;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | warning letters;
| | - | ----------------



| | • | civil or criminal penalties, fines and/or injunctions;
| | - | ------------------------------------------------------



| | • | product seizures or detentions;
| | - | -------------------------------



| | • | import or export bans or restrictions;
| | - | --------------------------------------



| | • | voluntary or mandatory product recalls and related publicity requirements;
| | - | --------------------------------------------------------------------------



| | • | suspension or withdrawal of regulatory approvals;
| | - | -------------------------------------------------



| | • | total or partial suspension of production; and
| | - | ----------------------------------------------



| | • | refusal to approve pending applications for marketing approval of new products or supplements to approved applications.
| | - | -----------------------------------------------------------------------------------------------------------------------



If we or our collaborators
are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements
or policies, marketing approval for our product candidates may be lost or cease to be achievable, resulting in decreased revenue
from milestones, product sales or royalties, which would have a material adverse effect on our business, financial condition or
results of operations.



Clinical trials are very expensive,
time-consuming and difficult to design and implement, and, as a result, we may suffer delays or suspensions in future trials which
would have a material adverse effect on our ability to generate revenues.



Human clinical trials
are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements.
Regulatory authorities, such as the FDA, may preclude clinical trials from proceeding. Additionally, the clinical trial process
is time-consuming, failure can occur at any stage of the trials and we may encounter problems that cause us to abandon or repeat
clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including, but not limited
to:



| | • | unforeseen safety issues;
| | - | -------------------------



| | • | clinical holds or suspension of a clinical trial by the FDA, us, the institutional review board, or IRB, or the data safety monitoring board, or DSMB, to determine proper dosing;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | lack of effectiveness or efficacy during clinical trials;
| | - | ---------------------------------------------------------



| | • | failure of our contract manufacturers to manufacture our product candidates in accordance with current Good Manufacturing Practices, or cGMP;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | • | failure of third party suppliers to perform final manufacturing steps for the drug substance;
| | - | ---------------------------------------------------------------------------------------------



| | • | slower than expected rates of patient recruitment and enrollment;
| | - | -----------------------------------------------------------------



| | • | lack of healthy volunteers and patients to conduct trials;
| | - | ----------------------------------------------------------



| | • | inability to monitor patients adequately during or after treatment;
| | - | -------------------------------------------------------------------



| | • | failure of third party contract research organizations to properly implement or monitor the clinical trial protocols;
| | - | ---------------------------------------------------------------------------------------------------------------------



25







| | • | failure of IRBs to approve or renew approvals of our clinical trial protocols;
| | - | ------------------------------------------------------------------------------



| | • | inability or unwillingness of medical investigators to follow our clinical trial protocols; and
| | - | -----------------------------------------------------------------------------------------------



| | • | lack of sufficient funding to finance the clinical trials.
| | - | ----------------------------------------------------------



As noted above, we,
regulatory authorities, IRBs or DSMBs may suspend our clinical trials at any time if it appears that we are exposing participants
to unacceptable health risks or if the regulatory authorities find deficiencies in our regulatory submissions or the conduct of
these trials. For example, a DSMB has been selected for the Phase III clinical trial of AP-CDLD and will periodically review the
safety data of the trial, specifically focusing on the safety of AP-CDLD in the upper gastrointestinal tract because the Accordion
Pill is retained in the stomach for a prolonged period of time, to measure whether AP-CDLD causes damage such as erosions or ulcers.
Any suspension of clinical trials will delay possible regulatory approval, if any, and adversely impact our ability to develop
products and generate revenue.



We may be forced to abandon development
of certain products altogether, which will significantly impair our ability to generate product revenues.



Upon the completion
of any clinical trial, if at all, the results of these trials might not support the claims sought by us. Further, success in preclinical
testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of later clinical
trials may not replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate
that our product candidates are safe for humans and effective for its indicated uses. Any such failure may cause us to abandon
a product candidate and may delay development of other product candidates. Any delay in, or termination or suspension of, our clinical
trials will delay the requisite filings with the FDA and, ultimately, our ability to commercialize our product candidates and generate
product revenues. If the clinical trials do not support our drug product claims, the completion of development of such product
candidates may be significantly delayed or abandon, which would significantly impair our ability to generate product revenues and
would materially adversely affect our business, financial condition or results of operations.



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



Positive results in
the previous clinical trials of one or more of our product candidates may not be predictive of similar results in future clinical
trials for such product candidate. Also, interim results during a clinical trial do not necessarily predict final results. A number
of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials
even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical studies
and clinical trials for our product candidates may not be predictive of the results we may obtain in later stage trials of such
product candidates. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical trials. Clinical trial results may be inconclusive, or contradicted by other clinical trials,
particularly larger clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and
many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have
nonetheless failed to obtain FDA or European Medicines Agency, or other applicable regulatory agency, approval for their products.



Reimbursement may not be available
for our products, which could make it difficult for us to sell our products profitably.



Market acceptance
and sales of our products will depend on coverage and reimbursement policies and may be affected by healthcare reform measures.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which
products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available
for our products. We also cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or
the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully
compete through sales of our proposed products.



26







Specifically, in both
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the
healthcare system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, or MMA, changed the way Medicare
covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and certain
others. Prior to MMA, Medicare did not cover most outpatient prescription drugs. MMA created a new voluntary Part D, which covers
outpatient drugs for Medicare beneficiaries and is administered by private insurance plans that operate partially at-risk under
contract with the Centers for Medicare & Medicaid Services, or CMS. These private Part D plans have incentives to keep costs
down. MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition,
this legislation provided authority for limiting the number of certain outpatient drugs that will be covered in any therapeutic
class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional
pressure to contain and reduce costs. These and future cost-reduction initiatives could decrease the coverage and price that we
receive for our products, if approved, and could seriously harm our business. While the MMA applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement
rates, and any reduction in reimbursement under Medicare may result in a similar reduction in payments from private payors.



In March 2010, the
Patient Protection and Affordable Care Act, as amended, or the Affordable Care Act, which was amended by the Health Care and Education
Affordability Reconciliation Act, or collectively, PPACA, became law in the United States. The goal of PPACA is to reduce the cost
of healthcare and substantially change the way healthcare is financed by both governmental and private insurers. Among other measures,
PPACA imposes increased rebates on manufacturers for certain covered drug products reimbursed by state Medicaid programs. The PPACA
remains subject to continuing legislative scrutiny, including efforts by Congress to repeal and amend a number of its provisions,
as well as administrative actions delaying the effectiveness of key provisions. In addition, there have been lawsuits filed by
various stakeholders pertaining to certain portions of the PPACA that may have the effect of modifying or altering various parts
of the law. Efforts to date to amend or repeal the PPACA have generally been unsuccessful. However, the 2016 Presidential and Congressional
elections resulting in the election of the Republican presidential nominee and the continuation of Republican majorities in both
chambers of Congress, may result in additional efforts to amend or delay implementation parts of the PPACA. We ultimately cannot
predict with any assurance the ultimate effect of the PPACA or changes to the PPACA on our Company, nor can we provide any assurance
that its provisions will not have a material adverse effect on our business, financial condition, results of operations, cash flows
and the trading price of our ordinary shares. In addition, we cannot predict whether new proposals will be made or adopted, when
they may be adopted or what impact they may have on us if they are adopted.



We expect to experience
pricing pressures in connection with the sale of our products generally due to the trend toward managed healthcare, the increasing
influence of health maintenance organizations, and additional legislative proposals. If we fail to successfully secure and maintain
adequate coverage and reimbursement for our future products or are significantly delayed in doing so, we will have difficulty achieving
market acceptance of our products and our business will be harmed.



We are subject to extensive and costly
government regulation.



The products we are
developing and planning to develop in the future are subject to extensive and rigorous domestic government regulation, including
regulation by the FDA, the CMS, other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector
General, the Office of Civil Rights, which administers the privacy provisions of the Health Insurance Portability and Accountability
Act of 1996, or HIPAA, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs, to the extent our products
are paid for directly or indirectly by those departments, state and local governments, and their respective foreign equivalents.
The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping,
reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of pharmaceutical products
under various regulatory provisions. If any drug products we develop are tested or marketed abroad, they will also be subject to
extensive regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such
foreign regulation may be equally or more demanding than corresponding U.S. regulation.



27







Government regulation
substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. Our failure to comply
with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls,
withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of these actions, including the
inability of our proposed products to obtain and maintain regulatory approval, would have a materially adverse effect on our business,
financial condition, results of operations and prospects.



In addition to government
regulation, rules and policies of professional and other quasi and non-governmental bodies and organizations may impact the prescription
of products, as well as the manner of their promotion, marketing, and education. Examples of such bodies are the American Medical
Association, the Accreditation Council of Continuing Medical Education, American College of Physicians and the American Academy
of Family Physicians.



The
recent Presidential and Congressional elections in the United States could result in significant changes in, and uncertainty with
respect to, legislation, regulation and government policy. While it is not possible to predict whether and when any such changes
will occur, changes at the federal level could significantly impact our business and the health care industry; we are currently
unable to predict whether any such changes would have a net positive or negative impact on our business. To the extent that such
changes have a negative impact on us orthe health care industry,including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition,
results of operations, cash flows andthe trading price of our ordinary shares.



We are subject to additional federal
and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse
effect on our results of operations and financial conditions.



In the event that
we were to market products in the United States, we would be subject to additional healthcare regulation and enforcement by the
federal government and the states in which we conduct or will conduct our business. The laws that may affect our ability to operate
include, but are not limited to, the following:



| | • | the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under government healthcare programs such as the Medicare and Medicaid programs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the Anti-Inducement Law, which prohibits persons from offering or paying remuneration to Medicare and Medicaid beneficiaries to induce them to use items or services paid for in whole or in part by the Medicare or Medicaid programs;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, prohibits physicians from referring Medicare or Medicaid patients for certain designated items or services where that physician or family member has a financial interest in the entity provided the designated item or service;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | federal false claims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government healthcare programs that are false or fraudulent;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28







Further, the PPACA,
among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person
or entity can now be found guilty of fraud or false claims under PPACA without actual knowledge of the statute or specific intent
to violate it. In addition, PPACA provides that the government may assert that a claim including items or services resulting from
a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the false claims statutes.
Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from
Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any violations
of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in
a material adverse effect on our reputation, business, results of operations and financial condition.



PPACA also imposes
new reporting requirements on device and pharmaceutical manufacturers to make annual public disclosures of payments to physicians
and teaching hospitals and ownership of their stock by physicians. Failure to submit required information may result in civil monetary
penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”),
for all payments, transfers of value or ownership or investment interests that are not reported. Manufacturers were required to
begin data collection on August 1, 2013 and report such data to CMS by March 31, 2014, but that has been delayed and final reconciliation
of data was supposed to have occurred on October 31, 2014.



The 2016 Presidential
and Congressional elections resulting in the election of the Republican presidential nominee and the continuation of Republican
majorities in both chambers of Congress, may result in additional efforts to amend or delay implementation parts of the PPACA.
We ultimately cannot predict with any assurance the ultimate effect of the PPACA or changes to the PPACA on our Company, nor can
we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results
of operations, cash flows and the trading price of our ordinary shares. In addition, we cannot predict whether new proposals will
be made or adopted, when they may be adopted or what impact they may have on us if they are adopted.



In addition, there
has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such
as California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and
reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts. Various trade
associations, such as AdvaMed for devices and the Pharmaceutical Research and Manufacturers of America for drugs, have adopted
voluntary standards of ethical behavior that limit the amount of and circumstances under which payments made be made to physicians.



The scope and enforcement
of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack
of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or
state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material
adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review
of us, regardless of the outcome, would be costly and time-consuming.



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



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



29







Our product candidates are manufactured
through a compounding, film casting and assembly process, and if we or one of our materials suppliers encounters problems manufacturing
our products or raw materials, our business could suffer.



We and our contract
manufacturers, if any, are, and will be, subject to extensive governmental regulation in connection with the manufacture of any
pharmaceutical products. The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and
foreign regulators also inspect these facilities to confirm compliance with cGMP or similar requirements that the FDA or foreign
regulators establish. We and our contract manufacturers must ensure that all of the processes, methods and equipment are compliant
with cGMP for drugs on an ongoing basis, as mandated by the FDA and other regulatory authorities, and conduct extensive audits
of vendors, contract laboratories and suppliers. The FDA will likely condition granting any marketing approval, if any, on a satisfactory
on-site inspection of our manufacturing facilities.



We currently manufacture
our product candidates used in clinical testing. We have not currently determined whether we will engage in the manufacture of
our products for commercial purposes. We order certain materials from single-source suppliers. If the supply of any of these single-sourced
materials is delayed or ceases, we may not be able to produce the related product in a timely manner or in sufficient quantities,
if at all, causing us to be unable to further develop our product candidates or bring them to market or continue to develop our
technology, which could materially and adversely affect our business. In addition, a single-source supplier of a key component
of one or more of our product candidates could potentially exert significant bargaining power over price, quality, warranty claims
or other terms relating to the single-sourced materials. Our materials suppliers may face manufacturing or quality control problems
causing product production and shipment delays or a situation where the supplier may not be able to maintain compliance with the
FDA’s cGMP requirements, or those of foreign regulators, necessary to continue manufacturing our drug substance or raw materials.
Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the United States Drug Enforcement Agency,
or DEA, and corresponding foreign regulatory agencies to ensure strict compliance with cGMP requirements and other governmental
regulations and corresponding foreign standards. Any failure by us or our suppliers to comply with DEA requirements or FDA or foreign
regulatory requirements could adversely affect our clinical research activities and our ability to market and develop our products.



We intend to manufacture our own
product candidates for Phase III clinical trials and may, to some extent, manufacture our product candidates for commercialization
or rely on third parties to implement our manufacturing strategies. Manufacturing our product candidates is subject to extensive
governmental regulation. Our failure or the failure of these third parties in any respect (including noncompliance with governmental
regulations) could have a material adverse effect on our business, results of operations and financial condition.



Completion of any
current or future Phase III clinical trial and commercialization of our product candidates will require access to, or development
of, facilities to manufacture a sufficient supply of our product candidates. There can be no assurance that our product candidates,
if approved, can be manufactured in sufficient commercial quantities, in compliance with regulatory requirements and at an acceptable
cost. Although we believe our facilities are sufficient to manufacture our product candidate needs for Phase III clinical trials,
we may be incorrect and we may not have the resources or facilities to manufacture our product candidates for Phase III clinical
trials or commercial purposes on our own, and we may not develop or acquire facilities for the manufacture of product candidates
for such purposes in the foreseeable future. We may rely on contract manufacturers to produce sufficient quantities of our product
candidates necessary for any Phase III clinical testing we undertake in the future and for commercialization of our products. Such
contract manufacturers may be the sole source of production, and they may have limited experience at manufacturing, formulating,
analyzing, filling and finishing our types of product candidates. Establishing a manufacturing facility to produce commercial quantities
of our products will require a substantial investment by any party intending to manufacture our products. If our current and future
manufacturing and supply strategies are unsuccessful, we may be unable to conduct and complete any future Phase III clinical trials
or commercialize our product candidates in a timely manner, if at all.



Manufacturing our
product candidates is subject to extensive governmental regulation. See “Business — Government Regulation.” Future
FDA, state and foreign inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers,
if any, that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously
unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product,
manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated
or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may
require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also
may require the implementation of other risk management measures. Also, new government requirements, including those resulting
from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval
of our products under development. The FDA will likely condition granting any marketing approval on a satisfactory on-site inspection
of our manufacturing facilities.



30







We have limited experience manufacturing
our product candidates at a commercial scale. We may not be able to manufacture our product candidates in quantities sufficient
for commercial launch of our product candidates, if our product candidates are approved, or for any future commercial demand for
our product candidates.



Although we have manufactured
clinical quantities of AP-CDLD and other products and product candidates in our manufacturing facility, we have only limited experience
in manufacturing commercial quantities of our product candidates. If AP-CDLD or AP–ZP is approved for commercialization and
marketing, we may be required to manufacture the product in large quantities to meet demand. Producing products in commercial quantities
requires developing and adhering to complex manufacturing processes that are different from the manufacture of products in smaller
quantities for clinical trials, including adherence to regulatory standards. Although we believe that we have developed processes
and protocols that will enable us to manufacture commercial-scale quantities of products at acceptable costs, we cannot provide
assurance that such processes and protocols will enable us to manufacture AP-CDLD or AP–ZP in quantities that may be required
for commercialization of the applicable product with yields and at costs that will be commercially attractive. If we are unable
to establish or maintain commercial manufacture of the product or are unable to do so at costs that we currently anticipate, our
business could be adversely affected.



If we are unable to use our manufacturing
facility for any reason, the manufacture of clinical supplies of our candidates would be delayed, which would harm our business.



We currently manufacture
all clinical supply of AP-CDLD and AP–ZP at our own manufacturing facility. If we were to lose the use of our facility or
equipment, our manufacturing facility and manufacturing equipment would be difficult to replace and could require substantial replacement
lead time and substantial additional funds. Our facility may be affected by natural disasters, such as floods or fire, or we may
lose the use of our facility due to manufacturing issues that arise at our facility, such as contamination or regulatory concerns
following a regulatory inspection of our facility. We do not currently have back-up capacity. In the event of a loss of the use
of all or a portion of our facility or equipment for the reasons stated above or any other reason, we would be unable to manufacture
any of our product candidates until such time as our facility could be repaired, rebuilt or we are able to address other manufacturing
issues at our facility. Although we currently maintain property insurance with personal property limits of up to NIS 38.0 million,
business interruption insurance coverage of up to NIS 24.0 million for damage to our property and the disruption of our business
from fire and other casualties, and up to NIS 100.0 million for expenses related to our Phase III clinical trial for AP-CDLD, such
insurance may not cover all occurrences of manufacturing disruption or be sufficient to cover all of our potential losses in the
event of occurrences that are covered and may not continue to be available to us on acceptable terms, or at all.



We may rely on third-party manufacturers
to manufacture commercial quantities of our product candidates, if our products are approved, and any failure by a third-party
manufacturer or supplier may delay or impair our ability to commercialize our product candidates.



We have manufactured
our product candidates for our preclinical studies, Phase I clinical trials, Phase II clinical trials and Phase III clinical trial
in our own manufacturing facility. We have relied, and we expect to continue to rely, on third-party manufacturers for certain
raw materials (excipients, solvents and active pharmaceutical ingredients, or APIs). Our reliance on third parties for the manufacture
of these items increases the risk that we will not have sufficient quantities of these items or will not be able to obtain such
quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.
If the third-party manufacturers on whom we rely fail to supply these items and we need to enter into alternative arrangements
with a different supplier, it could delay our product development activities, as we would have to requalify the casting and assembly
processes pursuant to FDA requirements. If this failure of supply were to occur after we received approval for and commenced commercialization
of AP-CDLD, we might be unable to meet the demand for this product and our business could be adversely affected. In addition, because
we do not have any control over the process or timing of the supply of the APIs used in AP-CDLD, there is greater risk that we
will not have sufficient quantities of these APIs at an acceptable cost or quality, which could delay, prevent or impair our development
or commercialization efforts.



31







Our third-party manufacturers
and suppliers may be subject to FDA inspection from time to time. Failure by our third-party manufacturers to pass such inspections
and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in regulatory
actions such as the issuance of Form FDA 483 notices of observations, warning letters or injunctions or the loss of operating licenses.
Based on the severity of the regulatory action, our clinical or commercial supply of the items manufactured by third-party manufacturers
could be interrupted or limited, which could have a material adverse effect on our business.



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



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



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



Our business involves
the controlled use, directly or indirectly through our service providers, of hazardous materials, various biological compounds
and chemicals; therefore, we, our agents and our service providers may be subject to various environmental, health and safety laws
and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management
and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. The risk of accidental
contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals
or substances occurs, we could be held liable for resulting damages, including for investigation, remediation and monitoring of
the contamination, including natural resource damages, the costs of which could be substantial. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne
pathogens and the handling of biohazardous materials and chemicals. Although we maintain workers’ compensation insurance
to cover the costs and expenses that may be incurred because of injuries to our employees resulting from the use of these materials,
this insurance may not provide adequate coverage against potential liabilities. Additional or more stringent federal, state, local
or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and
operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and
the terms and conditions of any permits or licenses required pursuant to such laws and regulations, including costs to install
new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities
or the facilities of our service providers. For instance, we have undergone inspections and obtained approvals from various governmental
agencies. We hold a business license with respect to testing, developing, storing and manufacturing pharmaceutical products at
our current location from the municipality of Jerusalem, which is accompanied by additional terms and conditions approved by the
Israeli Ministry of Environmental Protection, or the Ministry of Environmental Protection. We also hold a toxic substances permit
from the Ministry of Environmental Protection (the Hazardous Material Division) and a Certificate of GMP Compliance of a Manufacturer
from the Israeli Ministry of Health – Pharmaceutical Administration. In addition, fines and penalties may be imposed for
noncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply with the
terms and conditions of our business license or, required environmental or other permits or consents.



32







We are subject to government regulations
and we may experience delays or may be unsuccessful in obtaining required regulatory approvals within or outside of the United
States to market our proposed product candidates, and even if we obtain approval, the approved indications may impair our ability
to successfully market the product or make commercial distribution not feasible.



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



Delays in regulatory
approval, limitations in regulatory approval and withdrawals of regulatory approval may have a material adverse effect on us. If
we experience significant delays in testing or receiving approvals or sign-offs to conduct clinical trials, our product development
costs, or our ability to license product candidates, will increase. If the FDA or other foreign regulatory entities grant regulatory
approval to market a product, this approval will be limited to those diseases and conditions for which the product has demonstrated,
through clinical trials, to be safe and effective. Any product approvals that we receive in the future could also include significant
restrictions on the use or marketing of our products. Product approvals, if granted, can be withdrawn for failure to comply with
regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. Failure to
comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall
or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our
product candidates or us. If approval is withdrawn for a product, or if a product were seized or recalled, we would be unable to
sell or license that product and our revenues would suffer. In addition, outside the United States, our ability to market any of
our potential products is contingent upon receiving market application authorizations from the appropriate regulatory authorities.
These foreign regulatory approval processes may include all of the risks associated with the FDA approval process described above,
if not more.



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



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



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



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



33







In March 2010, President
Obama signed into law the Affordable Care Act, a sweeping law intended to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and
health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional
health policy reforms. As amended, the PPACA expanded manufacturers’ rebate liability to include covered drugs dispensed
to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs (both
single source drugs and innovator multiple source drugs) from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP or the
difference between the AMP and best price, whichever is greater. The total rebate amount for innovator drugs is capped at 100.0%
of AMP. The PPACA and subsequent legislation also narrowed the definition of AMP. Furthermore, the PPACA imposes a significant
annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisions
affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant
number of provisions are not yet, or have only recently become, effective. Although it is too early to determine the effect of
the PPACA, it appears likely to continue to put pressure on pharmaceutical pricing, especially under the Medicare program, and
may also increase our regulatory burdens and operating costs. However, the 2016 Presidential and Congressional elections resulting
in the election of the Republican presidential nominee and the continuation of Republican majorities in both chambers of Congress,
may result in additional efforts to amend or delay implementation parts of the PPACA. We ultimately cannot predict with any assurance
the ultimate effect of the PPACA or changes to the PPACA on our Company, nor can we provide any assurance that its provisions will
not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price
of our ordinary shares. In addition, we cannot predict whether new proposals will be made or adopted, when they may be adopted
or what impact they may have on us if they are adopted.



In addition, other
legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011, the President Obama signed into
law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommend
to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount
greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting
in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things,
reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years. The Bipartisan Budget Act of 2015, signed into law on
November 2, 2015, increased the rebates that generic drug manufacturers are obligated to pay under the Medicaid program by applying
a inflation-based rebate formula to generic that previously only applied to brand name drugs. If we ever obtain regulatory approval
and commercialization of any of our product candidates, these new laws may result in additional reductions in Medicare and other
healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates
may be.



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



34







Our AP-CBD/THC product candidate
uses Cannabidiol and 9-Tetrahydrocannabinol, which are illegal at the federal level in the United States and subject to complex
regulation at the state level, which limit the commercial viability of this product candidate in the United States.



Our AP-CBD/THC product
candidate for treatment of various indications, including low back neuropathic pain and Fibromyalgia, uses Cannabidiol and 9-Tetrahydrocannabinol,
which are illegal at the federal level in the United States. Cannabidiol (CBD) and 9-Tetrahydrocannabinol (THC) have been decriminalized
in certain U.S. states, but, depending on the state, are subject to complex or undeveloped law. Due to its use of CBD and THC,
AP-CBD/THC may not be eligible for approval by the FDA as a prescription pharmaceutical, regardless of its results, which would
likely prevent insurance coverage of the product. Further, even with respect to states in which the product may be legal at the
state level, we may face difficulties in finding a suitable manufacturer for the product in the United States or in importing the
product to the United States, if manufactured abroad. These factors may significantly limit the commercial viability of AP-CBD/THC
in the United States. If we are not able to commercialize AP-CBD/THC in the United States, our business may suffer and we may not
be able to recoup the cost of development of AP-CBD/THC.



Risks Related to Our Industry



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



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



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



There are extensive
U.S. federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant
criminal and civil penalties. These federal laws include: the anti-kickback statute, which prohibits certain business practices
and relationships, including the payment or receipt of compensation for the referral of patients whose care will be paid by Medicare
or other federal healthcare programs; the physician self-referral prohibition, commonly referred to as the Stark Law; the anti-inducement
law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items
or services covered by either program; the civil False Claims Act in 1986, or the False Claims Act, which prohibits any person
from knowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government, including
the Medicare and Medicaid programs; and the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human
Services to impose civil penalties administratively for fraudulent or abusive acts. In addition, the PPACA requires drug manufacturers
to report to the government any payments to physicians for consulting services and the like.



Sanctions for violating
these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties,
imprisonment, denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both, and debarment.
As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation
and enforcement efforts to reduce or eliminate waste and to control fraud and abuse in governmental healthcare programs. Private
enforcement of healthcare fraud has also increased, due in large part to amendments to the False Claims Act that were designed
to encourage private persons to sue on behalf of the government. The Fraud Enforcement and Recovery Act of 2009 may further encourage
whistleblowers to file suit under the qui tam provisions of the False Claims Act. A violation of any of these federal and state
fraud and abuse laws and regulations could have a material adverse effect on our liquidity and financial condition. An investigation
into the use by physicians of any of our products, if ever commercialized, may dissuade physicians from either purchasing or using
them, and could have a material adverse effect on our ability to commercialize those products.



35







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



Risks Related to Our Operations in Israel



Potential political, economic and
military instability in the State of Israel, where our senior management, our head executive office, research and development,
and manufacturing facilities are located, may adversely affect our results of operations.



Our head executive
office, our research and development facilities, our current manufacturing facility, as well as some of our clinical sites are
located in Israel. Our officers and all of our directors are residents of Israel. Accordingly, political, economic and military
conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the
State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as well as
terrorist acts committed within Israel by hostile elements. Any hostilities involving Israel or the interruption or curtailment
of trade between Israel and its trading partners could adversely affect our operations and results of operations. During November
2012 and as recently as July through August 2014, Israel was engaged in an armed conflict with a militia group and political party
who controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese
Islamist Shiite militia group and political party. In December 2008 and January 2009 there was an escalation in violence among
Israel, Hamas, the Palestinian Authority and other groups, as well as extensive hostilities along Israel’s border with the
Gaza Strip, which resulted in missiles being fired from the Gaza Strip into Southern Israel. Similar hostilities accompanied by
missiles being fired from the Gaza Strip into Southern Israel, as well at areas more centrally located near Tel Aviv and at areas
surrounding Jerusalem, occurred during November 2012 and July through August 2014. These conflicts involved missile strikes against
civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and
negatively affected business conditions in Israel.



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



36







Our commercial insurance
does not cover losses that may occur as a result of events associated with the security situation in the Middle East. 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.



Further, in the past,
the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with
the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken
against Israel, which could also adversely impact our business.



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



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



Investors may have difficulties enforcing
a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws against us,
or our executive officers and directors or asserting U.S. securities laws claims in Israel.



None of our directors
or officers are residents of the United States and most of their and our assets are located outside the United States. Service
of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against
us or our non-U.S. our directors and executive officers may be difficult to obtain within the United States. We have been informed
by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted
in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse
to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be
the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be
governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might
not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers
and directors.



Moreover, among other
reasons, including but not limited to, fraud or absence of due process, or the existence of a judgment which is at variance with
another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court
or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice
the sovereignty or security of the State of Israel.



Under current Israeli law, we may
not be able to enforce employees’ covenants not to compete and therefore may be unable to prevent our competitors from benefiting
from the expertise of some of our former employees.



We generally enter
into non-competition agreements with our key employees, in most cases within the framework of their employment agreements. These
agreements prohibit our key employees, if they cease working for us, from competing directly with us or working for our competitors
for a limited period. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof. If we cannot
enforce our non-competition agreements with our employees, then we may be unable to prevent our competitors from benefiting from
the expertise of our former employees, which could materially adversely affect our business, results of operations and ability
to capitalize on our proprietary information.



37







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.



We are incorporated
under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our articles of association
and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in typical U.S. corporations. In particular, pursuant to the Companies Law each shareholder of an Israeli company has to act in
good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and
to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders
and class meetings, on amendments to a company’s articles of association, increases in a company’s authorized share
capital, mergers, and transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling shareholder
of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or
who has the power to appoint or prevent the appointment of a director or officer in the company, or has other powers toward the
company has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness.
Because Israeli corporate law has undergone extensive revision in recent years, there is little case law available to assist in
understanding the implications of these provisions that govern shareholder behavior.



Provisions of Israeli law and our
articles of association may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or
assets.



Certain provisions
of Israeli law and our articles of association could have the effect of delaying or preventing a change in control and may make
it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors,
even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future
for our ordinary shares. For example, Israeli corporate law regulates mergers and requires that a tender offer be effected when
more than a specified percentage of shares in a company are purchased. Further, Israeli tax considerations may make potential transactions
undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax
relief to such shareholders from Israeli tax. With respect to certain mergers, Israeli tax law may impose certain restrictions
on future transactions, including with respect to dispositions of shares received as consideration, for a period of two years from
the date of the merger. See “Additional Information — Memorandum and Articles of Association — Acquisitions under
Israeli Law.”



Furthermore, under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (formerly known as the Law
for the Encouragement of Research and Development in Industry 5744-1984), and the regulations and guidelines thereunder, or the
Innovation Law, to which we are subject due to our receipt of grants from the National Authority for Technological Innovation,
or NATI (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS), a recipient
of OCS grants such as us must report to the applicable authority of the OCS regarding any change of control or any change in the
holding of the means of control of our Company which transforms any non-Israeli citizen or resident into an “interested party”,
as defined in the Innovation Law, in our Company, and in the latter event, the non-Israeli citizen or resident shall execute an
undertaking in favor of the OCS, in a form prescribed by the OCS (NATI).



Because a certain portion of our
expenses is incurred in currencies other than the U.S. Dollar, our results of operations may be harmed by currency fluctuations
and inflation.



Beginning in 2016,
our reporting and functional currency is the U.S. dollar, but some portion of our expenses is in the NIS and Euro. As a result,
we are exposed to some currency fluctuation risks. We may, in the future, decide to enter into currency hedging transactions to
decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation to
the U.S. dollar. These measures, however, may not adequately protect us from adverse effects.



38







We have received Israeli government
grants for certain of our research and development activities. The terms of these grants may require us to satisfy specified conditions
in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to
the repayment of the grants. Such grants may be terminated or reduced in the future, which would increase our costs.



Under the Innovation
Law, research and development programs that meet specified criteria and are approved by a committee of the OCS are eligible for
grants. The grants awarded are typically up to 50% of the project’s expenditures, as determined by the research committee.
A Company that received a grant from the OCS, or a Participating Company, is typically required to pay royalties to the OCS on
income generated from the sale of products incorporating technology developed using such grants (and related services associated
with such products), whether received by the Participating Company or any affiliated entity, as defined in the Encouragement of
Industrial Research and Development Regulations (Royalties Rates and Rules for Payment), 5756-1996, or the Royalties Regulations,
until 100% of the dollar-linked grant is repaid. The rate of the royalties is determined based on the criteria set forth under
the Royalties Regulations and is set between 3% to 6% of sales of the product (though typically not greater than 4.5%).



The obligation to
pay royalties is contingent on actual sale of such products and services and is capped at the amount of the full grant received
from the OCS (and in some cases in an increased royalty cap, as detailed below) which in any event is linked to the U.S. Dollar
and accrues interest (LIBOR). In the absence of such sales, no payment of such royalties is required. Generally, there is no liability
to pay any additional royalties following the repayment of all the outstanding liabilities in connection with such grants, provided,
however, that the restrictions under the Innovation Law will continue to apply even after the repayment of such liabilities in
full by the Participating Company including on the sale, transfer or assignment outside of Israel of know-how developed as part
of the programs under which the grants were given.



The terms of the grants
under the Innovation Law also require that the products developed as part of the programs using government grants be manufactured
in Israel and that the technology developed thereunder may not be transferred outside of Israel, unless prior written approval
is received from the OCS (such approval is not required for the transfer of a portion of the manufacturing capacity which does
not exceed, in the aggregate, 10% of the portion declared to be manufactured abroad in the applications for funding, in which case
only notification is required) and additional payments are made to the OCS. However, this does not restrict the export of products
that incorporate the funded technology.



Ordinarily, as a condition
to obtaining approval to manufacture outside Israel, we may be required to pay increased royalties, at rates set forth in the Royalties
Regulations or as may be determined by NATI. The total amount to be repaid to the OCS may be increased to between 120% and 300%
of the grants, depending on the manufacturing volume that is performed outside Israel.



The Innovation Law
restricts the ability to transfer know-how funded by the OCS outside of Israel. Transfer of OCS-funded know-how outside of Israel
requires prior OCS approval and is subject to certain payments to the OCS calculated according to formulae provided under the Innovation
Law. A transfer for the purpose of the Innovation Law means an actual sale of the OCS-funded know-how, any license to develop the
OCS-funded know-how or the products resulting from the OCS-funded know-how or any other transaction, which, in essence, constitutes
a transfer of the OCS-funded know-how. A mere license solely to market products resulting from the OCS-funded know-how would not
be deemed a transfer for the purpose of the Innovation Law. It should be noted that the OCS is in the process of promulgating regulations
that deal with granting of licenses to use know-how developed as a result of research financed by the OCS. Such regulations may
have an effect on our Company, in respect of the amount of payments to the OCS for the grant of sub-licenses to third parties.
As of the date of this annual report, we are unable to assess the effect, if any, of the promulgation of such regulations on our
Company.



39







If we wish to transfer
OCS-funded know-how, the terms for approval shall be determined according to the character of the transaction and the consideration
paid to us for such transfer. The OCS approval to transfer know-how created, in whole or in part, in connection with an OCS-funded
project to third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment
of a redemption fee to the OCS calculated according to a formula provided under the Innovation Law that is based, in general, on
the ratio between the aggregate OCS grants received by the company and the company’s aggregate investments in the project
that was funded by these OCS grants, multiplied by the transaction consideration (taking into account any depreciation in accordance
with a formula set forth in the in the Innovation Law) less any royalties already paid to the OCS. The transfer of such know-how
to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula
that is based, in general, on the ratio between aggregate OCS grants received by the company and the company’s aggregate
research and development expenses, multiplied by the transaction consideration (taking into account any depreciation in accordance
with a formula set forth in the in the Innovation Law) less any royalties already paid to the OCS. The Innovation Law establishes
a maximum payment of the redemption fee paid to the OCS under the above mentioned formulas and differentiates between two situations:
(i) in the event that the company sells its OCS-funded know-how, in whole or in part, or is sold as part of certain merger and
acquisition transactions, and subsequently ceases to conduct business in Israel, the maximum redemption fee under the above mentioned
formulas shall be no more than six times the amount received (plus annual interest) for the applicable know-how being transferred,
or the entire amount received, as applicable; (ii) in the event that following the transactions described above (i.e., asset sale
of OCS-funded know-how or transfer as part of certain merger and acquisition transactions), the company continues to conduct its
research activity in Israel (for at least three years following such transfer, keeps on staff at least 75% of the number of research
and development employees it had for the six months before the know-how was transferred and keeps the same scope of employment
of such research and development staff), then the company is eligible for a reduced cap of the redemption fee of no more than three
times the amounts received (plus annual interest) for the applicable know-how being transferred, or the entire amount received,
as applicable. The OCS is not open for negotiating this cap and we are not aware of any additional soft promises that can be made
to reduce the redemption fee. The obligation to pay royalties mentioned above will no longer apply following the redemption of
the know-how in the framework of a transfer of such know-how overseas.



We have received grants
from the OCS prior to an extensive amendment to the Innovation Law that came into effect as of January 1, 2016, or the Amendment,
which may also affect the terms of existing grants. The Amendment provides for an interim transition period (which has not yet
expired), after which time our grants will be subject to terms of the Amendment and the NATI's new guidelines, if and when issued.
Under the Innovation Law, as amended by the Amendment, NATI is provided with a power to modify the terms of existing grants. Such
changes, if introduced by NATI in the future, may impact the terms governing our grants. As of the date of this report, we are
unable to assess the effect of such changes, if any, on the Company.



Subject to prior approval
of the OCS, the Company may transfer the OCS-funded know-how to another Israeli company. If the OCS-funded know-how is transferred
to another Israeli entity, the transfer would still require OCS approval but will not be subject to the payment of the redemption
fee (although there will be an obligation to pay royalties to the OCS from the income of such sale transaction as part of the royalty
payment obligation). In such case, the acquiring company would have to assume all of the selling company’s restrictions and
obligations towards the OCS (including the restrictions on the transfer of know-how and manufacturing capacity outside of Israel)
as a condition to OCS approval.



Our research and development
efforts have been financed, partially, through grants that we have received from the OCS. We therefore must comply with the requirements
of the Innovation Law and related regulations. As of December 31, 2016, we have received approximately NIS 50.2 million of such
grants. The Innovation Law restricts the ability to transfer know-how funded by the OCS outside of Israel. Transfer of OCS funded
know-how outside of Israel requires the prior approval of the OCS and, under certain circumstances, is subject to significant payments
to the OCS (calculated according to a formula set forth under the Innovation Law), depending upon the value of the transferred
technology or know-how, the amount of NATI support, the time of completion of NATI supported research project and other factors,
all as determined by NATI, while the redemption fee will not exceed 600% of the grantsamount
plus interest. Therefore, the discretionary approval of an OCS committee will be required for any transfer to third parties
outside of Israel of rights related to our Accordion Pill, which has been developed with OCS funding. The restrictions under the
Innovation Law may impair our ability to enter into agreements for OCS funded products or technologies without the approval of
the OCS. We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or at all. We may
not receive the required approvals should we wish to transfer this technology, manufacturing and/or development outside of Israel
in the future. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology
developed with OCS funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be
reduced by the amounts we are required to pay to the OCS. Any approval, if given, will generally be subject to additional financial
obligations. Failure to comply with the requirements under the Innovation Law may subject us to mandatory repayment of grants received
by us (together with interest and penalties), as well as may expose us to criminal proceedings. In addition, NATI may from time
to time conduct royalties audits and such audits may lead to additional royalties being payable on additional products. Such grants
may be terminated or reduced in the future, which would increase our costs. OCS approval is not required for the export of any
products resulting from the OCS-funded research or development in the ordinary course of business.



40







Risks Related to Ownership of Our Ordinary Shares



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



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



We have not paid, and do not intend to
pay, dividends on our ordinary shares and, therefore, unless our ordinary shares appreciate in value, our investors may not benefit
from holding our ordinary shares.



We have not paid any cash
dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends our ordinary shares in the foreseeable
future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. See “Additional
Information— Memorandum and Articles of Association—Dividends” for additional information. As a result, investors
in our ordinary shares will not be able to benefit from owning our ordinary shares unless the market price of our ordinary shares
becomes greater than the price paid for the shares by such investors and they are able to sell such shares. We cannot assure you
that you will ever be able to resell our ordinary shares at a price in excess of the price paid for the shares.



The public trading market for our ordinary
shares is volatile and may result in higher spreads in share prices, which may limit the ability of our investors to sell their
ordinary shares at a profit, if at all.



Our ordinary shares currently
trade on the NASDAQ Capital Market and the TASE. Our results of operations and the value of our investments are affected by volatility
in the securities markets. These difficulties and the volatility of the securities markets in general, and specifically during
economic slowdowns, have affected and may continue to affect our ability to realize our investments or to raise financing, which
in turn may result in us having to record impairment charges.



Our ordinary shares are traded on more
than one market and this may result in price variations.



Our ordinary shares have
been traded on the NASDAQ Capital Market since August 2015 and the TASE since 2010. Trading in our ordinary shares on these markets
will take place in different currencies (U.S. dollars on the NASDAQ Capital Market and NIS on the TASE), and at different times
(resulting from different time zones, trading days and public holidays in the United States and Israel). The trading prices of
our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares
on the TASE could cause a decrease in the trading price of our ordinary shares in the United States.



41







It may be difficult for you to sell your
ordinary shares at or above the purchase therefor or at all.



Although our ordinary
shares now trade on the NASDAQ Capital Market and on the TASE, an active trading market for our ordinary shares may not be sustained.
The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various
factors, some of which are beyond our control. It may be difficult for you to sell your ordinary shares without depressing the
market price for the ordinary shares or at all. As a result of these and other factors, you may not be able to sell your ordinary
shares at current market price or at all. Further, an inactive market may also impair our ability to raise capital by selling our
ordinary shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary
shares as consideration.



The market price of our ordinary shares
may fluctuate significantly, which could result in substantial losses by our investors.



The market price of our
ordinary shares may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:



| | • | inability to obtain the approvals
necessary to commence further clinical trials;
| | - | --------------------------------------------------------------------------------



| | • | results of clinical and preclinical studies;
| | - | --------------------------------------------



| | • | announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | announcements of technological innovations, new products or product enhancements by us or others;
| | - | -------------------------------------------------------------------------------------------------



| | • | adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes or developments in laws, regulations or decisions applicable to our product candidates or patents;
| | - | ----------------------------------------------------------------------------------------------------------



| | • | any adverse changes to our relationship with manufacturers or suppliers;
| | - | ------------------------------------------------------------------------



| | • | announcements concerning our competitors or the pharmaceutical or biotechnology industries in general;
| | - | ------------------------------------------------------------------------------------------------------



| | • | achievement of expected product sales and profitability or our failure to meet expectations;
| | - | --------------------------------------------------------------------------------------------



| | • | our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringement actions;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | any major changes in our board of directors, management or other key personnel;
| | - | -------------------------------------------------------------------------------



| | • | legislation in the United States, Europe and other foreign countries relating to the sale or pricing of pharmaceuticals;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | • | expiration or terminations of licenses, research contracts or other collaboration agreements;
| | - | ---------------------------------------------------------------------------------------------



| | • | public concern as to the safety of therapeutics we, our licensees or others develop;
| | - | ------------------------------------------------------------------------------------



| | • | success of research and development projects;
| | - | ---------------------------------------------



| | • | developments concerning intellectual property rights or regulatory approvals;
| | - | -----------------------------------------------------------------------------



42







| | • | variations in our and our competitors’ results of operations;
| | - | -------------------------------------------------------------



| | • | changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | future issuances of ordinary shares or other securities;
| | - | --------------------------------------------------------



| | • | general market conditions, including the volatility of market prices for shares of biotechnology companies generally, and other factors, including factors unrelated to our operating performance; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the other factors described in this “Risk Factors” section.
| | - | -----------------------------------------------------------



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



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



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



The tax benefits that are available to
us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our costs
and taxes.



We have obtained a tax
ruling from the Israeli Tax Authority according to which our activity has been qualified as an “industrial activity,”
as defined in the Law for the Encouragement of Capital Investments, 1959, generally referred to as the Investment Law, and is eligible
for tax benefits as a “Benefited Enterprise,” which will apply to the turnover attributed to such enterprise, for a
period of up to ten years from the first year in which we generated taxable income. The tax benefits under the Benefited Enterprise
status are scheduled to expire at the end of 2023.



In order to remain eligible
for the tax benefits of a Benefited Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and
its regulations, as amended. In addition, in order to remain eligible for the tax benefits available to the Benefited Enterprise,
we must also comply with the conditions set forth in the tax ruling. These conditions include, among other things, that the production,
directly or through subcontractors, of all our products should be performed within certain regions of Israel. If we do not meet
these requirements, the tax benefits would be reduced or canceled.



There is no assurance
that our future taxable income will qualify as Benefited Enterprise income or that the benefits described above will be available
to us in the future.



43







We expect to be characterized as a passive
foreign investment company for the taxable years ending December 31, 2016, and December 31, 2017, and, as such, our U.S. shareholders
may suffer adverse tax consequences.



Generally, if for any
taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or
produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax
purposes. For the taxable year ending December 31, 2015, we were classified as a PFIC. We expect to be classified as a PFIC for
2016 and 2017. Furthermore, because PFIC status is determined annually and is based on our income, assets and activities for the
entire taxable year, there can be no assurance that we will not be classified as a PFIC in any future year. If we were to be characterized
as a PFIC for U.S. federal income tax purposes in any taxable year during which a U.S. Investor, as defined in “Taxation
— U.S. Federal Income Tax Consequences”, owns ordinary shares, such U.S. Investor could face adverse U.S. federal income
tax consequences, including having gains realized on the sale of our ordinary shares classified as ordinary income, rather than
as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are
U.S. Investors, and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist
that may alleviate some adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market
treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. Investors to make “qualified
electing fund elections” if we are classified as a PFIC. See “Taxation — U.S. Federal Income Tax Consequences.”



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
has 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 warrants and options. Issuances of additional shares
would reduce your influence over matters on which our shareholders vote.



The sale of a substantial number of our
ordinary shares may cause the market price of our ordinary shares to decline.



Sales of a substantial
number of ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of
our ordinary shares to decline. We had 11,448,191 ordinary shares outstanding as of December 31, 2016 and 13,737,829 ordinary shares
outstanding as of the date of this report. All of the ordinary shares outstanding as of December 31, 2016 are freely tradable,
without restriction, in the public markets in the United States and Israel. Any sales of our ordinary shares or any perception
in the market that such sales may occur could cause the trading price of our ordinary shares to decline.



In March 2017, we completed
a private placement of 2,289,638 of our ordinary shares at a price of $4.40 per share, with various investors for gross proceeds
of approximately $10 million. The chairman of our board of directors, Dr. John Kozarich, and two other directors, Messrs. Zvi Joseph
and Giora Carni, participated in the private placement. We have agreed to file a registration statement under the Securities Act
of 1933, as amended, or the Securities Act, to register for resale the ordinary shares issued in the private placement.



In addition, up to 1,822,707
ordinary shares that are subject to outstanding options under the 2005 Share Option Plan, or the 2005 Plan, and outstanding options
and reserved options for future issuance under our 2015 Incentive Compensation Plan, or the 2015 Plan, will be eligible for sale
in the public market. We filed registration statements on Form S-8 under the Securities Act on February 25, 2016 and on August
1, 2016 to register such ordinary shares.



If these additional ordinary
shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ordinary shares could
decline.



44







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



Our ordinary shares may
be, or become, a “penny stock” if, among other things, the share price is below $5.00 per share, they are not listed
on a national securities exchange or they have not met certain net tangible asset or average revenue requirements. Broker-dealers
who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC.
This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock
market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain
the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their
accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a
penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get
its money back.



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



We must meet the NASDAQ Capital Market’s
continued listing requirements and comply with the other NASDAQ rules, or we may risk delisting. Delisting could negatively affect
the price of our ordinary shares, which could make it more difficult for us to sell securities in a financing and for you to sell
your ordinary shares.



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



45







ITEM 4. Information on the Company.



Historical Background and Corporate Structure



Intec Pharma Ltd. was
established and incorporated in Israel on October 23, 2000 as a private Israeli company under the name Orly Guy Ltd. In February
2001, our name was changed to Intec Pharmaceuticals (2000) Ltd. Our research and development activities began originally through
a private partnership, Intec Pharmaceutical Partnership I.P.P, a general Israeli partnership, formed on September 21, 2000. Its
operations were transferred in full to us at the beginning of 2002 in return for the allocation of shares in our company to the
partners in the partnership, pro rata with their ownership in the partnership. In March 2004, we changed our corporate name to
Intec Pharma Ltd. In February 2010, we successfully completed an initial public offering in Israel on the TASE. We do not have
any subsidiaries and do not hold any investments in other entities.



We completed our initial
public offering of securities in Israel in February 2010. In connection with the offering, we raised approximately NIS 35.3 million
before issuance costs and issued 783,969 ordinary shares and registered warrants (Series 1) to purchase 313,588 of our ordinary
shares. As of the date of this annual report, all warrants issued in our initial public offering in Israel have expired.



We completed our initial
public offering of securities in the United States on August 2015. In connection with the offering, we raised gross proceeds of
approximately $34.0 million before deducting underwriting discounts and commissions and other offering expenses.



Overview



We are a clinical stage
biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which we refer
to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy and safety
of existing drugs and drugs in development by utilizing an efficient gastric retention, or GR, and specific release mechanism.
Our product pipeline currently includes four product candidates in clinical trial stages. Our leading product candidate, Accordion
Pill Carbidopa/Levodopa, or AP-CDLD, is being developed for the indication of treatment of Parkinson’s disease symptoms in
advanced Parkinson’s disease patients. We have successfully completed a Phase II clinical trial for AP-CDLD for the treatment
of Parkinson’s disease symptoms in advanced Parkinson’s disease patients and have agreed with the U.S. Food and Drug
Administration, or the FDA, on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’s disease
symptoms in advanced Parkinson’s disease patients, including the main principles of the single required pivotal Phase III
clinical trial in advanced Parkinson’s disease patients. In April 2016, we enrolled the first patient in the pivotal Phase
III clinical trial for AP-CDLD. Our second product candidate, Accordion Pill Zaleplon, or AP–ZP, is being developed for the
indication of treatment of insomnia, including sleep induction and the improvement of sleep maintenance. We have successfully completed
a Phase II clinical trial for AP–ZP for the treatment of insomnia under an Investigational New Drug, or IND, application
that we submitted to the FDA on August 4, 2009 for AP–ZP as a treatment for the induction and maintenance of sleep in patients
suffering from insomnia. In our correspondence with the FDA, the FDA previously agreed that an acceptable regulatory pathway for
AP-CDLD and AP–ZP would be to file a new drug application, or NDA, pursuant to Section 505(b)(2) of the Federal Food, Drug,
and Cosmetic Act, or FDCA, which is a streamlined approval pathway that may accelerate the time to commercialize and decrease the
costs of AP–CDLD and AP–ZP, as compared to those typically associated with a NCE. See “— Government Regulation
— 505(b)(2) Applications.” The FDA has indicated in written correspondence to us that we may be able to design the
development program for AP–ZP in a manner that would allow us to obtain sufficient data for the NDA submission for AP–ZP
in one pivotal Phase III clinical trial. However, at this point in the development process of AP–ZP, the details of such
a trial have not been determined or confirmed with the FDA. In March 2016, we completed a Phase I clinical trial for our third
pipeline product candidate which is being developed for the prevention and treatment of gastroduodenal and small bowel Nonsteroidal
Anti-Inflammatory Drug, or NSAID, induced ulcers. The pharmacokinetics, or PK, results demonstrated in the Phase I trial were within
the well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill with the
existing drug. In addition, we are developing and testing a program for our Accordion Pill platform with the two primary cannabinoids
contained in Cannabis sativa. We plan to test the Accordion Pill platform with Cannabidiol (CBD) and 9-Tetrahydrocannabinol (THC),
or AP-CBD/THC, for the treatment of various indications, including low back neuropathic pain and Fibromyalgia. In March 2017, we
initiated a Phase I clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®.



46







Our Accordion Pill Platform Technology



We believe that our Accordion
Pill technology has the potential to improve the performance of approved drugs and drugs in development, including Levodopa, by
providing several distinct advantages, including, but not limited to:



| | • | increasing efficacy of the drug incorporated into the Accordion Pill;
| | - | ---------------------------------------------------------------------



| | • | improving safety of the drug incorporated into the Accordion Pill by reducing the side effects of such drugs;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | reducing the number of daily administrations required to achieve the same or superior therapeutic effect as the non-Accordion Pill version of such drugs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | expanding the intellectual property protection period of the drug incorporated into the Accordion Pill.
| | - | -------------------------------------------------------------------------------------------------------



Our anticipated ability
to file NDAs pursuant to Section 505(b)(2) for our existing pipeline and future products increases the likelihood of accelerating
the time to commercialization of our products and decreasing costs when compared to those typically associated with New Chemical
Entities, or NCEs.



Our Accordion Pill platform
technology is designed to increase the time that drugs are retained in the stomach as compared to other oral dosage forms, such
as tablets and capsules. This capability is particularly important to drugs with a NAW, which are absorbed mainly in the upper
part of the gastrointestinal, or GI, tract. Regular controlled-release formulations of such drugs currently on the market sometimes
fail to provide an efficient solution, as once the regular dosage form has passed the drug’s NAW in the upper GI tract, the
drug is not, or is very poorly, absorbed in the distal parts of the GI tract. The Accordion Pill platform technology is also designed
for drugs with low solubility, which do not efficiently dissolve in the GI tract, and drugs with low permeability, which do not
efficiently penetrate the intestinal wall and reach the blood stream, such as Biopharmaceutics Classification System, or BCS, Class
II (low solubility, high permeability) and Class IV (low solubility, low permeability) drugs. According to The AAPS Journal published
by the American Association of Pharmaceutical Scientists, of the top 200 oral drugs in the United States, Great Britain, Spain
and Japan in 2006, approximately 30% to 35% were BCS Class II drugs and approximately 5% to 10% were BCS Class IV drugs. Further,
according to Drug Development & Delivery, in 2006 approximately 90% of NCEs in development were either BCS Class II or Class
IV drugs. Poorly soluble drugs are sometimes characterized by low bioavailability, which is strongly affected by the drug’s
solubility. In addition, the extent of absorption of poorly soluble drugs can be dose dependent, leading to non-linear PK behavior.
The Accordion Pill’s efficient GR and specific release mechanism prolongs the absorption phase of drugs with an NAW, which
can result in significantly more stable plasma levels. In addition, the Accordion Pill has demonstrated an enhancement of the absorption
of a poorly soluble, BCS Class II/IV drug in a crossover PK clinical study in 12 healthy volunteers. For poorly soluble drugs,
we believe that our technology acts through the gradual delivery of an undissolved drug by the Accordion Pill in the stomach, which
allows for the complete dissolution of the drug dose in the stomach over the delivery period. The gradual passage of the drug from
the stomach to the upper part of the GI tract enables an increase in the amount of the drug that can be dissolved and thus absorbed,
in the upper small bowel. In addition, we believe that bile secretion in the upper part of the GI tract also improves the intestinal
environment for better absorption. Finally, the significant dilution of the drug solution in the small bowel caused by prolonged
delivery increases the amount of the drug available for absorption.



Our clinical trials to
date have demonstrated that the Accordion Pill is retained in the stomach for eight to 12 hours, as compared to significantly shorter
time periods, typically as little as two to three hours, when using other solid dosage forms. The efficient GR and the predetermined
release profile for each specific drug associated with our Accordion Pill technology demonstrated a significant improvement in
PK, which is the drug plasma level over time and a corresponding improvement in efficacy and safety.



47







The following chart depicts
the Accordion Pill’s capability to improve the PK of Levodopa, which is a drug characterized by an NAW:



AP-CDLD Phase II clinical trial —
more stable Levodopa levels with statistically significant
reduced peak-to-trough fluctuations







Levodopa plasma levels
in n=8 advanced Parkinson’s disease patients following twice daily, or b.i.d, administration (eight hours apart) of AP-CDLD
50/375 versus four times daily, or q.i.d, administration (four hours apart) of a commercial Carbidopa/Levodopa formulation (equivalent
daily Levodopa dose). The PK study was performed on day seven, following six days of drug administration at home. No Levodopa medication
was allowed for ten hours before the first administration at day seven. The PK results showed that the peak to trough ratio, which
measures the maximum average concentration relative to the minimum average concentration of LD plasma levels, was reduced from
29.9 to 3.2 with the AP-CDLD. Demonstration of the clinical benefits of these peak to trough ratios will be further studied and
confirmed in the Phase III clinical trial.



The following chart depicts
the Accordion Pill’s capability to improve the PK of a BCS Class II/IV drug combined with our Accordion Pill technology that
is currently on the market and is characterized with poor solubility:



PK results with the Accordion Pill with
a BCS Class II/IV drug that is currently available

on the market in 12 healthy volunteers







48







The results of our clinical
trial have demonstrated approximately a 100% increase in bioavailability in 12 healthy volunteers with our Accordion Pill technology,
as compared to the commercial formulation of the drug. Furthermore, the results demonstrated that the increase in bioavailability
obtained when administering one Accordion Pill and two Accordion Pills was proportional to the increase in dosage, or linear absorption,
whereas the commercial formulation does not show linear absorption in these dosage ranges.



Although there is no assurance
that these results will be repeated in other instances, we believe that these results are important because the enhancement of
bioavailability of poorly soluble drugs is one of the main challenges facing the pharmaceutical industry. According to The AAPS
Journal published by the American Association of Pharmaceutical Scientists, of the top 200 oral drugs in the United States, Great
Britain, Spain and Japan in 2006, approximately 30% to 35% were BCS Class II drugs and approximately 5% to 10% were BCS Class IV
drugs. Further, according to Drug Development & Delivery, in 2006 approximately 90% of NCEs in development were either BCS
Class II or Class IV drugs.



Our Accordion Pill technology
enables us to combine active pharmaceutical ingredients, or APIs, which are also referred to as drugs, and inactive ingredients
that are included in the FDA’s list of approved inactive ingredients, into pharmaceutical-grade, biodegradable polymeric
films, welded into a planar structure, folded into the shape of an accordion and placed inside of a capsule. While in the stomach,
the capsule dissolves and the Accordion Pill unfolds and releases the drug in a predetermined profile. In order to provide optimum
results for each drug, each Accordion Pill drug differs and will likely differ in several ways, including composition, structure
and properties.



The diagram below illustrates
the general structure of the Accordion Pill:







All of the ingredients
in the Accordion Pill (active and inactive) are combined physically, not chemically, thus maintaining the chemical composition
of the active ingredients.



The Accordion Pill has
a drug release mechanism that is independent of the gastric retention mechanism. It can combine both immediate and controlled release
profiles, as well as more than one drug. We have demonstrated that the Accordion Pill has the ability to carry a drug load of up
to 550 mg. We have also demonstrated that the Accordion Pill fully degrades in the intestine once it is expelled from the stomach.



We have conducted more
than 30 clinical trials with more than 3,000 administrations to study the safety and efficacy of the Accordion Pill, including
the Accordion Pill platform alone and the Accordion Pill platform with various APIs. No significant adverse events related to the
Accordion Pill were reported in these clinical studies. These studies demonstrated that increasing gastro-retention time improves
the performance of certain NAW and BCS Class II/IV drugs.



49







Our Product Pipeline



Our current product development
pipeline includes four products in clinical trial stages. Our leading pipeline product, AP-CDLD, is focused on leveraging our Accordion
Pill technology to improve the efficacy and safety of an approved drug for the treatment of Parkinson’s disease symptoms
in advanced Parkinson’s disease patients. We have agreed with the FDA on the remaining clinical development program for AP-CDLD
for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, including the main principles
of the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients. In December 2015, we received
a United States centralized institutional review board, or IRB, approval to initiate a Phase III clinical trial for AP-CDLD. In
April 2016, we enrolled the first patient in the pivotal Phase III clinical trial for AP-CDLD. See “— Current Regulatory
Status of AP-CDLD.” Our second product, AP–ZP, is for the treatment of insomnia. We are currently seeking a potential
strategic partner for further clinical development and commercialization of AP–ZP and our future development plans for AP–ZP
will depend on the results of this process. We have an exclusive license from Yissum, an affiliate of The Hebrew University of
Jerusalem, for developing, manufacturing and global marketing of products based on the core technology used in the Accordion Pill.
In March 2016, we completed a Phase I clinical trial for our third pipeline product candidate which is being developed for the
prevention and treatment of gastroduodenal and small bowel NSAID induced ulcers. The PK results demonstrated in the Phase I trial
were within the well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill
with the existing drug. In March 2017, we initiated a Phase I clinical trial with our fourth product, the AP-CBD/THC for the treatment
of various indications, including low back neuropathic pain and Fibromyalgia.







* Under 505(b)(2)



New Product Development for Biogen MA Inc.



On April 15, 2015, we
entered into an agreement with Biogen MA Inc., which we refer to as Biogen, for the development of a designated Accordion Pill
with one marketed, proprietary drug of Biogen. Pursuant to the agreement, we will conduct activities for the development of the
designated Accordion Pill pursuant to an agreed upon research plan, which will be funded by Biogen, subject to the achievement
of certain research plan milestones. We granted Biogen an option to obtain an exclusive, worldwide, royalty bearing license to
our technology, as implemented in the product being developed, for the current approved indication of its proprietary drug. Pursuant
to the agreement and to the extent we are not contractually precluded from doing so, at the request of Biogen, we will negotiate
in good faith the expansion of the license field for additional indications, and the terms and conditions thereof. Upon exercise
of the option, Biogen will be responsible for, and bear all costs associated with, pre-clinical and clinical activities required
for the purpose of obtaining regulatory approval for the product being developed, as well as for the manufacturing and commercialization
thereof. Biogen has also agreed to consider in good faith engaging us as a manufacturer of commercial supply of the product being
developed.



50







According to the agreement,
we either received or will be entitled to the following payments:



| | • | $250,000, which we received within 15 days from the execution of the agreement, for funding the research plan, and an additional aggregate amount of up to $670,000 for the achievement of research plan milestones;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | $8,000,000 in consideration for the exercise of the option;
| | - | -----------------------------------------------------------



| | • | Several payments in an aggregate amount of $39 million upon the achievement of milestones related to the development of the product, regulatory filings for the purpose of obtaining regulatory approvals and reaching first commercial sales in the United States and Europe; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Royalties in a low single-digit rate on net sales, provided that the aggregate annual royalties will not exceed $25 million and the aggregate amount of royalties payable under the agreement will not exceed $100 million.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are entitled to the
aforementioned royalty payments for the duration of the royalty term. The royalty term is defined with respect to the product being
developed in each country as the period beginning on the date of the first commercial sale of the product being developed in such
country and ending on the later of (a) the expiration of the last to expire valid patent right claim that covers such product in
such country and (b) the expiration of a regulatory exclusivity period granted or afforded by applicable laws or by a regulatory
authority with respect to such product in such country. We currently estimate that the royalty term will last until at least 2028
in the United States based on the expiration of our IN-3 family patents.



The agreement includes
separate research, option exercise and commercialization periods. The research period includes certain research performance milestones
and begins on the date of the agreement and ends on the earlier of (a) Biogen’s termination of the agreement upon failure
to meet such milestones or in accordance with the agreement’s general termination provisions or (b) the acceptance date of
such research materials. The option exercise period begins on the date of the agreement and ends on the earliest of (i) termination
of the agreement upon failure to meet the research milestones, (ii) termination of the agreement in accordance with the agreement’s
general termination provisions, which include the ability of Biogen to terminate the agreement without cause on at least 60 days
prior written notice beginning on the earlier to occur of (x) receipt of specified research deliverables and (y) the six month
anniversary of the agreement, (iii) the date that is 24 months after the acceptance date of the research materials (subject to
extension due to clinical hold), or (iv) the exercise of the option by Biogen. The commercial period begins on the option exercise
date and ends with the expiration of the royalty term in all countries of the territory, subject to the agreement’s general
termination provisions.



The agreement further
includes provisions with respect to regulatory collaboration, confidentiality, title and maintenance of intellectual property owned
by the parties and developed under the agreement, liability, indemnification and insurance. Pursuant to the agreement, our know-how
and intellectual property existing as of the date of the agreement and new know-how and intellectual property developed by the
parties under the agreement in connection with the Accordion Pill, which is not specifically related to the collaboration product
referred to in the agreement as “General Accordion Pill Technology”, will be owned by us and may be used by us for
products and for purposes of additional collaborations, subject to the limits of the license.



Our Competitive Strengths



We believe our principal
competitive strengths include the following:



51







| | • | A leading product candidate, AP-CDLD, being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, had the first patient enrolled in its Phase III clinical trial April 2016. AP-CDLD, our leading product candidate, being developed for the indication of treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, received a U.S. centralized IRB approval in December 2015 to initiate a Phase III clinical trial. We enrolled the first patient for the trial in April 2016 and we currently expect to complete patient enrollment in the trial during the fourth quarter of 2017. The European Parkinson’s Disease Association, or EPDA, estimated in 2007 that 6.3 million people worldwide suffer from Parkinson’s disease, and a 2015 report by Global Data estimated that the pharmaceutical market for Parkinson’s disease will reach $4.67 billion in the United States, Japan, France, Germany, Italy, Spain and the United Kingdom, or the Seven Major Markets, plus Brazil by 2022.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Innovative and leverageable platform technology that enables us to develop multiple products and to provide substantial benefits for various classes of drugs with large potential markets. Our platform enables us to develop and produce multiple products for diverse markets, including our leading product – AP-CDLD. Our platform includes our proprietary technology and know-how, with which we have developed the Accordion Pill, including its independent drug release and GR mechanisms, and have combined various drugs with the Accordion Pill. Our platform technology can combine immediate and controlled release drug profiles and more than one drug and can incorporate drugs of various chemical and physical characteristics. Our Accordion Pill has improved PK and efficacy in clinical studies via its combination with various drugs belonging to different drug classes such as NAW and poorly soluble drugs (BCS Class II/IV).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Lower development risks and costs for our pipeline products. We believe that developing Accordion Pills for additional drug candidates will be associated with reduced costs and regulatory risks compared to the development of NCEs and will allow us to develop our products in a cost-effective manner. The FDA has previously agreed that our two pipeline products in clinical trial stages would likely be eligible to file under Section 505(b)(2), assuming the successful completion of their respective Phase III clinical trials.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | No high fat or high calorie diet requirements when using our Accordion Pill products. In our clinical trials, our Accordion Pill products provided modified PK to achieve desired clinical efficacy and safety of the drugs with which it was combined through prolonged GR under a regular calorie diet and did not require administration with a high calorie and high fat meal, which is a prerequisite for the administration of approved GR products currently on the market. This is highly important in the treatment of various diseases. In a food effect study that we conducted of our Phase III formulation of AP-CDLD, our results demonstrated that plasma concentrations of Carbidopa and Levodopa were similar, with no statistically significant differences in all PK parameters measured, when AP-CDLD was taken with various food compositions. This suggests that the treatment with AP-CDLD, intended to be taken b.i.d (two times a day) or t.i.d (three times a day) with food, is independent of food content.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Strong intellectual property protection. We believe that we have a strong intellectual property portfolio protecting our platform, combination of specific drugs with our platform and manufacturing and production processes. See “— Intellectual Property.”
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Proven manufacturing capabilities for clinical batches of our Accordion Pill platform technology. We have proven manufacturing capacity of clinical batches of our platform technology in a compliant GMP facility. See “— Manufacturing.”
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Business Strategy



We plan to leverage our
Accordion Pill technology platform to become a leading specialty pharmaceutical company focused on developing, manufacturing and
commercializing improved proprietary versions of approved and development stage drugs for the treatment of various diseases.



We will continue to develop
our existing product candidates while reviewing other drug candidates that may also benefit from our platform technology. We seek
to create global partnerships to assist us in the development and marketing of our products and may also independently commercialize
certain products in the U.S. We believe that our approach will allow us to continue to advance our current product candidates and
should allow us to avoid dependency on a small number of drugs.



52







Using this approach, we
have advanced our product candidates into various stages of clinical development. Specific elements of our current strategy include
the following:



| | • | Continue to advance our current pipeline by developing improved versions of drugs with reduced side effects and that enhance the efficacy of existing drugs. We expect that our products will potentially offer significant advantages over the original versions of the drugs. Results from our completed Phase II clinical trial demonstrate that AP-CDLD can improve motor function in patients suffering “off time” episodes. “Off time” refers to debilitating periods of decreased motor and non-motor functions. We are pursuing the development and approval of AP-CDLD under the Section 505(b)(2) pathway, which allows an abbreviated path to approval relying on a single pivotal Phase III clinical trial. We enrolled the first patient for the trial in April 2016 and we currently expect to complete patient enrollment in the trial during the fourth quarter of 2017. If our pivotal Phase III clinical trial is successful, we intend to file for regulatory approval in the United States.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Utilize the 505(b)(2) regulatory pathway to leverage extensive existing clinical and regulatory experience with the original drugs and bring our improved versions of these drugs to market more quickly. An NDA submitted under Section 505(b)(2) of the FDCA may be permitted to reference safety and effectiveness data submitted by the original manufacturer of the underlying approved drug as part of its NDA, be based on the FDA’s prior conclusions regarding the safety and effectiveness of that previously approved drug, or rely on in part on data in the public domain. Reliance on data collected by others may expedite the development program for our product candidates by potentially decreasing the amount of clinical data that we would need to generate to submit an NDA. As the FDA has previously agreed that our two current pipeline products in clinical trial stages would likely be eligible to file under Section 505(b)(2), assuming the successful completion of the Phase III clinical trials, we believe that there is a strong likelihood that our future products would similarly qualify. The factors related to this qualification are expected to reduce the time and costs associated with clinical trials when compared to a traditional NDA for an NCE. We also believe the strategy of targeting drugs with proven safety and efficacy provides a better prospect of clinical success of our proprietary development portfolio as compared to de novo drug development. We estimate that the average time to market and cost of clinical trials for our products could be less than that required to develop a new drug.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Use our expertise with our platform technology to evaluate drug development and commercialization opportunities.We continuously seek attractive product candidates to develop and commercialize. We intend to focus on product candidates that we believe would be synergistic with our Accordion Pill technology. We intend to use our expertise in our technology and our pharmacological expertise to grow our product candidate portfolio. In August 2016, we announced the initiation of a new clinical development program for the Accordion Pill platform with the two primary cannabinoids contained in Cannabis Sativa,THC and CBD.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Seek attractive partnership opportunities. We believe that our Accordion Pill technology can be applied to many drugs that have already been approved by the FDA, as well as developmental stage drugs. We believe that the proprietary rights provided by our Accordion Pill technology, together with the clinical and compliance benefits, will be attractive to potential partners. We will seek to build a portfolio of commercially attractive partnerships in a blend of co-developments and licenses. Where possible, we will seek partnerships that allow us to participate significantly in the commercial success of each of the drugs. Although we are currently developing most of our current pipeline, we are looking to partner with the owners of rights to patented drugs in order to develop Accordion Pill versions of those drugs, and we may seek strategic partners to market our Accordion Pill products worldwide. We may also seek arrangements with third parties to assist in the development and commercialization of our products. These arrangements will allow us to share the high development cost, minimize the risk of failure and enjoy our partners’ marketing capabilities, while also enabling us to treat a more significant number of patients.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53







| | • | Develop products that target significant commercial opportunities.Our existing product candidates are intended to direct at diseases that have major global markets. Our intent is to continue to develop products that present significant market opportunities by leveraging our According Pill technology.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Maintain a prominent intellectual property position.We believe our licensed and proprietary patents and patent applications provide and will provide broad and comprehensive coverage for the use of our Accordion Pill technology for the treatment of certain diseases, focusing on BCS Class II/IV and NAW drugs, or drugs where longer retention in the upper GI could improve efficacy and absorption and reduce side effects. We seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that we believe are important to the development of our business. We also rely on know-how and continuing technological innovation to develop and maintain our proprietary position. We have submitted and intend to continue to submit patent applications for various Accordion Pill and drug combinations that we develop.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



AP-CDLD for the Treatment of Parkinson’s Disease Symptoms
in Advanced Parkinson’s Disease Patients



Parkinson’s disease



Parkinson’s disease
is a progressive, degenerative disease characterized by movement symptoms such as involuntary tremor or trembling in the hands,
arms and legs; muscle rigidity of the limbs and trunk; slowness of and a decline in movement; and impaired balance and coordination.
In its advanced stages, the disease causes comprehensive dysfunction of the patient’s bodily systems, including difficulties
in swallowing, speech disorders and significant mental decline. Parkinson’s disease results from a continuing loss of dopamine-producing
nerve cells. Dopamine is required for normal functioning of the central nervous system and smooth, coordinated function of the
body’s muscles and movement. According to the National Parkinson’s Foundation, the symptoms of Parkinson’s disease
appear when approximately 60–80% of dopamine-producing cells are damaged.



Although there is presently
no cure for Parkinson’s disease, there are a number of medications that provide relief from the symptoms. Dopamine replacement
therapy with Levodopa is generally considered to be the most effective treatment for Parkinson’s disease. After 50 years
of clinical use, Levodopa therapy still offers the best symptomatic control of Parkinson’s disease and is the most widely
used therapy. Levodopa is converted into dopamine in the brain and is usually administered with Carbidopa, which helps prevent
Levodopa from converting to dopamine outside the brain. Levodopa helps reduce tremor, stiffness and slowness and helps improve
muscle control, balance and walking. Virtually all Parkinson’s disease patients will require Levodopa therapy during the
course of their disease.



Parkinson’s disease
patients typically experience a satisfactory response to initial treatment with Levodopa. However, at later stages of Parkinson’s
disease, there is a decline in the capacity of the nigrostriatal dopaminergic system, or the brain pathways that moderate control
of voluntary movement, to synthesize, store, and release dopamine. Therefore, the dopaminergic system becomes more and more dependent
on dopamine from external sources, such as Levodopa treatment.



As the disease
progresses, it becomes increasingly difficult to control the symptoms adequately by Levodopa treatment, and patients develop motor
complications, for the following reasons:



| | • | The duration of the response after each Levodopa dose declines, resulting in a “wearing off” effect, wherein the clinical benefits of Levodopa are lost until the next dose reaches therapeutic levels.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The patients suffer from longer periods in which Levodopa does not provide symptom relief and patients’ movements are severely restricted (i.e., off time).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | When Levodopa doses are increased to address the loss of clinical benefit, involuntary movements or troublesome dyskinesia emerges.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



54







Recent studies have reported
that up to 50% of patients show the onset of motor fluctuations within two years of starting conventional Levodopa therapy. For
many patients with advanced Parkinson’s disease, the repeated emergence of off states can occupy up to one-third or more
of a typical waking day. The loss of consistent symptomatic control from Levodopa is a major challenge for the long-term management
of Parkinson’s disease. When Parkinson’s disease patients experience “wearing off” between Levodopa doses,
this short-duration response occurs in parallel to the drug’s peripheral PK profile. Therefore, with the evolution of these
short-duration responses, improving the consistency in Levodopa’s plasma levels becomes the major factor for improving symptom
control.







Oral Levodopa formulations
currently on the market do not provide satisfactory consistent Levodopa plasma levels. There are two major challenges to maintaining
consistency in Levodopa plasma levels: (i) the very short half-life of Levodopa (approximately 90 minutes) and (ii) the fact that
Levodopa’s absorption is confined to the upper part of the GI tract (i.e., it has an NAW). For drugs with an NAW, conventional
controlled release formulations are limited in providing long-acting performance, as once the drug has passed through the upper
GI tract, it will no longer be absorbed. These factors result in high peak-to-trough ratios of Levodopa in the plasma, namely high
variability of the concentration of the drug in the blood, rather than a consistent level being maintained, reducing the clinical
benefits of Levodopa therapy. Providing stable Levodopa plasma levels is therefore a major unmet need for the long-term management
of Parkinson’s disease.



Key opinion leaders interviewed
by Datamonitor, a market research provider, summarized the unmet needs in Parkinson’s disease treatment to include, among
others, greater efficacy in reducing motor complications, reducing side effects and reducing pill burden.



Market. According
to a 2015 report by Global Data, Parkinson’s disease is the second most common chronic progressive neurodegenerative disorder
in the elderly after Alzheimer’s disease, affecting 1%–2% of individuals worldwide over the age of 65. The EPDA estimated
in 2007 that 6.3 million people worldwide suffer from Parkinson’s disease. According to a 2015 report by Global Data, the
annual growth of Parkinson’s disease cases in individuals over the age of 65 from 2012 to 2022, in the Seven Major Markets
plus Brazil, is estimated to be 3.28%. According to Global Data, in 2012 the market for pharmaceutical treatments for Parkinson’s
disease was approximately $3.6 billion a year in the Seven Major Markets plus Brazil. Global Data estimates that the pharmaceutical
market for Parkinson’s disease will reach $4.67 billion in the Seven Major Markets plus Brazil by 2022.



55







Our Solution — AP-CDLD



AP-CDLD, our lead product
candidate, is in development for the treatment of Parkinson’s disease symptoms. AP-CDLD is an Accordion Pill that contains
the generic drugs Carbidopa and Levodopa, which are currently approved for the treatment of Parkinson’s disease symptoms.
We have successfully completed a Phase II clinical trial, and the FDA has permitted us to initiate a Phase III clinical trial of
AP-CDLD. On May 5, 2015, we held an end of Phase II meeting with the FDA, for which we have received the FDA’s memorandum
of minutes, to discuss the clinical development program for AP-CDLD. We agreed with the FDA on the remaining clinical development
program for AP-CDLD for the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, including
the main principles of the single required pivotal Phase III clinical trial in advanced Parkinson’s disease patients, and
we amended our clinical trial protocol to submit to the FDA for review. In November 2016, we announced that the clinical trial
protocol had been amended. The amendment was submitted to and reviewed by the FDA and the agency had no comments. The amended protocol
we submitted is as follows:



| | • | A multicenter, randomized, double-blind, double-dummy, parallel, active-controlled trial, comparing the efficacy and safety of AP-CDLD to Sinemet IR, an immediate release CDLD, which is a conventional Levodopa medication for the treatment of Parkinson’s disease symptoms that is currently on the market.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Approximately 328 advanced Parkinson’s disease patients will be enrolled into the trial. The number of patients was reduced from 460 patients to 328 patients following recent evidence from similar Parkinson’s disease clinical trials. The reduction in sample size does not alter the objectives, endpoints or statistical power (90%) of the Phase III clinical trial.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The total treatment period for each patient is of 25 weeks, composed of:
| | - | ------------------------------------------------------------------------



| | TM | Six weeks open-label titration on Sinemet IR (all patients);
| | - | ------------------------------------------------------------



| | TM | Six weeks open-label titration on two AP-CDLD strengths,
given b.i.d. or t.i.d. (all patients); and
| | - | ---------------------------------------------------------------------------------------------------



| | TM | 13 weeks double-blind, double-dummy active comparator period,
in which half of the patients are randomized to AP-CDLD and half of the patients are randomized to Sinemet IR.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The primary efficacy endpoint is a change from baseline to termination of treatment in the percent of daily off time during waking hours based on Hauser home diaries.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we will be
required to submit evidence of the adequate safety experience of 100 patients receiving AP-CDLD for one year, with at least 50%
receiving the highest proposed dose of AP-CDLD, as is required for drugs intended for long-term treatment of non-life-threatening
conditions. We intend to collect this safety data, fully or partially, from an open label extension of the Phase III study of AP-CDLD.



We also agreed, at the
FDA’s request, to conduct an additional bioavailability study to compare the PK between Sinemet IR and the to-be-marketed
formulation of AP-CDLD because the formulation of AP-CDLD has changed from our previously completed comparative bioavailability
study. We currently intend to conduct this study during 2018. The FDA also strongly suggested that we conduct additional dissolution
testing and we anticipate doing so. See “— Current Regulatory Status of AP-CDLD.”



In December 2015, we received
a U.S. centralized IRB approval to initiate a Phase III clinical trial of AP-CDLD. We enrolled the first patient for the trial
in April 2016 and we currently expect to complete patient enrollment in the fourth quarter of 2017.



AP-CDLD is designed to
provide a combination of immediate release and a continuous release of Levodopa, in the stomach, in proximity to its absorption
site through our Accordion Pill. AP-CDLD is designed to provide stable Levodopa plasma therapeutic levels, resulting in reduced
total off time while reducing or avoiding inducement of troublesome dyskinesia, or involuntary movements. The stable therapeutic
levels of Levodopa in a patient’s plasma provided by AP-CDLD are intended to significantly reduce the motor complications
because the motor complications which are associated with Levodopa treatment are strongly correlated with the drug’s peripheral
PK profile. More specifically, AP-CDLD is intended to reduce total off time while not increasing, or even reducing, troublesome
dyskinesia.



We anticipate that AP-CDLD
will be available in three dosages of Levodopa (250 mg, 400 mg and 500 mg), each provided in two release profiles (immediate release
and controlled release), along with 50 mg of Carbidopa that is included in AP-CDLD. This array of dosages is designed to cover
Parkinson’s disease patients in various stages of the disease. AP-CDLD is designed to be taken b.i.d. and t.i.d.



56







AP-CDLD – Clinical Trials



Phase II Clinical Trial



Our Phase II clinical
trial with AP-CDLD was a multi-center, open-label, randomized, crossover, active control trial that included five groups. Overall,
60 patients completed the trial per protocol, in several medical centers in Israel. The Phase II clinical trial assessed safety,
PK and pharmacodynamics/efficacy in patients with various stages of Parkinson’s disease compared with their current Levodopa
treatment. Each group of the clinical trial was deemed to initiate upon the first patient enrolling in a group and to be completed
upon the conclusion of data analysis. The initiation and completion dates for groups 1, 3, 4, 5 and 6 were August 2009 –
December 2009, April 2010 – August 2010, December 2010 – July 2011, August 2011 – November 2011 and December
2011 – October 2012, respectively. The following table details the structure, design and purpose of the Phase II clinical
trial:



|GroupNumber |  | Trial Design                                                                                                                                                                                                                                                      |  | Trial
        Purpose                         |  | Population              |  | N
        (PP) |  | Test
        Treatment |  | Treatment
        and
        Duration*
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- |  | ----------------------- |  | -------------- |  | ---------------------- |  | ---------------------------------------
|Group 1     |  | Open-label, multi-dose, multi-center, randomized                                                                                                                                                                                                                  |  | 2-way crossover comparative PK trial          |  | Early-stage PD patients |  | 12             |  | AP-CDLD 50/250 mg      |  | b.i.d for 7 days                       
|Group 2     |  | This trial was originally planned in early non-fluctuators with a dose of 50/375 mg b.i.d. In light of the satisfactory PK results with 50/250 mg b.i.d in this population, the higher dose was considered unnecessary and therefore the trial was not performed.
|            |  |                                                                                                                                                                                                                                                                  
|Group 3     |  | Open-label, multi-dose, multi-center, randomized                                                                                                                                                                                                                  |  | 2-way crossover comparative PK and PHDS trial |  | Advanced PD patients    |  | 10a            |  | AP-CDLD 50/375 mg      |  | b.i.d for 7 days                       
|Group 4**   |  | Open-label, multi-dose, multi-center, randomized                                                                                                                                                                                                                  |  | 2-way crossover comparative PHDS trial        |  | Advanced PD patients    |  | 16             |  | AP-CDLD 50/375 mg      |  | b.i.d for 21 days                      
|Group 5b**  |  | Open-label, multi-dose, multi-center, randomized                                                                                                                                                                                                                  |  | 2-way crossover comparative PHDS trial        |  | Advanced PD patients    |  | 4              |  | AP-CDLD 50/500 mg      |  | b.i.d for 21 days                      
|Group 6**   |  | Open-label, multi-dose, multi-center, randomized                                                                                                                                                                                                                  |  | 2-way crossover comparative PHDS trial        |  | Advanced PD patients    |  | 18             |  | AP-CDLD 50/500 mg      |  | b.i.d for 21 days                      








|a | Eight patients completed the PK trial.             
|- | ---------------------------------------------------
|b | Group 5 was terminated early due to low enrollment.

d = days;
PP = Per Protocol; N = number of subjects; PD = Parkinson’s disease; PHDS = pharmacodynamics.

| | * | Not including add-on dosing
of immediate release Carbidopa/Levodopa, if needed.
| | - | -------------------------------------------------------------------------------

| | ** | Compared against each patient’s optimized current
Levodopa treatment.
| | -- | ---------------------------------------------------------------------



57







Pharmacokinetic Results



Group 1 of our Phase II
clinical trial with AP-CDLD was conducted with 12 male and female patients with non-fluctuating Parkinson’s disease. The
crossover design included the following treatment arms: (i) AP-CDLD 50/250 mg administered b.i.d and (ii) immediate release CDLD
25/250 mg administered by half tablet q.i.d, resulting in a total daily dosage of 50/500mg. The treatments were administered for
six days, with the seventh day consisting of PK testing. On the PK day of the control period, patients were given an additional
50 mg of Carbidopa (12.5 mg q.i.d) to achieve the recommended daily 70 – 100 mg dose of Carbidopa. Immediately following
the PK testing on day seven, the patients crossed over to the other treatment to repeat the seven day process. This study concluded
that (i) the bioavailability of Levodopa when administered via AP-CDLD was similar to the immediate release reference; (ii) AP-CDLD
provided more stable plasma levels of Levodopa, with reduced peak-to-trough ratio, when compared to the immediate release reference;
and (iii) AP-CDLD provided higher morning Levodopa plasma levels than the immediate release reference.



Group 3 of our Phase II
clinical trial with AP-CDLD was conducted with ten male and female patients with advanced, fluctuating Parkinson’s disease,
of which eight completed the PK trial per protocol. The crossover design included the following treatment arms: in the AP-CDLD
treatment arm, the AP-CDLD 50/375 mg was administered b.i.d for six at home days of treatment with up to an additional three add-on
immediate release Carbidopa/Levodopa, as needed, and on day seven, b.i.d administration of AP-CDLD 50/375 mg. In the control arm,
the patient’s current treatments were administered for six at home days and, on the seventh day, they were given immediate
release Carbidopa/Levodopa 18.75/187.5 mg q.i.d, resulting in a total dosage of 75/750 mg. On the seventh day of each treatment
regime, we conducted PK testing. Immediately following the PK testing on day seven, the patients were crossed over to the other
treatment to repeat the seven day process.



These trials concluded
that (i) the PK of AP-CDLD demonstrated an efficient controlled-release profile, with significantly more stable Levodopa levels;
(ii) the Levodopa absorption phase was increased more than six-fold versus the control treatment; (iii) the b.i.d administration
of AP-CDLD provided daily coverage of therapeutic Levodopa plasma levels; (iv) the peak-to-trough ratio in Levodopa plasma levels
was half of those of the control; (v) the morning, or pre-first dose, Levodopa plasma levels of AP-CDLD, were significantly higher
than the control; and (vi) Levodopa’s high bioavailability was preserved when using AP-CDLD.



The following figure displays
the concentrations of Levodopa in plasma of patients over time, comparing AP-CDLD (pink) to the reference treatment (blue):



AP-CDLD Phase II clinical trial —
more stable Levodopa levels with statistically significant reduced
peak-to-trough fluctuations







The PK results showed
that peak to trough ratio, which measures the maximum average concentration relative to the minimum average concentration of LD
plasma levels, was reduced from 29.9 to 3.2 with the AP-CDLD. Cmax/Cmin with the AP-CDLD was 5.8. The average LD plasma levels
during time 0-16 hours was 1,038 ng/ml.



Pharmacodynamics Results



The following figure sets
forth the structure of the Phase II clinical trial for Groups 4 and 6:



58
















* Patient’s optimized CD/LD regimen.



CD/LD = Carbidopa/Levodopa



Groups 3, 4 and 6 of our
Phase II clinical trial examined the pharmacodynamic effects of AP-CDLD. Each group assessed the effects in patients with advanced
Parkinson’s disease; ten, 16 and 18 patients completed the trials per protocol in Groups 3, 4 and 6, respectively. Groups
3 and 4 tested AP-CDLD in the 50/375 mg strength, administered b.i.d. with additional CDLD immediate release tablets if needed;
Group 6 tested the 50/500 mg strength administered b.i.d. with additional CDLD immediate release tablets if needed. In these three
trials, AP-CDLD was compared to the patients’ current Levodopa treatment (including a dopamine decarboxylase inhibitor, such
as Carbidopa). All three groups were cross-over, with Group 3 receiving the treatments as described above and Groups 4 and 6 receiving
each of their current treatment and AP-CDLD for 21 days, with the second tested treatment starting immediately after completion
of the first. In Groups 4 and 6, off time, on time and dyskinesia were assessed by patient-completed home diaries during days 18
through 20 of each arm.



Because Levodopa is usually
prescribed for long-term treatment, three weeks of treatment with AP-CDLD was sufficient to demonstrate statistically significant
improvements in the primary endpoint, as well as most of the secondary endpoints. The statistical significance of a result was
captured by the associated “p-value”, or the estimated probability that the observed effect was by chance. A “p-value”
of less than 0.05 implied that there was less than a 5% probability that the observed effect was by chance, and was generally accepted
as a statistically significant event. These studies demonstrated that (i) total off time was decreased when taking AP-CDLD versus
the control, by 44% and 45% in Groups 4 and 6, respectively (statistically significant p<0.0001); (ii) improvements in off time
and on time without troublesome dyskinesia did not come at the expense of an increase of on time with troublesome dyskinesia, and,
moreover, with the AP-CDLD 50/500 mg troublesome dyskinesia was decreased by 0.5 hours (statistically significant p = 0.002); (iii)
the effect of AP-CDLD on total off time and on time with troublesome dyskinesia resulted in a total increase of “good”
on time (i.e., without troublesome dyskinesia) of 2.1 and 2.7 hours per day in Groups 4 and 6, respectively (statistically significant
p<0.0001); (iv) the improvements in treating symptoms with AP-CDLD were achieved with fewer daily doses; and (v) the improvements
in treating symptoms with AP-CDLD correlate with stable Levodopa plasma levels throughout the day with appropriate therapeutic
levels of the drug.



The figure below reflects
the mean total off time in hours over a 24 hour period during days 18 through 20 of Groups 4 and 6. The average total off time
was reduced by 1.9 hours and 2.3 hours with AP-CDLD 50/375 mg (Group 4) and 50/500 mg (Group 6), respectively. This reduction is
statistically significant (p<0.0001).







59







AP-CDLD –
Significant reduction of total off time compared to current Levodopa treatment





The figure below reflects
the mean total “good” on time (on time without troublesome dyskinesia) in hours over a 24 hour period during days 18
through 20 of Groups 4 and 6. The average total “good” on time was increased by 2.1 hours and 2.7 hours with AP-CDLD
50/375 mg (Group 4) and 50/500 mg (Group 6), respectively. This reduction is statistically significant (p<0.0001).



AP-CDLD – Increase of total “good”
on time compared to current Levodopa treatment





The figure below reflects
the mean total on time with troublesome dyskinesia in hours over a 24 hour period during days 18 through 20 of Groups 4 and 6.
On time with troublesome dyskinesia was not changed and decreased by 0.5 hours (p = 0.002) with AP-CDLD 50/375 mg (Group 4) and
50/500 mg (Group 6), respectively.



60







AP-CDLD –
Reduction of total on time with dyskinesia compared to current Levodopa treatment





Finally, the figure below
displays the mean number of daily Levodopa administrations of the treatments in Groups 4 and 6.



AP-CDLD –Number of daily Levodopa
administrations compared to current Levodopa treatment





| | * | In the administration of
the AP-CDLD arm, patients received b.i.d AP-CDLD pills and were allowed to take additional commercially available immediate release
Carbidopa/Levodopa formulations, as add-ons when needed. As seen in the figure above, patients took, in addition to the b.i.d
AP-CDLD pills, one-and-a-half to two commercially available immediate-release Carbidopa/Levodopa formulations, in Groups 4 and
6, respectively.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Demonstration of the clinical
benefits of these peak to trough ratios will be further studied and confirmed in the Phase III clinical trial.



61







Phase I Clinical Trials



We conducted four Phase
I clinical trials - three to assess the PK profile of Levodopa when administered in several formulations and one to measure the
gastric retention, or GR, time of our Accordion Pill without an active ingredient.



The first PK trial was
conducted with early formulations in 24 healthy volunteers to assess the PK profile of Levodopa when administered in the following
three forms: (i) in an Accordion Pill with a dosage of 75/300 mg; (ii) in the immediate release form currently on the market, Sinemet;
and (iii) in the controlled release form currently on the market, Sinemet CR. This group underwent a partially randomized open
trial compared with immediate release Sinemet and controlled release Sinemet. The trial results indicated a significant prolongation
of Levodopa’s mean residence time, or MRT, in the blood when administered with the Accordion Pill compared with the Sinemet
and Sinemet CR. Furthermore, the study showed the level of Levodopa received with the Accordion Pill reached treatment-relevant
levels.



The second PK trial was
conducted with early formulations in 23 healthy volunteers to assess the PK profile of Levodopa when administered in the following
two forms: (i) an Accordion Pill in two formulations, 75/300 mg and 50/200 mg; and (ii) in the currently marketed immediate release
form, Sinemet. This was a randomized open trial, compared with immediate release Sinemet. The trial results indicated a very significant
increase in the MRT of Levodopa in the blood when administered with the Accordion Pill in both formulations, and a very significant
prolongation of the absorption phase (up to 12 hours) of Levodopa was demonstrated when administered with the Accordion Pill compared
with Sinemet (two hours).



The third PK trial was
conducted with the AP-CDLD 50/500 mg Phase II formulation in 18 healthy volunteers to assess the PK profile of Levodopa when administered
in the following two forms: (i) AP-CDLD 50/500 mg; and (ii) the currently marketed immediate release form, Sinemet. This was a
randomized open trial, compared with immediate release Sinemet. The trial results indicated that the absorption phase of Levodopa
was increased to approximately 10 hours when administered with the Accordion Pill compared to approximately two hours with Sinemet.



The GR Phase I clinical
trial was a MRI study conducted with 17 Parkinson’s patients to measure the GR time of the Accordion Pill without an active
pharmaceutical ingredient. This trial was a non-randomized open trial comparison of a few formulations. The results indicated that
GR of over 13 hours can be achieved in these patients using all three formulations.



Safety



AP-CDLD was tested for
safety on Göttingen minipigs in accordance with the FDA’s guidelines. The study was 180 days and a subgroup of minipigs
were kept for recovery for an additional 30 days without receiving any treatments. This study included the following four arms:
AP-CDLD 50/400 mg three times daily, AP-CDLD 50/500 mg b.i.d, a Carbidopa/Levodopa reference (Sinemet) and a placebo. The study
was completed in March 2014. The study evaluated (i) animal wellbeing as represented by behavior, food consumption and weight,
(ii) microscopic and macroscopic organ pathology, (iii) ophthalmic evaluation and (iv) electrocardiograms of the miniature pigs,
which is the recording of the electrical activity of the heart. This study’s results form an additional basis regarding the
safety of AP-CDLD.



In the Phase I and Phase
II clinical trials, AP-CDLD was well-tolerated with no serious adverse events that were related to the study drug. Adverse events
were generally mild in severity and resolved without intervention. The most common adverse events reported included nausea, vomiting,
diarrhea, abdominal pain, chest pain and fatigue, which are known adverse events associated with Levodopa treatment.



62







Current Regulatory Status of AP-CDLD



On May 5, 2015, we held
an end of Phase II meeting with the FDA, for which we have received the FDA’s memorandum of minutes, to discuss the clinical
development program for AP-CDLD. We agreed with the FDA on the remaining clinical development program for AP-CDLD for the treatment
of Parkinson’s disease symptoms in advanced Parkinson’s disease patients, including the main principles of the single
required pivotal Phase III clinical trial in advanced Parkinson’s disease patients, which is as follows:



| | • | A multicenter, randomized, double-blind, double-dummy, parallel, active-controlled trial, comparing the efficacy and safety of AP-CDLD to Sinemet IR, an immediate release CDLD, which is a conventional Levodopa medication for the treatment of Parkinson’s disease symptoms that is currently on the market.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Approximately 328 advanced Parkinson’s disease patients will be enrolled into the trial.
| | - | ----------------------------------------------------------------------------------------



| | • | The total treatment period for each patient is 25 weeks, composed of:
| | - | ---------------------------------------------------------------------



| | TM | Six weeks open-label titration on Sinemet IR (all patients);
| | - | ------------------------------------------------------------



| | TM | Six weeks open-label titration on two AP-CDLD strengths, given b.i.d. or t.i.d. (all patients); and
| | - | ---------------------------------------------------------------------------------------------------



| | TM | 13 weeks double-blind, double-dummy active comparator period, in which half of the patients are randomized to AP-CDLD and half of the patients are randomized to Sinemet IR.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The primary efficacy endpoint is a change from baseline to termination of treatment in the percent of daily off time during waking hours based on Hauser home diaries.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we will be
required to submit evidence of the adequate safety experience of 100 patients receiving AP-CDLD for one year, with at least 50%
receiving the highest proposed dose of AP-CDLD, as is required for drugs intended for long-term treatment of non-life-threatening
conditions. We intend to collect this safety data, fully or partially, from an open label extension of the Phase III study of AP-CDLD.



A Data Safety Monitoring
Board, or DSMB, has been selected for the Phase III clinical trial of AP-CDLD, as is commonly done in double blind multicenter
studies. The DSMB will periodically review the safety data of the trial and will specifically focus on the safety of AP-CDLD in
the upper GI tract, including through gastric evaluations to be performed before and after the treatment period in the first 100
patients enrolled in the study.



We also agreed, at the
FDA’s request, to conduct an additional bioavailability study to compare the PK between Sinemet IR and the to-be-marketed
formulation of AP-CDLD because the formulation of AP-CDLD has changed from our previously completed comparative bioavailability
study. We currently intend to conduct this study during 2018. The FDA also strongly suggested that we conduct additional dissolution
testing and we anticipate doing so.



In December 2015, we received
a U.S. centralized IRB approval to initiate a Phase III clinical trial for AP-CDLD. We enrolled the first patient for the trial
in April 2016 and we currently expect to complete patient enrollment in the fourth quarter of 2017. The Phase III clinical trial
for AP-CDLD is being conducted in the U.S., Europe and Israel.



AP–ZP for the Treatment of Insomnia



Insomnia



Insomnia is a condition
characterized by difficulty falling asleep or maintaining sleep during the night. Chronic insomnia, or insomnia lasting more than
four weeks, is often associated with a wide range of adverse conditions, including mood disturbances, difficulties with concentration
and memory, and certain cardiovascular, pulmonary and GI disorders. Chronic sleep deprivation has also been associated with an
increased risk of depression, diabetes and obesity, among other disorders. Historically, insomnia therapies have addressed sleep
onset rather than sleep maintenance. Newer therapies have been approved with indications for sleep maintenance, although the ability
of currently-available drugs to maintain sleep throughout the night without unwanted next-day residual effects remains limited.



63







Zaleplon, branded as Sonata,
is a sedative (also called a hypnotic) approved for the treatment of insomnia. Zaleplon belongs to the nonbenzodiazepines hypnotic
drug family, which is the most common type of class of drug used to treat insomnia. Zaleplon is known to induce the rapid and effective
onset of sleep and generally does not have the next-day residual effects, that are characteristic of many other drugs that are
currently being marketed to treat insomnia. The lack of next-day effects is largely due to Zaleplon’s short half-life (approximately
one hour), but, because of this short half-life, Zaleplon is cleared from the blood relatively rapidly and is generally not effective
for maintaining sleep throughout the night. Thus, Zaleplon is currently not approved for a sleep maintenance indication and Zaleplon
is not recommended for chronic use in the elderly. Sonata has been off patent since June 2008.



Market. Global
Data estimates that, in 2013, there were approximately 140 million prevalent cases of chronic insomnia (including cases both fulfilling
the definition of chronic insomnia in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV), and not
fulfilling the DSM-IV criteria) in the Seven Major Markets. In 2015, Global Data estimated that the sleep disorder drug market
in the Seven Major Markets will reach approximately $1.8 billion in 2023.



Although there are currently
numerous drugs available for the treatment of insomnia, according to members of our Scientific Advisory Team, such as Dr. Thomas
Roth, none of the currently available drugs provides a comprehensive solution that (i) rapidly induces the onset of sleep within
a short time after administration, (ii) maintains continuous sleep throughout the night and (iii) has no or minimal “next-day”
residual side effects, such as drowsiness or “hangover.” According to Medscape from WebMD, in 2011 the Centers for
Disease Control and Prevention estimated that drowsy driving contributes to an estimated 100,000 car accidents and approximately
1,500 deaths each year in the United States.



The FDA’s policy
with regard to insomnia drugs has been changed due to concerns regarding next day alertness and functionality. To date, the two
leading insomnia drugs that are indicated for both sleep induction and sleep maintenance are Zolpidem CR and Lunesta. In May 2013,
the FDA announced that patients who take modified-release formulations of Zolpidem should refrain, for the day after using the
drug, from driving or engaging in any activity that requires full alertness, even if the patient has slept for the required eight-hour
period after taking the drug. Further, in January 2014, the FDA ordered a reduction of the recommended dosages of certain sleep
drugs that contained Zolpidem by one half due to the decline in next day functionality and alertness of people using such drugs.
According to the FDA, Zolpidem was the most widely used drug in prescription sleep medications in 2011. In May 2014, the FDA ordered
a reduction of the recommended starting dose of Lunesta (eszopiclone) to the minimum approved dose because eszopiclone levels in
some patients may be high enough the morning after use to impair activities that require alertness, including driving, even if
the patients feel fully awake. Accordingly, we believe that, notwithstanding the expected minimal hangover effects of AP–ZP,
the FDA will require the labeling for AP–ZP to carry a “next day” warning.



Our Solution – AP–ZP



AP–ZP, our second
product candidate, is intended to provide a comprehensive solution for the treatment of insomnia. AP–ZP is designed, using
our patented Accordion Pill technology, to induce and maintain sleep and minimize “next-day” residual side effects.
Due to the short half-life of Zaleplon, minimal hangover effects are expected, improving on certain leading currently marketed
treatments. However, as noted below, the FDA will require the labeling for AP–ZP to carry the required “next-day”
warning relating to potential residual side effects, such as impairment of activities that require alertness. AP–ZP is an
Accordion Pill that contains 25 mg to 35 mg of the generic drug Zaleplon, with combined immediate and controlled release profiles.
We achieved our primary endpoints in our Phase II clinical trial of AP–ZP, and in the third quarter of 2014 we had a Type
C meeting with the FDA to discuss the clinical development pathway of AP–ZP. See “— Current Regulatory Status
of AP–ZP.”



64







AP–ZP – Clinical Trials



Proof of Concept and Phase II Clinical Trial



A double-blind, three-way
crossover, randomized, placebo-controlled proof of concept, or POC, study of AP–ZP was performed in two medical centers in
Israel, following which a separate double-blind, two-way crossover, randomized, placebo-controlled Phase II clinical trial of AP–ZP
was conducted under an IND in five medical centers in the United States and in one medical center in Israel. The POC study was
initiated in October 2010 and was completed in February 2011. The Phase II clinical trial of AP–ZP was initiated in April
2011 and was completed in November 2011. Both studies assessed the efficacy, next day residual effects and safety in patients with
primary insomnia, who experience difficulty both falling and staying asleep, comparing AP–ZP versus a placebo. Both studies
assessed efficacy by using polysomnography, or PSG, a multi-parametric objective test for studying sleep conducted at night. The
next day residual effect was assessed in both studies within one hour of waking using: Digital Symbol Substitution Test, or DSST,
a neuropsychological test used to evaluate cognitive condition by having the patient match provided symbols to digits as quickly
as possible, Visual Analog Scale, or VAS, a questionnaire aimed at measuring the patient’s subjective impressions as to his
or her cognitive condition, and memory testing.



The POC study included
ten patients with primary insomnia and tested two AP–ZP strengths. This study demonstrated a trend toward improved efficacy
in reducing wake time after sleep onset, or WASO, with the high dose tested. Similar trends of improved efficacy were demonstrated
in the latency to persistent sleep, or LPS, and total sleep time, or TST, with the same dose. No residual sedition was found by
both DSST and VAS tests in both tested strengths.



The Phase II clinical
trial with AP–ZP assessed the efficacy and safety in 83 patients with primary insomnia, who experienced difficulty both falling
and staying asleep, comparing AP–ZP versus a placebo. This trial used PSG. The patients each participated in six nights of
PSG (two nights for each of screening, test formulation and placebo) with four to seven days between each treatment. The primary
endpoint was TST, measured by both PSG and patient reports, with secondary endpoints of (i) effectiveness of sleep induction, measured
as LPS and (ii) sleep maintenance, measured as WASO and number of awakenings. Residual effects were evaluated within one hour of
waking using the DSST, VAS and memory testing. Safety was also evaluated.



The primary endpoint of
increased TST was achieved in the Phase II clinical trial. TST measured by PSG for patients after receiving the test article was
381 minutes, in comparison to 363.9 minutes for those same patients after receiving the placebo (statistically significant p =0.002).
In addition, statistically significant improvement of LPS was achieved in the Phase II clinical trial as the mean LPS for patients
after receiving the test article was 31 minutes, in comparison to 45 minutes for those same patients after receiving the placebo
(statistically significant (p<0.001). Thus, this trial revealed that when patients received AP–ZP they tended to fall
asleep faster and sleep longer when compared to the placebo. This trial, through both DSST and VAS, demonstrated an important attribute
of AP–ZP. AP–ZP did not show residual sedative effect when compared to a placebo. There were no clinically significant
adverse events reported, and the drug was well-tolerated. The WASO for the entire night was similar between AP–ZP and the
placebo; however, in a post hoc analysis, a statistically significant improvement of WASO in the first four hours of the night
was demonstrated as WASO in the first four hours was 16.1 minutes for patients after receiving the test article, in comparison
to 26.3 minutes for those same patients after receiving the placebo (statistically significant (p<0.0001). In the post hoc analysis,
gender differences were found in all efficacy tested parameters.



The following table demonstrates
that no residual sedition was found by both DSST and VAS with the AP–ZP as compared to the placebo:



|                |  | Least Square Means and Standard Errors |      
|--------------- |  | -------------------------------------- | -----
|                |  | AP–ZP                                  |      
|Outcome Measure |  | Mean                                   |      
|DSST            |  |                                        | 41.48
|VAS             |  |                                        | 57.92



We believe that these
results are important in light of the FDA’s growing concern related to next day effects of hypnotic drugs.



65







Phase I Clinical Trials



We conducted four Phase
I clinical trials of which three groups assessed the PK profile of Zaleplon when administered in several formulations, and one
assessed the effect of food on the overnight GR of the Accordion Pill when administered immediately, one-and-a-half, or three hours
after dinner.



The first trial was an
open-label trial conducted with early formulations of AP–ZP in 16 healthy volunteers to compare the PK profile of Zaleplon
in two AP–ZP strengths to the currently marketed drug. The trial results indicated a significant increase in the mean MRT
of Zaleplon in the plasma when administered with AP–ZP compared with the drug currently on the market.



The second PK trial was
an open-label trial conducted with AP–ZP Phase II formulations in 12 healthy volunteers to compare the PK profile of Zaleplon
in two AP–ZP strengths to the currently marketed drug. The trial results showed that the PK profile was significantly better
when the drug was administered with the Accordion Pill. The Accordion Pill maintained the rapid appearance of the drug in the blood
and the drug blood concentration level was maintained for a significantly longer period compared with the preparation currently
on the market.



The third PK trial was
a Phase I double-blind, crossover, randomized, four-armed trial with 32 healthy volunteers to assess the “next day effect”
of two additional AP–ZP formulations. The four arms included: (i) Zopiclone, a nonbenzodiazepine hypnotic agent that is used
in the treatment of insomnia and is not commercially available in the United States, as a positive control, (ii) a placebo and
(iii) two doses of AP–ZP. The trial revealed no difference in next-day cognitive side-effects between the AP–ZP groups
and the placebo group; cognitive side effects were observed with the usage of the commercially available Zopiclone (the positive
control).



The GR trial was a MRI
open-label trial conducted in 14 healthy volunteers to assess the effect of food on the overnight GR of the Accordion Pill when
administered immediately, one-and-a-half, or three hours after dinner. The results showed that very good GR can also be achieved
if Accordion Pill is taken one-and-a-half or three hours following dinner.



Current Regulatory Status of AP–ZP



Based on various communications
with the FDA regarding the clinical development pathway of AP–ZP, including a recent Type C meeting, the FDA has indicated
that:



| | • | the duration of treatment for each patient in any Phase III clinical trial must be three months;
| | - | ------------------------------------------------------------------------------------------------



| | • | the Section 505(b)(2) pathway will be appropriate for the submission of the AP–ZP NDA;
| | - | --------------------------------------------------------------------------------------



| | • | we may be able to design the development plan of AP–ZP in a manner that would allow one single Phase III clinical trial in separate groups of females (adults and elderly) and males (adults and elderly) may suffice for an NDA submission;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a driving safety study prior to the approval of AP–ZP will be required;
| | - | -----------------------------------------------------------------------



| | • | a three month safety non-clinical study will be required prior to the initiation of the Phase III clinical trial; and
| | - | ---------------------------------------------------------------------------------------------------------------------



| | • | a detailed Phase III protocol should be submitted to and approved by the FDA.
| | - | -----------------------------------------------------------------------------



We are currently seeking
a potential strategic partner for further clinical development and commercialization of AP–ZP and our future development
plans for AP–ZP will depend on the results of this process.



Accordion Pill Baclofen



We previously completed
a Phase I clinical trial for an Accordion Pill using the drug Baclofen, which is indicated for the treatment of spasticity. Due
to changes in the projected market for Baclofen, we have no current plans to further develop or commercialize our Accordion Pill
Baclofen.



66







Development of Accordion Pills with additional drugs



We are continuously evaluating
the possibilities of developing Accordion Pills with various additional specific drugs for its pipeline. In March 2016, we completed
a Phase I clinical trial for our third pipeline product candidate which is being developed for the prevention and treatment of
gastroduodenal and small bowel NSAID induced ulcers. Our Phase I clinical trial was a three arm, cross-over, single dose PK study,
in 18 healthy volunteers. The trial compared the plasma levels of the drug when given with two different doses of the Accordion
Pill with those of the current formulation of the existing drug. The PK results demonstrated in the Phase I trial were within the
well-defined safety levels of the drug, which enable us to proceed with further development of the Accordion Pill with the existing
drug.



Many drugs, such as proton
pump inhibitors, are currently used to protect the stomach and duodenum from NSAID induced injuries, such as ulcers. Technological
improvements in the detection of the small intestine have shown that injuries associated with NSAID usage also occur frequently
in the small intestine. Currently, there are no proven-effective therapies for these NSAID induced injuries in the small intestine.



NSAIDs are widely used
to manage the pain of osteoarthritis, rheumatoid arthritis and other painful conditions. The most common type of arthritis is called
osteoarthritis, which is one of the most frequent causes of physical disability among adults. According to a 2010 report by the
National Institutes of Health, it is estimated that by 2030, 20% of Americans, or approximately 70 million people, will be over
65 years old and at increased risk for osteoarthritis. The second most common form of arthritis is rheumatoid arthritis. According
to a 2014 report by Global Data, it is estimated that by 2023, approximately 2 million Americans over 18 years old will be diagnosed
with rheumatoid arthritis.



In addition, in August
2016, we announced the initiation of a new clinical development program for the Accordion Pill platform with the two primary cannabinoids
contained in Cannabis Sativa, Cannabidiol (CBD) and 9-Tetrahydrocannabinol (THC), or AP-CBD/THC, for treatment of various
indications, including low back neuropathic pain and Fibromyalgia. The Cannabis sativa plant is used in treatment
of chronic pain and a variety of other indications. Previous clinical studies conducted using the whole plant or specific extracts
generated evidence of the cannabis analgesic activity. Furthermore, extracts containing known amounts of the active plant driven
compounds (mainly THC and CBD) or diverse synthetic THC derivatives are promising treatments for painful conditions that do not
respond properly to currently available treatments, such as chronic, neuropathic, and inflammatory pain.



We believe that AP-CBD/THC
holds the potential to address several major drawbacks of current methods of use and treatment with cannabis and cannabinoids,
such as short duration of effect, delayed onset, variability of exposure, variability of the administered dose and adverse events
that correlate with peak levels. AP-CBD/THC is designed to extend the absorption phase of CBD and THC, resulting-in more consistent
levels, for an improved therapeutic effect. We believe that the cannabis market has significant commercial potential and is projected
to represent approximately 10% of the specialty pharmaceutical market over the next five years, or a market of at least $20 billion.
According to Global Data, in 2016 the global low back neuropathic pain drug market was $6.2 billion and the global Fibromyalgia
drug market was $1.8 billion.



In March 2017, we initiated
a Phase I clinical trial in Israel to compare the safety, tolerability and PK of AP-THC/CBD with Sativex®. This
Phase I trial is a single-center, single-dose, randomized, three-way crossover study to compare the safety, tolerability and PK
of two formulations of AP-CBD/THC with Buccal Sativex® in 21 normal healthy volunteers. Sativex®
is a commercially available oral buccal spray containing CBD and THC. We expect to have topline results from this trial in the
third quarter of 2017.



Manufacturing



We are currently manufacturing
the Accordion Pill in our production and packaging facility located in Har Hotzvim, in Jerusalem, Israel, in the same building
as our offices. This production and packaging facility granted the Certificate of GMP Compliance of Manufacturer from the Israeli
Ministry of Health in December 2015. This certificate applies in Israel, as well as in the EU, in accordance with the Conformity
Assessment and Acceptance of Industrial Products (CAA) agreement between the EU and Israel. The certificate is valid until November
2018.



67







We have the capacity to
manufacture the required quantities for our Phase III study of AP-CDLD. We completed installation a fully automated assembly line
in September 2015 that enables us to manufacture approximately two to three million capsules annually. We have not yet determined
if we or one or more of our future commercial partners will manufacture commercial quantities of our products. See “Risk
Factors — Risks Related to Our Operations in Israel.” We have received Israeli government grants for certain of our
research and development activities. The terms of these grants may require us to satisfy specified conditions in order to manufacture
products and transfer technologies outside of Israel. We may be required to pay penalties in addition to the repayment of the grants
in case we decide to manufacture outside of Israel. Such grants may be terminated or reduced in the future, which would increase
our costs.”



The FDA will likely condition
granting any marketing approval, if any, on a satisfactory on-site inspection of our manufacturing facilities. See “Risk
Factors — Risks Related to the Regulation of Our Company and its Business — Our product candidates are manufactured
through a compounding, film casting and assembly process, and if we or one of our materials suppliers encounters problems manufacturing
our products or raw materials, our business could suffer.”



We anticipate that we
will continue to produce our drug products for clinical trials and, we are evaluating several alternatives for the production of
our drug products for commercialization. We are considering various possibilities for manufacturing, including, among others, outsourcing
or licensing the manufacturing rights to third party manufacturers or business partners, or establishing a specially designed production
plant in Israel to produce our drug products for commercialization. We may also pursue a combination of producing our own drug
products, outsourcing and licensing. Establishing a manufacturing facility to produce commercial quantities of our products will
require a substantial investment by any party intending to manufacture our products.



Our manufacturing process
consists of the following stages: compounding, which includes manufacturing of solutions and/or suspensions; film casting, which
involves manufacturing of specific layers of films, including films containing the applicable drug; assembly and capsulation, which
is processing and folding the films into an accordion shape and capsulation; and packaging, which entails packaging the pills in
plastic bottles or blister packs.



Raw Materials and Supplies



With the exception of
three inactive ingredients, we believe the raw materials that we require to manufacture AP-CDLD and AP–ZP, as well as the
raw materials that we require for our research and development operations relating to our products, are widely available from numerous
suppliers and are generally considered to be generic pharmaceutical materials and supplies. Except as described below, we do not
rely on a single supplier for the current production of any product in our pipeline or for our research and development operations
relating to our products.



We usually contract with
suppliers in Israel and worldwide to purchase the materials required for the research and development operations of our products.
All the materials required in the research and development operations of our products are off-the-shelf pharmaceutical products;
special production or special requirements are not required to order these materials. We have no written agreements with most of
our suppliers. Rather, we submit purchase orders to our suppliers from time to time and as required.



Three of our inactive
ingredients used in our products have only one supplier of each such ingredient. The three suppliers are each large, well-established
suppliers (BASF, the Dow Chemical Company and Evonik), and most of the pharmaceutical industry relies on these suppliers when they
need to purchase certain pharmaceutical products such as these inactive ingredients. To avoid a shortfall of these materials, we
usually purchase sufficient material in advance for a period of at least one year. The pharmaceutical industry usually relies on
these three manufacturers as suppliers of specific materials. The prices of these commonly used raw materials are not volatile.



68







Marketing and Sales



We do not currently have
any marketing or sales capabilities. We intend to license to, or enter into strategic alliances with, companies in the pharmaceutical
business, which are equipped to market and/or sell our products, if any, through their well-developed marketing and distribution
networks. We may establish marketing and/or sales forces in the future in addition to licensing arrangements or strategic alliances.



Competition



The pharmaceutical and
drug delivery technologies industries are characterized by rapidly evolving technology, intense competition and a highly risky,
costly and lengthy research and development process. Adequate protection of intellectual property, successful product development,
adequate funding and retention of skilled, experienced and professional personnel are among the many factors critical to success
in the pharmaceutical industry.



Depomed, Inc. has several
products on the market based on its GR technology. Several companies have reported research projects related to systems designed
for GR including Teva Pharmaceutical Industries, Flamel Technologies S.A., Sun Pharma and others, all of which develop products
delivered orally that are designed for GR. We are not aware of any approved drug delivery system currently on the market that is
similar to the Accordion Pill, nor are we aware of any product candidates that are similar to our Accordion Pill with respect to
mechanism of action.



Other drug delivery technologies,
other drugs on the market, new drugs under development (including drugs that are in more advanced stages of development in comparison
to our product pipeline) and additional drugs that were originally intended for other purposes, but were found effective for the
indications we target, may all be competitive to the current products in our pipeline. In fact, some of these drug delivery systems
and drugs are well-established and accepted among patients and physicians in their respective markets, are orally bioavailable,
can be efficiently produced and marketed, and are relatively safe and inexpensive. Moreover, other companies of various sizes engage
in activities similar to ours, including large pharmaceutical companies, such as Pfizer and Novartis, who have established in-house
capabilities for the development of drug delivery technologies. Most, if not all, of our competitors have substantially greater
financial and other resources available to them. Competitors include companies with marketed products and/or an advanced research
and development pipeline.



Current Treatments on the Market and in Development
for Parkinson’s Disease



The current common treatments
for Parkinson’s disease include Levodopa (usually used in conjunction with other drugs such as Carbidopa), which is currently
the standard and most efficient Parkinson’s medication used, and dopamine agonists, such as bromocriptine, pergolide, pramipexole
and ropinirole, as well as MAO inhibitors and COMT inhibitors. However, Levodopa therapy is associated with “wearing-off”,
a condition in which a treatment’s effects diminish over time as the disease progresses, and dyskinesia, or involuntary disturbing
movements.



We believe our direct
competition will include other technologies designed to address the need for more stable Levodopa levels. As such, AP-CDLD will
compete against other Levodopa-based Parkinson’s drugs that are already on the market, such as Sinemet, a combination of
Levodopa and Carbidopa, which is sold by Merck, as well as generic Sinemet, which is sold by various generic manufacturers. In
addition, other technologies and drug delivery systems designed to address the Levodopa blood concentration problem currently exist.
To our knowledge, based on publicly-filed documents, press releases and published studies, we believe the companies described below
would be our primary competition with respect to AP-CDLD.



Novartis and Orion combine
Levodopa and Carbidopa with Comtan (entacapone), a drug that inhibits the clearance of Levodopa from the blood, thereby slowing
the rapid drop in the Levodopa level in the blood. The combined sales of this product by Novartis and Orion in 2015 were approximately
$344 million. Additional drug candidates that are developed by Bial and Orion are based on the same approach.



Solvay Pharmaceuticals,
which has been acquired by AbbVie Inc., introduced a drug delivery system based on implanting a tube in the duodenum area attached
to an external pump that releases Levodopa formulation directly to the NAW. This product has been approved for marketing in the
United States and Europe. The invasive nature of implanting a tube in patients, most of whom are elderly, as well as various difficulties
related to the system, are certain disadvantages of this technology.



69







Impax Laboratories has
developed a product, RytaryTM, or IPX066, a continuous release Levodopa capsule formulation. The product was launched
in April 2015. In addition, Impax Laboratories is developing IPX203, a new extended-release oral capsule formulation of carbidopa
and levodopa, as a potential treatment for symptoms of Parkinson’s disease. The interim results of Phase 2b with IPX203 is
expected by the end of first half of 2017.



XenoPort has reported
the development of a product, XP21279, based on the chemical modification of Levodopa to enable absorption along the entire GI
tract. According to its 2015 annual report, XenoPort plans to seek partners for the further development and potential commercialization
of XP21279, however, XenoPort was acquired by Arbor Pharmaceuticals in July 2016 and we are unaware of Arbor’s development
plans related to this product.



Civitas Therapeutics,
Inc., which was acquired by Acorda Therapeutics, Inc. in September 2014, has developed CVT-301, a self-administered, adjunctive,
as needed, inhaled oral Levodopa, for the ability to rapidly and predictably treat “off” episodes as they occur. In
February 2017, Acorda announced the completion of a Phase III clinical trial of CVT-301 in Parkinson’s disease and that it
expects to file an NDA with the FDA in the second quarter of 2017.



NeuroDerm Ltd. has the
following subcutaneous product candidates, ND0612H and ND0612L for the treatment of patients suffering from Parkinson’s disease.
These product candidates have completed Phase II clinical trials. In December 2016, NeuroDerm announced the replacement of two
Phase III clinical trials, with these product candidates with PK trials following an FDA meeting on ND0612 regulatory development.



Other technologies for
delivering Levodopa, such as through the skin (transdermal administration) using a patch, injections or inhalations, as well as
new formulations and chemical modifications of Levodopa and/or complementary drugs, currently exist and might compete with AP-CDLD
as well, but, to our knowledge, these technologies, formulations and modifications have not yet been submitted for approval.



Current Treatments for Insomnia



There are numerous drugs
in use for sleep disorders and the global market is currently controlled by drugs belonging to a group of substances that activate
GABA receptors in the brain, a neurotransmitter found in the brain that is involved in sleep. These drugs include Ambien and Ambien
CR from Sanofi, Zolpidem, the generic form of Ambien, zolpidem ER, the generic form of Ambien CR, Lunesta from Sepracor and Sonata
from King Pharmaceuticals, which became the generic drug Zaleplon during 2008. We will also compete against other drugs commonly
used for sleep disorders, including melatonin agonists such as Rozerem, several hypnotic benzodiazepines such as temazapam (Restoril)
and flurazepam (Dalmane), sedating antidepressants such as trazodone (Desyrel), and orexin receptor antagonists such as suvorexant
(Belsomra), a recently approved insomnia drug from Merck. Furthermore, several new drugs are currently under development for treating
insomnia. Based on a survey by Global Data, the following products are in Phase II and higher developmental stages: SKP1041 (controlled-release
Zaleplon) from Somnus, Piromelatine from Neurim and EVT-201 from Evotec. We are not aware of any marketed product that does not
contain the “next day” warning on its label.



Government Regulation



In the United States,
the FDA regulates pharmaceuticals and biologics under the FDCA and the Public Health Service Act, or PHS Act, and their implementing
regulations. These products are also subject to other federal, state, and local statutes and regulations, including federal and
state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting unfair and deceptive
acts and trade practices.



The process required by
the FDA before a new drug product may be marketed in the United States generally involves the following: completion of extensive
preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice,
or GLP, regulations; submission to the FDA of an IND which FDA must allow to become effective before human clinical trials may
begin and must be updated annually; performance of adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product candidate for each proposed indication; and submission to the FDA of an NDA for a drug, and BLA for biological
product, after completion of all pivotal clinical trials.



70







An IND is a request for
authorization from the FDA to administer an investigational drug product to humans. We currently have effective INDs for two of
our potential products: AP-CDLD for the treatment of Parkinson’s disease symptoms and AP–ZP for the treatment of insomnia.



Clinical trials involve
the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance
with Current Good Clinical Practices, or cGCPs, which include the requirement that all research subjects provide their informed
consent for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments
must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s
Institutional Review Board, or IRB, before the trials may be initiated, and the IRB must monitor the trial until completed. There
are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.



Clinical trials are usually
conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers to assess safety
and find the potential dosing range. After a safe dose has been established, the drug is administered to small populations of sick
patients (Phase II) to look for initial signs of efficacy in treating the targeted disease or condition and to continue to assess
safety. Phase III clinical trials are usually multi-center, double-blind controlled trials in hundreds or even thousands of subjects
at various sites to assess as fully as possible both the safety and effectiveness of the drug.



The FDA, the IRB, or the
clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research
subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group
of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group
reviews unblinded data from clinical trials and provides authorization for whether or not a trial may move forward at designated
check points. A DSMB may order a trial halted if it believes the dangers posed by the trial are unacceptable or the product is
so effective as to make it unethical to administer placebos or alternate treatments to the non-treatment arms. We may also suspend
or terminate a clinical trial based on evolving business objectives and/or competitive climate.



Assuming successful completion
of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information
is submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The application
includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as
well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls
and proposed labeling, among other things.



Once the NDA submission
has been accepted for filing, the FDA’s goal is to review applications within ten months of filing. However, the review process
is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application
to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is
not bound by the recommendation of an advisory committee, but it typically follows such recommendations.



After the FDA evaluates
the NDA and conducts inspections of manufacturing facilities where the drug product will be formulated and its drug will be produced,
it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial marketing of
the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle
of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional
clinical data or an additional pivotal Phase III clinical trial(s), or other significant, expensive and time-consuming requirements
related to clinical trials, preclinical studies or manufacturing, or any combination thereof. Even if such additional information
is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA could also approve
the NDA with restrictive indications, labeling that includes particular risk information, a risk evaluation and strategy to mitigate
risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted
distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other
things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more
post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further
assess and monitor the product’s safety and effectiveness after commercialization.



71







After regulatory approval
of a drug product is obtained, we are required to comply with a number of post-approval requirements. As a holder of an approved
NDA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide
updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any
of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and
preserve the long term stability of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance
with cGMP, which imposes extensive procedural, substantive, and record keeping requirements. In addition, changes to the manufacturing
process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements
upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money
and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.



We produce, and expect
to continue to produce, the quantities of our product candidates required for our clinical trials, and we do not yet have a need
to produce our product candidates for commercial purposes. Future FDA and state inspections may identify compliance issues at our
facilities or at the facilities of our contract manufacturers or licensees that may disrupt production or distribution, or require
substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply
with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal
or recall of the product from the market or other voluntary withdrawal of the product’s approval, seizure, or FDA-initiated
judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may
require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also
may require the implementation of other risk management measures. Also, new government requirements, including those resulting
from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval
of our products under development.



In addition, as the NDA
holder, we are responsible for legal and regulatory compliance for advertising and promotion of the drug product. We are required
to provide to the FDA copies of all drug promotion at the time of first use, and to ensure that all information disseminated conforms
to the product’s approved labeling and other FDA regulations and policies.



505(b)(2) Applications



We intend to submit NDAs
for our proposed products, assuming that the clinical data justify submission, under Section 505(b)(2) of the FDCA, and assuming
the FDA agrees with our assessment that a given proposed product qualifies for review under that section. If the FDA disagrees
with that assessment or revises its decision at a later date, we would be compelled to file under section 505(b)(1), which is the
normal route used for traditional new drugs where the data relied upon for the NDA filing have been developed by the sponsor during
its clinical trials. In contrast, Section 505(b)(2) permits the filing of an NDA when at least some of the information required
for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
The applicant may rely on published literature and the FDA’s findings of safety and effectiveness based on certain pre-clinical
or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements
to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label
indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)
applicant. The abbreviated Section 505(b)(2) approval pathway increases the likelihood that the timeframe and costs associated
with commercializing products will be lower than under a typical Section 505(b)(1) approval pathway.



72







Upon approval of an NDA
or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s
product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book,
which is an FDA resource listing approved drug products with therapeutic equivalence evaluations. When an Abbreviated New Drug
Application, or ANDA, applicant files its application with the FDA, the applicant is required to certify to the FDA concerning
any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA
applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already
approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the
Orange Book to the same extent that an ANDA applicant would.



Specifically, the applicant
must certify with respect to each patent that:



| | • | the required patent information has not been filed;
| | - | ---------------------------------------------------



| | • | the listed patent has expired;
| | - | ------------------------------



| | • | the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | the listed patent is invalid, unenforceable or will not be infringed by the new product.
| | - | ----------------------------------------------------------------------------------------



A certification that the
new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable
is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking
approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced
product have expired.



If the ANDA applicant
has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to
the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate
a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement
lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA
until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement
case that is favorable to the ANDA applicant. This same procedure that applied to an ANDA applicant also applies to an NDA applicant
under Section 505(b)(2).



Patent Term Restoration and Extension



A patent claiming a new
drug product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration
of up to five years for the patent term lost during product development and the FDA regulatory review. The restoration period granted
is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the
submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of
a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product
is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in
question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals.
The USPTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA.



Marketing Exclusivity



A Section 505(b)(2) NDA
applicant may be eligible for its own regulatory exclusivity period, such as three-year exclusivity. A Section 505(b)(2) NDA applicant
for a particular condition of approval, or change to a marketed product, such as a new extended release formulation for a previously
approved product, may be granted a three-year market exclusivity if one or more clinical studies, other than bioavailability or
bioequivalence studies, were essential to the approval of the application and were conducted or sponsored by the applicant. Should
this occur, the FDA would be precluded from approving any other application for the same new condition of use or for a change to
the drug product that was granted exclusivity until after that three-year exclusivity period has run. Additional exclusivities
may also apply.



73







Other U.S. Healthcare Laws and Compliance Requirements



For products distributed
in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and
the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following:



| | • | The federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The federal Anti-Inducement Act which prohibits persons from offering remuneration beneficiaries to induce them to use a particular item or service payable in whole or in part by Medicare or Medicaid.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, and its corresponding regulations, prohibit physicians from referring patients for designated health services (including outpatient drugs) reimbursed under the Medicare or Medicaid programs to entities with which the physicians or their family members have a financial relationship or an ownership interest, subject to narrow regulatory exceptions, and prohibits those entities from submitting claims to Medicare or Medicaid for payment of items or services provided to a referred beneficiary.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Analogous state laws and regulations, such as state anti-kickback and false claims laws, apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | A PPACA provision, generally referred to as the Physician Payment Sunshine Act or Open Payments Program, imposes reporting and disclosure requirements for applicable drug and device manufacturers of covered products with regard to payments or other transfers of value made to physicians, dentists and teaching hospitals, and certain investment/ownership interests held by physicians in the reporting entity. These disclosures are publicly available.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Efforts to ensure that
our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although we
believe our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable
fraud and abuse or other healthcare laws and regulations. If our past or present operations, including activities conducted by
our sales team or agents, are found to be in violation of any of these laws or any other governmental regulations that may apply
to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from third party
payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians,
providers or entities with whom we do business are found to be not in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusion from government funded healthcare programs.



74







Many aspects of these
laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open to a variety
of subjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations
are subject to change. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses, divert our management’s attention from the operation of our business, and damage
our reputation.



In addition, from time
to time in the future, we may become subject to additional laws or regulations administered by the FTC, or by other federal, state,
local or foreign regulatory authorities, to the repeal of laws or regulations that we generally consider favorable or to more stringent
interpretations of current laws or regulations. We are not able to predict the nature of such future laws, regulations, repeals
or interpretations, and we cannot predict what effect additional governmental regulation, if and when it occurs, would have on
our business in the future. Such developments could, however, require reformulation of certain products to meet new standards,
recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation
of the properties of certain products, additional or different labeling, additional scientific substantiation, additional personnel
or other new requirements. Any such developments could have a material adverse effect on our business.



The growth and demand
for eCommerce could result in more stringent consumer protection laws that impose additional compliance burdens on online retailers.
These consumer protection laws could result in substantial compliance costs and could interfere with the conduct of our business.



There is currently great
uncertainty in many states whether or how existing laws governing issues such as property ownership, sales and other taxes, and
libel and personal privacy apply to the Internet and commercial online retailers. These issues may take years to resolve. For example,
tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate
tax treatment of companies engaged in online commerce and new state tax regulations may subject us to additional state sales and
income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently
apply to our business, or a change in application of existing laws and regulations to the Internet and commercial online services
could result in significant additional taxes on our business. These taxes could have an adverse effect on our results of operations.



Intellectual Property



Our success depends, at
least in part, on our ability to protect our proprietary technology and intellectual property, and to operate without infringing
or violating the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws,
know-how, intellectual property licenses and other contractual rights (including confidentiality and invention assignment agreements)
to protect our proprietary technology and intellectual property, including related intellectual property rights.



Patents



As of December 31, 2016,
we own or exclusively license three families of patents to use within our field of business that are registered in various countries,
including in the United States, Israel, Australia, Canada, South Africa, France, Germany, Spain, Switzerland, Ireland, the United
Kingdom and other countries. We have also filed patent applications with respect to eight additional patent families in various
countries, four of which have active pending applications that have yet to be approved. Our patents and patent applications generally
relate to gastroretentive delivery devices for oral intake of agents and the integration of drugs into our delivery systems and
their production, and are expected to expire at various dates between 2020 and 2029. We also rely on trade secrets to protect certain
aspects of our technology. The following discussion describes certain of what we consider to be our material patents and patent
applications.



75







IN-1 and Yissum License
Agreement



At present, among other
patents, we consider our patent family that we exclusively license from Yissum (i.e., Gastroretentive Controlled Release Pharmaceutical
Dosage Forms) pursuant to the license agreement described below, or the License Agreement, and which we refer to as IN-1, to be
material to the operation of our business. This patent covers the gastroretentive controlled release of an active ingredient in
the GI tract. This patent does not cover the implementation of the accordion technology with respect to any particular drug or
in a manner that is readily manufactured commercially, but it broadly covers folded forms, and forms the foundation for the accordion
technology in its most basic form. The system is intended mainly for drugs with an NAW, drugs that act locally in the digestive
system and drugs whose active receptors are in the upper part of the GI tract. The system is intended for clinical use in humans
and in animals. The patent is issued in the United States, Israel, Japan Australia, Canada, South Africa, the United Kingdom and
six other European countries, and expires in 2020.



In the License Agreement,
Yissum granted us an exclusive license for developing, manufacturing and marketing of products based, directly or indirectly, on
the IN-1 patent, the know-how and research results defined therein. Under the provisions of the License Agreement, as amended,
Yissum may not transfer its rights in the patent without our prior written consent. In consideration of the license, we have undertaken
to pay Yissum royalties equaling 3% of the total net revenues from the sale of products based on Yissum’s patent and royalties
equal to 15% of any payment or benefit whatsoever received by us from any sublicensee. At the current time we have not commenced
sales and have not granted any sublicenses to any third parties. The parties to the License Agreement are entitled to terminate
the agreement in case of bankruptcy or receivership of the other party, or a material breach (including in respect of any payment
obligations) that is not cured within 30 days. The License Agreement will remain in effect until the later of the expiration date
of the patent or 15 years from the first commercial sale on the basis of the license. We have the right to assign our rights in
the License Agreement with the prior consent of Yissum, not to be unreasonably withheld, and we are entitled to grant sublicenses
under the licensed intellectual property of Yissum to third parties in our sole discretion, and any sublicensee(s) thereunder will
not be required to assume any undertaking towards Yissum.



In January 2008, we signed
an addendum to the License Agreement to conduct an additional joint development and study regarding a technology, different from
the Accordion Pill, for the GR of a drug. This addendum provides that the intellectual property rights produced as a result of
the joint development and study will be jointly owned and we are entitled to receive a license for Yissum’s share in these
rights in return for payment of royalties. One patent application has been filed by Yissum and us as a result of the development
related to that joint project, but this patent application was abandoned.



IN-3



An additional patent family
(i.e., Method and Apparatus for Forming Delivery Devices for Oral Intake of an Agent), which we refer to as IN-3, covers various
methods for making and folding the gastroretentive drug delivery system, and for folding it in an accordion configuration allowing
its integration into an ordinary oral capsule. The IN-3 family patents, which expire in 2027, except for the first United States
patent of this family, which expires in 2028, allow the Accordion Pill to be manufactured in mass quantities and therefore to be
more readily commercialized. We consider our licensed proprietary process for folding and cutting the films forming the drug delivery
system for integration in an accordion-like configuration into an ordinary oral capsule to be material to our business. We have
three granted patents in the U.S. and an additional pending patent application in connection with IN-3, as well as granted patents
in Israel, Europe and Japan. Importantly, the second IN-3 patent granted in the U.S. covers a specific embodiment of the Accordion
Pill, particularly suitable for insoluble or poorly soluble drugs. Similar divisional applications have been filed in other countries
and patents for these have already been granted in Israel and Japan.



76







IN-7 and IN-8



Two additional patents
families (i.e., Accordion Pill with Levodopa and Zaleplon as the active ingredient, respectively) that we consider material to
our business, which we refer to as IN-7 and IN-8, respectively, relate to the integration of specific drugs into Accordion Pill
products. The accordion technology covered by our other patents cannot be applied in an obvious manner to any given drug that might
benefit from prolonged gastroretentive release. This is because the layer structure of an Accordion Pill must be varied and specially
designed by reference to factors that are unique to any given drug and indication, such as the quantity of active ingredient desired
to be released, the length of time for which the release is indicated, the relative solubility of the particular drug molecule,
and other factors. IN-7 and IN-8 relate to applications to protect the specific integration of Levodopa and Zaleplon, respectively,
into an Accordion Pill. The IN-7 patent family relates to the Accordion Pill dosage form, the main feature of which is the uniform
inner drug-containing layer, which allows for, but does not require, high load of the drug, while maintaining the requisite structural
or mechanical strength of the Accordion Pill. These two patent applications were each filed in the United States, the European
Patent Office, Japan and several other countries in April 2009. We have three granted U.S. patents for an Accordion Pill with Carbidopa/Levodopa
as the active ingredient(s) (IN-7), which are in force until April 17, 2029, and have been granted IN-7 patents in China, Europe
and South Korea. Application for this patent in Israel has been allowed.



An additional family of
our patent applications that is related to IN-7, which we refer to as IN-11, seeks protection for the formulation of an Accordion
Pill containing Levodopa that is specifically formulated for Parkinson’s disease in a specific treatment regimen. We filed
the IN-11 patent application in the United States, Canada, EPO, India and Israel. Any granted patent of IN-11 will expire in November
2031.



Patent applications with
respect to IN-8 are still pending in some countries. European, Israeli and Chinese patents for IN-8 were granted.



General



We intend to submit patent
applications for each Accordion Pill and drug combination that we develop. The patent outlook for companies like ours is generally
uncertain and may involve complex legal and factual questions. Our ability to maintain and consolidate our proprietary position
for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not
know whether any of our patent applications or any patent applications that we license will result in the issuance of any patents.
Our issued patents and those that may be issued in the future, or patents that we exclusively license, may be challenged, narrowed,
circumvented or found to be invalid or unenforceable, which could limit our ability to stop competitors from marketing related
products or the length of term of patent protection that we may have for our products. We cannot be certain that we were the first
to invent the inventions claimed in our owned patents or patent applications, or that Yissum was the first to invent the invention
claimed in the patent that we exclusively license from Yissum. In addition, our competitors may independently develop similar technologies
or duplicate any technology developed by us, and the rights granted under any issued patents may not provide us with any meaningful
competitive advantages against these competitors. Furthermore, because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related
patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the
patent.



Trademarks



We rely on trade names,
trademarks and service marks to protect our name brands. Our registered trademarks are registered in Israel and include RETACCORD
and ACCORDION PILL. We are in the process of registering the ACCORDION PILL trademark in the United States and Europe.



Trade Secrets and Confidential Information



In addition to patents,
we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult
to protect. We rely on, among other things, confidentiality and invention assignment agreements to protect our proprietary know-how
and other intellectual property that may not be patentable, or that we believe is best protected by means that do not require public
disclosure. For example, we require our employees to execute confidentiality agreements in connection with their employment relationships
with us, and to disclose and assign to us inventions conceived in connection with their services to us. However, there can be no
assurance that these agreements will be enforceable or that they will provide us with adequate protection. We also seek to preserve
the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and
physical and electronic security of our information technology systems.



77







We may be unable to obtain,
maintain and protect the intellectual property rights necessary to conduct our business, and may be subject to claims that we infringe
or otherwise violate the intellectual property rights of others, which could materially harm our business. For a more comprehensive
summary of the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.”



Properties



Our principal executive
offices are located in Har Hotzvim at 12 Hartom Street, Jerusalem, Israel 9777512. The space is in a commercial office building
and houses our office space of approximately 900 square meters, manufacturing facility for our clinical trials of approximately
670 square meters, which includes production, packaging, warehousing and logistics areas, and our laboratory facilities of approximately
200 square meters.



The manufacturing and
laboratory facilities are fully equipped for manufacturing and testing of the required quantities for Phase III clinical trials,
including, mixers, casting equipment, laminating equipment, capsulating equipment and analytical equipment such as High Pressure/Performance
Liquid Chromatography and dissolution testers. These facilities are cGMP compliant and approved by Israeli and European regulatory
authorities and qualified for Phase III manufacturing.



We lease this space, which
presently consists of a total area of approximately 1,770 square meters, from an unaffiliated third party, pursuant to a lease
agreement which, as amended, expires June 30, 2018. Pursuant to the lease, as amended, our annual rental costs for 2016 were U.S.
dollars 445,000 (excluding VAT) and our expected rental costs for 2017 are approximately U.S. dollars 465,000 (excluding VAT).



Although we will continue
to produce product candidates ourselves for use in clinical trials, we are currently evaluating several alternatives for the production
of our drug products for commercialization, including the possibility of establishing our own production plant, outsourcing or
licensing the manufacturing rights to third-party manufacturers. However, at this time, no decision has been made regarding the
location or method of production of our drug products for commercialization. We believe this existing property is sufficient for
our needs in the foreseeable future and that we have the ability to renew our lease at market terms and expand if required.



Insurance



We maintain directors’
and officers’ liability insurance with maximum coverage of $40.0 million in the aggregate for the benefit of our office holders
and directors. Such directors’ and officers’ liability insurance contains certain standard exclusions.



We also maintain insurance
for our premises for a maximum of NIS 38.0 million, including coverage of equipment and lease improvements against risk of loss
(fire, natural hazard and allied perils, excluding damage from theft - hereinafter “named perils”) and business interruption
insurance coverage caused by named perils out of which up to NIS 24.0 million for fixed cost and up to NIS 100.0 million for expenses
related to our Phase III clinical trial for AP-CDLD. In addition, we maintain the following insurance: employer liability with
coverage of NIS 20.0 million; third-party liability with coverage of NIS 20.0 million; and all risk coverage for machinery breakdown
of our casting machine of approximately NIS 5.0 million.



We also procure additional
insurance for each specific clinical trial which covers a certain number of trial participants and which varies based on the particular
clinical trial. Certain of such policies are based on the Declaration of Helsinki, which is a set of ethical principles regarding
human experimentation developed for the medical community by the World Medical Association, and certain protocols of the Israeli
Ministry of Health.



We believe our insurance
policies are adequate and customary for a business of our kind. However, because of the nature of our business, we cannot assure
you that we will be able to maintain insurance on a commercially reasonable basis or at all, or that any future claims will not
exceed our insurance coverage.



78







Research Grants



Grants under the Innovation Law



Under the Encouragement
of Research, Development and Technological Innovation in the Industry Law 5744-1984, or the Innovation Law, research and development
programs that meet specified criteria and are approved by a committee of the National Authority for Technological Innovation,
or NATI, a statutory corporation which replaced the OCS, are eligible for grants. The grants awarded are typically up to 50% of
the project’s expenditures, as determined by the research committee. A company that received a grant from the OCS, or a
Participating Company, is typically required to pay royalties to the OCS on income generated from the sale of products incorporating
technology developed using such grants (and related services associated with such products), whether received by the Participating
Company or any affiliated entity, as defined in the Encouragement of Industrial Research and Development Regulations (Royalties
Rates and Rules for Payment), 5756-1996, or the Royalties Regulations, until 100% of the dollar-linked grant is repaid . The rate
of the royalties is determined based on the criteria set forth in the Royalties Regulations and is set between 3% to 6% of sales
of the product (though typically not greater than 4.5%). The obligation to pay royalties is contingent on actual sale of such
products and services and is capped at the amount of the full grant received from the OCS (and in some cases in an increased royalty
cap) which in any event is linked to the U.S. Dollar and accrues interest (LIBOR).  In the absence of such sales, no payment
of such royalties is required.

The terms of the grants
under the Innovation Law also require that the products developed as part of the programs using government grants be manufactured
in Israel and that the technology developed thereunder may not be transferred outside of Israel, unless a prior written approval
is received from the OCS (such approval is not required for the transfer of a portion of the manufacturing capacity which does
not exceed, in the aggregate, 10% of the portion declared to be manufactured abroad in the applications for funding, in which case
only notification is required) and additional payments are made to the State of Israel. However, this does not restrict the export
of products that incorporate the funded technology. See “Risk Factors — Risks Related to Our Operations in Israel”
for additional information.



From January 1, 2009 through
December 31, 2016, we received approximately NIS 50.2 million in grants from the OCS to support our research and development programs.
In May 2016, the OCS approved a grant of up to NIS 20.0 million (approximately $5.2 million) with respect to a follow-up program
for the clinical development of the Accordion Pill for the period from January 1, 2016 through December 31, 2016. In October 2016,
we submitted to the OCS a change request for the 2016 program and, consequently, the support grant was reduced to NIS 19 million
(approximately $5.0 million). As of the date of this annual report, we have received approximately NIS 14.8 million of the 2016
grant. The majority of this grant is allocated for the pivotal Phase III clinical trial for AP-CDLD. In December 2016, we submitted
to the OCS a follow-up program for the clinical development of the Accordion Pill for the period from January 1, 2017 through December
31, 2017.



Environmental Matters



We are subject to various
environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges,
noise emissions, the use, management and disposal of hazardous materials and wastes and the cleanup of contaminated sites. In addition,
all of our laboratory personnel participate in instruction on the proper handling of chemicals, including hazardous substances
before commencing employment, and during the course of their employment with us. In addition, all information with respect to any
chemical substance that we use is filed and stored as a Material Safety Data Sheet, as required by applicable environmental regulations.
Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse
effect on us. The operation of our facilities, however, entails risks in these areas. Significant expenditures could be required
in the future if we are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.



We hold a business license
from the Jerusalem Municipality with respect to manufacturing pharmaceutical products at 12 Hartom Street, Har Hotzvim in Jerusalem.
The license is valid until December 31, 2017. The business license was granted after an inspection of our raw materials inventory,
which we are permitted to maintain in our facilities and warehouses located at 12 Hartom Street. We also hold a toxic substance
permit from July 14, 2015, which is valid until July 29, 2018.



On December 15, 2015,
following our discussions with the Ministry of Environmental Protection to relax certain restrictions included in our business
license, including, among others, to remove certain conditions the compliance with which is not feasible in the premises in which
our facility is located, our business license was updated with additional terms which match our current activity.



79







We believe that our
business, operations and facilities are being operated in compliance in all material respects with applicable environmental and
health and safety laws and regulations.



Legal Proceedings



From time to time,
we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is
subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our
business. There are currently no pending material legal proceedings, and we are currently not aware of any legal proceedings or
claims against us or our property that we believe will have any significant effect on our business, financial position or operating
results. None of our officers or directors is a party against us in any legal proceeding.



ITEM 4A. Unresolved Staff Comments.



Not applicable.



ITEM 5. Operating and Financial Review and Prospects.



You should read
the following discussion along with our financial statements and the related notes included in this annual report. The following
discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed
under “Risk Factors.” Our actual results, performance and achievements may differ materially from those expressed in,
or implied by, these forward-looking statements. See “Special Note About Forward-Looking Statements.” We have prepared
our financial statements in accordance with IFRS, as issued by the IASB.



Overview



We are a clinical
stage biopharmaceutical company focused on developing drugs based on our proprietary Accordion Pill platform technology, which
we refer to as the Accordion Pill. Our Accordion Pill is an oral drug delivery system that is designed to improve the efficacy
and safety of existing drugs and drugs in development by utilizing an efficient gastric retention, or GR, and specific release
mechanism. Our product pipeline currently includes three product candidates in clinical trial stages. Our leading product candidate,
Accordion Pill Carbidopa/Levodopa, or AP-CDLD, is being developed for the indication of treatment of Parkinson’s disease
symptoms in advanced Parkinson’s disease patients. We have successfully completed a Phase II clinical trial for AP-CDLD for
the treatment of Parkinson’s disease symptoms in advanced Parkinson’s disease patients and have agreed with the U.S.
Food and Drug Administration, or the FDA, on the remaining clinical development program for AP-CDLD for the treatment of Parkinson’s
disease symptoms in advanced Parkinson’s disease patients, including the main principles of the single required pivotal Phase
III clinical trial in advanced Parkinson’s disease patients. In April 2016, we enrolled the first patient in the pivotal
Phase III clinical trial for AP-CDLD. See “ITEM 4. Information on the Company — Government Regulation — 505(b)(2)
Applications.” Our second product candidate, Accordion Pill Zaleplon, or AP–ZP, is being developed for the indication
of treatment of insomnia, including sleep induction and the improvement of sleep maintenance. We have successfully completed a
Phase II clinical trial for AP–ZP for the treatment of insomnia under an Investigational New Drug, or IND, application that
we submitted to the FDA on August 4, 2009 for AP–ZP as a treatment for the induction and maintenance of sleep in patients
suffering from insomnia. In our correspondence with the FDA, the FDA previously agreed that an acceptable regulatory pathway for
each of AP-CDLD and AP-ZP would be to file a new drug application, or NDA, pursuant to Section 505(b)(2) of the Federal Food, Drug,
and Cosmetic Act, or FDCA. The FDA has indicated in written correspondence to us that we may be able to design the development
program for AP–ZP in a manner that would allow us to obtain sufficient data for the NDA submission for AP–ZP in one
pivotal Phase III clinical trial. However, at this point in the development process of AP–ZP, the details of such a trial
have not been determined or confirmed with the FDA. In March 2016, we completed a Phase I clinical trial for our third pipeline
product candidate which is being developed for the prevention and treatment of gastroduodenal and small bowel NSAID induced ulcers.
The PK results demonstrated in the Phase I trial were within the well-defined safety levels of the drug, which enable us to proceed
with further development of the Accordion Pill with the existing drug. In addition, we have initiated a new clinical development
program for our Accordion Pill platform with the two primary cannabinoids contained in Cannabis sativa. We plan to formulate and
test Cannabidiol (CBD) and 9-Tetrahydrocannabinol (THC), or AP-CBD/THC, for the treatment of various indications, including low
back neuropathic pain and Fibromyalgia. In March 2017, we initiated a Phase I clinical trial in Israel to compare the safety, tolerability
and PK of AP-THC/CBD with Sativex®.



80







Our Accordion Pill
platform technology is designed to increase the time that drugs are retained in the stomach as compared to other oral dosage forms,
such as tablets and capsules. This capability is particularly important to drugs with a narrow absorption window, or NAW, which
are absorbed mainly in the upper part of the gastrointestinal, or GI, tract. Regular controlled-release formulations of such drugs
currently on the market sometimes fail to provide an efficient solution, as once the regular dosage form has passed the drug’s
NAW in the upper GI tract, the drug is not, or is very poorly, absorbed in the distal parts of the GI tract. The Accordion Pill
platform technology is also designed for drugs with low solubility, which do not efficiently dissolve in the GI tract, and drugs
with low permeability, which do not efficiently penetrate the intestinal wall and reach the blood stream, such as Biopharmaceutics
Classification System, or BCS, Class II (low solubility, high permeability) and Class IV (low solubility, low permeability) drugs.
According to The AAPS Journal published by the American Association of Pharmaceutical Scientists, of the top 200 oral drugs in
the United States, Great Britain, Spain and Japan in 2006, approximately 30% to 35% were BCS Class II drugs and approximately 5%
to 10% were BCS Class IV drugs. Further, according to Drug Development & Delivery, in 2006 approximately 90% of new chemical
entities, or NCEs, in development were either BCS Class II or Class IV drugs. The Accordion Pill’s efficient GR and specific
release mechanism prolongs the absorption phase of drugs with an NAW, which can result in significantly more stable plasma levels.
In addition, the Accordion Pill has demonstrated an enhancement of the absorption of a poorly soluble, BCS Class II/IV drug in
a crossover PK clinical study in 12 healthy volunteers. For poorly soluble drugs, we believe that our technology acts through the
gradual delivery of an undissolved drug by the Accordion Pill in the stomach, which allows for the complete dissolution of the
drug dose in the stomach over the delivery period. The gradual passage of the drug from the stomach to the upper part of the GI
tract enables an increase in the amount of the drug that can be dissolved and thus absorbed, in the upper small bowel. In addition,
we believe that bile secretion in the upper part of the GI tract also improves the intestinal environment for better absorption.
Finally, the significant dilution of the drug solution in the small bowel caused by prolonged delivery increases the amount of
the drug available for absorption.



Our clinical trials
to date have demonstrated that the Accordion Pill is retained in the stomach for eight to 12 hours, as compared to significantly
shorter time periods, typically as little as two to three hours, when using other solid dosage forms. The efficient GR and the
predetermined release profile for each specific drug associated with our Accordion Pill technology demonstrated a significant improvement
in PK, which is the drug plasma level over time and a corresponding improvement in efficacy and safety.



History of Losses



Since our inception,
we have generated significant losses in connection with our research and development, including the clinical development of AP-CDLD
and AP–ZP. As of December 31, 2016, we had an accumulated deficit of $63 million. We expect that additional losses will be
accumulated in the near future as a result of our research and development activities. Such research and development activities
will require further resources if we are to be successful. As a result, we may continue to incur operating losses, and we may need
to obtain additional funds to further develop our research and development programs and our product candidates.



As a result of, among
other things, our research and development activities, as well as the fact that we have not generated revenues since our inception,
for the year ended December 31, 2016, our net loss was approximately $13.4 million.



We have funded our
operations primarily through the sale of equity securities (both in private placements and in public offerings on the NASDAQ Capital
Market and the TASE as described above), funding received from the OCS and other funds, and reimbursements received pursuant to
collaborations with multinational pharmaceutical companies in connection with certain research and development activities. From
our inception until our initial public offering in the United States in August 2015, we raised approximately $53.6 million in various
private placements, our initial public offering in Israel in February 2010 and in various rights issuances. We received approximately
$34 million from our initial public offering in the United States in August 2015. As of December 31, 2016, we had approximately
$18.2 million of cash, cash equivalents and financial assets at fair value.



81







Operating Expenses



Our current operating
expenses consist of two components, research and development expenses and general and administrative expenses.



Research and Development Expenses:



Our research and development
expenses during the 12 months ended 2014, 2015 and 2016 relate primarily to the development of AP–CDLD. We record expenses
for each product candidate on a direct cost basis only, rather than on a project basis. Direct costs, which include contract research
organization expenses, clinical trials and pre-clinical trials, consulting expenses, APIs, and other similar expenses are recorded
to the product candidate for which such expenses are incurred. However, salaries and related personnel expenses, indirect materials
and costs for facilities and equipment are considered overhead and are shared among all of our product candidates and are not recorded
on a product-by-product basis. Our direct costs related to product candidates other than AP–CDLD for 2014, 2015 and 2016
were insignificant. We expect our research and development expense to remain our primary expense in the near future as we continue
to develop our products. Increases or decreases in research and development expenditures are primarily attributable to the number
and/or duration of the clinical studies that we conduct.



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



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



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



General and Administrative Expenses:



Our general and administrative
expenses consist primarily of salaries and expenses related to employee benefits, including share-based compensation, for our general
and administrative employees, which includes employees in executive and operational roles, including finance and human resources,
as well as consulting, legal and professional services related to our general and administrative operations.



Our general and administrative
expenses, such as accounting and legal fees, have increased since we have become a public company in the United States.



82







Other Gains, Net



Other gains, net,
consist of change in the fair value of the financial assets at fair value through profit or loss.



Financial Expense and Income



Financial expense
and income consist of interest earned on our cash, cash equivalents and short-term bank deposits; bank fees and other transactional
costs; change in fair value of derivative financial instruments and expenses or income resulting from fluctuations of the NIS and
other currencies, in which a portion of our assets and liabilities are denominated, against the dollar (our functional currency).



Results of Operations



The table below provides
our results of operations for the periods indicated.



|                                                                                   |  | Year ended December 31, |       
|---------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                   |  | 2014                    |       
|                                                                                   |  | USD in thousands        |       
|Statements of comprehensive loss data:                                             |  |                         |       
|Research and development expenses                                                  |  | $                       | (4,959
|Less-participation in research and development expenses                            |  |                         | 1,550 
|Research and development expenses, net                                             |  |                         | (3,409
|General and administrative expenses                                                |  |                         | (2,609
|Other gains, net                                                                   |  |                         | 234   
|Operating loss                                                                     |  |                         | (5,784
|Financial income                                                                   |  |                         | 318   
|Financial expenses                                                                 |  |                         | (227  
|Financial income, net                                                              |  |                         | 91    
|Net loss                                                                           |  |                         | (5,693
|Other comprehensive loss- currency translation differences                         |  |                         | (805  
|Loss and comprehensive loss                                                        |  | $                       | (6,498
|                                                                                   |  |                         |       
|                                                                                   |  |                         |       
|Basic and diluted loss per ordinary share                                          |  | $                       | (1.18 
|Number of ordinary shares used in computing loss per ordinary share (in thousands) |  |                         | 4,825 



Year Ended December 31, 2016 Compared to Year Ended December
31, 2015



Research and Development Expenses, Net



Our research and development
expenses, net, for the year ended December 31, 2016 amounted to approximately $10.7 million, an increase of $5.9 million, or approximately
123%, compared to approximately $4.8 million for the year ended December 31, 2015. The increase was primarily due to an increase
in expenses of our Phase III clinical trial for AP-CDLD, payroll and related expenses, which were partially offset by an increase
in participation in research and development expenses from the OCS received in 2016 compared to 2015.



83







General and Administrative Expenses



Our general and administrative
expenses for the year ended December 31, 2016 amounted to approximately $3.1 million, an increase of $0.3 million, or approximately
11%, compared to approximately $2.8 million for the year ended December 31, 2015. The increase was primarily due to an increase
in other expenses associated with being a public company in the United States since August 2015.



Other Gains, Net



Our other gains, net,
for the year ended December 31, 2016 amounted to approximately $34,000, compared to approximately $19,000 for the year ended December
31, 2015. The other gains, net consist of change in the fair value of financial assets.



Operating Loss



As a result of the
foregoing, research and development, net, general and administrative expenses, and other gains, net, as well as our failure to
generate revenues since our inception, for the year ended December 31, 2016 our operating loss was approximately $13.8 million,
an increase of $6.2 million, or approximately 82%, compared to our operating loss for the year ended December 31, 2015 of approximately
$7.6 million. This increase primarily resulted from an increase in expenses of our Phase III clinical trial for AP-CDLD, payroll
and related expenses and other expenses associated with being a public company in the United States since August 2015, which were
partially offset by an increase in participation in research and development expenses from the OCS received in 2016 compared to
2015.



Financial Income, Net



For the year ended
December 31, 2016, we had financial income from interest on cash equivalents and bank deposits in the amount of approximately $176,000,
financial income from change in fair value of derivative financial instruments in the amount of approximately $230,000 and foreign
currency exchange income in the amount of approximately $60,000. In addition, we had financial expenses from bank fees.



Other comprehensive loss - currency translation
differences



We had no other comprehensive
loss from currency translation differences for the year ended December 31, 2016. Our currency translation differences for the year
ended December 31, 2015 amounted to approximately $664,000. This currency translation difference resulted from the change in functional
currency from NIS to dollar, effective January 1, 2016.



Loss and Comprehensive Loss



As
a result of the foregoing research and development, net, general and administrative expenses, other gains, net, financial expense/income,
net, andother comprehensive loss - currency translation differences,as well as our failure to generate revenues since our inception, for the year ended December 31, 2016 our loss and comprehensive
loss was approximately $13.4 million,an increase of $5.6 million,or approximately 72%, compared to our loss and comprehensive loss
for the year ended December 31, 2015 of approximately $7.8 million.This increase primarily resulted from an increase in
expenses of our Phase III clinical trial for AP-CDLD, payroll and related expenses and other expenses associated with being a public
company in the United States since August 2015, which were partially offset by an increase in participation in research and development
expenses from the OCS received in 2016 compared to 2015 and less other comprehensive loss - currency translation differences which
were recorded only in 2015.



84







Year Ended December 31, 2015 Compared to Year Ended December
31, 2014



Research and Development Expenses, Net



Our research and development
expenses, net, for the year ended December 31, 2015 amounted to approximately $4.8 million, an increase of $1.4 million, or approximately
41%, compared to approximately $3.4 million for the year ended December 31, 2014. The increase was primarily due to an increase
in expenses related to preparation towards our Phase III clinical trial for AP-CDLD, payroll and related expenses and other expenses
associated with our Phase III clinical trial for AP-CDLD, which were partially offset by increases in participation in research
and development expenses from the OCS and Biogen received in 2015 compared to 2014.



General and Administrative Expenses



Our general and administrative
expenses for the year ended December 31, 2015 amounted to approximately $2.8 million, an increase of $0.2 million, or approximately
8%, compared to approximately $2.6 million for the year ended December 31, 2014. The increase was primarily due to an increase
in professional services, payroll and related expenses and other expenses associated with being a public company in the United
States.



Other Gains, Net



Our other gains, net,
for the year ended December 31, 2015 amounted to approximately $19,000, compared to approximately $234,000 for the year ended December
31, 2014. The other gains for the year ended December 31, 2014 consist primarily of indemnification from an insurance company in
the amount of approximately $248,000. Other gains, net for the year ended December 31, 2015 consists of change in the fair value
of financial assets.



Operating Loss



As a result of the
foregoing research and development, net, general and administrative expenses, and other gains, net, as well as our failure to generate
revenues since our inception, for the year ended December 31, 2015 our operating loss was approximately $7.6 million, an increase
of $1.8 million, or approximately 31%, compared to our operating loss for the year ended December 31, 2014 of approximately $5.8
million. This increase primarily resulted from an increase in expenses related to preparation towards our Phase III clinical trial
for AP-CDLD, payroll and related expenses and other expenses associated with our Phase III clinical trial for AP-CDLD, which were
partially offset by increases in participation in research and development expenses from the OCS and Biogen, increases in professional
services, payroll and related expenses and other expenses associated with being a public company in the United States and a decrease
in our other gains, net.



Financial Income (Expense), Net



For the year ended
December 31, 2015, we had financial income from interest on cash equivalents and bank deposits in the amount of approximately $44,000
and foreign currency exchange income in the amount of approximately $589,000. In addition to bank fees, we also had financial expenses
from change in fair value of derivative financial instruments in the amount of approximately $213,000.



Other Comprehensive Loss - Currency Translation
Differences



Other comprehensive
loss from currency translation differences for the year ended December 31, 2015 amounted to approximately $664,000 compared to
approximately $805,000 for the year ended December 31, 2014. These currency translation differences resulted from the change in
functional currency from NIS to dollar, effective January 1, 2016.



Loss and Comprehensive Loss



As
a result of the foregoing research and development, net, general and administrative expenses, other gains, net, financial expense/income,
net, andother comprehensive loss - currency translation differences,as well as our failure to generate revenues since our inception, for the year ended December 31, 2015 our loss and comprehensive
loss was approximately $7.8 million,an increase of $1.3 million, or approximately 20%, compared
to our loss and comprehensive loss for the year ended December 31, 2014 of approximately $6.5 million. This increase primarily
resulted from an increase inexpenses related to preparation towards our
Phase III clinical trial for AP-CDLD, payroll and related expenses and other expenses associated with our Phase III clinical trial
for AP-CDLD,which were partially offset by increases in participation in research and development expenses from the OCS
and Biogen, increasesin professional services, payroll and related expenses
and other expenses associated with being a public company in the United States, an increase in our financial income, net
and a decrease in our other gains, net.



85







Liquidity and Capital Resources



Since our inception,
we have funded our operations primarily through public and private offerings (in Israel and in the U.S.) of our equity securities,
grants from the OCS and other grants from organizations such as the Michael J. Fox Foundation, and payments received under the
feasibility and related agreements we have entered into with multinational pharmaceutical companies, pursuant to which we are entitled
to full coverage of our development costs with regard to the projects specified in those agreements.



As of December 31,
2016, we had cash and cash equivalents and financial assets at fair value through profit or loss of approximately $18.2 million.
As of December 31, 2015, we had cash and cash equivalents, short term bank deposits and financial assets at fair value through
profit or loss of approximately $30.7 million.



Net cash used in operating
activities was approximately $12.0 million for the year ended December 31, 2016 compared with net cash used in operating activities
of approximately $7.9 million for the year ended December 31, 2015. This increase primarily resulted from an increase in our net
loss of approximately $6.2 million, which were partially offset by a decrease in changes in operating asset and liability items
of approximately $ 2.1 million.



We had positive cash
flow from investing activities of approximately $4.7 million for the year ended December 31, 2016 compared to negative cash flow
from investing activities of approximately $6.4 million for the year ended December 31, 2015. The change resulted from the maturities
of short-term deposits, net, in the amount of $5.0 million that were invested in 2015, the decrease in purchase of property and
equipment in the amount of approximately $900,000 and the disposal of financial assets at fair value through profit and loss, net
in the amount of approximately $0.2 million.



We had no financing
activities during 2016. In March 2017, we completed a private placement of 2,289,638 ordinary shares of the Company, at a price
of $4.40 per share, with various investors for gross proceeds of approximately $10 million.



Current Outlook



As of December 31,
2016, we believe that, without further fund raising, we will not have sufficient working capital to enable us to continue advancing
our activities, including the development, manufacturing and marketing of our products for a period of at least 12 months from
the date of approval of the financial statements. As a result, there is substantial doubt about our ability to continue as a going
concern. We expect to satisfy our future cash needs through debt or equity financings, such as the private placement of ordinary
shares that we conducted in March 2017, or by out-licensing applications of one or more of our product candidates. We may also
engage with a partner in order to share the costs associated with the development and manufacturing of our product candidates.
For more information see note 1a(2) in our financial statements for the year ended December 31, 2016.



Developing drugs,
conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing products is expensive and we will
need to raise substantial additional funds to achieve our strategic objectives. We will require significant additional financing
in the future to fund our operations, including if and when we progress into additional clinical trials of our product candidates,
obtain regulatory approval for one or more of our product candidates, obtain commercial manufacturing capabilities and commercialize
one or more of our product candidates. Our future capital requirements will depend on many factors, including, but not limited
to:



| | • | the progress and costs of our clinical trials and other research and development activities;
| | - | --------------------------------------------------------------------------------------------



86







| | • | the scope, prioritization and number of our clinical trials and other research and development programs;
| | - | --------------------------------------------------------------------------------------------------------



| | • | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our product candidates;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs of the development and expansion of our operational infrastructure;
| | - | -----------------------------------------------------------------------------



| | • | the costs and timing of obtaining regulatory approval for one or more of our product candidates;
| | - | ------------------------------------------------------------------------------------------------



| | • | the ability of us, or our collaborators, to achieve development milestones, marketing approval and other events or developments under our potential future licensing agreements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | the costs and timing of securing manufacturing arrangements for clinical or commercial production;
| | - | --------------------------------------------------------------------------------------------------



| | • | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or technology;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | • | the magnitude of our general and administrative expenses; and
| | - | -------------------------------------------------------------



| | • | any cost that we may incur under future in- and out-licensing arrangements relating to one or more of our product candidates.
| | - | -----------------------------------------------------------------------------------------------------------------------------



Until we can generate
significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financings or by out-licensing
applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on
acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research
or development plans for, or commercialization efforts with respect to, one or more of our product candidates and make necessary
change to our operations to reduce the level of our expenditures in line with available resources.



Contractual Obligations



Our significant contractual obligations
as of December 31, 2016 included the following (in thousands):



|                                                                 |  | Total |         |  | Less than 1 Year |  |         | 1 – 3 Years |  |  | 3 – 5 Years |  |  | More than 5 Years |  
|---------------------------------------------------------------- |  | ----- | ------- |  | ---------------- |  | ------- | ----------- |  |  | ----------- |  |  | ----------------- | -
|Operating Lease Obligations in $ (payments due by June 30, 2018) |  |       | 698,000 |  |                  |  | 465,000 |             |  |  | 233,000     |  |  |                   | —



Off-Balance Sheet Arrangements



We have no off-balance
sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
are material to investors.



87







Trend Information



We are a development
stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development
efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands,
commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or
that would cause financial information to not necessarily be indicative of future operating results or financial condition. However,
to the extent possible, certain trends, uncertainties, demands, commitments and events are in this “Item 5. Operating and
Financial Review and Prospects.”



Critical Accounting Policies



This discussion and
analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in
accordance with IFRS as issued by the IASB. The preparation of these financial statements requires management to make estimates
that affect the reported amounts of our assets, liabilities and expenses. Significant accounting policies employed by us, including
the use of estimates, are presented in the notes to the financial statements included elsewhere in this annual report. We periodically
evaluate our estimates, which are based on historical experience and on various other assumptions that management believes to be
reasonable under the circumstances. Critical accounting policies are those that are most important to the portrayal of our financial
condition and results of operations and require management’s subjective or complex judgments, resulting in the need for management
to make estimates about the effect of matters that are inherently uncertain. If actual performance should differ from historical
experience or if the underlying assumptions were to change, our financial condition and results of operations may be materially
impacted.



Share-based payments



For the purpose of
the evaluation of the fair value and the manner of the recognition of share-based compensation, our management is required to estimate,
among others, various parameters that are included in the calculation of the fair value of the option as well as our results and
the number of options that will vest. Prior to our initial public offering in the United States, the fair value of our ordinary
shares used in the calculation of the fair value of the option was the market price of our ordinary shares on the TASE. Since the
completion of our initial public offering in the United States, the fair value of our ordinary shares used in the calculation of
the fair value of the option is the market price of our ordinary shares on the NASDAQ Capital Market. The actual results and the
estimates that are made in the future may be significantly different from the current estimates.



Jumpstart Our Business Startups Act of 2012



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



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



88







Government Policies and Factors



We believe certain
governmental policies and factors could materially affect, directly or indirectly, our operations or your investment. Please see
“Risk Factors — Risks Related to Our Company and Its Business” and “Risk Factors — Risks Related
to the Regulation of Our Company and Its Business.”



ITEM 6. Directors, Senior Management and Employees.



A. Directors and Senior Management.



We are managed by
a board of directors, which is currently comprised of seven members, and our executive officers. Each of our executive officers
is appointed by our board of directors. The table below sets forth our directors and executive officers as of December 31, 2016.
The business address for each of our executive officers and directors is c/o Intec Pharma Ltd., 12 Hartom Street, Har Hotzvim,
Jerusalem 9777512, Israel.



|Name                 |  | Age |  | Position                                                         
|-------------------- |  | --- |  | -----------------------------------------------------------------
|Dr. John W. Kozarich |  | 66  |  | Chairman of the Board of Directors                               
|Zeev Weiss           |  | 55  |  | Chief Executive Officer and Director                             
|Nadav Navon          |  | 48  |  | Executive Vice President of Research & Development and Operations
|Nir Sassi            |  | 41  |  | Chief Financial Officer                                          
|Zvi Joseph           |  | 51  |  | Director and Manager of Investors Relations in Israel            
|Gil Bianco           |  | 65  |  | External Director and Chairperson of the Audit Committee         
|Giora Carni          |  | 70  |  | Director and Director of Technology                              
|Hila Karah           |  | 48  |  | Director                                                         
|Issac Silberman      |  | 65  |  | External Director and Chairperson of the Compensation Committee  



Our Executive Officers and Directors



Dr. John W. Kozarichhas been our Chairman of the board of directors since July 2016. Dr. Kozarich has nearly 40 years of experience in the biopharmaceutical
industry and academia. Dr. Kozarich currently serves as Chairman of Ligand Pharmaceuticals. From 2004 until April 2017, Dr. Kozarich
served as Chairman and President of ActivX Biosciences. Prior to his role at ActivX, Dr. Kozarich was Vice President
at Merck Research Laboratories where he was responsible for a variety of drug discovery and development programs and
external biotech collaborations. Dr. Kozarich previously held full professorships at the University of Maryland and Yale
School of Medicine. He was named Director of the Year for 2014 by the Corporate Directors Forum, has been an American
Cancer Society Faculty Research Awardee, and received the Distinguished Scientist Award of the San Diego Section of the American
Chemical Society. Dr. Kozarich currently serves as a director at Retrophin, Inc., a publicly-traded biopharmaceutical company
(NASDAQ: RTRX). From 2007 until April 2015, Dr. Kozarich served as a director of Corium International, Inc., a publicly-traded
commercial stage biopharmaceutical company (NASDAQ: CORI) and, from June 2012 until the company’s merger with Aegerion Pharmaceuticals,
Inc. and Istope Acquisition Corp. in November 2016, Dr. Kozarich served as a director of QLT, Inc., a biotechnology company (NASDAQ:
QLTI). Dr. Kozarich holds a B.S. in chemistry from Boston College and a Ph.D. in biological chemistry from the Massachusetts
Institute of Technology and was an NIH Postdoctoral Fellow at Harvard University.



Mr. Zeev Weisshas been our Chief Executive Officer since October 2014 and has served on our board of directors since October 2014. Prior
to that, he served as our Co-Chief Executive Officer from November 2013 until October 2014. Prior to serving as our Co-Chief Executive
Officer, he served as our Executive Vice President of Commercial Operations commencing in September 2006. Mr. Weiss has approximately
15 years of experience in healthcare corporate development, strategic planning and corporate finance. Prior to his service with
us, Mr. Weiss served as the Head of Life Sciences Strategic consulting with PricewaterhouseCoopers Israel, an accounting firm,
from 2002 until 2006. He is a certified public accountant in Israel, and has a BSc in Biology, a B.A. in accounting and has completed
MSc studies in neuro-biochemistry, each from Tel Aviv University in Tel Aviv, Israel.



89







Dr. Nadav Navonhas been with us since March 2006 and has served as our Executive Vice President of Research & Development and Operations
since March 2015. Before that he served as our Vice President of Research & Development and Operations since May 2013. Prior
to his service with us, Dr. Navon headed the analytical and quality assurance operations at Sharon Laboratories Ltd., a chemical
company that develops and manufactures raw materials for the pharmaceutical, cosmetic and food industries, from 2001 to 2006. Prior
to that, Dr. Navon led a number of research and development projects in the Negev’s Nuclear Research Center. Dr. Navon has
a Ph.D. in inorganic and analytical chemistry, and an MBA and a BSc in chemistry, each from Ben-Gurion University in Beer-Sheva,
Israel.



Mr. Nir Sassi
has been our Chief Financial Officer since August 2016. Prior to serving as our Chief Financial Officer, Mr. Sassi served as our
VP Finance commencing in January 2015 and as our Chief Financial Officer between March 2010 and January 2015. Prior to his service
with us, Mr. Sassi served as a Senior Manager at PricewaterhouseCoopers Israel, an accounting firm, from 2002 until 2010, including
two years relocation to the PricewaterhouseCoopers New York office. Mr. Sassi is a certified public accountant in Israel and
has a bachelor’s degree in economics and accounting from Ben Gurion University in Beer Sheva, Israel.



Mr. Zvi Josephserved as our chairman of the board of directors from March 2002 and until March 2016, and as of June 2016 serves as Company’s
Investor Relations Manager in Israel as well as a member of our board of directors. Mr. Joseph is the co-founder of Intec. Prior
to co-founding Intec, Mr. Joseph served as head of marketing of Adgar Ltd., a public real estate investment and development company
whose shares are traded on the TASE. Mr. Joseph is an experienced investment professional with diverse contacts within Israeli
and European financial circles. He studied at Regent’s College at the European Business School in London and holds a BSc
in business administration from Mercy College in New York.



Mr. Gil Biancohas served as one of our external directors since April 2010. From November 2009 to November 2012, Mr. Bianco served as a director
of D-Pharm Ltd., an Israeli public biopharmaceutical company, and from May 2007 to May 2010, Mr. Bianco served as a director of
BioLineRx Ltd. (NASDAQ: BLRX), a clinical-stage biopharmaceutical development company. From December 2003 to December 2009, Mr.
Bianco served as an external director of the Tel Aviv Stock Exchange Ltd. Prior to that, from 2001 to 2003, Mr. Bianco served as
chief executive officer of Agis Industries Ltd., a pharmaceutical manufacturer. Mr. Bianco currently serves as an external director
at Mazor Robotics Ltd. (NASDAQ: MZOR and TASE: MZOR.TA), a medical device company. Mr. Bianco is also a director of several private
companies in the fields of biotech and medical devices. Mr. Bianco holds a B.A. in economics and accounting from Tel-Aviv University
in Tel-Aviv, Israel and is a certified public accountant in Israel.



Mr. Giora Carnihas been our Director of Technology since October 2014 and has served on our board of directors since March 2016. Mr. Carni
previously served as our Chief Executive Officer from July 2006 and a member of our board of directors from June 2007 until he
stepped down from both of his roles and became our Director of Technology. Prior to joining Intec, Mr. Carni held various executive
positions in the Agis Group, a leading Israeli pharmaceutical group and before that he served as President and Chief Executive
Officer of Clay Park Labs in New York for more than 10 years. Mr. Carni has over 35 years of experience in the global pharmaceutical
industry throughout Israel and North America. Mr. Carni has a degree in industrial engineering from the Technion in Haifa, Israel.



Ms. Hila Karahhas served as one of Intec Pharma’s directors since December 2009. Ms. Karah was the chief investment officer of Eurotrust
Ltd., an investment company, from 2006 until 2013, where she focused primarily on making early-stage investments in life science
companies. Ms. Karah has been a private and public equity investor in several high-tech, bio-tech and internet companies since
1999. Prior to joining Eurotrust, she served as a partner and financial analyst at Perceptive Life Sciences Ltd., a New York-based
hedge fund. Prior to her position at Perceptive Life Sciences, Ms. Karah was a research analyst at Oracle Partners Ltd., a healthcare-focused
hedge fund based in Connecticut. Ms. Karah currently serves as a director at Cyren Ltd., a publicly-traded technology and security
company (NASDAQ CYRN), a director of Labstyle Innovations Ltd., a publicly-traded biodiagnostics company headquartered in Israel
(OTCMKTS: DRIO) and from May 2011 until May 2013, Mrs. Karah served as a director of Glycominds Ltd., a publicly-traded Israeli
biodiagnostics company (TASE: GLCM). She has a B.A. in molecular and cell biology from the University of California, Berkeley,
in Berkeley, California and has studied at the University of California, Berkeley – University of California, San Francisco
School of Medicine Joint Medical Program.



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Mr. Issac Silbermanhas served as one of our external directors since April 2010. Since 2007, Mr. Silberman has also served as a special investment
advisor at Sullam Holdings L.R. Ltd., a financial services corporation in the Lenny Recanati Group, focusing primarily on investments
in high-tech, biotechnology and real estate companies. Mr. Silberman also serves as a director in other private Israeli companies,
and has over 20 years of prior experience as an executive officer of various public and private companies. Mr. Silberman holds
a B.A. in economics and accounting from Tel Aviv University in Tel Aviv, Israel, and he is a certified public accountant in Israel.



Our Scientific Advisory Team



Our Scientific Advisory
Team including specialists and experts from the United States, Europe and Israel, with experience in the fields of gastroenterology,
the central nervous system, neurological diseases, and safety and regulation. Our Scientific Advisory Team plays an active role
in advising us with respect to our products, technology development, clinical trials and safety. The following sets forth certain
information with respect to our Scientific Advisory Team members.



Prof. Nir Giladi,
a leader in the field of movement disorders, is an associate professor at the Sackler Faculty of Medicine at Tel Aviv University
and chairman of the Department of Neurology at the Tel Aviv Sourasky Medical Center. Prof. Giladi has been a member of the International
Movement Disorders Society (MDS) since 2010. Prof. Giladi is also a member of the International Board of the Research Group of
the World Health Organization on Parkinson’s Disease and other MovementDisorders. Prof. Giladi has published extensively
in peer-reviewed journals and has served on the editorial boards of the Movement Disorders Journal, Parkinsonism & Related
Disorders and the Journal of Neural Transmission (associate editor).



Dr. Peter LeWitt,
a neurologist, is a professor of neurology at Wayne State University School of Medicine in Detroit and directs the Parkinson’s
Disease and Movement Disorders Program at Henry Ford Hospital in Detroit, Michigan, where he also maintains a movement disorders
subspecialty practice. His clinical and basic neuroscience research has targeted neurodegenerative and symptomatic therapies for
Parkinson’s disease and other neurological disorders, and his range of research interests has included animal models of neurological
disease, biomarkers, gene therapy and pharmacokinetic analysis. Dr. LeWitt is affiliated with the Parkinson Study Group and other
clinical research consortia, and has extensive experience in clinical trials and regulatory aspects of drug development.



Dr. Werner Poewe,
a neurologist, is a professor of neurology and director of the Department of Neurology at Innsbruck Medical University in Innsbruck,
Austria. Dr. Poewe’s main research interests are in the field of movement disorders with particular emphasis on the clinical
pharmacology of Parkinson’s disease and dystonia. He has authored and co-authored more than 550 original articles and reviews
in the field of movement disorders. He served as President of the International Movement Disorder Society from 2000 through 2002,
as President of the Austrian Society of Neurology from 2002 to 2004 and is the past President of the Austrian Parkinson’s
Disease Society.



Prof. Thomas Rothis the director of the Sleep Disorders and Research Center at Henry Ford Health System in Detroit, Michigan. Dr. Roth’s
research primarily focuses on sleep processes. His work includes research on sleep loss, sleep fragmentation and deviation from
sleep processes, including pharmacological effects and sleep pathologies. Dr. Roth has held numerous leadership positions within
his field. He is a former chairman of the National Center on Sleep Disorders Research Advisory Board at the National Institutes
of Health and a former president of the United States Sleep Research Society, the American Sleep Disorders Association and the
National Sleep Foundation. He also served as past editor-in-chief of the journal Sleep. In addition to his position at Henry
Ford, he is a clinical professor of psychiatry at the University of Michigan School of Medicine in Ann Arbor, Michigan. He has
published extensively in these areas.



Dr. James Walshis the executive director and senior scientist of the Sleep Medicine and Research Center at St. Luke’s Hospital in St.
Louis, a visiting professor in the Department of Psychiatry at Stanford University and an adjunct professor of psychology at Saint
Louis University. He also serves as executive director of the Academic Alliance for Sleep Research. His primary research interests
include insomnia, clinical pharmacology, shiftwork and the relationship of sleep and behavior. Dr. Walsh has published extensively
in these areas.



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Most of the members
of our Scientific Advisory team are paid for their services to us at their hourly consulting fees. We paid members of our Scientific
Advisory Team an aggregate of approximately $ 13,000 for services rendered during 2016.



B. Compensation.



The table below reflects
the compensation granted to our five most highly compensated office holders (as defined in the Companies Law) during or with respect
to the year ended December 31, 2016. We refer to the five individuals for whom disclosure is provided herein as our “Covered
Executives.” For purposes of the table below, “compensation” includes amounts accrued or paid in connection with
salary cost, consultancy fees, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites
such as car, phone and social benefits and any undertaking to provide such compensation. All amounts reported in the table are
in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2016, plus compensation
paid to such Covered Executives following the end of the year in respect of services provided during the year. Each of the Covered
Executives was covered by our D&O liability insurance policy and was entitled to indemnification and exculpation in accordance
with applicable law and our articles of association.



Annual Compensation of our Senior Management



|Name and Principal Position (1)                                                     |  | Salary (2) |         |  | Equity-Based Compensation (3) |  |        | Allothercompensation(4) |  |  | Total  | 
|----------------------------------------------------------------------------------- |  | ---------- | ------- |  | ----------------------------- |  | ------ | ----------------------- |  |  | ------ | 
|                                                                                    |  | USD $      |        
|Zeev Weiss – Chief Executive Officer                                                |  |            | 185,756 |  |                               |  | 1,044  |                         |  |  | 18,308 | 
|Zvi Joseph – Board Member (5)                                                       |  |            | 141,953 |  |                               |  | 61,728 |                         |  |  | 18,163 | 
|Giora Carni – Board Member (6)                                                      |  |            | 152,799 |  |                               |  | 50,871 |                         |  |  | 15,356 | 
|Dr. Nadav Navon – Executive Vice President of Research & Development and Operations |  |            | 187,826 |  |                               |  | 94,884 |                         |  |  | 15,301 | 
|Nir Sassi – Chief Financial Officer (7)                                             |  |            | 177,936 |  |                               |  | 43,033 |                         |  |  | 13,487 | 








(1) All Covered Executives, except
for Mr. Zvi Joseph and Mr. Giora Carni (serves on a 70% basis), are employed on a full time (100%) basis. Mr. Zvi Joseph was employed
on a 75% basis until July 1, 2016 and currently he serves on a 50% basis.



(2) Salary includes the Covered Executive’s
gross salary plus payment of social benefits made by us on behalf of such Covered Executive. Such benefits may include, to the
extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., managers’
life insurance policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances
(e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, medical insurance
and benefits, convalescence or recreation pay and other benefits and perquisites consistent with our policies.



(3) Represents the equity-based and phantom
share based compensation expenses recorded in the Company's financial statements for the year ended December 31, 2016, based on
the option's fair value, calculated in accordance with accounting guidance for equity-based compensation. For a discussion of the
assumptions used in reaching this valuation, see Note 13 to our financial statements.



(4) Includes mainly leased car and mobile
phone expenses.



(5) Mr. Joseph previously served as chairman
of our board of directors from March 2002 until March 2016, and beginning in June 2016 serves as our Investor Relations Manager
in Israel.



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(6) Mr. Carni previously served as member
of our board of directors and Chief Executive Officer of the Company from 2006 until 2014. In 2014 he was appointed as Director
of Technologies and beginning in March 2016 serves as member of our board of directors.



(7) Mr. Sassi has been our Chief Financial
Officer since August 2016 following the resignation of our former Chief Financial Officer, Mr. Oren Mohar. Prior to serving as
our Chief Financial Officer, Mr. Sassi served as our VP Finance.



Employment and Service Agreements



Our employees are
employed under the terms prescribed in their respective personal contracts, in accordance with the decisions of our management.
Under these employment contracts, the employees are entitled to the social benefits prescribed by law and as otherwise provided
in their personal contracts. These employment contracts each contain provisions standard for a company in our industry regarding
non-competition, confidentiality of information and assignment of inventions. Under current applicable employment laws, we may
not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the
expertise of some of our former employees. See “Risk Factors — Risks Related to Our Company and Its Business”
for a further description of the enforceability of non-competition clauses. We also provide certain of our employees with a company
car, which is leased from a leasing company.



Our office holders
are also employed under the terms and conditions prescribed in personal contracts, with Zeev Weiss, our Chief Executive Officer,
and Zvi Joseph, Investors Relations Manager in Israel, being employed by us on an hourly basis and part-time, respectively. These
personal contracts provide for notice periods of varying duration for termination of the agreement by us or by the relevant executive
officer, during which time the executive officer will continue to receive base salary and benefits. These agreements also contain
customary provisions regarding non-competition, confidentiality of information and assignment of inventions. However, the enforceability
of the non-competition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors —
Risks Related to Our Company and Its Business.”



Services Agreement with Our Chairman of the Board of Directors



Dr. John W. Kozarich



Dr. Kozarich was elected
to serve as our chairman of the board of directors in June 2016, and started his tenure on July 1, 2016. Under Dr. Kozarich’s
service agreement, he is entitled to an annual fee of $80,000, paid in four quarterly payments, as well as to reimbursement for
out-of-pocket expenses incurred in connection with his services as chairman of the board of directors. Dr. Kozarich’s service
agreement is for a term of three (3) years and can be terminated by either us or Dr. Kozarich upon 90 days’ prior written
notice, or immediately if Dr. Kozarich no longer acts as our chairman of the board of directors. Dr. Kozarich's agreement also
includes customary non-disclosure, non-compete and ownership assignment of intellectual property undertakings.



As of December 31,
2016, Dr. Kozarich held options to purchase 224,478 ordinary shares with an exercise price of $3.526, none of which were vested.
Dr. Kozarich’s unvested options will vest in the event of a change of control (as such term is defined in the service agreement).



Services and Employment Agreements with Our Chief Executive
Officer



Zeev Weiss



Mr. Weiss has served
as our Chief Executive Officer since October 2014. Prior to that, he served as our Co-Chief Executive Officer alongside Mr. Giora
Carni, from November 2013 until October 2014. Prior to serving as our Co-Chief Executive Officer, he served as our Executive Vice
President of Commercial Operations commencing in September 2006. Mr. Weiss is an independent contractor, and pursuant to his consulting
agreement with us, he is entitled to payment on an hourly basis, at the rate of NIS 315 per working hour, subject to a monthly
aggregate cap of no more than 200 monthly billable working hours. The monthly consideration is linked to the Israeli consumer price
index for April 2012 and is updated on a quarterly basis. In addition, we provide Mr. Weiss with a leased company car, for which
we bear any expenses related thereto, and with a mobile phone. Furthermore, we will bear any travel expenses in connection with
any of Mr. Weiss’ travels on our behalf. Mr. Weiss’s consulting agreement is terminable by either us or Mr. Weiss upon
180 days’ prior written notice, or immediately by us upon certain “for cause” events. Mr. Weiss’ employment
agreement contains customary provisions regarding noncompetition, confidentiality of information and assignment of inventions.



93







As of December 31,
2016, Mr. Weiss held options to purchase 97,023 ordinary shares with a weighted exercise price of NIS 28.55, of which 40,000 were
vested and 57,023 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us
and a third party.



Services and Employment Agreement with Our Investor Relations
Manager in Israel



Zvi Joseph



Mr. Joseph has served
as our Investor Relations Manager in Israel since June 2016 and previously as chairman of our board of directors from March 2002
until March 2016. Mr. Joseph currently serves as a director of our company. Under Mr. Joseph’s employment agreement he is
entitled to a gross monthly salary of NIS 25,000 linked to the Israeli consumer price index (50% scope of employment), and to social
benefits, such as annual paid vacation days, convalescent payment, manager’s insurance, sick leave vocational studies fund
and disability insurance. In addition, we provide Mr. Joseph with a leased company car and a mobile phone. Mr. Joseph’s employment
agreement is terminable by either us or Mr. Joseph upon six months’ prior written notice, or immediately in the event Mr.
Joseph no longer serves as a member of our board of directors.



As of December 31,
2016, Mr. Joseph held options to purchase 137,944 ordinary shares with a weighted exercise price of NIS 53.2, of which 46,827 were
vested and 91,117 will vest in the event that a material agreement, as defined in our compensation policy, is signed between us
and a third party. In addition, as of December 31, 2016, Mr. Joseph also held options to purchase 45,250 ordinary shares that will
vest over time with a weighted exercise price of $4.72. None of these options were vested.



Services and Employment Agreement with Our Director of
Technology



Giora Carni



Mr. Carni has been
our Director of Technology since October 2014 and has served on our board of directors since March 2016. Mr. Carni previously served
as our Chief Executive Officer from July 2006 and a member of our board of directors from June 2007 until he stepped down from
both of his roles and became our Director of Technology. Under Mr. Carni's employment agreement, he is entitled to a monthly gross
salary of NIS 35,000 (70% scope of employment), and to social benefits, such as annual paid vacation days, severance pay, recuperation
pay, manager’s insurance, sick leave and studies fund. In addition, we provide Mr. Carni with a leased company car and a
mobile phone. Mr. Carni’s employment agreement is terminable by either us or Mr. Carni upon 90 days’ prior written
notice. Mr. Carni's employment agreement contains customary provisions regarding noncompetition, confidentiality of information
and assignment of inventions.



As of December 31,
2016, Mr. Carni held options to purchase 70,909 ordinary shares with a weighted exercise price of NIS 16.25, of which all will
vest in the event that a material agreement, as defined in our compensation policy, is signed between us and a third party. In
addition, as of December 31, 2016, Mr. Carni also held options to purchase 68,000 ordinary shares that will vest over time with
a weighted exercise price of $4.30. None of these options were vested.



Services and Employment Agreement with Our Chief Financial
Officer



Nir Sassi



Mr. Sassi has served
as our Chief Financial Officer since August 2016. Prior to serving as our Chief Financial Officer, he served as our VP Finance
commencing in January 2015 and as our Chief Financial Officer between March 2010 and January 2015. Under Mr. Sassi’s employment
agreement, he is entitled to a monthly gross salary of NIS 43,000, and to social benefits, such as annual paid vacation days, severance
pay, recuperation pay, manager’s insurance, sick leave and studies fund. In addition, we provide Mr. Sassi with a leased
company car and a mobile phone. Mr. Sassi’s employment agreement is terminable by either us or Mr. Sassi upon 90 days’
prior written notice. Mr. Sassi’s employment agreement contains customary provisions regarding noncompetition, confidentiality
of information and assignment of inventions.



94







As of December 31,
2016, Mr. Sassi held options to purchase 5,422 ordinary shares with an exercise price of NIS 52.35, of which all were vested. In
addition, as of December 31, 2016, Mr. Sassi also held options to purchase 83,300 ordinary shares with a weighted exercise price
of $4.45, of which none were vested, 43,300 will vest over time and 40,000 will vest in the event that a material agreement, as
defined in our compensation policy, is signed between us and a third party.



Services and
Employment Agreement with Our Vice President of Research & Development and Operations



Dr. Nadav Navon



Dr. Navon has served
as our Executive Vice President of Research & Development and Operations since March 2015. Under Dr. Navon’s employment
agreement, he is entitled to a monthly gross salary of NIS 50,000, and to social benefits, such as annual paid vacation days, convalescent
payment, manager’s insurance, sick leave vocational studies fund and disability insurance. In addition, we provide Dr. Navon
with a leased company car and a mobile phone. Dr. Navon’s employment agreement is terminable by either us or Dr. Navon upon
3 months’ prior written notice. Dr. Navon’s employment agreement contains customary provisions regarding noncompetition,
confidentiality of information and assignment of inventions.



As of December 31,
2016, Dr. Navon held options to purchase 145,500 ordinary shares with a weighted exercise price of $4.36, of which none were vested,
95,500 will vest over time and 50,000 will vest in the event that a material agreement, as defined in our compensation policy,
is signed between us and a third party.



Equity Compensation Plan



We maintain the 2005
Plan, which was adopted by our board of directors on September 19, 2005, that provides for granting options to our directors, officers,
employees, consultants, advisers and service providers. As of December 31, 2016, the 2005 Plan has expired, however 418,484 options
that were previously granted under the 2005 Plan are still outstanding and remain subject to its terms and conditions. Such options
will remain outstanding until the earlier of their exercise or expiration in accordance with the terms of the 2005 Plan and the
applicable grant agreement. In addition, as of December 31, 2016, we had outstanding options to purchase 8,035 ordinary shares
that were issued to consultants outside of the 2005 Plan; all of these options are vested and outstanding. Of such outstanding
options, options to purchase 178,658 ordinary shares were vested as of December 31, 2016, with a weighted average exercise price
of NIS 49.20 per share, and will expire between 2017 and 2020.



The 2005 Plan permitted
options to be awarded to Participants (as such term is defined in the 2005 Plan) pursuant to Section 102 of the Ordinance and Section
3(i) of the Ordinance, based on entitlement and compliance with the terms for receiving options under these sections of the Ordinance.
Section 102 of the Ordinance provides to employees, directors and officers who are not controlling shareholders (i.e., such persons
are not deemed to hold 10% of the company’s share capital, or to be entitled to 10% of the company’s profits or to
appoint a director to the company’s board of directors) and are Israeli residents, favorable tax treatment for compensation
in the form of shares or options issued or granted, as applicable, to a trustee under the “capital gains track” for
the benefit of the applicable employee, director or officer and are (or were) to be held by the trustee for at least two years
after the date of grant or issuance. Options granted under Section 102 of the Ordinance will be deposited with a trustee appointed
by the company in accordance with Section 102 of the Ordinance and the relevant income tax regulations and guidelines, and will
be granted in the employee income track or the capital gains track. The 2005 Plan is being managed by the board of directors of
the company or any other committee or person that our board of directors of authorizes for this purpose. According to our board
of directors’ resolution of September 19, 2005, the options granted under Section 102 of the Ordinance were granted under
the capital gains track. The 2005 Plan also permitted us to grant options to U.S. residents, which may qualify as “incentive
stock options” within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, and
to residents of other jurisdictions.



95







Options granted under
the 2005 Plan are subject to applicable vesting schedules and generally for all awards granted after May 27, 2010, expire six (6)
years from the grant date (however, generally, awards granted prior to such date, expire ten (10) years from the grant date).



Upon the termination
of a Participant’s engagement with us for any reason other than death, retirement, disability or due cause, all unvested
options allocated shall automatically expire 90 days after the termination, unless expired earlier due to their term. If the Participant’s
engagement was terminated for cause (as defined in the 2005 Plan), the Participant’s right to exercise any unexercised options,
awarded and allocated in favor of such Participant, whether vested or not, shall immediately cease and expire as of the date of
such termination. If the Participant dies, retires or is disabled, any vested but unexercised options shall automatically expire
12 months from the termination of the engagement, unless expired earlier due to their term.



In the event of (i)
the sale of all or substantially all of our assets; (ii) a sale (including an exchange) of all or substantially all of our share
capital; or (iii) a merger, consolidation or like transaction of ours with or into another corporation, then, subject to obtaining
the applicable approvals of the Israeli tax authorities, the board of directors in its sole discretion shall resolve: (a) if and
how any unvested options shall be canceled, replaced or accelerated; (b) if and how any vested options (including options with
respect to which the vesting period has been accelerated according to the foregoing) shall be exercised, replaced and/or sold by
a trustee or us (as the case may be) on the behalf of the respective Israeli Participants; and (c) how any underlying shares issued
upon exercise of the options and held by a trustee on behalf any Israeli Participants shall be replaced and/or sold by such trustee
on behalf of the Israeli Participants.



On January 6, 2016,
our board of directors adopted the 2015 Equity Incentive Plan, or the 2015 Plan. Originally, the maximum number of ordinary shares
reserved for issuance under the 2015 Plan was 700,000, subject to future adjustments. On July 25, 2016, the board of directors
increased the aggregate number of shares issuable under the 2015 Plan by 700,000 shares. In connection with the aforementioned
increase, we did not obtain shareholder approval as required under NASDAQ Listing Rules and instead followed home practice rules
that do not require such approval. Similar to the 2005 Plan, the 2015 Plan permits options to be awarded to Participants (as such
term is defined in the 2015 Plan) pursuant to Section 102 of the Ordinance and Section 3(i) of the Ordinance, based on entitlement
and compliance with the terms for receiving options under these sections of the Ordinance. The 2015 Plan also permits us to grant
options to U.S. residents, which may qualify as “incentive stock options” within the meaning of Section 422 of the
Code, and to residents of other jurisdictions.



Options under the
2015 Plan are subject to applicable vesting schedules and will generally expire up to ten years from the grant date.



Upon the termination
of a Participant’s engagement with us for any reason other than death, retirement, disability or due cause, any vested but
unexercised options will automatically expire 90 days after termination, unless earlier expired due to their term, and all unvested
options will expire upon the date of termination. If the Participant’s engagement was terminated for cause (as defined in
the 2015 Plan), the Participant’s right to exercise any unexercised options, awarded and allocated in favor of such Participant,
whether vested or not, will immediately cease and expire as of the date of such termination. If the Participant dies, retires or
is disabled, any vested but unexercised options shall automatically expire 12 months from the termination of the engagement, unless
expired earlier due to their term and all unvested options shall expire upon the date of termination.



As of the date of
this annual report on Form 20-F, the number of ordinary shares allocated under the 2015 Plan was 749,533 ordinary shares; we may
issue an additional 650,467 options under the 2015 Plan. None of the issued and outstanding options were vested as of December
31, 2016.



C. Board Practices.



Board of Directors



Under the Companies
Law and our articles of association, the management of our business is vested in our board of directors. Our board of directors
may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our executive
officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors.
Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to his personal contract
with the Company. All other executive officers are also appointed by our board of directors, and are subject to the terms of their
personal employment agreements (as such may be updated from time to time).



96







Our board of directors
affirmatively determined that a majority of our directors are independent in accordance with the NASDAQ Capital Market rules. Our
board of directors determined that all of our directors other than Zeev Weiss, Zvi Joseph and Giora Carni are independent under
such rules. The definition of independent director under the NASDAQ Capital Market rules and external director under the Companies
Law overlap to a significant degree such that we would generally expect the two directors serving as external directors to satisfy
the requirements to be independent under the NASDAQ Capital Market rules. The definition of external director includes a set of
statutory criteria that must be satisfied, including criteria whose aim is to ensure that there is no factor which would impair
the ability of the external director to exercise independent judgment. The definition of independent director specifies similar,
if slightly less stringent, requirements in addition to the requirement that the board consider any factor which would impair the
ability of the independent director to exercise independent judgment. In addition, our external directors each serve for a period
of three years. However, external directors must be elected by a special majority of shareholders while independent directors may
be elected by a simple majority. See “— External Directors” below for a description of the requirements under
the Companies Law for a director to serve as an external director.



Under our articles
of association, our board of directors must consist of at least four and not more than nine directors, including at least two external
directors, which are required to be appointed under the Companies Law. Our board of directors currently consists of seven members,
including our non-executive Chairman of the board of directors. Other than our two external directors, our directors are elected
at the annual and/or special general meeting of our shareholders by a simple majority. Because our ordinary shares do not have
cumulative voting rights in the election of directors, the holders of a majority of the voting power represented at a shareholders
meeting have the power to elect all of our directors, subject to the special approval requirements for external directors (See
“— External Directors”). We have held elections for each of our non-external directors at each annual meeting
of our shareholders since our initial public offering in Israel.



In addition, our articles
of association allow our board of directors to appoint directors to fill vacancies on our board of directors, for a term of office
ending on the earlier of the next annual general meeting of our shareholders, or the conclusion of the term of office in accordance
with our articles or any applicable law, subject to the maximum number of directors allowed under our articles of association.
External directors are elected for an initial term of three years and may be elected for up to two additional three-year terms,
provided that, for Israeli companies traded on NASDAQ Capital Market and certain other international exchanges, such term may be
extended indefinitely in increments of additional three-year terms. External directors may be removed from office only under the
limited circumstances set forth in the Companies Law. See “— External Directors.”



Under the Companies
Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise.
In determining the number of directors required to have such expertise, our board of directors must consider, among other things,
the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that the
minimum number of directors of our Company who are required to have accounting and financial expertise is one. Our board of directors
has determined that Mr. Bianco and Mr. Silberman have accounting and financial expertise and possess professional qualifications
as required under the Companies Law.



External Directors



Under the Companies
Law, we are required to appoint at least two external directors to our board of directors. According to regulations promulgated
under the Companies Law, a person may be appointed as an external director if such person has either professional qualifications
or accounting and financial expertise. In addition, at least one of the external directors must be determined by our board of
directors to have accounting and financial expertise. However, if at least one of our other directors (i) meets the independence
requirements under the Exchange Act, (ii) meets the standards of the NASDAQ Capital Market Listing Rules for membership on the
audit committee, and (iii) has accounting and financial expertise as defined under the Companies Law, then neither of our external
directors is required to possess accounting and financial expertise as long as each possesses the requisite professional qualifications.



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A director with accounting
and financial expertise is a director who, due to his or her education, experience and skills, possesses an expertise in, and an
understanding of, financial and accounting matters and financial statements, such that he or she is able to understand the financial
statements of the company and initiate a discussion about the presentation of financial data. In determining whether the director
has financial and accounting expertise the board of directors shall consider education, experience and the knowledge in the following
subjects: (i) accounting issues and internal auditing issues typical to the company’s industry and to companies of the same
size and complexity as the company; (ii) the nature of the Internal Auditor’s position in the company and his or her duties;
and (iii) the preparation of financial statements and their approval subject to the Companies Law and the Israeli Securities Law
5728-1968, or the Israeli Securities Law.



A director is deemed
to have professional qualifications if he or she has any of (i) an academic degree in economics, business management, accounting,
law or public administration, (ii) an academic degree or has completed another form of higher education in the primary field of
business of the company or in a field which is relevant to his/her position in the company, or (iii) at least five years of experience
serving in one of the following capacities, or at least five years of cumulative experience serving in two or more of the following
capacities: (a) a senior business management position in a company with a significant volume of business; (b) a senior position
in the company’s primary field of business; or (c) a senior position in public administration or service. The board of directors
is charged with determining whether a director possesses financial and accounting expertise or professional qualifications.



Gil Bianco and Issac
Silberman have served as our external directors since 2010. Mr. Bianco and Mr. Silberman were re-elected to serve as external directors
for a third term from April 2016 and until April 2019. Our board of directors has determined that both Mr. Bianco and Mr. Silberman
have accounting and financial expertise and that Gil Bianco is an audit committee financial expert as defined by the SEC rules
and has the requisite financial experience as defined by the rules of the NASDAQ Capital Market.



The provisions of
the Companies Law set forth special approval requirements for the election of external directors. External directors must be elected
by a majority vote of the shares present and voting at a shareholders meeting, provided that either:



| | • | such majority includes at least a majority of the shares held by all shareholders who are non-controlling shareholders and do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, to which we refer as a disinterested majority; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the total number of shares voted by non-controlling shareholders and by shareholders who do not have a personal interest in the election of the external director, against the election of the external director, does not exceed 2% of the aggregate voting rights in the company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The term “controlling
shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, excluding
such ability deriving solely from his or her position as a director of the company or from any other position with the company.
A shareholder is presumed to be a controlling shareholder if such shareholder holds 50% or more of the voting rights in a company
or has the right to appoint the majority of the directors of the company or its general manager. With respect to certain matters
, the term “controlling shareholder” is deemed to include, in addition to the foregoing, a shareholder that holds 25%
or more of the voting rights in a public company if no other shareholder holds more than 50% of the voting rights in the company.



The initial term of
an external director is three years. Thereafter, an external director may be reelected by shareholders to serve in that capacity
for up to two additional three-year terms, except as provided below, provided that either:



98







| | (i) | his or her service for each such additional term is recommended by one or more shareholders holding at least 1% of the company’s voting rights and is approved at a shareholders’ meeting by a disinterested majority (other than a personal interest not deriving from a relationship with a controlling shareholder), where the total number of shares held by non-controlling, disinterested shareholders voting for such reelection exceeds 2% of the aggregate voting rights in the company. In such event, the external director so reappointed may not be a Related or Competing Shareholder, or a relative of such shareholder, at the time of the appointment, and is not and has not had any affiliation with a Related or Competing Shareholder, at such time or during the two years preceding such person’s reappointment to serve an additional term as external director. The term “Related or Competing Shareholder” means a shareholder proposing the reappointment or a shareholder holding 5% or more of the outstanding shares or voting rights of the company, provided, that at the time of the reappointment, such shareholder, the controlling shareholder of such shareholder, or a company controlled by such shareholder, have a business relationship with the company or are competitors of the company. Additionally, the Israeli Minister of Justice, in consultation with the Israeli Securities Authority, or the ISA, may determine matters that under certain conditions will not constitute a business relationship or competition with the company;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | his or her service for each such additional term is recommended by the board of directors and is approved at a shareholders meeting by the same majority required for the initial election of an external director (as described above); or
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | the external director proposed his or her own nomination, and such nomination was approved in accordance to the requirements described in the paragraph (i) above.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



The term of office
for external directors for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Capital Market, may
be extended indefinitely in increments of additional three-year terms, in each case provided that the audit committee and the board
of directors of the company determined that in light of the external director’s expertise and special contribution to the
work of the board of directors and its committees, the reelection for such additional period(s) is in the best interest of the
company, and provided that the external director is reelected subject to the same shareholder vote requirements as if elected for
the first time (as described above). Prior to the approval of the reelection of the external director at a general shareholders
meeting, the company’s shareholders must be informed of the term previously served by him or her and of the reasons, which
led the board of directors and audit committee to recommend the extension of his or her tenure.



External directors
may be removed from office by a special general meeting of shareholders called by the board of directors, which approves such dismissal
by the same majority vote required for their election or by a court, in each case, only under limited circumstances, including
ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty towards the company. If an external
directorship becomes vacant and there are fewer than two external directors on the board of directors at the time, then the board
of directors is required under the Companies Law to call a special shareholders’ meeting as soon as practicable to appoint
a replacement external director.



Each committee of
the board of directors that is authorized to exercise the powers of the board of directors must include at least one external director,
except that the audit committee and the compensation committee must include all external directors then serving on the board of
directors. Under the Companies Law, external directors of a company are prohibited from receiving, directly or indirectly, any
compensation from the company other than compensation and reimbursement of expenses amounts for their services as external directors
prescribed under the Companies Law and the regulations promulgated thereunder. Compensation of an external director is determined
prior to his or her appointment and may not be changed during his or her term (subject to certain exceptions).



The Companies Law
provides that a person is not qualified to serve as an external director if (i) the person is a relative of a controlling shareholder
of the company, or (ii) if that person or his or her relative, partner, employer, another person to whom he or she was directly
or indirectly subordinate, or any entity under the person’s control, has or had, during the two years preceding the date
of appointment as an external director: (a) any affiliation with the company, with any person or entity controlling the company
or a relative of such person on the date of appointment, or with any entity controlled by or under common control with the company;
or (b) in the case of a company with no shareholder holding 25% or more of its voting rights, had at the date of appointment as
an external director, any affiliation with a person then serving as chairman of the board or chief executive officer, a holder
of 5% or more of the issued share capital or voting power in the company or the most senior financial officer.



99







The term “relative”
is defined as a spouse, sibling, parent, grandparent or descendant; spouse’s sibling, parent or descendant, and the spouse
of each of the foregoing persons.



The term “affiliation”
includes (subject to certain exceptions):



| | • | an employment relationship;
| | - | ---------------------------



| | • | a business or professional relationship even if not maintained on a regular basis (excluding insignificant relationships);
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | control; and
| | - | ------------



| | • | service as an office holder, excluding service as a director in a private company prior to the initial public offering of its shares if such director was appointed as a director of the private company in order to serve as an external director following the initial public offering.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additionally, the
Israeli Minister of Justice, in consultation with the ISA, is authorized to determine that certain matters will not constitute
an affiliation.



The term “office
holder” is defined under the Companies Law as a general manager, chief business manager, deputy general manager, vice general
manager, any other person assuming the responsibilities of any of these positions regardless of that person’s title, a director
and any other manager directly subordinate to the general manager.



In addition, a person
may not serve as an external director of a company if: (i) that person’s position or professional or other activities create,
or may create, a conflict of interest with that person’s responsibilities as a director or otherwise interfere with that
person’s ability to serve as an external director; (ii) at the time of appointment, such person serves as a director of another
company and an external director of the other company is also a director of the company; (iii) the person is an employee of the
ISA or of an Israeli stock exchange; or (iv) such person received direct or indirect compensation from the company in connection
with such person’s services as an external director, other than as permitted by the Companies Law and the regulations promulgated
thereunder.



Following the termination
of an external director’s service on a board of directors, such former external director and his or her spouse and children
may not receive a direct or indirect benefit by the company, its controlling shareholder or any entity under the control of its
controlling shareholder. The foregoing includes engagement as an office holder or director of the company or a company controlled
by its controlling shareholder or employment by, or provision of services to, any such company for consideration, either directly
or indirectly, including through a corporation controlled by such former external director. This restriction extends for a period
of two years with regard to the former external director and his or her spouse or child and for one year with respect to other
relatives of the former external director.



If at the time at
which an external director is appointed all members of the board of directors who are not controlling shareholders or relatives
of controlling shareholders of the company are of the same gender, the external director to be appointed must be of the other gender.



Audit Committee



Our audit committee
consists of Ms. Hila Karah, along with our two external directors, Gil Bianco and Issac Silberman. Mr. Bianco serves as the Chairman
of the audit committee.



100







Companies Law Requirements



Under the Companies
Law, we are required to appoint an audit committee. The audit committee must be comprised of at least three directors, including
all of the external directors, one of whom must serve as chairman of the committee. The audit committee may not include the chairman
of the board of directors, a controlling shareholder of the company or a relative of a controlling shareholder, a director employed
by or providing services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling
shareholder or a director most of whose livelihood depends on a controlling shareholder.



In addition, under
the Companies Law, the audit committee of a publicly traded company must consist of a majority of unaffiliated directors. An “unaffiliated
director” under the Companies Law is generally defined as either an external director or as a director who meets the following
criteria:



| | • | he or she meets the qualifications for being appointed as an external director, except for the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | he or she has not served as a director of the company for a period exceeding nine consecutive years, provided that, for this purpose, a break of less than two years in service shall not be deemed to interrupt the continuation of the service.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companies Law
further requires that generally, any person who does not qualify to be a member of the audit committee may not attend the audit
committee’s meetings and voting sessions, unless such person was invited by the chairperson of the committee for the purpose
of presenting on a specific subject, provided, however, that an employee of the company who is not the controlling shareholder
or a relative thereof, may attend the discussions of the committee provided that the resolutions are resolved without his or her
presence. A company’s legal advisor and company secretary whom are not the controlling shareholder or a relative thereof
may attend the meeting and voting sessions, if required by the committee.



The quorum required
for the convening of meetings of the audit committee and for adopting resolutions by the audit committee is a majority of the members
of the audit committee, provided such majority is comprised of a majority of independent directors, and at least one of those present
is an external director.



Listing Requirements



Under the NASDAQ Capital
Market corporate governance rules, we are required to maintain an audit committee consisting of at least three independent directors,
each of whom is financially literate and one of whom has accounting or related financial management expertise.



All members of our
audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ
Capital Market corporate governance rules. Prior to the consummation of our initial public offering in the United States, our board
of directors affirmatively determined that Gil Bianco is an audit committee financial expert as defined by the SEC rules and has
the requisite financial experience as defined by the NASDAQ Capital Market corporate governance rules.



Each of the members
of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act, which is
different from the general test for independence of board and committee members.



Audit Committee Role



Prior to the consummation
of our initial public offering in the United States, our board of directors adopted an audit committee charter to be effective
upon the listing of our shares on the NASDAQ Capital Market that sets forth the responsibilities of the audit committee consistent
with the rules of the SEC and the Listing Rules of the NASDAQ Capital Market, as well as the requirements for such committee under
the Companies Law, including the following:



| | • | oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



101







| | • | recommending the engagement or termination of the person filling the office of our internal auditor; and
| | - | --------------------------------------------------------------------------------------------------------



| | • | recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Our audit committee
provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting,
auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent
accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting.
Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary
to satisfy itself that the accountants are independent of management.



Under the Companies
Law, our audit committee is responsible for:



| | (i) | determining whether there are deficiencies in the business management practices of our Company, including in consultation with our internal auditor or the independent auditor, and making recommendations to our board of directors to improve such practices;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | determining the approval process for transactions that are ‘non-negligible’ (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under Companies Law) (see “— Approval of Related Party Transactions under Israeli Law”);
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to our board of directors and proposing amendments thereto;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Our audit committee
may not approve any actions requiring its approval (see “— Approval of Related Party Transactions under Israeli Law”),
unless at the time of the approval a majority of the committee’s members are present, which majority consists of unaffiliated
directors including at least one external director.



Pursuant to a recent
amendment to the Companies Law enacted on February 17, 2016, a company whose audit committee’s composition meets the requirements
set forth for the composition of a compensation committee (as further detailed below) is permitted to have one committee acting
as both an audit and compensation committee.



Compensation Committee and Compensation Policy



Our compensation committee
currently consists of Ms. Hila Karah, Mr. Issac Silberman and Mr. Gil Bianco. Mr. Silberman serves as the Chairman of the compensation
committee.



102







Role of the
Compensation Committee



Under the Companies
Law, the board of directors of a public company must appoint a compensation committee and adopt a compensation policy. The compensation
committee must be comprised of at least three directors, including all of the external directors, who must constitute a majority
of the members of the compensation committee, and one of the external directors must serve as chairman of the committee. However,
subject to certain exceptions, Israeli companies whose securities are traded on stock exchanges such as the NASDAQ Capital Market,
and who do not have a controlling shareholder, do not have to meet this majority requirement; provided, however, that the compensation
committee meets other Companies Law composition requirements, as well as the requirements of the jurisdiction where the company’s
securities are listed. Each compensation committee member that is not an external director must be a director whose compensation
does not exceed an amount that may be paid to an external director (under the Companies Law and applicable regulations). The compensation
committee is subject to the same Companies Law restrictions as the audit committee as to who may not serve as a member of the committee.



Under
the Companies Law the compensation committee is responsible, among other things, for (i) recommending to the board of directors
regarding its approval of a compensation policy in accordance with the requirements of the Companies Law; (ii) overseeing the development
and implementation of such compensation policy and recommending to the board of directors regarding any amendments or modifications
that the compensation committee deems appropriate; (iii) determining whether to approve transactions concerning the terms of engagement
and employment of our officers and directors that require compensation committee approval under the Companies Law; and (iv) resolving
whether or not to exempt a transaction with a candidate for chief executive officer from shareholder’s approval. In addition,
any amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders and
their relatives, who serve as office holders) requires the sole approval of the compensation committee, if the committee determines
that the amendment is not material in relation to its existing terms and if such amendment is in accordance with the approved compensation
policy of the company then in effect.



The Compensation
Policy



The compensation policy
must be based on certain considerations, must include certain provisions and needs to reference certain matters as set forth in
the Companies Law. The compensation policy must be approved by the company’s board of directors after considering the recommendations
of the compensation committee. In addition, the compensation policy needs to be approved by the company’s shareholders by
a simple majority, provided that (i) such majority includes a majority of the votes cast by the shareholders who are not controlling
shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded) or (ii) the
votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter who were
present and voted against the compensation policy, constitute two percent or less of the voting power of the company. Such majority
determined in accordance with clause (i) or (ii) is hereinafter referred to as the “Compensation Majority.”



To the extent a compensation
policy is not approved by shareholders at a duly convened shareholders meeting or by the Compensation Majority, the board of directors
of a company may override the resolution of the shareholders following a re-discussion of the matter by the board of directors
and the compensation committee and for specified reasons, and after determining that despite the rejection by the shareholders,
the adoption of the compensation policy is in the best interest of the company. A compensation policy that is for a period of more
than three years must be approved in accordance with the above procedure once in every three years.



Notwithstanding the
above, the amendment of existing terms of office and employment of office holders (other than directors or controlling shareholders
and their relatives, who serve as office holders) requires the sole approval of the compensation committee, if such committee determines
that the amendment is not material in relation to its existing terms.



The compensation policy
must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation,
insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation
policy must relate to certain factors, including advancement of the company’s objectives, the company’s business plan
and its long-term strategy, and creation of appropriate incentives for office holders. It must also consider, among other things,
the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the
following additional factors:



103







| | • | the knowledge, skills, expertise and accomplishments of the relevant office holder;
| | - | -----------------------------------------------------------------------------------



| | • | the office holder’s roles and responsibilities and prior compensation agreements with him or her;
| | - | -------------------------------------------------------------------------------------------------



| | • | the ratio between the cost of the terms of employment of an office holder and the cost of the compensation of the other employees of the company, including those employed through manpower companies, in particular the ratio between such cost and the average and median compensation of the other employees of the company, as well as the impact such disparities may have on the work relationships in the company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the possibility of reducing variable compensation, if any, at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | as to severance compensation, if any, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The compensation policy
must also include the following principles:



| | • | the link between variable compensation and long-term performance and measurable criteria;
| | - | -----------------------------------------------------------------------------------------



| | • | the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
| | - | -----------------------------------------------------------------------------------------------------------------



| | • | the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the minimum holding or vesting period for variable, equity-based compensation; and
| | - | ----------------------------------------------------------------------------------



| | • | maximum limits for severance compensation.
| | - | ------------------------------------------



In accordance with the Companies Law, and
following the recommendation of our compensation committee, our board of directors approved our compensation policy, and our shareholders,
in turn, approved the compensation policy at our annual general meeting of shareholders that was held in January 2014, and therefore
as of January 2017 our compensation policy has expired. Until we re-approve our compensation policy, any engagement with an office
holder will have to be approved by vote of our shareholders (subject to the exception detailed above) in addition to the approval
of our compensation committee and board of directors.



Internal Auditor



Under the Companies
Law, the board of directors of an Israeli public company must appoint an internal auditor in accordance with the recommendation
of the audit committee. Each of the following may not be appointed as internal auditor:



| | • | a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
| | - | -----------------------------------------------------------------------------------------------------------------



| | • | a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | an office holder (including a director) of the company (or a relative thereof); or
| | - | ----------------------------------------------------------------------------------



104







| | • | a member of the company’s independent accounting firm, or anyone on his or her behalf.
| | - | --------------------------------------------------------------------------------------



The role of the internal
auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee
is required to oversee the activities and to assess the performance of the internal auditor as well as to review the internal auditor’s
work plan. Mr. Haim Halfon has been appointed as our internal auditor. Mr. Haim Halfon is a certified internal auditor and a partner
of Amit, Halfon CPA.



The board of directors
shall determine the direct supervisor of the internal auditor. The internal auditor is required to submit his findings to the audit
committee, unless specified otherwise by the board of directors.



Approval of Related Party Transactions under Israeli Law



Fiduciary Duties of Directors and Executive
Officers



The Companies Law
codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under “Management —
Executive Officers and Directors” is an office holder under the Companies Law.



An office holder’s
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level
of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty
requires that an office holder act in good faith and in the best interests of the company.



The duty of care includes
a duty to use reasonable means to obtain:



| | • | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | all other important information pertaining to any such action.
| | - | --------------------------------------------------------------



The duty of loyalty
includes a duty to:



| | • | refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | • | refrain from any activity that is competitive with the company;
| | - | ---------------------------------------------------------------



| | • | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Disclosure of Personal Interests of an Office Holder and
Approval of Certain Transactions



The Companies Law
requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of
and all related material information or documents concerning any existing or proposed transaction with the company. An interested
office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors
at which the transaction is considered. A personal interest includes an interest of any person in an act or transaction of a company,
including a personal interest of such person’s relative or of a corporate body in which such person or a relative of such
person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one
director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company.
A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the
personal interest of the office holder with respect to his or her vote on behalf of a person for whom he or she holds a proxy even
if such shareholder has no personal interest in the matter. An office holder is not however, obligated to disclose a personal interest
if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary
transaction. Under the Companies Law, an extraordinary transaction is defined as any of the following:



105







| | • | a transaction other than in the ordinary course of business;
| | - | ------------------------------------------------------------



| | • | a transaction that is not on market terms; or
| | - | ---------------------------------------------



| | • | a transaction that may have a material impact on a company’s profitability, assets or liabilities.
| | - | --------------------------------------------------------------------------------------------------



If it is determined
that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction,
unless the company’s articles of association provide for a different method of approval. Our articles of association do not
provide otherwise. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board
of directors may approve an action by the office holder that would otherwise be deemed a breach of the duty of loyalty. However,
a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the
office holder in good faith. An extraordinary transaction in which an office holder has a personal interest requires approval of
the company’s audit committee followed by the approval of the board of directors. The compensation of, or an undertaking
to indemnify or insure, an office holder who is not a director requires approval by the company’s compensation committee,
followed by the approval of the company’s board of directors, and, if such compensation arrangement or an undertaking to
indemnify or insure is inconsistent with the company’s stated compensation policy, or if the said office holder is the chief
executive officer of the company (apart from a number of specific exceptions), then such arrangement is subject to the approval
of a majority vote of the shares present and voting at a shareholders meeting, provided that either: (a) such majority includes
at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal interest
in the approval of such compensation arrangement (excluding abstaining shareholders); or (b) the total number of shares of non-controlling
shareholders and shareholders who do not have a personal interest in the approval of the compensation arrangement and who vote
against the arrangement does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval
for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approvals of
the compensation committee, board of directors and shareholders by simple majority, and under certain circumstances, a Special
Approval for Compensation.



Generally, a person
who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may not
be present at such a meeting or vote on that matter unless the chairman of the relevant committee or board of directors, as applicable,
determines that he or she should be present in order to present the transaction that is subject to approval. Generally, if a majority
of the members of the audit committee or the board of directors, as applicable, have a personal interest in the approval of a transaction,
then all directors may participate in discussions of the audit committee or the board of directors, as applicable. In the event
a majority of the members of the board of directors have a personal interest in the approval of a transaction, then the approval
thereof shall also require the approval of the shareholders.



Disclosure of Personal Interests of Controlling Shareholders
and Approval of Certain Transactions



Pursuant to the Companies
Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling
shareholder of a public company. The approval of the audit committee or the compensation committee, as the case may be, the board
of directors and the shareholders of the company, in that order is required for (a) extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, (b) the engagement with a controlling shareholder or
his or her relative, directly or indirectly, for the provision of services to the company, (c) the terms of engagement and compensation
of a controlling shareholder or his or her relative who is not an office holder or (d) the employment of a controlling shareholder
or his or her relative by the company, other than as an office holder (collectively referred as Transaction with a Controlling
Shareholder). In addition, such shareholder approval requires one of the following, which we refer to as a Special Majority:



| | • | at least a majority of the shares held by all shareholders who do not have a personal interest in the transaction and who are present and voting at the meeting approving the transaction, excluding abstentions; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



106







| | • | the shares voted against the transaction by shareholders who have no personal interest in the transaction and who are present and voting at the meeting do not exceed 2% of the voting rights in the company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the extent that
any such Transaction with a Controlling Shareholder is for a period extending beyond three years, approval is required once every
three years, unless, with respect to certain transactions, the audit committee determines that the duration of the transaction
is reasonable given the circumstances related thereto.



Arrangements regarding
the compensation, indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require
the approval of the compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may
not be inconsistent with the company’s stated compensation policy.



Pursuant to regulations
promulgated under the Companies Law, certain transactions with a controlling shareholder, a relative thereof, or with a director,
that would otherwise require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations
of the audit committee and board of directors.



The Companies Law
requires that every shareholder that participates, in person, by proxy or by voting instrument in a vote regarding a transaction
with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest
in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.



Shareholder Duties



Pursuant to the Companies
Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and its other shareholders and
to refrain from abusing his or her power in the company, including, among other things, in voting at a general meeting and at shareholder
class meetings with respect to the following matters:



| | • | an amendment to the company’s articles of association;
| | - | ------------------------------------------------------



| | • | an increase of the company’s authorized share capital;
| | - | ------------------------------------------------------



| | • | a merger; or
| | - | ------------



| | • | the approval of related party transactions and acts of office holders that require shareholder approval.
| | - | --------------------------------------------------------------------------------------------------------



In addition, a shareholder
also has a general duty to refrain from discriminating against other shareholders.



In addition, certain
shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder
who knows that he or she has the power to determine the outcome of a shareholder vote at a general meeting or a shareholder class
meeting, and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other
power towards the company. The Companies Law does not define the substance of the duty of fairness, except to state that the remedies
generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.



Exculpation, Insurance and Indemnification of Directors and
Officers



Under the Companies
Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate
an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of
a breach of duty of care but only if a provision authorizing such exculpation is included in its articles of association. Our articles
of association include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited
dividend or distribution to shareholders.



Under the Companies
Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed
by him or her as an office holder, either pursuant to an undertaking made in advance of an event or following an event, provided
its articles of association include a provision authorizing such indemnification:



107







| | • | monetary liability imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to certain events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned foreseen events and amount or criteria;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder (i) as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (A) no indictment was filed against such office holder as a result of such investigation or proceeding; and (B) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and (ii) in connection with a monetary sanction; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Companies
Law and the Israeli Securities Law, a company may insure an office holder against the following liabilities incurred for acts performed
by him or her as an office holder if and to the extent provided in the company’s articles of association:



| | • | a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a monetary liability imposed on the office holder in favor of a third party.
| | - | ----------------------------------------------------------------------------



Under our articles
of association, we may insure and indemnify an office holder against the aforementioned liabilities as well as the following liabilities:



| | • | a breach of duty of care to the Company or to a third party;
| | - | ------------------------------------------------------------



| | • | any other action which is permitted by law to insure an office holder against;
| | - | ------------------------------------------------------------------------------



| | • | expenses incurred and/or paid by the office holder in connection with an administrative enforcement procedure under any applicable law including the Efficiency of Enforcement Procedures in the Securities Authority Law (legislation amendments), 5771-2011 and the Israeli Securities Law, which we refer to as an Administrative Enforcement Procedure, and including reasonable litigation expenses and attorney fees; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a monetary liability in favor or a victim of a felony pursuant to Section 52ND of the Israeli Securities Law.
| | - | -------------------------------------------------------------------------------------------------------------



Under the Companies
Law, a company may not indemnify, exculpate or insure an office holder against any of the following:



| | • | a breach of the duty of loyalty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



108







| | • | a breach of duty of care committed intentionally or recklessly, excluding a breach arising solely out of the negligent conduct of the office holder;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an act or omission committed with intent to derive illegal personal benefit; or
| | - | -------------------------------------------------------------------------------



| | • | a civil or administrative fine or forfeit levied against the office holder.
| | - | ---------------------------------------------------------------------------



Under the Companies
Law, exculpation, indemnification and insurance of office holders in a public company must be approved by the compensation committee
and the board of directors and, with respect to certain office holders or under certain circumstances, also by the shareholders.
See “— Approval of Related Party Transactions under Israeli Law.”



Our articles of association
permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies
Law and the Israeli Securities Law.



We have entered into
agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law and our articles
of association, and undertaking to indemnify them to the fullest extent permitted by law and our articles of association. This
indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount
or according to criteria determined by the board of directors as reasonable under the circumstances.



The maximum indemnification
amount set forth in such agreements is limited to an amount which shall not exceed 25% of our shareholders equity based on our
most recently audited or reviewed financial statements prior to actual payment of the indemnification amount. Such maximum amount
is in addition to any amount paid (if paid) under insurance and/or by a third-party pursuant to an indemnification arrangement.



In the opinion of
the SEC, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against
public policy and therefore unenforceable.



We have obtained directors’
and officers’ liability insurance for the benefit of our office holders and intend to continue to maintain such coverage
and pay all premiums thereunder to the fullest extent permitted by the Companies Law. In addition, prior to the closing of our
initial public offering in the United States, we entered into agreements with each of our office holders undertaking to indemnify
them to the fullest extent permitted by the Companies Law, including with respect to liabilities resulting from the offering to
the extent that these liabilities are not covered by insurance.



Code of Ethics



In November 2011,
our board of directors adopted a Code of Ethics that was amended in April 2014, applicable to all of our directors, officers, managers
and employees, including our Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other
persons performing similar functions. Our board of directors further amended the Code of Ethics prior to the effectiveness of the
registration statement of our initial public offering in the United States so that the Code of Ethics qualifies as a “code
of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC. Upon the effectiveness of the registration statement
of our initial public offering in the United States, the full text of the Code of Ethics was posted on our website at www.intecpharma.com.
Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is
not incorporated by reference herein. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit
waiver, from a provision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent
required by the rules and regulations of the SEC. Under Item 16B of the SEC’s Form 20-F, if a waiver or amendment of the
Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller
and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we are required to disclose such waiver
or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.



109







D. Employees.



As of December 31,
2016, we had 56 employees, five of whom were employed in management, five of whom were employed in finance and administration,
38 of whom were employed in research and development and operations and eight of whom were employed in clinical trials and quality
assurance. All of these employees are located in Israel.



Israeli labor laws
principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination
of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement,
death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which
is similar to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with applicable
Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance
pay.



While none of our
employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between
the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’
Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy and Industry (previously
the Israeli Ministry of Trade, Industry and Labor). These provisions primarily concern the length of the workweek, pension fund
benefits for all employees and for employees in the industry section, insurance for work-related accidents, travel expenses reimbursement,
holiday leave, convalescent payments and entitlement for vacation days. We generally provide our employees with benefits and working
conditions beyond the required minimums. We have never experienced any employment-related work stoppages and believe our relationship
with our employees is good.



E. Share Ownership.



The following table
sets forth certain information regarding the beneficial ownership of our ordinary shares as of December 31, 2016 by:



| | • | each of our directors and executive officers;
| | - | ---------------------------------------------



| | • | all of our executive officers and directors as a group; and
| | - | -----------------------------------------------------------



| | • | each person (or group of affiliated persons) known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



Except as otherwise
indicated in the footnotes to this table, we believe the persons named in this table have sole voting and investment power with
respect to all the ordinary shares indicated.



|                                                           |  | As of December 31, 2016 |        
|---------------------------------------------------------- |  | ----------------------- | -------
|                                                           |  | Ordinary Shares         |        
|Zvi Joseph                                                 |  |                         | 216,347
|Zeev Weiss                                                 |  |                         | 99,663 
|Nir Sassi                                                  |  |                         | 5,422  
|Nadav Navon                                                |  |                         | 8,585  
|John Kozarich                                              |  |                         | 10,000 
|Giora Carni                                                |  |                         | 97,046 
|Gil Bianco                                                 |  |                         | 10,751 
|Hila Karah                                                 |  |                         | 10,751 
|Issac Silberman                                            |  |                         | 10,751 
|All executive officers and directors as a group (9 people) |  |                         | 469,316
|Cormorant Asset Management, LLC                            |  |                         | 809,804



110












| | + | Less than 1%.
| | - | -------------



| | * | Percentages and number of ordinary shares calculated in accordance with SEC rules and based upon 11,448,191 ordinary shares issued and outstanding as of December 31, 2016.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (1) | Consists of 169,520 ordinary shares, options to purchase 20,827 ordinary shares with an exercise price of NIS 81.1 per share and with an expiration date of May 1, 2017 and options to purchase 26,000 ordinary shares with an exercise price of NIS 56.35 per share and with an expiration date of August 26, 2019. All such options have vested.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consists of 59,663 ordinary shares and options to purchase 40,000 ordinary shares with an exercise price of NIS 47.60 per share and with an expiration date of May 30, 2018. All such options have vested.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Options to purchase 5,422 ordinary shares with an exercise price of NIS 52.35 per share and with an expiration date of March 1, 2020. All such options have vested.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Consists of options to purchase 10,751 ordinary shares with an exercise price of NIS 48.91 per share and with an expiration date of July 1, 2020. All such options have vested.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | See footnotes (1) through (4).
| | --- | ------------------------------



| | (6) | Based on a Schedule 13G/A filed with the SEC on February 14, 2017.
| | --- | ------------------------------------------------------------------



None of our shareholders
has different voting rights from other shareholders.



ITEM 7. Major Shareholders and Related
Party Transactions.



A. Major Shareholders.



Except as set forth
in “Item 6. Directors, Senior Management and Employees—E. Share Ownership”, to the best of our knowledge, no
other person who we know beneficially owns 5.0% or more of the Company’s ordinary shares outstanding as of December 31, 2016.
None of our shareholders has different voting rights from other shareholders. Other than as described herein, to the best of our
knowledge, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign government or by any
natural person or legal persons, severally or jointly, and we are not aware of any arrangement that may, at a subsequent date,
result in a change of control of our company.



B. Related Party Transactions



The following is a
description of some of the transactions with related parties to which we are party and which were in effect within the past three
fiscal years. The descriptions provided below are summaries of the terms of such agreements and do not purport to be complete and
are qualified in their entirety by the complete agreements.



We believe that we
have executed all of our transactions with related parties on terms no less favorable to us than those we could have obtained from
unaffiliated third parties. See “Management — Approval of Related Party Transactions under Israeli Law.”



Indemnification Agreements



Our articles of association
permit us to exculpate, indemnify and insure our directors and officeholders to the fullest extent permitted by the Companies Law.
We have obtained directors’ and officers’ insurance for each of our officers and directors and have entered into indemnification
agreements with all of our current officers and directors.



We have entered into
indemnification and exculpation agreements with each of our current office holders and directors exculpating them to the fullest
extent permitted by the law and our articles of association and undertaking to indemnify them to the fullest extent permitted by
the law and our articles of association, including with respect to liabilities resulting from this annual report, to the extent
such liabilities are not covered by insurance. See “Management — Exculpation, Insurance and Indemnification of Directors
and Officers.”



111







Registration Rights Agreement



The investors in our
August 2013 financing round have piggyback registration rights for any ordinary shares purchased in the round or received pursuant
to the exercise of warrants issued in the round. The subscription agreements with respect to such shares provided that because
such shares were not included in the registration statement of our initial public offering in the United States, following the
expiration or earlier waiver of the lock-up period for our initial public offering in the United States, the holders of up to 896,059
ordinary shares, consisting of (a) 697,247 ordinary shares, including 376,584 ordinary shares issued as a result of previous downside
protection events and (b) 198,812 ordinary shares underlying warrants issued as part of the August 2013 financial round, would
be entitled to request that we register such securities under the Securities Act, subject to cutback for marketing reasons and
certain other conditions. In order to better define these registration rights, on July 8, 2015 we entered into a new registration
rights agreement, which we refer to as the Registration Rights Agreement, with the investors who previously held such rights. The
investors party to the Registration Rights Agreement have demand and piggyback registration rights with respect to the foregoing
shares, subject to customary terms, conditions and limitations. As of the date hereof, 128,265 of the 320,663 ordinary shares originally
issued in the August 2013 financing round have been sold on the TASE, thus we no longer have any registration rights with respect
to such ordinary shares.



As of the date of
this annual report on Form 20-F, the ordinary shares covered by the Registration Rights Agreement are freely tradable, and thus
our undertaking to register the shares for resale is no longer in effect.



2017 Private Placement



In March 2017, we
completed a private placement of 2,289,638 of our ordinary shares with various investors at a price of $4.40 per share, for gross
proceeds of approximately $10 million. The chairman of our board of directors, Dr. John Kozarich, and two other directors, Messrs.
Zvi Joseph and Giora Carni, participated in the private placement. We have agreed to file a registration statement under the Securities
Act of 1933, as amended, to register for resale the ordinary shares issued in the private placement.



Employment and Consulting Agreements



We have or have had
employment, consulting or related agreements with each member of our senior management. See “Management — Executive
Officers and Directors — Employment and Consulting Agreements.”



C. Interests of Experts and Counsel.



Not applicable.



ITEM 8. Financial Information.



A. Financial Statements and Other Financial Information.



See “Item 18.
Financial Statements” for a list of all financial statements filed as part of this Annual Report on Form 20-F.



Legal Matters



We are not, nor have
we been in the last fiscal year, a party to any legal or arbitration proceedings, including those relating to bankruptcy, receivership
or similar proceedings and those involving any third-party, nor any governmental proceedings pending or known to be contemplated,
which may have, or have had in the recent past, significant effects on the company’s financial position or profitability.



Dividend Policy



We have never declared
or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We intend to reinvest any earnings
in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of
our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results,
contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors
may deem relevant. Accordingly, we have not appointed any paying agent.



112







In addition, the distribution
of dividends is limited by the Companies Law, which permits the distribution of dividends only out of distributable profits. See
“Description of Share Capital — Dividends.” In addition, if we pay a dividend out of income attributed to our
Benefited Enterprise during the tax exemption period, we may be subject to tax on the grossed-up amount of such income at the corporate
tax rate which would have been applied to such Benefited Enterprise’s income had we not enjoyed the exemption. See “Item
10. Additional Information—E. Taxation—Certain Israeli Tax Considerations” for additional information.



B. Significant Changes.



No significant changes with respect to
our financial statements have occurred since December 31, 2016.



ITEM 9. The Offer and Listing.



A.4 Offer and Listing Details



Our ordinary shares
have been listed on the Nasdaq Capital Market under the symbol “NTEC” since August 2015. Prior to that date, there
was no public trading market for our ordinary shares in the United States. Our initial public offering was priced at $6.00 per
share. The following table sets forth for the periods indicated the high and low sales prices per ordinary share as reported on
the NASDAQ Capital Market:



|                                       |  | Low |      |  | High |  
|-------------------------------------- |  | --- | ---- |  | ---- | -
|Annual Information:                    |  |     |      |  |      |  
|2015 (commenting as of August 4, 2015) |  | $   | 5.25 |  |      | $
|2016                                   |  |     | 3.03 |  |      |  
|Quarterly Information                  |  |     |      |  |      |  
|First Quarter 2016                     |  | $   | 3.05 |  |      | $
|Second Quarter 2016                    |  |     | 3.03 |  |      |  
|Third Quarter 2016                     |  |     | 4.14 |  |      |  
|Fourth Quarter 2016                    |  |     | 4.45 |  |      |  
|Monthly Information                    |  |     |      |  |      |  
|October 2016                           |  | $   | 5.00 |  |      | $
|November 2016                          |  |     | 4.45 |  |      |  
|December 2016                          |  |     | 4.95 |  |      |  
|January 2017                           |  |     | 5.04 |  |      |  
|February 2017                          |  |     | 4.55 |  |      |  
|March 2017                             |  |     | 4.20 |  |      |  



Our ordinary shares
have been listed on the TASE under the symbol “NTEC” since February 2010. Prior to that date, there was no public trading
market for our ordinary shares in Israel. Our initial public offering was priced at NIS 45.28* per share. The following table sets
forth for the periods indicated the high and low sales prices per ordinary share as reported on the TASE:



|                      |  | Low |       |  | High |    
|--------------------- |  | --- | ----- |  | ---- | ---
|Annual Information:   |  |     |       |  |      |    
|2012*                 |  | NIS | 32.10 |  |      | NIS
|2013*                 |  |     | 32.70 |  |      |    
|2014*                 |  |     | 17.50 |  |      |    
|2015                  |  |     | 20.15 |  |      |    
|2016                  |  |     | 11.50 |  |      |    
|Quarterly Information |  |     |       |  |      |    
|First Quarter 2016    |  | NIS | 13.05 |  |      | NIS
|Second Quarter 2016   |  |     | 11.50 |  |      |    
|Third Quarter 2016    |  |     | 16.62 |  |      |    
|Fourth Quarter 2016   |  |     | 17.20 |  |      |    
|Monthly Information   |  |     |       |  |      |    
|October 2016          |  | NIS | 19.50 |  |      | NIS
|November 2016         |  |     | 17.20 |  |      |    
|December 2016         |  |     | 18.89 |  |      |    
|January 2017          |  |     | 18.78 |  |      |    
|February 2017         |  |     | 16.50 |  |      |    
|March 2017            |  |     | 15.30 |  |      |    



* adjusted to reflect a 50-to-1 reverse share split of the Company's
ordinary shares effect on March 29, 2015.



113







B. Plan of distribution



Not applicable.



C. Market for Ordinary Shares



Our ordinary shares
have been quoted on the NASDAQ Capital Market since August 2015 under the symbol “NTEC” and on the TASE since February
2010 under the symbol “NTEC”.



D. Selling shareholders



Not applicable.



E. Dilution



Not applicable.



F. Expenses of the issue



Not applicable.



ITEM 10. Additional Information.



A. Share Capital.



Not applicable.



B. Memorandum and Articles of Association.



The following are
summaries of material provisions of our articles of association and the Companies Law insofar as they relate to the material terms
of our ordinary shares.



Holders of our ordinary
shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting.
Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. The Companies Law does not allow
public companies to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting, and accordingly,
our articles of association do not allow shareholders to approve corporate matters by written consent. The board of directors shall
determine and provide a record date for each shareholders meeting and all shareholders at such record date may vote. Unless stipulated
differently in the Companies Law or in our articles of association, all shareholders’ resolutions shall be approved by a
simple majority vote. Except as otherwise disclosed herein, an amendment to our articles of association requires the prior approval
of a simple majority of our shares represented and voting at a general meeting and of the holders of a class of shares whose rights
are being affected (or the consent in writing of all the holders of such class of shares). Our number with the Israeli Registrar
of Companies is 513022780. Our purpose is set forth in Section 3 of our articles of association and includes every lawful purpose.



114







Our ordinary shares
that are fully paid for are issued in registered form and may be freely transferred under our articles of association, unless the
transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded. The ownership
or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or Israeli
law, except for ownership by nationals of some countries that are, or have been, in a state of war with Israel.



Pursuant to the Companies
Law and our articles of association, our board of directors may exercise all powers and take all actions that are not required
under law or under our articles of association to be exercised or taken by our shareholders, including the power to borrow money
for company purposes.



Our articles of association
enable us to increase or reduce our share capital. Any such changes are subject to the provisions of the Companies Law and must
be approved by a resolution duly passed by our shareholders at a general or special meeting by voting on such change in the capital.
In addition, transactions that have the effect of reducing capital, such as the declaration and payment of dividends in the absence
of sufficient retained earnings and profits and an issuance of shares for less than their nominal value, require a resolution of
our board of directors and court approval.



Dividends



Under the Companies
Law, we may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern
that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become
due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated
over the two most recent years legally available for distribution according to our then last reviewed or audited financial statements,
provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event
that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution,
we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that
there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations
as they become due.



Shareholder Meetings



Under the Companies
Law, we are required to hold an annual general meeting of our shareholders once in every calendar year and no later than 15 months
following the date of the previous annual general meeting. All meetings other than the annual general meeting of shareholders are
referred to as special general meetings. Our board of directors may call special general meetings whenever it deems fit, at such
time and place, within or outside of Israel, as it may determine. In addition, the Companies Law and our articles of association
provide that our board of directors is required to convene a special meeting upon the written request of (i) any two of our directors
or one quarter of the directors then in office (ii) one or more shareholders holding, in the aggregate, 5% of the our issued share
capital and 1% of our outstanding voting power or 5% of our outstanding voting power.



Subject to the provisions
of the Companies Law and the regulations promulgated thereunder, shareholders entitled to participate and vote at general meetings
are the shareholders of record on a date to be decided by the board of directors. Furthermore, the Companies Law and our articles
of association require that resolutions regarding the following matters must be passed at a general meeting of our shareholders:



| | • | amendments to our articles of association;
| | - | ------------------------------------------



| | • | appointment or termination of our auditors;
| | - | -------------------------------------------



| | • | appointment of directors and appointment and dismissal of external directors;
| | - | -----------------------------------------------------------------------------



115







| | • | approval of acts and transactions requiring general meeting approval pursuant to the Companies Law;
| | - | ---------------------------------------------------------------------------------------------------



| | • | director compensation, indemnification and change of the principal executive officer;
| | - | -------------------------------------------------------------------------------------



| | • | increases or reductions of our authorized share capital;
| | - | --------------------------------------------------------



| | • | a merger;
| | - | ---------



| | • | the exercise of our board of directors’ powers by a general meeting, if our board of directors is unable to exercise its powers and the exercise of any of its powers is required for our proper management; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companies Law
requires that a notice of any annual or special shareholders meeting be provided at least 21 days prior to the meeting and if the
agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested
or related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.



Pursuant to our articles
of association, holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote before
the shareholders at a general meeting.



Quorum



The quorum required
for our general meetings of shareholders consists of at least two shareholders present in person, by proxy or written ballot who
hold or represent between them at least 25% of the total outstanding voting rights, within half an hour from the appointed time.



A meeting adjourned
for lack of a quorum is adjourned to the same day in the following week at the same time and place or on a later date if so specified
in the summons or notice of the meeting. At the reconvened meeting, any number of our shareholders present in person or by proxy
shall constitute a lawful quorum.



Resolutions



Our articles of association
provide that all resolutions of our shareholders require a simple majority vote, unless otherwise required by applicable law.



Under the Companies
Law, a shareholder of a public company may vote in a meeting and in a class meeting by means of a written ballot in which the shareholder
indicates how he or she votes on resolutions relating to the following matters:



| | • | an appointment or removal of directors;
| | - | ---------------------------------------



| | • | an approval of transactions with office holders or interested or related parties, that require shareholder approval;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | an approval of a merger;
| | - | ------------------------



| | • | authorizing the chairman of the board of directors or his relative to act as the company’s chief executive officer or act with such authority; or authorize the company’s chief executive officer or his relative to act as the chairman of the board of directors or act with such authority;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | any other matter that is determined in the articles of association to be voted on by way of a written ballot. Our articles of association do not stipulate any additional matters; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



116







| | • | other matters which may be prescribed by Israel’s Minister of Justice.
| | - | ----------------------------------------------------------------------



The provision allowing
the vote by written ballot does not apply where the voting power of the controlling shareholder is sufficient to determine the
vote.



The Companies Law
provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other
shareholders, must act in good faith and in a customary manner, and avoid abusing his or her power. This is required when voting
at general meetings on matters such as changes to the articles of association, increasing the company’s registered capital,
mergers and approval of certain interested or related party transactions. A shareholder also has a general duty to refrain from
depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows
that its vote can determine the outcome of a shareholder’s vote and any shareholder who, under such company’s articles
of association, can appoint or prevent the appointment of an office holder or has other power towards the company, is required
to act with fairness towards the company. The Companies Law does not describe the substance of this duty except that the remedies
generally available upon a breach of contract will also apply to a breach of the duty to act with fairness, and, to the best of
our knowledge, there is no binding case law that addresses this subject directly.



Under the Companies
Law, unless provided otherwise in a company’s articles of association, a resolution at a shareholders meeting requires approval
by a simple majority of the voting rights represented at the meeting, in person, by proxy or written ballot, and voting on the
resolution. Generally, a resolution for the voluntary winding up of the company requires the approval of holders of 75% of the
voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.



In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of our ordinary shares
in proportion to their shareholdings. This right, as well as the right to receive dividends, may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.



Access to Corporate Records



Under the Companies
Law, all shareholders of a company generally have the right to review minutes of the company’s general meetings, its shareholders
register and principal shareholders register, its articles of association, its financial statements and any document the company
is required by law to file publicly with the Israeli Companies Registrar and the ISA. Any of our shareholders may request access
to review any document in our possession that relates to any action or transaction with a related party, interested party or office
holder that requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that
the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s
disclosure may otherwise prejudice our interests.



Acquisitions under Israeli Law



Full Tender Offer



A person wishing to
acquire shares or a class of shares of an Israeli public company and who would, as a result, own more than 90% of the target company’s
issued and outstanding share capital or of a certain class of its shares, is required by the Companies Law to make a full tender
offer (as defined in the Companies Law) to all of the company’s shareholders for the purchase of all of the issued and outstanding
shares of the company or class of shares. If either (i) the shareholders who do not accept the offer hold, in the aggregate, less
than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders
who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offer hold less
than 2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the
acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares
so transferred, whether or not it accepted the tender offer (unless otherwise provided in the offering memorandum), may, within
six (6) months from the date of acceptance of the tender offer, petition the court to determine that the tender offer was for less
than fair value and that the fair value should be paid as determined by the court. If the shareholders who did not accept the tender
offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class of shares, the acquirer
may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding
share capital or of the applicable class from shareholders who accepted the tender offer.



117







Special Tender Offer



According to the CompaniesLaw, an acquisition pursuant to which a purchaser shall hold a “controlling stake”, that is defined as 25% or more
of the voting rights if no other shareholder holds a controlling stake, or an acquisition pursuant to which such purchaser shall
hold more than 45% of the voting rights of the company if no other shareholder owns more than 45% of the voting rights, may not
be performed by way of market accumulation, but only by way of a special tender offer (as defined in the Companies Law) made to
all of the company’s shareholders on a pro rata basis. A special tender offer may not be consummated unless a majority of
the shareholders who announced their stand on such offer have accepted it (in counting the total votes of such shareholders, shares
held by the controlling shareholders, shareholders who have personal interest in the offer, shareholders who own 25% or more of
the voting rights in the company, relatives or representatives of any of the above or the bidder and corporations under their control,
shall not be taken into account). A shareholder may be free to object to such an offer without such objection being deemed as a
waiver of his right to sell its respective shares if the transaction is approved by a majority of the company’s shareholders
despite his objection. Shares purchased not in accordance with those provisions shall become “dormant shares” and shall
not grant the purchaser any rights so long as they are held by the purchaser. If a special tender offer is accepted, then the purchaser
or any person or entity controlling it or under common control with the purchaser or such controlling person or entity may not
make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target
company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect
such an offer or merger in the initial special tender offer.



Under regulations
enacted pursuant to the Companies Law, the above special tender offer requirements may not apply to companies whose shares are
listed for trading on a foreign stock exchange if, among other things, the relevant foreign laws or the rules of the stock exchange,
include provisions limiting the percentage of control which may be acquired or that the purchaser is required to make a tender
offer to the public. However, the ISA’s opinion is that such leniency does not apply with respect to companies whose shares
are listed for trading on stock exchanges in the United States, including the NASDAQ Capital Market, which do not provide for sufficient
legal restrictions on obtaining control or an obligation to make a tender offer to the public, therefore the special tender offer
requirements shall apply to such companies.



Merger



The Companies Law
permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under
the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting
called with at least 35 days’ prior notice.



For purposes of the
shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented
at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or
more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger.
If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain
shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting
rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to
the merger and the consideration offered to the shareholders.



Upon the request of
a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists
a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of
the parties to the merger, and may further give instructions to secure the rights of creditors.



118







In addition, a merger
may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by
each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders
of each party.



Antitakeover Measures



The Companies Law
allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing
certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report,
we do not have any authorized or issued shares other than our ordinary shares. In the future, if we do create and issue a class
of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may
delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their
ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires
the prior approval of the holders of a majority of our shares at a general meeting. In addition, the rules and regulations of the
TASE also limit the terms permitted with respect to a new class of shares and prohibit any such new class of shares from having
voting rights. Shareholders voting in such meeting will be subject to the restrictions provided in the Companies Law as described
above.



C. Material Contracts



The following are
summary descriptions of certain material agreements to which we are a party. The descriptions provided below do not purport to
be complete and are qualified in their entirety by the complete agreements, which are attached as exhibits to this annual report
on Form 20-F.



For a description
of our material agreements relating to our strategic collaborations and research arrangements and other material agreements, please
refer to “Item 4. Information on the Company.”



Employment Agreements



See “Item 6.
Directors, Senior Management and Employees—B. Compensation—Employment Agreements and Arrangements with Directors and
Related Parties.”



2017 Private Placement



See “Item 7.
Major Shareholders and Related Party Transactions — B. Related Party Transactions — 2017 Private Placement.”



D. Exchange Controls.



There are no Israeli
government laws, decrees or regulations that restrict or that affect our export or import of capital or the remittance of dividends,
interest or other payments to non-resident holders of our securities, including the availability of cash and cash equivalents for
use by us and our wholly-owned subsidiaries, except for ownership by nationals of certain countries that are, or have been, declared
as enemies of Israel or otherwise as set forth under “Item 10. Additional Information—E. Taxation.”



E. Taxation.



The following is a
summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also
contains a discussion of some Israeli tax consequences to persons owning our ordinary shares. This summary does not discuss all
the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances
or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include traders
in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting capital, all of whom are subject
to special tax regimes not covered in this discussion. Some parts of this discussion are based on a new tax legislation which has
not been subject to judicial or administrative interpretation. The discussion should not be construed as legal or professional
tax advice and does not cover all possible tax considerations.



119







SHAREHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR
ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.



General Corporate Tax Structure in Israel



Israeli companies
are generally subject to corporate tax on their taxable income at the rate of 25% for the 2016 tax year (to be reduced to 24% in
2017 and 23% in 2018 and thereafter). However, the effective tax rate payable by a company that derives income from an Approved
Enterprise, a Benefited Enterprise or a Preferred Enterprise (as discussed below) may be considerably less. Capital gains derived
by an Israeli company are subject to tax at the prevailing corporate tax rate.



120







Law for the Encouragement of Industry (Taxes),
1969



We believe that we
qualify as an “Industrial Company” within the meaning of the Law for the Encouragement of Industry (Taxes), 1969, or
the Industry Encouragement Law. The Industry Encouragement Law provides several tax benefits for “Industrial Companies.”



The Industry Encouragement
Law defines an “Industrial Company” as an Israeli resident company incorporated in Israel, of which 90% or more of
its income in any tax year, other than income from defense loans, is derived from an “Industrial Enterprise” owned
by it and located in Israel or in the “Area”, in accordance with the definition in the section 3a of the Income Tax
Ordinance, or the Ordinance. An “Industrial Enterprise” is defined as an enterprise which is held by an Industrial
Enterprise whose principal activity in a given tax year is production activity.



The following corporate
tax benefits, among others, are available to Industrial Companies:



| | • | amortization over an eight-year period of the cost of patents and rights to use a patent and know-how that were purchased in good faith and are used for the development or advancement of the Industrial Enterprise, commencing from the tax year where the Industrial Enterprise began to use them;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | under certain conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and
| | - | ---------------------------------------------------------------------------------------------------------------------



| | • | expenses related to a public offering are deductible in equal amounts over three years.
| | - | ---------------------------------------------------------------------------------------



There can be no assurance
that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in the future.



Tax Benefits under the Law for the Encouragement
of Capital Investments, 1959



Tax benefits prior to the 2005 Amendment



The Law for the Encouragement
of Capital Investments, 1959, generally referred to as the “Investments Law”, provides that a capital investment in
eligible facilities may, upon application to the Investment Center of the Ministry of Industry, Trade and Labor of the State of
Israel the (“Investment Center”), be granted the status of an Approved Enterprise. Each certificate of approval for
an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources,
and by its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to the program.



The tax benefits under
the Investments Law also apply to income generated by a company from the grant of a usage right with respect to know-how developed
pursuant to the Approved Enterprise, income generated from royalties, and income derived from a service which is auxiliary to such
usage right or royalties, provided that such income is generated within the ordinary course of business of the company investing
in the Approved Enterprise.



If a company has more
than one approval or only a portion of its capital investments is approved, its effective tax rate is the result of a weighted
average of the applicable rates. The Tax Benefits under the Investments Law are not, generally, available with respect to income
derived from products manufactured outside of Israel. In addition, the Tax Benefits available to a company investing in an Approved
Enterprise are contingent upon the fulfillment of conditions stipulated in the Investments Law and related regulations and the
criteria set forth in the specific certificate of approval, as described above. In the event that a company does not meet these
conditions, it would be required to refund the amount of tax benefits, plus a consumer price index linked adjustment and interest.



121







A company which qualifies
as a foreign investment company (a “FIC”) will be eligible for a three-year extension of tax benefits following the
expiration of the seven-year period referenced above. In addition, in the event that the level of foreign ownership in an Approved
Enterprise reaches 49% or higher, the corporate tax rate applicable to income earned from the Approved Enterprise is reduced as
follows:



|% of Foreign Ownership        |  | Tax Rate |   
|----------------------------- |  | -------- | --
|49% or more but less than 74% |  |          | 20
|74% or more but less than 90% |  |          | 15
|90% or more                   |  |          | 10



A company qualifies
as a FIC if (i) it has received at least NIS 5 million in loans (for a minimum period of three years) or as investment in share
capital from a foreign resident who is consequently entitled to at least 25% of the “rights” in the company (consisting
of profit sharing rights, voting rights and appointment of directors), or (ii) if a foreign resident has purchased the company’s
shares from an existing shareholder, consequently entitling the foreign shareholder to at least 25% of such rights in the company
provided that the company’s outstanding and paid-up share capital exceeds NIS 5 million The determination as to whether a
company qualifies as an FIC is made on an annual basis.



Amendment 68 to the
Investments Law (the “2011 Amendment”) eliminated the definition of a FIC. However, according to the 2011 Amendment’s
transitional provisions, the tax benefits of companies with Approved Enterprise or Benefited Enterprise plans that opt to remain
under the Approved Enterprise or Benefited Enterprise regime in accordance with the Investments Law prior to the 2011 Amendment
will be preserved. In circular no. 3/2012, (the “Circular”) the Israeli Tax Authority addressed its position regarding
the implementation of the aforementioned transitional provisions. According to the Circular, a company’s foreign ownership
percentage for purposes of Approved Enterprise or Benefited Enterprise benefits cannot exceed its percentage on December 31, 2010,
the last day before the 2011 Amendment was implemented.



Additionally, a company
owning an Approved Enterprise on or after April 1, 1986, may elect to forgo its entitlements to grants and tax benefits under the
Grant Track and apply for alternative package of tax benefits for a benefit period of between seven and ten years (the “Alternative
Track”). Under the Alternative Track, a company’s undistributed income derived from the Approved Enterprise will be
exempt from corporate tax for a period of between two and ten years, starting from the first year the company derives taxable income
under the Approved Enterprise program. The length of time of this exemption will depend on the geographic location of the Approved
Enterprise within Israel and the type of the approved enterprise. After the exemption period lapses, the company is subject to
tax at a corporate tax rate (25% in 2016, 24% in 2017 and 23% in 2018 and thereafter) (or a lower rate in the case of a FIC) for
the remainder of the benefit period.



A company that has
elected the Alternative Track and subsequently pays a dividend out of income derived from the Approved Enterprise during the tax
exemption period will be subject to corporate tax on the amount which is determined by the distributed amount grossed up with the
effective corporate tax rate which would have been applied had the company not elected the Alternative Track, which is at referred
above ranged between 10%-25%. Under the Investments Law, the transfer of funds from the Company to shareholders and other related
parties may be deemed to be regarded as a dividend distribution for this purpose in certain circumstances. Dividends paid out of
income derived from an Approved Enterprise are generally subject to withholding tax at source at the reduced rate of 15%, if the
dividend is distributed during the tax exemption period or within 12 years thereafter. In the event, however, where the company
qualifies as a FIC, there is no such time limitation or such lower rate as may be provided in an applicable tax treaty.



Under the Alternative
Track, dividends paid by a company are considered to be attributable to income received from the entire company and the company’s
effective tax rate is the result of a weighted average of the various applicable tax rates, excluding any tax-exempt income. Under
the Investments Law, a company that has elected the Alternative Track is not obliged to distribute retained profits, and may generally
decide from which year’s profits to declare dividends.



The Company is not
entitled to an Approved Enterprise status.



122







Tax benefits under the 2005 Amendment



An amendment to the
Investments Law, which effective as of April 1, 2005, has changed certain provisions of the Investments Law. An eligible investment
program under the Amendment qualifies for benefits as a “Benefited Enterprise” (rather than as an Approved Enterprise
which status is still applicable for investment programs approved prior to December 31, 2004 and/or investment programs under the
Grant Track). According to the amendment, only Approved Enterprises receiving cash grants require the prior approval of the Investment
Center.



The duration of the
tax benefits described herein is limited to the earlier of seven or ten years (depending on the geographic location of the Approved
Enterprise within Israel) from the Commencement Year (as described below) or 12 years from the first day of the Year of Election.
Commencement Year is defined as the later of the first tax year in which a company had derived liable income for tax purposes from
the Benefited Enterprise, or the year of election which is the year in which a company requested to have the tax benefits apply
to the Benefited Enterprise. The tax benefits granted to a Benefited Enterprise are determined, depending on the geographic location
of the Benefited Enterprise within Israel, according to one of the following, which may be applicable to us:



(i) Similar to the
currently available Alternative Track, exemption from corporate tax may be available on undistributed income for a period of two
to ten years, depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate
of 10% to 25% for the remainder of the benefit period, depending on the level of foreign investment in each year. Benefits may
be granted for a term of seven to ten years, depending on the level of foreign investment in the company. If the company pays a
dividend out of income derived from the Benefited Enterprise during the tax exemption period, such income will be subject to deferred
corporate tax with respect to the amount distributed (grossed up with the effective corporate tax rate which would have applied
had the company not enjoyed the exemption) at the rate which would have applied had such company had the status of a Benefited
Enterprise. The company is required to withhold tax on such distribution at a rate of 15%, or such lower rate may be provided in
an applicable tax treaty; or



(ii) A special track
which enables companies owning facilities in certain geographical locations in Israel to pay corporate tax at a flat rate of 11.5%
on income the Benefited Enterprise (the “Ireland Track”). The benefit period is for ten years. Upon payment of dividends,
the company is required to withhold tax on such dividend at a rate of 15% for Israeli residents and at a rate of 4% for foreign
residents.



Generally, a company
that is Abundant in Foreign Investment (owned by at least 74% foreign shareholders and has undertaken to invest a minimum sum of
$20 million in the Benefited Enterprise) is entitled to an extension of the benefit period by an additional five years, depending
on the rate of its income that is derived in foreign currency.



Under the Investments
Law, we may be entitled to tax benefits, by virtue of our status as a “Benefited Enterprise,” which was awarded to
us in October 2007. We received the status of a plant under establishment in Development Area A in a tax-exempt track, subject
to compliance with the applicable requirements of the Investment Law. As of December 31, 2016, we had not yet generated operating
income that will allow us to benefit from the tax benefits under the Investment Law. The tax benefits under the Investment Law
will apply for a period of up to ten years from the first year in which taxable income will be generated and are scheduled to expire
at the end of 2023.



In order to remain
eligible for the tax benefits of a Benefited Enterprise, we must continue to meet certain conditions stipulated in the Investment
Law and its regulations, as amended. In addition, in order to remain eligible for the tax benefits available to the Benefited Enterprise,
we must also comply with the conditions set forth in the tax ruling. These conditions include, among other things, that the production,
directly or through subcontractors, of all our products should be performed within certain regions of Israel. If we do not meet
these requirements, the tax benefits would be reduced or canceled.



Tax benefits under the 2011 Amendment



On December 29, 2010,
the Israeli Parliament approved the 2011 Amendment. The 2011 Amendment significantly revised the tax incentive regime in Israel
and commenced on January, 1 2011.



The 2011 Amendment
introduced a new status of “Preferred Enterprise”, replacing the existed status of “Benefited Enterprise”.
Similarly to a “Beneficiary Company”, a Preferred Company is an industrial company meeting certain conditions (including
a minimum threshold of 25% export). However, under the 2011 Amendment the requirement for a minimum investment in productive assets
in order to be eligible for the benefits granted under the Investments Law as with respect to “Benefited Enterprise”
was cancelled.



123







A Preferred Company
is entitled to a reduced flat tax rate with respect to the income attributed to the Preferred Enterprise, at the following rates:



|Tax Year          |  | Development Region “A” |     |   | Other Areas within Israel | 
|----------------- |  | ---------------------- | --- | - | ------------------------- | 
|2011-2012         |  |                        | 10  | % |                           | 
|2013              |  |                        | 7   | % |                           | 
|2014              |  |                        | 9   | % |                           | 
|2017 and onwards* |  |                        | 7.5 | % |                           | 



* In December 2016,
the Israeli Parliament (the Knesset) approved an amendment to the Investments Law pursuant to which the tax rate applicable to
Preferred Enterprises in Development Region "A" would be reduced to 7.5% as of January 1, 2017.



The classification
of income generated from the provision of usage rights in know-how or software that were developed in the Preferred Enterprise,
as well as royalty income received with respect to such usage, as Preferred Enterprise income is subject to the issuance if a pre-ruling
from the Israeli Tax Authority stipulates that such income is associated with the productive activity of the Preferred Enterprise
in Israel.



In addition, the 2011
Amendment introduced a new status of “Special Preferred Company”, which is an Industrial company meeting, in addition
to the conditions prescribed for “Preferred Company,” certain additional conditions (including that the annual Preferred
Enterprise income is at least NIS 1.5 billion in 2016, and NIS 1 billion in 2017 and thereafter). The tax rate applicable for a
period of 10 years to income generated by such an enterprise will be reduced to 5%, if located in Development Region “A”,
or to 8%, if located in other area within the State of Israel.



Dividends
distributed from income which is attributed to a “Preferred Enterprise” or a “Special Preferred
Enterprise” will be subject to withholding tax at source at the following rates: (i) Israeli resident corporations
– 0%, (ii) Israeli resident individuals – 20%, and (iii) non-Israeli residents - 20%, subject to a reduced tax
rate under the provisions of an applicable double tax treaty.



The 2011 Amendment
also revised the Grant Track to apply only to the approved programs located in Development Region “A” and shall provide
not only cash grants (as prior to the Amendment) but also the granting of loans. The rates for grants and loans shall not be fixed
but up to 20% of the amount of the approved investment (may be increased with additional 4%). In addition, a company owning a Preferred
Enterprise under the Grant Track may be entitled also to the tax benefits which are prescribed for a Preferred Company.



The provisions of
the 2011 Amendment shall not apply to existing “Benefited Enterprises” or “Approved Enterprises”, which
will continue to be entitled to the tax benefits under the Investment Law, as has been in effect prior to the New Amendment, unless
the company owning such enterprises had made an election to apply the provisions of the 2011 Amendment (such election cannot be
later rescinded), which is to be filed with the Israeli Tax Authority, not later than the date prescribed for the filing of the
company’s annual tax return for the respective year.



We have examined the
possible effect, if any, of the provisions of the 2011 Amendment on our financial statements and have decided, at this time, not
to apply for the new benefits under the 2011 Amendment.



Taxation of the Company Shareholders



Capital Gains



Capital gain tax is
imposed on the disposal of capital assets by an Israeli resident, and on the disposal of such assets by a non-Israel resident if
those assets are either (i) located in Israel, (ii) are shares or a right to a share in an Israeli resident corporation, or (iii)
represent, directly or indirectly, rights to assets located in Israel. The Ordinance distinguishes between “Real Capital
Gain” and the “Inflationary Surplus”. Real Capital Gain is the excess of the total capital gain over Inflationary
Surplus computed generally on the basis of the increase in the Israeli CPI between the date of purchase and the date of disposal.



124







The capital gain accrued
by individuals on the sale of our ordinary shares will be taxed at the rate of 25%. However, if the individual shareholder is a
“Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another, 10% or
more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding twelve
(12) months period, such gain will be taxed at the rate of 30%.



In addition, Individuals
who are subject to tax in Israel are also subject to an additional tax at a rate of 2% in 2016 (to be increased to 3% in 2017 and
thereafter) on annual income exceeding a certain threshold (NIS 803,520 for 2016, and NIS 640,000 for 2017).



The Real Capital Gain
derived by corporations will be generally subject to the ordinary corporate tax (25% in 2016, to be reduced to 24% in 2017 and
23% in 2018 and thereafter).



Individual and corporate
shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income – 25% for corporations
in 2016 (to be reduced to 24% in 2017 and 23% in 2018 and thereafter) and a marginal tax rate of up to 50% in 2016 for individuals,
including a 2% (to be increased to 3% in 2017 and thereafter) excess tax for high earning individuals whose taxable income from
Israeli sources exceeds a certain threshold (NIS 803,520 in 2016 and NIS 640,000 in 2017). Notwithstanding the foregoing, capital
gain derived from the sale of our ordinary shares by a non-Israeli shareholder may be exempt under the Ordinance from Israeli taxation
provided that the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the
securities on the stock exchange (this condition shall not apply to shares purchased on or after January 1, 2009), (ii) the seller
does not have a permanent establishment in Israel to which the derived capital gain is attributed. Non-Israeli corporations will
not be entitled to the foregoing exemptions if (i) an Israeli resident has a controlling interest, directly or indirectly, alone
or together with another (i.e., together with a relative, or together with someone who is not a relative but with whom, according
to an agreement, there is regular cooperation in material matters of the company, directly or indirectly), or together with another
Israeli resident, exceed 25% in one or more of the means of control in such non-Israeli resident corporation or (ii) Israeli residents
are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli resident corporation,
whether directly or indirectly.



In addition, the sale
of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty.



For example, the U.S.-Israel
Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale, provided (i) the U.S. resident
owned, directly or indirectly, less than 10% of an Israeli resident company’s voting power at any time within the 12 month
period preceding such sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183
days at the taxable year; and (iii) the capital gain from the sale was not derived through a permanent establishment of the U.S.
resident in Israel.



In some instances
where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may
be subject to withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on
their capital gains in order to avoid withholding at source at the time of sale.



Either the purchaser,
the Israeli stockbrokers or financial institution through which the shares are held is obliged, subject to the above mentioned
exemptions, to withhold tax upon the sale of securities on the amount of the consideration paid upon the sale of the securities
(or on the real capital gain realized on the sale, if known), at the rate of 25% in respect of an individual, or at a rate of corporate
tax, in respect of a corporation (25% in 2016, 24% in 2017 and 23% in 2018 and thereafter).



At the sale of securities
traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced payment must
be paid on January 31 and June 30 of every tax year in respect of sales of securities made within the previous six months. However,
if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder
the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual
income tax return.



125







Dividends



Distribution of dividends
from income attributed to a Preferred Enterprise is generally subject to a tax at a rate of 20%. However, if such dividends are
distributed to an Israeli company, no tax is imposed. Dividends distributed from income attributed to an Approved Enterprise and/or
a Benefited Enterprise are subject to a tax rate of 15%.



Those rates may be
further reduced under the provisions of any applicable double tax treaty.



If the dividend is
attributable partly to income derived from an Approved Enterprise, Benefited Enterprise or Preferred Enterprise, and partly from
other sources of income, the income tax rate will be a blended rate reflecting the relative portions of the types of income.



A distribution of
dividends from income, which is not attributed to an Approved Enterprise/Benefited Enterprise/Preferred Enterprise to an Israeli
resident individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend
recipient is a “Controlling Shareholder” (as defined above) at the time of distribution or at any time during the preceding
12 months period.



In addition, Individuals
who are subject to tax in Israel are also subject to an additional tax at a rate of 2% in 2016 (to be increased to 3% in 2017 and
thereafter) on annual income exceeding a certain threshold (NIS 803,520 for 2016, and NIS 640,000 for 2017).



If the recipient of
the dividend is an Israeli resident corporation, such dividend will be exempt from income tax provided the income from which such
dividend is distributed was derived or accrued within Israel. The Ordinance generally provides that a non-Israeli resident (either
individual or corporation) is subject to an Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends
recipient is a “Controlling Shareholder” (as defined above), at the time of distribution or at any time during the
preceding 12 months period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty.



Thus, under the U.S.-Israel
Double Tax Treaty the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident:
(i) with regard to a dividend distributed from income which is not attributed to an Approved Enterprise/ Benefited Enterprise/
Preferred Enterprise, if the U.S. resident is a corporation which holds during that portion of the taxable year which precedes
the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding shares
of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income of the Israeli resident
paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends – the maximum tax
rate of withholding is 12.5% if a certificate for a reduced withholding tax rate would be provided in advance from the Israeli
Tax Authority, (ii) with regard to a dividend distributed from income derived from an Approved Enterprise/ Benefited Enterprise/
Preferred Enterprise under the Investments Law, if the U.S. resident is a corporation which holds during that portion of the taxable
year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of
the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income
of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends,
and given the fact that the text of the U.S.-Israel Double Tax Treaty has not been updated, the tax rate of withholding 15% will
be applicable if a certificate for a reduced withholding tax rate would be provided in advance from the Israeli Tax Authority,
and (iii) in all other cases, the tax rate is 25%, or the domestic rate (if such is lower). The aforementioned rates under the
Israel U.S. Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident
in Israel.



A non-Israeli resident
who receives dividend income derived from or accrued from Israel, from which the full amount of tax was withheld at source, is
generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was
not generated from business conducted in Israel by the taxpayer, and (ii) the taxpayer has no other taxable sources of income in
Israel with respect to which a tax return is required to be filed.



126







Payors of dividends
on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institution through which the securities
are held, are generally required, subject to any of the foregoing exemption, reduced tax rates and the demonstration of a shareholder
of his, her or its foreign residency, to withhold taxes upon the distribution of dividends at a rate of 25%, provided that the
shares are registered with a Nominee Company (for corporations and individuals).



Excess Tax



Individuals who are
subject to tax in Israel are also subject to an additional tax at a rate of 2% in 2016 (to be increased to 3% in 2017 and thereafter)
on annual income exceeding a certain threshold (NIS 803,520 for 2016, and NIS 640,000 for 2017), including, but not limited to
income derived from dividends, interest and capital gains.



Foreign Exchange Regulations



Non-residents of Israel
who hold our ordinary shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding
up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli
income tax is generally required to have been paid or withheld on these amounts. In addition, the statutory framework for the potential
imposition of currency exchange control has not been eliminated, and may be restored at any time by administrative action.



Estate and gift tax



Israeli law presently
does not impose estate or gift taxes.



U.S. Federal Income Tax Consequences



The following is a
general summary of what we believe to be certain material U.S. federal income tax consequences relating to the purchase, ownership
and disposition of our ordinary shares by U.S. Investors (as defined below) that hold such ordinary shares as capital assets. This
summary is based on the Code, the regulations of the U.S. Department of the Treasury issued pursuant to the Code, or the Treasury
Regulations, the income tax treaty between the United States and Israel (the “U.S.-Israel Tax Treaty”), and administrative
and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with
retroactive effect, or to different interpretation. No ruling has been sought from the IRS with respect to any U.S. federal income
tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This
summary is for general information purposes only, it does not purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Investor as a result of the purchase, ownership, and disposition of
our ordinary shares, and it does not constitute tax advice. This summary does not address all of the tax considerations that may
be relevant to specific U.S. Investors in light of their particular circumstances or to U.S. Investors subject to special treatment
under U.S. federal income tax law (including, without limitation, banks, financial institutions, insurance companies, tax-exempt
entities, retirement plans, tax-deferred accounts, regulated investment companies, “S corporations,” grantor trusts,
partnerships, dealers or traders in securities or currencies, brokers, real estate investment trusts, certain former citizens or
residents of the United States, persons who acquire our ordinary shares as part of a straddle, hedge, conversion transaction or
other integrated investment, persons subject to the alternative minimum tax, persons who acquire our ordinary shares through the
exercise or cancellation of employee stock options or otherwise as compensation for their services, persons that have a “functional
currency” other than the U.S. dollar, persons that own (or are deemed to own, indirectly or by attribution) 10% or more of
our ordinary shares, or persons that mark their securities to market for U.S. federal income tax purposes). This summary does not
address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, generation skipping or alternative
minimum tax considerations or any U.S. federal tax consequences other than U.S. federal income tax consequences.



127







As used in this summary,
the term “U.S. Investor” means a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes,
(i) an individual citizen or resident of the United States, (ii) a corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District
of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source or (iv) a trust
with respect to which a court within the United States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of its substantial decisions, or that has a valid election in effect under
applicable Treasury Regulations to be treated as a “United States person.”



If an entity treated
as a partnership for U.S. federal income tax purposes holds our ordinary shares, the tax treatment of such partnership and each
partner thereof will generally depend upon the status and activities of the partnership and such partner. A holder that is treated
as a partnership for U.S. federal income tax purposes should consult its own tax advisor regarding the U.S. federal income tax
considerations applicable to it and its partners of the purchase, ownership and disposition of its ordinary shares.



Prospective investors
should be aware that this summary does not address the tax consequences to investors who are not U.S. Investors. Prospective investors
should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership
and disposition of their ordinary shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax
laws.



Taxation of U.S. Investors



The discussions under
“— Distributions” and under “— Sale, Exchange or Other Disposition of Ordinary Shares” below
assumes that we will not be treated as a PFIC for U.S. federal income tax purposes. We believe that we were classified as a PFIC
for 2015, but have not determined whether we will be a PFIC in 2016 or any subsequent year, and it is possible that we will be
a PFIC in 2016 or in any subsequent year. For a discussion of the rules that would apply if we are treated as a PFIC, see the discussion
under “— Passive Foreign Investment Company.”



Distributions. We
have no current plans to pay dividends. To the extent we pay any dividends, a U.S. Investor will be required to include in gross
income as a taxable dividend (without reduction for any Israeli tax withheld from such distribution) the amount of any distributions
made on the ordinary shares to the extent that those distributions are paid out of our current or accumulated earnings and profits
as determined for U.S. federal income tax purposes. Any distributions in excess of our earnings and profits will be applied against
and will reduce (but not below zero) the U.S. Investor’s tax basis in its ordinary shares (thereby increasing the amount
of gain, or decreasing the amount of loss, to be recognized by the U.S. Investor on a subsequent disposition of the ordinary shares),
and, to the extent they exceed that tax basis, will be treated as gain from the sale or exchange of those ordinary shares. We do
not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Investor
should expect that the entire amount of any distribution generally may be treated as dividend income.



If we were to pay
dividends, we expect to pay such dividends in NIS. A dividend paid in NIS, including the amount of any Israeli taxes withheld,
will be includible in a U.S. Investor’s income as a U.S. dollar amount calculated by reference to the exchange rate in effect
on the date such dividend is received, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend
is converted to U.S. dollars on the date of receipt, a U.S. Investor generally will not recognize a foreign currency gain or loss.
However, if the U.S. Investor converts the NIS into U.S. dollars on a later date, the U.S. Investor must include, in computing
its income, any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between
(i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion
of the NIS into U.S. dollars. Such gain or loss will generally be ordinary income or loss and United States source for U.S. foreign
tax credit purposes. U.S. Investors should consult their own tax advisors regarding the tax consequences to them if we pay dividends
in NIS or any other non-U.S. currency.



Subject to certain
significant conditions and limitations, including potential limitations under the U.S.-Israel Tax Treaty, any Israeli income taxes
paid on or withheld from distributions from us and not refundable to a U.S. Investor may be credited against the investor’s
U.S. federal income tax liability or, alternatively, may be deducted from the investor’s taxable income. The election to
deduct, rather than credit, foreign taxes, is made on a year-by-year basis and applies to all foreign taxes paid by a U.S. Investor
or withheld from a U.S. Investor that year. Dividends paid on the ordinary shares generally will constitute income from sources
outside the United States, which may be relevant in calculating a U.S. Investor’s foreign tax credit limitation. The limitation
on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends
paid on our ordinary shares should generally be categorized as “passive category income” or, in the case of some U.S.
Investors, as “general category income” for U.S. foreign tax credit purposes.



128







Because the rules
governing foreign tax credits are complex, U.S. Investors should consult their own tax advisors regarding the availability of foreign
tax credits in their particular circumstances.



Dividends paid on
the ordinary shares will not be eligible for the “dividends-received” deduction generally allowed to corporate U.S.
Investors with respect to dividends received from U.S. corporations.



Certain distributions
treated as dividends that are received by an individual U.S. Investor from “qualified foreign corporations” generally
qualify for a 20% reduced maximum tax rate so long as certain holding period and other requirements are met. A non-U.S. corporation
(other than a corporation that is treated as a PFIC for the taxable year in which the dividend is paid or the preceding taxable
year) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive
tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes
of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock
which is readily tradable on an established securities market in the United States. Dividends paid by us in a taxable year in which
we are not a PFIC and with respect to which we were not a PFIC in the preceding taxable year are expected to be eligible for the
20% reduced maximum tax rate, although we can offer no assurances in this regard. However, any dividend paid by us in a taxable
year in which we are a PFIC or were a PFIC in the preceding taxable year will be subject to tax at regular ordinary income rates
(along with any applicable additional PFIC tax liability, as discussed below). As noted above, we believe that we were classified
as a PFIC for 2015 but have not determined whether we will be a PFIC for any subsequent year. In addition, a non-corporate U.S.
Investor will not be eligible for reduced U.S. federal income tax rate with respect to dividend distributions on ordinary shares
if (a) such U.S. Investor has not held the ordinary shares for at least 61 days during the 121-day period starting on the date
which is 60 days before, and ending 60 days after the ex-dividend date, (b) to the extent the U.S. Investor is under an obligation
to make related payments on substantially similar or related property or (c) with respect to any portion of a dividend that is
taken into account by the U.S. Investor as investment income under Section 163(d)(4)(B) of the Code. Any days during which the
U.S. Investor has diminished its risk of loss with respect to ordinary shares (for example, by holding an option to sell the ordinary
shares) are not counted towards meeting the 61-day holding period. Non-corporate U.S. Investors should consult their own tax advisors
concerning whether dividends received by them qualify for the reduced rate of tax.



The additional 3.8%
net investment income tax (described below) may apply to dividends received by certain U.S. Investors who meet the modified adjusted
gross income thresholds.



Sale, Exchange
or Other Disposition of Ordinary Shares. Subject to the discussion under “— Passive Foreign Investment Company”
below, a U.S. Investor generally will recognize capital gain or loss upon the sale, exchange or other disposition of our ordinary
shares in an amount equal to the difference between the amount realized on the sale, exchange or other disposition and the U.S.
Investor’s adjusted tax basis in such ordinary shares. The adjusted tax basis in an ordinary share generally will be equal
to the cost basis of such ordinary share. This capital gain or loss will be long-term capital gain or loss if the U.S. Investor’s
holding period in our ordinary shares exceeds one year. Preferential tax rates for long-term capital gain (currently, with a maximum
rate of 20%) will apply to individual U.S. Investors. The deductibility of capital losses is subject to limitations. The gain or
loss will generally be income or loss from sources within the United States for U.S. foreign tax credit purposes, possibly subject
to certain exceptions under the U.S.-Israel Tax Treaty. Additionally, certain losses may be treated as foreign source to the extent
certain dividends were received by the U.S. Investor within the 24-month period preceding the date on which the U.S. Investor recognized
the loss. The additional 3.8% net investment income tax (described below) may apply to gains recognized upon the sale, exchange
or other taxable disposition of our ordinary shares by certain U.S. Investors who meet the modified adjusted gross income thresholds.



U.S. Investors should
consult their own tax advisors regarding the U.S. federal income tax consequences of receiving currency other than U.S. dollars
upon the disposition of their ordinary shares.



129







Passive Foreign
Investment Company



In general, a corporation
organized outside the United States will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which
either (i) at least 75% of its gross income is “passive income” or (ii) on average at least 50% of its assets by value
produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among
other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the
sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary
investment of funds, including those raised in a public offering. Assets that produce or are held for the production of passive
income include, among other things, cash, even if held as working capital or raised in a public offering, marketable securities
and other assets that may produce passive income. In determining whether a non-U.S. corporation is a PFIC, a proportionate share
of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken
into account.



A foreign corporation’s
PFIC status is an annual determination that is based on tests that are factual in nature and our status for any year will depend
on our income, assets, and activities for such year, including, without limitation, how quickly we use the cash proceeds from our
initial public offering in the United States in our business. In addition, because the value of our gross assets may be determined
in part by reference to our market capitalization, a decline in the value of our ordinary shares may result in our becoming a PFIC.
We expect to have been classified as a PFIC for 2015, but have not determined whether we will be a PFIC in 2016 or in future years.
Because the PFIC determination is highly fact intensive, there can be no assurance that we will not be a PFIC in 2016 or any subsequent
year.



U.S. Investors should
be aware of certain tax consequences of investing directly or indirectly in us if we are a PFIC. A U.S. Investor is subject to
different rules depending on whether the U.S. Investor makes an election to treat us as a “qualified electing fund,”
known as a QEF election, makes a “mark-to-market” election with respect to the ordinary shares, or makes neither election.
An election to treat us as a QEF will not be available if we do not provide the information necessary to make such an election.
It is not expected that a U.S. Investor will be able to make a QEF election because we do not intend to provide U.S. Investors
with the information necessary to make a QEF election.



QEF Election. One
way in which certain of the adverse consequences of PFIC status can be mitigated is for a U.S. Investor to make a QEF election.
Generally, a shareholder making the QEF election is required for each taxable year to include in income a pro rata share of the
ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral is
subject to an interest charge. An election to treat us as a QEF will not be available if we do not provide the information necessary
to make such an election. It is not expected that a U.S. Investor will be able to make a QEF election because we do not intend
to provide U.S. Investors with the information necessary to make a QEF election. As discussed below, however, a mark-to-market
election that may alleviate some of the adverse consequences of PFIC status may be available to a U.S. Investor.



Mark-to-Market
Election. Alternatively, if our ordinary shares are treated as “marketable stock,” a U.S. Investor would be
allowed to make a “mark-to-market” election with respect to our ordinary shares, provided the U.S. Investor completes
and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made,
the U.S. Investor generally would include as ordinary income in each taxable year the excess, if any, of the fair market value
of our ordinary shares at the end of the taxable year over such holder’s adjusted tax basis in such ordinary shares. Thus,
the U.S. Investor may recognize taxable income without receiving any cash to pay its tax liability with respect to such income.
The U.S. Investor would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Investor’s adjusted
tax basis in our ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the net
amount previously included in income as a result of the mark-to-market election. A U.S. Investor’s tax basis in our ordinary
shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of
our ordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of our
ordinary shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously
included in income by the U.S. Investor, and any loss in excess of such amount will be treated as capital loss. Amounts treated
as ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital
gains.



130







Generally, stock will
be considered marketable stock if it is “regularly traded” on a “qualified exchange” within the meaning
of applicable Treasury Regulations. A class of stock is regularly traded on an exchange during any calendar year during which such
class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. To be marketable
stock, our ordinary shares must be regularly traded on a qualifying exchange (i) in the United States that is registered with the
SEC or a national market system established pursuant to the Exchange Act or (ii) outside the United States that is properly regulated
and meets certain trading, listing, financial disclosure and other requirements. Our ordinary shares are expected to constitute
“marketable stock” as long as they remain listed on the NASDAQ Capital Market and are regularly traded.



A mark-to-market election
will not apply to our ordinary shares held by a U.S. Investor for any taxable year during which we are not a PFIC, but will remain
in effect with respect to any subsequent taxable year in which we become a PFIC. The election will not remain in effect if the
ordinary shares are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. A
mark-to-market election will not apply to any PFIC subsidiary that we own. Each U.S. Investor is encouraged to consult its own
tax advisor with respect to the availability and tax consequences of a mark-to-market election with respect to our ordinary shares.



Each U.S. investor
should consult its own tax adviser with respect to the applicability of the “net investment income tax” (discussed
below) where a mark-to-market election is in effect.



Default PFIC Rules. A
U.S. Investor who does not make a timely QEF election or a mark-to-market election, referred to in this disclosure as a “Non-Electing
U.S. Investor,” will be subject to special rules with respect to (i) any “excess distribution” (generally, the
portion of any distributions received by the Non-Electing U.S. Investor on the ordinary shares in a taxable year in excess of 125%
of the average annual distributions received by the Non-Electing U.S. Investor in the three preceding taxable years, or, if shorter,
the Non-Electing U.S. Investor’s holding period for the ordinary shares), and (ii) any gain realized on the sale or other
disposition of such ordinary shares. Under these rules:



| | • | the excess distribution or gain would be allocated ratably over the Non-Electing U.S. Investor’s holding period for such ordinary shares;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | the amount allocated to the current taxable year and any year prior to us becoming a PFIC would be taxed as ordinary income; and
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a Non-Electing
U.S. Investor who is an individual dies while owning our ordinary shares, the Non-Electing U.S. Investor’s successor would
be ineligible to receive a step-up in tax basis of such ordinary shares. Non-Electing U.S. Investors should consult their tax advisors
regarding the application of the “net investment income tax” (described below) to their specific situation.



To the extent a distribution
on our ordinary shares does not constitute an excess distribution to a Non-Electing U.S. Investor, such Non-Electing U.S. Investor
generally will be required to include the amount of such distribution in gross income as a dividend to the extent of our current
or accumulated earnings and profits (as determined for U.S. federal income tax purposes) that are not allocated to excess distributions.
The tax consequences of such distributions are discussed above under “— Taxation of U.S. Investors — Distributions.”
Each U.S. Investor is encouraged to consult its own tax advisor with respect to the appropriate U.S. federal income tax treatment
of any distribution on our ordinary shares.



If we are treated
as a PFIC for any taxable year during the holding period of a Non-Electing U.S. Investor, we will continue to be treated as a PFIC
for all succeeding years during which the Non-Electing U.S. Investor is treated as a direct or indirect Non-Electing U.S. Investor
even if we are not a PFIC for such years. A U.S. Investor is encouraged to consult its tax advisor with respect to any available
elections that may be applicable in such a situation, including the “deemed sale” election of Section 1298(b)(1) of
the Code (which will be taxed under the adverse tax rules described above).



131







We may invest in the
equity of foreign corporations that are PFICs or may own subsidiaries that own PFICs. If we are classified as a PFIC, under attribution
rules U.S. Investors will be subject to the PFIC rules with respect to their indirect ownership interests in such PFICs, such that
a disposition of the ordinary shares of the PFIC or receipt by us of a distribution from the PFIC generally will be treated as
a deemed disposition of such ordinary shares or the deemed receipt of such distribution by the U.S. Investor, subject to taxation
under the PFIC rules. There can be no assurance that a U.S. Investor will be able to make a QEF election with respect to PFICs
in which we invest, and a U.S. Investor may not make a mark-to-market election with respect to a PFIC in which we invest. Each
U.S. Investor is encouraged to consult its own tax advisor with respect to tax consequences of an investment by us in a corporation
that is a PFIC.



Under Section 1291(f)
of the Code, the IRS has issued proposed Treasury regulations that, subject to certain exceptions, would cause a U.S. Investor
that had not made a timely QEF election to recognize gain upon certain transfers of our ordinary shares that would otherwise not
be subject to U.S. federal income tax (e.g., gifts and exchanges pursuant to corporate reorganizations).



The U.S. federal
income tax rules relating to PFICs, QEF elections, and mark-to market elections are complex. U.S. Investors are urged to consult
their own tax advisors with respect to the purchase, ownership and disposition of our ordinary shares, any elections available
with respect to such ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and
disposition of our ordinary shares.



Certain Reporting Requirements



Certain U.S. Investors
are required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and certain U.S. Investors may
be required to file IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers
of cash or other property to us and information relating to the U.S. Investor and us. Substantial penalties may be imposed upon
a U.S. Investor that fails to comply.



In any year in which
we are classified as a PFIC, a U.S. Investor will be required to file IRS Form 8621 (Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund).



In addition, recently
enacted legislation requires certain U.S. Investors to report information on IRS Form 8938 with respect to their investments in
certain “foreign financial assets,” which would include an investment in our ordinary shares, to the IRS.



Investors who fail
to report required information could become subject to substantial civil and criminal penalties. U.S. Investors should consult
their tax advisors regarding the possible implications of these reporting requirements on their investment in our ordinary shares.



Disclosure of Reportable Transactions



If a U.S. Investor
sells or disposes of the ordinary shares at a loss or otherwise incurs certain losses that meet certain thresholds, such U.S. Investor
may be required to file a disclosure statement with the IRS. Failure to comply with these and other reporting requirements could
result in the imposition of significant penalties.



Backup Withholding Tax and Information
Reporting Requirements



Generally, information
reporting requirements will apply to distributions on our ordinary shares or proceeds on the disposition of our ordinary shares
paid within the United States (and, in certain cases, outside the United States) to U.S. Investors other than certain exempt recipients,
such as corporations. Furthermore, backup withholding (currently at 28%) may apply to such amounts if the U.S. Investor fails to
(i) provide a correct taxpayer identification number, (ii) report interest and dividends required to be shown on its U.S. federal
income tax return, or (iii) make other appropriate certifications in the required manner. U.S. Investors who are required to establish
their exempt status generally must provide such certification on IRS Form W-9.



132







Backup withholding
is not an additional tax. Amounts withheld as backup withholding from a payment may be credited against a U.S. Investor’s
U.S. federal income tax liability and such U.S. Investor may obtain a refund of any excess amounts withheld by filing the appropriate
claim for refund with the IRS and furnishing any required information in a timely manner.



Medicare Tax on Investment Income



Certain U.S. persons,
including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax, or “net investment income
tax,” on unearned income. For individuals, the additional net investment income tax applies to the lesser of (i) “net
investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married
and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s
gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive
income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Investors are urged to consult their own
tax advisors regarding the implications of the additional net investment income tax resulting from their ownership and disposition
of our ordinary shares.



THE DISCUSSION ABOVE IS A GENERAL SUMMARY.
IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PROSPECTIVE INVESTOR. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES
IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.



F. Dividends and Paying Agents.



Not applicable.



G. Statements by Experts.



Not applicable.



H. Documents on Display.



You may read and copy
this Annual Report on Form 20-F, including the related exhibits and schedules, and any document we file with the SEC without charge
at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of
the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington,
DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an
Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings
with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.



As a foreign private
issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and
our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. Furthermore, as a foreign private issuer, we are also not subject to the requirements
of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we will not be required under the Exchange
Act to file annual or other reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act. Instead, we will file with the SEC, within 120 days after the end of each fiscal
year, or such other applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited
by an independent registered public accounting firm. We also intend to furnish certain other material information to the SEC under
cover of Form 6-K.



In addition, because
our ordinary shares are traded on the TASE, we have filed Hebrew language periodic and immediate reports with, and furnish information
to, the TASE and the ISA, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our filings with the ISA
can be retrieved electronically through the MAGNA distribution site of the ISA (www.magna.isa.gov.il) and the TASE website
(www.maya.tase.co.il).



133







We maintain a corporate
website at www.intecpharma.com. Information contained on, or that can be accessed through, our website does not constitute
a part of this annual report on Form 20-F. We have included our website address in this annual report on Form 20-F solely as an
inactive textual reference.



I. Subsidiary Information.



Not applicable.



ITEM 11. Quantitative and Qualitative Disclosures About Market
Risk.



Quantitative and Qualitative Disclosure
About Market Risk



We are exposed to
market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in financial market prices and rates, including interest rates and foreign
exchange rates, of financial instruments.



Foreign Currency Exchange Risk



Effective January
1, 2016 our reporting and functional currency is the dollar. However we pay a significant portion of our expenses in NIS and Euro,
i.e. payments to employees, sub-contractors and consultants for clinical trials and other research and development activities,
and we expect this to continue. If the dollar weakens against the NIS and Euro in the future, there may be a negative impact on
our results of operations.



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



Set forth below is
a sensitivity test to possible changes in U.S. dollars / NIS and U.S. dollars / Euro exchange rates as of December 31, 2016:



|                                                                     |  | December 31, 2016                                                      |     
|-------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ----
|Sensitive instrument                                                 |  | Income (loss) from change in exchange rate (U.S. dollars in thousands) |     
|                                                                     |  | Down 10%                                                               |     
|NIS-linked balances:                                                 |  |                                                                        |     
|Cash and cash equivalents                                            |  |                                                                        | (126
|Financial assets at fair value through profit or loss                |  |                                                                        | (168
|Other receivable (except prepaid expenses and advances to suppliers) |  |                                                                        | (66 
|Accounts payable and accruals                                        |  |                                                                        | 81  
|Total NIS-linked balances                                            |  |                                                                        | (279
|Euro-linked balances:                                                |  |                                                                        |     
|Cash and cash equivalents                                            |  |                                                                        | (139
|Accounts payable and accrued expenses                                |  |                                                                        | 24  
|Total Euro-linked balances                                           |  |                                                                        | (115
|Total                                                                |  |                                                                        | (394



134







Interest Rate Risk



We have an exposure
to interest income sensitivity, which is affected by changes in the general level of Israeli interest rates. We currently do not
hedge against interest rate exposure. Because of the short-term maturities of our cash equivalents and investment securities, we
do not believe that an increase in market rates would have any significant impact on the realized value of our investment securities.
A 10% change in interest rates would not have a material effect on the fair value of our investment portfolio.



We do not anticipate undertaking any significant long-term borrowings.
At present, our investments consist primarily of cash and cash equivalents and financial assets at fair value. We may invest in
investment-grade marketable securities with maturities of up to three years, including commercial paper, money market funds, and
government/non-government debt securities. The primary objective of our investment activities is to preserve principal while maximizing
the income that we receive from our investments without significantly increasing risk and loss.



ITEM 12. Description of Securities Other Than Equity Securities.



A. Debt Securities.



Not applicable.



B. Warrants and Rights.



Not applicable.



C. Other Securities.



Not applicable.



D. American Depositary Shares.



Not applicable.



135







PART
II



ITEM 13. Defaults, Dividend Arrearages and Delinquencies.



Not applicable.



ITEM 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds.



| | A. | Not applicable.
| | -- | ---------------



| | B. | Not applicable.
| | -- | ---------------



| | C. | Not applicable.
| | -- | ---------------



| | D. | Not applicable.
| | -- | ---------------



E. Use of Proceeds.



On August 7, 2015,
we completed our initial public offering of 5,025,000 ordinary shares at a public offering price of $6.00 per ordinary share. On
September 18, 2015, the underwriters’ exercised their underwriters’ option in part to purchase an additional 638,750
ordinary shares to cover over-allotments, for aggregate gross offering proceeds of approximately $34.0 million. Maxim Group LLC
and Roth Capital Partners acted as joint book-running managers of the offering.



We received aggregate
net proceeds from the offering of approximately $30.32 million, after deducting approximately $2.38 million of underwriting discounts
and commissions and approximately $1.3 million of estimated offering expenses directly payable by us. None of the underwriting
discounts and commissions or other offering expenses were incurred or paid to our directors or officers or their associates or
to persons owning ten percent or more of our ordinary shares or to any of our affiliates.



As of December 31,
2016, the net proceeds from our initial public offering were held in cash and cash equivalents. Since then, we have deployed approximately
$18.2 million to fund our Phase III clinical trial for our current product candidate, AP-CDLD, and its continued development, and
the balance for working capital, capital expenditures and other general corporate purposes, including a Phase I clinical trial
with our AP-THC/CBD product that we plan to initiate in March 2017. We will need to raise additional capital in order to complete
our Phase III clinical trial for AP-CDLD and its continued development. We have broad discretion in the use of the net proceeds
from our initial public offering and could spend the proceeds in ways that do not improve our results of operations or enhance
the value of our ordinary shares.



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



ITEM 15. Controls and Procedures.



Disclosure Controls and Procedures



We performed an evaluation
of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported timely within the
time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act, is accumulated and communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control
objectives. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d) - 15(e) of the Exchange Act) as of the end
of the period covered by this report are effective at such reasonable assurance level.



136







Management’s Annual Report
on Internal Control over Financial Reporting



Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.
Based principally on the framework in Internal Control - Integrated Framework (2013 framework) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that
our internal control over financial reporting was effective as of December 31, 2016.



Attestation Report of the Registered Public Accounting
Firm



The effectiveness
of our internal control over financial reporting as of December 31, 2016 has not been audited by our registered public accounting
firm due to an exemption for emerging growth companies provided in the JOBS Act.



Changes in Internal Control over Financial Reporting



There were no changes
in our internal control over financial reporting that occurred during the year ended December 31, 2016 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.



Limitations on Effectiveness of Controls and Procedures



In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management
is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.



ITEM 16. [RESERVED]



ITEM 16A. Audit Committee Financial Expert.



Our board of directors
affirmatively determined that Gil Bianco is an audit committee financial expert as defined by the SEC rules and has the requisite
financial experience as defined by the NASDAQ Capital Market corporate governance rules. For information relating to Mr. Bianco’s
qualifications and experience, see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”



ITEM 16B. Code of Ethics.



We have adopted a
Code of Business Conduct and Ethics applicable to all of our directors and employees, including our Chief Executive Officer, Chief
Financial Officer, controller or principal accounting officer or other persons performing similar functions, which is a “code
of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC and as required by the Nasdaq Capital Market Listing
Rules, which refers to Section 406(c) of the Sarbanes-Oxley Act. Section 406(c) of the Sarbanes-Oxley Act provides that a “code
of ethics” means such standards as are reasonably necessary to promote (i) honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate,
timely and understandable disclosure in the periodic reports required to be filed by the issuer; and (iii) compliance with applicable
governmental rules and regulation.



137







The full text of the
Code of Business Conduct and Ethics is posted on our website at www.intecpharma.com. Information contained on, or
that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference
herein. We will provide a copy of such code of ethics without charge upon request by mail or by telephone. If we make any amendment
to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of the Code of
Business Conduct and Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the
rules and regulations of the SEC.



ITEM 16C. Principal Accountant Fees and Services.



Kesselman & Kesselman,
Certified Public Accountant (Israel), a member firm of PricewaterhouseCoopers International Limited, an independent registered
public accounting firm, served as our independent public accountants for the fiscal years ended December 31, 2016 and 2015, for
which audited financial statements appear in this Annual Report on Form 20-F.



The following table
presents the aggregate fees for professional services rendered by such accountants to us during their respective term as our principal
accountants in 2015 and 2016.



|                       |  | 2016               |     |  | 2015               | 
|---------------------- |  | ------------------ | --- |  | ------------------ | 
|                       |  | (US$ in thousands) |     |  | (US$ in thousands) | 
|Audit Fees (1)         |  |                    | 110 |  |                    | 
|Audit-Related Fees (2) |  |                    | -   |  |                    | 
|Tax Fees (3)           |  |                    | -   |  |                    | 
|All Other Fees (4)     |  |                    | -   |  |                    | 
|Total                  |  |                    | 110 |  |                    | 



(1) Audit fees consists of services that
would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally
only the independent accountant can reasonably provide, and including audit services in connection with our initial public offering
in the United States in August 2015.

(2) Audit-related fees would be assurance
and related services by the principal accountant that are reasonably related to the performance of the audit or review of our financial
statements and are not reported under item (1).

(3) Tax fees relate to tax compliance,
planning and advice.

(4) All other fees would be fees billed
for products and services provided by the principal accountant, other than the services reported in items (1) through (3).



Audit Committee
Pre-Approval Policies and Procedures



Our audit committee
provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting,
auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent
accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting.
Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary
to satisfy itself that the accountants are independent of management. Our audit committee has authorized all auditing and non-auditing
services provided by Kesselman & Kesselman during 2015 and 2016 and the fees paid for such services.



ITEM 16D. Exemptions from the Listing Standards for Audit
Committees.



Not applicable.



ITEM 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.



Not applicable.



ITEM 16F. Change in Registrant’s Certifying Accountant.



Not applicable.



138







ITEM 16G. Corporate Governance.



Companies incorporated
under the laws of the State of Israel whose shares are publicly traded, including companies with shares listed on the NASDAQ Capital
Market, are considered public companies under Israeli law and are required to comply with various corporate governance requirements
under Israeli law relating to such matters as external directors, the audit committee, the compensation committee and an internal
auditor. These requirements are in addition to the corporate governance requirements imposed by the Listing Rules of the NASDAQ
Capital Market and other applicable provisions of U.S. securities laws to which we became subject (as a foreign private issuer)
upon the closing of our initial public offering in the United States and the listing of our ordinary shares on the NASDAQ Capital
Market. Under the Listing Rules of the NASDAQ Capital Market, a foreign private issuer, such as us, may generally follow its home
country rules of corporate governance in lieu of the comparable requirements of the Listing Rules of the NASDAQ Capital Market,
except for certain matters including (among others) the composition and responsibilities of the audit committee and the independence
of its members within the meaning of the rules and regulations of the SEC.



NASDAQ Capital Market Listing Rules and Home Country Practices



In accordance with
Israeli law and practice, and subject to the exemption set forth in Rule 5615 of the Listing Rules of the NASDAQ Capital Market,
if our ordinary shares are approved for listing on the NASDAQ Capital Market we intend to follow the provisions of the Companies
Law, rather than the Listing Rules of the NASDAQ Capital Market, with respect to the following requirements:



| | • | Distribution of certain reports to shareholders. As opposed to the Listing Rules of the NASDAQ Capital Market, which require listed issuers to make certain reports, such as annual reports, interim reports and quarterly reports, available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders, but to make such reports available through a public website. In addition to making such reports available on a public website, we plan to make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC’s proxy solicitation rules. See “Where You Can Find More Information” for a description of our Exchange Act reporting obligations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Nomination of directors.With the exception of our external directors and directors elected by our board of directors due to vacancy, our directors are elected by an annual meeting of our shareholders to hold office until the next annual meeting following his or her election. See “Management — Board Practices.” The nominations for directors, which are presented to our shareholders by our board of directors, are generally made by the board of directors itself, in accordance with the provisions of our articles of association and the Companies Law. Nominations need not be made by a nominating committee of our board of directors consisting solely of independent directors or by independent directors constituting a majority of independent directors, as required under the Listing Rules of the NASDAQ Capital Market.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Compensation of officers.We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities of our compensation committee, office holder compensation and any required approval by the shareholders of such compensation. Israeli law and our articles of association do not require thatthe independent members of our board of directors, or a compensation committee composed solely of independent members of our board of directors, determine an executive officer’s compensation, as is generally required under the Listing Rules of the NASDAQ Capital Market with respect to the Chief Executive Officer and all other executive officers of a company. However, the Companies Law requires that each of our audit and compensation committees be comprised of at least three members, including all of our external directors, and that the external or independent directors must constitute a majority of the members of each committee. See “Management — Board Practices — External Directors.” In addition, the Companies Law requires that additional members of the compensation committee and the external directors be compensated equally. Our compensation committee has been established and conducts itself in accordance with the provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law. Furthermore, compensation of office holders is determined and approved by our compensation committee, and in general, by our board of directors as well, and in certain circumstances by our shareholders. Thus, we will seek shareholder approval for all corporate actions with respect to office holder compensation (including the compensation required to be approved for our chief executive officer) requiring such approval under the requirements of the Companies Law, including seeking prior approval of the shareholders for the compensation policy and for certain office holder compensation, rather than seeking approval for such corporate actions in accordance with Listing Rules of the NASDAQ Capital Market. For more information, see “Compensation Committee and Compensation Policy.”
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



139







| | • | Compensation Committee. According to the Companies Law, we established a compensation committee. Prior to the consummation of our initial public offering in the United States, our board of directors affirmatively determined that each member of our compensation committee qualifies as “independent” under applicable NASDAQ Capital Market and SEC rules.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Independent directors. Israeli law does not require that a majority of the directors serving on our Board be “independent,” as defined under NASDAQ Capital Market Listing Rule 5605(a)(2), but rather requires we have at least two external directors who meet the requirements of the Companies Law, as further described under “Management — Board Practices — External Directors.” We are required, however, to ensure that all members of our audit committee are “independent” under the Companies Law and the applicable NASDAQ Capital Market and SEC criteria for independence and under Israeli law, the audit committee and compensation committee must each include all external directors then serving on our board of directors. We must also ensure that a majority of the members of our audit committee are “unaffiliated directors” as defined in the Companies Law as further described under the caption “— Audit Committee — Companies Law Requirements.” Israeli law does not require that our independent directors conduct regularly scheduled meetings at which only such independent directors are present, as required by the NASDAQ Capital Market Listing Rules. Our board of directors affirmatively determined that each of Dr. John W. Kozarich, Gil Bianco, Hila Karah and Issac Silberman qualified as “independent” under the NASDAQ Capital Market independence standards.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Shareholder approval. We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, rather than seeking approval for corporate actions in accordance with NASDAQ Capital Market Listing Rule 5635. In particular, under this NASDAQ Capital Market rule, shareholder approval is generally required for: (i) an acquisition of shares or assets of another company that involves the issuance of 20% or more of the acquirer’s shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption or amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (or via sales by directors, officers or 5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Companies Law, shareholder approval is required for, among other things: (a) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (b) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval further described under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (c) terms of office and employment or other engagement of our controlling shareholder, if any, or such controlling shareholder’s relative, which require the special approval further described under “Disclosure of personal interests of controlling shareholders and approval of certain transactions,” (d) approval of transactions with our Chief Executive Officer with respect to his or her compensation, whether in accordance with our approved compensation policy or not in accordance with ourapproved compensation policy, or transactions with our officers not in accordance with our approved compensation policy, and (e) approval of our compensation policy for office holders. In addition, under the Companies Law, a merger requires approval of the shareholders of each of the merging companies. Moreover, on July 25, 2016, the board of directors resolved to increase the aggregate number of shares issuable under the 2015 Plan by 700,000 shares, and amended the 2015 Plan. In connection with the aforementioned increase, we have not obtained a shareholder approval as required under NASDAQ Listing Rules and followed in lieu home practice rules that do not require such approval. See also “Additional Information — Memorandum and Articles of Association — Merger.”
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



140







| | • | Quorum for shareholder meetings. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or by other voting instrument in accordance with the Companies Law, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, any number of shareholders), instead of 33 1⁄3% of the issued share capital required under the NASDAQ Capital Market corporate governance rules.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other than the foregoing
home country practices, we otherwise comply with the rules generally applicable to U.S. domestic companies listed on the NASDAQ
Capital Market. We may in the future decide to use the foreign private issuer exemption with respect to some or all of the other
NASDAQ Capital Market corporate governance rules. Following our home country corporate governance practices as opposed to the requirements
that would otherwise apply to a U.S. company listed on the NASDAQ Capital Market may provide less protection to you than what is
accorded to investors under the Listing Rules of the NASDAQ Capital Market applicable to domestic U.S. issuers.



ITEM 16H. Mine Safety Disclosure.



Not applicable.



141







PART
III



ITEM 17. Financial Statements.



We have responded to Item 18 in lieu of
responding to this item.



ITEM 18. Financial Statements.



Please refer to the
financial statements beginning on page F-1. The following financial statements, financial statement schedules and related notes
are filed as part of this Annual Report on Form 20-F, together with the report of the independent registered public accounting
firm.





142







INTEC PHARMA LTD.

2016 ANNUAL REPORT



143







INTEC PHARMA LTD.

2016 ANNUAL REPORT



TABLE OF CONTENTS



|                                                        | Page    
|------------------------------------------------------- | --------
|                                                        |         
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2     
|FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016:           |         
|Statements of Financial Position                        | F-3     
|Statements of Comprehensive Loss                        | F-4     
|Statements of Changes in Equity                         | F-5     
|Statements of Cash Flows                                | F-6-F-7 
|Notes to the Financial Statements                       | F-8-F-34





















REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders of

INTEC PHARMA LTD.



We have audited the accompanying statements
of financial position of Intec Pharma Ltd. (the “Company”) at December 31, 2015 and 2016 and the related statements
of comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2016. These
financial statements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express
an opinion on these financial statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the Company's Board of Directors and management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.



In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2015 and 2016 and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2016,in conformity withInternational
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).



The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. As discussed in Note 1a(2) to the financial statements, the
Company has suffered recurring losses from operations and negative cash outflows from operating activities that raise substantial
doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note
1a(2). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



As discussed in Note 2b to the financial statements,
the Company changed its functional and presentation currency from New Israeli Shekels to US dollars.



|Tel-Aviv, Israel | /s/ Kesselman & Kesselman                                    
|---------------- | -------------------------------------------------------------
|April 6, 2017    | Certified Public Accountants (Isr.)                          
|                 | A member firm of PricewaterhouseCoopers International Limited





Kesselman & Kesselman, Trade Tower, 25 Hamered Street,
Tel-Aviv 6812508, Israel,

P.O Box 50005 Tel-Aviv 6150001 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il













INTEC PHARMA LTD.

STATEMENTS OF FINANCIAL POSITION



|                                                      |  |      |  | January 1,                |         |   | December 31 | 
|----------------------------------------------------- |  | ---- |  | ------------------------- | ------- | - | ----------- | 
|                                                      |  | Note |  | 2015                      |         |   | 2015        | 
|                                                      |  |      |  | U.S. dollars in thousands |        
|Assets                                                |  |      |  |                           |         |   |             | 
|CURRENT ASSETS:                                       |  |      |  |                           |         |   |             | 
|Cash and cash equivalents                             |  | 5    |  |                           | 5,731   |   |             | 
|Short-term bank deposits                              |  |      |  |                           |         |   |             | 
|Financial assets at fair value through profit or loss |  | 6    |  |                           | 2,011   |   |             | 
|Restricted bank deposits                              |  | 11d  |  |                           | 75      |   |             | 
|Other receivables                                     |  | 7    |  |                           | 288     |   |             | 
|                                                      |  |      |  |                           | 8,105   |   |             | 
|NON-CURRENT ASSETS -                                  |  |      |  |                           |         |   |             | 
|Property and equipment                                |  | 8    |  |                           | 4,397   |   |             | 
|TOTAL  ASSETS                                         |  |      |  |                           | 12,502  |   |             | 
|                                                      |  |      |  |                           |         |   |             | 
|Liabilities and equity                                |  |      |  |                           |         |   |             | 
|CURRENT LIABILITIES -                                 |  |      |  |                           |         |   |             | 
|Accounts payable and accruals:                        |  |      |  |                           |         |   |             | 
|Trade                                                 |  |      |  |                           | 184     |   |             | 
|Other                                                 |  | 9    |  |                           | 1,673   |   |             | 
|                                                      |  |      |  |                           | 1,857   |   |             | 
|NON-CURRENT LIABILITIES -                             |  |      |  |                           |         |   |             | 
|Derivative financial instruments                      |  | 10   |  |                           | 1,164   |   |             | 
|COMMITMENTS AND CONTINGENT LIABILITIES                |  | 11   |  |                           |         |   |             | 
|TOTAL  LIABILITIES                                    |  |      |  |                           | 3,021   |   |             | 
|                                                      |  |      |  |                           |         |   |             | 
|EQUITY:                                               |  | 13   |  |                           |         |   |             | 
|Ordinary shares                                       |  |      |  |                           | 727     |   |             | 
|Share premium                                         |  |      |  |                           | 50,863  |   |             | 
|Currency translation differences                      |  |      |  |                           | 286     |   |             | 
|Warrants                                              |  |      |  |                           | 605     |   |             | 
|Accumulated deficit                                   |  |      |  |                           | (43,000 | ) |             | 
|TOTAL  EQUITY                                         |  |      |  |                           | 9,481   |   |             | 
|TOTAL  LIABILITIES AND EQUITY                         |  |      |  |                           | 12,502  |   |             | 



* See
note 2b regarding the presentation of January 1, 2015 balance sheet information.



The accompanying notes are an integral part
of the financial statements.



F-3







INTEC PHARMA LTD.



STATEMENTS OF COMPREHENSIVE
LOSS

|                                                                 |  |          |  | Year ended December 31    |       
|---------------------------------------------------------------- |  | -------- |  | ------------------------- | ------
|                                                                 |  | Note     |  | 2014                      |       
|                                                                 |  |          |  | U.S. dollars in thousands |       
|                                                                 |  |          |  |                           |       
|RESEARCH AND DEVELOPMENT EXPENSES                                |  | 14       |  |                           | (4,959
|LESS- PARTICIPATION IN RESEARCH AND DEVELOPMENT EXPENSES         |  | 11b, 11c |  |                           | 1,550 
|RESEARCH AND DEVELOPMENT EXPENSES,
    net                       |  |          |  |                           | (3,409
|GENERAL AND ADMINISTRATIVE EXPENSES                              |  | 15       |  |                           | (2,609
|OTHER GAINS,
    net                                             |  | 6        |  |                           | 234   
|OPERATING LOSS                                                   |  |          |  |                           | (5,784
|FINANCIAL INCOME                                                 |  | 16       |  |                           | 318   
|FINANCIAL EXPENSES                                               |  | 16       |  |                           | (227  
|FINANCIAL INCOME, net                                            |  |          |  |                           | 91    
|NET LOSS                                                         |  |          |  |                           | (5,693
|OTHER
    COMPREHENSIVE  LOSS - CURRENCY TRANSLATION DIFFERENCES |  |          |  |                           | (805  
|LOSS AND COMPREHENSIVE LOSS                                      |  |          |  |                           | (6,498



|                                          |  |    |  | $ |      
|----------------------------------------- |  | -- |  | - | -----
|BASIC AND DILUTED LOSS PER ORDINARY SHARE |  | 17 |  |   | (1.18



The accompanying notes are an integral
part of the financial statements.



F-4







INTEC PHARMA LTD.

STATEMENTS OF CHANGES IN EQUITY







|                                                                                       |  | Ordinary shares      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|-------------------------------------------------------------------------------------- |  | -------------------- | ---------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --- | ----------------- |  |  | -------- |  |  | ------------------------------------ | ------ | - | ----------------------- | 
|                                                                                       |  | Number
    of shares |            |  | Issued
                                         andpaid-up share
                                         capital |  |     | Share
    premium |  |  | Warrants |  |  | Currency
    translation differences |        |   | Accumulated
    deficit | 
|                                                                                       |  |                      |            |  | U.S. dollars in thousands                                                                                         | 
|BALANCE AT JANUARY 1, 2014                                                             |  |                      | 4,555,531  |  |                                                                                                                   |  | 614 |                   |  |  | 42,805   |  |  |                                      | 2,356  |   |                         | 
|CHANGES DURING 2014:                                                                   |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Proceeds from issuance
    of shares and warrants net of issuance costs                |  |                      | 577,795    |  |                                                                                                                   |  | 78  |                   |  |  | 4,166    |  |  |                                      | 246    |   |                         | 
|Proceeds from issuance
    of shares as part of an addendum to an investment agreement |  |                      | 202,018    |  |                                                                                                                   |  | 26  |                   |  |  | 1,665    |  |  |                                      |        |   |                         | 
|Issuance of shares
    to former related party                                         |  |                      | 50,909     |  |                                                                                                                   |  | 7   |                   |  |  | 66       |  |  |                                      |        |   |                         | 
|Expiration of warrants (Series 1)                                                      |  |                      |            |  |                                                                                                                   |  |     |                   |  |  | 1,385    |  |  |                                      | (1,385 | ) |                         | 
|Expiration of non-tradable
    warrants                                                |  |                      |            |  |                                                                                                                   |  |     |                   |  |  | 612      |  |  |                                      | (612   | ) |                         | 
|Exercise of options
    by employees and service providers                             |  |                      | 14,214     |  |                                                                                                                   |  | 2   |                   |  |  | 164      |  |  |                                      |        |   |                         | 
|Share-based compensation                                                               |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Other comprehensive loss                                                               |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Comprehensive loss                                                                     |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|BALANCE AT DECEMBER 31, 2014                                                           |  |                      | 5,400,467  |  |                                                                                                                   |  | 727 |                   |  |  | 50,863   |  |  |                                      | 605    |   |                         | 
|CHANGES DURING 2015:                                                                   |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Expiration of non-tradable
    warrants                                                |  |                      |            |  |                                                                                                                   |  |     |                   |  |  | 359      |  |  |                                      | (359   | ) |                         | 
|Exercise of warrants (Series 7)                                                        |  |                      | 208,843    |  |                                                                                                                   |  |     |                   |  |  | 1,933    |  |  |                                      | (89    | ) |                         | 
|Expiration of warrants
    (Series 7)                                                  |  |                      |            |  |                                                                                                                   |  |     |                   |  |  | 157      |  |  |                                      | (157   | ) |                         | 
|Proceeds from issuance
    of shares through public offering, net of issuance costs    |  |                      | 5,663,750  |  |                                                                                                                   |  |     |                   |  |  | 30,608   |  |  |                                      |        |   |                         | 
|Shares issued as part
    of an anti-dilution right                                    |  |                      | 174,566    |  |                                                                                                                   |  |     |                   |  |  | 1,060    |  |  |                                      |        |   |                         | 
|Exercise of options
    by employees and service providers                             |  |                      | 565        |  |                                                                                                                   |  |     |                   |  |  | *        |  |  |                                      |        |   |                         | 
|Share-based compensation                                                               |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Other
    comprehensive loss                                                           |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Comprehensive
    loss                                                                 |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|BALANCE AT DECEMBER 31, 2015                                                           |  |                      | 11,488,191 |  |                                                                                                                   |  | 727 |                   |  |  | 84,980   |  |  |                                      | -      |   |                         | 
|CHANGES DURING 2016:                                                                   |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Share-based
    compensation                                                           |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|Comprehensive
    loss                                                                 |  |                      |            |  |                                                                                                                   |  |     |                   |  |  |          |  |  |                                      |        |   |                         | 
|BALANCE AT DECEMBER 31, 2016                                                           |  |                      | 11,488,191 |  |                                                                                                                   |  | 727 |                   |  |  | 84,980   |  |  |                                      | -      |   |                         | 





* Represents
an amount less than $ 1,000



The accompanying
notes are an integral part of the financial statements.



F-5







(Continued) - 1



INTEC PHARMA LTD.

STATEMENTS OF CASH FLOWS



|                                                                                     |  | Year ended December 31    |       
|------------------------------------------------------------------------------------ |  | ------------------------- | ------
|                                                                                     |  | 2014                      |       
|                                                                                     |  | U.S. dollars in thousands |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |                           |       
|Net loss                                                                             |  |                           | (5,693
|Adjustments to reconcile net loss to net cash from operations (see appendix A)       |  |                           | 942   
|Net cash used in operating activities                                                |  |                           | (4,751
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |  |                           |       
|Purchase of property and equipment                                                   |  |                           | (76   
|Short-term deposits, net                                                             |  |                           | -     
|Proceeds from disposal of financial assets at fair value through profit or loss, net |  |                           | 2,865 
|Changes in restricted bank deposits, net                                             |  |                           | (9    
|Net cash provided by (used in) investing activities                                  |  |                           | 2,780 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |  |                           |       
|Issuance of shares through public offering, net of issuance costs                    |  |                           | -     
|Exercise of warrants (series 7)                                                      |  |                           | -     
|Exercise of options by employees and service providers                               |  |                           | 166   
|Issuance of shares as part of an addendum to the investment agreement                |  |                           | 26    
|Issuance of shares and warrants, net of issuance costs                               |  |                           | 4,490 
|Net cash provided by financing activities                                            |  |                           | 4,682 
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                           | 2,711 
|CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR                                        |  |                           | 3,389 
|EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS                                    |  |                           | (369  
|CASH AND CASH EQUIVALENTS - END OF YEAR                                              |  |                           | 5,731 



* Represents
an amount less than $ 1,000



The accompanying notes are an integral part
of the financial statements.



F-6







(Concluded) - 2



INTEC PHARMA LTD.

STATEMENTS OF CASH FLOWS







|                                                                                    |  | Year ended December 31    |      
|----------------------------------------------------------------------------------- |  | ------------------------- | -----
|                                                                                    |  | 2014                      |      
|                                                                                    |  | U.S. dollars in thousands |      
|APPENDIX A                                                                          |  |                           |      
|Adjustments to reconcile net loss to net cash provided from operations:             |  |                           |      
|Income and expenses not involving cash flows:                                       |  |                           |      
|Depreciation                                                                        |  |                           | 585  
|Changes in the fair value of derivative financial instruments                       |  |                           | 204  
|Exchange differences on cash and cash equivalents                                   |  |                           | (150 
|Exchange differences on short-term bank deposit                                     |  |                           |      
|Losses (gains) on financial assets at fair value through profit or loss             |  |                           | 14   
|Share-based compensation to employees and service providers                         |  |                           | 337  
|                                                                                    |  |                           | 990  
|                                                                                    |  |                           |      
|Changes in operating asset and liability items:                                     |  |                           |      
|Decrease (increase) in other receivables                                            |  |                           | 409  
|Increase (decrease) in accounts payable and accruals                                |  |                           | (457 
|                                                                                    |  |                           | (48  
|                                                                                    |  |                           | 942  
|APPENDIX B:                                                                         |  |                           |      
|                                                                                    |  |                           |      
|Information regarding investment and financing activities not involving cash flows: |  |                           |      
|Liability with respect to property purchase order                                   |  |                           | 1,116
|Settlement of liability in respect to derivative financial instrument to equity     |  |                           | 1,665
|                                                                                    |  |                           |      
|Supplementary information to the statement of cash flows -                          |  |                           |      
|Interest received                                                                   |  |                           | 172  



* Represents
an amount less than $ 1,000



The accompanying notes are an integral part
of the financial statements.



F-7









INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 1 - GENERAL INFORMATION:



| | a. | General Information:
| | -- | --------------------



| | 1) | Intec Pharma Ltd. (the "Company") is engaged in the development of proprietary technology, which enables the gastric
retention of certain drugs. The technology is intended to significantly improve the efficiency of the drugs and substantially reduce
their side-effects or the effective doses.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company is a limited liability
public company incorporated and domiciled in Israel. The registered address of its offices is 12 Hartom St., Jerusalem, Israel.



The Company’s ordinary shares
are being traded on the Tel-Aviv Stock Exchange Ltd. ("TASE") and on the NASDAQ Capital Market ("NASDAQ").



| | 2) | The Company is engaged in research and development activities and has not yet generated revenues from its operations. Accordingly,
there is no assurance that the Company’s operations will generate positive cash flows. As of December 31, 2016 the cumulative
losses of the Company were approximately USD 63 million. Management expects that the Company will continue to incur losses from
its operations in the foreseeable future, which will result in negative cash flows from operating activities. Company management
believe that, without further fund raising, it will not have sufficient working capital to enable it to continue advancing its
activities, including the development of its products for a period of at least 12 months from the date of approval of the financial
statements. As a result, there is substantial doubt about the Company’s ability to continue as a going concern.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company plans to fund its future
operations through submissions of applications for grants from governmental authorities and private funds, license agreement with
third parties and raising capital from the public and/or private investors and/or institutional investors. The Company's current
cash resources are not sufficient to complete the research and development of all of its products. The Company will need to raise
additional capital in order to complete its Phase III clinical trial for AP-CDLD and its continued development. There is no assurance
however, that the Company will be successful in obtaining the level of financing needed for its operations and the research and
development of its products. If the Company is unsuccessful in securing sufficient financing, it may need to curtail or cease operations.



The financial statements do not
include any adjustments relating to the recoverability and classification of recorded assets and the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.



In March 2017, the Company raised
approximately $10 million in a private placement to several investors, for details see note 20.



| | b. | Approval of financial statements
| | -- | --------------------------------



The financial statements were approved
by the Company's Board of Directors on April 6, 2017.



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



| | a. | Basis of presentation of the financial statements
| | -- | -------------------------------------------------



The Company’s financial statements
as of December 31, 2016, December 31, 2015 and January 1, 2015 and for each of the three years in the period ended December 31,
2016, have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board ("IASB").



The significant accounting policies
described below have been applied on a consistent basis for all years presented, unless noted otherwise.



F-8







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



The financial statements have been
prepared on the basis of historical cost, subject to adjustments in respect of revaluation of financial assets and financial liabilities
at fair value through profit or loss.



The preparation of financial statements
in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its
judgment in the process of applying the Company’s accounting policies. Areas involving a higher degree of judgment or complexity,
or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actual results may
differ materially from estimates and assumptions used.



| | b. | Foreign currency transaction:
| | -- | -----------------------------



Effective January 1, 2016, the Company
changed its functional currency to the U.S. dollar (“dollar”, “USD” or “$”) from the New Israeli
Shekel (“NIS”). This change was based on an assessment by Company's management that the dollar is the primary
currency of the economic environment in which the Company operates. Accordingly, the functional and presentation currency of
the Company in these financial statements is the U.S. dollar.



The change in
the presentation currency results in the financial statements providing reliable and more relevant information about the effects
of transactions, other events or conditions on the Company's financial position, financial performance or cash flows, due to the
fact that starting from January 1, 2016 the US Dollar is also the functional currency of the Company.



In determining
the appropriate functional currency to be used, the Company followed the guidance in International Accounting Standard (IAS) 21,
which states that economic factors relating to sales, costs and expenses, financing activities and cash flows, as well as other
potential factors, should be considered both individually and collectively. In this regard, a significant element in the Company’s
decision to effect the functional currency change resulted from the significant increase in expenses denominated in dollars relating
to advanced clinical trials.



These changes,
as well as the fact that the Company’s principal source of financing is the U.S. capital market, and all of the Company’s
budgeting and planning is conducted solely in dollars, led to the decision to make the change in functional currency as of January
1, 2016, as indicated above. In effecting the change in presentation currency to the dollar, as of January 1, 2016 and January 1,
2015 all assets and liabilities of the Company were translated using the current rate method, using the dollar exchange rate as
of December 31, 2015, and December 31, 2014, respectively and equity was translated using historical exchange rates at the relevant
transaction dates. The resulting amounts translated into dollars for non-monetary items have been treated as their historical cost.
Translation differences resulting from the change in presentation currency have been reported as a component of shareholders' equity.



In accordance
with paragraph 40a of IAS 1, due to the aforementioned change in presentation currency, an additional balance sheet as of January
1, 2015 has been presented in the financial statements. IAS 1 does not require such additional information in the detailed financial
statement notes.



For presentation purposes, comparative figures in these
financial statements have been translated into dollars on the following basis: (i) assets and liabilities have been translated
using the exchange rate prevailing at December 31, 2015; (ii) the statement of comprehensive loss has been translated at the average
exchange rates for the relevant reporting periods; and (iii) the results of translation differences have been recorded as “currency
translation differences” within other comprehensive income (loss).



F-9











INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):



| | c. | Property and equipment
| | -- | ----------------------



Property and equipment items
are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method, over the estimated useful
lives as follows:



|                                    |  | Years
|----------------------------------- |  | -----
|Computer and peripheral equipment   |  | 3    
|Production and laboratory equipment |  | 7-10 
|Office furniture and equipment      |  | 10-14



Leasehold improvements are depreciated
by the straight-line method over the shorter of the lease term and the estimated useful life of the improvements.



An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable
amount.



Depreciation of property under
construction begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable
of operating in the manner intended by management.



| | d. | Intangible assets
| | -- | -----------------



The Company applies the cost method
of accounting for initial and subsequent measurements of intangible assets. Under this method of accounting, intangible assets
are carried at cost less any accumulated amortization and any accumulated impairment losses.



Costs associated with research
are recognized as an expense as incurred. Costs associated with development projects (which relate to the design and the testing
of new products or improvements) are recognized as intangible assets when the following criteria are met:



| | - | It is technically feasible to complete the intangible assets so that it will be available for use;
| | - | --------------------------------------------------------------------------------------------------

| | - | Management intends to complete the intangible assets and use or sell it;
| | - | ------------------------------------------------------------------------

| | - | There is an ability to use or sell the intangible assets;
| | - | ---------------------------------------------------------

| | - | It can be demonstrated how the intangible assets will generate probable future economic benefits;
| | - | -------------------------------------------------------------------------------------------------

| | - | Adequate technical, financial and other resources to complete the development and to use or sell
the intangible assets are available; and costs associated with the intangible asset during development can be measured reliably.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other development costs that do
not meet the above criteria are recognized as expenses as incurred. Development costs previously recognized as an expense are not
recognized as an asset in a subsequent period.



As of December 31, 2016, the Company
has not yet capitalized development costs.



| | e. | Government grants and other grants:
| | -- | -----------------------------------



| | 1) | The Company receives participation in research and development expenses from the State of Israel
through the National Authority for Technological Innovation, or NATI (formerly known as the Office of the Chief Scientist of the
Israeli Ministry of Economy and Industry, or the OCS) in the form of grants which qualify as "forgivable loans", in accordance
with IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance,” since the grants are repayable
only if the Company generates revenues related to the project that is the subject of the grant.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-10







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):



The Company recognizes each forgivable
loan as a grant receivable and a reduction of expenses on a systematic basis at the same time the Company records, as an expense,
the related development costs for which the loan is received, provided that there is reasonable assurance that (a) the Company
complies with the conditions attached to the loan and (b) the loan will be received. The amount of the forgivable loan is recognized
based on the participation rate approved by the NATI.



Since the Company has reasonable
grounds to believe it will meet the terms for forgiveness, the loan is accounted for as a government grant. Government grants relating
to costs are deferred and recognized in the statement of comprehensive loss over the period necessary to match them with the costs
that they are intended to compensate.



| | 2) | The Company receives other grants from certain funds. The grants are recorded to the comprehensive loss as a reduction of related
research and development expenses over the period necessary to match these grants with the costs that they are intended to compensate.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Financial assets:
| | -- | -----------------



| | 1) | Classification
| | -- | --------------



The Company classifies its
financial assets in the following categories: (i) at fair value through profit or loss and (ii) loans and receivables. The classification
depends on the purpose for which each financial asset was acquired. The Company’s management determines the classification
of financial assets at initial recognition.



| | a) | Loans and receivables
| | -- | ---------------------



Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. These assets are included in current
assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current
assets. The Company’s loans and receivables are comprised of “other receivables”, “cash and cash equivalents”,
"short term bank deposits" and “restricted bank deposits” in the statement of financial position (See note
g below).



| | b) | Financial assets at fair value through profit or loss
| | -- | -----------------------------------------------------



This category includes financial
assets that are managed and their performance is evaluated on a fair value basis. Thus upon their initial recognition, these assets
are designated by management at fair value through profit or loss. Assets in this category are classified as current assets if
they are expected to be settled within 12 months.



| | 2) | Recognition and measurement
| | -- | ---------------------------



Regular purchases and sales of financial assets are
recognized on the settlement date, which is the date on which the asset is delivered to the Company or delivered by the Company.



Investments are initially recognized
at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets
carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in profit
or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been
transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets at fair value through
profit or loss are subsequently carried at fair value.



F-11







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):



Loans and receivables are subsequently
recorded at amortized cost using the effective interest method.



Gains or losses arising from
changes in the fair value of the “financial assets at fair value through profit or loss” are presented in the statement
of comprehensive loss within “Other gains, net” in the period in which they arise.



| | g. | Cash and cash equivalents
| | -- | -------------------------



Cash and cash equivalents include
cash on hand and short-term bank deposits (original maturities of three months or less) that are not restricted as to withdrawal
or use and are therefore considered to be cash equivalents.



| | h. | Share capital
| | -- | -------------



The Company's ordinary shares
are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction
from the issue proceeds.



| | i. | Trade payables
| | -- | --------------



Trade payables are obligations
to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified
as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method.



| | j. | Provisions
| | -- | ----------



Provisions are recognized when
the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources
will be required to settle the obligation and the amount has been reliably estimated.



| | k. | Derivative financial instruments
| | -- | --------------------------------



Derivatives are initially recognized
at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in
the fair value of derivative financial instruments are recognized in the statement of comprehensive loss within financing income
or expenses.



Derivative financial instruments
issued by the Company include the following:



| | · | Derivative financial instrument - warrants ("Warrants")
| | - | -------------------------------------------------------

| | · | Derivative financial instrument - anti-dilution right ("Anti-dilution
right")
| | - | -----------------------------------------------------------------------------

| | · | Derivative financial instrument - additional warrants, which
were issued in November 2014 ("Additional warrants")
| | - | -----------------------------------------------------------------------------------------------------------------



| | l. | Employee benefits:
| | -- | ------------------



| | 1) | Retirement benefit obligations
| | -- | ------------------------------



The retirement benefit obligation
of the Company is a defined contribution plan. A defined contribution plan is a post-employment benefit plan which is subject to
section 14 of the Israeli severance pay law under which the Company pays fixed contributions into a separate and independent entity.
The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to
pay all employees the benefits relating to employee service in the current and prior periods.



F-12







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):



The Company operates various
pension plans that are generally funded through payments to insurance companies or trustee-administered funds. In accordance with
their terms, the pension plans meet the definition of a defined contribution plan, as described above.



| | 2) | Vacation days and recreation pay
| | -- | --------------------------------



Labor laws in Israel entitle
every employee to vacation days and recreation pay, both of which are computed annually. The entitlement with respect to each employee
is based on the employee’s length of service at the Company. The Company recognizes a liability and an expense in respect
of vacation and recreation pay as earned by the employee based on his or her entitlement.



| | m. | Share-based payments
| | -- | --------------------



The Company operates an equity-settled,
share-based compensation plan for employees, under which it receives services from employees as consideration for equity instruments
(options) of the Company. The fair value of such services received in exchange for the grant of the options is recognized as an
expense in the statement of comprehensive loss.



Non-market performance and service
conditions are included in assumptions about the number of options that are expected to vest. The total amount of expense is recognized
over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end
of each reporting period, the Company revises its estimates of the number of options that are expected to vest based on the non-market
vesting conditions.



The Company recognizes the impact
of a revision in the original estimates, if any, in the statement of comprehensive loss, with a corresponding adjustment to equity.



When the options are exercised,
the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share
capital (at par value) and share premium when the options are exercised.



The fair value of the services
received from service providers, other than labor services, are determined according to fair value of the services received, unless
that value cannot be reliably measured, in which case the value of the benefit is determined based on the value of the instruments
issued.



| | n. | Leases
| | -- | ------



Leases in which a significant
portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under
operating leases are charged to the statement of comprehensive loss on a straight-line basis over the period of the lease.



| | o. | Loss per share
| | -- | --------------



The computation of basic loss
per share is based on the Company’s loss divided by the weighted average number of ordinary shares outstanding during the
period.



In calculating the diluted loss
per share, the Company adds to the average number of shares outstanding that was used to calculate the basic loss per share the
weighted average of the number of shares to be issued assuming all shares that have a potentially dilutive effect have been converted
into shares. The potential shares, as described, are only taken into account in cases where their effect is dilutive (increasing
the loss per share). Since the addition of potential shares reduces loss per share, these potential shares are not taken into account,
and basic and diluted loss per share are identical.



F-13







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | p. | Standards that are not yet in effect and have not been early adopted by the Company for the
financial year beginning January 1, 2016:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------



| | 1) | IFRS 9, Financial instruments ("IFRS 9")
| | -- | ----------------------------------------



IFRS
9, ‘Financial instruments’, addresses the classification,
measurement and recognition of financial assets and financial liabilities.
The complete version of IFRS 9 was issued in July 2014.
It replaces the guidance in IAS 39 that relates to the classification
and measurement of financial instruments. IFRS 9 retains but simplifies
the mixed measurement model and establishes three primary measurement
categories for financial assets: amortized cost, fair value through
other comprehensive income and fair value through profit or loss.
The basis of classification depends on the entity’s business
model and the contractual cash flow characteristics of the financial
asset. Investments in equity instruments are required to be measured
at fair value through profit or loss with the irrevocable option
at inception to present changes in fair value in other comprehensive income.
Further, the expected credit losses model replaces the incurred loss
impairment model used in IAS 39. For financial liabilities, there were
no changes to classification and measurement except for the recognition of
changes in the Company's own credit risk in other comprehensive income for
liabilities designated at fair value through profit or loss.The standard is effective for accounting periods
beginning on or after January 1, 2018. Early adoption is permitted. The
Company has not yet assessed IFRS 9’s full impact.



| | 2) | IFRS 16, Leases ("IFRS 16")
| | -- | ---------------------------



IFRS
16 defines a lease as a contract, or part of a contract, that conveys
the right to use an asset (the underlying asset) for a period of
time in exchange for consideration. Under IFRS 16 lessees have
to recognize a lease liability reflecting future lease payments and
a ‘right-of-use asset’ for almost all lease contracts.



The
standard replaces the current guidance in IAS 17. The standard
is effective for annual periods beginning on or after January 1,
2019. The Company has not yet assessed IFRS 16’s full impact.



NOTE 3 - CRITICAL ACCOUNTING ESTIMATES



The accounting estimates are
continually evaluated and adjusted based on historical experience and other factors, including expectation of future events that
are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future.

Such estimates, by nature, are
subjective and complex and consequently may differ from actual results.



The estimate for which there is significant risk
of causing a material adjustment to the carrying amounts of liabilities within the next financial year is outlined below -



Share-based payments



For the purpose of the evaluation
of the fair value and the manner of the recognition of share-based compensation, the Company's management is required to estimate,
among other things, various parameters that are included in the calculation of the fair value of the option as well as the Company’s
results and the number of options that will vest. The actual results and the estimates that are made in the future may be significantly
different from the current estimates.



F-14







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:



| | a. | Financial risk management:
| | -- | --------------------------



| | 1) | Financial risk factors
| | -- | ----------------------



The
Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flow
interest rate risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. In the Company’s
opinion, the influence of credit risk is immaterial.



Risk management is carried
out by the Company's management which identifies and evaluates the financial risks in close cooperation with the Company's management.



| | a) | Market risk
| | -- | -----------



Concentration
of currency risk



The Company’s activities
are partly denominated in non-dollar currencies (primarily the NIS), which exposes the Company to risks resulting from changes
in exchange rates.



The effect of fluctuations
in various exchange rates on the Company’s statement of comprehensive loss and equity is as follows:



|                                                                     |  | December 31, 2016                                                      |     
|-------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ----
|Sensitive instrument                                                 |  | Income (loss) from change in exchange rate (U.S. dollars in thousands) |     
|                                                                     |  | Increase                                                               |     
|                                                                     |  | 10%                                                                    |     
|NIS-linked balances:                                                 |  |                                                                        |     
|Cash and cash equivalents                                            |  |                                                                        | (126
|Financial assets at fair value through profit or loss                |  |                                                                        | (168
|Other receivable (except prepaid expenses and advances to suppliers) |  |                                                                        | (66 
|Accounts payable and accruals                                        |  |                                                                        | 81  
|Total  NIS-linked balances                                           |  |                                                                        | (279
|Euro-linked balances:                                                |  |                                                                        |     
|Cash and cash equivalents                                            |  |                                                                        | (139
|Accounts payable and accrued expenses                                |  |                                                                        | 24  
|Total  Euro-linked balances                                          |  |                                                                        | (115
|Total                                                                |  |                                                                        | (394



F-15







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(continued):



|                                                                      |  | December 31, 2015                                                      |     
|--------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ----
|Sensitive instrument                                                  |  | Income (loss) from change in exchange rate (U.S. dollars in thousands) |     
|                                                                      |  | Increase                                                               |     
|                                                                      |  | 10%                                                                    |     
|NIS-linked balances:                                                  |  |                                                                        |     
|Cash and cash equivalents                                             |  |                                                                        | (226
|Financial assets at fair value through profit or loss                 |  |                                                                        | (184
|Other receivable (except prepaid  expenses and advances to suppliers) |  |                                                                        | (71 
|Accounts payable and accruals                                         |  |                                                                        | 76  
|Total  NIS-linked balances                                            |  |                                                                        | (405
|Euro-linked cash and cash equivalents                                 |  |                                                                        | (252
|Total                                                                 |  |                                                                        | (657



Set
forth below is certain data regarding dollar exchange rates and the Israeli Consumer Price Index (CPI):



|                                   |  | Exchange rate ofNIS per $1 |        |  | Exchange rate ofEuro per $1 |  |       | Israeli CPI*Points | 
|---------------------------------- |  | -------------------------- | ------ |  | --------------------------- |  | ----- | ------------------ | 
|As of December 31:                 |  |                            |        |  |                             |  |       |                    | 
|2015                               |  |                            | 3.902  |  |                             |  | 0.919 |                    | 
|2016                               |  |                            | 3.845  |  |                             |  | 0.952 |                    | 
|                                   |  |                            |        |  |                             |  |       |                    | 
|Percentage increase (decrease) in: |  |                            |        |  |                             |  |       |                    | 
|2015                               |  |                            | 0.3%   |  |                             |  | 11.6% |                    | 
|2016                               |  |                            | (1.5)% |  |                             |  | 3.5%  |                    | 



|* | Based on the CPI index for the month ending on each balance sheet date, on the basis that the average for year 2000 = 100.
|- | --------------------------------------------------------------------------------------------------------------------------



Set forth below is information
on the linkage of monetary items:



|                                                      |  | December 31, 2015         |       |  | December 31, 2016 | 
|----------------------------------------------------- |  | ------------------------- | ----- |  | ----------------- | 
|                                                      |  | NIS                       |       |  | Dollar            | 
|                                                      |  | U.S. dollars in thousands |      
|Assets:                                               |  |                           |       |  |                   | 
|Current assets:                                       |  |                           |       |  |                   | 
|Cash and cash equivalents                             |  |                           | 2,485 |  |                   | 
|Short-term bank deposits                              |  |                           |       |  |                   | 
|Financial assets at fair value through profit or loss |  |                           | 2,024 |  |                   | 
|Restricted deposits                                   |  |                           | 62    |  |                   | 
|Other receivables                                     |  |                           | 2,361 |  |                   | 
|Total current assets                                  |  |                           | 6,932 |  |                   | 
|Total assets                                          |  |                           | 6,932 |  |                   | 
|                                                      |  |                           |       |  |                   | 
|Liabilities:                                          |  |                           |       |  |                   | 
|Current liabilities -                                 |  |                           |       |  |                   | 
|Accounts payable and accruals:                        |  |                           |       |  |                   | 
|Trade                                                 |  |                           | 188   |  |                   | 
|Other                                                 |  |                           | 647   |  |                   | 
|Total current liabilities                             |  |                           | 835   |  |                   | 
|Non-current liabilities -                             |  |                           |       |  |                   | 
|Derivatives financial instruments                     |  |                           | 327   |  |                   | 
|Total liabilities                                     |  |                           | 1,162 |  |                   | 
|Net asset value                                       |  |                           | 5,770 |  |                   | 



F-16







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT(continued):



| | b) | Credit risks
| | -- | ------------



Credit
risks are handled by the Company's management. Credit risks arise from cash and cash equivalents, deposits in banks and receivable
balances that have not yet been settled. The portfolio is well diversified (without a material investment in any single corporate
bond) and, accordingly, minimal credit risk exists with respect to these investments.



The Company’s
cash and cash equivalents and financial assets at fair value through profit or loss at December 31, 2016 and 2015 were deposited
with A-rated Israeli banks. In the Company’s opinion, the credit risk in respect of these balances is remote.



| | c) | Liquidity risk
| | -- | --------------



Prudent
liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed
credit facilities.



Management
monitors rolling forecasts of the Company’s liquidity reserve (comprising cash and cash equivalents, financial assets at
fair value through profit or loss and deposits). This is generally carried out based on the expected cash flows in accordance with
practice and limits set by the management of the Company.



The Company has not yet generated
any revenue from the sale of drugs or royalties; the Company is therefore exposed to liquidity risk, taking into consideration
the forecasts of cash flows required to finance its investments and other activities.



The table presented below classifies
the Company's financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity
date. The amounts presented in the table represent the contractual undiscounted cash flows.



|                                      |  | Less than one year        |      
|------------------------------------- |  | ------------------------- | -----
|                                      |  | U.S. dollars in thousands |      
|Non-derivative financial liabilities: |  |                           |      
|As of December 31, 2016 -             |  |                           |      
|Accounts payable and accruals         |  |                           | 1,740
|As of December 31, 2015 -             |  |                           |      
|Accounts payable and accruals         |  |                           | 1,169



| | 2) | Fair value estimations
| | -- | ----------------------



The following is an analysis of the financial instruments
measured at fair value through profit or loss, using valuation methods. The different levels have been defined as follows:



| | * | Quoted prices (unadjusted) in active markets for identical assets or liabilities
| | - | --------------------------------------------------------------------------------

(Level 1).

| | * | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level 2).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * | Inputs for the asset or liability that are not based on observable market data (that
| | - | ------------------------------------------------------------------------------------

is unobservable input) (Level 3).



F-17







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT(continued):



The following table presents the Company’s
assets and liabilities that are measured at fair value:



|                                                       |  | December 31,              |      
|------------------------------------------------------ |  | ------------------------- | -----
|                                                       |  | 2015                      |      
|                                                       |  | Level 1                   |      
|                                                       |  | U.S. dollars in thousands |      
|Assets -                                               |  |                           |      
|Financial assets at fair value through profit and loss |  |                           | 2,024
|Liabilities -                                          |  |                           |      
|Derivative financial instruments                       |  |                           |      



The following table presents the changes in Level
3 instruments for the three years ended December 31, 2016:



|                                                                                |  | Derivative financial instrument - warrants |      |   | Derivative financial instrument - anti dilution right |  |        | Derivative financial instrument - additional warrants |  |  | Total |  
|------------------------------------------------------------------------------- |  | ------------------------------------------ | ---- | - | ----------------------------------------------------- |  | ------ | ----------------------------------------------------- |  |  | ----- | -
|                                                                                |  | U.S. dollars in thousands                  |     
|Opening balance as of January 1, 2014                                           |  |                                            | 972  |   |                                                       |  | 1,686  |                                                       |  |  | 308   |  
|Loss (gain) recognized in profit or loss during 2014                            |  |                                            | (598 | ) |                                                       |  | 997    |                                                       |  |  | (195  | )
|Settlement of liability in respect to derivative financial instrument to equity |  |                                            |      |   |                                                       |  | (1,665 | )                                                     |  |  |       |  
|Issuance of additional warrants                                                 |  |                                            | 97   |   |                                                       |  |        |                                                       |  |  | (97   | )
|Currency translation differences                                                |  |                                            | (58  | ) |                                                       |  | (267   | )                                                     |  |  | (16   | )
|Closing balance as of December 31, 2014                                         |  |                                            | 413  |   |                                                       |  | 751    |                                                       |  |  | -     |  
|Loss (gain) recognized in profit or loss during 2015                            |  |                                            | (86  | ) |                                                       |  | 299    |                                                       |  |  |       |  
|Settlement of liability in respect to derivative financial instrument to equity |  |                                            |      |   |                                                       |  | (1,060 | )                                                     |  |  |       |  
|Currency translation differences                                                |  |                                            |      |   |                                                       |  | 10     |                                                       |  |  |       |  
|Closing balance as of December 31, 2015                                         |  |                                            | 327  |   |                                                       |  | -      |                                                       |  |  | -     |  
|Gain recognized in profit or loss during 2016                                   |  |                                            | (230 | ) |                                                       |  |        |                                                       |  |  |       |  
|Closing balance as of December 31, 2016                                         |  |                                            | 97   |   |                                                       |  | -      |                                                       |  |  | -     |  



For more information about the
assumptions used for measuring the fair value of the derivative financial instruments (level 3), see note 10.



F-18







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT(continued):



| | b. | Financial instruments:
| | -- | ----------------------



Assets:



|                                                              |  | December 31               |       
|------------------------------------------------------------- |  | ------------------------- | ------
|                                                              |  | 2015                      |       
|                                                              |  | U.S. dollars in thousands |       
|1)      Loans and receivables:                                |  |                           |       
|Cash and cash equivalents                                     |  |                           | 23,649
|Short-term bank deposits                                      |  |                           | 5,000 
|Restricted bank deposits                                      |  |                           | 62    
|Other receivables                                             |  |                           | 780   
|                                                              |  |                           |       
|2)      Financial assets at fair value through profit or loss |  |                           | 2,024 



Liabilities:

|                                                                        |  | December 31               |      
|----------------------------------------------------------------------- |  | ------------------------- | -----
|                                                                        |  | 2015                      |      
|                                                                        |  | U.S. dollars in thousands |      
|                                                                        |  |                           |      
|1)Financial liabilities at amortized cost -accounts payable andaccruals |  |                           | 1,169
|2)      Derivative financial instruments                                |  |                           | 327  



NOTE 5 - CASH AND CASH EQUIVALENTS



As of December 31, 2016 and
December 31, 2015, cash and cash equivalents include cash in hand. The carrying amount of cash and cash equivalents approximates
their fair value, since the effect of discounting is immaterial.



NOTE 6 - FINANCIAL ASSETS
AT FAIR VALUE THROUGH PROFIT OR LOSS



The Company holds financial
assets at fair value through profit or loss. Those assets include bonds issued by the State of Israel and corporate bonds with
a minimum of A rating by Israeli rating agencies. As of December 31, 2016 and December 31, 2015, the amount of the financial assets
at fair value through profit or loss is approximately $ 1.9 million and $ 2.0 million, respectively.



Changes in the fair value of
the financial assets at fair value through profit or loss are recorded in the statement of comprehensive loss as “Other gains,
net”. The gain (loss), net from changes in fair value through profit or loss amounted to $ 34 thousand, $ 19 thousand and
$ (14) thousand in 2016, 2015 and 2014, respectively.



NOTE 7 - OTHER RECEIVABLES:



|                      |  | December 31               |      
|--------------------- |  | ------------------------- | -----
|                      |  | 2015                      |      
|                      |  | U.S. dollars in thousands |      
|Prepaid expenses      |  |                           | 231  
|Advances to suppliers |  |                           | 1,349
|Institutions          |  |                           | 145  
|Grants receivable     |  |                           | 636  
|                      |  |                           | 2,361



F-19













INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 8 - PROPERTY AND EQUIPMENT



Composition and movement grouped
by major classifications:





|                                       |  | Cost                      |       |  | Accumulated depreciation  |  |     |                           | 
|-------------------------------------- |  | ------------------------- | ----- |  | ------------------------- |  | --- | ------------------------- | 
|                                       |  | Balance at                |       |  | Additions                 |  |     | Foreign currency          | 
|                                       |  | beginning                 |       |  | during                    |  |     | translation               | 
|                                       |  | of year                   |       |  | year                      |  |     | differences               | 
|                                       |  | U.S. dollars in thousands |       |  | U.S. dollars in thousands |  |     | U.S. dollars in thousands | 
|Composition in 2016:                   |  |                           |       |  |                           |  |     |                           | 
|Computers and communications equipment |  |                           | 127   |  |                           |  | 9   |                           | 
|Production and laboratory equipment    |  |                           | 6,334 |  |                           |  | 655 |                           | 
|Office furniture and equipment         |  |                           | 141   |  |                           |  | 8   |                           | 
|Leasehold improvements                 |  |                           | 1,598 |  |                           |  | -   |                           | 
|                                       |  |                           | 8,200 |  |                           |  | 672 |                           | 
|Composition in 2015:                   |  |                           |       |  |                           |  |     |                           | 
|Computers and communications equipment |  |                           | 111   |  |                           |  | 16  |                           | 
|Production and laboratory equipment    |  |                           | 5,953 |  |                           |  | 402 |                           | 
|Office furniture and equipment         |  |                           | 129   |  |                           |  | 12  |                           | 
|Leasehold improvements                 |  |                           | 1,596 |  |                           |  | 8   |                           | 
|                                       |  |                           | 7,789 |  |                           |  | 438 |                           | 



* Represents an amount less than $ 1,000



F-20







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 9 - ACCOUNTS PAYABLE AND ACCRUALS - OTHER:



|                                                                       |  | December 31              |    
|---------------------------------------------------------------------- |  | ------------------------ | ---
|                                                                       |  | 2015                     |    
|                                                                       |  | U.S.
dollarsin thousands |    
|Expenses payable                                                       |  |                          | 284
|Salary and related expenses, including social security and other taxes |  |                          | 271
|Accrual for vacation days and recreation pay for employees             |  |                          | 132
|Other                                                                  |  |                          | 14 
|                                                                       |  |                          | 701



The carrying amount of others
accounts payables approximates their fair value, since effect of discounting is immaterial.



NOTE 10 - INVESTMENT AGREEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS:



| | a. | In August 2013, the Company signed an agreement with several
investors in a total amount of US$5 million ("the Agreement"). According to the Agreement, the Company issued to the
investors 320,663 ordinary shares with no par value and Warrants exercisable into 192,398 ordinary shares with no par value. These
warrants are exercisable over a period of four years from the date of their issuance for an exercise price of NIS 64.14. Under
the terms of these Warrants, the investors have the right to exercise them into shares through a net-settlement mechanism ("net
settlement").
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the Company undertook
to issue Additional warrants exercisable into 80,166 ordinary shares with no par value, in the event in that, by September 30,
2014, the Company did not consummate an initial public offering of its ordinary shares on the NASDAQ in which it raised at least
US$12 million or a merger with a company traded on the NASDAQ which immediately following the closure of such merger held free
and unencumbered cash and/or publically raised, prior to September 30, 2014, a cumulative amount of at least US $12 million ("Dual
Listing"). These Additional warrants were issued in November 2014 and expired two years after the date of their issuance.
See also note 10e.



The investors were also entitled
to anti-dilution protection until the occurrence of the earliest of one of the following events: (1) the Dual Listing, which was
completed on August 7, 2015, (2) consummation of a merger or acquisition event (“M&A Event”) or (3) four years
from the signing date of the Agreement. During this period, in case of the occurrence of an M&A Event or new investment in
the Company at a price per share that is lower than NIS 66.93 (the “Protection Threshold Price”), an investor would
have been entitled to an additional allotment of shares in accordance with a formula set forth in the Agreement, less the shares
that were already issued following any previous anti-dilution right ("Downside Protection"). In the event of the activation
of the Downside Protection mechanism, the exercise price of the Warrants which are still held by an investor would have been reduced
by the same calculation.



| | b. | As part of closing of the Agreement, 6,414 warrants were granted to third parties who assisted
the Company with the investment process. These warrants have the same terms as the Warrants issued to the investors.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Due to their terms, the Warrants and Additional warrants that were issued as part of this Agreement
do not qualify for equity classification and are treated as a derivative financial liability. The Anti dilution right was also
classified as a derivative financial liability and following the completion of the public offering on August 7, 2015, see note
13b(4), and the termination of the Downside Protection mechanism, the Anti dilution right was classified to equity.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 10 - INVESTMENT AGREEMENT AND DERIVATIVE FINANCIAL
INSTRUMENTS(continued):



| | d. | On October 22, 2014, the Company and the investors signed an Addendum to the Agreement ("the
Addendum") following the rights issuance that was completed on October 1, 2014 (see note 13b(2)). According to the Addendum,
202,018 additional ordinary shares were issued in consideration of approximately $ 26 thousand. Due to the additional ordinary
shares issuance, Anti dilution right in the amount of approximately $ 1.7 million was settled to equity.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the exercise price
of the Warrants which were issued to the investors, reduced from NIS 64.14 to NIS 35. Following the rights issuance, the conversion
rate was adjusted so each warrant which was issued to the investors in 2013 is exercisable into 1.003 ordinary shares.



| | e. | In November 2014, the Company issued to the investors Additional warrants since the Company failed
to fulfill the Dual Listing goal. These Warrants were exercisable until October 22, 2016 for an exercise price of NIS 21.7 which
was reduced from NIS 64.14 following the rights issuance and following the completion of the public offering. The Additional warrants
expired two years after the date of their issuance.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | According to the Agreement and following the completion of the public offering on August 7,
2015, the investors were entitled to an additional allotment of 174,566 ordinary shares and a reduction of the exercise price of
the Warrants from NIS 35 to NIS 21.7. Accordingly, the liability to issue additional shares, in the amount of approximately $ 1.1
million was credited to equity, as shares were issued on October 8, 2015 and the Downside Protection terminated.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | The financial derivatives are measured at fair value using standard valuation techniques for these
types of instruments (Black-Scholes model) on the basis of the following inputs:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                      |  | December 31 |             
|--------------------- |  | ----------- | ------------
|Observable Inputs :   |  | 2015        |             
|Share price (NIS)     |  |             | 20.8        
|Exercise price (NIS)  |  |             | 21.7        
|Volatility            |  |             | 45.81%-51.48
|Risk free rate        |  |             | 0.12%-0.31  
|Expected term (years) |  |             | 0.81-1.72   



F-22







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES:



| | a. | Joint venture and exclusive license agreement
| | -- | ---------------------------------------------



In June 2000, the Company engaged
in a joint venture and exclusive license agreement ("license agreement") with Yissum Research and Development Company,
owned by the Hebrew University of Jerusalem ("Yissum"). Under the license agreement, the Company has been granted a perpetual
and exclusive license to develop, manufacture and market products globally, which are based directly or indirectly on a patent
owned by Yissum and based on the intellectual property that has been created as a result of the research that has been conducted
by Yissum and financed by the Company under the license agreement.



The Company is entitled to grant
sub-licenses to third parties and said sub-licenses may be perpetual, and any sublicensee thereunder will not be required to assume
any undertaking towards Yissum.



Under the license agreement,
the Company committed to act for the future development of products that are based on Yissum's patent and on the initial research
activity that was undertaken under the license agreement (the “Products”). Several pending patents have resulted from
the development work done by the Company, on its behalf or on behalf of the Company and Yissum jointly.



Further, the Company assumed
in the license agreement all costs of submitting and managing patent applications, as well as maintaining pending and granted patents.



In accordance with an amendment
to the license agreement dated July 13, 2005 (which reduced royalty rates), and in exchange for the license, the Company agreed
to pay 3% royalties on its overall net income (as defined in the license agreement) from the sale of the Products, to Yissum from
the time of the first commercial sale. Furthermore, the Company agreed to pay 15% royalties on sub-licenses on any payment or benefit
whatsoever that the Company may receive from sub-licenses.



As of the date of approval of
the financial statements, the Company has not yet begun to sell its product candidates and has not yet granted sub-licenses to
any party, and, accordingly, no obligation has yet to arise to pay royalties in accordance with the license agreement.



The parties are entitled to
cancel the license agreement in the following cases: (a) the appointment of a liquidator or a receiver or the submission of an
application for liquidation in relation to the other party, which is not cancelled within 180 days; (b) attachment proceedings,
debt collecting agency proceedings and similar proceedings in connection with a significant portion of the other party's assets;
(c) the liquidation or bankruptcy of the other party; (d) a significant breach that is not repaired within 30 days from the time
warning is given. If the license agreement is cancelled except in the case of its cancellation as a result of a breach by Yissum,
the rights that were granted under the license will return to Yissum.



In accordance with the license
agreement, the agreement will remain in force until the later of the expiry of the last patent that partially underlies the Products
on a global basis or 15 years from the time of the first commercial sale under the license agreement.



In addition, as part of its
development activities, the Company has engaged, from time to time, with Yissum in agreements for the provision of laboratory and
research services for optimizing the technology that is being developed by the Company.



In January 2008, the Company
engaged with Yissum in an agreement for the joint development of additional technology for the gastric retention of drugs. Among
other things, pursuant to that agreement, intellectual property rights that may be created as a result of the joint research will
be jointly owned and the Company will be granted a license to Yissum's share of those rights, in consideration for royalties at
the rates detailed above. It was also clarified that the rights in intellectual property that may be developed by the Company independently
and without Yissum's involvement, or that of employees of the Hebrew University, will belong entirely to the Company.



F-23







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES(continued):



| | b. | Cooperation agreements
| | -- | ----------------------



As part of its operations, the
Company entered into feasibility agreements with multinational companies for the development of products that combine the Company's
proprietary Accordion Pill platform technology with certain drugs for the treatment of various indications. These agreements sometimes
include a mutual possibility of entering into negotiations for the acquisition of a future license for the commercial use of the
products that are being developed by the multinational companies under the feasibility agreements. In addition, the companies agreed
to reimburse the Company for its expenses, based on milestones that are detailed in the feasibility agreements. This funding is
recognized in the statement of comprehensive loss as a deduction from research and development expenses, as they are incurred.



On April 15, 2015 an agreement
was signed between the Company and Biogen MA Inc. (“Biogen“) with respect to the execution of a research, option and
licensing agreement. The agreement is for the development of a designated accordion pill with a marketed, proprietary drug of Biogen.
Under the agreement, the Company will conduct activities for the development of the collaboration product, pursuant to an agreed
upon research plan, which activities shall be funded by Biogen subject to achievement of certain research plan milestones.

The Company shall be entitled
to consideration of $920 thousand for achievement of research plan milestones. In addition for the exercise of the option, achievement
of additional milestones as described in the agreement and royalties based on sales, the Company shall be entitled to consideration
of up to $147 million.



| | c. | NATI grants program
| | -- | -------------------



In May 2016, in addition to
previously approved programs, the Company received approval from the NATI for a participation in research and development activities
performed by the Company ("Support Grant") from January 1, 2016 to December 31, 2016 in the amount of $ 5.2 million.
In October 2016, the Company submitted to the NATI a change request for the 2016 program and, consequently, the Support Grant was
reduced to $ 5.0 million.



The Company is obligated to
pay 3% to 4.5% royalties to the government of Israel, computed based on the revenues from licensing the products that the Company
is developing that are assisted by the governmental grants. Such commitment is up to the amount of grants received by the Company,
linked to the U.S. dollar. Pursuant to reporting and royalty payment procedures of the NATI, such royalties will be paid at an
annual interest rate equal to LIBOR. The Company is subject to the provisions of the Israeli Law for the Encouragement of Research,
Development and Technological Innovation in the Industry and the regulations and guidelines thereunder (the "Innovation Law",
formerly known as the Law for the Encouragement of Research and Development in Industry). Pursuant to the Innovation Law there
are restrictions regarding intellectual property and manufacturing, as defined in the Innovation Law, outside of Israel, unless
approval is received and additional payments are made to the NATI.



Since management's
assessment is that it is reasonably assured that the Company will comply with the conditions for the forgiveness of the NATI loan,
this loan is treated as a government grant and, accordingly, no liability has been recognized in the financial statements.



In 2016, 2015 and 2014, the
participation in research and development expenses, amounted to approximately $ 4.5 million, $ 2.0 million and $ 1.3 million, respectively.



In December 2016, in addition
to previously approved programs, the Company submitted to the NATI a program of research and development activities as of January
1, 2017 to December 31, 2017. As of the date of approval of the financial statements, the Company has not yet received approval
from the NATI for this program.



F-24







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS AND CONTINGENT
LIABILITIES(continued):



| | d. | Operating long-term leases
| | -- | --------------------------



The Company is a tenant under
a lease agreement in respect of offices and operational spaces until June 30, 2018. Rent payments are denominated in NIS and linked
to the Israeli CPI.



The lease payments amounted
to approximately $445 thousand in 2016. The total forecast lease payments from January 1, 2017 through June 30, 2018 are approximately
$698 thousand.



To secure the Company’s
obligations to the lease agreement, the Company has granted a bank guarantee to the lessor, which amounted to approximately $54
thousand as of December 31, 2016.



NOTE 12 - TAXES ON INCOME:



| | a. | Corporate taxation in Israel:
| | -- | -----------------------------



| | 1) | Measurement of results for tax purposes
| | -- | ---------------------------------------



The Company elected to compute its taxable income
in accordance with Income Tax Regulations (Rules for Accounting for Foreign Investors Companies and Certain Partnerships and Setting
their Taxable Income), 1986. Accordingly, the Company’s taxable income or loss from 2016 is calculated in U.S. dollars.



The results of the Company
are measured for tax purposes in accordance with Generally Accepted Accounting Principles in Israel (“Israeli GAAP”).
These financial statements are prepared in accordance with IFRS. The difference between IFRS and Israeli GAAP, both on an annual
and a cumulative basis, causes a difference between taxable results and the results reflected in these financial statements.



| | 2) | Tax rates
| | -- | ---------



Income not eligible for Approved
Enterprise benefit is taxed at a regular rate, which was 25% in 2016. The regular tax rate in Israel was reduced to 24% in 2017
and to 23% in 2018 and thereafter.



In the absence of the expectation
of taxable income in the future, no deferred tax asset is recorded in the financial statements.



Capital
gains are taxed at the standard corporate tax rate.



| | b. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law")
| | -- | -----------------------------------------------------------------------------------------



Under the Law, the Company may
be entitled to tax benefits, by virtue of its status as a "Benefited Enterprise", which was awarded to the Company in
October 2007.



The Company received the status
of a "plant under establishment" in Development Area A in a tax-exempt track, subject to compliance with the applicable
requirements by the Law.

As of December 31, 2016, the
Company has not yet generated operating income that will allow it to benefit from the tax benefits under the Law.



The tax benefits under the Law
will apply for a period of up to ten years from the first year in which taxable income will be generated and are scheduled to expire
at the end of 2023.



F-25







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 12 - TAXES ON INCOME (continued):



| | c. | Tax loss carryforwards
| | -- | ----------------------



As
of December 31, 2016 the tax loss carryforwards of the Company were approximately $64 million (approximately NIS 247 million).
The Company has not created deferred tax assets in respect of these tax loss carryforwards since their utilization is not expected
in the foreseeable future. There is no expiration date on these loss
carry forwards.



| | d. | Tax assessments
| | -- | ---------------



Final tax assessments have been
received by the Company through the year ended December 31, 2012.



| | e. | Value-added tax (VAT)
| | -- | ---------------------



The Company is registered as
an authorized business for VAT purposes.



NOTE 13 - EQUITY:



| | a. | Share capital:
| | -- | --------------



| | 1) | Share capital is composed of ordinary shares with no par value, as follows:
| | -- | ---------------------------------------------------------------------------



|                                 |  | Number of ordinary shares |           
|-------------------------------- |  | ------------------------- | ----------
|                                 |  | December 31               |           
|                                 |  | 2015                      |           
|                                 |  |                           |           
|Authorized share capital         |  |                           | 16,000,000
|Issued and paid up share capital |  |                           | 11,448,191



| | 2) | The ordinary shares confer upon their holders participating and voting rights in shareholders meetings
(where the holder of an ordinary share has one vote), a right to receive a share of earnings and the right to receive assets of
the Company upon its liquidation.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Changes in share capital:
| | -- | -------------------------



| | 1) | Based on the investment agreement signed on August 6, 2013 and the Addendum to the investment agreement
signed on October 22, 2014, (as described in note 10), the Company issued to several investors during 2013, 320,663 ordinary shares
and 198,812 warrants and, in November 2014, 202,018 ordinary shares and 80,166 warrants that expired in October 2016. In addition,
in October 2015 the Company issued to these investors 174,566 shares as part of the Downside Protection mechanism. For more details,
see note 10.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | On October 1, 2014, the Company issued 577,795 ordinary shares and 577,795 unlinked warrants (Series
7) through a rights issuance. Each warrant (Series 7) was exercisable into one ordinary share, each for an exercise price of NIS
35 (unlinked). The shares and warrants were offered through a rights issuance to the Company's shareholders at the trading day
on the TASE on September 15, 2014, such that each shareholder holding 15 ordinary shares was entitled to two ordinary shares and
two warrants (Series 7) for an overall price of NIS 60. Issuance proceeds, net of issuance costs, amounted to $4.5 million.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Until April 26, 2015, 208,843
unlinked warrants (Series 7) were exercised to purchase 208,843 ordinary shares for consideration of approximately $1.8 million.
The remaining 368,952 unexercised and unlinked warrants (Series 7) expired on that date.



F-26







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY(continued):



| | 3) | On March 29, 2015, further to an approval of the General Meeting on March 18, 2015, the Company
executed a 50-to-1 reverse share split of the Company's ordinary shares and eliminated their par value. Upon the effectiveness
of the reverse share split, (i) the number of ordinary shares was proportionally decreased and their par value was eliminated,
(ii) the number of ordinary shares into which each outstanding option and outstanding warrant to purchase ordinary shares is exercisable
was proportionally decreased, and (iii) the exercise price of each outstanding option and outstanding warrant to purchase ordinary
shares was proportionally increased. In addition, the general meeting approved an increase of the Company's authorized share capital
to include, after the reverse share split, 16,000,000 ordinary shares with no par value. Unless otherwise indicated, all of the
shares numbers, the options and warrants numbers, loss per share amounts, share prices, warrant exercise prices and option exercise
prices in these financial statements have been adjusted, on a retroactive basis, to reflect this 50-to-1 reverse share split.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4) | On August 7, 2015, the Company completed its public offering of its ordinary shares on the NASDAQ,
pursuant to which the Company issued 5,025,000 ordinary shares with no par value, at a price of $6.00 per ordinary share, raising
a total of approximately $26.5 million (net of commissions to the underwriters and offering expenses). In addition, on September
17, 2015, the underwriters exercised in part their over-allotment option and purchased an additional 638,750 ordinary shares at
a price of $6 per share. The proceeds from the exercise of the option, net of underwriters’ commission and offering expenses,
were approximately $3.5 million, bringing the total net proceeds from the initial public offering to approximately $30 million.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Share-based payment to employees and service providers:
| | -- | -------------------------------------------------------



| | 1) | Company employees and directors are granted options under Section 102 of the Israeli Income Tax
Ordinance (the “Ordinance”), primarily under the “capital gains” track. Non-employees of the Company (consultants
and service providers) are granted options under Section 3(i) of the Ordinance.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | In April 2014, the Company issued 50,909 shares to a former related party. This issuance was following
a statement of claim that was filed against the Company and a court ruling in favor of the plaintiff.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | On August 28, 2014, the Board of Directors approved a grant of 10,000 options to Company employees,
where each option will be exercisable into one ordinary share, each for an exercise price of NIS 39.55. The options will vest over
a four-year period, with half of the options vesting at the end of a two-year period from the date of grant, and the second half
vesting in eight equal quarterly tranches, subsequent to the two-year period from the grant date, subject to the employees' continued
employment with the Company at the time that each tranche vests. The options will expire six years after the date of grant. The
value of the benefit in respect of the said options, as calculated at the date of grant, is approximately NIS 175 thousand (approximately
$49 thousand). See note 13c(14)(a) regarding the assumptions in respect of this calculation.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-27









INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY(continued):



| | 4) | On August 28, 2014, the Board of Directors approved further to a recommendation of the Compensation
Committee, a grant of 60,000 options to its former VP Business Development and Clinical Affairs. All options were forfeited in
March 2016 due to the termination of the employee’s employment with the Company. 24,000 of the 60,000 options were exercisable
into one ordinary share, each for an exercise price of NIS 39.55. The options were to be vested over a four-year period. The value
of the benefit in respect of the said options, as calculated at the date of grant, is approximately NIS 400 thousand (approximately
$112 thousand). In addition, the remaining 36,000 options were exercisable into one ordinary share, each for an exercise price
of NIS 39.55. These options were exercisable only in the event that a material agreement, as defined in the Company's compensation
policy, is signed between the Company and a third party, subject to her continued employment with the Company. The value of the
benefit of those options is approximately NIS 620 thousand (approximately $174 thousand). No benefit was recognized in the financial
statements since no material agreement was signed during her employment. See note 13c(14)(a) regarding the assumptions in respect
of this calculation.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5) | On October 6, 2014, the Board of Directors approved a grant of 61,200 options to Company employees,
where each option will be exercisable into one ordinary share, each for an exercise price of NIS 32.47. The options will vest over
a four-year period, with half of the options vesting at the end of a two-year period from the date of grant, and the second half
vesting in eight equal quarterly tranches, subsequent to the two-year period from the grant date, subject to the employees' continued
employment with the Company at the time that each tranche vests. The options will expire six years after the date of grant. The
value of the benefit in respect of the said options, as calculated at the date of grant, is approximately NIS 810 thousand (approximately
$221 thousand). See note 13c(14)(b) regarding the assumptions in respect of this calculation.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6) | On December 31, 2014, the Board of Directors approved, further to a recommendation of the Compensation
Committee a grant of 60,000 options, effective January 1, 2015, to its former Chief Financial Officer ("former CFO").
All options were forfeited due to the termination of the former CFO’s employment with the Company, effective August 2016.
20,000 of the 60,000 options were exercisable into one ordinary share, each for an exercise price of NIS 27.93. The options were
to be vested over a four-year period. The value of the benefit in respect of the said options, as calculated at the date of grant,
is approximately NIS 200 thousand (approximately $51 thousand). 12,000 of the 60,000 options were exercisable into one ordinary
share, each for an exercise price of NIS 27.93. These options were exercisable only in the event that a material agreement, as
defined in the Company's compensation policy, is signed between the Company and a third party, subject to the former CFO's continued
employment with the Company. The value of the benefit of those options is approximately NIS 120 thousand (approximately $31 thousand).
No benefit was recognized in the financial statements since no material agreement was signed during his employment. The remaining
28,000 options were to become exercisable upon completion of an issuance of the Company's ordinary shares in a foreign stock exchange,
subject to the former CFO's continued employment with the Company. The exercise price of these options was NIS 27.93. The value
of the benefit of those options was approximately NIS 280 thousand (approximately $72 thousand). See note 13c(14)(c) regarding
the assumptions in respect of this calculation.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In August 2015, following
the completion of the public offering, see note 13b(4), 28,000 options, that were exercisable upon completion of an issuance of
the Company's ordinary shares in a foreign stock exchange, as described above, were vested and the value of the benefit of those
options in the amount of approximately NIS 280 thousand (approximately $72 thousand) was recognized in the financial statements
of the Company.



F-28









INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY (continued):



| | 7) | On March 27, 2016, the Board of Directors approved a grant of 176,705 options to Company employees,
where each option will be exercisable into one ordinary share, each for an exercise price of $4.14. The options will vest over
a four-year period, with one quarter of the options vesting at the end of the first year from the date of grant, and the remaining
options vesting in 12 equal quarterly tranches, subsequent to the first year from the grant date. The options will expire ten years
after the date of grant. The value of the benefit in respect of said options, as calculated on the grant date, is approximately
$474 thousand. See note 13c(14)(d) regarding the assumptions in respect of this calculation.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8) | On March 10, 2016, the Board of Directors approved, effective May 1, 2016, the appointment of the
VP Clinical and Regulatory Affairs. As part of her employment agreement, a grant of 44,000 options was approved. Due to termination
of her employment with the Company, effective February 2017 all options were forfeited. Each option was exercisable into one ordinary
share, each for an exercise price of $ 3.865. 25,000 options were to be vested over a four-year period, with one quarter of the
options vesting at the end of the first year from the date of grant, and the remaining options vesting in 12 equal quarterly tranches,
subsequent to the first year from the grant date.. The value of the benefit in respect of said options, as calculated on the grant
date, is approximately $74 thousand. 19,000 options were to be vested in three equal annual tranches over a three-year period,
subject to her continued employment with the Company and subject to the fulfillment of certain milestones, as defined in the employment
agreement The value of the benefit of these options is approximately $ 56 thousand. No benefit was recorded in 2016 due to the
termination of her employment with the Company. See note 13c(14)(e) regarding the assumptions in respect of this calculation.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9) | On April 21, 2016, the Company's General Meeting approved, further to a resolution adopted
by the Board of Directors on March 10, 2016, a grant of 22,500 options to each of the Company's two external directors. Each option
will be exercisable into one ordinary share at an exercise price of $6. The options will vest in three equal annual tranches over
a three-year period. These options will expire after ten years from the date of grant. The value of the benefit in respect of said
options, as calculated on the grant date, is approximately $84 thousand. See note 13c(14)(f) regarding the assumptions in respect
of this calculation.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10) | On June 30, 2016, the Company's Annual Meeting approved, further to a resolution adopted by
the Board of Directors on May 22, 2016, a grant of 22,500 options to each of the three directors of the Company, other than external
directors, the chairman of the Company's Board and the Chief Executive Officer of the Company. Each option will be exercisable
into one ordinary share at an exercise price of $6. The options will vest in three equal annual tranches over a three-year period.
These options will expire after ten years from the date of grant. The value of the benefit in respect of said options, as calculated
on the grant date, is approximately $121 thousand. See note 13c(14)(g) regarding the assumptions in respect of this calculation.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, a grant of 68,250
options to two of the three directors, which serve in different positions in the Company, was approved. Each option will be exercisable
into one ordinary share at an exercise price of $3.46. The options will vest over a four-year period, with one quarter of the options
vesting at the end of the first year from the date of grant, and the remaining options vesting in 12 equal quarterly tranches,
subsequent to the first year from the grant date and subject to the continued employment with the Company at the time that each
tranche vests. The options will expire ten years after the date of grant. The value of the benefit in respect of said options,
as calculated on the grant date, is approximately $153 thousand. See note 13c(14)(g) regarding the assumptions in respect of this
calculation.



F-29











INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY(continued):



| | 11) | On June 30, 2016, the Company's Annual Meeting approved, further to a resolution adopted by
the Board of Directors on May 15, 2016, effective July 1, 2016, the appointment and the compensation of the new Chairman of the
Board ("Chairman"). As part of his service agreement, a grant of 224,478 options was approved. Each option will be exercisable
into one ordinary share at an exercise price of $3.526. The options will vest in three equal annual tranches over a three-year
period, subject to his continued tenure as the Chairman
at the time that each tranche vests. These options will expire after ten years from the date of grant. The value of the benefit
in respect of said options, as calculated on the grant date, is approximately $408 thousand. See note 13c(14)(h) regarding the
assumptions in respect of this calculation.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 12) | On July 25, 2016, the Board of Directors approved a grant of 180,000 options to two management
members. Each option will be exercisable into one ordinary share, each for an exercise price of $4.466. 90,000 options will vest
over a four-year period, with one quarter of the options vesting at the end of the first year from the date of grant, and the remaining
options vesting in 12 equal quarterly tranches, subsequent to the first year from the grant date. The options will expire ten years
after the date of grant. The value of the benefit in respect of said options, as calculated on the grant date, is approximately
$236 thousand. 90,000 options will be exercisable only in the event that a material agreement, as defined in Company's compensation
policy, is signed between the Company and a third party, and subject to continued employment with the Company. These options will
expire after ten years from the date of grant. The value of the benefit of these options is approximately $236 thousand and will
be recognized in the financial statements of the Company only if a material agreement is signed. See note 13c(14)(i) regarding
the assumptions in respect of this calculation. Following this grant, both management members agreed to forgo 117,200 options that
were previously granted to them in October 2013. This forgoing of 117,200 options was accounted as modification to the original
terms on which the options were granted.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 13) | During the year 2016, options to purchase 409,213 ordinary shares granted to employees were cancelled,
forfeited or expired.
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | 14) | Assumptions used in calculating options' fair value:
| | --- | ----------------------------------------------------



The fair value of the options at
the date of grant was calculated on the basis of the Black-Scholes model. The assumptions used in calculating the fair value of
the options granted are as follows:





|                  |  | The
    Company's ordinary |       |  | Expectedannualvolatility |  |       | Risk-free
    interest rate * |  |  | Expected
    life to exercise | 
|----------------- |  | -------------------------- | ----- |  | ------------------------ |  | ----- | ----------------------------- |  |  | ----------------------------- | 
|Date
    of grant |  | share
    price            |       |  | %                        |  |       | %                             |  |  | In
    years                  | 
|(a) August 2014   |  | NIS                        | 38.5  |  |                          |  | 46.24 |                               |  |  | 1.9                           | 
|(b) October 2014  |  | NIS                        | 30    |  |                          |  | 46.64 |                               |  |  | 1.9                           | 
|(c)  January 2015 |  | NIS                        | 23.55 |  |                          |  | 48.07 |                               |  |  | 1.9                           | 
|(d) March 2016    |  | $                          | 4.39  |  |                          |  | 48.44 |                               |  |  | 1.9                           | 
|(e) March 2016    |  | $                          | 4.66  |  |                          |  | 48.38 |                               |  |  | 1.9                           | 
|(f)  April 2016   |  | $                          | 3.79  |  |                          |  | 48.23 |                               |  |  | 1.9                           | 
|(g) May 2016      |  | $                          | 3.69  |  |                          |  | 48.18 |                               |  |  | 1.8                           | 
|(h)  May 2016     |  | $                          | 3.18  |  |                          |  | 48.15 |                               |  |  | 1.8                           | 
|(i)  July 2016    |  | $                          | 4.47  |  |                          |  | 47.82 |                               |  |  | 1.6                           | 



| | * | The risk-free interest rate was determined on the basis of the yield rates to maturity of unlinked
government bonds bearing a fixed interest rate, whose maturity dates correspond to the expected exercise dates of the options.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-30







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY(continued):



| | 15) | The following table contains additional information concerning options granted to employees and
service providers:
| | --- | ------------------------------------------------------------------------------------------------------------------





|                                                             |  | Year ended December 31 |        
|------------------------------------------------------------ |  | ---------------------- | -------
|                                                             |  | 2014                   |        
|                                                             |  | Number of options      |        
|                                                             |  |                        |        
|(a)  Options with an exercise price of NIS 0.5:              |  |                        |        
|Outstanding at beginning of year                             |  |                        | 140,195
|Granted                                                      |  |                        | -      
|Exercised                                                    |  |                        | (2,244 
|Forfeited                                                    |  |                        | -      
|Expired                                                      |  |                        | -      
|Outstanding at end of year                                   |  |                        | 137,951
|Exercisable at end of year                                   |  |                        | 9,556  
|Weighted average remaining contractual life (years)          |  |                        | 4.30   
|                                                             |  |                        |        
|(b)  Options with an exercise price of NIS 27.93 – NIS 81.1: |  |                        |        
|Outstanding at beginning of year                             |  |                        | 519,740
|Granted                                                      |  |                        | 131,200
|Exercised                                                    |  |                        | (11,970
|Forfeited                                                    |  |                        | (8,881 
|Cancelled, see note 13c(12)                                  |  |                        | -      
|Expired                                                      |  |                        | -      
|Outstanding at end of year                                   |  |                        | 630,089
|Exercisable at end of year                                   |  |                        | 257,714
|Weighted average remaining contractual life (years)          |  |                        | 3.56   
|                                                             |  |                        |        
|(c)  Options with an exercise price of $ 3.46 – $ 6.00:      |  |                        |        
|Outstanding at beginning of year                             |  |                        |        
|Granted                                                      |  |                        |        
|Exercised                                                    |  |                        |        
|Forfeited                                                    |  |                        |        
|Expired                                                      |  |                        |        
|Outstanding at end of year                                   |  |                        |        
|Exercisable at end of year                                   |  |                        |        
|Weighted average remaining contractual life (years)          |  |                        |        





Each option that is exercisable
affords the right to acquire one ordinary share of the Company.



F-31







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 14 - RESEARCH AND DEVELOPMENT EXPENSES:



|                             |  | Year ended December 31    |      
|---------------------------- |  | ------------------------- | -----
|                             |  | 2014                      |      
|                             |  | U.S. dollars in thousands |      
|                             |  |                           |      
|Payroll and related expenses |  |                           | 2,098
|Materials and subcontractors |  |                           | 477  
|Professional services        |  |                           | 468  
|Research and clinical trials |  |                           | 447  
|Rent and maintenance         |  |                           | 651  
|Depreciation                 |  |                           | 565  
|Share-based compensation     |  |                           | 107  
|Others                       |  |                           | 146  
|                             |  |                           | 4,959



NOTE
15 - GENERAL AND ADMINISTRATIVE EXPENSES:



|                                |  | Year ended December 31    |      
|------------------------------- |  | ------------------------- | -----
|                                |  | 2014                      |      
|                                |  | U.S. dollars in thousands |      
|                                |  |                           |      
|Payroll and related expenses    |  |                           | 790  
|Rent and maintenance            |  |                           | 206  
|Professional services           |  |                           | 1,164
|Overseas travel and trade shows |  |                           | 25   
|Depreciation                    |  |                           | 20   
|Share-based compensation        |  |                           | 230  
|Insurance                       |  |                           | 14   
|Others                          |  |                           | 160  
|                                |  |                           | 2,609





NOTE
16 - FINANCIAL INCOME (EXPENSES):



Financial income:

|                                                                      |  | Year ended December 31    |    
|--------------------------------------------------------------------- |  | ------------------------- | ---
|                                                                      |  | 2014                      |    
|                                                                      |  | U.S. dollars in thousands |    
|Interest on cash equivalents and short term bank deposits             |  |                           | 172
|Changes in fair value of derivative financial instruments, see note 4 |  |                           |    
|Gain on changes in exchange rates                                     |  |                           | 146
|                                                                      |  |                           | 318



Financial expenses:

|Bank fees                                                             |  |  | 23  |  |  |  | 16  |  |  |  | 16  | 
|--------------------------------------------------------------------- |  |  | --- |  |  |  | --- |  |  |  | --- | 
|Changes in fair value of derivative financial instruments, see note 4 |  |  | 204 |  |  |  | 213 |  |  |  |     | 
|                                                                      |  |  | 227 |  |  |  | 229 |  |  |  | 16  | 
|Financial income, net                                                 |  |  | 91  |  |  |  | 404 |  |  |  | 450 | 



F-32







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 17 - LOSS PER SHARE



The basic loss per share is computed
by dividing the Company's loss attributable to the holders of shares by the weighted average number of ordinary shares outstanding
during the period.



|                                                                      |  | Year ended December 31                               |      
|--------------------------------------------------------------------- |  | ---------------------------------------------------- | -----
|                                                                      |  | 2014                                                 |      
|                                                                      |  | U.S. dollars in thousands (except per share amounts) |      
|Net loss per year as reported in the statements of comprehensive loss |  |                                                      | 5,693
|Weighted average of ordinary shares outstanding during the period     |  |                                                      | 4,825
|Basic and diluted loss per share                                      |  |                                                      | (1.18



The diluted loss per share does
not include 1,220,852, 824,132 and 768,040 options granted to employees and service providers for the years ended December 31,
2016, 2015 and 2014, respectively, 313,588 warrants (Series 1) which were issued in 2010 and expired in 2014, 577,795 warrants
(Series 7) which were issued in 2014 and expired in 2015, 103,673 warrants which were issued to institutional investors in
2010 and expired in 2014, 92,400 warrants which were issued to institutional investors in 2013 and expired in 2015, 198,812 warrants
which were issued to several investors in 2013 and 80,166 warrants which were issued to several investors in 2014 and expired in
2016, because the effect of their inclusion in the calculation would be anti-dilutive.



NOTE
18 - EXPENSES RELATING TO EMPLOYEE BENEFITS



|                                                                |  | Year ended December 31    |      
|--------------------------------------------------------------- |  | ------------------------- | -----
|                                                                |  | 2014                      |      
|                                                                |  | U.S. dollars in thousands |      
|Payroll and other benefits                                      |  |                           | 2,702
|Social security                                                 |  |                           | 127  
|Share-based compensation                                        |  |                           | 337  
|Post-employment benefits - defined contribution plan            |  |                           | 290  
|                                                                |  |                           | 3,456
|Average number of employees to which these benefits are related |  |                           | 43   



F-33







INTEC PHARMA LTD.



NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 19 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES:



"Related party" –
has the meaning set forth in IAS 24R.



The Company’s key management
personnel (who are included, together with other persons, within the definition of "related parties" as defined in IAS
24R) in 2014 include the members of the Board of Directors, the CEO and the former Co-CEO and in 2015 and 2016 include the members
of the Board of Directors and the CEO.



| | a. | Transactions with related parties:
| | -- | ----------------------------------



|                                          |  | Year ended December 31    |    
|----------------------------------------- |  | ------------------------- | ---
|                                          |  | 2014                      |    
|                                          |  | U.S. dollars in thousands |    
|Key management compensation expenses:     |  |                           |    
|Salaries and short-term employee benefits |  |                           | 626
|Long term employment benefits             |  |                           | 46 
|Share-based compensation expenses         |  |                           | 169
|                                          |  |                           | 841



| | b. | Balances with related parties:
| | -- | ------------------------------



|                                                             |  | December 31               |   
|------------------------------------------------------------ |  | ------------------------- | --
|                                                             |  | 2015                      |   
|                                                             |  | U.S. dollars in thousands |   
|Statement of financial position items -                      |  |                           |   
|current liabilities -  Accounts payable and accruals - other |  |                           | 37



NOTE 20 - EVENTS SUBSEQUENT TO DECEMBER
31, 2016:



On March 10, 2017, the Company entered
into agreements for a private placement with several private and institutional investors, in accordance with which and as of the
approval of the financial statements date, the Company allocated the offerees an overall quantity of 2,289,638 ordinary shares
with no par value for gross proceeds of approximately $10 million. The chairman of the board of directors and two other board members
have participated in this private placement.











F-34







ITEM 19. Exhibits.



|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                          
|1.1*        |  | Certificate of Incorporation of Orly Guy Ltd., dated October 23, 2000                                                                                                                                                    
|            |  |                                                                                                                                                                                                                          
|1.2*        |  | Certificate of Name Change of Orly Guy Ltd. to Intec Pharmaceutical (2000) Ltd., dated February 7, 2001                                                                                                                  
|            |  |                                                                                                                                                                                                                          
|1.3*        |  | Certificate of Name Change of Intec Pharmaceutical (2000) Ltd. to Intec Pharma Ltd., dated March 15, 2004                                                                                                                
|            |  |                                                                                                                                                                                                                          
|1.4         |  | Articles of Association of Intec Pharma Ltd.                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                          
|2.1***      |  | Specimen share certificate                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                          
|4.1+*       |  | Joint Venture for R&D, dated June 1, 2000, by and between Yissum Research Development Company of the Hebrew University of Jerusalem and Intec Pharmaceutical Partnership Ltd.                                            
|            |  |                                                                                                                                                                                                                          
|4.2+*       |  | Notice of Extension Letter, dated October 5, 2004, from Intec Pharma Ltd. to Yissum Research Development Company of the Hebrew University of Jerusalem                                                                   
|            |  |                                                                                                                                                                                                                          
|4.3*        |  | Amendment, dated July 13, 2005, by and between Yissum Research Development Company of the Hebrew University of Jerusalem and Intec Pharma Ltd., to the Joint Venture for R&D Agreement dated June 1, 2000                
|            |  |                                                                                                                                                                                                                          
|4.4*        |  | Research Agreement, dated January 15, 2008, by and between Yissum Research Development Company of the Hebrew University of Jerusalem and Intec Pharma Ltd.                                                               
|            |  |                                                                                                                                                                                                                          
|4.5*        |  | Form of Indemnification Letter                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                          
|4.6*        |  | Intec Pharma Ltd. 2005 Share Option Plan                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                          
|4.7****     |  | Intec Pharma Ltd. 2015 Equity Incentive Plan                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                          
|4.8*        |  | Subscription Agreement between Intec Pharma Ltd. and the investors listed on Schedules A and C thereto, dated August 6, 2013, including forms of Certificates of Warrants                                                
|            |  |                                                                                                                                                                                                                          
|4.9*        |  | Addendum & Amendment to that certain Subscription Agreement of August 6, 2013, dated October 20, 2014, by and between Intec Pharma Ltd. and Gabriel Capital Management (GP) Ltd.                                         
|            |  |                                                                                                                                                                                                                          
|4.10*       |  | Unprotected Lease Agreement between Intec Pharma Ltd. and R.M.P.A. Assets Ltd., dated June 2, 2003, together with supplements thereto dated as of April 21, 2004, January 1, 2006, December 15, 2009 and January 18, 2011



144







|4.11***** |  | Lease Agreement – Appendix between Intec Pharma Ltd. and R.M.P.A. Assets Ltd., dated October 28, 2015                                                                                                                                                                                                               
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.12*     |  | Employment Agreement, dated August 1, 2008, between Intec Pharma Ltd. and Giora Carni as amended by the Agreement, dated October 12, 2010, and the Addendum to Agreement, dated October 21, 2013                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.13*     |  | Employment Agreement, dated June 1, 2009, between Intec Pharma Ltd. and Zeev Weiss as amended by Amendment to Agreement, dated 2012 and Addendum to Agreement, dated November 11, 2013                                                                                                                              
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.14      |  | Service Agreement, dated May 14, 2016, between Intec Pharma Ltd. and John Warren Kozarich.                                                                                                                                                                                                                          
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.15*     |  | Employment Agreement, dated January 15, 2006, between Intec Pharma Ltd. and Nadav Navon, as amended by Annex to Employment Agreement, dated May 29, 2011, Addendum to Agreement, dated March 2012 and Amendment to Agreement, dated October 21, 2013                                                                
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.16*     |  | Employment Agreement, dated December 31, 2014, between Intec Pharma Ltd. and Oren Mohar.                                                                                                                                                                                                                            
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.17      |  | Employment
    Agreement, dated November 1, 2004, between Intec Pharma Ltd. and Zvi Joseph, as amended by Addendum to Employment Agreement,
    dated October 20, 2009, Addendum to Agreement, dated July 28, 2011, Addendum to Agreement, dated October 21, 2013 and
    Addendum to Agreement dated July 19, 2016.
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.18+**   |  | Research, Option and License Agreement, dated April 15, 2015, between Intec Pharma Ltd. and Biogen MA Inc.                                                                                                                                                                                                          
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.19**    |  | Registration Rights Agreement, dated as of July 8, 2015, by and among Intec Pharma Ltd., Gabriel Capital Management (GP) Ltd. and the other persons identified on Schedule A thereto                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.20***   |  | Form of Indemnification Agreement                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.21***   |  | Form of Exemption from Liability                                                                                                                                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                     
|4.22+**   |  | Amendment, dated March 12, 2015, by and between Yissum Research
        Development Company of the Hebrew University of Jerusalem and Intec Pharma Ltd., to the Joint Venture of R&D Agreement dated
        June 1, 2000.                                                                                          
|4.23      |  | Form of Subscription Agreement, dated March 10, 2017, by and among Intec Pharma Ltd. and the investors identified on signature page thereto.                                                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                     
|12.1      |  | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                     
|12.2      |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended                                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                     
|13.1      |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                             
|          |  |                                                                                                                                                                                                                                                                                                                     
|15.1      |  | Consent of Kesselman & Kesselman, Certified Public Accountant (Isr.), independent registered public accounting firm, a member of PricewaterhouseCoopers International Limited                                                                                                                                       










| | * | Incorporated herein by reference to the Company’s Registration Statement on Form F-1 filed with the SEC on June 9, 2015.
| | - | ------------------------------------------------------------------------------------------------------------------------



145







| | ** | Incorporated herein by reference to Amendment No. 1 to the Company’s Registration Statement on Form F-1 filed with the SEC on July 16, 2015.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------

| | *** | Incorporated herein by reference to Amendment No. 2 to the Company’s Registration Statement on Form F-1 filed with the SEC on July 28, 2015.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | ****  | Incorporated herein by reference to the Company’s Registration Statement on Form S-8 filed with the SEC on February 25, 2016.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------
| | ***** | Incorporated herein by reference to the Company’s Annual Report on Form 20-F filed with the SEC on March 14, 2016.           

| | + | Certain portions of this agreement have been omitted under a confidential treatment order pursuant to Rule 406 of the Securities Act of 1933, as amended, and Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and filed separately with the SEC.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



146







SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.



| | INTEC PHARMA LTD.
| | -----------------
| |                  
| | By:              
| |                  
| |                  



Date: April 7, 2017



147