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, 2015



OR



|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

OR



|o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report ________________



Commission file number 001-35773



| | RedHill Biopharma Ltd.                                 | 
| | ------------------------------------------------------ | 
| | (Exact name of Registrant as specified in its charter) | 
| |                                                        | 
| | N/A                                                    | 
| | (Translation of Registrant’s name into English)        | 
| |                                                        | 
| | Israel                                                 | 
| | (Jurisdiction of incorporation or organization)        | 



|21 Ha’arba’a Street, Tel Aviv 64739, Israel                                                                                                                          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Address of principal executive offices)                                                                                                                             
|                                                                                                                                                                     
|Ori Shilo, Deputy Chief Executive Officer Finance
and Operations
        21 Ha’arba’a Street, Tel Aviv 64739,
Israel
        Tel: 972-3-541-3131; Fax: 972-3-541-3144
|(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 class                                                        |  | Name of each exchange on which registered
|--------------------------------------------------------------------- |  | -----------------------------------------
|American Depositary Shares, each representing ten Ordinary Shares (1) |  | Nasdaq Capital Market                    
|                                                                      |  |                                          
|Ordinary Shares, par value NIS 0.01 per share (2)                     |  | Nasdaq Capital Market                    



|(1) | Evidenced by American Depositary Receipts.                                                 
|--- | -------------------------------------------------------------------------------------------
|(2) | Not for trading, but only in connection with the listing of the American Depositary Shares.



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



|None            
|----------------
|(Title of Class)





1




Securities for which there is a reporting obligation pursuant to Section 15(d) of the
Act:



|None            
|----------------
|(Title of Class)

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: 127,114,294



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



Yes ☐    No   ý



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 1934.



Yes ☐    No   ý



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 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.



ý Yes    No



Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, 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 o
   No o



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 o | Accelerated filer ý | Non-accelerated filer o
|------------------------- | ------------------- | -----------------------



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



U.S. GAAP o



International Financing Reporting Standards as issued by the International
Accounting



Standards Board ý

Other o



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  o    No  
ý



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





2




TABLE OF CONTENTS



|ITEM 1.       | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        | 5  
|------------- | ---------------------------------------------------------------------------- | ---
|ITEM 2.       | OFFER STATISTICS AND EXPECTED TIMETABLE                                      | 5  
|ITEM 3.       | KEY INFORMATION                                                              | 5  
|ITEM 4.       | INFORMATION ON THE COMPANY                                                   | 26 
|ITEM 4A.      | UNRESOLVED STAFF COMMENTS                                                    | 56 
|ITEM 5.       | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 | 56 
|ITEM 6.       | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   | 64 
|ITEM 7.       | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 80 
|ITEM 8.       | FINANCIAL INFORMATION                                                        | 81 
|ITEM 9.       | THE OFFER AND LISTING                                                        | 82 
|ITEM 10.      | ADDITIONAL INFORMATION                                                       | 84 
|ITEM 11.      | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 95 
|ITEM 12.      | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 96 
|ITEM 13.      | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 97 
|ITEM 14.      | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 97 
|ITEM 15.      | CONTROLS AND PROCEDURES                                                      | 97 
|ITEM 16.      | [RESERVED]                                                                   | 98 
|ITEM 16A.     | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 98 
|ITEM 16B.     | CODE OF ETHICS                                                               | 98 
|ITEM 16C.     | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       | 98 
|ITEM 16D.     | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.                  | 99 
|ITEM 16E.     | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.      | 99 
|ITEM 16F.     | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.                                | 99 
|ITEM 16G.     | CORPORATE GOVERNANCE                                                         | 99 
|ITEM 16H.     | MINE SAFETY DISCLOSURE                                                       | 100
|ITEM 17.      | FINANCIAL STATEMENTS                                                         | 100
|ITEM 18.      | FINANCIAL STATEMENTS                                                         | 100
|ITEM 19.      | EXHIBITS                                                                     | 100
|EXHIBIT INDEX | 103                                                                         

______________________________________________________________________________





3




Unless the context otherwise requires, all references to “RedHill,”
“we,” “us,” “our,” the “Company” and similar designations refer to RedHill Biopharma
Ltd. The term “NIS” refers to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar”,
“US$” or “$” refer to U.S. dollars, the lawful currency of the U.S. Our functional and presentation currency
is the U.S. dollar. Unless otherwise indicated, U.S. dollar amounts herein (other than amounts originally receivable or payable
in dollars) have been translated for the convenience of the reader from the original NIS amounts at the representative rate of
exchange as of February 22, 2016 ($1 = NIS 3.907). The dollar amounts presented should not be construed as representing amounts
that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated. Foreign currency transactions
in currencies other than the U.S. dollar are translated in this Annual Report into U.S. dollars using exchange rates in effect
at the date of the transactions.



All references to the term “therapeutic candidates”
include both pharmaceuticals and programs related to their development, such as diagnostics and devices.



________________________________



FORWARD-LOOKING STATEMENTS



Some of the statements under the sections entitled “Item 3.
Key Information — Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial
Review and Prospects” and elsewhere in this Annual Report may include forward looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some
cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,” “would,” and similar expressions
intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events
and are based on assumptions and subject to risks and uncertainties. In addition, the sections of this Annual Report entitled “Item
4. Information on the Company” contain information obtained from independent industry and other sources that we have not
been independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do
so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.



Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements
include, but are not limited to



|• | the initiation, timing, progress and results of our research, manufacturing, preclinical studies, clinical trials, and other therapeutic candidate development efforts, as well as the extent and number of additional studies that we may be required to conduct;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials;                                                                                                                    
|• | our receipt of regulatory clarity and approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals;                                                                                                                         
|• | the research, manufacturing, clinical development, commercialization, and market acceptance of our therapeutic candidates;                                                                                                                                        
|• | our ability to establish and maintain corporate collaborations;                                                                                                                                                                                                   
|• | our ability to acquire products approved for marketing in the U.S. that achieve commercial success and build our own marketing and commercialization capabilities;                                                                                                
|• | the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in research, manufacturing, preclinical studies or clinical trials;                                            
|• | the implementation of our business model, strategic plans for our business and therapeutic candidates;                                                                                                                                                            
|• | the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing upon the intellectual property rights of others;                    
|• | estimates of our expenses, future revenues capital requirements and our need for additional financing;                                                                                                                                                            
|• | competitive companies, technologies and our industry; and                                                                                                                                                                                                         
|• | the impact of the political and security situation in Israel on our business.                                                                                                                                                                                     

___________________________________



4






|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 table sets forth our selected financial data, which
is derived from our financial statements prepared in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board, or IFRS. We have derived the selected financial data as of December 31, 2015 and 2014
and for the years ended December 31, 2015, 2014 and 2013 from our audited financial statements included elsewhere in this Annual
Report on Form 20-F. We have derived the selected financial data as of December 31, 2011, 2012, and 2013 and for the years ended
December 31, 2012 and 2011 from our audited financial statements not included in this Annual Report. You should read this selected
financial data and other information provided in this Annual Report in conjunction with, and is qualified in its entirety by, our
historical financial information including “Item 5. Operating and Financial Review and Prospects” and our financial
statements and related notes appearing elsewhere in this Annual Report.



|                                                                                     |  | Year ended December 31
|------------------------------------------------------------------------------------ |  | ----------------------
|                                                                                     |  |                       
|Statement of Comprehensive Loss                                                      |  |                       
|Revenues                                                                             |  |                       
|Cost of Revenue                                                                      |  |                       
|Research and development expenses, net                                               |  |                       
|General and administrative expenses                                                  |  |                       
|Other (income) expenses                                                              |  |                       
|Operating loss                                                                       |  |                       
|Financial income                                                                     |  |                       
|Financial expenses                                                                   |  |                       
|Financial (income) expenses, net                                                     |  |                       
|Loss and comprehensive loss                                                          |  |                       
|Loss per ordinary share (in U.S. dollars)                                            |  |                       
|Basic                                                                                |  |                       
|Diluted                                                                              |  |                       
|Weighted average number of ordinary shares used in computing loss per ordinary share |  |                       
|Weighted average number of ordinary shares used in computing diluted loss per share  |  |                       



|                                |  | As of December 31
|------------------------------- |  | -----------------
|                                |  |                  
|Balance Sheet Data              |  |                  
|Cash and short term investments |  |                  
|Working capital                 |  |                  
|Total assets                    |  |                  
|Total liabilities               |  |                  
|Accumulated deficit             |  |                  
|Equity                          |  |                  



5






|B. | Capitalization and Indebtedness
|-- | -------------------------------



Not applicable.



|C. | Reasons for the Offer and Use of Proceeds
|-- | -----------------------------------------



Not applicable.



|D. | Risk Factors
|-- | ------------



You should carefully consider the risks we describe below, in
addition to the other information set forth elsewhere in this Annual Report, including our financial statements and the related
notes beginning on page F-1, before deciding to invest in our ordinary shares or our American Depositary Shares. These material
risks could adversely impact our results of operations, possibly causing the trading price of our ordinary shares and American
Depositary Shares to decline, and you could lose all or part of your investment.



Risks Related to Our Financial Condition and Capital Requirements



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



We are a clinical development-stage biopharmaceutical company. Since
our incorporation in 2009, we have been focused primarily on the development and acquisition of late clinical-stage therapeutic
candidates. All of our therapeutic candidates are in the clinical development stage, and, except for RIZAPORTTM which has
been approved for marketing in Germany but has yet to be marketed, none has been approved for marketing or is being marketed or
commercialized. Most of our therapeutic candidates require additional clinical trials before we can obtain the regulatory approvals
in order to initiate commercial sales. We have incurred losses since inception, principally as a result of research and development
and general and administrative expenses in support of our operations. We experienced net losses of approximately $21.1 million
in 2015 and $10.7 million in 2014. As of December 31, 2015, we had an accumulated deficit of approximately $61.9 million. We may
incur significant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our therapeutic
candidates. Our ability to generate revenue and achieve profitability depends mainly upon our ability, alone or with others, to
successfully develop our therapeutic candidates, obtain the required regulatory approvals in various territories and commercialize
our therapeutic candidates. We may be unable to achieve any or all of these goals with regard to our therapeutic candidates. As
a result, we may never be profitable or achieve significant and/or sustained revenues.



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



We have a limited operating history and our operations to date have been limited primarily to acquiring and
in-licensing therapeutic candidates, research and development, raising capital and recruiting scientific and management personnel
and thirdparty partners. Except with respect to RHB-106 and related rights, which is out-licensed
to Valeant Pharmaceuticals International, Inc. (Valeant), and with respect to RIZAPORTTM, for which we have received marketing
approval in Germany, we have not yet demonstrated an ability to commercialize or obtain regulatory approval for any of our therapeutic
candidates. Consequently, any predictions about our future performance may not be accurate, and you may not be able to fully assess
our ability to complete development and/or commercialize our therapeutic candidates, obtain regulatory approvals, or achieve market
acceptance or favorable pricing for our therapeutic candidates.



Our current working capital is not sufficient to complete
our research and development with respect to all of our therapeutic candidates. We will need to raise additional capital to achieve
our strategic objectives of acquiring, developing and commercializing therapeutic candidates, and our failure to raise sufficient
capital would significantly impair our ability to fund our operations, develop our therapeutic candidates, attract development
and/or commercial partners and retain key personnel.



We have funded our operations primarily through public
and private offerings of our securities. We plan to fund our future operations through commercialization and out-licensing of our
therapeutic candidates and raising additional capital. As of December 31, 2015, we had cash and short-term investments of approximately
$58.1 million, and as of December 31, 2014, we had cash and short term investments of approximately $22.9 million. These amounts
are not sufficient to complete the research and development of all of our therapeutic candidates, and accordingly we may need to
raise additional capital in the coming year.





6




To date, our business generated limited revenues. As we plan to
continue expending substantial funds in research and development, including clinical trials, as well as to acquire additional products,
we will need to raise additional capital in the future through either debt or equity financing or pursuant to development or commercialization
agreements with third parties with respect to particular therapeutic candidates. However, we cannot be certain that we will be
able to raise capital on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than
anticipated. We may have difficulty raising needed capital or securing a development or commercialization partner in the future
as a result of, among other factors, our lack of revenues from commercialization of the therapeutic candidates, as well as the
inherent business risks associated with our company, our therapeutic candidates and present and future market conditions. In addition,
global and local economic conditions may make it more difficult for us to raise needed capital or secure a development or commercialization
partner in the future and may impact our liquidity. If we are unable to obtain future financing or obtain sufficient future financing,
we may be forced to delay, reduce the scope of, or eliminate one or more of our research, development or commercialization programs
for our therapeutic candidates, any of which may have material adverse effect on our business, financial condition and results
of operations. Moreover, to the extent we are able to raise capital through the issuance of debt or equity securities, it could
result in substantial dilution to existing shareholders.



Our long-term capital requirements are subject to numerous
risks.



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



|· | the number of therapeutic candidates in development;                                                                                                                                                                                                   
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | the regulatory clarity and path of each of our therapeutic candidates;                                                                                                                                                                                 
|· | the progress, success and cost of our clinical trials and research and development programs including manufacturing;                                                                                                                                   
|· | the identification and acquisition of additional therapeutic candidates;                                                                                                                                                                               
|· | the costs, timing and outcome of regulatory review and obtaining regulatory clarity and approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;                                                
|· | the costs of enforcing our issued patents and defending intellectual property-related claims;                                                                                                                                                          
|· | the costs of manufacturing, developing sales, marketing and distribution channels;                                                                                                                                                                     
|· | our ability to successfully commercialize our therapeutic candidates, including through securing commercialization agreements with third parties and favorable pricing and market share or through securing our own commercialization capabilities; and
|· | our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.                                                                                                  



Risks Related to Our Business and Regulatory Matters



If we and/or our commercialization partners are unable to
obtain FDA and/or other foreign regulatory authority clarity and approval for our therapeutic candidates, we and/or our commercialization
partners will be unable to commercialize our therapeutic candidates.



To date, we have not marketed, distributed or sold any therapeutic candidate or other product. Currently,
we have eight therapeutic candidates, which includes one therapeutic candidate (RP101) for which we have an option to acquire,
in various programs and clinical development stages, “RHB-105” for the eradication of H. pylori infection; “RHB-104”
for the treatment of Crohn’s disease and potentially other diseases; “RHB-106” (out-licensed to Valeant) for
bowel preparation; BEKINDATM (RHB-102) for acute gastroenteritis and gastritis, irritable bowel
syndrome with diarrhea (IBS-D) and for the prevention of chemotherapy and radiotherapy induced nausea and vomiting;YELIVATM
(ABC294640), a sphingosine kinase-2 (SK2) selective inhibitor targeting multiple oncology, inflammatory and gastrointestinal indications;
MESUPRON® targeting gastrointestinal and other solid tumor cancers; “RP101” (currently subject
to an option-to-acquire by us) targeting pancreatic and other gastrointestinal cancers; and “RIZAPORTTM” (RHB-103)
for the treatment of acute migraine headaches. Our therapeutic candidates are subject to extensive governmental laws, regulations
and guidelines relating to development, clinical trials, manufacturing and commercialization of drugs. Other than RIZAPORTTM
which has received marketing approval to date only in Germany, we may not be able to obtain marketing approval for any of our therapeutic
candidates in a timely manner or at all.



Any material delay in obtaining, or the failure to obtain, required
regulatory clarity and approvals will increase our costs and materially and adversely affect our ability to generate future revenues.
Any regulatory approval to market a therapeutic candidate may be subject to limitations on the indicated uses for marketing the
therapeutic candidate or may impose restrictive conditions of use, including cautionary information, thereby limiting the size
of the market for the therapeutic candidate. We also are, and will be, subject to numerous regulatory requirements from both the
U.S. Food and Drug Administration (FDA) and foreign state agencies that govern the conduct of clinical trials, manufacturing and
marketing authorization, pricing and third-party reimbursement. Moreover, approval by one regulatory authority does not ensure
approval by other regulatory authorities in separate jurisdictions. Each jurisdiction may have different approval processes and
may impose additional testing, development and manufacturing requirements for our therapeutic candidates than other jurisdictions.
Additionally, the FDA or other foreign regulatory bodies may change their approval policies or adopt new laws, regulations or guidelines
in a manner that materially delays or impairs our ability to obtain the necessary regulatory approvals or our ability to commercialize
our therapeutic candidates.



Clinical trials and related non-clinical studies may involve
a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future
trial results. We and/or commercialization partners will not be able to commercialize our therapeutic candidates
without completing such trials.





7




We have limited experience in conducting and managing the clinical
trials that are required to commence commercial sales of our therapeutic candidates. Clinical trials and related non-clinical studies
are expensive, complex, can take many years and have uncertain outcomes. We cannot predict whether we, independently or through
third parties, will encounter problems with any of the completed, ongoing or planned clinical trials that will cause delays, including
suspension of a clinical trial, delay of data analysis or release of the final report. The clinical trials of our therapeutic candidates
may take significantly longer to complete than is estimated. Failure can occur at any stage of the testing and we may experience
numerous unforeseen events during, or as a result of, the clinical trial process that could materially delay or prevent commercialization
of our current or future therapeutic candidates.



In connection with the clinical trials for our therapeutic candidates
and other therapeutic candidates that we may seek to develop in the future, either on our own or through licensing or partnering
agreements, we face various risks and uncertainties, including but not limited to:



|· | delays in securing clinical investigators or trial sites for the clinical trials;                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | delays in receiving import or other government approvals to ensure appropriate drug supply;                                                                                                                                            
|· | delays in obtaining institutional review board and other regulatory approvals to commence a clinical trial;                                                                                                                            
|· | expiration of clinical trial material before or during our trials as a result of degradation of, or other damage to, the clinical trial material;                                                                                      
|· | negative or inconclusive results from clinical trials;                                                                                                                                                                                 
|· | the FDA or other foreign regulatory authorities may disagree with the number, design, size, conduct or implementation of our clinical studies;                                                                                         
|· | the FDA or other foreign regulatory authorities may require us to conduct additional clinical trials and/or studies;                                                                                                                   
|· | inability to monitor patients adequately during or after treatment;                                                                                                                                                                    
|· | problems with investigator or patient compliance with the trial protocols;                                                                                                                                                             
|· | a therapeutic candidate may not prove safe or efficacious; there may be unexpected or even serious adverse events and side effects from the use of a therapeutic candidate;                                                            
|· | the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;                                                                                        
|· | the results may not meet the level of statistical significance required by the FDA or other foreign regulatory authorities;                                                                                                            
|· | the results may justify only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of a therapeutic candidate;               
|· | the clinical trials may be delayed or not completed due to the failure to recruit suitable candidates or if there is a lower rate of suitable candidates than anticipated or if there is a delay in recruiting suitable candidates; and
|· | changes to the current regulatory requirements related to clinical trials which can delay, hinder or lead to unexpected costs in connection with our receiving the applicable regulatory approvals.                                    



A number of companies in the pharmaceutical and biotechnology industries,
including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials,
even after seeing promising results in earlier clinical trials. As such, despite the results reported in earlier clinical trials
of our therapeutic candidates, we do not know if the clinical trials we conduct will demonstrate adequate efficacy and safety sufficient
to obtain regulatory approval to market our therapeutic candidates. If any of the clinical trials of any therapeutic candidate
do not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted,
which will have a material adverse effect on our business, financial condition and results of operations.



If we do not establish collaborations for our therapeutic
candidates or otherwise raise substantial additional capital, we will likely need to alter our development and any commercialization
plans.



Our drug development programs and the potential commercialization
of our therapeutic candidates will require additional cash to fund expenses. As such, our strategy includes either selectively
partnering or collaborating with multiple pharmaceutical and biotechnology companies to assist us in furthering development and/or
potential commercialization of our therapeutic candidates, in whole or in part, in some or all jurisdictions or through securing
our own commercialization capabilities. Although we are currently aware of numerous potential new third party partners for the
development or commercialization of our therapeutic candidates, we may not be successful in entering into new collaborations with
third parties on acceptable terms, or at all. In addition, if we fail to negotiate and maintain suitable development and/or commercialization
agreements or otherwise raise substantial additional capital to secure our own commercialization capabilities, we may have to limit
the size or scope of our activities or we may have to delay one or more of our development or commercialization programs. Any failure
to enter into development or commercialization agreements with respect to the development, marketing and commercialization of any
therapeutic candidate or failure to develop, market and commercialize such therapeutic candidate independently will have an adverse
effect on our business, financial condition and results of operations.





8




Any collaborative arrangements that we have established or
may be established may not be successful or we may otherwise not realize the anticipated benefits from these collaborations, including
our out-license of RHB-106. We do not control third parties with whom we have or may have collaborative arrangements, and we rely
on them to achieve results which may be significant to us. In addition, any future collaborative arrangements may place the development
and commercialization of our therapeutic candidates outside our control, may require us to relinquish important rights or may otherwise
be on terms unfavorable to us.



Each of our collaborative arrangements requires us to rely on external
consultants, advisors, and experts for assistance in several key functions, including clinical development, manufacturing, regulatory,
market research, intellectual property and commercialization. We do not control these third parties, but we rely on them to achieve
results which may be significant to us. To date, we have out-licensed one of our therapeutic candidates, RHB-106 and related rights
to Valeant. We do not control Valeant, but we rely on Valeant to clinically develop and commercialize the product based on the
license agreement.



Relying upon collaborative arrangements to develop and commercialize
our therapeutic candidates, such as our out-license of RHB-106 and related rights, subjects us to a number of risks, including but
not limited to:



|· | we may not be able to control the amount and timing of resources that our collaborators may devote to our therapeutic candidates;                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | should a collaborator fail to comply with applicable laws, rules, or regulations when performing services for us, we could be held liable for such violations;                                                
|· | our collaborators may experience financial difficulties or changes in business focus;                                                                                                                         
|· | our collaborators' partners may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval, if at all;                                                                 
|· | our collaborators' partners may have a shortage of qualified personnel;                                                                                                                                       
|· | we may be required to relinquish important rights, such as marketing and distribution rights;                                                                                                                 
|· | business combinations or significant changes in a collaborator’s business or business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
|· | under certain circumstances, a collaborator could move forward with a competing therapeutic candidate developed either independently or in collaboration with others, including our competitors; and          
|· | collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing our therapeutic candidates.                                   



If any of these scenarios materialize, they could have an adverse effect on our business,
financial condition or results of operations.



We may not be successful in acquiring products and/or companies
that own the rights to FDA-approved products (approved for marketing in the U.S.) that achieve commercial success or building our
own marketing and commercialization capabilities.



Part of our strategy is to identify and acquire rights to products
that have been approved for marketing in the U.S. Specifically, we seek to acquire rights to products that are already commercialized
in the U.S., which would enable us to commercialize such products independently and build our own marketing and commercialization
capabilities. However, there can be no assurance as to our ability to identify and acquire rights to such products, in particular
those with a therapeutic focus on GI, inflammation and/or cancer. If we are not successful in acquiring any such products, we may
not be able to build our own marketing and commercialization capabilities. This may limit our ability to commercialize our products
on our own or require us to contract with third party commercialization partners which may not be on commercially favorable terms
and which may result in additional commercialization and marketing expenses.



In addition, there can be no assurance as to our ability to accurately
or consistently identify products approved for marketing in the U.S. that will achieve commercial success or that we will successfully
commercialize these products in the U.S.



We may encounter difficulties successfully expanding our operations
to build our own marketing and commercialization capabilities.



To build our own marketing and commercialization
capabilities, we would need to expand our development, regulatory, manufacturing, marketing and sales capabilities and to increase
our personnel to accommodate sales, including establishing a direct sales force and a complete commercial team. Expanding our operations
would also impose significant added responsibilities on our management. We must be able to manage our independent commercialization
efforts effectively; hire, train and integrate additional management, development, administrative and sales and marketing personnel;
improve our managerial, development, operational and finance systems, all of which may impose a strain on our administrative and
operational infrastructure and adversely affect our research and development activities. We may also not have sufficient funds
to finance the hiring of the additional personnel and the expansion of our marketing and commercialization activities. If we are
not able to effectively expand our operations to build our own marketing and commercialization capabilities, our revenues and growth
may be adversely affected, which will have a material adverse effect on our business, financial condition and results of operations.



We have no history of independently commercializing therapeutic
candidates and may have difficulty commercializing products on our own.



We have no prior experience in commercializing therapeutic candidates
on our own, which may materially increase marketing and sales expenses. There can be no assurance we will successfully commercialize
our products or the products we acquire.



9






In addition, many companies, both public
and private, including well-known pharmaceutical companies and smaller niche-focused companies, are currently distributing drug
products that directly compete with the therapeutic candidates that we may seek to commercialize. Many of these companies have
significantly greater financial, marketing and sales experience and resources than us. As a result, our competitors may be more
successful than we are in commercializing their products to consumers.



We rely on third parties to conduct
our clinical trials and related non-clinical studies and those third parties may not perform satisfactorily, including but not
limited to failing to meet established deadlines for the completion of such clinical trials.



We currently do not have the ability to independently conduct clinical
trials and related non-clinical studies for our therapeutic candidates, and we rely on third parties, such as contract research
organizations, medical institutions, contract laboratories, development and commercialization partners, clinical investigators
and independent study monitors to perform these functions. Our reliance on these third parties for clinical development activities
reduces our control over these activities. Furthermore, these third parties may also have relationships with other entities, some
of which may be our competitors. Although we have, in the ordinary course of business, entered into agreements with such third
parties, other than with respect to RHB-106 and related rights, which we have out-licensed to Valeant, we continue to be responsible
for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol.
Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting,
recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that
the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and
requirements. To date, we believe our contract research organizations and other similar entities with which we are working have
performed well. However, if these third parties do not successfully carry out their contractual duties or meet expected deadlines,
we may be required to replace them or perform such functions independently. Although we believe that there are a number of other
third-party contractors we could engage to continue these activities, it may result in a delay of the affected trial and additional
costs. Accordingly, we may be materially delayed in obtaining regulatory approvals for our therapeutic candidates and may be materially
delayed in our efforts to successfully commercialize our therapeutic candidates for targeted diseases.



In addition, our ability to bring our therapeutic candidates to
market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations.
Although we attempt to audit and control the quality of third party data, we cannot guarantee the authenticity or accuracy of such
data, nor can we be certain that such data has not been fraudulently generated.



If third parties do not manufacture our therapeutic candidates
with sufficient quality, in sufficient quantities, in the required timeframe, and at an acceptable cost, clinical development and
commercialization of our therapeutic candidates would be delayed.



We do not currently own or operate manufacturing facilities, and
we rely, and expect to continue to rely, on third parties to manufacture clinical and commercial quantities of our therapeutic
candidates. Our reliance on third parties includes our reliance on them for quality assurance related to regulatory compliance.
Our current and anticipated future reliance upon others for the manufacture of our therapeutic candidates may adversely affect
our future profit margins, if any, and our ability to develop therapeutic candidates and commercialize any therapeutic candidates
on a timely and competitive basis.



We may not be able to maintain our existing
or future third-party manufacturing arrangements on acceptable terms, if at all. If for some reason our manufacturers do not perform
as agreed or expected, we may be required to replace them. Although we are not substantially dependent upon our existing manufacturing
agreements since we could replace them with other third party manufacturers, we may incur added costs and delays in identifying,
engaging, qualifying and training any such replacements.



We rely on third-party-contract vendors to manufacture and
supply us with high quality APIs (or active pharmaceutical ingredients) in the quantities we require on a timely basis.



We currently do not manufacture any APIs ourselves. Instead, we
rely on third-party vendors for the manufacture and supply of our APIs that are used to formulate our therapeutic candidates. While
there are many potential API suppliers in the market, if these suppliers are incapable or unwilling to meet our current or future
needs on acceptable terms or at all, we could experience a delay in obtaining regulatory approval for our therapeutic candidates
or conducting additional clinical trials of our therapeutic candidates and incur additional costs.



For example, our supplier of raw materials for RIZAPORTTM has
been sending updates to the FDA regarding progress of corrective actions in regard to compliance issues at its manufacturing facility
and subsequently invited the FDA for re-inspection, which are independent of us and not specific to RIZAPORTTM. Although the
supplier is working to solve its compliance issues and although we are working to ensure continued supply of the necessary raw
materials for RIZAPORTTM regardless of the outcome of its compliance discussions, our ability to obtain FDA approval for RIZAPORTTM
may be delayed until we are able to secure a compliant source of API, and successfully manufacture new batches with the new API.





10




While there may be several alternative suppliers of API on the market,
we have yet to conclude extensive investigations into the quality or availability of their APIs. As a result, we can provide no
assurances that supply sources will not be interrupted from time to time. Changing API suppliers or finding and qualifying new
API suppliers can be costly and take a significant amount of time. Many APIs require significant lead time to manufacture. There
can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next.

If we are not able to find stable, affordable, high quality, or reliable supplies of our APIs, we may not be able to produce enough
supplies of our therapeutic candidates, which could materially adversely affect our business, financial condition or results of
operations.



We anticipate continued reliance on third-party manufacturers
if we are successful in obtaining marketing approval from the FDA and other regulatory agencies for any of our therapeutic candidates.



To date, our therapeutic candidates have been manufactured in relatively
small quantities for preclinical testing and clinical trials as well as for other regulatory purposes by third-party manufacturers.
If the FDA or other regulatory agencies approve any of our therapeutic candidates for commercial sale, we expect that we would
continue to rely, at least initially, on third-party manufacturers to produce commercial quantities of our approved therapeutic
candidates. These manufacturers may not be able to successfully increase the manufacturing capacity for any of our approved therapeutic
candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies,
which the FDA or other foreign regulatory agencies must review and approve. If they are unable to successfully increase the manufacturing
capacity for a therapeutic candidate, or we are unable to establish our own manufacturing capabilities or secure replacement manufacturers,
the commercial launch of any approved products may be delayed or there may be a shortage in supply.



We and our third-party manufacturers are, and will be, subject to regulations of
the FDA and other foreign regulatory authorities.



We and our contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines
of the FDA or other foreign regulatory authorities setting forth current good manufacturing practices. These laws, regulations
and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates.
We and our manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our manufacturers are
and will be subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside
the United States (U.S.). Our failure, or the failure of our third-party manufacturers, to comply with applicable laws, regulations
and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory
authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect regulatory approval and supplies of our therapeutic candidates, and materially and adversely affect our business,
financial condition and results of operations.



Even if we obtain regulatory approvals, our therapeutic candidates
will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations
and guidelines, we could lose those approvals, and our business may be seriously harmed.



Even if our therapeutic candidates receive regulatory approval,
we or our commercialization partners, as applicable, will be subject to ongoing reporting obligations, including pharmacovigilance,
and the therapeutic candidates and the manufacturing operations will be subject to continuing regulatory review, including inspections
by the FDA or other foreign regulatory authorities. The results of this ongoing review may result in the withdrawal of a therapeutic
candidate from the market, the interruption of the manufacturing operations and/or the imposition of labeling and/or marketing
limitations. Since many more patients are exposed to drugs following their marketing approval, serious but infrequent adverse reactions
that were not observed in clinical trials may be observed during the commercial marketing of the therapeutic candidate. As we develop
our product candidates, we may also periodically discuss with the FDA certain clinical, regulatory and manufacturing matters and
our views may, at times, differ from those of the FDA. For example, the FDA may seek to regulate our therapeutic candidates that
consist of two or more active ingredients as combination drugs under its Combination Drug Policy. The Combination Drug Policy requires
that we demonstrate that each active ingredient in a drug product contributes to the product’s claimed effect. If the FDA
raises questions regarding whether available data and information provided to the FDA demonstrate the contribution of each active
ingredient in such combination drug products, we may be required to provide additional information, which may include the results
of additional preclinical studies or clinical trials. If we are required to conduct additional clinical trials or other testing
of our product candidates, we may face substantial additional expenses, be delayed in obtaining marketing approval for our product
candidates or may never obtain marketing approval.



In addition, the manufacturer and the manufacturing facilities that
we or our commercialization partners use to produce any therapeutic candidate will be subject to periodic review and inspection
by the FDA and other foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate,
manufacturer or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions, including
but not limited to the following:



11






|· | restrictions on such therapeutic candidate, manufacturer or manufacturing process;                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------
|· | warning letters from the FDA or other foreign regulatory authorities;                                                             
|· | withdrawal of the therapeutic candidate from the market;                                                                          
|· | suspension or withdrawal of regulatory approvals;                                                                                 
|· | refusal to approve pending applications or supplements to approved applications that we or our commercialization partners  submit;
|· | voluntary or mandatory recall;                                                                                                    
|· | fines;                                                                                                                            
|· | refusal to permit the import or export of our therapeutic candidates;                                                             
|· | product seizure or detentions;                                                                                                    
|· | injunctions or the imposition of civil or criminal penalties; or                                                                  
|· | adverse publicity.                                                                                                                



If we, or our commercialization partners, suppliers, third party contractors or clinical
investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new
regulatory requirements or policies, we or our commercialization partners may lose marketing approval for any of our therapeutic
candidates if any of our therapeutic candidates are approved, resulting in decreased or lost revenue from milestones, product sales
or royalties.



Modifications to our therapeutic candidates, or to any other
therapeutic candidates that we may acquire or develop in the future, may require new regulatory clearances or approvals or may
require us or our development and/or commercialization partners, as applicable, to recall or cease marketing of these therapeutic
candidates until clearances are obtained.



Modifications to our therapeutic candidates, after they have been
approved for marketing, if at all, or to any other pharmaceutical product or medical device that we may acquire or develop in the
future, may require new regulatory clearance or approvals, and, if necessitated by a problem with a marketed product, may result
in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified
product are obtained. The FDA and other foreign regulatory authorities require pharmaceutical products and device manufacturers
to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance.
A manufacturer may determine in conformity with applicable laws, regulations and guidelines that a modification may be implemented
without pre-clearance by the FDA or other foreign regulatory authorities. However, the FDA or other foreign regulatory authorities
can review a manufacturer’s decision and may disagree. The FDA or other foreign regulatory authorities may also on their
own initiative determine that a new clearance or approval is required. If the FDA or other foreign regulatory authorities require
new clearances or approvals of any pharmaceutical product for which we or our partners, including development and/or commercialization
partners previously received marketing approval, we or our partners, including development and/or commercialization partners may
be required to recall such therapeutic candidate and to stop marketing the therapeutic candidate as modified, which could require
us or our partners, including development and/or commercialization partners to redesign the therapeutic candidate and may cause
a material adverse effect on our business, financial condition and results of operations.



We depend on our ability to identify and in-license or acquire therapeutic candidates
to achieve commercial success, including products approved for marketing in the U.S.



Our eight therapeutic candidates were all acquired by us from or
licensed to us by third parties, other than RP101 for which we have an option to acquire. We evaluate internally and with external
consultants each therapeutic candidate. However, there can be no assurance as to our ability to accurately or consistently identify
therapeutic candidates that are likely to achieve commercial success, specifically therapeutic candidates that have been approved
for marketing in the U.S. In addition, even if we identify additional therapeutic candidates that are likely to achieve commercial
success, there can be no assurance as to our ability to in-license or acquire such therapeutic candidates under favorable terms
or at all.



We compete with other entities for some of our in-license
or acquisition opportunities.



As part of our overall strategy, we pursue opportunities to in-license
or acquire therapeutic candidates. We may compete for in-license and acquisition opportunities with other, established and well-capitalized
companies. As a result, we may be unable to in-license or acquire additional therapeutic candidates at all or on favorable terms.
Our failure to further in-license or acquire therapeutic candidates in the future may materially hinder our ability to grow and
could materially harm our business, financial condition and results of operations.





12




If we cannot meet our obligations under our acquisition or
in-license agreements or we cannot renegotiate our obligations, or if other events occur that are not within our control such as
bankruptcy of a licensor, we could lose the rights to our therapeutic candidates and/or experience delays in developing and/or
commercializing our therapeutic candidates, or incur additional costs, which could have a material adverse effect on our business.



We acquired our rights to three of our therapeutic candidates, RHB-105,
RHB-104 and RHB-106, from a third party pursuant to an asset and purchase agreement. In addition, we in-licensed our rights to
four other therapeutic candidates, BEKINDATM, YELIVATM, MESUPRON® and RIZAPORTTM pursuant
to license agreements in which we received exclusive perpetual licenses to certain patent rights and know-how related to these
therapeutic candidates. We have also obtained an option-to-acquire for RP101. These agreements require us to make payments and
satisfy various performance obligations in order to maintain our rights and licenses with respect to these therapeutic candidates.
If we do not meet our obligations under these agreements, or if other events occur that are not within our control such as the
bankruptcy of a licensor, we could lose the rights to our therapeutic candidates, experience delays in developing and/or commercializing
our therapeutic candidates and/or incur additional costs, any of which could have a material adverse effect on our business, financial
condition and results of operations. In addition, our agreement with IntelGenx Corp. requires us to renegotiate certain provisions
of the agreement in the event the agreed-to budget is exceeded by a certain amount. In the event we are required to renegotiate
this agreement, there is no guarantee that we will agree upon new terms promptly, or at all, which could delay the development
and/or commercialization of RIZAPORTTM. Moreover, if we elect not to exercise the option-to-acquire RP101, the term of which
was extended in 2015 under the option agreement for an additional 12 month period, we may lose all of our rights in relation to
RP101.



In addition, we are responsible for the cost of filing and prosecuting
certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under these
agreements in a timely manner and/or if other events occur that are not within our control, such as the bankruptcy of a licensor,
which impacts our ability to prosecute certain patent applications and maintain certain issued patents licensed to us, we could
lose the rights to our therapeutic candidates which could have a material adverse effect on our business, financial condition and
results of operations. We manage a large portfolio of patents and may decide to discontinue maintaining certain patents in certain
territories for various reasons, such as a current belief that the commercial market for the therapeutic candidate will not be
large or that there is a near-term patent expiration that may reduce the value of the therapeutic candidate. In the event we discontinue
maintaining such patents, we may not be able to enforce rights for our therapeutic candidates or protect our therapeutic candidates
from competition in those territories.



Our business could suffer if we are unable to attract and
retain key employees.



The loss of the services of members of senior management or other
key personnel could delay or otherwise adversely impact the successful completion of our planned clinical trials or the commercialization
of our therapeutic candidates or otherwise affect our ability to manage our company effectively and to carry out our business plan.
These key personnel are Dror Ben-Asher, our chief executive officer, and Reza Fathi PhD, our senior vice president for research
and development. We do not maintain key-man life insurance. Although we have entered into employment or consultancy agreements
with all of the members of our senior management team, members of our senior management team may resign at any time. High demand
exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be
able to continue to retain and attract such personnel.



Our growth and success also depend on our ability to attract and
retain additional highly qualified scientific, technical, business development, marketing, managerial and finance personnel. We
experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees
and their former employers may prevent us from hiring those individuals or subject us to liability from their former employers.
In addition, if we elect to independently commercialize any therapeutic candidate or if we acquire rights to therapeutic candidates
which are already approved for marketing and/or are already commercialized, we will need to build and expand our marketing and
sales capabilities. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of
our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully
for key personnel. If we cannot attract and retain sufficiently qualified suitable employees on acceptable terms, we may not be
able to develop and commercialize competitive therapeutic candidates. Further, any failure to effectively integrate new personnel
could materially prevent us from successfully growing our company.



We face several risks associated with international business.



We operate our business in multiple international jurisdictions.
Such operations could be materially affected by changes in foreign exchange rates, capital and exchange controls, expropriation
and other restrictive government actions, changes in intellectual property legal protections and remedies, trade regulations and
procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to, our therapeutic
candidates, as well as by political unrest, unstable governments and legal systems and inter-governmental disputes. Any of these
changes could materially adversely affect our business.





13




Risks Related to Our Industry



Even if our therapeutic candidates receive regulatory approval
or do not require regulatory approval, they may not become commercially viable products.



Except for RIZAPORTTM, which has been approved for marketing
in Germany but has yet to be marketed, none of our therapeutic candidates has been approved for marketing or is being marketed
or commercialized. Even if our therapeutic candidates are approved for commercialization, they may not become commercially viable
products. For example, if we or our commercialization partners receive regulatory approval to market a therapeutic candidate, approval
may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and
adversely affect the marketability and profitability of the therapeutic candidate. In addition, a new therapeutic candidate may
appear promising at an early stage of development or after clinical trials but never reach the market, or it may reach the market
but not result in sufficient product sales, if any. A therapeutic candidate may not result in commercial success for various reasons,
including but not limited to:



|· | difficulty in large-scale manufacturing, including yield and quality;                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods;
|· | insufficient or unfavorable levels of reimbursement from government or third-party payors, such as insurance companies, health maintenance organizations and other health plan administrators;                                                                                                                   
|· | infringement on proprietary rights of others for which we or our commercialization partners have not received licenses;                                                                                                                                                                                          
|· | incompatibility with other therapeutic candidates;                                                                                                                                                                                                                                                               
|· | other potential advantages of alternative treatment methods and competitive forces that may make it more difficult for us to penetrate a particular market segment, if at all;                                                                                                                                   
|· | ineffective marketing and distribution support;                                                                                                                                                                                                                                                                  
|· | lack of significant competitive advantages over existing products on the market;                                                                                                                                                                                                                                 
|· | lack of cost-effectiveness or unfavorable pricing compared to other alternatives available on the market;                                                                                                                                                                                                        
|· | inability to establish collaborations with third party commercialization partners on acceptable terms, or at all, and our inability or unwillingness for cost or other reasons to commercialize the therapeutic candidates on our own; or                                                                        
|· | timing of market introduction of competitive products.                                                                                                                                                                                                                                                           



Physicians, various other health care providers, patients, payors
or the medical community in general may be unwilling to accept, utilize or recommend any of our approved therapeutic candidates.
If we are unable, either on our own or through third parties, to manufacture, commercialize and market our proposed formulations
or therapeutic candidates when planned, or to develop commercially viable therapeutic candidates, we may not achieve any market
acceptance or generate revenue.



The market for our therapeutic candidates is rapidly changing and competitive,
and new drug delivery mechanisms, drug delivery technologies, new drugs and new treatments which may be developed by others could
impair our ability to maintain and grow our business and remain competitive.



The pharmaceutical and biotechnology industry is highly competitive,
and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching
and marketing products designed to address the indications for which we are currently developing therapeutic candidates or for
which we may develop therapeutic candidates in the future. There are various other companies that currently market, are in the
process of developing or may develop in the future products that address all of the indications or diseases treated by our therapeutic
candidates. For information regarding our competition, see Item 4. “Information on the Company – B. Business Overview
– Our Therapeutic Candidates.”



New drug delivery mechanisms, drug delivery technologies, new drugs
and new treatments that have been developed or that are in the process of being developed or will be developed by others may render
our therapeutic candidates noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other
market factors. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic
effects compared to our therapeutic candidates. Technological competition from pharmaceutical and biotechnology companies, universities,
governmental entities and others is intense and is expected to increase. Many of these entities have significantly greater research
and development capabilities, human resources and budgets than we do, as well as substantially more marketing, manufacturing, financial
and managerial resources. These entities represent significant competition for us. Acquisitions of, or investments in, competing
pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing
and other resources.



The potential widespread acceptance of therapies that are alternatives
to ours may limit market acceptance of our formulations or therapeutic candidates, even if commercialized. Many of our targeted
diseases and conditions can also be treated by other medications or drug delivery technologies. These treatments may be widely
accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the
potential for our therapeutic candidates to receive widespread acceptance if commercialized.





14




We could be adversely affected if healthcare reform measures substantially change the market for medical
care or healthcare coverage in the U.S.



On March 23, 2010, President Obama signed the “Patient Protection
and Affordable Care Act” (P.L. 111-148) and on March 30, 2010, the President signed the “Health Care and Education
Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare
Reform Law included a number of new rules regarding health insurance, the provision of health care, and conditions to reimbursement
for healthcare services provided to Medicare and Medicaid patients. Through the law making process, substantial changes have been
and continue to be made to the current system for paying for healthcare in the U.S., including changes made in order to extend
medical benefits to those who lack insurance coverage. Extending coverage to a large population could substantially change the
structure of the health insurance system and the methodology for reimbursing medical services and drugs. This legislation is one
of the most comprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and is expected to have
meaningful ramifications on tens of millions of citizens in the U.S. This legislation is expected to impact the scope of healthcare
insurance, the insurance refunds from the insurance companies and possibly also on the costs of medical products. Additionally,
the Healthcare Reform Law’s provisions are designed to encourage providers to find cost savings in their clinical operations.
Pharmaceuticals represent a significant portion of the cost of providing care. Through modified reimbursement rates and other
incentives, the U.S. government is requiring that providers identify the most cost-effective services, supplies and pharmaceuticals.
This environment has caused changes in the purchasing habits of providers and resulted in specific attention to the pricing negotiation,
product selection and utilization review surrounding pharmaceuticals. To the extent that our therapeutic candidates may at some
point be reimbursable by U.S. federal government programs, this attention may result in our therapeutic candidates being chosen
less frequently or the pricing being substantially lowered. However, the effect of the legislation is difficult to predict and,
at this stage, we are unable to estimate the full extent of the direct and/or indirect impact of the legislation on us.



These structural changes could entail modifications to the existing
system of private payors and government programs (such as Medicare, Medicaid and State Children’s Health Insurance Program),
creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring
the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, such as those
we and our development and/or commercialization partners are currently developing. If reimbursement for our approved therapeutic
candidates, if any, is substantially reduced in the future, or rebate obligations associated with them are substantially increased,
our business could be materially and adversely impacted.



Extending medical benefits to those who currently lack coverage
will likely result in substantial cost to the U.S. federal government, which may force significant additional changes to the healthcare
system in the U.S. Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these
savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing
the overall quality of care, much of the cost savings may come from reducing the cost of care. Cost of care could be reduced by
decreasing the level of reimbursement for medical services or products (including those therapeutic candidates currently being
developed by us or our development and/or commercialization partners), or by restricting coverage (and, thereby, utilization) of
medical services or products. In either case, a reduction in the utilization of, or reimbursement for, any therapeutic candidate
for which we receive marketing approval in the future could have a materially adverse effect on our financial performance.



Several states and private entities initially mounted legal challenges
to the Healthcare Reform Law, and they continue to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme
Court generally upheld the healthcare reform legislation as constitutional. However, the Supreme Court held that the legislation
improperly required the states to expand their Medicaid programs to cover more individuals. As a result, the states have a choice
as to whether they will expand the numbers of individuals covered by their respective state Medicaid programs. Some states have
determined that they will not expand their Medicaid programs and will develop other cost saving and coverage measures to provide
care to currently uninsured residents. Many of these efforts to date have included the institution of Medicaid managed care programs.
The manner in which these cost saving measures are implemented could have a materially adverse effect on our financial performance.
Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux. We cannot predict
the impact on our business of future legal challenges to the healthcare reform legislation or other changes to the current laws
and regulations.





If third-party payors do not adequately reimburse customers
for any of our therapeutic candidates that are approved for marketing, they might not be purchased or used, and our revenues and
profits will not develop or increase.



Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of
our approved therapeutic candidates, if any, from governmental or other third-party payors, both in the U.S. and in foreign markets.
Reimbursement by a third-party payor may depend upon a number of factors, including but not limited to the third-party payor’s
determination that the use of an approved therapeutic candidate is:



15






|· | a covered benefit under its health plan; 
|- | -----------------------------------------
|· | safe, effective and medically necessary; 
|· | appropriate for the specific patient;    
|· | cost-effective; and                      
|· | neither experimental nor investigational.



Obtaining reimbursement approval for a therapeutic candidate from
each government or other third-party payor is a time-consuming and costly process that could require us or our development and/or
commercialization partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our therapeutic
candidates to each payor. Even when a payor determines that a therapeutic candidate is eligible for reimbursement, the payor may
impose coverage limitations that preclude payment for some uses that are approved by the FDA or other foreign regulatory authorities.
Reimbursement rates may vary according to the use of the therapeutic candidate and the clinical setting in which it used, may be
based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other
products or services, and may reflect budgetary constraints and/or imperfections in Medicare, Medicaid or other data used to calculate
these rates.



In the U.S., there have been, and we expect that there will continue to be, federal and State
proposals to constrain expenditures for medical products and services, which may affect payments for our therapeutic candidates
in the U.S. In addition, there is a growing emphasis on comparative effectiveness research, both by private payors and by government
agencies. To the extent other drugs or therapies are found to be more effective than our products, payors may elect to cover such
therapies in lieu of our products and/or reimburse our products at a lower rate.  We believe that legislation that reduces
reimbursement for our therapeutic candidates could adversely impact how much or under what circumstances healthcare providers will
prescribe or administer our therapeutic candidates, if approved. This could materially and adversely impact our business by reducing
our ability to generate revenue, raise capital, obtain additional collaborators and market our therapeutic candidates, if approved.
At this stage, we are unable to estimate the extent of the direct and/or indirect impact of any such federal and State proposals.



Furthermore, the Centers for Medicare and Medicaid Services frequently
change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party
payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both the Centers
for Medicare and Medicaid Services and other third-party payors may have sufficient market power to demand significant price reductions.



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 U.S., 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 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 federal Anti-Inducement Law (also known as the Civil Monetary Penalties Law), which prohibits a person from offering or transferring remuneration to a Medicare or State healthcare program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State healthcare program;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients for certain designated health services where that physician or family member has a financial relationship with the entity providing the designated health service, unless an exception applies;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | 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
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



16






|· | 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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Further, the recently enacted Healthcare Reform Law, 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 an anti-kickback violation without actual knowledge of the statute or specific intent to violate
it. In addition, the Healthcare Reform Law 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 Act.
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.



The Healthcare Reform Law also imposes reporting requirements
on certain medical device and pharmaceutical manufacturers, among others, to make annual public disclosures of certain payments
and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians or their
immediate family members. 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 each year.  CMS made the data publicly available on its searchable database
beginning in September 2014.



In addition, there has been a recent trend of increased federal
and state regulation of payments made to physicians for marketing, medical directorships, and other purposes. 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.



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.



We could be exposed to significant drug product liability
claims which could be time consuming and costly to defend, divert management attention and adversely impact our ability to obtain
and maintain insurance coverage.



The clinical trials that we conduct, and the testing, manufacturing,
marketing and commercial sale of our therapeutic candidates, involve and will involve an inherent risk that significant liability
claims may be asserted against us. We currently have a product liability policy that includes coverage for our clinical trials.
Should we decide to seek additional insurance against such risks before our product sales commence, there is a risk that such insurance
will be unavailable to us, or if it can be obtained at such time, that it will be available at an unaffordable cost. Even if we
obtain insurance, it may prove inadequate to cover claims and/or litigation costs, especially in the case of wrongful death claims.
Product liability claims or other claims related to our therapeutic candidates, regardless of their outcome, could require us to
spend significant time and money in litigation or to pay significant settlement amounts or judgments. Any successful product liability
or other claim may prevent us from obtaining adequate liability insurance in the future on commercially desirable or reasonable
terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or inhibit the commercialization of our products and therapeutic candidates. A product liability
claim could also significantly harm our reputation and delay market acceptance of our therapeutic candidates.



Global economic conditions may make it more difficult for
us to commercialize our therapeutic candidates.



The pharmaceutical industry, like other industries and businesses, continues to face the effects of the challenging
economic environment. Patients experiencing the effects of the challenging economic environment, including high unemployment levels
and increases in co-pays, may switch to generic products, delay treatments, skip doses or use other
less effective treatments to reduce their costs. Challenging economic conditions in the U.S. include the demands by payors for
substantial rebates and formulary restrictions limiting access to brand-name drugs. In addition, in Europe and in a number of emerging
markets there are government-mandated reductions in prices for certain pharmaceutical products, as well as government-imposed access
restrictions in certain countries. All of the aforesaid may make it more difficult for us to commercialize our therapeutic candidates.









17




Our business involves risks related to handling regulated
substances which could severely affect our ability to conduct research and development of our therapeutic candidates.



In connection with our or our development and/or commercialization
partners’ research and clinical development activities, as well as the manufacture of materials and therapeutic candidates,
we and our development and/or commercialization partners are subject to federal, State and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials,
biological specimens and waste. We and our development and/or commercialization partners may be required to incur significant costs
to comply with environmental and health and safety regulations in the future. Our research and clinical development, as well as
the activities of our manufacturing and commercialization partners, both now and in the future, may involve the controlled use
of hazardous materials, including but not limited to certain hazardous chemicals. We cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that
result and any such liability could exceed our resources.



Risks Related to Intellectual Property



We may be unable to adequately protect or enforce our rights
to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and anticipated
profits.



Our success depends, in part, on our ability, and the ability of
our commercialization partners to obtain patent protection for our therapeutic candidates, maintain the confidentiality of our
trade secrets and know how, operate without infringing on the proprietary rights of others and prevent others from infringing our
proprietary rights.



We try to protect our proprietary position by, among other things,
filing U.S., European, and other patent applications related to our therapeutic candidates, inventions and improvements that may
be important to the continuing development of our therapeutic candidates.



Because the patent position of pharmaceutical companies involves
complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our issued patents
and the issued patents of our commercialization partners may not provide us with any competitive advantages, or may be held invalid
or unenforceable as a result of legal challenges by third parties or could be circumvented. Our competitors may also independently
develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, or licensed
by, us. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent
applications, those we may file in the future or those we may license from third parties may not result in patents being issued.
If these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future
protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our competitive advantage.



Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in
which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same
extent as do the laws of the U.S. and the European Union. Competitors may successfully challenge our patents, produce similar drugs
or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or
that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published
applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court
of law.



After the completion of development and registration of our patents,
third parties may still manufacture and/or market therapeutic candidates in infringement of our patent protected rights. Such manufacture
and/or market of our therapeutic candidates in infringement of our patent protected rights is likely to cause us damage and lead
to a reduction in the prices of our therapeutic candidates, thereby reducing our anticipated profits.



In addition, due to the extensive time needed to develop, test and
obtain regulatory approval for our therapeutic candidates, any patents that protect our therapeutic candidate may expire early
during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration,
we may face increased competition through the entry of generic products into the market and a subsequent decline in market share
and profits.



In addition, in some cases we may rely on our licensors to conduct
patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability to ensure that these patents are
properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in our therapeutic candidates.
Any failure by our licensors or development partners to properly conduct patent prosecution, patent maintenance or patent defense
could materially harm our ability to obtain approval or commercialization of the products, thereby materially reducing our anticipated
profits.



If we are unable to protect the confidentiality of our trade
secrets or know-how, such proprietary information may be used by others to compete against us.





18




In addition to filing patents, we generally try to protect our trade
secrets, know-how and technology by entering into confidentiality or non-disclosure agreements with parties that have access to
it, such as our development and/or commercialization partners, employees, contractors and consultants. We also enter into agreements
that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions
of our employees, advisors, research collaborators, contractors and consultants while we employ or engage them. However, these
agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach the confidentiality
agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information
in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology
not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor.



To the extent that any of our employees, advisors, research collaborators,
contractors or consultants independently develop, or use independently developed, intellectual property in connection with any
of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect
to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs
to a third party.



Legal proceedings or third-party claims of intellectual property
infringement and other challenges may require us to spend substantial time and money and could prevent us from developing or commercializing
our therapeutic candidates.



The development, manufacture, use, offers for sale, sale or importation
of our therapeutic candidates may infringe on the claims of third-party patents or other intellectual property rights. The nature
of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries
patent holders may choose for the extension of their filings under the Patent Cooperation Treaty, or other mechanisms. We may also
be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual
property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even
if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or
proceedings more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation
and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management
time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic
candidates in the event of an infringement action.



In the event of patent infringement claims, or to avoid potential
claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees
or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license,
the rights may be non-exclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from
commercializing a therapeutic candidate or be forced to cease some aspect of our business operations if, as a result of actual
or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to
enter into licenses could harm our business significantly.



We may be subject to other patent-related litigation or proceedings
that could be costly to defend and uncertain in their outcome.



In addition to infringement claims against us, we may in the future become a party to other patent litigation
or proceedings before regulatory agencies, including interference or re-examination proceedings filed with the U.S. Patent and
Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect
to our therapeutic candidates, as well as other disputes regarding intellectual property rights with development and/or commercialization
partners, or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and
we, our development and/or commercialization partners will be required to defend these opposition procedures as a matter of course.
Opposition procedures may be costly, and there is a risk that we may not prevail which could harm our business significantly.



Risks Related to our Ordinary Shares and American Depositary
Shares.



We may be a “passive foreign investment company”
for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. investors.



While the determination of passive foreign investment company, or
PFIC, status is fact specific, and generally cannot be made until the close of the taxable year in question, based on the value
and composition of our assets, we may be a PFIC for U.S. federal income tax purposes for our current taxable year and future taxable
years. A non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income for
such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the
assets during such year) is attributable to assets that produce or are held for the production of passive income. Because the value
of our assets for purposes of this determination will generally be determined by reference to the market price of the ADSs, our
PFIC status will depend in large part on the market price of the ADSs. A separate determination must be made each taxable year
as to whether we are a PFIC (after the close of each such taxable year). If we are a PFIC for any taxable year during which a U.S.
Holder (as defined in “Taxation—U.S. Federal Income Tax Considerations – Passive Foreign Investment Companies”)
holds ordinary shares or ADSs, the U.S. Holder may be subject to adverse tax consequences, including (i) the treatment of all or
a portion of any gain on disposition as ordinary income, (ii) the application of an interest charge with respect to such gain and
certain dividends and (iii) compliance with certain reporting requirements. Each U.S. Holder is strongly urged to consult its own
tax advisor regarding these issues. See “Item 10. Additional Information – E. Taxation – Foreign Exchange Regulations
– Passive Foreign Investment Companies.”





19




The market price of our Ordinary Shares and our ADSs are subject
to fluctuation, which could result in substantial losses by our investors.



The stock market in general and the market price of our Ordinary
Shares on the TASE and our American Depository Shares on The NASDAQ in particular, are subject to fluctuation, and changes in the
price of our securities may be unrelated to our operating performance. The market price of our Ordinary Shares on the TASE and
the market price of our American Depository Shares on The NASDAQ have fluctuated in the past, and we expect they will continue
to do so. The market price of our Ordinary Shares and ADSs are and will be subject to a number of factors, including but not
limited to:



|· | announcements of technological innovations or new therapeutic candidates by us or others;                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------
|· | announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
|· | expiration or terminations of licenses, research contracts or other development or commercialization agreements;                            
|· | public concern as to the safety of drugs we, our development or commercialization partners or others develop;                               
|· | the volatility of market prices for shares of biotechnology companies generally;                                                            
|· | success or failure of research and development projects;                                                                                    
|· | departure of key personnel;                                                                                                                 
|· | developments concerning intellectual property rights or regulatory approvals;                                                               
|· | variations in our and our competitors’ results of operations;                                                                               
|· | changes in earnings estimates or recommendations by securities analysts, if our Ordinary Shares or ADSs are covered by analysts;            
|· | changes in government regulations or patent decisions;                                                                                      
|· | developments by our development and/or commercialization partners; and                                                                      
|· | general market conditions and other factors, including factors unrelated to our operating performance.                                      



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



Additionally, market prices for securities of biotechnology and
pharmaceutical companies historically have been very volatile. The market for these securities has from time to time experienced
significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. 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 or ADSs could reduce the
market price of our Ordinary Shares and ADSs.



All of our outstanding Ordinary Shares are registered and available
for sale in Israel. In addition, as of February 22, 2016, we had non-tradable warrants to purchase an aggregate of 4,183,496 Ordinary
Shares and non-tradable warrants to purchase an aggregate of 357,896 ADSs (each representing 10 Ordinary Shares) and options to
purchase 20,511,338 Ordinary Shares under our 2010 Stock Option Plan. Substantial sales of our Ordinary Shares or ADSs, or the
perception that such sales may occur in the future, including sales of shares issuable upon the exercise of options and warrants,
may cause the market price of our Ordinary Shares or ADSs to decline. Moreover, the issuance of shares underlying our options and
warrants will also have a dilutive effect on our shareholders, which could further reduce the price of our Ordinary Shares and
ADSs on their respective exchanges.



Our Ordinary Shares and our ADSs are traded on different markets
and this may result in price variations.



Our Ordinary Shares have been traded on the TASE since February 2011, and our ADSs have been listed on The
NASDAQ since December 27, 2012. Trading in our securities on these markets take place in different
currencies (U.S. dollars on The NASDAQ and New Israeli Shekels, or NIS, on the TASE), and at different times (resulting from different
time zones, different trading days and different public holidays in the U.S. and Israel). The trading prices of our securities
on these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets
could cause a decrease in the trading price of our securities on the other market.





20




There has been a limited market for our ADSs. We cannot ensure investors that
an active market will continue or be sustained for our ADSs on The NASDAQ, and this may limit the ability of our investors to
sell our ADSs in the U.S.



In the past, there was limited trading in our ADSs, and there is
no assurance that an active trading market of our ADSs will continue or will be sustained. Limited or minimal trading in our ADSs
has in the past, and may in the future, lead to dramatic fluctuations in market price and investors may not be able to liquidate
their investment at all or at a price that reflects the value of the business.



While our ADSs began trading on The NASDAQ in December 2012, we
cannot assure you that we will maintain compliance with all of the requirements for our ADSs to remain listed. Additionally, there
can be no assurance that trading of our ADSs on such market will be sustained or desirable.



We have incurred additional increased costs as a result of
the listing of our ADSs on The NASDAQ, and we may need to devote substantial time and resources to new compliance initiatives and
reporting requirements.



As a public company in the U.S., we incur additional significant accounting, legal and other expenses as
a result of the listing of our securities on both The NASDAQ and the Tel-Aviv Stock Exchange. These include costs associated with
the reporting requirements of the Securities and Exchange Commission and the requirements of The NASDAQ Market Rules, as well as
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, travel costs,
stock exchange listing fees and shareholder reporting, and made some activities more timeconsuming
and costly. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including Section
404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the Market Rules of The NASDAQ,
as well as applicable Israeli reporting requirements, will result in increased costs to us as we respond to such changes. These
laws, rules and regulations could make it more difficult and costly for us to obtain certain types of insurance, including director
and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract
and retain qualified persons to serve on our board of directors, our board committees or as executive officers and may require
us to pay more for such positions.



Since we are an “emerging growth company,” as defined
in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not
limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and
the rules and regulations of the SEC thereunder). We will remain an emerging growth company until the earliest of: (a) the last
day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal
year following the fifth anniversary of the date of the first sale of our Ordinary Shares pursuant to an effective registration
statement (in our case, December 31, 2018); (c) the date on which we have, during the previous three-year period, issued more than
$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under
the Exchange Act of 1934, as amended, which would occur if the market value of our Ordinary Shares held by non-affiliates is $700
million or more as of the last business day of our most recently completed fiscal quarter. When these exemptions cease to apply,
we expect to incur additional expenses and devote increased management effort toward ensuring compliance with such reporting requirements.
We cannot predict or estimate the amount of additional costs we may incur as a result of complying with these additional reporting
requirements.



As a foreign private issuer, we are permitted to follow certain
home country corporate governance practices instead of applicable Securities and Exchange Commission and NASDAQ Stock Market requirements,
which may result in less protection than is accorded to investors under rules applicable to domestic issuers.



As a foreign private issuer, we are permitted to follow certain
home country corporate governance practices instead of those otherwise required under The NASDAQ Capital Market Rules for domestic
issuers. For instance, we follow home country practice in Israel with regard to, among other things, composition of the board of
directors, which does not require that a majority of a company's board of directors be independent, director nomination procedure
and quorum at shareholders’ meetings. In addition, we follow our home country law, instead of The NASDAQ Capital Market Rules,
which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain
equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other
than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets
of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to
a U.S. company listed on The NASDAQ may provide less protection than is accorded to investors under The Market Rules of The NASDAQ
Capital Market applicable to domestic issuers.



In addition, as a foreign private issuer, we are exempt from the
rules and regulations under the United States Securities Exchange Act of 1934, as amended, related to the furnishing and content
of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the United States Securities Exchange Act of 1934, as amended. In addition, we are
not required under the United States Securities Exchange Act of 1934, as amended, to file annual, quarterly and current reports
and financial statements with the Securities and Exchange Commission as frequently or as promptly as domestic companies whose securities
are registered under the United States Securities Exchange Act of 1934, as amended.





21




We may fail to maintain effective internal controls over financial
reporting, which may adversely affect investor confidence in our company and, as a result, may affect the value of our Ordinary
Shares and ADSs.



We are required, pursuant to Section 404 of the Sarbanes-Oxley Act,
to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Pursuant
to the JOBS Act, we are classified as an “emerging growth company,” and we are exempt from certain reporting requirements,
including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.  Under this exemption, our auditor
will not be required to attest to and report on management’s assessment of our internal controls over financial reporting
during a five year transition period commencing in 2013.



Our management report regarding our internal control over financial
reporting must include, among other things, disclosure of any material weaknesses identified by our management in our internal
control over financial reporting. The continuous process of strengthening our internal controls and complying with Section 404
is complicated and time-consuming.



We have documented and tested our internal control systems and procedures
in order for us to comply with the requirements of Section 404. While our assessment of our internal control over financial reporting
resulted in our conclusion that as of December 31, 2015, our internal control over financial reporting was effective, we cannot
predict the outcome of our testing in future periods. If we fail to maintain the adequacy of our internal controls, we may not
be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting.  Failure
to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities,
and could have a material adverse effect on our operating results, investor confidence in the accuracy and completeness of our
financial reports, which would cause the price of our Ordinary Shares and ADSs to decline.



We currently do not anticipate paying cash dividends, and
accordingly, investors must rely on the appreciation in our ADSs for any return on their investment.



We currently anticipate that we will retain future earnings for
the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable
future. Therefore, the success of an investment in our ADSs will depend upon any future appreciation in their value. There is no
guarantee that our ADSs will appreciate in value or even maintain the price at which our investors have purchased their securities.



Investors in our ADSs may not receive the same distributions
or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, investors in our ADSs
may not receive dividends or other distributions on our Ordinary Shares and may not receive any value for them, if it is illegal
or impractical to make them available to investors in our ADSs.



The depositary for the ADSs has agreed to pay to investors in our
ADSs the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities underlying
the ADSs, after deducting its fees and expenses. Investors in our ADSs will receive these distributions in proportion to the number
of Ordinary Shares such ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical
to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of
ADSs if it consists of securities that require registration under the Securities Act of 1933, as amended, but that are not properly
registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign
currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a
filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute
such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including
net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no
obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else
to holders of ADSs. In addition, the depositary may deduct from such dividends or distributions its fees and may withhold amounts
on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding.
This means that investors in our ADSs may not receive the same distributions or dividends as those we make to the holders of our
Ordinary Shares, and, in some limited circumstances, investors in our ADSs may not receive any value for such distributions or
dividends if it is illegal or impractical for us to make them available to investors in our ADSs. These restrictions may cause
a material decline in the value of the ADSs.



Holders of ADSs must act through the depositary to exercise their rights as shareholders
of our company.





22




Holders of our ADSs do not have the same rights of our shareholders
and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the
deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholder meeting is no less
than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting
is convened, holders of our ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw
their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its
agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner.
We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner,
but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary
to vote their ADSs. Furthermore, the depositary and its agents are not responsible for any failure to carry out any instructions
to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not
be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition,
in the capacity as an American Depositary Share holder, they are not able to call a shareholders’ meeting.



The depositary for our ADSs gives us a discretionary proxy
to vote our Ordinary Shares underlying ADSs if a holder of our ADSs does not vote at shareholders’ meetings, except in limited
circumstances, which could adversely affect their interests.



Under the deposit agreement for the ADSs, the depositary gives us
a discretionary proxy to vote our Ordinary Shares underlying ADSs at shareholders’ meetings if a holder of our ADSs does
not vote, unless:



|· | we have instructed the depositary that we do not wish a discretionary proxy to be given;                             
|- | ---------------------------------------------------------------------------------------------------------------------
|· | we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
|· | a matter to be voted on at the meeting would have a material adverse impact on shareholders.                         



The effect of this discretionary proxy is that a holder of our ADSs
cannot prevent our Ordinary Shares underlying such ADSs from being voted, absent the situations described above, and it may make
it more difficult for holders of our ADSs to influence the management of our company. Holders of our Ordinary Shares are not subject
to this discretionary proxy.



Risks Related to our Operations
in Israel



We conduct our operations in Israel and therefore our results may be adversely
affected by political, economic and military instability in Israel and the region.



We are incorporated under the laws
of the State of Israel, our principal offices are located in central Israel and some of our officers, employees and directors are
residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly
affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between
Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult
for us to raise capital. During the summer of 2014, Israel was engaged in an armed conflict with Hamas in Gaza, which involved
missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition,
recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the
political stability of those countries. It is not clear how this instability will develop and how it will affect the political
and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential
for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping
up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (ISIL), a violent jihadist group,
is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’s activities have not directly
affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including
Israel. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect
the Israeli economy in general and us in particular. Any armed conflicts, terrorist activities or political instability in the
region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in
hostilities in the region could result in a portion of our employees being called up to perform military duty for an extended period
of time. 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 addition, the political and
security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they
are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.



Our commercial insurance does not cover losses that may occur as
a result of 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 if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages
incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region
would likely negatively affect business conditions and could harm our results of operations.





23




The State of Israel and Israeli companies have been subject to economic
boycotts. These restrictions and boycotts may have an adverse impact on our operating results, financial condition or the expansion
of our business.



Our operations may be disrupted as a result of the obligation
of management or personnel to perform military service.



Many of our employees in Israel, including members of our senior
management, perform up to one month, and in some cases more, of annual military reserve duty until they reach the age of 45 or
older and, in the event of a military conflict, may be called to active duty. There have also been periods of significant call-ups
of military reservists, and it is possible that there will be military reserve duty call-ups in the future. Our operations could
be disrupted by the absence of a significant number of our employees. Such disruption could materially adversely affect our business,
financial condition and results of operations.



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.



Our reporting and functional currency is the U.S. dollar. Most of
the royalty payments from our agreements with our development and/or commercialization partners are payable in U.S. dollars, and
we expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars or in Euros. We pay a substantial
portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the employees in Israel and
payment to part of the service providers in Israel and other territories, are paid in NIS and in other currencies. In addition,
a portion of our financial assets is held in NIS and in other currencies. As a result, we are exposed to the currency fluctuation
risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses in U.S. dollars may be higher. In addition,
if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial assets held in NIS will decline.



Provisions of our 2010 Option Plan, Israeli law and our articles
of association may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, or an acquisition of a
significant portion of our shares, which could prevent a change of control, even when the terms of such a transaction are favorable
to us and our shareholders.



Our 2010 Option Plan provides that all options granted by us will
be fully accelerated upon a “takeover” of the Company. A “takeover” is defined in our 2010 Option Plan
as an event in which any person, entity or group that was not an “interested party”, as defined in the Israeli Securities
Law – 1968, on the date of the initial public offering of our securities on the TASE, shall become a “controlling shareholder”.
A “controlling shareholder” for these purposes means a controlling shareholder as defined in the Israel Securities
Law, 1968. See “Item 6. Directors, Senior Management and Employees – E. Share Ownership – Option Plan”
for a description of interested parties under the Israeli Securities Law – 1968.



The Israeli Companies Law, 1999, or the Israeli Companies Law, regulates
mergers, requires tender offers for acquisitions of shares or voting rights above specified thresholds, requires special approvals
for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to
these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that
a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that
the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target
company must approve a merger. Moreover, the Israeli Companies Law provides that certain purchases of securities of a public company
are subject to tender offer rules. As a general rule, the Israeli Companies Law prohibits any acquisition of shares or voting power
in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company,
if there is no other person holding 25% or more, or more than 45% of the voting power in a company, respectively, without conducting
a special tender offer. The Israeli Companies Law further provides that a purchase of shares or voting power of a public company
or a class of shares of a public company, which will result in the purchaser’s holding 90% or more of the company’s
shares, class of shares or voting rights, is prohibited unless the purchaser conducts a full tender offer for all of the company’s
shares or class of shares. The purchaser will be allowed to purchase all of the company’s shares or class of shares (including
those shares held by shareholders who did not respond to the offer), if either (i) the shareholders who do not accept the offer
hold 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 shareholders 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. The shareholders,
including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document),
may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration
for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may determine that the consideration
for the shares purchased under the tender offer was lower than their fair value and compel the offeror to pay to the offerees the
fair value of the shares. Such application to the court may be filed as a class action.



In addition, the Israeli Companies Law provides for certain limitations
on a shareholder that holds more than 90% of the company’s shares, or class of shares.





24




Pursuant to our articles of association, the size of our board of
directors shall be no less than 5 persons but no more than seven, excluding at least two external directors. The directors, except
for our external directors, are divided into three classes, as nearly equal in number as possible. At each annual general meeting,
the term of one class of directors expires, and the directors of such class are re-nominated to serve an additional three year
term that expires at the annual general meeting held in the third year following such election. This process continues indefinitely.
Such provisions of our articles of association make it more difficult for a third party to effect a change in control or takeover
attempt that our management and board of directors oppose.



Furthermore, Israeli tax considerations may, in certain circumstances,
make potential transactions unappealing to us or to some of our shareholders. For example, Israeli tax law does not recognize tax-free
share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain
circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years
from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover,
with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes
payable even if no actual disposition of the shares has occurred.



These and other similar provisions could delay, prevent or impede
an acquisition of us or our merger with another company, or an acquisition of a significant portion of our shares, even if such
an acquisition or merger would be beneficial to us or to our shareholders. See “Item 10. Additional Information - B.
Memorandum and Articles of Association.”



It may be difficult to enforce a U.S. judgment against us
and our officers and directors in Israel or the U.S., or to serve process on our officers and directors.





We are incorporated in Israel. Most of our executive officers and directors reside outside of the U.S., and
all of our assets and most of the assets of our executive officers and directors are located outside of the U.S.. Therefore, a
judgment obtained against us or most of our executive officers and our directors in the U.S., including one based on the civil
liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by an Israeli
court. It may also be difficult for you to affect service of process on these persons in the U.S. or to assert U.S. securities
law claims in original actions instituted in Israel.



The obligations and responsibilities of our shareholders are governed by Israeli
law which may differ in some respects from the obligations and responsibilities of shareholders of U.S. companies. Israeli
law may impose obligations and responsibilities on a shareholder of an Israeli company that are not imposed upon shareholders of
corporations in the U.S.



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



Claims for indemnification by our directors and officers may
reduce our available funds to satisfy successful shareholder claims against us and may reduce the amount of money available to
us.



The Israeli Companies Law and our articles of association permit
us to indemnify our directors and officers for acts performed by them in their capacity as directors and officers. The Israeli
Companies Law provide that a company may not exempt or indemnify a director or an office holder nor enter into an insurance contract,
which would provide coverage for any monetary liability incurred as a result of (a) a breach by the director or officer of his
duty of loyalty, except for insurance and indemnification where the director or officer acted in good faith and had a reasonable
basis to believe that the act would not prejudice the company; (b) a breach by the director or officer of his duty of care if the
breach was done intentionally or recklessly, except if the breach was solely as a result of negligence; (c) any act or omission
done with the intent to derive an illegal personal benefit; or (d) any fine, civil fine, monetary sanctions, or forfeit imposed
on the officer or director. Our Articles of Association provide that the Company may exempt or indemnify a director or an office
holder to the maximum extent permissible under law.  See “Item 6. Directors, Senior Management and Employees –
C. Board Practices - Corporate Governance Practices - Exemption, Insurance and Indemnification of Directors and Officers."





25




We have issued letters of indemnification to our directors and officers,
pursuant to which we have agreed to indemnify them in advance for any liability or expense imposed on or incurred by them in connection
with acts they perform in their capacity as a director or officer, subject to applicable law. The amount of the advance indemnity
is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $5
million.



Our indemnification obligations limit the personal liability of
our directors and officers for monetary damages for breach of their duties as directors by shifting the burden of such losses and
expenses to us. Although we have obtained directors' and officers' liability insurance, certain liabilities or expenses covered
by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As
a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely
harm our business and financial condition and limit the funds available to who may choose to bring a claim against our company.
These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches
of their duties, and may similarly discourage the filing of derivative litigation by our shareholders against the directors and
officers even though such actions, if successful, might otherwise benefit our security holders.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------



A.           History
and Development of the Company



Our legal and commercial name is RedHill Biopharma Ltd. The company
was incorporated on August 3, 2009 and was registered as a private company limited by shares under the laws of the State of Israel.
Our principal executive offices are located at 21 Ha’arba’a Street, Tel Aviv, Israel and our telephone number is 972-3-541-3131.



In February 2011, we completed our initial public offering in Israel,
pursuant to which we issued 14,302,300 ordinary shares, and 7,151,150 tradable Series 1 Warrants to purchase 7,151,150 ordinary
shares for aggregate gross proceeds of approximately $14 million. On December 27, 2012, we completed the listing of our ADSs on
The Nasdaq Capital Market. Our ordinary shares are traded on the Tel Aviv Stock Exchange under the symbol “RDHL,” and
our ADSs are traded on The Nasdaq Capital Market under the symbol "RDHL".



Our capital expenditures for the years ended December 31, 2015,
2014 and 2013 were $14,000, $70,000 and $14,000, respectively. Our current capital expenditures involve equipment and leasehold
improvements.



B.         Business
Overview



We are a biopharmaceutical company focused on the development and
acquisition of late clinical-stage, proprietary, orally-administered drugs for the treatment of inflammatory and gastrointestinal
diseases and cancer. From inception to the end of the period covered by this Annual Report, we have invested a total of $6.1 million
on in-licensing and acquisitions of therapeutic candidates and related technologies.



Depending on the specific development program, our therapeutic candidates
are designed to exhibit greater efficacy, provide improvements over existing drugs by improving their safety profile, reducing
side effects, lowering the number of administrations, using a more convenient administration form and/or providing a cost advantage.
Where applicable, we intend to seek FDA approval for the commercialization of certain of our therapeutic candidates through the
alternative Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding
regulatory paths in other foreign jurisdictions. Our current pipeline consists of eight late clinical development therapeutic candidates,
including one therapeutic candidate (RP101) for which we have an option to acquire.



We generate our pipeline of therapeutic candidates by identifying,
rigorously validating and in-licensing or acquiring products that are consistent with our products strategy and that we believe
exhibit a relatively high probability of therapeutic and commercial success. With the exception of RIZAPORTTM which was approved
for marketing in Germany, our therapeutic candidates have not yet been approved for marketing and, to date, our therapeutic candidates
have not generated meaningful sales. We intend to commercialize our therapeutic candidates through licensing and other commercialization
arrangements with pharmaceutical companies on a global and territorial basis. We also evaluate, on a case by case basis, co-development
and similar arrangements and the independent commercialization of our therapeutic candidates in the U.S.



Our Strategy



Our goal is to become a significant player in the development of
pharmaceuticals for the treatment of inflammatory and gastrointestinal (GI) diseases and cancer.





26




Key elements of our strategy are to:



|· | Identify and acquire rights to products from pharmaceutical companies that have encountered cash flow or operational problems or that decide to divest one or more of their products for various reasons. Specifically, we seek to acquire rights to and develop products that are intended to treat pronounced clinical needs, have patent or other protections, and have target markets totaling tens of millions to billions of dollars. Additionally, we seek to acquire rights to and develop products based on different technologies designed to reduce our dependency on any specific product technology. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Identify and acquire rights to products that have been approved for marketing in the U.S from pharmaceutical companies that are interested in divesting one or more of their products. Specifically, we seek to acquire rights to products that are already commercialized in the U.S., preferably with a therapeutic focus on GI, inflammation and/or cancer, which would enable us to commercialize such products independently and build our own marketing and commercialization capabilities. We identify such opportunities through our broad network of contacts and other sources in the pharmaceutical field.                                                                                                                

|· | Enhance existing pharmaceutical products, including broadening their range of indications, or launching innovative and advantageous pharmaceutical products based on existing active ingredients. Because there is a large knowledge base regarding existing products, the preclinical, clinical and regulatory requirements needed to obtain marketing approval for enhanced formulations are relatively well- defined. In particular, clinical trial designs, inclusion criteria and endpoints previously accepted by regulators may sometimes be re-used. In addition to reducing costs and time to market, we believe that targeting therapeutics with proven safety and efficacy profiles provides us a better prospect of clinical success.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Where applicable, utilize the FDA’s 505(b)(2) regulatory pathway to potentially obtain more timely and efficient approval of our formulations of previously approved products. Under the 505(b)(2) process, we are able to seek FDA approval of a new dosage form, strength, route of administration, formulation, dosage regimen, or indication of a pharmaceutical product that has previously been approved by the FDA. This process enables us to partially rely on the FDA findings of safety and/or efficacy for previously approved drugs, thus avoiding the duplication of costly and time-consuming preclinical and various human studies. See “Government Regulations and Funding - Section 505(b)(2) New Drug Applications.”
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Cooperate with third parties to develop and/or commercialize therapeutic candidates in order to share costs and leverage the expertise of others.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------



Our eight current clinical stage therapeutic candidates include
“RHB-105”, “RHB-104”, “BEKINDATM”, “RHB-106”,  “YelivaTM”,
“MESUPRON®”, “RP101” (subject to an option to acquire) and “RIZAPORTTM”
and related research and development programs, the most advanced of which are described below.



Our Therapeutic Candidates



Summary



A summary of our therapeutic candidates’ select programs is
provided below:



|Name of Product |  | Relevant Indication     |  | Potential Advantages Over
        Most Existing Treatments                                                        |  | Development Stage                                                                              |  | Rights to the Product                                      
|--------------- |  | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------
|RHB-105         |  | H. pylori infection     |  | Improved efficacy, potential to overcome bacterial resistance; all-in-one pill                                    |  | First Phase III study in the U.S. successfully
    completed                                   |  | Acquired all rights to the product, worldwide and exclusive
|RHB-104         |  | Crohn’s disease         |  | Novel mechanism of action and improved clinical benefit (targeting suspected underlying cause of Crohn's disease) |  | First Phase III study in N. America, Israel, Australia, New Zealand and Europe
        ongoing |  | Acquired all rights to the product, worldwide and exclusive
|RHB-104         |  | Multiple sclerosis (MS) |  | Oral formulation and novel mechanism of action                                                                    |  | Phase IIa proof of concept study in Israel ongoing                                             |  | Acquired all rights to the product, worldwide and exclusive
|               

27




|RHB-104   |  | Rheumatoid arthritis (RA)                                                                                                                     |  | Oral formulation targeting suspected underlying cause of RA and systemic lupus erythematosus                                                             |  | TBD                                                                                                                                                |  | Acquired all rights to the product, worldwide and exclusive                                                                                 
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|BEKINDATM  |  | Oncology support anti-emetic                                                                                                                  |  | Reduced number of drug administrations, improved compliance and adherence                                                                                |  | MAA pursued in Europe.
        
        Additional data required for U.S. oncology support program                                                 |  | Worldwide, exclusive
        
        license                                                                                               
|BEKINDATM  |  | Gastroenteritis/gastritis                                                                                                                     |  | No other approved 5HT-3 antagonist for this indication,
        
        improved compliance and adherence                                               |  | Phase III ongoing in gastroenteritis and gastritis in the U.S.                                                                                     |  | Worldwide, exclusive
        
        license                                                                                               
|BEKINDATM  |  | IBS-D                                                                                                                                         |  | Potential 5-HT3 antagonist with improved safety while maintaining efficacy, for broader use in the indication                                            |  | Phase II in the U.S. planned to be initiated in the coming weeks                                                                                   |  | Worldwide, exclusive
        
        license                                                                                               
|RHB-106   |  | Bowel preparation                                                                                                                             |  | Oral pill, avoid severe bad taste of chemical solutions, no known nephrotoxicity issues                                                                  |  | Licensed to Valeant Pharmaceuticals (which acquired Salix Pharmaceuticals, Inc.)                                                                   |  | Worldwide rights licensed to Valeant Pharmaceuticals                                                                                        
|YELIVATM   |  | Oncology; advanced solid tumors                                                                                                               |  | Oral administration, first-in-class sphingosine kinase-2 (SK2) selective inhibitor, with anti-inflammatory and anti-cancer activities.                   |  | Phase I study in the U.S. completed                                                                                                                |  | Worldwide, exclusive license                                                                                                                
|YELIVATM   |  | Refractory or relapsed diffuse large B-Cell lymphoma (DLBCL),  including patients with virus-induced (e.g., KSHV- or EBV-associated) lymphoma |  | Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.                                          |  | Phase I/IIa study in the U.S. initiated                                                                                                            |  | Worldwide, exclusive license                                                                                                                
|YELIVATM   |  | Refractory or relapsed multiple myeloma                                                                                                       |  | Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.                                          |  | Phase Ib/II study planned                                                                                                                          |  | Worldwide, exclusive license                                                                                                                
|YELIVATM   |  | Oncology support, prevention of radiation -associated mucositis in the treatment of head and neck cancer.                                     |  | Oral administration, first-in-class SK2 selective inhibitor, with anti-inflammatory and anti-cancer activities.                                          |  | Phase II study planned                                                                                                                             |  | Worldwide, exclusive license                                                                                                                
|MESUPRON® |  | Gastrointestinal and other solid tumors                                                                                                       |  | Oral administration; new non-cytotoxic approach to cancer therapy inhibiting both tumor invasion and metastasis                                          |  | Completed two Phase II studies; Pre-clinical studies ongoing                                                                                       |  | Worldwide exclusive license; excludes China, Hong Kong, Taiwan and Macao                                                                    
|RP101     |  | Pancreatic and other cancers                                                                                                                  |  | Oral administration; may prevent chemoresistance, thus maintaining sensitivity of the tumor to chemotherapy and potentially enhancing patient survival   |  | Completed a Phase II study; Pre-clinical studies ongoing                                                                                           |  | Option to acquire the worldwide exclusive rights to RP101 for all indications, other than to the pancreatic cancer indication in South Korea
|RIZAPORTTM |  | Acute migraine                                                                                                                                |  | Oral thin film formulation; Avoids exacerbation of nausea, administered without water, ease of use, convenient portability and discrete carriage and use |  | NDA filed and accepted, Complete Response Letter (CRL) received and response is being prepared; European marketing application approved in Germany |  | Worldwide, exclusive license and co-development                                                                                             
|         

|Combination against Ebola virus |  | Ebola virus disease |  | Efficacy and safety |  | Nonclinical research collaboration with a U.S. government agency ongoing |  | All worldwide rights to the product
|------------------------------- |  | ------------------- |  | ------------------- |  | ------------------------------------------------------------------------ |  | -----------------------------------



28




RHB-105



RHB-105 is intended for the eradication of H. pylori bacterial
infection in the gastrointestinal tract. RHB-105 is a combination of three approved drug products – omeprazole, which is
a proton pump inhibitor (prevents the secretion of hydrogen ions necessary for digestion of food in the stomach), and amoxicillin
and rifabutin which are antibiotics. RHB-105 is administered to patients orally.



Chronic infection with H. pylori irritates the mucosal lining
of the stomach and small intestine. The original discovery of the H. pylori bacteria and its association with peptic ulcer
disease warranted the Nobel Prize in 2005. H. pylori infection has since been associated with a variety of outcomes which
include: dyspepsia (non-ulcer or functional), peptic ulcer disease (duodenal ulcer and gastric ulcer), primary gastric B-cell lymphoma,
vitamin B12 deficiency, iron deficiency anemia and gastric cancer.



Gastric cancer is the second most frequent cancer worldwide and
is associated with a poor prognosis (five-year survival rate of only 10-15% in patients with advanced disease). Almost all gastric
cancer is now known to be attributable to H. pylori infection, and H. pylori eradication seems to either eliminates,
stabilizes, or reduces risk for progression to gastric cancer, depending upon the severity and extent of damage present when the
H. pylori infection is cured.



RHB-105 was granted Qualified Infectious Disease Product (QIDP)
designation by the FDA in November 2014. The QIDP designation was granted under the FDA's Generating Antibiotic Incentives Now
(GAIN) Act, which is intended to encourage development of new antibiotic drugs for the treatment of serious or life-threatening
infections that have the potential to pose a serious threat to public health. The granted QIDP designation allows us to benefit
from Fast-Track development status with an expedited development pathway for RHB-105 and Priority Review status which potentially
provides shorter review time by the FDA of a future potential marketing application. If approved, RHB-105 will also receive an
additional five years of U.S. market exclusivity on top of the standard exclusivity period for a total of eight years.



RHB-105 is targeting a significantly broader indication than that
of existing H. pylori therapies, as a first line treatment of H. pylori infection regardless of ulcer status.



As noted above, we acquired the rights to RHB-105 pursuant to an
agreement with Giaconda Limited. See “– Acquisition and License Agreements – Acquisition of RHB-104, RHB-105
and RHB-106.”



Competition and Market



The most common treatments of H. pylori type bacteria combine
clarithromycin or metronidazole antibiotics with amoxicillin and a proton pump inhibitor. Such current standard of care treatments
fail in approximately 30% of the patients due to the development of antibiotic resistance, based on reports by Prof. David Y. Graham,
MD, et al. published in Nature Clinical Practice Gastroenterology & Hepatology in 2008 and in Gut in 2010. The potential
advantage of RHB-105 over these drugs (such as PrevPac® of Takeda Pharmaceuticals NA and Pylera®
of Actavis) was shown in a Phase II study comprising of 130 subjects, in which a different formulation of RHB-105, using the same
antibiotic ingredients and a similar proton pump inhibitor, was shown to eradicate H. pylori in over 90% of treated patients
who failed previous eradication attempts using standard of care treatments, as published in the 2006 study report by Dr. T.J. Borody,
et. al. in Alimentary Pharmacology & Therapeutics. Furthermore, top-line results from a Phase III study conducted by us demonstrated
89.4% efficacy in eradicating H. pylori infection with RHB-105 in 118 dyspepsia patients with confirmed H. pylori
infection.



We estimate that there are approximately three million H. pylori
infected patients present with first time dyspeptic symptoms per annum in the U.S., based on a 2007 report by Colin W. Howden,
MD, et. al. published in The American Journal of Managed Care and a 2005 report by Nicholas J. Talley, MD, et al. published
in The American Journal of Gastroenterology. Based on this figure, combined with the current price of current branded treatments,
we estimate the potential global and U.S. market for RHB-105 at approximately $4.83 billion and $1.45 billion, respectively.





29




Clinical Development



A Phase II clinical trial in Australia was completed with a different formulation of RHB-105, using the
same antibiotic ingredients and a similar proton pump inhibitor. A first Phase III trial in the U.S. was completed in 2015. Topline data showed 89.4% eradication of H. pyloriwithRHB-105therapy while open-label standard-of-care yielded an
H. pylori eradication of rate of 63% in placebo subjects. The full clinical study report is expected to be available in
the first quarter of 2016. We intend to meet with the FDA to discuss the further clinical development path towards marketing approval
of RHB-105 through the 505(b)(2) regulatory path.



Professor David Y. Graham, MD, from Baylor College of Medicine,
Houston, Texas, served as the lead investigator of the first Phase III clinical trial of RHB-105.



The following chart summarizes the clinical trial history and status
of RHB-105:



|Clinical
        trial name |  | Development
        phase of the
        clinical trial |  | Purpose of the
        clinical trial                                                                                                          |  | Clinical trial
        site             |  | Number of
        subjects of
        the trial |  | Nature and status of
        the trial                                                                                                                  |  | Schedule                                            
|--------------------------- |  | ------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------
|-                           |  | Phase IIa                                               |  | Examining the product’s effectiveness in treating H. pylori infections in patients for whom standard of care had failed to treat the infection |  | Center for Digestive Disease, Australia |  | 130                                             |  | The trial was performed and indicated that the treatment is effective for bacteria patients for whom standard of care had failed to treat the infection |  | Completed in 2005                                   
|-                           |  | Comparative Bioavailability                             |  | Comparing the bioavailability of RHB-105 to the bioavailability of an equivalent dose of commercially available active ingredients             |  | Algorithme Pharma
        Canada        |  | 16                                              |  | Successfully completed                                                                                                                                  |  | Completed in 2013                                   
|ERADICATE Hp                |  | Phase III                                               |  | Examining the effectiveness, safety and pharmacokinetics of the final formulation                                                              |  | 13 sites in the US                      |  | Up to 118                                       |  | Successfully completed                                                                                                                                  |  | Completed in 2015; Final results expected in Q1 2016
|TBD                         |  | Phase III                                               |  | Assess the safety and efficacy of RHB-105 as compared to active comparator                                                                     |  | TBD                                     |  | TBD                                             |  | Planned for initiation in Q3 2016                                                                                                                       |  | TBD                                                 



An additional Phase III study comparing RHB-105 to current therapy
is planned to be undertaken following completion of the ERADICATE Hp study. Supplemental studies may be required as part of
the RHB-105 global development program and regulatory strategy.



We cannot predict with certainty our development costs, and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



RHB-104



RHB-104 is intended to treat Crohn’s disease, which is a serious
inflammatory disease of the gastrointestinal system that may cause severe abdominal pain and bloody diarrhea, malnutrition and
potentially life-threatening complications.



RHB-104 is a patented combination of clarithromycin, clofazimine
and rifabutin, three generic antibiotic ingredients, in a single capsule. The compound was developed to treat Mycobacterium
avium paratuberculosis (MAP), infections in Crohn’s disease. According to a 2007 article in The Lancet Infectious
Diseases by Feller et. al., which contains a meta-analysis of 18 published scientific and clinical trials, Crohn’s
disease patients are seven times more likely to be infected with MAP than non-Crohn’s patients.



To date, Crohn’s disease has been considered to be an autoimmune
disease, but the exact pathological mechanism is unclear. Dr. Robert J. Greenstein suggested in The Lancet Infectious Diseases,
2003 that Crohn’s disease is caused by MAP, the same organism responsible for a major cause of disease in animal agriculture
production, domestic and wild animals. This hypothesis is supported by an expanding number of scientific and clinical studies published
in peer reviewed journals since a National Institute of Allergy and Infectious Diseases conference that focused on MAP in Crohn’s
disease took place in 1998. Specific genetic loci like NOD2 have been implicated in the pathogenesis of Crohn’s disease with
mutations in NOD2 suspected of leading to defective recognition of MAP and increased compensatory immune activation in patients
with Crohn’s disease.





30




In 2011, we obtained FDA “Orphan Drug” status for RHB-104
for the treatment of Crohn’s disease in the pediatric population. See “– Government Regulations and Funding Orphan
Drug Designation.”



The formulation for RHB-104 is presently complete and manufacturing
of the all-in-one capsules for our clinical trials is currently in process. Stability testing of the clinical trial material is
ongoing.



We acquired the rights to RHB-104, RHB-105 and RHB-106 pursuant
to an asset purchase agreement with Giaconda Limited, a publicly traded Australian company. See “– Acquisition and
License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.”



A diagnostic technology enabling the identification of the presence
of MAP bacterial DNA in patients was developed and patented by Professor Saleh Naser of the University of Central Florida in Orlando.
On September 15, 2011, we entered into an agreement with the University of Central Florida Research Foundation, Inc., pursuant
to which we acquired the exclusive rights in this patented diagnostic test. See “– Acquisition and License Agreements
– License Agreement related to RHB-104.”



On February 12, 2012, we entered into an agreement with Q Squared
Solutions LLC (f/k/a Quest Diagnostics Ltd.) (Q Squared) to develop a commercial diagnostic test for detecting the presence of
MAP bacterial DNA in the blood based upon the rights we acquired from the University of Central Florida Research Foundation, Inc.
Additional intellectual property covering other aspects of MAP detection was licensed from the University of Minnesota in December
2014 in order to potentially enhance our ability to detect MAP.  On January 29, 2015, we announced that, together with
Q Squared, we concluded a pre-submission meeting with the FDA regarding the development path of a commercial companion diagnostic
test for the detection of MAP in Crohn’s disease patients. We initiated a study of Crohn's disease patients to assess the
clinical utility of the companion diagnostic test during the third quarter of 2015.





Market



According to GlobalData, a provider of market intelligence for the
pharmaceutical sector, there were approximately 1.38 million diagnosed cases of Crohn's disease in the 10 major markets in 2015.
This number of diagnosed cases is expected to increase to 1.48 million by 2022.



The MAP bacterium is suspected of being a major factor in causing
the inflammatory symptoms of Crohn’s disease patients. According to a study by Bull TJ, et. al. in 2003 in Journal
of Clinical Microbiology, MAP was detected in 92% of Crohn’s disease patients evaluated in the study. According to a
2014 report by EvaluatePharma, a leading market intelligence and information resource, the market of drug treatments for Crohn’s
disease was estimated to exceed $5.7 billion worldwide in 2015. The report also estimates that the worldwide market for drug treatment
of Crohn’s disease will exceed $6 billion in 2017.



Competition



Unlike drugs on the market for the treatment of Crohn’s disease,
which are immunosuppressive agents, RHB-104 is intended to address the suspected cause of the disease, MAP bacterial infection.
To the best of our knowledge, there are no drugs approved for marketing that target infections of MAP bacteria in Crohn’s
disease patients.



Currently available drugs on the market for the treatment of Crohn’s
disease offer only symptomatic relief, the effects of which are largely temporary and accompanied by numerous adverse effects.
A summary of these side effects described by Dr. Carol Nacy et. al. in a report from the American Academy of Microbiology
published in June 2007 is included in the following chart (except with respect to 5-Aminosalicylates (5-ASA) as indicated below).



|Drug Family                |  | Example of Drug
        from the Family |  | Effect                                                                                                                                                                                                                                                  |  | Common Side Effects                                                                                                                                                                                               
|-------------------------- |  | --------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5-Aminosalicylates (5-ASA) |  | Mesalamine                              |  | Possible efficacy in inducing remission in limited subgroups of patients with mild to moderate CD (Feldman PA et. al..Clin Colon Rectal Surg. 2007 Nov; 20(4): 269–281), although no longer recommended (Sandborn WJ Gastroenterology 2014;147:702–705) |  | Side effects include headache, nausea , bloating, abdominal pain cramping loss of appetite vomiting rash, fever, diarrhea, decrease sperm count and rarely kidney injury (Crohn's & Colitis Foundation of America)
|Corticosteroids            |  | Prednisone                              |  | Relatively good effectiveness, for some patients only                                                                                                                                                                                                   |  | Headaches, swinging moods, muscle and bone weakness, heart failure, diabetes and risk of infections                                                                                                               
|                          

31




|Immunomodulatory drugs                                                                                                              |  | 6-Mercaptopurine
        Methotrexate
        Azathioprine                   |  | High effectiveness, but only for a limited time and for some patients                                                                      |  | Suppresses the immune system causing risks of infection or even cancer, negative side effects on the liver, kidneys and blood
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------
|Biological agents –Anti-TNF-α and other monoclonal antibody drugs. TNF (Tumor Necrosis Factor) is a component of the immune system. |  | Infliximab
        Adalimumab
        Certolizumab pegol
        Vedolizumab |  | Administered intravenously (IV) or subcutaneously every 1-8 weeks. Effective for some patients (30-40%). Effectiveness decreases over time |  | Suppresses a central component of the immune system. Risk of infectious diseases, cancer and damage to the nervous system    



We may also be exposed to potentially competitive products which may be under development to treat Crohn’s
disease, including new anti-TNFα and other biological therapies. Additionally, a clinical trial is being conducted by Valeant
with the antibiotic rifaximin (Xifaxan®) for the treatment of Crohn’s disease.



Clinical Development



In the Phase III clinical trial in Australia, sponsored by Pharmacia
and published by Professor Warwick Selby et al. in 2007 in the medical journal Gastroenterology, the primary objectives
were to evaluate the ratio of patients with recurrent symptoms of the disease following initial induction of remission with 16
weeks of treatment. Subjects were subsequently assessed at 52, 104 and 156 weeks. The main secondary objective was the percentage
of patients who achieved clinical remission at 16 weeks. Although the study did not meet the main objective of showing a difference
in relapse rate with long-term treatment, there was a statistically significant difference between the treatment groups in the
percentage of subjects in remission at week 16. Professor Marcel Behr and Professor James Hanley from McGill University published
a re-analysis of the study in The Lancet Infectious Diseases in June 2008, based on the intent-to-treat (ITT) principle,
and found that there was a significant statistical advantage for the active therapy over the placebo throughout the period of administration
that disappeared once the active therapy was discontinued.



We are currently conducting our first Phase III clinical trial in
North America, Israel, Australia, New Zealand, Poland and other countries with RHB-104 (MAP US) as well as preparing a planned
second clinical trial in Europe. These trials, based on the analysis and data from a Phase III trial conducted in Australia with
the RHB-104 active ingredients in a different formulation, are designed as a Phase III trial for Crohn’s disease patients.
The Map U.S. trial commenced in October 2013. We plan to increase the number of clinical sites of the MAP U.S. trial, currently
ongoing from 100 to 120, and expect to include new sites mainly in Europe.



The MAP US trial of RHB-104 is being led by Professor David Y. Graham,
MD, of Baylor College of Medicine, Houston, Texas, U.S., while the second Phase III clinical trial of RHB 104, in Europe (MAP Europe),
will be led by Professor Colm O’Morain, MD, of Meath and Adelaide Hospital, Dublin, Ireland.



In October 2012, we entered into an agreement with our Canadian
service provider which, in turn, entered into a back-to-back agreement with a Canadian manufacturer to complete the manufacturing
and supply of RHB-104 for our clinical trials. In addition, we entered into an additional manufacturing agreements directly with
the Canadian manufacturer.



In June 2011, we entered into an agreement with our Canadian service
provider which entered into a back-to-back agreement with PharmaNet Canada Inc. for the provision of clinical trial services for
the RHB-104 adult studies in North America and Europe. PharmaNet was subsequently acquired by inVentiv Health and our agreements
were transferred to inVentiv. See “– Master Service Agreements with Canadian service provider” and see also "–
Clinical Services Agreement related to RHB-104."



Subsequent to our discussions with the FDA for approval to conduct
the North American trial based upon an Investigative New Drug (IND) approved by the FDA on July 18, 2007, we made a number of changes
to the original protocol. On August 29, 2012, we revised the IND filed by Giaconda with the submission of a new Phase III protocol
to the FDA, and after 30 days, the IND became effective. Based upon the response from the FDA on issues relating to the clinical
study, additional changes have been made, and will be made, to the clinical study in North America and Israel and other countries.
A further amendment to the protocol was submitted to the FDA on December 23, 2014 responding to recommendations from the investigators
and to expedite recruitment in the study.



Approximately 270 Crohn’s disease patients are currently expected
to participate in the MAP US trial. Half of the patients will receive RHB-104 and half will receive a placebo drug over a period
of approximately six months to determine efficacy, with an additional six month follow-up period to further investigate maintenance
of efficacy and safety. A Clinical Trial Application (CTA) for MAP EU Study has been submitted in Europe and approved by three
countries to date.



The following chart summarizes the clinical trial history and status
of RHB-104 and its earlier individual active agents:



32






|Clinical trial
        author/design-
        nation |  | Development
        phase of the
        clinical trial |  | Purpose of the
        clinical trial                                                                         |  | Clinical
        trial site                           |  | Planned number of subjects of the trial |  | Nature and status of
        the trial                                                                                           |  | Schedule                              
|---------------------------------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- |  | --------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------
|Borody 2002                                          |  | Phase IIa                                               |  | Examining the effect of the treatment on Crohn’s disease patients                                             |  | Center for Digestive Disease, Australia               |  | 12                                      |  | Performed                                                                                                                        |  | Completed in 2002                     
|Borody 2005                                          |  | Phase II                                                |  | Examining the effect of the treatment on Crohn’s disease patients                                             |  | Center for Digestive Disease, Australia               |  | 52                                      |  | Performed                                                                                                                        |  | Completed in 2005                     
|Selby                                                |  | Phase III                                               |  | Examining the effect of the treatment with the product on Crohn’s disease patients                            |  | 20 clinical centers in Australia                      |  | 213                                     |  | The trial was performed and indicated promising improvement rates, although it did not meet the main trial objective, as defined |  | Published in 2007                     
|Biovail PK study 2007                                |  | PK Study                                                |  | Optimize the formulation of RHB-104 on a PK basis.                                                            |  | Toronto, Ontario                                      |  | 24                                      |  | Trial compared two formulations to determine the optimum formulation for RHB-104                                                 |  | Completed in 2007                     
|MAP US                                               |  | Phase III                                               |  | Assess the safety and efficacy of RHB-104 in Crohn’s disease patients                                         |  | US, Canada. Israel, Australia, New Zealand and Europe |  | 270                                     |  | Phase III trial in North America and Israel and other countries has commenced                                                    |  | First patient entered study in Q3 2013
|MAP EU                                               |  | Phase III )                                             |  | Assess the safety and efficacy of RHB-104 in Crohn’s disease patients                                         |  | Europe and potential other countries                  |  | To be determined                        |  | Under examination                                                                                                                |  |                                       
|Food Effect Study                                    |  | PK Study                                                |  | Determine the effect of food on  the  bioavailability of RHB-104 in healthy volunteers                        |  | Algorithme Pharma, Canada                             |  | 84                                      |  | Completed                                                                                                                        |  | Completed  in 2014                    
|Drug-Drug  Interaction Study                         |  | PK Study                                                |  | To assess the net pharmacokinetic effect of multiple doses of RHB-104 on CYP3A4 enzymes in healthy volunteers |  | Algorithme Pharma, Canada                             |  | 36                                      |  | Ended                                                                                                                            |  | Ended in 2014                         



Supplemental studies will be required as part of the RHB-104 global development program
and regulatory strategy.



We cannot predict with certainty our development costs, and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



Multiple Sclerosis Indication of RHB-104



We have performed several preclinical studies, including studies in an experimental autoimmune encephalomyelitis
(EAE) mouse model of MS, to investigate the potential impact of RHB-104 in treating MS. The first preclinical study measured cytokine
production (biomarkers of inflammation) and demonstrated that the RHB-104 treatment led to a significant reduction of pro-inflammatory
cytokine concentrations of IL-6 and TNF, which are associated with inflammation and MS, compared to the control group. The second
preclinical study measured the efficacy of RHB-104 as prophylactic therapy, and the treatment with RHB-104 demonstrated a significant
reduction in the inflammatory area and level of demyelination, compared with the control group. The third preclinical study measured
relapses, demonstrating RHB-104’s efficacy in significantly reducing the incidence of relapse compared with the control group.
Following these preclinical studies, we are conducting a Phase IIa proof of concept clinical trial at two sites in Israel. This
clinical trial was initiated in June 2013 with interim top-line results expected during the first quarter of 2016.



MS is an inflammatory, demyelinating, and neurodegenerative disease
of the central nervous system of uncertain etiology that exhibits characteristics of both infectious and autoimmune pathology.
There is a growing consensus in the medical community that a dysregulated immune system plays a critical role in the pathogenesis
of MS.



The following chart summarizes the development history and status
of RHB-104-MS:



33






|Trial name                                                                  |  | Development
        phase |  | Purpose of
        the trial                                                                                    |  | Clinical
        trial sites |  | Planned number of
        subjects of the trial |  | Nature and
        status of the trial |  | Schedule                                    
|--------------------------------------------------------------------------- |  | ------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | ----------------------------------------------- |  | -------------------------------------- |  | --------------------------------------------
|Experimental Autoimmune Encephalomyelitis (EAE) Mouse T-cell Function Study |  | Pre-Clinical              |  | Measure cytokine production as a measure of inflammation in EAE mice treated with RHB-104 vs. negative controls |  | -                            |  |                                                 |  |                                        |  | Completed 2012                              
|Experimental Autoimmune Encephalomyelitis (EAE) Prophylaxis Study           |  | Pre-Clinical              |  | Scoring EAE severity in mice treated prophylactically with RHB-104 vs. negative controls                        |  | -                            |  |                                                 |  |                                        |  | Completed 2012                              
|Experimental Autoimmune Encephalomyelitis (EAE) Relapse Study               |  | Pre-Clinical              |  | Scoring EAE severity in mice treated with RHB-104 vs. negative and positive controls                            |  | -                            |  |                                                 |  |                                        |  | Completed 2012                              
|Lipopolysaccharide (LPS)-induced cytokine production study                  |  | Pre-Clinical              |  | Measure LPS induced cytokine production in C57BL/6 mice treated with RHB-104 vs. negative and positive controls |  | -                            |  |                                                 |  |                                        |  | Completed 2013                              
|CEASE-MS                                                                    |  | Phase IIa                 |  | Proof of concept study to assess the safety and efficacy of RHB-104 in Relapsing Remitting MS                   |  | Israel                       |  | 16-18                                           |  | In process                             |  | Interim top-line results expected in Q1 2016





Additional trials will be required as part of the RHB-104 MS global development program and regulatory strategy.



We cannot predict with certainty our development costs and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



BEKINDATM (RHB-102)



BEKINDATM is a once-daily controlled release oral
formulation of ondansetron, a leading member of the family of 5HT-3 serotonin receptor inhibitors. We are developing two dose strength
products, a 24 mg dose and a 12 mg dose. They are being developed for use in the following indications, the first two of which
are novel indications for ondansetron targeting large potential markets and the third is an existing indication of ondansetron
and therefore targets a smaller potential market:



|1) | Gastroenteritis and gastritis - 24 mg strength
|-- | ----------------------------------------------

|2) | Irritable Bowel Syndrome with Diarrhea (IBS-D) - 12 mg strength
|-- | ---------------------------------------------------------------

|3) | Prevention of chemotherapy and radiotherapy induced nausea and vomiting (oncology support) – 24 mg strength
|-- | -----------------------------------------------------------------------------------------------------------



BEKINDATM utilizes a technology called CDT®
that uses salts to provide an extended release of ondansetron. The CDT® platform enables extended drug release (i.e.,
measured rate of introduction of active drug) at a relatively low manufacturing cost.



In March 2014, we entered into a License Agreement with Temple University
to secure direct rights to patents related to BEKINDATM. Previously, these rights were licensed to us from SCOLR Pharma Inc,
which announced that they had ceased business operations in 2013. See “– Acquisition and License Agreements –
License Agreement for BEKINDATM”.



Gastroenteritis and Gastritis Indication of BEKINDATM



Acute gastroenteritis/gastritis is an inflammation of the mucus
membranes of the gastrointestinal tract, most commonly caused by a viral infection. Symptoms of gastroenteritis/gastritis include
nausea, vomiting, diarrhea and abdominal pain.  Gastroenteritis/gastritis is a major cause of emergency room visits,
particularly for pediatrics. If approved, BEKINDATM could potentially decrease the number of emergency room visits of patients
suffering from acute gastroenteritis, by offering them an effective and long lasting treatment which can be taken in the comfort
of their home.





34




Competition and Market



A single dose of BEKINDATM is intended to treat
nausea and vomiting over a time window of approximately 24 hours. This is potentially advantageous for acute gastroenteritis and
gastritis patients as it is intended to provide them with relief from nausea and vomiting symptoms for a full 24-hour period with
a single oral tablet, thus avoiding the need to take additional drugs (tablets) during the day or receiving intravenously administered
drugs. BEKINDATM could also potentially reduce the burden on health systems by reducing visits to emergency departments.



If BEKINDATM is approved for the treatment of acute
gastroenteritis and gastritis, it could potentially hold substantial advantages over existing treatments. To the best of our knowledge,
if approved, BEKINDATM will be the only 5-HT3 serotonin receptor inhibitor indicated for the treatment of acute
gastroenteritis and gastritis, whereas most treatments used today are not indicated or approved for this condition. If approved,
BEKINDATM could be prescribed by primary care physicians to patients early on, thus potentially preventing emergency
room visits, dehydration and the need to provide IV fluids.



BEKINDATM is targeting an annual potential worldwide
market estimated to exceed $650 million, based on Graves S. Nancy, Acute Gastroenteritis, Prim Care Clin Office Pract 40 (2013)
727–741 and Company analysis.



To the best of our knowledge, there are no other 5-HT3 serotonin
receptor inhibitors indicated or currently being developed for this indication. Patients presenting at hospitals with gastroenteritis
and gastritis are often treated with antiemetic drugs, off label, including 5-HT3 serotonin receptor inhibitors, primarily in IV
administration, which are not indicated or approved for this condition.



Clinical Development



We have initiated a randomized, double-blind, placebo controlled, parallel group Phase III trial (GUARD study)
that is conducted in up to 30 clinical sites in the U.S. and is expected to enroll 320 adults and children over the age of 12 who
suffer from acute gastroenteritis/gastritis. Patients are randomized to receive either BEKINDATM or a placebo. The primary
endpoint for the trial is the absence of vomiting, need for rescue medications or IV hydration from 30 minutes through 24 hours
after the first dose of study medication. Secondary endpoints include, among others, frequency of vomiting, severity and time to
resolution of nausea and time to resumption of normal activities. Top-line results from the BEKINDATM GUARD Phase III trial
are expected during the second half of 2016.



The lead investigator for the Phase III study is Dr. Robert A. Silverman,
MD, MS, Associate Professor at the Hofstra North Shore-LIJ School of Medicine and an emergency medicine specialist.



|Clinical trial
        name |  | Development
        phase of the
        clinical trial |  | Purpose of the clinical trial                                                               |  | Clinical
        trial site |  | Planned
        number of
        subjects
        of the trial |  | Nature and status of
        the trial                                          |  | Schedule                         
|--------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | ---------------------------------
|GUARD Study                 |  | Phase III                                               |  | Randomized double blind placebo controlled Phase III study in gastroenteritis and gastritis |  | Up to 12 sites in the U.S.  |  | 320                                                             |  | Evaluating the safety and efficacy of BEKINDATM in gastroenteritis and gastritis |  | Top line date expected in H2 2016



Following prior discussions with the FDA and the UK Medicines and Healthcare Products Regulatory Agency (MHRA),
the study is intended to support potential future submissions of marketing applications in both the U.S. and Europe in this indication.



If approved for this indication, BEKINDATM could be the only
5-HT3 antagonist approved to treat gastritis and gastroenteritis. We expect that would potentially allow BEKINDATM to capture
a large segment of the potential market in this indication.



We cannot predict with certainty our development costs and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



Irritable Bowel Syndrome with Diarrhea (IBS-D) Indication of
BEKINDATM



Irritable bowel syndrome (IBS) is a multifactorial disorder marked
by recurrent abdominal pain or discomfort and altered bowel function. It affects between 10 and 20 percent of the population in
the developed world, about one-third of whom have IBS associated with diarrhea (IBS-D). Certain factors that alter gastrointestinal
function can contribute to IBS symptoms, including stress, prior gastroenteritis, changes in the gut microbiome, and bile acids
and short-chain fatty acids, which may stimulate serotonin (5-HT) release and increase colonic permeability and motility. (Source:
http://www.mayoclinic.org/medical-professionals/clinical-updates/digestive-diseases/better-agents-needed-irritable-bowel-syndrome-diarrhea).



35






In preliminary studies, ondansetron has demonstrated activity in IBS-D (Garsed K,
Chernova J, Hastings M, et al. Gut Published Online First December 12, 2013). Unlike alosetron (a currently approved
5-HT3 antagonist in IBS-D), ondansetron has not been noted to cause ischemic colitis (FDA labeling for Lotronex®
(alosetron), 2010; FDA labeling for Zofran® (ondansetron), 2014).



BEKINDATM is a bimodal release formulation of ondansetron.
It provides an initial release similar to immediate release ondansetron and then extended release over 24 hours. Because of its
extended release properties, and once daily dosing we believe it is a promising candidate for treatment of IBS-D.



Competition and Market



Irritable bowel syndrome
is one of the most common gastrointestinal disorders, and irritable bowel syndrome with diarrhea is the most common subtype of
IBS in the U.S., according to a report by GlobalData, a provider of market intelligence for the pharmaceutical sector.



According to reports by Saito YA. et alpublished in 2002
in The American Journal of Gastroenterology and by Lovell RM et al., published in 2012 in Clinical Gastroenterology and
Hepatology, it is estimated that at least 30 million Americans may suffer from IBS. According to GlobalData, worldwide over approximately
40% of the cases of IBS will be of the IBS-D subtype.



According to a 2015 report from EvaluatePharma, a provider of market intelligence for
the pharmaceutical sector, the U.S. potential market for IBS-D treatments is estimated to reach approximately $1.3 billion in 2020.



To the best of our knowledge, there is one other 5-HT3 serotonin
receptor inhibitor indicated for this indication – alosetron (currently marketed by Prometheus Laboratories Inc., Actavis
plc and Roxane Laboratories). However, alosetron is approved only for the treatment of IBS in women with severe chronic IBS-D
and is under a restricted prescribing program due to potential severe side effects. The active ingredient in BEKINDATM,
ondansetron, is approved by the U.S. FDA as an oncology support antiemetic and has a good safety profile. Therefore, we believe
that BEKINDATM, if approved, has the potential to be the preferred 5-HT3 serotonin receptor inhibitor treatment
for patients suffering from IBS-D. To the best of our knowledge, the patent for alosetron (Lotronex®) expired in
November 2015. According to GlobalData, the U.S. sales of Lotronex® exceeded $60 million in 2015.



To the best of our knowledge, the main competitor for BEKINDATM
for the treatment of IBS-D is Xifaxan® (Rifaximin) marketed in the U.S. by Valeant. Xifaxan®is an
antibiotic treatment which was approved for the treatment of IBS-D in May 2015. Xifaxan® was previously approved
in the U.S. for the treatment of hepatic encephalopathy and traveler's diarrhea. According to a report by GlobalData, it is believed
that Xifaxan® exerts its therapeutic effects in patients with IBS by treating intestinal bacteria overgrowth. Xifaxan®
is administered orally at a dose of 550 mg three times daily for two weeks in the treatment of IBS-D patients. According to a GlobalData
analysis, due to the chronic nature of IBS, physicians may have safety concerns associated with the long-term use of antibiotics,
such as the induction of antibiotic resistance and imbalance in the intestinal flora. According to a report by EvaluatePharma,
the worldwide annual sales of Xifaxan® for the treatment of IBS-D are estimated to exceed $920 million by 2020.
To the best of our knowledge, an oral version of Aloxi®was approved in August 2008 in the U.S., but is not currently
marketed in the U.S.



Viberzi® (eluxadoline) is another new drug approved
for the treatment of IBS-D in May 2015. Viberzi® is a locally-acting mu-opioid receptor agonist and a delta-opioid
receptor antagonist marketed in the U.S. by Ironwood Pharmaceuticals and Allergan plc. According to a report by EvaluatePharma,
the worldwide sales of Viberzi® are estimated to reach $470 million in 2020.



To the best of our knowledge, the most advanced treatment for IBS-D
currently in development for the U.S. market is ibodutant, developed by A. Menarini Industrie Farmaceutiche Riunite Srl. Ibodutant
is an oral tachykinin NK2 receptor antagonist, Ibodutant is currently undergoing a Phase III study for the treatment of women with
IBS-D.



Clinical Development



We are conducting a randomized, double-blind, placebo controlled,
Phase II trial that will be conducted in up to 12 clinical sites in the U.S. and is expected to enroll 120 adults over the age
of 18 who suffer from IBS-D. Patients will be randomized to receive either BEKINDATM 12 mg daily or a placebo.



The primary endpoint for the trial is the proportion of patients
in each treatment group with response in stool consistency on study drug as compared to baseline. Response is defined as per FDA
guidelines for the indication. Additional endpoints will be analyzed including:



36






- Proportion of patients in each treatment group who are pain responders, per FDA guidance
definition
- Proportion of patients in each treatment group who are overall responders, per FDA guidance
definition
- Differences between treatment groups in
- Abdominal pain
- Abdominal discomfort
- Frequency of defecation
- Incidence and severity of adverse events

IBS-D Phase II trial is expected to be initiated during the first
quarter of 2016.



|Clinical trial
        name |  | Development
        phase of the
        clinical trial |  | Purpose of the clinical trial                                      |  | Clinical
        trial site |  | Planned
        number of
        subjects
        of the trial |  | Nature and status of
        the trial                        |  | Schedule                           
|--------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------------- |  | -----------------------------------
|TBD                         |  | Phase II                                                |  | Randomized double blind placebo controlled phase II study in IBS-D |  | Up to 12 sites in the U.S.  |  | 120                                                             |  | Evaluating the safety and efficacy of BEKINDATM 12 mg in IBS-D |  | Expected to be initiated in Q1 2016



We cannot predict with certainty our development costs and they may be subject to changes.
See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition and Capital Requirements.



Oncology Support Indication of BEKINDATM



Competition and Market



Chemotherapy-induced nausea and vomiting (CINV) is among the most
severe symptoms cited by cancer patients receiving chemotherapy. CINV negatively impacts health-related quality of life following
moderately and highly emetogenic chemotherapy (MEC and HEC) while leading to increased resource use and costs. BEKINDATM
(ondansetron) belongs to the family of 5-HT3 serotonin receptor inhibitors, which account for a substantial market share of CINV
treatments. According to a report from EvaluatePharma, a provider of market intelligence for the pharmaceutical sector, the
worldwide sales of 5-HT3 serotonin receptor inhibitors for CINV are estimated to exceed $479 million in 2016.



To the best of our knowledge, the main competitors of BEKINDATM
are other 5-HT3 serotonin receptor inhibitors. This class of medication includes the active ingredient ondansetron (the generic
drug marketed in the U.S. under the trade name Zofran®, originally produced by GlaxoSmithKline). Additional first-generation
generic drugs from the same family contain the active ingredient granisetron (marketed in the U.S. under the name Kytril®,
produced by Hoffman-La Roche Ltd.) or the active ingredient dolasetron (marketed in the U.S. under the name of Anzemet®,
produced by Sanofi-Aventis Group). In addition, second-generation drugs containing the active ingredient palonosetron are still
under patent and marketed in the U.S. under the brand names Aloxi® and Akynzeo® by Eisai Pharmaceuticals
Inc., or Eisai.



Ondansetron became generic in the U.S. in December 2006. The drug
is available in the U.S. in the form of oral tablet, ODT, oral soluble film, oral solution and intravenous (IV) formulations.



Granisetron and dolasetron are additional first-generation generic
drugs from the same family of 5-HT3 serotonin receptor inhibitors. The generic drugs containing these active ingredients are available
both orally and intravenously and by transdermal patch. Additionally, Heron Therapeutics is developing Sustol®,
a long-acting formulation of granisetron for the prevention of both acute and delayed CINV associated with moderately emetogenic
chemotherapy (MEC) or highly emetogenic chemotherapy (HEC). To the best of our knowledge, a U.S. New Drug Application (NDA) for
Sustol® is currently under review by the FDA. Sustol®is administered by injection.
BEKINDATM is planned to be delivered orally, in tablet form. Oral administration is expected to allow self-administration
by patient, without the need for a clinical setting, thus potentially saving patient travel time to the clinic or hospital and
reducing health care professional work load, which we believe will lower its cost relative to currently available intravenous (IV)
alternatives.



Aloxi® is a second-generation drug from the same
family of inhibitors. To the best of our knowledge, it is currently administered only intravenously in the U.S. Akynzeo®,
is a fixed combination capsule comprised of oral palonosetron (the API in Aloxi®) and netupitant (NK1), and is the
first orally available 5-HT3 and NK1 combination product to reach the market. Akynzeo® was approved by the FDA in
October 2014 for prevention of acute and delayed nausea and vomiting following chemotherapy and is marketed by Eisai Inc. in the
U.S. Both Aloxi®and Akynzeo® have longer duration of action in the body and are the only drugs in
this family that were approved for use with an indication of nausea and vomiting prevention for more than 24 hours from the chemotherapy
treatment (delayed onset). This means that the drugs continue to be effective from the time of their administration for more than
the ensuing 24 hours. The price of these drugs is significantly higher than Zofran® and is estimated at approximately
$480 per treatment with Aloxi® IV and approximately $560 per capsule of Akynzeo®, according to www.goodrx.com.





37




A single dose of BEKINDATM is anticipated to prevent
chemotherapy or radiotherapy-induced nausea and vomiting over a time window of approximately 24 hours. This effectiveness period
is significantly longer than the effective time of Zofran® 8 mg, which is indicated to be administered several times
a day. This is potentially advantageous for cancer patients undergoing chemotherapy and radiation treatments that would prefer
to avoid the need to take additional drugs (tablets) during the day after the treatment, when they may suffer attacks of nausea
and vomiting.



The potential advantages of BEKINDATM compared to Aloxi®, the first of the
only two drugs that have a relatively long-term effect (beyond 24 hours, as stated above), are the delivery method and price. Aloxi®
is a drug that in the U.S. is delivered intravenously and costs approximately $480 per dose according to www.goodrx.com.
BEKINDATM is planned to be delivered orally, in tablet form. Oral administration is expected to allow self-administration
by patient, without the need for a clinical setting, thus saving patient travel time to the clinic or hospital and reducing health
care professional work load, significantly lowering its cost relative to currently available IV alternatives, including Aloxi®.



The potential advantage of BEKINDATM compared to
Akynzeo®, the second drug to have long-term effect, is the price. Akynzeo® is priced at approximately
$560 per capsule according to www.goodrx.com. We estimate that the high price of Akynzeo® provides sufficient
margins for BEKINDATM to be priced significantly lower than Akynzeo® and potentially capture a large
segment of the market at a premium price to the generic ondansetron tablets that need to be taken multiple times per day.



To the best of our knowledge, there are several plans to develop
new products in the area of nausea and vomiting prevention, including the development of a product that directly competes with
BEKINDATM, for controlled release of ondansetron, based on a different technology of controlled release developed
by Eurand N.V. and now owned by Allergan Plc. To the best of our knowledge, this product completed Phase II trials and according
to GlobalData, a provider of market intelligence for the pharmaceutical sector, the development program for this drug is currently
inactive.



Clinical Development



We completed two comparative bioavailability studies of BEKINDATM given once daily as compared to approved
regimens of Zofran®8 mg tablets given in multiple doses per day, a food-effect study
and a comparative bioavailability study of BEKINDATM given once daily as compared to Zofran® 16 mg suppository,
which is approved in major territories in the EU.



In order to carry out pharmacokinetic trials for BEKINDATM,
in November 2011 we entered into an agreement with our Canadian service provider which entered into a back-to-back agreement with
Algorithme Pharma Inc., a Canadian clinical research organization specializing in the performance of clinical trials. Algorithme
Pharma Inc. performed the clinical trial described below for BEKINDATM. See “ Master Service Agreement with 7810962
Canada Inc.”



The following chart summarizes the pharmacokinetic trial history
and status of BEKINDATM:



|Clinical trial
        name |  | Development
        phase of the
        clinical trial |  | Purpose of the clinical trial |  | Clinical
        trial site |  | Number of
        subjects
        of the trial |  | Nature and status of
        the trial                             |  | Schedule         
|--------------------------- |  | ------------------------------------------------------- |  | ----------------------------- |  | --------------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------------ |  | -----------------
|PK Program                  |  | Comparative Bioavailability                             |  | Four PK studies of BEKINDATM   |  | Algorithme Pharma, Canada   |  | Total of 80 healthy volunteers                  |  | To support marketing applications in EU and US in oncology support |  | Completed in 2014



In light of the positive results of the clinical pharmacokinetic studies, we submitted a Marketing Authorization
Application (MAA) in Europe for chemotherapy and radiotherapy-induced nausea and vomiting in December
2014 and have received an extension to respond to comments from MHRA until Feb 2016 following which we recently decided to withdraw
the MHRA MAA and initiated discussions for potential MAA submission in other EU member states. Accordingly, we recently met with
the French Agence Nationale de Sécurité du Médicament (ANSM) to seek further guidance about the potential
path to approval in the EU for the oncology support indications. In the U.S., the FDA feedback in 2015 indicated that additional
clinical efficacy data is required to support a U.S. New Drug Application (NDA) with BEKINDATM for oncology support indications
under the 505(b)(2) regulatory path. Further development for oncology support indications will be decided as more feedback is received
from additional EU member states and data from the ongoing and planned efficacy studies of BEKINDATM for gastroenteritis and
gastritis and IBS-D becomes available.





38




We cannot predict with certainty our development costs and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



RHB-106



RHB-106 is a tablet intended for the preparation and cleansing of
the gastrointestinal tract prior to the performance of abdominal procedures, including diagnostic tests such as colonoscopy, barium
enema or virtual colonoscopy, as well as surgical interventions, such as laparotomy.



As noted above, we acquired the rights to RHB-106 pursuant to an
agreement with Giaconda Limited. See “– Acquisition and License Agreements – Acquisition of RHB-104, RHB-105
and RHB-106.”



On February 27, 2014, we entered into a licensing agreement with Salix Pharmaceuticals, Ltd. (Salix), which
was later acquired by Valeant Pharmaceuticals International, Inc., or Valeant, by which Salix licensed the exclusive worldwide
rights to our RHB-106 encapsulated formulation for bowel preparation and rights to other purgative developments. Pursuant to this
agreement, we received an upfront payment of $7 million and are entitled to an additional potential
$5 million in subsequent milestone payments. In addition, as part of the terms of the agreement, Salix agreed to pay us tiered
royalties on net sales of RHB-106, ranging from the low single-digits up to low double-digits. See “– Acquisition and
License Agreements – Exclusive License Agreement with Valeant Pharmaceuticals International, Inc.”



Competition and Market



According to a report by EvaluatePharma, the worldwide market of
laxative products intended for cleansing the gastrointestinal system was estimated to reach approximately $1.3 billion in 2016.

To the best of our knowledge, the main competitors for RHB-106 are gastrointestinal cleansing products based on polyethylene glycol
(PEG 3350). These products are delivered in the form of a water-soluble powder, and require users to drink between 2-4 liters
of solution before performance of the gastroenterological procedure. In addition to the need to drink considerable amounts of
solution, a common side effect that raises difficulties with users is the accompanying harsh and unpleasant taste leading to potential
difficulties with patient compliance. RHB-106 offers the potential for improved patient compliance because it is tasteless and
eliminates the need for drinking liters of poor tasting electrolyte solution. RHB-106 also potentially has an advantage compared
to currently available tablet products in the field, in that it does not contain sodium phosphate, an active ingredient linked
with a risk of nephrotoxicity.



An additional product, called PrepoPikTM in the U.S.,
is manufactured by Ferring Pharmaceuticals and received FDA approval on July 17, 2012. The product, marketed under the name PicoPrepTM
in other countries, is based on an active chemical ingredient called sodium picosulfate, the same active ingredient used in RHB-106.
This product is intended to be used for clearing the gastrointestinal system and it is given in the form of a water-soluble powder
and requires drinking quantities of fluids.



Products administered in the form of tablets or capsules that were
released on the market in the U.S., such as OsmoPrep®and Visicol® (produced by Valeant), are based
on a chemical substance called sodium phosphate. In December 2008, the FDA published a severe warning against the use of these
products due to rare but severe side effects linked to kidney damage. As a consequence of this development, the FDA required in
2008 that oral sodium phosphate products carry a severe warning (black box label). As announced by Salix Pharmaceuticals Inc. (now
Valeant), following the black box warning received from the FDA, sales in 2009 of these products declined by 39% compared to 2008.



A leading product among the PEG 3350 family of products is MoviPrep®,
marketed by Valeant in the U.S. and by Norgine B.V. in Europe. It requires drinking about 2 liters of solution, and some users
report it has an unpleasant taste. The potential advantage of RHB-106 over the current competitor products of the PEG 3350 type
(such as MoviPrep®), as well as over PicoPrepTM, is that it is tasteless, permits the patient to drink
any clear liquid with the product and spares the patient the exposure to the harsh tastes that may accompany these products. RHB-106
also does not fall under the black box warning against nephrotoxicity issued by the FDA in December 2008 with respect to currently
marketed sodium phosphate capsule preparations.



Salix Pharmaceuticals, Inc. (now Valeant), which acquired a worldwide
exclusive license to RHB-106 and other purgative developments from us, estimated in its 2014 Investor Day that the peak year revenue
from their encapsulated bowel prep would reach approximately $280 million.





39




Clinical Development



Following the acquisition of Salix Pharmaceuticals by Valeant, we
received confirmation, in July 2015, that Valeant is continuing the development of RHB-106.



|Clinical
        trial name |  | Development
        phase of the
        clinical trial |  | Purpose of the clinical trial                                                  |  | Clinical site                           |  | Number of
        subjects of
        the trial |  | Nature and
        status of the trial |  | Performance
        schedule
|--------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | --------------------------------------- |  | ----------------------------------------------- |  | -------------------------------------- |  | ----------------------------
|-                           |  | Phase IIa                                               |  | Comparison of the product’s effectiveness and safety with an existing products |  | Center for Digestive Disease, Australia |  | 60                                              |  | Performed                              |  | Completed in 2005           



YELIVATM (ABC294640)



YELIVATM is a proprietary, first-in-class, orally-administered
sphingosine kinase-2 (SK2) selective inhibitor, with anti-inflammatory and anti-cancer activities, targeting multiple inflammatory,
gastrointestinal (GI) and oncology indications.



YELIVATM inhibits SK2, a lipid kinase that catalyzes formation
of the lipid signaling molecule sphingosine 1-phosphate (S1P). S1P promotes cancer growth, and proliferation and pathological inflammation,
including TNFα signaling and other inflammatory cytokine production. Specifically, by inhibiting the SK2 enzyme, YELIVATM
blocks the synthesis of S1P which regulates fundamental biological processes such as cell proliferation, migration, immune cell
trafficking and angiogenesis, and is also involved in immune-modulation and suppression of innate immune responses from T cells.



On March 31, 2015, we entered into an exclusive worldwide license agreement with Apogee Biotechnology Corporation(Apogee), pursuant to which Apogee granted us the exclusive worldwide development and commercialization rights to ABC294640 (which
we then renamed to YELIVATM) and additional intellectual property for all indications. Under the terms of the agreement, we
agreed to pay Apogee an upfront payment of $1.5 million, as well as $4 million in potential milestone payments, and tiered royalties
starting in the low double-digits. See “– Acquisition and License Agreements – License Agreement for YELIVATM”.



Competition and Market





YELIVATM, an orally-administered, first-in-class
sphingosine kinase-2 (SK2) inhibitor is being developed for various indications, including for the treatment of refractory/relapsed
diffused large B-cell lymphoma (DLBCL), for refractory or relapsed multiple myeloma and for radioprotection in cancer patients
undergoing therapeutic radiotherapy. Additional oncology and inflammatory disease indications are currently being explored.



DLBCL can affect any age group but occurs mostly in older people
(average age is mid-60s). The most widely used treatment for DLBCL is chemotherapy, usually with a regimen of 4 drugs known as
CHOP (cyclophosphamide, doxorubicin, vincristine, and prednisone), plus the monoclonal antibody rituximab (Rituxan®).
This regimen, known as R-CHOP, is most often given in cycles 3 weeks apart.



According to the American Cancer Society, DLBCL is the most common
subtype of non-Hodgkin’s lymphoma in the U.S., accounting for an estimated 30% of the approximately 72,000 projected non-Hodgkin’s
lymphoma cases to be diagnosed in the U.S. in 2016. The total worldwide sales of DLBCL therapies are estimated to reach approximately
$1.5 billion in 2016 according to GlobalData. There are several drugs in late-stage clinical development for DLBCL.



According to the American Cancer Society, approximately 30,000 new
cases of multiple myeloma will be diagnosed in the U.S. in 2016. The risk of multiple myeloma increases as people age. Most people
diagnosed with this cancer are at least 65 years old and less than 1% of cases are diagnosed in people younger than 35. Standard
treatment options for multiple myeloma include biological therapy, chemotherapy, corticosteroids, stem cell transplantation and
radiation therapy. The total worldwide sales of multiple myeloma therapies are estimated to exceed $12 billion in 2016 according
to GlobalData. There are several drugs in late-stage clinical development for multiple myeloma.





Radiation therapy can cause both acute and chronic side effects.
The side effects that develop depend, among other things, on the area of the body being treated, the dose given per day, the total
dose given, the patient’s general medical condition, and other treatments given at the same time. Acute side effects may
include skin irritation or damage at regions exposed to the radiation beams. The oral cavity is highly susceptible to direct and
indirect toxic effects of cancer chemotherapy and ionizing radiation. According to a 2011 publication by Peterson DE et al., the
incidence of World Health Organization (WHO) grade 3 or 4 oral mucositis in patients receiving high-dose head and neck radiation
(e.g. 6000–7000 Gy) to the oral cavity approaches 85%, but all treated patients have some degree of oral mucositis. There
are currently limited therapeutic options to prevent oral mucositis in cancer patients undergoing radiotherapy. To the best of
our knowledge, several drugs are currently in development for prevention of oral mucositis in cancer patients undergoing radiation
therapy. The most advanced programs undergoing Phase II clinical studies include IZN-6N4, an oral rinse developed by Izun Pharamaceuticals
Corp., GC-4419, a small molecule enzyme replacement developed by Galera Therapeutics, Inc., Brilacidin, a defensin-mimetic antibiotic
developed by Cellceutix Corporation and Cobiprostone, a locally acting chloride channel activator, developed by Sucampo Pharmaceuticals,
Inc.





40




To the best of our knowledge, there is only one other SK2 inhibitor
being developed by SphynKx Therapeutics LLC. According to the SphynKx Therapeutics website, the company’s sphingosine kinase-2
inhibitor program is targeting fibrosis and is currently in pre-clinical development stage of lead optimization.



Clinical Development



ABC-101: Oncology, advanced solid tumors





The last patient completed the final scheduled follow-up visit in
the Phase I study evaluating YELIVATM in advanced solid tumors in the summer of 2015. The Phase I study was conducted at the
Medical University of South Carolina Hollings Cancer Center. The open-label, dose-escalation, pharmacokinetic (PK) and pharmacodynamic
(PD) first-in-human Phase I study of YELIVATM enrolled 22 patients with advanced solid tumors. The study met both its primary
and secondary objectives. The primary objectives were to identify the maximum tolerated dose (MTD) and the dose limiting toxicities
(DLTs) and to evaluate the safety of YELIVATM. The secondary objectives were to determine the pharmacokinetic (PK) and pharmacodynamic
(PD) properties of YELIVATM and to assess its antitumor activity.



Top-line results reported on October 26, 2015 showed that YELIVATM
can be safely administered to cancer patients in doses that provide circulating drug levels that are predicted to have therapeutic
activity, based on levels required in preclinical models. A full analysis and the final clinical study report are expected in the
first quarter of 2016.



The study was supported by grants from the National Cancer Institute
(NCI) and the FDA’s Office of Orphan Products Development (OOPD) awarded to Apogee.





ABC-102: Refractory/relapsed diffused large B-cell lymphoma (DLBCL)



In June 2015, we initiated a Phase I/II study in the U.S. evaluating
YELIVATMin patients with refractory/relapsed diffuse large B-cell lymphoma (DLBCL) was initiated at the Louisiana
State University Health Sciences Center (LSUHSC) in New Orleans.



The study will evaluate the safety and tolerability of YELIVATM,
as well as provide a preliminary evaluation of efficacy of the study drug in patients with refractory/relapsed DLBCL, primarily
patients with HIV-related DLBCL. Up to 33 patients are expected to be enrolled in the study. The study is funded primarily by a
grant awarded to Apogee by the National Cancer Institute Small Business Technology Transfer program. Dr. Chris Parsons, MD, an
associate professor in the Departments of Medicine and Microbiology, Immunology & Parasitology at LSUHSC, is the lead investigator
for the study.



ABC-103: Refractory or relapsed multiple myeloma



We planto initiate a Phase I/II study of YELIVATM for the treatment of
refractory or relapsed multiple myeloma in 2016. The study will be conducted at Duke University Medical Center and is planned to
enroll up to 77 patients. Dr. Yubin Kang, MD, associate professor in the Division of Hematologic Malignancies and Cellular Therapy
in the Department of Medicine at Duke University School of Medicine, will be the lead investigator for the study, which received
Institutional Review Board approval from Duke University. The study is funded primarily by a grant awarded by the National Cancer
Institute Small Business Innovation Research program, awarded to Apogee in conjunction with Duke University.



The primary objectives of the first portion of the study (Phase
I) are to assess safety and determine the maximum tolerated dose in this group of patients. Secondary objectives include assessment
of antitumor activity and determination of the pharmacokinetic (PK) and pharmacodynamic (PD) properties of YELIVATMin
refractory or relapsed multiple myeloma patients.



The primary objectives of the second portion of the study (Phase
II) are to assess the overall treatment response rate and overall survival. Secondary objectives include evaluating the treatment
response of YELIVATM in patients with refractory or relapsed multiple myeloma after three cycles of treatment and evaluation
of pharmacodynamic markers.



ABC-104: Oncology support, radioprotectant. Prevention of radiation-associated
mucositis in the treatment of head and neck cancer.



A Phase II study is planned to evaluate YELIVATM as a radioprotectant
in head and neck cancer patients undergoing therapeutic radiotherapy. We expect to submit this safety and efficacy study with YELIVATM
to the FDA in the second quarter of 2016.





41




The following chart summarizes the clinical trial history status
of YELIVATM:



|Clinical trial
        name |  | Development
        phase of the
        clinical trial |  | Purpose of
        the clinical
        trial                                                                                                                               |  | Clinical
        trial site                              |  | Planned number
        of subjects
        of the trial |  | Nature and status
        of the trial                                                                                               |  | Schedule                                 
|--------------------------- |  | ------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------
|ABC-101                     |  | Phase I                                                 |  | Safety, pharmacokinetic and pharmacodynamic study in patients with advanced solid tumors.                                                                                   |  | Medical University of South Carolina, Charleston, U.S.A. |  | 22
        (fully enrolled)                             |  | Successfully completed. Top-line results indicate the study drug is well tolerated and can be safely administered to cancer patients |  | Clinical study report expected in Q1 2016
|ABC-102                     |  | Phase I/IIa                                             |  | Safety and preliminary efficacy study in refractory or relapsed DLBCL, including patients with virus-induced (e.g., KSHV- or EBV-associated) lymphoma.                      |  | Louisiana State University, New Orleans, U.S.A.          |  | Up to 33                                                |  | Study was initiated.
        Patient enrollment is anticipated                                                                       |  | Initiated June 2015                      
|ABC-103                     |  | Phase Ib/II                                             |  | Safety and efficacy study in patients with refractory or relapsed multiple myeloma that have previously been treated with proteasome inhibitors and immunomodulatory drugs. |  | Duke University, North Carolina, U.S.A.                  |  | Up to 77                                                |  | The study received IRB approval.
        No patients enrolled yet                                                                    |  | Study initiation anticipated             
|ABC-104                     |  | Phase II                                                |  | Safety and efficacy study of YELIVATM in the prevention of mucositis in combination with radiotherapy for treatment of squamous head and neck carcinoma.                     |  | Multicenter study primarily across U.S.                  |  | TBD                                                     |  | Planned                                                                                                                              |  | TBD                                      



We cannot predict with certainty our development costs and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



MESUPRON®



MESUPRON® (INN: upamostat) is a proprietary
small molecule, first-in-class, urokinase-type plasminogen activator (uPA) inhibitor administered by oral capsule.



MESUPRON® inhibits the uPA system, which has
been shown to play a key role in tumor cell growth, invasion and the metastasis process. High uPA levels are associated with poor
prognosis in various solid tumor cancers, such as pancreatic, gastric, breast and prostate cancers. MESUPRON®
presents a promising new non-cytotoxic approach to cancer therapy with several potential mechanisms of action to inhibit both tumor
metastasis and growth.



As mentioned under “– Acquisition and License Agreements
– License Agreement for MESUPRON®”, on June 30, 2014, we signed an exclusive license agreement
for this oncology therapeutic candidate. Under this agreement, we are responsible for all development, regulatory and commercialization
of MESUPRON® in the entire world, excluding China, Taiwan, Macao and Hong Kong.





42




Competition and Market



MESUPRON® an orally-administered first-in-class
urokinase-type plasminogen activator (uPA) inhibitor has been developed for the treatment of solid tumor cancers, including gastrointestinal
cancers with the focus on locally advanced non-metastatic pancreatic cancer.



Pancreatic cancer is the fourth leading cause of mortality in western
countries. It is characterized as a disease with some of the highest unmet need in oncology. According to the World Cancer Research
Fund, with 338,000 new cases diagnosed in 2012 pancreatic cancer is the 12th most common cancer in the world. According
to a report by GlobalData from March 2014, the overall five-year survival rate for the disease is only approximately 5%, representing
one of the poorest prognoses across the gastrointestinal cancers. The total worldwide sales of pancreatic cancer therapies are
estimated to reach approximately $1.6 billion by 2017 according to GlobalData.



According to the same GlobalData report, the majority of pancreatic
cancer cases are diagnosed late, at which point the disease is already locally advanced or metastatic, and these patients are often
frail with co-morbidities. Furthermore, pancreatic cancer is predominately a cancer of the elderly, with the median age of diagnosis
being 71 years in the U.S. These factors result in a significant minority, approximately 20%, of advanced patients being ineligible
for chemotherapy treatment, who are managed with best supportive care (BSC).



Pancreatic adenocarcinoma has some of the highest levels of unmet
needs in the oncology space, which present many challenges for physicians treating pancreatic cancer patients. Surgical resection
remains the only curative method. Patients who are classified as resectable (no regional or distant organ metastasis) are often
treated by surgical intervention, depending on the location of the tumor within the pancreas. Patients with greater than Stage
IIb disease are usually deemed unresectable. Of the unresectable group, the majority of locally-advanced patients are treated in
the same manner as metastatic patients - with treatment choices that are mainly dependent on their performance status.



There are a number of drugs in late-stage clinical development for pancreatic cancer.
To the best of our knowledge, there is currently no uPA inhibitor in late clinical-stage development for this indication. There
are several drugs in late-stage clinical development for pancreatic cancer.



Clinical Development



MESUPRON® has completed several Phase I trials
and two Phase II proof of concept trials. The first Phase II trial in locally advanced non-metastatic pancreatic cancer and the
second trial in metastatic breast cancer established the therapeutic candidate's safety and tolerability profile. The Phase II
trials with MESUPRON® in both indications failed to demonstrate significant improvement in either progression-free
survival or overall survival. While response rates were arithmetically higher in patients receiving MESUPRON®
than in control patients, in no case did these differences approach clinical or statistical significance. A post hoc subgroup analysis
of the breast cancer study suggested that a certain clinically defined subgroup may benefit from MESUPRON®
added to a standard single agent cytotoxic therapy, capecitabine. In the pancreatic cancer study, patients treated with the higher
dose of MESUPRON® along with gemcitabine had a three month longer median overall survival than those treated
with gemcitabine alone, although the difference was not statistically significant. The phase II trials with MESUPRON®
randomized 227 subjects, of which 95 subjects were in the pancreatic cancer study and 132 subjects were in the metastatic breast
cancer study.



None of the prior studies used any molecular markers to target certain
patient populations. Using technologies developed since the original clinical trials were performed, we are currently performing
several preclinical studies, including biomarker analysis and mechanism of action studies. We expect to have initial data from
these preclinical studies in the first half of 2016, which should help us determine the patient populations to be studied in clinical
trials.



We cannot predict with certainty our development costs, and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



RP101



RP101 is a proprietary small molecule, first-in-class, heat shock
protein 27 (Hsp27) inhibitor, administered orally, which may prevent the induction of resistance to chemotherapy (chemoresistance),
thus maintaining sensitivity of the tumor to chemotherapy and potentially enhancing patient survival.



RP101 binds to Hsp27, a chaperone protein which is found in abnormally
high levels in cancer cells, and inhibits its activity. The overexpression of Hsp27, which results in the amplification of a multidrug-resistance
(MDR) gene, has been linked to tumor resistance to cytotoxic drugs and the development of metastasis. Chemoresistance limits the
effectiveness of chemotherapy and can ultimately lead to treatment failure. By inhibiting Hsp27, RP101 may prevent chemoresistance
and enhance the sensitivity of tumors to chemotherapy. RP101 activity is based on a new mechanism of action of the anti-viral drug
brivudine, a nucleoside analogue approved and marketed in several European countries for the treatment of herpes zoster.





43




As mentioned under “– Acquisition and License Agreements
– License Agreement for RP101”, on August 13, 2014, we entered into a binding exclusive option agreement for the acquisition
of the oncology therapeutic candidate RP101 and next generation compounds. Under the terms of the agreement, we have a one year
option to acquire the exclusive worldwide rights to RP101 for all indications, other than for the pancreatic cancer indication
in South Korea. The one year option was extended for an additional year in July 2015. During the option period, we have conducted
development activities with RP101.



Competition and Market



RP101 orally-administered nucleoside analogue has been shown to
bind to heat shock protein 27 (Hsp27) and inhibit its anti-apoptotic effects. RP101 has been studied as an adjunct treatment of
pancreatic cancer with potential applicability to other gastrointestinal cancers.



Please see MESUPRON® Competition and Market section
for information on the pancreatic cancer market.



To the best of our knowledge, the only other Hsp27 inhibitor in
development for oncology indications is Apatorsen (OGX-427), developed by OncoGeneX Pharmaceuticals Inc. According to OncoGenX’s
presentation from November 2015, it is conducting a total of seven randomized Phase II studies with Apatorsen in oncology indications,
including an investigator-sponsored Phase II study in metastatic pancreatic cancer which has been completed. The results from this
study demonstrated that the addition of Apatorsen to ABRAXANE and gemcitabine did not demonstrate a survival benefit compared to
ABRAXANE and gemcitabine alone.



Clinical Development



RP101 has completed several Phase I and Phase II clinical trials
with a total of 249 subjects treated, including Phase II trials in pancreatic cancer.



RP101 has been granted Orphan Drug designation for the adjunct treatment
of pancreatic cancer by the FDA and the European Medicines Agency EMA.



As part of the RP101 global development program and regulatory strategy,
we are currently performing several preclinical studies, including studies in immunodeficient mice engrafted with pancreatic cancer
tumor cell lines.  We expect to have initial data from these preclinical studies in the first half of 2016, which will allow
us to make a decision regarding clinical trials.



We cannot predict with certainty our development costs, and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



RIZAPORT TM



RIZAPORTTM is an oral thin film formulation of rizatriptan
intended for the treatment of acute migraine headaches. Migraines are generally treated through the usage of triptans, a class
of molecules that narrow (constrict) blood vessels in the brain in order to relieve swelling and other migraine symptoms. Examples
of triptans include sumatriptan, zolmitriptan and rizatriptan, the active pharmaceutical ingredient in RIZAPORTTM.



RIZAPORTTM is based on a patented technology called “VersaFilmTM.” This technology allows the production
of thin film strips that dissolve rapidly in the mouth, allowing the drug to be absorbed through the oral mucosa and into the bloodstream.
The proprietary VersaFilmTM technology is a novel, non-mucoadhesive, fast dissolving oral dosage form.



The VersaFilmTM platform offers potential advantages that include
fast absorption of the drug and the convenience of use compared to conventional tablets.



We acquired the rights to RIZAPORTTM under an August 26, 2010
joint development and commercialization agreement with IntelGenx Corp., pursuant to which we received a worldwide, exclusive and
perpetual license to various patent rights and know-how related to RIZAPORTTM. See “– Acquisition and License
Agreements – License Agreement for RIZAPORTTM”.



Competition and Market



To the best of our knowledge, the main marketing competitors of
RIZAPORTTM are oral drugs from the triptan family (5-HT 1B/1D serotonin agonists), such as rizatriptan from Merck
and Co., Inc., which is marketed in the U.S. under the name of Maxalt® and in generic form since 2012, and sumatriptan,
produced by GlaxoSmithKline and marketed in the U.S. as Imitrex® and in generic form since 2006. According to a
report from GlobalData, the prevalence of migraines in the U.S. is estimated to reach over 30 million cases in 2016. The target
market for RIZAPORTTM was estimated at approximately $697 million worldwide in 2015 according to an annual sales
report from EvaluatePharma, a leading market intelligence and information resource.





44




In December 2012, the patent on rizatriptan expired and as of the
date of this filing, there are various generic versions of Maxalt® and of Maxalt MLT® available for prescription.



We believe that RIZAPORTTM could compare favorably
to the other triptan drugs due to the fact that it is delivered through oral dissolution, rather than through conventional tablets.
This feature may be especially advantageous to patients suffering dysphagia, and to patients who suffer from migraine-related nausea,
which according to an article published by Lipton RB et al. is estimated to affect 80% of all of total migraine population.
We believe that RIZAPORTTM will also be advantageous to patient populations such as geriatrics who often struggle
with swallowing capsules with water.



Clinical Development



In April 2012, we completed, together with our development partner
IntelGenx Corp. a bioequivalence clinical study to examine the pharmacokinetic equivalence between the soluble film of RIZAPORTTM
and rizatriptan of Merck & Co. Inc. (Maxalt MLT®), using 26 volunteers. The final results of the clinical trial, demonstrated
that RIZAPORTTM met its specified endpoints and the FDA criteria in all parameters for bioequivalence with rizatriptan of
Merck & Co. Inc. (Maxalt MLT®).



In March 2013, together with IntelGenx Corp., we filed a New Drug
Application (NDA) with the FDA for U.S. marketing approval under the 505(b)(2) regulatory path for RIZAPORTTM.



On February 4, 2014, together with IntelGenx Corp., we announced
the receipt of a complete response letter from the FDA indicating that certain matters would need to be addressed prior to obtaining
approval for marketing. These matters related primarily to third party chemistry, manufacturing and controls (CMC) issues, as well
as to packaging and labeling of the film. The FDA’s letter did not raise any safety issues or questions regarding the results
of the clinical trials. On March 3, 2014, together with IntelGenx Corp., we responded to the FDA’s complete response letter
and in response, the FDA requested additional CMC data. In relation to the FDA response, we were also informed that a supplier
of raw material for RIZAPORTTM was having compliance discussions with the FDA that are not specific to RIZAPORTTM.



In April 2014, together with IntelGenx Corp., we initiated a comparative
bioavailability study with RIZAPORTTM and the European reference drug Maxalt® lingua marketed in Germany by MSD Sharp
& Dohme GMBH, based on a positive European Scientific Advice meeting with the German Federal Institute for Drugs and Medical
Devices (BfArM) regarding RIZAPORTTM that took place in 2013. In May 2014, together with IntelGenx Corp., we announced the
successful completion of the clinical trial that demonstrated bioequivalence based on the criteria discussed with BfArM.



Based on the data from that trial, we submitted a Marketing
Authorization Application (MAA) to BfArM, as the reference member state under the European Mutual Recognition Procedure. In October
2015, BfArM informed us that the MAA had been approved. Approval from Luxembourg is anticipated during the first half of 2016.





The following chart summarizes the clinical trial history status
of RIZAPORTTM:



|Clinical trial
        name |  | Development
        phase of the
        clinical trial |  | Purpose of
        the clinical
        trial |  | Clinical
        trial site |  | Number
        of subjects
        of the trial |  | Nature and status
        of the trial                                                                                                         |  | Schedule            
|--------------------------- |  | ------------------------------------------------------- |  | --------------------------------------------- |  | --------------------------- |  | ----------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------
|PLT--008-09                 |  | Phase I                                                 |  | PK comparison with a parallel product         |  | RA Chem Pharma, India       |  | 10                                              |  | The trial was performed and indicated similarity between the PK profile of the therapeutic candidate  and the profile of the reference product |  | Completed in 2009   
|RZA-P9-688                  |  | Comparative Bioequivalence                              |  | PK comparison
        with Maxalt MLT®        |  | Algorithme Pharma, Canada   |  | 26                                              |  | Successfully completed the study demonstrating bioequivalence as defined by the FDA                                                            |  | Completed in Q2 2012
|RZA-P3-697                  |  | Comparative Bioequivalence                              |  | PK comparison
        with Maxalt® Lingua     |  | Algorithme Pharma, Canada   |  | 26                                              |  | Successfully completed the study demonstrating bioequivalence as defined by the European Medicines Agency                                      |  | Completed in Q3 2014



45




Together with IntelGenx Corp., we are working diligently on a variety of options to ensure continued supply of the raw material.



We cannot predict with certainty our development costs and they
may be subject to changes. See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial Condition
and Capital Requirements.”



Acquisition and License Agreements



Acquisition of RHB-104, RHB-105 and RHB-106



On August 11, 2010 we entered into an asset purchase agreement with
Giaconda Limited, a publicly traded Australian company, pursuant to which Giaconda Limited transferred all of its patents, tangible
assets, production files, regulatory approvals and other data related to the “Myoconda”, “Heliconda” and
“Picoconda” products to us. We renamed these products RHB-104, RHB-105 and RHB-106, respectively. Giaconda Limited
further transferred to us products in process, product samples and raw materials, as well as certain rights of first refusal with
respect to intellectual property in relation to digestive condition treatments. The agreement excluded the transfer of the rights
to two other products of Giaconda Limited that are not related to RHB-104, RHB-105 and RHB-106. However, to the extent that the
intellectual property associated with these two other products shall be required for the research, development, manufacture, registration,
import/export, use, commercialization, distribution, sale and/or offer for sale of any of RHB-104, RHB-105 and RHB-106, Giaconda
Limited granted us an exclusive worldwide assignable right to such intellectual property for such purposes. The closing of this
agreement occurred on August 26, 2010.



In consideration for the assets purchased by us, we paid Giaconda
Limited $500,000. We and Giaconda Limited also agreed that until the expiration of the last patent transferred to us, we will pay
to Giaconda Limited 7% of net sales from the sale of the products by us and 20% of the royalties received from sublicensees, in
each case, only after we recoup the amounts and expenses exceeding an approved budget.



Under the agreement, it was agreed that none of Giaconda Limited
or, the developer of the products, nor their respective affiliates may compete with us or assist others to compete with us
with respect to the products and acquired technology. Such non-compete undertaking shall be in force for a period of time of up
to 10 years from the date of the agreement.



The agreement provides that, should we elect not to proceed with
the registration proceedings or the maintenance of any patent transferred to us, we will notify Giaconda Limited and Giaconda Limited
will have the right to proceed with the registration, maintenance, development and commercialization of such patent at its expense.
Should Giaconda Limited exercise such right, it will be entitled to all amounts received in connection with sales relating to such
patent.



The agreement also requires us to make a good faith, continuous
and commercially reasonable effort to allocate appropriate financial resources to prepare, initiate and complete the clinical development
of the products (with the exception of Picoconda) and file an application for regulatory marketing approval in accordance with
industry standards. Development failures, negative regulatory decisions, and/or other reasons beyond our control will not constitute
a breach of this obligation. Should we breach this obligation with respect to the development of any of the products, and fail
to cure the breach within 90 days from the date that Giaconda Limited sends us a default notice, Giaconda Limited may buy back
all of the intellectual property rights with respect to such product for the original purchase price, plus the related development
costs incurred by us through the date of the buy-back.



In connection with the license agreement with Salix (later acquired by Valeant), dated February 27, 2014,
described below, we amended the asset purchase agreement and related agreements by excluding from the non-compete undertakings
of Giaconda and certain of its affiliate products, technology and related activities in the purgative
field and excluded from such non-compete undertakings certain of Giaconda's affiliates.





46




License Agreement for BEKINDATM



In March 2014, we entered into a License Agreement with Temple University
to directly secure rights to patents related to BEKINDATM. Previously, these rights were licensed to us from SCOLR, which
announced that they had ceased business operations in 2013. The agreement with Temple University replaced our previous license
agreement with SCOLR Pharma Inc. (SCOLR). SCOLR had itself licensed those patents from Temple University, the original owner of
the patents. Under the agreement with Temple University, we will continue to develop its BEKINDATM formulation and pursue
commercialization options once relevant.



License Agreement for YELIVATM



On March 31, 2015 we entered into an exclusive license agreement with Apogee,
a privately-held biotech company located in Hummelstown, Pennsylvania, U.S., under which Apogee granted us the exclusive, world-wide
development and commercialization rights to ABC294640 (which we then renamed to YELIVATM) and additional intellectual property
rights. YELIVATM is a proprietary, first-in-class, orally-administered sphingosine kinase-2 (SK2) inhibitor, with anti-inflammatory
and anti-cancer activities, targeting multiple inflammatory, gastrointestinal (GI) and oncology indications. Under the terms of
the agreement, we agreed to pay Apogee an upfront payment of $1.5 million, as well as an additional amount of $2 million which
will be paid on the earlier of (i) a specific date or (ii) reaching a specific development milestone. In addition, we undertook
to pay up to an additional $2 million in potential development milestone payments, and potential tiered royalties starting in the
low double-digits. Such potential royalties are due until the later of (i) the expiration of the last to expire licensed patent
that covers the product in the relevant country; and (ii) the expiration of regulatory exclusivity in the relevant country. Through
December 31, 2015, we paid Apogee the initial amount of $1.5 million and recognized an amount of $2 million as a current liability.
The license agreement will stay in effect as of its effective date unless terminated earlier as described in the agreement. We
are entitled to terminate the agreement at any time upon 30 day prior written notice to Apogee. The agreement also provides for
the right of termination for each party in the event of a material breach committed by the other party.



License Agreement for MESUPRON®



On June 30, 2014 we entered into an exclusive license agreement with Wilex AG, a German biopharmaceutical
company focused on oncology (Wilex) under which Wilex granted us the exclusive development and commercialization rights, throughout
the world for all indications excluding China, Hong Kong, Taiwan and Macao, to MESUPRON®, a small molecule,
proprietary, urokinase-type plasminogen activator (uPA) inhibitor administered by oral capsule.



In consideration for the license we paid Wilex an upfront payment
of $1 million. We have agreed to pay Wilex tiered royalties on net revenues, ranging from mid-teens up to 30%.



The license agreement will stay in effect as long as we are required
to make royalty payments. We are entitled to terminate the agreement at any time on 30 days written notice to Wilex. The agreement
also provides right of termination for each party in the event of a breach.



License Agreement for RP101



On August 13, 2014, we entered into a binding exclusive option agreement
for the acquisition of the oncology therapeutic candidate RP101 and next generation compounds, with RESprotect GmbH, a German privately-held
biopharmaceitucal company (RESprotect). In July 2015, we extended the term of the exclusive option agreement for an additional
year. RP101 is a proprietary, first-in-class, heat shock protein 27 (Hsp27) inhibitor, administered orally. Under the terms of
the agreement, we have the option to acquire the worldwide exclusive rights to RP101 for all indications, other than for the pancreatic
cancer indication in South Korea.



In consideration for the option, we paid RESprotect for a one year
option, and we paid RESprotect for the one year extension. During the option period, which includes the extended option period,
we are entitled, at our discretion, to conduct development activities with RP101. If we elect to exercise the option, we will acquire
the exclusive rights to RP101 for a total payment of $100,000, covering both the option and the acquisition of the rights. We also
undertook to pay future potential milestone payments and tiered royalties on net revenues, ranging from single-digits to mid-teens.



The option agreement will terminate upon the earlier of (i) exercise
of the option and subsequent execution of the respective Asset Purchase Agreement, (ii) expiry of the extended option period, and
(iii) by written notice of termination by us, at our full discretion for any reason at any time during the option period.





47




License Agreement for RIZAPORTTM



On August 26, 2010, we entered into a joint development and commercialization
agreement with IntelGenx Corp. under which IntelGenx Corp. granted us a worldwide, exclusive and perpetual license to use its rights
in patents and know-how relating to a triptan formula based on the VersaFilmTM technology and which we call RIZAPORTTM.



The license includes the right to grant sublicenses. The license
covers the co-developing, selling, offering for sale and importing the product for all indications, including, but not limited
to, acute treatment of migraine attacks with or without an aura and all other therapeutic, diagnostic, and other human or animal
uses.



The license provides that IntelGenx Corp. reserves the right to
grant licenses to manufacture the product, subject to the approval of a steering committee. The agreement further limits our right
to grant sublicenses by requiring that we give prior notice to IntelGenx Corp. of the identity of any proposed sub-licensee and
provide IntelGenx Corp. with information regarding the main elements of the proposed sublicense agreement. If IntelGenx Corp. objects
to a sublicense, the proposed sublicense will be presented for the approval of a steering committee.



Pursuant to the agreement,   as amended, the parties agreed
on joint product development activities. Accordingly, IntelGenx Corp. agreed to devote sufficient resources (subject to the approved
budget in the agreement) in order to conduct clinical trials and file an application with the FDA for marketing of the product,
and we agreed to finance the balance of the development in the amount of approximately $1.2 million.



The joint development of the product is to be conducted through
a steering committee, comprised of an equal number of members appointed by us and IntelGenx Corp. The committee is charged with
supervising progress of our research and development efforts, reporting on possible delays and deciding on required revisions in
the plan. IntelGenx Corp. has the deciding vote in any vote relating to issues of development, regulation and manufacture, while
we have the deciding vote in any vote relating to issues of licensing, commercialization and collaborations. In consideration for
the license, we made up-front and milestone payments in the aggregate amount of $800,000 and we are required to make additional
milestone payments of up to $500,000 upon receipt of FDA marketing approval for the product.



In addition, we are required to make royalty payments to IntelGenx
Corp. of 20% of net sales if the product is marketed by us and 60% of the first $2 million of net sublicense fees, and 40% of net
sublicensing fees thereafter, if the product is marketed by sublicensees. However, if we bear the regulatory costs in a sublicense
arrangement, royalties will be 20% of net sublicense fees until we recover these costs, plus 10% interest, and if IntelGenx Corp.
bears such costs, royalties will be 70% of net sublicense fees.



The agreement provides that all intellectual property developed
or to be developed exclusively by IntelGenx Corp. will belong exclusively to IntelGenx Corp. and will be licensed to us, and the
intellectual property to be developed or financed jointly by IntelGenx Corp. and us will be jointly owned by us and IntelGenx Corp.,
and each party may make use of such joint intellectual property for uses not competing with either the product or the other party.



The agreement is of unlimited duration and will remain in force
until terminated in accordance with its terms. Either party may terminate the agreement if (i) the other party is in material breach
and does not cure within ninety (90) days; or (ii) a bankruptcy or liquidation event occurs with respect to the other party. This
agreement also provides that we may terminate the agreement for convenience upon providing thirty (30) days written notice to IntelGenx
Corp.



License Agreement for MAP diagnostic test related to RHB-104



On September 18, 2011, we entered into a license agreement with
the University of Central Florida Research Foundation, Inc. pursuant to which we were granted an exclusive license for all indications
and medical uses to a patent-protected diagnostic test that identifies the presence of MAP bacterial DNA in peripheral blood through
DNA testing. The license covers future commercial use of the test, including its manufacture, marketing, sale and commercialization.



Under the agreement, we may grant sublicenses for the test with
the consent of the University of Central Florida Research Foundation, Inc., from whom consent may not be unreasonably withheld.



To date, in consideration for the license, we have made payments
in the aggregate amount of $90,000, and are required to make additional annual minimum royalty payments of $35,000 in each subsequent
year until the last patent covered by the agreement expires. These annual minimum payment amounts will be deducted from future
royalty payments.



In addition, we are required to make royalty payments equal to payments
7% of future sales, or an annual minimum amount noted above, as well as 20% of payments we receive from granting sublicenses.





48




The agreement will remain in force on a country by country basis
until the last patent covered by the agreement expires. The University of Central Florida Research Foundation may terminate the
agreement if (i) we are in material breach; (ii) if we fail to pay royalties when due and payable following provision of sixty
(60) days notice; or (iii) a bankruptcy or liquidation event occurs with respect to us.  We may terminate the agreement
at any time by providing ninety (90) days written notice to the University of Central Florida Research Foundation.



License Agreement with University
of Minnesota related to MAP diagnostic test for RHB-104



On December 18, 2014, we announced that we licensed certain diagnostic
technology from the University of Minnesota. This transaction is part of our efforts to develop a validated and precise method
of detecting Mycobacterium avium subspecies paratuberculosis (MAP), which we believe plays an important role in Crohn’s disease
and potentially other diseases.  Under the terms of the agreement, we paid the University of Minnesota a one-time upfront
payment and are required to make an additional milestone payment. We are developing a diagnostic test for MAP in conjunction with
Q Squared.



Exclusive License Agreement with Valeant Pharmaceuticals International,
Inc.



On February 27, 2014 we entered into a worldwide exclusive license
agreement with Salix Pharmaceuticals, Ltd. (later acquired by Valeant Pharmaceuticals International, Inc.) by which Salix licensed
the worldwide exclusive rights to our RHB-106 encapsulated formulation for bowel preparation, and rights to other purgative developments.
Pursuant to the agreement, we granted Salix the right to develop and commercialize RHB-106 and/or the related rights.



Additionally, we waived any applicable rights of first refusal granted
to us by Giaconda Limited and its affiliates in our August 2010 asset purchase agreement transaction with respect to intellectual
property in relation to digestive condition treatments.



Pursuant to the agreement, we received an up-front payment of $7
million and are entitled to an additional amount of up to $5 million in subsequent milestone payments. In addition, as part of
the terms of the agreement, Salix agreed to pay us tiered royalties on net sales, ranging from low single-digit up to low double-digits.



Other than with respect to the rights granted to us, as described
below, we agreed, during the term of the agreement, not to compete in the purgative field.



Salix granted us an option to commercialize certain of the products
of Salix, in pre-determined territories. This right is subject to such products being available for distribution in the applicable
territories and Salix's agreement to a potential exclusive distribution arrangement with us. We were granted exclusivity as to
the commercialization right under the option, for a limited period, which has since expired.



The agreement expires on the date the royalties are no longer payable
in connection with RHB-106 and/or related rights.  Following expiration of the agreement, the rights granted under the
agreement shall become fully-paid, perpetual, royalty-free and irrevocable.  We have the right, following notice to Valeant,
to terminate the agreement in the event that Valeant does not pursue the development of RHB-106 or related rights. This termination
right is effective until the date on which all subsequent milestone payments referred to above have been paid to us.



Master Service Agreement with 7810962 Canada Inc.



On April 28, 2011, we entered into a master service agreement, which
was later amended, with 7810962 Canada Inc., our Canadian service provider for various project management services. The agreement
allowed our Canadian service provider to enter into service agreements with third parties for the relevant services. The agreement
may be terminated by either party upon 30 days’ advance notice.



The agreement with our Canadian service provider provides that certain
research and development services related to our projects will be carried out pursuant to our specific requests and upon the signing
of specific agreements for each project. Such agreements shall include a description of the required services, service terms and
fees. To date, we, through our Canadian service provider, have entered into manufacturing, clinical services and regulatory agreements
mainly related to RHB-104.



Furthermore, pursuant to the agreement, the Canadian service
provider may provide us with a discount to the research and development services with respect to incentives programs from various
authorities that may be granted to the Canadian service provider in the future. As of December 31, 2015, the estimated discount
we will receive from our Canadian service provider is approximately $0.2 million.



Clinical Services Agreements



Clinical Services Agreement related to RHB-104





49




On June 15, 2011, we entered into an agreement with our Canadian
service provider which entered into a back-to-back agreement with inVentiv Health (f/k/a PharmaNet Canada Inc.), a subsidiary of
an international CRO company, and other related entities, for the purpose of performing the clinical trial for RHB-104. InVentiv
Health is a leading provider of global drug development services to pharmaceutical and biotechnology companies, offering therapeutically-specialized
capabilities for Phase I-IV clinical development, and pursuant to the agreement, is responsible for the performance of the clinical
trial, including entering into agreements with medical centers to perform the trial, supervision of the performance and progress
of the trial and the analysis of the results, all pursuant and subject to applicable regulatory requirements.



Pursuant to this agreement and subsequent amendments, inVentiv Health
is entitled to receive $7.4 million in connection with the MAP US Phase III clinical trial as well as reimbursement of investigator
grant costs and pass-through costs to be paid during the trial for an estimated amount of about $5.8 million. The payments will
be spread over the period of the clinical trial based upon quarterly administration fees and milestone payments based on patient
recruitment, completion of subject dosing and report preparation, investigators grants paid to research centers that participate
in the trial, as well as reimbursements of certain expenses. These fees, however, may vary widely from time to time in accordance
with the final clinical trial protocol, length of the study and payments to be made to third parties, such as investigator grants
costs.



The agreement includes a timetable for the recruitment of patients,
performance of the trial and analysis of results, including a timetable for the performance of ongoing patient follow-up. Such
timetables may vary as a result of possible delays in recruitment of patients for the clinical trial.



The agreement will remain in force until all relevant services have
been provided and we have made all payments thereunder, or until terminated. Either party may terminate the agreement (i) if the
other party is in material breach and does not cure within thirty (30) days; or (ii) upon a bankruptcy or liquidation event with
respect to the other party. This agreement also provides that we may terminate the agreement at any time without cause upon providing
forty five (45) days written notice to our Canadian service provider.



Intellectual Property



Our success depends in part on our
ability to obtain and maintain proprietary protection for our technology and therapeutic candidates, its therapeutic applications,
and related technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from
infringing our proprietary rights. Our policy is to 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 are important to the development
of our business. We also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain our
proprietary position. We vigorously defend our intellectual property to preserve our rights and gain the benefit of our technological
investments. We have rights either through assignment, asset purchase or in-licensing to a
total of approximately 360 issued patents and 115 patent applications. The patents and patent applications are registered in the
U.S. and other key jurisdictions, the details of each family of patents being provided below. In addition, we have licensed rights
to various platform technologies on a non-exclusive basis.



The patent positions of companies such as ours are generally uncertain
and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology
will depend on our success in obtaining effective claims and enforcing those claims once granted.



RHB-105



RHB-105 is protected by two patent families. The first patent family,
titled “Improved Method of Eradication of H.pylori”, was acquired as part of our asset purchase agreement with
Giaconda Limited, and provides patent protection until 2019.



The second patent family, titled “Pharmaceutical Compositions
for the Treatment of Helicobacter Pylori”, was filed by us and will provide patent protection until 2034.



RHB-104 – Inflammatory Bowel Disease



RHB-104 for Inflammatory Bowel Disease
is protected by two patent families. The first patent family, titled “Methods and Compositions for Treating Inflammatory
Bowel Disease”, was acquired as part of our asset purchase agreement with from Giaconda Limited, and provides patent protection
until 2018.



The second patent family, titled “Method and Composition for
Treating Inflammatory Bowel Disease”, was filed by us and will provide patent protection until 2029.





50




We have also in-licensed from the University of Central Florida
Research Foundation Inc. (UCF) U.S. Patent No. 7,488,580 entitled “Protocol for Detection of the Intracellular Infection
Myobacterium Avium Paratuberculosis in Blood”, which will expire in H1 2026. This patent relates to a method and kit
for detection of intracellular MAP infection in blood and blood derivative samples from humans by culture and PCR. The technology
can screen for MAP in blood samples from patients having inflammatory and non-inflammatory bowel disease and the results used to
identify those patients for appropriate treatment with antibiotics. The method and kit allows monitoring and evaluation of the
outcome of antibiotic therapy.



Further, we have in-licensed U.S. Patent Nos. 7,074,559 and 7,867,704
from The University of Minnesota entitled “Mycobacterial Diagnostics”.  One U.S. patent will expire in 2022,
and the other U.S. patent will expire in 2026. The acquired diagnostic technology is intended for the detection of Mycobacterium
avium subspecies paratuberculosis (MAP) bacterium.





RHB-104 – Autoimmune Diseases



Another patent family that we filed relates to “A Composition
and Method for Treating an Autoimmune Disease” and covers compositions comprising effective amounts of rifabutin, clarithromycin
and clofazimine to enable treatment of an autoimmune disease by targeting cytokines or cytokine receptors. This patent family,
if issued, would provide patent protection for methods of treating autoimmune diseases, such as MS, with RHB 104, up until 2034.



BEKINDATM - Gastritis, Gastroenteritis and IBS-D



BEKINDATM for gastroenteritis and other conditions is protected
by one patent family that was filed by us, entitled “Ondansetron Extended Release Solid Dosage Forms for Treating Either
Nausea, Vomiting or Diarrhea Symptoms”, and if issued would provide patent protection through 2035.



BEKINDATM - Oncology Support



BEKINDATM for oncology support is protected by two patent families.



The first patent family was, in-licensed by us from Temple University
and is entitled “Monolithic tablet for controlled drug release”, with a US patent expiry date in 2018. This patent
relates to formulations based on a swellable hydrodynamically balanced monolithic matrix.



The second patent family, filed by us, is entitled “Antiemetic
Extended Release Solid Dosage Forms", and if issued would provide patent protection through 2034.





RHB-106 - Colonic Evacuation



RHB-106 includes three patent families .The first and second patent
families, titled “Picodulfate-containing preparation for colonic evaluation” and “Administering osmotic colonic
evacuant containing a picosulfate”, were acquired from Giaconda Limited as part of our asset purchase agreement. These patents
provide patent protection until 2016 and 2018, respectively.



The third patent family was filed by us and is titled “Formulations and Methods
of Manufacturing Formulations for use in Colonic Evacuation”. If issued, this patent will provide protection until 2033.



We are party to an exclusive agreement by which Salix (later acquired
by Valeant). licensed the worldwide exclusive rights to the RHB-106 patent portfolio. As part of the agreement, Salix is responsible
for the patent families related to RHB 106.



YELIVATM - Inflammatory, Oncology, and Gastrointestinal
Indications



This patent portfolio was in-licensed by us from Apogee Biotechnology Corp. YELIVATM
(ABC294640) is a first-in-class, proprietary sphingosine kinase-2 (SK2) inhibitor, administered orally, with anti-cancer and anti-inflammatory
activities, targeting a number of potential inflammatory, oncology and gastrointestinal indications.



YELIVATM includes three patent families. The first, titled
“Sphingosine Kinase Inhibitors”, provides patent protection through 2028. The second patent family, titled “Methods
for the Treatment and Prevention of Inflammatory Diseases”, provides patent protection through 2030. The third patent family,
titled “Sphingosine Kinase Inhibitor Prodrugs”, provides patent protection through 2031.





51




These patents relate to sphingosine kinase inhibitors, pharmaceutical
compositions, methods of preparing the inhibitors, methods of treating inflammatory diseases using the inhibitors, methods of treating
cancer using the inhibitors, and methods of inhibiting sphingosine kinase.



MESUPRON® – Oncology



This patent portfolio was in-licensed by us from Wilex AG. MESUPRON®
is a first-in-class urokinase-type plasminogen activator (uPA) inhibitor administered by oral capsule.



The first patent family relates to crystalline modifications of
N- a -(2,4,6-triisopropylphenylsulfonyl)-3-hydroxyamidino-(L)-phenylalanine 4-ethoxycarbonylpiperazide
and/or salts thereof, which can be used as pharmaceutical agents, and to pharmaceutical compositions and pharmaceutical uses comprising
these novel crystalline modifications. The patents in this family will expire in 2025.



The second patent family relates to Urokinase inhibitor compounds.
The patents in this family will expire in 2024.



The third patent family relates to methods for the production of
phenylalanine derivatives. The patents in this family will expire in 2023.



The fourth patent family relates to methods for producing phenylalanine
derivatives. The patents in this family will expire in 2025.



The fifth patent family relates to a method for producing phenylalanine
derivatives. The U.S. patent will expire October 24, 2025.



The sixth patent family relates to Urokinase Inhibitors. The patents
in this family will expire in 2019.



The seventh patent family relates to a method of preparing methylhydroxyalkylcellulose.
The U.S. patent will expire September 15, 2026.



The eight patent family relates to formulations for phenylalanine
derivatives. The patents in this family will expire in 2025.



The ninth patent family relates to Urokinase inhibitors. The patents
in this family will expire in 2018.



RP101 – Oncology



In August 2014, we entered into a binding exclusive option agreement
for the acquisition of RP101 and next generation compounds which was extended for an additional twelve months in July 2015. RP101
is an orally administered small molecule which binds to Hsp27, a chaperone protein which is found in abnormally high levels in
cancer cells and inhibits its activity.



The first patent family relates to 5' substituted nucleosides and
the patents in this family will expire in January 2016.



The second patent family relates to nucleosides and patents issuing
from this family will expire in 2027.



The third patent family relates to uracil derivatives. The patents
issuing from in this family will expire in 2029.



RIZAPORTTM - Acute Migraines



We have in-licensed from IntelGenx Corp., three issued U.S. patents,
three pending U.S. non-provisional patent applications, and 15 pending international patent applications covering various aspects
of the VersaFilmTMtechnology.



Government Regulations and Funding



Pharmaceutical companies are subject to extensive regulation by
national, state and local agencies such as the FDA in the U.S., the Ministry of Health in Israel, or the European Medicines Agency
(EMA). The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the
U.S. and various foreign countries. Additionally, in the U.S., we must follow rules and regulations established by the FDA requiring
the presentation of data indicating that our products are safe and efficacious and are manufactured in accordance with current
good manufacturing practices (cGMP) regulations. If we do not comply with applicable requirements, we may be fined, the government
may refuse to approve our marketing applications or not allow us to manufacture or market our products, and we may be criminally
prosecuted. We and our manufacturers and clinical research organizations may also be subject to regulations under other federal,
state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and
Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries.
The U.S. government has increased its enforcement activity regarding illegal marketing practices domestically and internationally.
As a result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare
fraud and abuse laws, including the False Claims Act.





52




These regulatory requirements impact our operations and differ in
one country to another, so that securing the applicable regulatory approvals of one country does not imply the approval in another
country. However, securing the approval of a more stringent body, i.e. the FDA, may facilitate receiving the approval by
a regulatory authority in a different country where the regulatory requirements are similar or less stringent. The approval procedures
involve high costs and are manpower intensive, usually extend over many years and require highly skilled and professional resources.



U.S. Food and Drug Administration Approval Process



The steps required to be taken before a new drug product candidate
may be marketed in the U.S. generally include:



|· | completion of pre-clinical laboratory and animal testing;
|- | ---------------------------------------------------------

|· | the submission to the FDA of an investigational new drug, or IND, application which must be evaluated and found acceptable by the FDA before human clinical trials may commence;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug product candidate for its intended use; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | submission and approval of an NDA.
|- | ----------------------------------



Clinical studies are conducted under protocols detailing, among
other things, the objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs,
dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated.
A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND.



In all the countries that are signatories of the Helsinki Declaration
(including Israel), the prerequisite for conducting clinical trials (on human subjects) is securing the preliminary approval of
the competent authorities of that country to conduct medical experiments on human subjects in compliance with the other principles
established by the Helsinki Declaration.



The clinical testing of a drug product candidate generally is conducted
in three sequential phases prior to approval, but the phases may overlap or be combined. A fourth, or post approval, phase may
include additional clinical studies. The phases are generally as follows:



Phase I. In Phase I clinical studies, the drug product candidate
is tested in a small number of patients with the target condition or disease or in healthy volunteers. These studies are designed
to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the drug product candidate in humans, side effects
associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in
Phase I studies is generally in the range of 20 to 80.



Phase II . In Phase II studies, in addition to safety, the
sponsor evaluates the efficacy of the product candidate on targeted indications to determine dosage tolerance and optimal dosage
and to identify possible adverse effects and safety risks. Phase II studies typically are larger than Phase I but smaller than
Phase III studies and may involve several hundred participants



Phase III . Phase III studies typically involve an expanded
patient population at geographically-dispersed test sites. They are performed after preliminary evidence suggesting effectiveness
of the product candidate has been obtained and are designed to further evaluate clinical efficacy and safety, to establish the
overall benefit-risk relationship of the product candidate and to provide an adequate basis for a potential product approval. Phase
III studies usually involve several hundred to several thousand participants.



Phase IV. Phase IV clinical trials are post marketing
studies designed to collect additional safety data as well as potentially expand a product indication. Post marketing commitments
are required of, or agreed to by, a sponsor after the FDA has approved a product for marketing. These studies are used to gain
additional information from the treatment of patients in the intended therapeutic indication and to verify a clinical benefit in
the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical
trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part
of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase IV post-approval or post marketing
commitments. Failure to promptly conduct Phase IV clinical trials could result in the inability to deliver the product into interstate
commerce, misbranding charges, and civil monetary penalties.





53




Clinical trials must be conducted in accordance with the FDA’s
good clinical practices, or GCP, requirements. The U.S. Food and Drug Administration may order the temporary or permanent discontinuation
of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance
with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board,
or IRB, generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and
also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose
other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the
clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may
move forward at designated check points based on access to certain data from the study. The clinical study sponsor may also suspend
or terminate a clinical trial based on evolving business objectives and/or competitive climate.



As a product candidate moves through the
clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and
validation required by the FDA would generally increases as clinical studies progress. We and the third-party manufacturers on
which we rely for the manufacture of our product candidates and their respective components (including the active pharmaceutical
ingredient, or API) are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. To comply
with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel,
facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements.



Assuming completion of all required testing in accordance with all
applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA in the form of an NDA,
requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA
includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as
well as positive findings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among
other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety
and efficacy of the product candidate for its intended use to the satisfaction of the FDA



If an NDA submission is accepted for filing, the FDA begin an in-depth
review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and
respond to the applicant within twelve months of submission, unless the application relates to an unmet medical need in a serious
or life-threatening indication, in which case the goal may be within eight months of NDA submission. However, PDUFA goal dates
are not legal mandates and FDA response often occurs several months beyond the original PDUFA goal date. Further, the review process
and the target response date under PDUFA may be extended if the U.S. Food and Drug Administration requests or the NDA sponsor otherwise
provides additional information or clarification regarding information already provided in the NDA. The NDA review process can,
accordingly, be very lengthy. During its review of an NDA, 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. Data from clinical studies are not always conclusive and the
FDA and/or any advisory committee it appoints may interpret data differently than the applicant.



After the FDA evaluates the NDA and inspects manufacturing facilities
where the drug product candidate and/or its API will be produced, it will either approve commercial marketing of the drug product
candidate with prescribing information for specific indications or issue a complete response letter indicating that the application
is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response
letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that
the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies,
or REMS, plan 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 post-marketing testing. Such post-marketing testing may include phase 4 clinical studies and surveillance to further
assess and monitor the product’s safety and efficacy after approval. Regulatory approval of products for serious or life-threatening
indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit
of the drug product candidate.



If the FDA approves one of our therapeutic candidates, we will be
required to comply with a number of post-approval regulatory requirements. We would be required to report, among other things,
certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and 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, and the FDA periodically inspects manufacturing facilities to assess compliance with
cGMP, which imposes extensive procedural, substantive and record keeping requirements. If we seek to make certain changes to an
approved product, such as certain manufacturing changes, we will need FDA review and approval before the change can be implemented.
For example, if we change the manufacturer of a product or its API, the FDA may require stability or other data from the new manufacturer,
which will take time and is costly to generate, and the delay associated with generating this data may cause interruptions in our
ability to meet commercial demand, if any. While physicians may use products for indications that have not been approved by the
FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications
is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate
and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies
are conducted, the FDA may not approve any change in a timely fashion, or at all.





54




We rely, and expect to continue to rely, on third parties for the
manufacture of clinical and future commercial, quantities of our therapeutic candidates. Future FDA and state inspections may identify
compliance issues at these third-party facilities 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 efficacy 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. Many of the foregoing
could limit the commercial value of an approved product or require us to commit substantial additional resources in connection
with the approval of a product. 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.



Section 505(b)(2) New Drug Applications



As an alternate path for FDA approval of new indications or new
formulations of previously-approved products, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone”
or “full” NDA. Section 505(b)(2) of the Food, Drug, and Cosmetic Act, or FDC, was enacted as part of the Drug
Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2)
permits the submission of an NDA where 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. Some examples of products that may be
allowed to follow a 505(b)(2) path to approval are drug product candidates that have a new dosage form, strength, route of administration,
formulation or indication.



The Hatch-Waxman Amendments permit the applicant to rely upon certain
published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of
such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved
product. The FDA may then approve the new product for all or some of the labeled indications for which the reference product has
been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated
by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability,
qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted
under Section 505(b)(2).



To the extent that the Section 505(b)(2) applicant is relying
on the FDA’s conclusions regarding 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 FDA’s Orange Book publication. Specifically, the
applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired;
(iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration;
or (iv) the listed patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also
will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed
in the Orange Book for the reference product has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount
of time and expense in the development of its products only to be subject to significant delay and patent litigation before its
products may be commercialized.



Orphan Drug Designation



The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers
to seek approval of products intended to treat “rare diseases and conditions” with a prevalence of fewer than 200,000
patients in the U.S. or for which there is no reasonable expectation of recovering the development costs for the product. For products
that receive Orphan Drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance
with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven
years of marketing exclusivity for the product following FDA marketing approval.



GAIN Act



The FDA's Generating Antibiotic Incentives Now (GAIN) Act is intended
to encourage development of new antibiotic drug product candidates for the treatment of serious or life-threatening infections.
For products that receive Qualified Infectious Disease Product (QIDP) designation under the Act, the Act provides Fast-Track development
status with an expedited development pathway and Priority Review status which potentially provides shorter review time by the FDA
of a future potential marketing application. Following FDA approval, an additional five years of U.S. market exclusivity applies,
received on top of the standard exclusivity period.



55






|C. | Organizational Structure
|-- | ------------------------



Not applicable.



|D. | Property, Plant and Equipment
|-- | -----------------------------



We lease approximately 826 square meters of office space, a 27 square
meter warehouse and eleven parking spaces in the “Platinum” building at 21 Ha’arba’a Street, Tel Aviv,
Israel, of which we sublease 216 square meters of office space to a third party. The projected yearly rental expenses are approximately
$357,000 per year. The term under our lease agreement will expire on January 31, 2020. These offices have served as our corporate
headquarters since April 2011.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------



Not applicable.



|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------



You should read the following discussion of our financial condition
and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual
Report.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our
actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly those in “Item
3. Key Information – Risk Factors.”



Company Overview



We are a biopharmaceutical company focused on the development and
acquisition of late clinical-stage, proprietary, orally-administered drugs for the treatment of inflammatory and gastrointestinal
diseases and cancer.



Depending on the specific development program, our therapeutic candidates
are designed to provide improvements over existing drugs by improving their safety profile, reducing side effects, lowering the
number of daily administrations, using a more convenient administration form, providing a cost advantage and/or exhibiting greater
efficacy. Where applicable, we intend to seek FDA approval for the commercialization of certain of our therapeutic candidates through
the alternative Section 505(b)(2) regulatory path under the Federal Food, Drug, and Cosmetic Act of 1938, as amended, and in corresponding
regulatory paths in other foreign jurisdictions. Our current pipeline consists of eight late clinical development therapeutic candidates,
including one therapeutic candidate RP101 of which we have an option to acquire.



We have funded our operations primarily through public and private
offerings of our securities. Because our therapeutic candidates are currently in development, we cannot estimate when and if we
will generate significant revenues in the future.



The following is a description of our eight therapeutic candidates:

RHB-105 is a patented combination of three drugs – omeprazole, which is a proton pump inhibitor, amoxicillin and rifabutin,
both of which are antibiotics. RHB-105 is intended for the treatment of H. pylori bacterial infection. We acquired ownership
rights in patents, tangible assets, production files and regulatory approvals and other data and certain third party agreements
related to RHB-105 pursuant to the Asset Purchase Agreement with Giaconda Limited described above. See “Item 4. Information
on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104, RHB-105
and RHB-106.”



RHB-104 is a patented combination of three antibiotics (i.e.
, clarithromycin, clofazamine and rifabutin) in a single capsule that is intended for the treatment Crohn’s disease and potentially
other autoimmune diseases. Unlike other drugs on the market for the treatment of Crohn’s disease that are immunosuppressive
agents, RHB-104 is intended to directly address the suspected cause of the disease. On August 11, 2010, we entered into an asset
purchase agreement with Giaconda Limited, pursuant to which we acquired ownership rights in patents, tangible assets, production
files and regulatory approvals and other data and certain third party agreements related to RHB-104, RHB-105 and RHB-106 in exchange
for $500,000 and royalty payments of 7% of net sales and 20% of sublicense fees, in each case, only after we recoup the amounts
and expenses exceeding the approved budget. See “Item 4. Information on the Company – B. Business Overview –
Acquisition and License Agreements – Acquisition of RHB-104, RHB-105 and RHB-106.”





56




BEKINDATM (RHB-102) is a patented formulation once-daily controlled release oral formulation of ondansetron, in
combination with salts, intended for the prevention of chemotherapy and radiotherapy induced nausea and vomiting, by means of an
oral formulation of ondansetron. BEKINDATM is anticipated to prevent chemotherapy and radiotherapy induced nausea and vomiting
over a time frame of approximately 24 hours. On May 2, 2010, we received a worldwide, exclusive and perpetual license to use patents
and know how relating to BEKINDATM from SCOLR Pharma, Inc. in exchange for an up-front payment of $100,000,future potential milestone payments of up to $500,000 and future royalties, for a fixed period of time as determined under the
agreement, of 8% of our net sales or sublicense fees. SCOLR Pharma announced during 2013 that it had ceased business operations,
and we entered into a License Agreement with Temple University to secure direct rights to patents related to BEKINDATM. See
“Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements - License Agreement
for BEKINDATM.”  See “Item 3. Key Information – D. Risk Factors – Risk Related to Our Business
and Regulatory Matters – If we are not able to secure and/or defend patents related to BEKINDATM, our ability to commercialize
BEKINDATM or enter into commercialization agreements with potential partners with respect to this product may be adversely
affected.”



RHB-106 is a patented formulation in tablet form intended for the
preparation and cleansing of the gastrointestinal tract prior to the performance of abdominal procedures. We acquired ownership
rights in patents, tangible assets, production files and regulatory approvals and other data and rights in certain third party
agreements related to RHB-106 pursuant to the Asset Purchase Agreement with Giaconda Limited described above.  See “Item
4. Information on the Company – B. Business Overview – Acquisition and License Agreements – Acquisition of RHB-104,
RHB-105 and RHB-106.” On February 27, 2014, we entered into a licensing agreement with Salix (later acquired by Valeant)
by which Salix licensed the exclusive worldwide rights to our RHB-106 encapsulated formulation for bowel preparation, and rights
to other purgative developments.



YELIVATM (ABC294640) is a patent-protected, first-in-class, orally-administered sphingosine kinase-2 (SK2) inhibitor,
with anti-inflammatory and anti-cancer activities, targeting multiple inflammatory, gastrointestinal (GI) and oncology indications.
On March 31, 2015, we entered into an exclusive worldwide license agreement with Apogee, under which agreement Apogee granted us
the exclusive worldwide development and commercialization rights to ABC294640 (which we then renamed to YELIVATM) and additional
intellectual property for all indications. Under the terms of the agreement, we agreed to pay Apogee an upfront payment of $1.5
million in addition to another $4 million in potential development milestones and tiered royalties starting in the low double digits.
For more information regarding this agreement, see “Item 4. Information on the Company – B. Business Overview –
Acquisition and License Agreements – License Agreement for YELIVATM.”



MESUPRON® is a patent-protected uPA inhibitor,
administered by oral capsule, targeting gastrointestinal and other solid tumor cancers. On June 30, 2014 we acquired from WILEX
AG the exclusive development and commercialization rights to MESUPRON®, excluding China, Hong Kong, Taiwan
and Macao, for all indications. We made an upfront payment to WILEX of $1.0 million with potential tiered royalties on net revenues,
ranging from mid-teens up to 30%. We are responsible for all development, regulatory and commercialization of MESUPRON®.
See “Item 4. Information on the Company – B. Business Overview – Acquisition and License Agreements – License
Agreement for MESUPRON®.”



RP101 is a patent-protected, orally administered small molecule
which may prevent the induction of resistance to chemotherapy (chemoresistance), thus maintaining sensitivity of the tumor to chemotherapy
and potentially enhancing patient survival.  RP101 has been granted Orphan Drug designation for the adjunct treatment
of pancreatic cancer by the FDA and EMA. On August 13, 2014, we entered into a binding exclusive option agreement for the potential
acquisition of RP101 and next generation compounds. Under the terms of the agreement, we have the option to acquire the worldwide
exclusive rights to RP101 for all indications, other than to the pancreatic cancer indication in South Korea. We agreed to pay
RESprotect for a one year option, which was extended by us under certain agreed terms. During the option period, we may, at our
discretion, conduct development activities with RP101. If we elect to exercise the option, we will acquire the exclusive rights
to RP101 for a total payment, for both the option and the acquisition of the rights, of $100,000, as well as potential milestone
payments and tiered royalties on net revenues, ranging from single-digit to mid-teens. See “Item 4. Information on the Company
– B. Business Overview – Acquisition and License Agreements – License Agreement for RP101.”



RIZAPORTTM (RHB-103) is a patented oral thin film formulation of rizatriptan intended for the treatment of acute
migraine headaches. On August 26, 2010, we entered into a joint development and commercialization agreement with IntelGenx Corp.
pursuant to which IntelGenx Corp. granted us a worldwide, exclusive and perpetual license to use RIZAPORTTM and to grant sublicenses.
In consideration for the license, we made up-front and milestone payments in the aggregate amount of $800,000 and are required
to make additional milestone payments of up to $500.000. In addition, we are required to make royalty payments to IntelGenx Corp.
of 20% of net sales if the product is marketed by us and 40% of net sublicense fees if the product is marketed by sublicensees.
However, in certain events the royalty payments could range between 20% to 70% of net sublicense fees. See “Item 4. Information
on the Company – B. Business Overview – Acquisition and License Agreements – License Agreement for RIZAPORTTM.”





57




JOBS Act



We are an emerging growth company. As an “emerging growth
company”, we also elected to rely on various exemptions, including without limitation, not (i) providing an auditor’s
attestation report on our system of internal controls over financial reporting pursuant to Section 404 and (ii) complying with
any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or
a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor
discussion and analysis). These exemptions will apply until the earliest of (a) the last day of our fiscal year during which we
have total annual gross revenues of at least $1.0 billion; (b) the last day of our fiscal year following the fifth anniversary
of the date of the first sale of our ordinary shares pursuant to an effective registration statement (in our case, December 31,
2018); (c) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;
or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act of 1934, which would
occur if the market value of our ordinary shares held by non-affiliates is $700 million or more as of the last business day of
our most recently completed fiscal quarter.



Components of Statement of Comprehensive Loss



Revenues



In 2015 and 2013 we recorded non-significant revenues in connection
with royalty payments received from a third party licensee of limited rights to a patent that we acquired from Giaconda Limited.
In 2014, for the first time we had meaningful revenues as a result of the Salix transaction. Our therapeutic candidates are currently
in development therefore we cannot estimate when and if we will generate significant revenues in the future.



Cost of Revenues



Direct costs related to the revenues such royalties to third parties
and other related costs.



Research and Development Expenses



See “– C. Research and Development, Patents and Licenses”
below.



General and Administrative Expenses



General and administrative expenses consist primarily of compensation
for employees, directors and consultants in executive and operational functions and professional services. Other significant general
and administration costs include office related expenses and travel, conferences, investor relations and other costs.



Financial Income and Expense



Financial income and expense consist of non-cash financing expenses
in connection with changes in Derivative financial instruments fair value, interest earned on our cash, cash equivalents and short-term
bank deposits, bank fees and other transactional costs and expense or income resulting from fluctuations of the U.S. dollar and
other currencies, in which a portion of our assets and liabilities are denominated in NIS.



Critical Accounting Policies and Estimates



The preparation of financial statements in conformity with International
Financial Reporting Standards, or IFRS, requires companies to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are subject to an
inherent degree of uncertainty, and actual results may differ. Our significant accounting policies are more fully described in
Note 2 to our financial statements included elsewhere in this Annual Report. Critical accounting estimates and judgments are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances, and are particularly important to the portrayal of our financial position and results of
operations. Our estimates are primarily guided by observing the following critical accounting policies:





58




Impairment of Intangible Assets - Since the development
of our therapeutic candidates has not yet been completed and they are defined as research and development assets acquired by us,
we review, on an annual basis   or when indications of impairment are present, whether those assets are impaired. We make
judgments to determine whether indications are present that require reviewing the impairment of these intangible assets. An impairment
loss is recognized for the amount by which the assets’ carrying amount exceeds its recoverable amount. The recoverable amounts
of cash generating units are based on our estimates as to the development of the therapeutic candidates, changes in market scope,
market competition and timetables for regulatory approvals. Since the above require certain judgments and the use of estimates,
actual results may differ from our estimations and as a result would increase or decrease our related actual results.



Recent Accounting Pronouncements



The recent accounting pronouncements are set forth in Note 2 to
our audited financial statements beginning on page F-1 of this Annual Report. We are assessing the expected effect of the accounting
pronouncements on our financial statements.



|A. | Operating Results
|-- | -----------------



History of Losses



Since inception in 2009, we have generated significant losses mainly
in connection with the research and development of our therapeutic candidates. Such research and development activities are expected
to expand over time and will require further resources if we are to be successful. As a result, we expect to continue incurring
operating losses, which may be substantial over the next several years, and we will need to obtain additional funds to further
develop our research and development programs. As of December 31, 2015, we had an accumulated deficit of approximately $61.9 million.



We expect to continue to fund our operations over the next several
years through public or private equity offerings, debt financings or through commercialization of our therapeutic candidates.



As of December 31, 2015, we had approximately $58 million of cash,
cash equivalents and short term investments, and as of February 22, 2016, we had cash and short term investments of approximately
$55 million.



Quarterly Results of Operations



The following tables show our unaudited quarterly statements of
operations for the periods indicated. We have prepared this quarterly information on a basis consistent with our audited financial
statements and we believe it includes all adjustments, consisting of normal recurring adjustments necessary for a fair statement
of the information shown. Operating results for any quarter are not necessarily indicative of results for a full fiscal year.



Three Months Ended



|Statements of operations               |  | March 31 |       | June 30 |  | Sep. 30 |       | Dec. 31 |  | March 31 |       | June 30 |  | Sep. 30 |       | Dec. 31 |  | March 31 |        | June 30 |  | Sep. 30 |       | Dec. 31
|-------------------------------------- |  | -------- | ----- | ------- |  | ------- | ----- | ------- |  | -------- | ----- | ------- |  | ------- | ----- | ------- |  | -------- | ------ | ------- |  | ------- | ----- | -------
|                                       |  | 2013     |       | 2014    |  | 2015   
|                                       |  |          |       |         |  |         |       |         |  |          |       |         |  |         |       |         |  |          |        |         |  |         |       |        
|Revenues                               |  |          | 4     |         |  |         | 4     |         |  |          | 3     |         |  |         | 1     |         |  |          | 7,005  |         |  |         | 4     |        
|Cost of revenue                        |  |          | -     |         |  |         | -     |         |  |          | -     |         |  |         | -     |         |  |          | 1,050  |         |  |         | -     |        
|Research and development expenses, net |  |          | 1,346 |         |  |         | 1,982 |         |  |          | 2,207 |         |  |         | 2,565 |         |  |          | 1,736  |         |  |         | 3,157 |        
|General and administrative expenses    |  |          | 675   |         |  |         | 548   |         |  |          | 545   |         |  |         | 916   |         |  |          | 1,027  |         |  |         | 961   |        
|Other (income) expenses                |  |          | -     |         |  |         | -     |         |  |          | -     |         |  |         | -     |         |  |          | (100   | )       |  |         | -     |        
|Operating loss (income)                |  |          | 2,017 |         |  |         | 2,526 |         |  |          | 2,749 |         |  |         | 3,480 |         |  |          | (3,292 | )       |  |         | 4,114 |        
|Financial income                       |  |          | 43    |         |  |         | 17    |         |  |          | 53    |         |  |         | 45    |         |  |          | 89     |         |  |         | 133   |        
|Financial expenses                     |  |          | 3     |         |  |         | 3     |         |  |          | 3     |         |  |         | 5     |         |  |          | 4      |         |  |         | 543   |        
|Net loss (income)                      |  |          | 1,977 |         |  |         | 2,512 |         |  |          | 2,699 |         |  |         | 3,440 |         |  |          | (3,377 | )       |  |         | 4,524 |        





59




Our quarterly revenues and operating results of operations have
varied in the past and are expected to vary in the future due to numerous factors. We believe that period-to-period comparisons
of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.



Comparison of the Year Ended December 31, 2015 to the Year Ended
December 31, 2014



Research and Development Expenses



Research and development expenses for the year ended December 31,
2015 were approximately $17.8 million, an increase of $5.1 million, or approximately 40%, compared to $12.7 million for the year
ended December 31, 2014. The increase resulted primarily from clinical trial costs of approximately $13.6 million, net, related
mainly to the Phase III clinical studies with RHB-104 (Crohn's disease), RHB-105 (H. pylori) and BEKINDATM (gastroenteritis
and gastritis).



General and Administrative Expenses



General and administrative expenses for the year ended December
31, 2015 were approximately $4.1 million, an increase of $0.1 million, or approximately 2%, compared to $4.0 million for the year
ended December 31, 2014. The increase was mainly due to an increase in professional services.



Operating Loss



Operating loss for the year ended December 31, 2015 was approximately
$22.0 million compared to $10.6 million for the year ended December 31, 2014. The increase was mainly due to revenues from the
Salix licensing transaction in 2014 and to an increase in research and development Expenses in 2015.



Financing Income and Expenses



We recognized financial income, net of $0.9 million for the year
ended December 31, 2015, compared to financial expenses, net of $0.1 million for the year ended December 31, 2014. The financing
income, net in 2015 was mainly derived from a fair value gain on derivative financial instruments while the financing expenses,
net in 2014 mainly derived from changes in exchange rates.



Comparison of the Year Ended December 31, 2014 to the Year Ended
December 31, 2013



Revenues and Cost of revenues



In 2014, we had for the first time meaningful revenues of $7 million
from the Salix transaction, while in 2013 and 2012, we recorded non-significant revenues in connection with royalty payments received
from a third party licensee of limited rights to a patent that we acquired from Giaconda Limited.



Cost of Revenues



Cost of Revenues for the year ended December 31, 2014 were $1 million,
primarily due to a payment of $1 million to Giaconda Limited under the agreement with Giaconda, which was triggered by the first
payment received by us from the Salix transaction in 2014.



Research and Development Expenses



Research and development expenses for the year ended December 31,
2014 were $12.7 million, an increase of $4.6 million, or 57%, compared to $8.1 million for the year ended December 31, 2013. The
increase resulted primarily from approximately $3.5 million in clinical trial costs related mainly to RHB-104, RHB-105 and BEKINDATM.



General and Administrative Expenses



General and administrative expenses for the year ended December
31, 2014 were $4.0 million, an increase of $1.3 million, or 48%, compared to $2.7 million for the year ended December 31, 2013.
The increase resulted primarily from an increase in payroll and related expenses as result of recruitments of new employees and
an increase in share-based payments and professional services.





60




Operating Loss



During the year ended December 31, 2014, our operating loss was
approximately $10.6 million, a decrease of $0.2 million, or 2%, compared to $10.8 million for the year ended December 31, 2013.
The decrease in operating loss was mainly due to our revenues from Salix transaction mentioned above that were partially offset
by an increase in research and development expenses.



Financial Income and Expenses



We recognized financial expenses, net of $0.1 million for the year
ended December 31, 2014, compared to financial income, net of $0.1 million for the year ended December 31, 2013. The financial
income and expenses, net for the years of 2014 and 2013 were derived mainly from changes in exchange rates.



|B. | Liquidity and Capital Resources
|-- | -------------------------------



Liquidity and Capital Resources



Our therapeutic candidates are in the research and development stage
and therefore do not generate significant revenues. Since inception, we have funded our operations primarily through public and
private offerings of our equity securities, investor loans, and a payment received under our Exclusive License Agreement with Valeant.
As of December 31, 2015, we had approximately $58.1 million of cash, cash equivalents and short term investments.



On February 3, 2011, we raised gross proceeds of approximately $14
million in connection with our initial public offering on the Tel Aviv Stock Exchange of 14,302,300 ordinary shares and 7,151,150
tradable Series 1 Warrants. Each tradable Series 1 Warrant was exercisable through February 2, 2014 into one ordinary share. By
February 2, 2014, the warrant expiration date, 3,246,082 Series 1 Warrants had been exercised for an aggregate amount of $4 million
(based on the representative U.S. dollar–NIS rate of exchange of 3.498 on February 2, 2014).



On January 10, 2013, we issued in a private placement 6,481,280
ordinary shares at a price per share of NIS 4.00 (approximately $1.06 based on the representative U.S. dollar – NIS rate
of exchange of 3.78 on January 10, 2013) and non-tradable warrants to purchase up to 3,240,640 ordinary shares at exercise prices
ranging from $1.18 to $1.54, depending on the date of exercise.



On January 10, 2015, the remaining 2,558,440 unexercised warrants
expired along with any right or claim whatsoever of the holders.  By the warrant expiration date, 682,200 warrants had
been exercised for an aggregate amount of approximately $1.0 million.



On January 8, 2014, we issued in a private placement a total of
894,740 units, each consisting of one ADS and a three-year warrant to purchase 0.4 of an ADS, at a purchase price of $9.50 per
Unit, for an aggregate gross amount of $8.5 million. We also issued warrants to purchase 357,896 ADSs in the aggregate at an exercise
price of $11 per ADS.  Investors in the private placement were OrbiMed Israel Partners Limited Partnership and Broadfin
Healthcare Master Fund, LTD.



On January 21, 2014, we issued in a private placement a total of
10,458,740 ordinary shares at a purchase price of NIS 3.9 per share and three-year warrants to purchase 4,183,496 ordinary shares
in the aggregate at an exercise price of NIS 4.9 per ordinary share, linked to changes in the NIS-US dollar exchange rate, for
an aggregate gross amount of $11.7 million (based on the representative U.S. dollar–NIS rate of exchange of 3.49 on January
22, 2014). Investors in the private placement were Israeli institutional investors Migdal Insurance Company, Yelin Lapidot, and
Excellence Nessuah, as well as Sphera Global Healthcare Master Fund and two private Israeli investment firms.



On February 27, 2014, we entered into a Worldwide Exclusive License
Agreement with Salix Pharmaceuticals, Ltd. (later acquired by Valeant) by which Salix licensed the worldwide exclusive rights to
our RHB-106 encapsulated formulation for bowel preparation, and rights to other purgative developments.  Under the license
agreement, Salix paid an upfront payment of $7.0 million. We are also entitled to milestone payments and royalties based on net
sales of RHB-106.  See "Exclusive License Agreement with Valeant Pharmaceuticals International, Inc."



On February 13, 2015, we sold 1,000,000 ADSs in an underwritten
public offering of our ADSs in the U.S. at a public offering price of $12.50 per ADS, for gross proceeds to us of $12.5 million,
before underwriting discounts and commissions and other offering expenses. On February 18, 2015, the underwriters exercised in
full their over-allotment option to purchase from us an additional 150,000 ADSs (15% of the original offering amount) at the public
offering price of $12.50 per ADS, for gross proceeds of $1.9 million. Following exercise of the over-allotment option, our offering
totaled 1,150,000 ADSs representing gross proceeds of approximately $14.4 million, before underwriting discounts and commissions
and other offering expenses.





61




On July 22, 2015, we sold 2,462,000 ADSs in an underwritten public
offering of our ADS in the U.S. at a public offering price of $16.25 per ADS, for gross proceeds to us of approximately $40 million,
before underwriting discounts and commissions and other offering expenses. On July 28, 2015, the underwriters partially exercised
their over-allotment option to purchase from us an additional 277,143 ADSs (approximately 11% of the original offering amount)
at the public offering price of $16.25 per ADS, for gross proceeds of approximately $4.5 million. Following the exercise of the
over-allotment option, our offering totaled 2,739,143 ADSs representing gross proceeds of approximately $44.5 million, before underwriting
discounts and commissions and other offering expenses.



We estimate that so long as no significant revenues are generated
from our therapeutic candidates, we will need to raise substantial additional funds to acquire, develop and commercialize therapeutic
candidates, as our current cash and short-term investments are not sufficient to complete the research and development of all of
our therapeutic candidates and fund our operations. However, additional financing may not be available on acceptable terms, if
at all. Our future capital requirements will depend on many factors including   but not limited to:



|· | the regulatory path of each of our therapeutic candidates;
|- | ----------------------------------------------------------

|· | our ability to successfully commercialize our therapeutic candidates, including securing commercialization agreements with third parties and favorable pricing and market share;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the progress, success and cost of our clinical trials and research and development programs;
|- | --------------------------------------------------------------------------------------------

|· | the costs, timing and outcome of regulatory review and obtaining regulatory approval of our therapeutic candidates and addressing regulatory and other issues that may arise post-approval;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the costs of enforcing our issued patents and defending intellectual property-related claims;
|- | ---------------------------------------------------------------------------------------------

|· | the costs of developing sales, marketing and distribution channels;
|- | -------------------------------------------------------------------

|· | consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|· | we may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------



If we are unable to commercialize or out-license our therapeutic
candidates or obtain future financing, we may be forced to delay, reduce the scope of, or eliminate one or more of our research
and development programs related to the therapeutic candidates, which may have material adverse effect on our business, financial
condition and results of operations. “Item 3. Key Information – D. Risk Factors – Risk Related to Our Financial
Condition and Capital Requirements – Our current working capital is not sufficient to complete our research and development
with respect to all of our therapeutic candidates. We will need to raise additional capital to achieve our strategic objectives
of acquiring, developing and commercializing therapeutic candidates, and our failure to raise sufficient capital would significantly
impair our ability to fund our operations, develop our therapeutic candidates, attract development and/or commercial partners and
retain key personnel.”



Cash Flow



Operating activities



For the year ended December 31, 2015, net cash flow used in operating
activities was approximately $17.8 million, compared to approximately $12.2 million for the year ended December 31, 2014 and $8.4
million for the year ended December 31, 2013. The increase in net cash flow used in operating activities was a direct result of
the increase in our operations, reflected by increased research and development activities which were partially offset by the revenues
from the Salix transaction in 2014.



Investment activities



Net cash flow used in investing activities for the year ended December
31, 2015 was approximately $21.2 million, compared to approximately net cash flow used in investing activities of $17.9 million
in the year ended December 31, 2014 and net cash flow provided by investing activities of $1.1 million in the year ended December
31, 2013. For the year ended December 31, 2015, we invested a total of $19.5 million in bank deposits and $1.6 million in purchasing
of intangible assets. For the year ended December 31, 2014, we invested a total of $17 million in bank deposits and $1.0 million
in purchasing of intangible assets. For the year ended December 31, 2013, we invested a total of $0.2 million in intangible assets
and we received proceeds of $0.9 million from the sale of financial assets at a fair value and $0.5 million from withdrawal of
bank deposits to cash and cash equivalents.





62




Financing activities



Net cash flow provided by financing activities for the year ended
December 31, 2015 amounted to approximately $54.8 million, compared with approximately $24.4 million for the year ended December
31, 2014 and $2.3 million for the year ended December 31, 2013. In 2015, most of the cash flows from financing activities resulted
from the two underwritten public offerings for a total net amount of $54.7 million. In 2014, most of the cash flows from financing
activities resulted from the January 2014 private placements for a total net amount of $19.4 million and from the exercise of warrants
for a net amount of $5.0 million, while in 2013 most of the cash flow from financing activities resulted from the exercise of warrants
in a total amount of $2.2 million.





We did not have any material commitments for capital expenditures, including any anticipated
material acquisition of plant and equipment or interests in other companies, as of December 31, 2015.





|C. | Research and Development, Patents and Licenses
|-- | ----------------------------------------------



Our research and development expenses consist primarily of costs
of clinical trials, professional services, share-based payments and payroll and related expenses. The clinical trials costs are
mainly related to payments to third parties to manufacture our therapeutic candidates, to perform clinical trials with our therapeutic
candidates and to provide us with regulatory services. We charge all research and development expenses to operations as they are
incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop
our therapeutic candidates.



|                                  |  |  | 2015 |  |  |  | 2014 |  |  |  | 2013 | 
|--------------------------------- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|Payroll and related expenses      |  |  | 0.6  |  |  |  | 0.6  |  |  |  | 0.5  | 
|Professional services             |  |  | 2.0  |  |  |  | 1.7  |  |  |  | 1.3  | 
|Share-based payments              |  |  | 0.9  |  |  |  | 0.9  |  |  |  | 0.8  | 
|Clinical trials, net              |  |  | 13.4 |  |  |  | 8.5  |  |  |  | 5.0  | 
|Intellectual property development |  |  | 0.2  |  |  |  | 0.6  |  |  |  | 0.2  | 
|Other                             |  |  | 0.7  |  |  |  | 0.4  |  |  |  | 0.3  | 
|Total                             |  |  | 17.8 |  |  |  | 12.7 |  |  |  | 8.1  | 



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 the therapeutic
candidates in our pipeline for potential commercialization.



While we are currently focused on advancing each of our therapeutic
candidates, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as
well as available resources and the ongoing assessments of each therapeutic candidate’s commercial potential. In addition,
we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future commercialization arrangements,
when such commercialization arrangements will be secured, if at all, and to what degree such arrangements would affect our development
plans and capital requirements. See “Item 3. Key Information – D. Risk Factors – If we and/or our commercialization
partners are unable to obtain FDA and/or other foreign regulatory authority approval for our therapeutic candidates, we and/or
our commercialization partners will be unable to commercialize our therapeutic candidates.”



As we obtain results from clinical trials, we may elect to discontinue
or delay development and clinical trials for certain therapeutic candidates in order to focus our resources on more promising therapeutic
candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of
time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate. See “Item 3.
Key Information – D. Risk Factors – Risks Related to Our Business and Regulatory Matters.”



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



|D. | Trend Information
|-- | -----------------



We are an emerging biopharmaceutical company focused primarily on
the development and acquisition of our therapeutic candidates. It is not possible for us to predict with any degree of accuracy
the outcome of our research and development or our commercialization success with regard to any of our therapeutic candidates.
Our research and development expenditure is our primary expenditure. Increases or decreases in research and development expenditures
are primarily attributable to the level and results of our clinical trial activities and the amount of expenditure on those trials.



63






|E. | Off-Balance Sheet Arrangements
|-- | ------------------------------



Since inception, we have not entered into any transactions with
unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other
contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable
interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.



|F. | Tabular Disclosure of Contractual Obligations
|-- | ---------------------------------------------



The following table summarizes our significant contractual obligations
on December 31, 2015:



|                                                |  |                                         | Total |  |  |  | Less than 
1 year |  |  |  | 1-3 
years |  |  |  | 3-5 
years |  |  |  | More 
than 5 
years | 
|----------------------------------------------- |  | --------------------------------------- | ----- |  |  |  | ----------------- |  |  |  | ---------- |  |  |  | ---------- |  |  |  | ------------------- | 
|                                                |  | (U.S. dollars in thousands) (Unaudited)
|Office lease obligations                        |  |                                         | 1,481 |  |  |  | 357               |  |  |  | 1,094      |  |  |  | 30         |  |  |  | -                   | 
|Accounts payable and accrued expenses           |  |                                         | 3,514 |  |  |  | 3,514             |  |  |  | -          |  |  |  | -          |  |  |  | -                   | 
|Payable in respect of intangible asset purchase |  |                                         | 2,000 |  |  |  | 2,000             |  |  |  | -          |  |  |  | -          |  |  |  | -                   | 
|Total                                           |  |                                         | 6,995 |  |  |  | 5,871             |  |  |  | 1,094      |  |  |  | 30         |  |  |  | -                   | 



The foregoing table does not include our in-license agreements with
Temple University, IntelGenx Corp., Wilex AG, Apogee, the option agreement with RESprotect GmbH, our asset sale agreement with
Giaconda Limited and our agreement with the University of Central Florida Research Foundation, Inc., pursuant to which we are obligated
to make various payments upon the achievement of agreed upon milestones and/or make certain royalty payments since we are unable
to currently estimate the actual amount or timing of these payments. If all of the milestones are achieved over the life of each
in-licensing agreement, we will be required to pay, in addition to the amounts in the above table and royalties on our net income,
an aggregate amount of approximately $4.7 million. All of our in-licensing agreements are terminable at-will by us upon prior written
notice. See “Item 4. Information on the Company — Business Overview — Acquisition and License Agreements.”



The foregoing table does not include our manufacturing agreements
pursuant to which we are obligated to make various payments upon the achievement of agreed upon milestones. We are unable to currently
estimate the actual amount or timing of these payments. If all of the milestones are achieved over the life of the manufacturing
agreements, we will be required to pay, in addition to the above table and royalties on our net income, an aggregate amount of
approximately $2.3 million. All of our manufacturing agreements are terminable at-will by us upon prior written notice.



The foregoing table also does not include payments payable under
our clinical services agreements, all of which are contingent upon the completion of milestones. See “Item 4. Information
on the Company – Business Overview – Clinical Services Agreements.”



|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



|A. | Directors and Senior Management
|-- | -------------------------------



The following table sets forth the name, age and position of each
of our executive officers and directors as of the date of this Annual Report.





|Name               |  | Age |  | Position(s)                                                   
|------------------ |  | --- |  | --------------------------------------------------------------
|                   |  |     |  |                                                               
|Executive Officers |  |     |  |                                                               
|Dror Ben-Asher     |  | 50  |  | Chief Executive Officer and Chairman of the board of directors
|Ori Shilo (1)      |  | 49  |  | Deputy Chief Executive Officer Finance and Operations         
|Reza Fathi, Ph.D.  |  | 61  |  | Senior Vice President Research and Development                
|Gilead Raday       |  | 41  |  | Senior Vice President Corporate and Product Development       
|Adi Frish          |  | 46  |  | Senior Vice President Business Development and Licensing      
|Guy Goldberg       |  | 40  |  | Chief Business Officer                                        
|Uri Hananel Aharon |  | 35  |  | Chief Accounting Officer                                      





64






|Directors                |  |    |  |                  
|------------------------ |  | -- |  | -----------------
|Dr. Shmuel Cabilly (3)   |  | 66 |  | Director         
|Eric Swenden             |  | 72 |  | Director         
|Dr. Kenneth Reed         |  | 62 |  | Director         
|Dan Suesskind (2)        |  | 72 |  | Director         
|Rick D. Scruggs          |  | 56 |  | Director         
|Ofer Tsimchi (2), (3)    |  | 56 |  | External Director
|Nurit Benjamini (2), (3) |  | 49 |  | External Director





(1)      Mr. Micha Ben-Chorin (age 46) will replace Mr. Ori Shilo as Chief Financial Officer effective March 1, 2016.

(2)    Member of our audit committee that also serves as our financial
statements committee.

(3) Member
of our compensation committee.



Executive officers



Dror Ben-Asher has served as our Chief Executive Officer
and as a director since August 3, 2009. Since May 4, 2011, Mr. Ben- Asher has also served as Chairman of our board of directors.
From January 2002 to November 2010, Mr. Ben- Asher served as a manager at P.C.M.I. Ltd., an affiliate of ProSeed Capital Holdings
CVA, which provides us with certain advisory services. Mr. Ben-Asher is currently a director at Agrea Ltd. Mr. Ben-Asher holds
an LLB from the University of Leicester, UK, an MJur. from Oxford University, UK and completed LLM studies at Harvard University
in the U.S.



Ori Shilo has served as our Deputy Chief Executive Officer
Finance and Operations since November 1, 2010 and as a director from August 3, 2009 until November 1, 2015.  From 2009
to 2010, Mr. Shilo served as our Vice President Finance and Operations. From 2000 to 2010, Mr. Shilo served as Chief Executive
Officer of P.C.M.I. Ltd. Mr. Shilo holds a B.A in Business Administration from the Academic College for Management in Rishon Lezion,
Israel and an MBA in Business Administration from the Ben Gurion University in Beer Sheva, Israel.



Reza Fathi, Ph.D.,has
served as our Senior Vice President Research and Development since May 1, 2010. From 2005 to 2009, Dr. Fathi served as a Director
of Research in XTL Biopharmaceuticals Inc., a biotechnology company engaged in developing small molecule clinical candidates for
infectious diseases. Prior to that, between 2000-2005, Dr. Fathi served as Director of Research at Vivoquest, Inc., responsible
for developing a number of novel natural product based combinatorial   technologies for infectious diseases such as HCV and
HIV. Between 1998-2000, he served as a Manager of Chemical Biology Research at the Institute of Chemistry and Chemical Biology
(ICCB) at Harvard Medical School, pioneering chemical genetics to identify small molecules in cancer biology,  and from
1991-1998 headed the Discovery Group at PharmaGenics, Inc. Dr. Fathi holds a Postdoctoral and Ph.D. in Chemistry from Rutgers
University, NJ, U.S.



Gilead Raday has served as our Senior Vice President Corporate
and Product Development since December 5, 2012. From November 2010 to December 2012, Mr. Raday served as our Vice President Corporate
and Product Development. From January 2010 until October 2010, Mr. Raday served as Interim Chief Executive Officer of Sepal Pharma
Plc., an oncology drug development company, and from January 2009 to December 2009, he was an independent consultant, specializing
in business development and project management in the field of life sciences. From 2004 to 2008, Mr. Raday was a partner in Charles
Street Securities Europe, LLP, an investment banking firm, where he was responsible for the field of life sciences. Mr. Raday serves
on the boards of Sepal Pharma Plc., and ViDAC Limited. Mr. Raday previously served on the boards of Morria Biopharmaceuticals Plc.,
Vaccine Research International Plc., TKsignal Plc., and Miras Medical Imaging Plc. He received his MSc in Neurobiology from the
Hebrew University of Jerusalem and an MPhil in Biotechnology Management from Cambridge University, UK.



Adi Frish has served as our Senior Vice President Business
Development and Licensing since December 5, 2012. From October 2010 to December 2012, Mr. Frish served as our Vice President Business
Development and Licensing. From 2006 to 2010, Mr. Frish served as the Chief Business Development at Medigus Ltd., a medical device
company in the endoscopic field, and from 1998 to 2006, Mr. Frish was an associate and a partner at the law firm of Y. Ben Dror
& Co.  Mr. Frish holds an LLB from Essex University, UK and an LLM in Business Law from the Bar-Ilan University,
Israel.



Guy Goldberg has served as our Chief Business Officer since
July 16, 2012. From July 2007 to July 2012, Mr. Goldberg served as Vice President and then as Senior Vice President of Business
Operations at Eagle Pharmaceuticals, a specialty injectable drug development company, based in New Jersey. From 2004 to 2007, Mr.
Goldberg was an associate at ProQuest Investments, a healthcare focused venture capital firm, and from 2002 to 2004, Mr. Goldberg
was a consultant at McKinsey & Company. Mr. Goldberg holds a B.A. in Economics and Philosophy from Yale University and a J.D.
from Harvard Law School in the U.S.



Uri Hananel Aharon has served as our Chief Accounting Officer
since April 12, 2011. From 2007 to 2011, Mr. Aharon served as a team manager at Ernst & Young Israel, specializing in auditing
and financial consulting for companies traded on The Nasdaq Stock Market and the Tel Aviv Stock Exchange, both in the biotech and
high-tech sectors. From 2004 to 2007, Mr. Aharon served as an accounting intern at Ziv Haft, BDO. Mr. Aharon holds a BA in Accounting
and Economics from the Hebrew University of Jerusalem, Israel and an MBA in Business Taxation from the Academic College for Management
in Rishon Lezion, Israel.





65




Micha Ben Chorin will serve as our new Chief Financial Officer
effective March 1, 2016. Prior to joining RedHill he was a member of the team that built GVT (currently Telefonica Brazil). During
his seven years as Chief Financial Officer at GVT, he led its financial department through pivotal financial transactions and preparations
for its successful IPO. From 2014 until 2016, Mr. Ben Chorin served as Chief Financial Officer of Pyramid Analytics. From 2009
until 2013 he served as CFO of Starhome B.V., a leading international roaming vendor, where he oversaw a turnaround from operational
losses to significant EBITDA margins and positive cash flow. Mr. Ben Chorin holds an M.A. and a B.A. from Tel-Aviv University and
is a Certified Public Accountant.



Directors



Dr. Shmuel Cabilly has served as a member of our board of
directors since August 26, 2010, and has served on our compensation committee since May 5, 2011. Dr. Cabilly is a scientist and
inventor in the field of immunology. In the Backman Research Institute of the City of Hope he initiated the development of
a new breakthrough technology for recombinant antibody production, which was patented and known as the "Cabilly
Patent". Dr. Cabilly was also a co-founder and a Chief Scientist of Ethrog Biotechnology, where he invented dry buffer
technologies enabling the production of a liquid free disposable apparatus for gel electrophoresis and a technology that enables
the condensation of molecular separation zones to a small gel area. This technology was sold to Invitrogen in 2001. Dr. Cabilly
is now an investor and serves as a board member of several companies, including BioKine Therapeutics Ltd., Neuroderm Ltd., Biologic
Design Ltd., Ornim Inc. and Efranat Ltd.. Dr. Cabilly holds a BSC Biology from the Ben Gurion University of Beer Sheva, Israel,
an MSC in Immunology and Microbiology from the Hebrew University of Jerusalem, Israel and a PhD in Immunology and Microbiology
from the Hebrew University of Jerusalem, Israel.



Eric Swenden has served as a member of our board of directors
since May 3, 2010, and has served on our investment committee since May 5, 2011. From 1966 until 2001 Mr. Swenden served in various
positions including Chief Executive Officer (since 1985) and Executive Chairman (since 1990) of Vandemoortele Food Group, a privately
held Belgium-based European food group with revenue of approximately EUR 2 billion, and he currently serves on the board of directors
of Lifeline Scientific, Inc., TBC S.A., Alterpharma N.V. and Gudrun N.V. Mr. Swenden holds an M.A. in Commercial Science from the
University of Antwerp, Belgium. The board of directors has determined that Mr. Swenden is a financial and accounting expert under
Israeli law.



Dr. Kenneth Reedhas served as a member of our board of
directors since December 15, 2009. Dr. Reed is a dermatologist, practicing in a private practice under the name of Kenneth Reed
MD PC. Dr. Reed currently serves on the board of directors of Minerva Biotechnologies Corporation. Dr. Reed received his B.A from
Brown University in the U.S. and a M.D. from the University of Medicine and Dentistry of New Jersey in the U.S. Dr. Reed is a
board certified dermatologist with over 25 years of clinical experience since completing the Harvard Medical School Residency
Program in Dermatology.



Dan Suesskind has served as a member of our board of directors
since February 21, 2011, and has served on our audit committee and investment committee since May 5, 2011. From 1977 to 2008, Mr.
Suesskind served as the Chief Financial Officer of Teva Pharmaceutical Industries Ltd. Mr. Suesskind served as a director of Teva
Pharmaceutical Industries Ltd. between 1981 to 2001  and  again between 2010 - 2014. In addition, Mr.
Suesskind currently serves on the board of directors of Syneron Medical Ltd., Israel Corporation Ltd. as well as a member of the
board of trustees of the Hebrew University. Mr. Suesskind is one of the founders and a member of the steering committee of the
Israeli Forum of Chief Financial Officers.  Mr. Suesskind holds a BA in Economics and Political Science from the Hebrew
University of Jerusalem, Israel and an MBA in Business Administration from University of Massachusetts in the U.S. The board of
directors has determined that Mr. Suesskind is a financial and accounting expert under Israeli law.



Rick D. Scruggs has
served as a member of our board of directors since January 1, 2016. Mr. Scruggs most recently served as Executive Vice President
of Business Development at Salix Pharmaceuticals, Ltd., up to its acquisition by Valeant Pharmaceuticals International in March
2015. Mr. Scruggs joined Salix in 2000, after working at Oclassen Pharmaceuticals Inc. and Watson Pharmaceuticals, and helped build
Salix’s commercial organization, serving in various sales and commercial trade related positions. He was appointed as Executive
Vice President in 2011 and was responsible for all business development activities as well as the worldwide distribution of Salix
innovative products and intellectual property. Mr. Scruggs also served as the Head of the Board of Directors of Oceana Therapeutics,
Salix’s European subsidiary. Mr. Scruggs holds a BS in Criminal Justice from the Appalachian State University in North Carolina,
U.S.A.



Ofer Tsimchi has served as an external director on our board
of directors since May 4, 2011, a member of our audit committee and as the Chairman of our compensation committee since May 5,
2011. From 2008 - 2012, Mr. Tsimchi served as the Chairman of the board of directors of Polysack Plastic Industries Ltd. and Polysack-Agriculture
Products, and since 2006 he has served as a Partner in the Danbar Group Ltd., a holding company. Mr. Tsimchi currently serves on
the board of directors of Kidron Industrial Materials Ltd., Amutat Zionut 2000, Danbar Group Ltd, and Polysack Agriculture Hi-Technologies,
CaesarStone Sdot-Yam Ltd. and Maabarot Products Ltd. Mr. Tsimchi received his BA in Economics and Agriculture from the Hebrew University
of Jerusalem, Israel. The board of directors has determined that Mr. Tsimchi is a financial and accounting expert under Israeli
law.





66




Nurit Benjamini, MBA, has served as an external director
on our board of directors and a member of our audit committee and our compensation committee since February 16, 2016. Since December
2013, Ms. Benjamini has served as the Chief Financial Officer of TabTale Ltd. a company that develops, designs and manufactures
interactive digital content to be displayed on electronic devices and websites. From 2011 to 2013, Ms. Benjamini served as the
Chief Financial Officer of Wixpress Ltd. (Nasdaq: WIX); from 2007 through 2011, she served as the Chief Financial Officer of CopperGate
Communications Ltd. now Sigma Designs Israel, a subsidiary of Sigma Designs Inc. (Nasdaq: SIGM); and from 2000 through 2007, she
served as the Chief Financial Officer of Compugen Ltd. (Nasdaq: CGEN). Prior to that, from 1993 through 1998, Ms. Benjamini served
as the Chief Financial Officer of Aladdin Knowledge Systems Ltd. (formerly Nasdaq: ALDN). Ms. Benjamini serves as an external director
of BiolineRx Ltd. (Nasdaq/TASE: BLRX), and as the chairperson of its audit committee, and on the board of directors, and as chairperson
of the audit committee, of Allot Communications Ltd. (Nasdaq/TASE: ALLT). Ms. Benjamini holds a B.A. in economics and business
and an M.B.A. in finance, both from Bar Ilan University, Israel.



B.           Compensation



The aggregate compensation paid, and benefits in-kind granted to
or accrued on behalf of all of our executive officers and directors for their services, in all capacities, to us during the year
ended December 31, 2015 was approximately $2.3 million. Out of that amount $1.4 million was paid as salary and consultants fees,
$0.6 million was attributed to the value of the options granted to directors and senior management during 2015, approximately $0.1
million was attributed to retirement plans and $0.1 million attributed to other long-term benefits. No additional amounts have
been set aside or accrued by us to provide pension, retirement or similar benefits.



The compensation terms for our directors and officers is derived from their employment agreements and comply
with our Compensation Policy for Executive Officers and Directors as approved by the Company’s shareholders on July 31, 2013
(Compensation Policy).



The table and summary below outline the compensation granted to our five highest compensated
directors and officers during the year ended December 31, 2015. The compensation detailed in the table below refers to actual
compensation granted or paid to the director or officer during the year 2015.





|Name and Position of director or
        officer                                                              | Base Salary
                                                                                                                      orOtherPayment (1) | Value
                                         ofSocialBenefits (2) | Bonuses | Value
                                         of EquityBasedCompensationGranted (3) | All
                                         OtherCompensation (4) | Total  
|------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------ | -------
|Amounts in $ U.S. dollars are based on 2015 monthly average representative U.S. dollar – NIS rate of exchange
|Dror Ben-Asher,
        Chief Executive Officer (5)                                                           | 232,395                                                                                                                                              | 52,824                                                              | -       | -                                                                                    | 18,513                                                             | 303,732
|Gilead
    Raday, Senior Vice President Corporate 
and Products Developments                                  | 235,200                                                                                                                                              | -                                                                   | -       | 158,491                                                                              | 17,323                                                             | 411,014
|Reza Fathi, Senior Vice President Research and Development                                                    | 240,000                                                                                                                                              | -                                                                   | -       | 146,751                                                                              | 17,504                                                             | 404,255
|Guy Goldberg, Chief Business officer                                                                          | 160,426                                                                                                                                              | 40,883                                                              | -       | 146,751                                                                              | 12,342                                                             | 360,402
|Adi Frish, Senior Vice President Business Development and Licensing                                           | 152,781                                                                                                                                              | 41,840                                                              | -       | 146,751                                                                              | 12,343                                                             | 353,715





|(1) | “Base Salary or Other
    Payment”     means the aggregate yearly gross monthly salaries or other payments with respect to the Company's
    Executive Officers and members     of the Board of Directors for the year 2015.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | “Social Benefits”
    include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds;
    vacation pay; and recuperation pay as mandated by Israeli law.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of the fair value
    of the equity-based compensation granted during 2015 in exchange for the directors and officers services recognized as an
    expense in profit or loss and is carried to accumulated deficit under equity. The total amount recognized as an expense over
    the vesting period of the options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | “All Other Compensation”
    includes, among other things, car-related expenses (including tax gross-up), communication expenses, basic health insurance,
    and holiday presents.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Mr. Ben-Asher's employment
    terms as the Company’s Chief Executive Officer provide that Mr. Ben-Asher is entitled to a monthly base gross salary
    of NIS 75,000 (approximately $19,200). Mr. Ben-Asher is further entitled to vacation days, sick days and convalescence pay
    in accordance with market practice and applicable law, monthly remuneration for a study fund, contribution by the Company
    to an insurance policy and pension fund, and additional benefits, including communication expenses. In addition, Mr. Ben-Asher
    is entitled to reimbursement of car-related expenses from the Company. Mr. Ben-Asher’s employment terms include an advance
    notice period of 180 days by the Company and 90 days by Mr. Ben-Asher. During such advance notice period, Mr. Ben-Asher will
    be entitled to all of the compensation elements, and to the continuation of vesting of any options or restricted shares granted
    to him. Additionally, in the event Mr. Ben-Asher's employment is terminated in connection with a “hostile takeover,”
    he will be entitled to a special one-time bonus equal to his then current monthly salary and retirement benefits, including
    payments to an advanced study fund and pension arrangement and car expense reimbursement, multiplied by 12. A “hostile
    takeover” is defined as an occurrence where a person, entity or group that was not an interested party under the Israeli
    Securities Law 1968 on the date of the initial public offering of our ordinary shares, becomes a “controlling shareholder,”
    asdefined in the Israeli Securities Law 1968, or a “holder,” as defined in the Israel Securities Law 1968, of
    25% or more of the voting rights in the Company. In addition, in case of an “hostile takeover”, all options granted
    to Mr. Ben-Asher will immediately vest in full.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67








In addition, all of our directors and executive officers are covered
under our directors’ and executive officers’ liability insurance policies and were granted letters of indemnification
by us.



Employment Agreements



We have entered into employment or consultant agreements with each
of our executive officers. All of these agreements contain customary provisions regarding noncompetition, confidentiality of information
and assignment of inventions.  However, the enforceability of the noncompetition provisions may be limited under applicable
laws.



For information on exemption and indemnification letters granted
to our officers and directors, please see “ – 6.C. Board Practices – Exemption, Insurance and Indemnification
of Directors and Officers.”



Director Compensation



Under the Israeli Companies Law, and related regulations, external
directors are entitled to a fixed annual compensation and an additional payment for each meeting attended. We currently pay our
external directors an annual cash fee of NIS 83,480 (approximately $21,400) and a cash fee of NIS 4,390 (approximately $1,120)
per meeting (or a smaller amount in case they do not physically attend the meeting).



Dr. Reed, Mr. Swenden, Dr. Cabilly, Mr. Suesskind, and Mr. Scruggs
receive the same cash remuneration as was approved for the external directors as described above.



Compensation Policy



On July 31, 2013, our shareholders approved a compensation policy
for our officers and directors in accordance with Amendment No. 20 to the Israeli Companies Law, pursuant to which we are required
to determine the compensation of our officers and directors in accordance with a D&O compensation policy.  The policy
was previous approved by our Board of Directors, upon recommendation of our Compensation Committee.



The compensation policy is in effect for three years from the 2013
annual general meeting. The compensation policy principles were designed to grant proper, fair and well-considered remuneration
to our officers, in alignment with our long-term best interests and overall organizational strategy. Part of the rationale is that
the Compensation Policy should encourage our officers to identify with our objectives, and an increase in officer satisfaction
and motivation should retain the employment of high-quality officers in our service over the long term.



|C. | Board Practices
|-- | ---------------



Appointment of Directors and Terms of Officers



Pursuant to our articles of association, the size of our board of
directors shall be no less than 5 persons but no more than 7, excluding at least two external directors. The directors, except
for our external directors, are divided into three classes, as nearly equal in number as possible. At each annual general meeting,
which is required to be held annually, but not more than fifteen months after the prior annual general meeting, the term of one
class of directors expires, and the directors of such class are re-nominated to serve an additional three year term that expires
at the annual general meeting held in the third year following such election. This process continues indefinitely. The director
of the first class, currently consisting of Dror Ben-Asher, will hold office until our annual general meeting to be held in the
year 2017. The directors of the second class, currently consisting of Dr. Kenneth Reed, and Eric Swenden, will hold office until
our annual general meeting to be held in the year 2018 and the directors of the third class, currently consisting of Dr. Shmuel
Cabilly and Dan Suesskind, will hold office until our annual general meeting to be held in the year 2016. Rick Scruggs, appointed
by our board of directors in accordance with our articles of association, will hold office until our annual general meeting to
be held in 2016. Until the next annual general meeting, the board of directors may elect new directors to fill vacancies, or increase
the number of members of the board of directors up to the maximum number provided in our articles of association. Any director
so appointed may hold office until the first general shareholders’ meeting convened after the appointment.





68




Pursuant to the Israeli Companies Law, one may not be elected and
may not serve as a director in a public company if he or she does not have the required qualifications and the ability to dedicate
an appropriate amount of time for the performance of his duties as a director in the company, taking into consideration, among
other things, the special needs and size of the company. In addition, a public company may convene an annual general meeting of
shareholders to elect a director, and may elect such director, only if prior to such shareholders meeting, the nominee declares,
among other things, that he or she possesses all of the required qualifications to serve as a director (and lists such qualifications
in such declaration) and has the ability to dedicate an appropriate amount of time for the performance of his duties as a director
of the company.



Under the Israeli Companies Law, the entering by a public company
into a contract with a non-controlling director as to the terms of his office, including exculpation, indemnification or insurance,
requires the approval of the compensation committee, the board of directors and the shareholders of the company.



A recent amendment to the Israeli Companies Law requires that the
terms of service and engagement of the CEO, directors or controlling shareholders (or a relative thereof) receive the approval
of the compensation committee, board of directors, and shareholders, subject to limited exceptions. Similarly, the terms of service
and engagement of any officer other than the CEO must receive the approval of the compensation committee and board of directors.
However, shareholder approval (with approval by a Special Majority, as defined below) is required if the compensation of such officer
other than the CEO is not in accordance with a new compensation policy the Company is required to adopt. The recent amendment to
the Israeli Companies Law requires that by August 11, 2013 the board and shareholders (with approval by a Special Majority) adopt
a compensation policy applicable to Company officers and directors which must take into account, among other things, providing
proper incentives to directors and officers, the risk management of the company, the officer’s contribution to achieving
corporate objectives and increasing profits, and the function of the officer or director. Under the Israeli Companies Law, a Special
Majority requires (i) the vote of at least a majority of the shares held by shareholders who are not controlling shareholders or
have a personal interest in the proposal (shares held by abstaining shareholders shall not be taken into account); or (ii) that
the aggregate number of shares voting against the proposal held by such shareholders does not exceed 2% of the Company's voting
shareholders.



We have a service contract with one of our directors, Dror Ben-Asher
that provides for benefits upon termination of his employment as director.  For more information, see “ – B. Compensation
– Executives and Director Compensation.”



Independent and External Directors - Israeli Companies Law Requirements



We are subject to the provisions of the Israeli Companies Law. The
Israeli Minister of Justice has adopted regulations exempting companies like us whose shares are traded outside of Israel from
some provisions of the Israeli Companies Law.



Under the Israeli Companies Law, companies incorporated under the
laws of Israel whose shares are either (i) listed for trading on a stock exchange or (ii) have been offered to the public in or
outside of Israel, and are held by the public (Public Company) are required to appoint at least two external directors.  The
Israeli Companies Law provides that a person may not be appointed as an external director if the person is a relative of the controlling
shareholder or if the person or the person’s relative, partner, employer, someone to whom he is subordinated directly or
indirectly or any entity under the person’s control, has, as of the date of the person’s appointment to serve as external
director, or had, during the two years preceding that date, any affiliation with us, our controlling shareholder, any relative
of our controlling shareholder, as of the date of the person’s appointment to serve as external director, or any entity in
which, currently or within the two years preceding the appointment date, the controlling shareholder was the company or the company's
controlling shareholder; and in a company without a controlling shareholder or without a shareholder holding 25% or more of the
voting rights in the company, any affiliation to the chairman of the board of directors, to the general manager (Chief Executive
Officer), to a shareholder holding 5% or more of the company's shares or voting rights, or to the chief officer in the financial
or economic field as of the date of the person’s appointment. The term “affiliation” includes:



|· | an employment relationship;                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | a business or professional relationship maintained on a regular basis;                                                                                                                                
|· | control; and                                                                                                                                                                                          
|· | service as an office holder, other than service as a director who was appointed in order to serve as an external director of a company when such company was about to make an initial public offering.





69




Under the Israeli Companies Law, an “office holder”
is defined as a general manager, chief business manager, deputy general manager, vice-general manager, any person filing any of
these positions in a company even if he holds a different title, director or any manager directly subordinate to the general manager.



However, a person may not serve as an external director if the person
or the person’s relative, partner, employer, someone to whom he is subordinated directly or indirectly or any entity under
the person’s control has business or professional relationship with an entity which an affiliation with is prohibited as
detailed above, even if such relationship is not on a regular basis (excluding negligible relationship). In addition, an external
director may not receive any compensation other than the compensation permitted by the Israeli Companies Law.



Regulations under the Israeli Companies Law, provide for various
instances and kinds of relationships in which an external director will not be deemed to have “affiliation” with the
public company for which he serves, or is a candidate for serving as an external director.



No person can serve as an external director if the person’s
positions or other businesses create, or may create a conflict of interests with the person’s responsibilities as a director
or may impair his ability to serve as a director.  In addition, a person who is a director of a company may not be elected
as an external director of another company if, at that time, a director of the other company is acting as an external director
of the first company. Until the lapse of two years from termination of office, a company, its controlling shareholder, or a company
controlled by him may not engage an external director, his spouse, or child to serve as an office holder in the company or in any
entity controlled by the controlling shareholder and cannot employ or receive professional services for consideration from that
person, and may not grant such person any benefit either directly or indirectly, including through a corporation controlled by
that person. The same restrictions apply to relatives other than a spouse or a child, but such limitations shall only apply for
one year from the date such external director ceased to be engaged in such capacity. In addition, if at the time an external director
is appointed, all current members of the board of directors, who are neither controlling shareholders nor relatives of controlling
shareholders, are of the same gender, then the external director to be appointed must be of the other gender.



Under the Israeli Companies Law, a public company is required to
appoint as an external director, a person who has “professional expertise” or a person who has “financial and
accounting expertise,” provided that at least one of the external directors must have “financial and accounting expertise.”
However, if at least one of our other directors (1) meets the independence requirements of the Securities Exchange Act of
1934, as amended, (2) meets the standards of the Nasdaq Stock Market for membership on the audit committee and (3) has
financial and accounting expertise as defined in the Israeli Companies Law and applicable regulations, then neither of our external
directors is required to possess financial and accounting expertise as long as both possess other requisite professional qualifications.
The determination whether a director possesses financial and accounting expertise is made by the board of directors.



Under the Israeli Companies Law regulations, a director having financial
and accounting expertise is a person who, due to his education, experience and qualifications is highly skilled in respect of,
and understands, business-accounting matters and financial reports in a manner that enables him to understand in depth the company’s
financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the Israeli
Companies Law regulations, a director having professional expertise is a person who has an academic degree in either economics,
business administration, accounting, law or public administration or another academic degree or has completed other higher education
studies, all in an area relevant to the main business sector of the company or in a relevant area for the board of directors position,
or has at least five years of experience in one of the following or at least five years of aggregate experience in two or more
of the following: a senior management position in the business of a corporation with a substantial scope of business, in a senior
position in the public service or a senior position in the main field of the company’s business.



Under the Israeli Companies Law, each Israeli public company is
required to determine the minimum number of directors with “accounting and financial expertise” that such company believes
is appropriate in light of the company’s type, size, the scope and complexity of its activities and other factors. Once a
company has made this determination, it must ensure that the necessary appointments to the board of directors are made in accordance
with this determination. Our board of directors determined that two directors with “accounting and financial expertise”
is appropriate for us. Our board of directors currently has five directors with such “accounting and financial expertise.”



External directors are to be elected by a majority vote at a shareholders’
meeting, provided that either (1) the majority of shares voted at the meeting, including at least a majority of the votes
of the shareholders who are not controlling shareholders (as defined in the Israeli Companies Law), do not have a personal interest
in the appointment (excluding a personal interest which did not result from the shareholder’s relationship with the controlling
shareholder), vote in favor of the election of the director without taking abstentions into account; or (2) the total number
of shares of the above mentioned shareholders who voted against the election of the external director does not exceed two percent
of the aggregate voting rights in the company.





70




The initial term of an external director is three years and may
be extended for two additional three-year terms under certain circumstances and conditions. Nevertheless, regulations under the
Israeli Companies Law provide that companies, whose shares are listed for trading both on the Tel Aviv Stock Exchange and on the
Nasdaq Stock Market, may appoint an external director for additional three-year terms, under certain circumstances and conditions.
External directors may be removed only in a general meeting, by the same percentage of shareholders as is required for their election,
or by a court, and in both cases only if the external directors cease to meet the statutory qualifications for their appointment
or if they violate their duty of loyalty to us.  Each committee authorized to exercise any of the powers of the board of directors,
is required to include at least one external director and the audit committee is required to include all of the external directors.



An external director is entitled to compensation and reimbursement
of expenses in accordance with regulations promulgated under the Israeli Companies Law and is otherwise prohibited from receiving
any other compensation, directly or indirectly, in connection with serving as a director except for certain exculpation, indemnification
and insurance provided by the company.



Mr. Ofer Tsimchi and Ms. Nurit Benjamini currently serve as our
external directors.



Committees



Israeli Companies Law Requirements



Our board of directors has established three standing committees,
the audit committee, the compensation committee and the investment committee.



Audit Committee



Under the Israeli Companies Law, the board of directors of a public
company must appoint an audit committee, comprised of at least three directors including all of the external directors.



The majority of the members of the audit committee, as well as the
majority of members present at audit committee meetings, must be “independent” (as such term is defined below) and
the chairman of the audit committee must be an external director. In addition, the following are disqualified from serving as members
of the audit committee: the chairman of the board of directors, the controlling shareholder and her or his relatives, any director
employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director
who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling
shareholder, and any director who derives most of its income from the controlling shareholder. Any persons not qualified from serving
as a member of the audit committee may not be present at the audit committee meetings during the discussion and at the time decisions
are made, unless the chairman of the audit committee determines that the presence of such person is required to present a matter
to the meeting or if such person qualifies under an available exemption in the Companies Law.



An “independent director” is defined as an external
director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external director
(as described above) and the audit committee has determined that such conditions have been met and (ii) has not served as a director
of the company for more than nine consecutive years, with any interruption of up to two years in service not being deemed a disruption
in the continuity of such service.



The role of the audit committee under the Israel Companies Law is
to examine suspected flaws in our business management, in consultation with the internal auditor or our independent accountants
and suggest appropriate course of action in order to correct such flaws. In addition, the approval of the audit committee is required
to effect specified actions and related party transactions.



Additional functions to be performed by the audit committee include,
among others, the following:



|· | determination whether certain related party actions and transactions are “material” or “extraordinary” for purposes of the requisite approval procedures;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|· | to determine whether to approve actions and transactions that require audit committee approval under the Israel Companies Law;
|- | ------------------------------------------------------------------------------------------------------------------------------

|· | to assess the scope of work and compensation of the company’s independent accountant;
|- | -------------------------------------------------------------------------------------

|· | to assess the company’s internal audit system and the performance of its internal auditor and if the necessary resources have been made available to the internal auditor considering the company’s needs and size; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | to determine arrangements for handling complaints
of employees in relation to suspected flaws in the business management of the company and the protection of the rights of such
employees.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





71




Our audit committee also serves as our financial statements committee.
The members of our audit committee are Ms. Nurit Benjamini, Mr. Ofer Tsimchi and Mr. Dan Suesskind.



Compensation Committee



According to the Companies Law, the board of directors of a public
company must establish a compensation committee consisting of at least three directors and including all of the external directors
who must constitute a majority of its members. The remaining members must be qualified to serve on the audit committee pursuant
to Companies Law requirements described above. The compensation committee chairman must be an external director. Any persons not
qualified from serving as a member of the compensation committee may not be present at the compensation committee meetings during
the discussion and at the time decisions are made, unless the chairman of the compensation committee determines that the presence
of such person is required to present a matter to the meeting or if such person qualifies under an available exemption in the Companies
Law.



The provisions of the Companies Law that govern the compensation
and reimbursement terms of external directors also apply to members of the compensation committee who are not external directors.
Our compensation committee, which consists of Mr. Ofer Tsimchi (chairman), Dr. Shmuel Cabilly and Ms. Nurit Benjamini, administers
issues relating to our global compensation plan with respect to our employees, directors and consultants. Our compensation committee
is responsible for making recommendations to the board of directors regarding the issuance of share options and compensation terms
for our officers and directors and for determining salaries and incentive compensation for our executive officers and incentive
compensation for our other employees and consultants. Each of the members of the compensation committee is “independent”
as such term is defined in the Nasdaq Listing Rules.



Investment Committee



Our investment committee, which consists of Mr. Eric Swenden (chairman)
and Mr. Dan Suesskind, assists the board in fulfilling its responsibilities with respect to the Company's financial and investment
strategies and policies, including determining policies and guidelines on these matters and monitoring implementation. It is also
authorized to approve certain financial transactions and review risk factors associated with management of the Company finances
and the mitigation of such risks, as well as financial controls and reporting and various other finance-related matters.



Nasdaq Stock Market Requirements



Under the Nasdaq Marketplace Rules, we are required to maintain
an audit committee consisting of at least three members, all of whom are independent and are financially literate and one of whom
has accounting or related financial management expertise.



The independence requirements of Rule 10A-3 of the Securities Exchange
Act of 1934, as amended, implement two basic criteria for determining independence:



|· | audit committee members are barred from accepting directly or indirectly any consulting, advisory or other compensatory fee from the issuer or an affiliate of the issuer, other than in the member’s capacity as a member of the board of directors and any board committee, and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | audit committee members may not be an “affiliated person” of the issuer or any subsidiary of the issuer apart from her or his capacity as a member of the board of directors and any board committee.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Securities and Exchange Commission has defined “affiliate”
for non-investment companies as “a person that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.” The term “control” is intended to be consistent
with the other definitions of this term under the Securities Exchange Act of 1934, as amended, as “the possession, direct
or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise.” A safe harbor has been adopted by the Securities and Exchange Commission,
under which a person who is not an executive officer or 10% shareholder of the issuer would be deemed not to have control of the
issuer.



In accordance with the Sarbanes-Oxley
Act of 2002 and the Nasdaq Marketplace Rules, the audit committee is directly responsible for the appointment, compensation and
performance of our independent auditors. In addition, the audit committee is responsible for assisting the board of directors in
reviewing our annual financial statements, the adequacy of our internal controls and our compliance with legal and regulatory requirements.
The audit committee also oversees our major financial risk exposures and policies for managing such potential risks, discusses
with management and our independent auditor significant risks or exposure and assesses the steps management has taken to minimize
such risk.





72




As noted above, the members of our audit committee include Ms. Nurit
Benjamini, Mr. Ofer Tsimchi and Mr. Dan Suesskind, with Ms. Benjamini serving as chairman. All members of our audit committee
meet the requirements for financial literacy under the Nasdaq Marketplace Rules. Our board of directors has determined that each
of Mr. Ofer Tsimchi and Ms. Nurit Benjamini is an audit committee financial expert as defined by the Securities and Exchange Commission
rules and all members of the audit committee have the requisite financial experience as defined by the Nasdaq Marketplace Rules.
Each of the members of the audit committee is “independent” as such term is defined in Rule 10A-3(b)(1) under
the Securities Exchange Act of 1934, as amended.



Corporate Governance Practices



Internal Auditor



Under the Israeli Companies Law, the board of directors must appoint
an internal auditor proposed by the audit committee. The role of the internal auditor is, among others, to examine whether our
actions comply with the law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may not be an
interested party, an office holder, a relative of an interested party, or a relative of an office holder, nor may the internal
auditor be our independent accountant or its representative. Ms. Dana Gottesman-Erlich, Partner at Risk Advisory and Internal Auditing
Group at BDO Israel, serves as our internal auditor.



Duties of Office Holders and Approval of Specified Related Party
Transactions Under Israeli Law



Fiduciary Duties of Office Holders



The Israeli Companies Law imposes a duty of care and a duty of loyalty
on all office holders of a company, including directors and executive officers. The duty of care requires an office holder to act
with the level of care, according to which a reasonable office holder in the same position would have acted under the same circumstances.



The duty of care includes a duty to use reasonable means to obtain:



|· | information on the appropriateness of a given action brought for the office holder’s approval or performed by him by virtue of his position; and
|- | ------------------------------------------------------------------------------------------------------------------------------------------------

|· | all other important information pertaining to the previous actions.
|- | -------------------------------------------------------------------



The duty of loyalty requires an office holder to act in good faith
and for the benefit of the company, and includes a duty to:



|· | refrain from any action involving a conflict of interest between the performance of the office holder’s duties in the company and his personal affairs;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|· | refrain from any activity that is competitive with the company’s business;
|- | --------------------------------------------------------------------------

|· | refrain from usurping any business opportunity of the company to receive a personal gain for the office holder or others; and
|- | -----------------------------------------------------------------------------------------------------------------------------

|· | disclose to the company any information or documents relating to a company’s affairs which the office holder has received due to his position as an office holder.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Israeli Companies Law, directors’ compensation arrangements
require compensation committee approval, board of directors’ approval and shareholder approval.



The Israeli Companies Law requires that an office holder of a company
promptly and, in any event, not later than the first board meeting at which the transaction is discussed, disclose any personal
interest that he may have and all related material facts or document known to her or him, in connection with any existing or proposed
transaction by the company. A personal interest of an office holders includes a personal interest of the office holder’s
relative, of a company in which the office holder or the office holder’s relative is, a shareholder which holds 5% or more
of a company’s share capital or its voting rights, a director or a general manager, or in which the office holder has the
right to appoint at least one director or the general manager. A personal interest also includes a personal interest of a person
who votes according to a proxy of another person, even if the other person has no personal interest, and a personal interest of
a person who gave a proxy to another person to vote on his behalf – all whether the discretion how to vote lies with the
person voting or not. In the case of an extraordinary transaction, the office holder’s duty to disclose applies also to a
personal interest of the office holder’s relative.





73




Under Israeli law, an extraordinary transaction is a transaction:



|· | other than in the ordinary course of business;
|- | ----------------------------------------------

|· | other than on market terms; or
|- | ------------------------------

|· | that is likely to have a material impact on the company’s profitability, assets or liabilities.
|- | -----------------------------------------------------------------------------------------------



Under the Israeli Companies Law, once an office holder complies
with the above disclosure requirement, the board of directors may approve an ordinary transaction between the company and an office
holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise.
A transaction does not benefit to the company’s interest cannot be approved. Subject to certain exceptions, the compensation
committee and the board of directors must approve the conditions and term of office of an office holder (which is not a director).



If the transaction is an extraordinary transaction, both the audit
committee and the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval
may also be required. Whoever 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 this meeting or vote on this matter. However, if the chairman of the board of directors
or the chairman of the audit committee has determined that the presence of such person is required to present a matter to the meeting,
such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority of the directors have a personal
interest in a matter, a director who has the personal interest in this matter may be present at this meeting or vote on this matter,
but the board of directors decision requires the shareholder approval.



Controlling Shareholder Transactions and Actions



Under the Israeli Companies Law, the disclosure requirements which
apply to an office holder also apply to a controlling shareholder of a public company and to a person who would become a controlling
shareholder as a result of a private placement. A controlling shareholder includes a person who has the ability to direct the activities
of a company, other than if this power derives solely from his/her position on the board of directors or any other position with
the company. In addition, for such purposes a controlling shareholder includes a shareholder that holds 25% or more of the voting
rights in a public company if no other shareholder owns more than 50% of the voting rights in the company. Extraordinary transactions
with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in
which a controlling shareholder has a personal interest; and the terms of engagement of the company, directly or indirectly, with
a controlling shareholder or his or her relative (including through a corporation controlled by a controlling shareholder), regarding
the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office
holder of the company or an employee, regarding his or her terms of office and employment, require the approval of the audit committee,
the board of directors and the shareholders of the company, in that order. The shareholders approval must include either:



|· | a majority of the shareholders who have no personal interest in the transaction and who are participating in the voting, in person, by proxy or by written ballot, at the meeting (votes abstaining shall not be taken into account); or
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the total number of shares voted against the proposal by shareholders without a personal interest does not exceed 2% of the aggregate voting rights in the Company.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, any such transaction whose term is more than three
years requires the above mentioned approval every three years, unless, with respect to transactions not involving the receipt of
services or compensation, the audit committee approves a longer term as reasonable under the circumstances.



However, under regulations, promulgated pursuant to the Israeli
Companies Law, certain transactions between a company and its controlling shareholders, or the controlling shareholder’s
relative, do not require shareholder approval.



For information concerning the direct and indirect personal interests
of certain of our office holders and principal shareholders in certain transactions with us, see “Item 7. Major Shareholders
– B. Related Party Transactions.”





74




The Israeli Companies Law requires that every shareholder that participates,
either by proxy or in person, in a vote regarding a transaction with a controlling shareholder indicate whether or not that shareholder
has a personal interest in the vote in question, the failure of which results in the invalidation of that shareholder’s vote.



The Israeli Companies Law further provides that an acquisition of
shares or voting rights in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser
would become a holder of 45% of the voting rights of the company, unless there is a holder of more than 45% of the voting rights
of the company or would become a holder of 25% of the voting rights unless there is another person holding 25% of the voting rights.
This restriction does not apply to:



|· | an acquisition of shares in a private placement, if the acquisition had been approved in a shareholders meeting under certain circumstances;
|- | --------------------------------------------------------------------------------------------------------------------------------------------

|· | an acquisition of shares from a holder of at least 25% of the voting rights, as a result of which a person would become a holder of at least 25% of the voting rights; and
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | an acquisition of shares from a holder of more than 45% of the voting rights, as a result of which the acquirer would become a holder of more than 45% of the voting rights in the company.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Israeli Companies Law further provides that a shareholder has
a duty to act in good faith towards the company and other shareholders when exercising his rights and duties and shall refrain
from oppressing other shareholders, including in connection with the voting at a shareholders’ meeting on:



|· | any amendment to the articles of association;
|- | ---------------------------------------------

|· | an increase in the company’s authorized share capital;
|- | ------------------------------------------------------

|· | a merger; or
|- | ------------

|· | approval of certain transactions with control persons and other related parties, which require shareholder approval.
|- | --------------------------------------------------------------------------------------------------------------------



In addition, any controlling shareholder, any shareholder who knows
that it possesses power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a
company’s articles of association, has the power to appoint or prevent the appointment of an office holder in the company,
or has any other power over the company, is under a duty to act with fairness towards the company. Under the Israeli Companies
Law, the laws that apply to a breach of a contract will generally also apply to a breach of duty of fairness.



Exemption, Insurance and Indemnification of Directors and Officers



Office Holder Exemption



Under the Israeli Companies Law, a company may not exempt an officer
or director from liability with respect to a breach of his duty of loyalty, but may exempt in advance an officer or director from
liability to the company, in whole or in part, with respect to a breach of his duty of care, except in connection with a prohibited
distribution made by the company, if so provided in its articles of association. Our articles of association provide for this exemption
from liability for officers and directors.



Office Holder Insurance



The Israeli Companies Law and our articles of association provide
that, subject to the provisions of the Israeli Companies Law, we may obtain insurance for our officers and directors for any liability
stemming from any act performed by an officer or director in his capacity as an officer or director, as the case may be with respect
to any of the following:



|· | a breach of such officer’s or director’s duty of care to us or to another person;
|- | ---------------------------------------------------------------------------------

|· | a breach of such officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good faith and had reasonable cause to assume that his act would not prejudice our interests;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a financial liability imposed upon such officer or director in favor of another person;
|- | ---------------------------------------------------------------------------------------



75






|· | financial liability imposed on the officer or director for payment to persons or entities harmed as a result of
violations in administrative proceedings as  described in Section 52(54)(a)(1)(a) of the Israeli Securities Law (Party
Harmed by the Breach);
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | expenses incurred by such officer or director in connection with an administrative proceeding conducted in his matter, including reasonable litigation expenses, including legal fees; or
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a breach of any duty or any other obligation, to the extent insurance may be permitted by law.
|- | ----------------------------------------------------------------------------------------------



In July 2013, our shareholders approved our Compensation Policy,
which includes, among others, provisions relating to directors and officers liability insurance. Pursuant to the Compensation Policy,
we may obtain a liability insurance policy, which would apply to our and/or our subsidiaries directors and officers, as they may
be, from time to time,   subject to the following terms and conditions: (a) the total insurance coverage under the insurance
policy may not exceed $50 million; and (b) the annual premium payable by us for the insurance premium may not exceed $400,000 annually.
In addition, pursuant to the Compensation Policy, should we sell our operations (in whole or in part) and/or in case of merger,
spin-off or any other significant business combination involving us and/or part or all of our assets, we   may obtain a director’s
and officers’ liability insurance policy (run-off) for our directors and officers in office with regard   to the relevant
operations, subject to the following terms and conditions: (a) the insurance term shall not exceed seven years; (b) the coverage
amount may not exceed $50 million; (c) the premium payable by us may not exceed $400,000 annually. The Compensation Policy is in
effect for three years from the 2013 annual general meeting.



Subsequent to the approval of the terms of the Compensation Policy,
our compensation committee and board of directors resolved to purchase directors and officers liability insurance policy, pursuant
to which the total amount of insurance covered under the policy would be $40 million This insurance was renewed in December 2015,
for the period commencing on December 16, 2015 and ending on December 15, 2016. Pursuant to the foregoing approvals, we carry directors
and officers liability insurance.



Indemnification of Office Holders



The Israeli Companies Law provides that a company may indemnify
an officer or director for payments or expenses associated with acts performed in his capacity as an officer or director of the
company, provided the company’s articles of association include the following provisions with respect to indemnification:



|· | a provision authorizing the company to indemnify an officer or director for future events with respect to a monetary liability imposed on him in favor of another person pursuant to a judgment (including a judgment given in a settlement or an arbitrator’s award approved by the court), so long as such indemnification is limited to types of events which, in the board of directors’ opinion, are foreseeable at the time of granting the indemnity undertaking given the company’s actual business, and in such amount or standard as the board of directors deems reasonable under the circumstances. Such undertaking must specify the events that, in the board of directors’ opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount or the standards that the board of directors deemed reasonable at the time;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation expenses, including counsel fees, incurred by an officer or director in which he is ordered to pay by a court, in proceedings that the company institutes against him or instituted on behalf of the company or by another person, or in a criminal charge from which he was acquitted, or a criminal charge in which he was convicted for a criminal offense that does not require proof of criminal intent;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation fees, including attorney’s fees, incurred by an officer or director due to an investigation or proceeding filed against him by an authority that is authorized to conduct such investigation or proceeding, and that resulted without filing an indictment against him and without imposing on him financial obligation in lieu of a criminal proceeding, or that resulted without filing an indictment against him but with imposing on him a financial obligation as an alternative to a criminal proceeding in respect of an offense that does not require the proof of criminal intent or in connection with a monetary sanction;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a provision authorizing the company to indemnify an officer or director for future events with respect to a Party Harmed by the Breach;
|- | ---------------------------------------------------------------------------------------------------------------------------------------

|· | a provision authorizing the company to indemnify an officer or director for future events with respect to expenses incurred by such officer or director in connection with an administrative proceeding, including reasonable litigation expenses, including legal fees; and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



76






|· | a provision authorizing the company to retroactively indemnify an officer or director.
|- | --------------------------------------------------------------------------------------



Limitations on Insurance, Exemption and Indemnification



The Israeli Companies Law and our articles of association provide
that a company may not exempt or indemnify an office holder nor enter into an insurance contract, which would provide coverage
for any monetary liability incurred as a result of any of the following:



|· | a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officer or director acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a breach by the officer or director of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | any act or omission done with the intent to derive an illegal personal benefit; or
|- | ----------------------------------------------------------------------------------

|· | any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director.
|- | ----------------------------------------------------------------------------------------



In addition, under the Israeli Companies Law, exemption of, indemnification
of, and procurement of insurance coverage for, our officers and directors must be approved by our audit committee and board of
directors and, in specified circumstances, by our shareholders.



Letters of Indemnification



We have issued our officers and directors letters of indemnification,
pursuant to which we have agreed to indemnify each officer and director in advance for any liability or expense imposed on or incurred
by him in connection with acts performed by him in the capacity of an officer   or director, subject to the provisions of
the letters of indemnification agreement. As approved by our shareholders on July 18, 2013, the amount of the advance indemnity
is limited up to $5 million.



As part of the indemnification letters, we exempted our directors
and officers, in advance, to the extent permitted under law, from any liability for any damage incurred by them, either directly
or indirectly, due to the breach of an officer’s or director’s duty of care vis- à-vis us, within his
acts in his capacity as an officer or director. The letter provides that so long as not permitted under law, we do not exempt an
officer or director in advance from his liability to us for a breach of the duty of care upon distribution, to the extent applicable
to the officer or director, if any. The letter also exempts an officer or director from any liability for any damage incurred by
him, either directly or indirectly, due to the breach of the officer or director’s duty of care vis- à-vis
us, by his acts in his capacity as an officer or director prior to the letter of exemption and indemnification becoming effective.



|D. | Employees
|-- | ---------



As of February 22, 2016, we had 12 employees and we also received services from 13 consultants
who provide services to us in the U.S., Canada and Belgium.



|                              |  | As of December 31,
|----------------------------- |  | ------------------
|                              |  | 2013              
|                              |  |                   
|Management and administration |  |                   
|Research and development      |  |                   



While none of our employees is party to a collective bargaining
agreement, 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 order of the Israel Ministry of Labor. These provisions primarily concern the length of the workday, minimum daily
wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures for dismissing
employees, determination of severance pay and other conditions of employment. 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.



77






|E. | Share Ownership
|-- | ---------------



The following table sets forth information regarding the beneficial
ownership of our outstanding ordinary shares as of February 22, 2016 of each of our directors and executive officers individually
and as a group based on information provided to us by our directors and executive officers. The information in this table is based
on 127,114,294 ordinary shares outstanding as of such date. The number of ordinary shares beneficially owned by a person includes
ordinary shares subject to options or warrants held by that person that were currently exercisable at, or exercisable within 60
days of,  February 22, 2016. The ordinary shares issuable under these options and warrants are treated as if they
were outstanding for purposes of computing the percentage ownership of the person holding these options and warrants but not the
percentage ownership of any other person.  None of the holders of the ordinary shares listed in this table have voting
rights different from other holders of the ordinary shares.





|                                                             |  | Number of
        Shares
        Beneficially
        Held |            |  | Percent of
        Class | 
|------------------------------------------------------------ |  | ---------------------------------------------------------- | ---------- |  | ------------------------ | 
|Directors                                                    |  |                                                            |            |  |                          | 
|Dr. Kenneth Reed (1)                                         |  |                                                            | 4,636,672  |  |                          | 
|Dr. Shmuel Cabilly (2)                                       |  |                                                            | 4,254,178  |  |                          | 
|Dan Suesskind (3)                                            |  |                                                            | 1,119,100  |  |                          | 
|Eric Swenden (4)                                             |  |                                                            | 983,746    |  |                          | 
|Ofer Tsimchi (5)                                             |  |                                                            | 270,000    |  |                          | 
|Rick D. Scruggs                                              |  |                                                            | -          |  |                          | 
|Nurit Benjamini                                              |  |                                                            | -          |  |                          | 
|                                                             |  |                                                            |            |  |                          | 
|Executive officers                                           |  |                                                            |            |  |                          | 
|Dror Ben-Asher (6)                                           |  |                                                            | 5,980,030  |  |                          | 
|Ori Shilo (7)                                                |  |                                                            | 5,327,715  |  |                          | 
|Reza Fathi, Ph.D. (8)                                        |  |                                                            | 1,276,250  |  |                          | 
|Gilead Raday (9)                                             |  |                                                            | 911,250    |  |                          | 
|Adi Frish (10)                                               |  |                                                            | 823,750    |  |                          | 
|Guy Goldberg (11)                                            |  |                                                            | 443,750    |  |                          | 
|Uri Hananel Aharon (12)                                      |  |                                                            | 297,750    |  |                          | 
|All directors and executive officers as a group (12 persons) |  |                                                            | 26,323,941 |  |                          | 





* Less than 1.0%



|(1)  | Includes options to purchase
    355,000 ordinary shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between
    $0.165 and $1.48 per share, and the options expiry date range between 2017 and 2021. See "Item 5. Operating and Financial
    Review and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.      
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | Includes options to purchase 360,000 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.5 and $1.48 per
    share, and the options expiry date range between 2017 and 2021. See "Item 5. Operating and Financial Review and Prospects
    – B. Liquidity and Capital Resources" for more information regarding the warrants.        
|(3)  | Includes options to purchase 975,000 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.5 and $1.48 per
    share, and the options expiry date range between 2018 and 2021. See "Item 5. Operating and Financial Review and Prospects
    – B. Liquidity and Capital Resources" for more information regarding the warrants.        
|(4)  | Includes options to purchase 355,000 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.165 and $1.48
    per share, and the options expiry date range between 2017 and 2021. See "Item 5. Operating and Financial Review and Prospects
    – B. Liquidity and Capital Resources" for more information regarding the warrants.      
|(5)  | Includes options to purchase 270,000 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $1.05 and $1.48
    per share, and the options expiry date range between 2018and 2021.                                                                                                                                                         
|(6)  | Includes options to purchase 3,340,000
    ordinary shares exercisable within 60 days of February 22, 2015 and. The exercise price of these options range between $0.165
    and $1.48 per share, and the options expiry date range between 2017 and 2021. See "Item 5. Operating and Financial Review
    and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.
|(7)  | Includes options to purchase 2,732,500
    Ordinary exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.165 and $1.48
    per share, and the options expiry date range between 2017 and 2021. See "Item 5. Operating and Financial Review and Prospects
    – B. Liquidity and Capital Resources" for more information regarding the warrants.           
|(8)  | Includes options to purchase 1,276,250
    ordinary shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.165
    and $1.56 per share, and the options expiry date range between 2017 and 2022.                                                                                                                                                     
|(9)  | Includes options to purchase 911,250 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.165 and $1.65
    per share, and the options expiry date range between 2017 and 2022.                                                                                                                                                       
|(10) | Includes options to purchase 823,750 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.165 and $1.56
    per share, and the options expiry date range between 2017 and 2022.                                                                                                                                                       
|(11) | Includes options to purchase 443,750 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.7 and $1.56 per
    share, and the options expiry date range between 2019 and 2022.                                                                                                                                                         
|(12) | Includes options to purchase 297,750 ordinary
    shares exercisable within 60 days of February 22, 2015. The exercise price of these options range between $0.69 and $1.56
    per share, and the options expiry date range between 2018 and 2022.                                                                                                                                                        





78




Option Plans



2010 Option Plan



In 2010, we adopted the RedHill Biopharma Ltd. 2010 Option Plan.
The 2010 Option Plan provides for the granting of options to our directors, officers, employees, consultants and service providers
and individuals who are their employees, and to the directors, officers, employees, consultants and service providers of our subsidiaries
and affiliates. The 2010 Option Plan provides for options to be issued at the determination of our board of directors in accordance
with applicable laws. As of February 22, 2016, there were 20,511,338 ordinary shares issuable upon the exercise of outstanding
options under the 2010 Option Plan.



Administration of Our Option Plan



Our option plan is administered by our compensation committee regarding
the granting of options and the terms of option grants, including exercise price, method of payment, vesting schedule, acceleration
of vesting and the other matters necessary in the administration of these plans. Options granted under the 2010 Option Plan to
eligible Israeli employees, officers and directors are granted under Section 102 of the Israel Income Tax Ordinance pursuant to
which the options or the ordinary shares issued upon their exercise must be allocated or issued to a trustee and be held in trust
for two years from the date upon which such options were granted   in order to benefit from the provisions of Section 102.
Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the
options or ordinary shares by the trustee to the employee or upon the sale of the options or ordinary shares, and gains may qualify
to be taxed as capital gains at a rate equal to 25%, subject to compliance with specified conditions. See “Item 10. Additional
Information – E. Taxation – Israeli Tax Considerations.”



Options granted under 2010 Option Plan as amended generally vest
over a period of 4 years and expire seven (7) years after the grant date. The 2010 Option Plan, however, permits options to have
a term of up to 10 years. If we terminate a grantee for cause (as such term is defined in the 2010 Option Plan) the right to exercise
all the options granted to the grantee, the grantee’s vested and unvested options will expire immediately, on the earlier
of:



|· | termination of the engagement; or
|- | ---------------------------------

|· | the date of the notice of the termination of the engagement.
|- | ------------------------------------------------------------



Upon termination of employment for any other reason, other than
in the event of death, disability, retirement after the age of 60 or for cause, all unvested options will expire and all vested
options will generally be exercisable for 90 days following termination, or such other period as determined by the plan administrator,
subject to the terms of the 2010 Option Plan and the governing option agreement.



Under our 2010 Option Plan, as amended, in the event any person,
entity or group that was not an interested party at the time of our initial public offering on the Tel Aviv Stock Exchange becoming
a controlling shareholder, all options granted by us under the plan will be accelerated, so that the grantee will be entitled to
exercise all of those options. A “controlling shareholder” in this paragraph is a controlling shareholder, as defined
in the Israel Securities Law, 1968. An “interested party” is defined in the Securities Law and includes, among others:



|· | a holder of 5% or more of the outstanding shares or voting rights of an entity;
|- | -------------------------------------------------------------------------------

|· | a person entitled to appoint one or more of the directors or chief executive officer of an entity;
|- | --------------------------------------------------------------------------------------------------

|· | a director of an entity or its chief executive officer;
|- | -------------------------------------------------------

|· | an entity, in which an individual referred to above holds 25% or more of its outstanding shares or voting rights, or is entitled to appoint 25% or more of its directors; or
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | a person who initiated the establishment of the entity.
|- | -------------------------------------------------------



Upon termination of employment due to death or disability, or retirement
after the age of 60, subject to the board of directors’ approval, all the vested options at the time of termination will
be exercisable for 24 months, or such other period as determined by the plan administrator, subject to the terms of the 2010 Option
Plan and the governing option agreement.





79




In the event of the sale of all or a substantial part of our assets,
or a merger transaction in which we are not the surviving corporation and the surviving corporation does not assume the options
granted under the 2010 Option Plan or otherwise grants options to purchase the surviving corporation’s shares in exchange
for such option, all of the options that were scheduled to vest within 12 months of the date of such transaction shall vest immediately
prior the closing of such transaction.



|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------



|A. | Major Shareholders
|-- | ------------------



The following table sets forth certain information regarding the
beneficial ownership of our outstanding ordinary shares as of February 25, 2015, by each person or entity known to beneficially
own 5.0% or more of our outstanding ordinary shares. The information with respect to beneficial ownership of the ordinary shares
is given based on information reported in such shareholder's Schedule 13G, and if no Schedule 13G was filed, based on the information
provided to us by the shareholders.



The information in this table is based on 127,114,294 ordinary shares
outstanding as of such date. In determining the number of ordinary shares beneficially owned by a person, we include any shares
as to which the person has sole or shared voting power or investment power, as well as any ordinary shares subject to options or
warrants held by that person that were currently exercisable at, or exercisable within 60 days of February 22, 2016. The ordinary
shares issuable under these options and warrants are treated as if they were outstanding for purposes of computing the percentage
ownership of the person holding these options and warrants but not the percentage ownership of any other person. None of the
holders of the ordinary shares listed in this table have voting rights different from other holders of ordinary shares.



|                                                    |  | Number of Shares Beneficially Held |               | Percent of Outstanding Equity
|--------------------------------------------------- |  | ---------------------------------- | ------------- | -----------------------------
|Broadfin Capital (1) (2)                            |  |                                    | 9,351,700 (2) |                              
|OrbiMed Israel Partners Limited Partnership (3) (4) |  |                                    | 8,175,320 (4) |                              



|(1) | Broadfin Capital LLC (Broadfin") is the investment advisor of Broadfin Healthcare Master Fund, LTD (Broadfin
Fund), which holds the ADSs and warrants. Broadfin, as the investment advisor may be deemed to share voting and investment power
with respect to the ordinary shares underlying the ADSs and warrants held by Broadfin Fund. The address of Broadfin Fund is 300
Park Avenue, 26th Floor, New York, NY 10022.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | Includes warrants to purchase 105,264 ADSs with exercise price of $11 and an expiration date of January 7, 2017 purchased by Broadfin in the private placement that closed on January 8, 2014. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants.                                                                               



|(3) | OrbiMed Israel GP Ltd. (OrbiMed Israel) is the general partner of OrbiMed Israel BioFund GP Limited Partnership
(OrbiMed BioFund), which is the general partner of OrbiMed Israel Partners Limited Partnership, an Israel limited partnership (OrbiMed
Partners), which holds the ADSs and warrants. OrbiMed Israel, as the general partner of OrbiMed BioFund, and OrbiMed BioFund, as
the general partner of OrbiMed Partners, may be deemed to share voting and investment power with respect to the ordinary shares
underlying the ADSs and warrants held by OrbiMed Partners. The address of OrbiMed Israel Partners Limited Partners is 89 Medinat
HaYehudim St., Herzliya 46766, Israel.                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(4) | Includes warrants to purchase 252,632 ADSs with exercise price of $11 and an expiration date of January 7, 2017 purchased by OrbiMed Israel Partners Limited Partnership in the private placement that closed on January 8, 2014. See "Item 5. Operating and Financial Review and Prospects – B. Liquidity and Capital Resources" for more information regarding the warrants. The Warrants to purchase ADSs contain an issuance limitation that prohibits the holder from exercising the Warrants to the extent that after giving effect to such issuance after exercise the holder (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 9.9% of the ordinary shares outstanding immediately after giving effect to the issuance of the ADSs issuable upon exercise of the warrants.



On February 12, 2016, 6,190,236 ADSs (equivalent to 61,902,360
ordinary shares, or approximately 49% of our total issued and outstanding ordinary shares), were held of record by four record
holders in the U.S., of which two holders had a U.S. address. As of February 22, 2016, there was one shareholder of record of
our ordinary shares, which was located in Israel. The number of record holders is not representative of the number of beneficial
holders of our ADSs or ordinary shares because many of the ADSs and ordinary shares are held by brokers or other nominees.



80






|B. | Related Party Transactions
|-- | --------------------------



November 2012 Private Placement



On January 10, 2013, we issued in a private placement
6,481,280 ordinary shares at a price per share of NIS 4.00 and non-tradable warrants to purchase up to 3,240,640 ordinary shares.
As part of this private placement, Dr. Cabilly invested $1 million and Mr. Suesskind invested $75,000 out of a total of $6.56 million.
For more information on the private placement, please see "Item 5. Operating and Financial Review and Prospects – B.
Liquidity and Capital Resources".



Acquisition of Royalties Rights



From June 2010 to August 2010, we entered into loan agreements with
a number of investors, pursuant to which we received gross proceeds of approximately $3.5 million. The loans we received under
these loan agreements accrued interest at an annual rate of 8%, which was payable upon the conversion of the loans.



Under the terms of the loan agreements, we agreed to pay the investors
5% of the proceeds of (i) net sales by us or our sublicensees or distributors; and (ii) down payments and milestone payments from
sublicenses or distributor transactions paid to us in connection with the first two new products purchased by us subsequent to
the closing of this loan financing. Such royalties were payable (i) with regard to net sales over a period of five years from the
date of the first commercial sale of either of these products; and (ii) with regard to down payments and milestone payments over
a period of five years commencing from August 11, 2010. Following approvals from our board of directors and shareholders, it was
determined that the investors would be entitled to royalties with respect to RIZAPORTTM for the treatment of acute migraine
headaches and RHB-104 for the treatment of Crohn's disease.



On August 31, 2010, each of these loan agreements was replaced in
their entirety by a new mandatory convertible loan agreement. However, the obligation to pay the investors the royalty payments
described above remained in full force and effect.



On January 10, 2013, following approval of our shareholders, we
issued an aggregate of 2,317,186 ordinary shares in exchange for the acquisition and termination of the royalty rights granted
to investors pursuant to the August 2010 mandatory convertible loan agreement. In connection with such transaction, each investor
received a number of shares on a pro-rata basis in accordance with their respective royalty rights. As part of the transaction,
the following three directors who were investors in the August 2010 mandatory convertible loan agreement were issued ordinary shares:
Dr. Kenneth Reed - 233,688 ordinary shares; Mr. Eric Swenden - 433,993 ordinary shares; and Dr. Shmuel Cabilly - 333,841 ordinary
shares, and Mr. Amram Hayut, a brother-in-law of Mr. Shilo, received 56,753 ordinary shares, out of a total amount of approximately
$3.5 million.



|C. | Interests of Experts and Counsel
|-- | --------------------------------



Not applicable.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------



|A. | Financial Statements and Other Financial Information
|-- | ----------------------------------------------------



The financial statements required by this item are found at the
end of this Annual Report, beginning on page F-1.



Legal Proceedings



From time to time, we may become party to legal proceedings and
claims in the ordinary course of business. We are not currently a party to any significant legal proceedings.



Dividend Policy



We have never declared or paid cash dividends to our shareholders.
Currently we do not intend to pay cash dividends. We currently intend to reinvest any future 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.



81






|B. | Significant Changes
|-- | -------------------



Except as otherwise disclosed in this Annual
Report, no significant change has occurred since December 31, 2015.



|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------



|A. | Offer and Listing Details
|-- | -------------------------



Our ordinary shares have been trading on the Tel Aviv Stock Exchange
under the symbol “RDHL” since February 2011.



Ordinary Shares



The following table sets forth, for the periods indicated, the reported
high and low closing sales prices of our ordinary shares on the Tel Aviv Stock Exchange in NIS and U.S. dollars. U.S. dollar per
ordinary share amounts are calculated using the U.S. dollar representative rate of exchange on the date to which the high or low
market price is applicable, as reported by the Bank of Israel.



|                                          |  | NIS                      |      | U.S.$                   
|----------------------------------------- |  | ------------------------ | ---- | ------------------------
|                                          |  | Price per Ordinary Share |      | Price per Ordinary Share
|Annual                                    |  |                          | High |                         
|2015                                      |  |                          | 7.80 |                         
|2014                                      |  |                          | 6.80 |                         
|2013                                      |  |                          | 4.29 |                         
|2012                                      |  |                          | 4.19 |                         
|2011 (beginning on February 3, 2011)      |  |                          | 3.80 |                         
|                                          |  |                          |      |                         
|Quarter                                   |  |                          |      |                         
|2015                                      |  |                          |      |                         
|Fourth quarter                            |  |                          | 5.42 |                         
|Third quarter                             |  |                          | 7.10 |                         
|Second quarter                            |  |                          | 7.80 |                         
|First quarter                             |  |                          | 6.16 |                         
|2014                                      |  |                          |      |                         
|Fourth quarter                            |  |                          | 5.38 |                         
|Third quarter                             |  |                          | 5.89 |                         
|Second quarter                            |  |                          | 6.80 |                         
|First quarter                             |  |                          | 5.04 |                         
|                                          |  |                          |      |                         
|Most Recent Six Months                    |  |                          |      |                         
|February 2016 (through February 22, 2016) |  |                          | 3.88 |                         
|January 2016                              |  |                          | 5.14 |                         
|December 2015                             |  |                          | 5.01 |                         
|November 2015                             |  |                          | 5.42 |                         
|October 2015                              |  |                          | 5.19 |                         
|September 2015                            |  |                          | 5.91 |                         
|August 2015                               |  |                          | 5.65 |                         



On February 22, 2016, the last reported sales
price of our ordinary shares on the TASE was NIS 3.73 per share, or $0.95 per share (based on the exchange rate reported by the
Bank of Israel for such date). On February 22, 2016 the exchange rate of the NIS to the U.S. dollar was $1.00 = NIS 3.907,
as reported by the Bank of Israel.





82




ADSs



Our ADSs have been trading on the Nasdaq Capital Market under the
symbol “RDHL” since December 27, 2012.



The following table sets forth, for the periods indicated, the reported
high and low closing sale prices of our ADSs on the Nasdaq Capital Market in U.S. dollars.



|                                          |  | U.S. $       
|----------------------------------------- |  | -------------
|                                          |  | Price per ADS
|                                          |  | High         
|Annual                                    |  |              
|2015                                      |  |              
|2014                                      |  |              
|2013                                      |  |              
|                                          |  |              
|Quarter                                   |  |              
|2015                                      |  |              
|Fourth quarter                            |  |              
|Third quarter                             |  |              
|Second quarter                            |  |              
|First quarter                             |  |              
|                                          |  |              
|2014                                      |  |              
|Fourth quarter                            |  |              
|Third quarter                             |  |              
|Second quarter                            |  |              
|First quarter                             |  |              
|                                          |  |              
|Most Recent Six Months                    |  |              
|February 2016 (through February 22, 2016) |  |              
|January 2016                              |  |              
|December 2015                             |  |              
|November 2015                             |  |              
|October 2015                              |  |              
|September 2015                            |  |              
|August 2015                               |  |              

On February 22, 2016, the last reported price of our ADSs on the Nasdaq Capital Market was $9.37 per ADS.



|B. | Plan of Distribution
|-- | --------------------



Not applicable.



|C. | Markets
|-- | -------



Our ordinary shares are listed
and traded on the Tel Aviv Stock Exchange, and our ADSs, each representing ten ordinary share and evidenced by an American depositary
receipt, or ADR, are traded on the Nasdaq Capital Market under the symbol “RDHL.” The ADRs were issued pursuant to
a Depositary Agreement entered into with The Bank of New York.



|D. | Selling Shareholders
|-- | --------------------



Not applicable.



|E. | Dilution
|-- | --------



Not applicable.



|F. | Expenses of the Issue
|-- | ---------------------



Not applicable



83






|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------



|A. | Share Capital
|-- | -------------



Not applicable



|B. | Memorandum and Articles of Association
|-- | --------------------------------------



Securities Registers



Our transfer agent and register is Bank of New York Mellon and its
address is 101 Barclay Street, New York, NY.



Objects and Purposes



According to Section 4 of our articles of association, we shall
engage in any legal business. Our number with the Israeli Registrar of Companies is 514304005.



Private Placements



Under the Israeli Companies Law, if (i) as a result of a private
placement a person would become a controlling shareholder or (ii) a private placement will entitle investors to receive 20% or
more of the voting rights of a company as calculated before the private placement, and all or part of the private placement consideration
is not in cash or in public traded securities or is not in market terms and if as a result of the private placement the holdings
of a substantial shareholder shall increase or as a result of it a person shall become a substantial shareholder, then in either
case, the allotment must be approved by the board of directors and by the shareholders of the company. A “substantial shareholder”
is defined as a shareholder who holds five percent or more of the company’s outstanding share capital, assuming the exercise
of all of the securities convertible into shares held by that person. In order for the private placement to be on “market
terms” the board of directors has to determine, on the base of detailed explanation, that the private placement is on market
terms, unless proven otherwise.



Board of Directors



Under our articles of association, resolutions by the board of directors
shall be decided by a majority of votes of the directors present, or participating, in the case of voting by media, and voting,
each director having one vote.



In addition, the Israeli Companies Law requires that certain transactions,
actions and arrangements be approved as provided for in a company’s articles of association and in certain circumstances
by the compensation or audit committee and by the board of directors itself. Those transactions that require such approval pursuant
to a company’s articles of association must be approved by its board of directors. In certain circumstances, compensation
or audit committee and shareholder approval is also required. See “Item 6. Directors, Senior Management and Employees –
C. Board Practices.”



The Israeli Companies Law requires that a member of the board of
directors or senior management of the company promptly and, in any event, not later than the first board meeting at which the transaction
is discussed, disclose any personal interest that he or she may have, either directly or by way of any corporation in which he
or she is, directly or indirectly, 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, as well as all related material information known to him or her, in connection
with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, (that
is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material
impact on the company’s profitability, assets or liabilities), the member of the board of directors or senior management
must also disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, 
spouse’s descendants, siblings and parents, and the spouses of any of the foregoing.



Once the member of the board of directors or senior management complies
with the above disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles
of association. Under the provisions of the Israeli Companies Law, whoever 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 this meeting or vote on this matter, unless
it is not an extraordinary transaction as defined in the Israeli Companies Law. However, if the chairman of the board of directors
or the chairman of the audit committee has determined that the presence of an office holder with a personal interest is required
for the presentation of a matter, such officer holder may be present at the meeting. Notwithstanding the foregoing, if the majority
of the directors have a personal interest in a matter, they shall be allowed to participate and vote on this matter, but an approval
of the transaction by the shareholders in the general meeting shall be required.





84




Our articles of association provide that, subject to the Israeli
Companies Law, all actions executed in good faith by the board of directors or by a committee thereof or by any person acting as
a director or a member of a committee of the board of directors, will be deemed to be valid even if, after their execution, it
is discovered that there was a flaw in the appointment of these persons or that any one of these persons was disqualified from
serving at his or her office.



Our articles of association provide that, subject to the provisions
of the Israeli Companies Law, the board of directors may appoint board of directors’ committees. The committees of the board
of directors shall report to the board of directors their resolutions or recommendations on a regular basis, as shall be prescribed
by the board of directors. The board of directors may cancel the resolution of a committee that has been appointed by it; however,
such cancellation shall not affect the validity of any resolution of a committee, pursuant to which we acted, vis-à-vis
another person, who was not aware of the cancellation thereof. Decisions or recommendations of the committee of the board which
require the approval of the board of directors will be brought to the directors’ attention a reasonable time prior to the
discussion at the board of directors.



According to the Israeli Companies Law, a contract of a company
with its directors, regarding their conditions of service, including the grant to them of exemption from liability from certain
actions, insurance, and indemnification as well as the company’s contract with its directors on conditions of their employment,
in other capacities, require the approval of the compensation committee, the board of directors, and the shareholders by a Special
Majority.



Description of Securities



Ordinary Shares



The following is a description of our ordinary shares. Our authorized
share capital is 300,000,000 ordinary shares, par value NIS 0.01 per share.



The ordinary shares do not have preemptive rights, preferred rights
or any other right to purchase our securities. Neither our articles of association nor the laws of the State of Israel restrict
the ownership or voting of ordinary shares by non-residents of Israel, except for subjects of countries which are enemies of Israel.



Transfer of Shares. Fully paid ordinary shares are issued
in registered form and may be freely transferred pursuant to our articles of association unless that transfer is restricted or
prohibited by another instrument.



Notices. Under the Israeli Companies Law and our articles
of association, we are required to publish notices in two Hebrew-language daily newspapers at least 14 calendar days’ prior
notice of a shareholders’ meeting. However, under regulations promulgated under the Israeli Companies Law, we are required
to publish notice in two daily newspapers at least 35 calendar days prior any shareholders’ meeting in which the agenda includes
matters which may be voted on by voting instruments. Regulations under the Israeli Companies Law exempt companies whose shares
are listed for trading both on a stock exchange in and outside of Israel, from some provisions of the Israeli Companies Law. An
amendment to these regulations exempts us from the requirements of the Israeli proxy regulation, under certain circumstances.



According to the Israeli Companies Law and the regulations promulgated
thereunder, for purposes of determining the shareholders entitled to notice and to vote at such meeting, the board of directors
may fix the record date not more than 40 nor less than four calendar days prior to the date of the meeting, provided that an announcement
regarding the general meeting shall be given prior to the record date.



Election of Directors. The number of directors on the board
of directors shall be no less than five but no more than seven, not including at least two external directors. The general meeting
is entitled, at any time and from time to time, in a resolution approved by a majority of 75% or more of the votes cast by those
shareholders present and voting at the meeting in person, by proxy or by a voting instrument, not taking into consideration abstaining
votes, to change the minimum and/or maximum number of directors as stated above as well as to amend the board classification under
our Articles. For more information, please see “Item 6. Directors, Senior Management and Employees – C. Board Practices
– Appointment of Directors and Terms of Office.”



Dividend and Liquidation Rights. Our profits, in respect
of which a resolution was passed to distribute them as dividend or bonus shares, shall be paid pro rata to the amount paid or credited
as paid on account of the nominal value of shares held by the shareholders. In the event of our liquidation, the liquidator may,
with the general meeting’s approval, distribute parts of our property in specie among the shareholders and he may, with similar
approval, deposit any part of our property with trustees in favor of the shareholders as the liquidator, with the approval mentioned
above deems fit.





85




Voting, Shareholders’ Meetings and Resolutions. Holders
of ordinary shares are entitled to one vote for each ordinary share held on all matters submitted to a vote of shareholders. The
quorum required for an ordinary meeting of shareholders consists of at least two shareholders present, in person or by proxy, or
who has sent us a voting instrument indicating the way in which he is voting, who hold or represent, in the aggregate, at least
25% of the voting rights of our outstanding share capital. A meeting adjourned for lack of a quorum is adjourned to the following
day at the same time and place or any time and place as prescribed by the board of directors in notice to the shareholders. At
the reconvened meeting one shareholder at least, present in person or by proxy constitutes a quorum except where such meeting was
called at the demand of shareholders. With the agreement of a meeting at which a quorum is present, the chairman may, and on the
demand of the meeting he must, adjourn the meeting from time to time and from place to place, as the meeting resolves. Annual general
meetings of shareholders are held once every year within a period of not more than 15 months after the last preceding annual general
shareholders’ meeting. The board of directors may call special general meetings of shareholders. The Israeli Companies Law
provides that a special general meeting of shareholders may be called by the board of directors or by a request of two directors
or 25% of the directors in office, whichever is the lower, or by shareholders holding at least 5% of our issued share capital and
at least 1% of the voting rights, or of shareholders holding at least 5% of our voting rights.



An ordinary resolution requires approval by the holders of a majority
of the voting rights present, in person or by proxy, at the meeting and voting on the resolution.



Allotment of Shares. Our board of directors has the power
to allot or to issue shares to any person, with restrictions and condition as it deems fit.



Acquisitions under Israeli Law



Full Tender Offer



A person wishing to acquire shares of an Israeli public company
and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the Israeli
Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding
shares of the company.



A person wishing to acquire shares of an Israeli public company
and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to
make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding
shares of the same class.



If the shareholders who do not respond to or accept the offer hold
less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more than
half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer
offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders
who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of
the shares.



Upon a successful completion of such a full tender offer, any shareholder
that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six months from
the date of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for less than
fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the offeror may
determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition the Israeli
court as described above.



If the shareholders who did not respond or accept the tender offer
hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, 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.



The description above regarding a full tender offer shall also apply,
with necessary changes, when a full tender offer is accepted and the offeror has also offered to acquire all of the company’s
securities.



Special tender offer



The Israeli Companies Law provides that an acquisition of shares
of an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would
become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder
of at least 25% of the voting rights in the company.





86




Similarly, the Israeli Companies Law provides that an acquisition
of shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would
become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds
more than 45% of the voting rights in the company.



These requirements do not apply if the acquisition (i) occurs in
the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering
whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least
25% of the voting rights in the company, or as a private offering whose purpose is to give the acquirer 45% of the voting rights
in the company, if there is no person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding at
least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights
in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming
a holder of more than 45% of the voting rights in the company.



The special tender offer may be consummated only if (i) at least
5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the special
tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of the offer;
in counting the votes of offerees, the votes of a holder in control of the offeror, a person who has personal interest in acceptance
of the special tender offer, a holder of at least 25% of the voting rights in the company, or any person acting on their or on
the offeror’s behalf, including their relatives or companies under their control, are not taken into account.



In the event that a special tender offer is made, a company’s
board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion
if it is unable to do so, provided that it gives the reasons for its abstention.



An office holder in a target company who, in his or her capacity
as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender
offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting
from his acts, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the
benefit of the company. However, office holders of the target company may negotiate with the potential purchaser in order to improve
the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.



If a special tender offer was accepted by a majority of the shareholders
who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected to the special
tender offer may accept the offer within four days of the last day set for the acceptance of the offer. In the event that a special
tender offer is accepted, then the purchaser or any person or entity controlling it and any corporation controlled by them shall
refrain from making a subsequent tender offer for the purchase of shares of the target company and may not execute 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.



Merger



The Israeli Companies Law permits merger transactions if approved
by each party’s board of directors and, unless certain requirements described under the Israeli Companies Law are met, a
majority of each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at
a shareholders’ meeting.



The board of directors of a merging company is required pursuant
to the Israeli Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that, as a result
of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, taking into account
the financial condition of the merging companies. If the board of directors has determined that such a concern exists, it may not
approve a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards of directors
must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.



For purposes of the shareholder vote, unless a court rules otherwise,
the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions) that
are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control (See “Management
– Audit Committee – Approval of Transactions with Related Parties” for a definition of means of control) of the
other party to the merger or any one on their behalf including their relatives (See “Management – External Directors
– Qualifications of External Directors” for a definition of relatives) or corporations controlled by any of them, vote
against the merger.



In addition, if the non-surviving
entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders.



If the transaction would have been approved but for the separate
approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule
that the company has approved 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 appraisal of the merging companies’ value and
the consideration offered to the shareholders.





87




Under the Israeli Companies Law, each merging company must send
a copy of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger,
as provided by the regulations promulgated under the Israeli Companies Law. 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 the target company. The court may also give instructions
in order to secure the rights of creditors.



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 with the Israeli Registrar of Companies and 30 days
from the date that shareholder approval of both merging companies was obtained.



Anti-takeover Measures



The Israeli Companies Law allows us to create and issue shares having
rights different from those attached to our ordinary shares, including shares providing certain preferred or additional rights
to voting, distributions or other matters and shares having preemptive rights. We do not have any authorized or issued shares other
than 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 a majority of our shares represented and
voting at a general meeting.  Shareholders voting at such a meeting will be subject to the restrictions under the Israeli
Companies Law described in “— Voting.”



|C. | Material Contracts
|-- | ------------------



For a description of other material agreements, please see "Information
on the Company – B. Business Overview.



|D. | Exchange Controls
|-- | -----------------

Israeli law and regulations do not impose any material foreign exchange
restrictions on non-Israeli holders of our ordinary shares. Dividends, if any, paid to holders of our ordinary shares, and any
amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary
shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into U.S.
dollars at the rate of exchange prevailing at the time of conversion.



|E. | Taxation
|-- | --------



Israeli Tax Considerations



General



The following is a summary of the material tax consequences under Israeli law concerning the purchase, ownership
and disposition of our ordinary shares or American Depositary Shares (Shares).



This discussion does not purport to constitute a complete analysis
of all potential tax consequences applicable to investors upon purchasing, owning or disposing of our Shares. In particular, this
discussion does not take into account the specific circumstances of any particular investor (such as tax-exempt entities, financial
institutions, certain financial companies, broker-dealers, investors that own, directly or indirectly, 10% or more of our outstanding
voting rights, all of whom are subject to special tax regimes not covered under this discussion). To the extent that issues discussed
herein are based on legislation which has yet to be subject to judicial or administrative interpretation, there can be no assurance
that the views expressed herein will accord with any such interpretation in the future.



Potential investors are urged to consult their own tax advisors
as to the Israeli or other tax consequences of the purchase, ownership and disposition of the Shares, including, in particular,
the effect of any foreign, state or local taxes.



General Corporate Tax Structure in Israel



Israeli resident companies are generally subject to corporate tax,
currently at the rate of 25% of a company’s taxable income.



Taxation of Shareholders





88




Capital Gains



Capital gains tax is imposed on the disposal of capital assets by
an Israeli resident and on the disposal of such assets by a non-Israeli 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, unless an exemption is available or unless an applicable double tax treaty between Israel and the seller’s
country of residence provides otherwise. The Israeli Income Tax Ordinance distinguishes between “Real Gain” and the
“Inflationary Surplus.” Real Gain is the excess of the total capital gain over Inflationary Surplus computed generally
on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposal. Inflationary
Surplus is not subject to tax.



Real Gain accrued by individuals on the sale of the 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 12 month period, such gain will be taxed at the rate of 30%.



Corporate and individual shareholders dealing in securities in Israel
are taxed at the tax rates applicable to business income which is 26.5% in 2015 for corporations, and a marginal tax rate of up
to 50% in 2015 for individuals, including a 2% excess tax (as discussed below).



Notwithstanding the foregoing, capital gains generated from the
sale of our Shares by a non-Israeli shareholder may be exempt from Israeli tax under the Israeli Income Tax Ordinance provided
that the following cumulative conditions are met: (i) the Shares were purchased upon or after the registration of the Shares on
the stock exchange and (ii) the seller does not have a permanent establishment in Israel to which the generated capital gain is
attributed. However, non-Israeli resident corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have
a 25% or more interest in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of
the income or profits of such non-Israeli corporation, whether directly or indirectly. In addition, such exemption would not be
available to a person whose gains from selling or otherwise disposing of the securities are deemed to be business income.



In addition, the sale of the Shares may be exempt from Israeli capital gains tax under the provisions of
an applicable double tax treaty. For example, the Convention between the Government of the U.S. and the Government of the State
of Israel with respect to Taxes on Income (U.S.- Israel Double Tax Treaty) exempts a U.S. resident (for purposes of the treaty)
from Israeli capital gain tax in connection with the sale of the Shares, provided that: (i) the U.S. resident owned, directly or
indirectly, less than 10% of the voting power of the company at any time within the 12 month period preceding such sale; (ii) the
U.S. resident, being an individual, is present in Israel for a period or periods of less than 183 days during 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; however,
under the U.S-Israel Double Tax Treaty, the taxpayer would be permitted to claim a credit for such taxes against the U.S. federal
income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to
foreign tax credits. The U.S-Israel Double Tax Treaty does not relate to U.S. state or local taxes.



Payers of consideration for the Shares, including the purchaser,
the Israeli stockbroker or the financial institution through which the Shares are held, are obligated, subject to certain exemptions,
to withhold tax upon the sale of Shares at a rate of 25% or 26.5% of the consideration for individuals and corporations, respectively.



Upon the sale of traded securities, a detailed return, including
a computation of the tax due, must be filed and an advanced payment must be paid to the Israeli Tax Authority on January 31 and
July 31 of every tax year in respect of sales of traded securities made within the previous six months. However, if all tax due
was withheld at source according to applicable provisions of the Israeli Income Tax Ordinance and regulations promulgated thereunder,
such return need not be filed and no advance payment must be paid. Capital gains are also reportable on annual income tax returns.



Dividends



Dividends distributed by a company to a shareholder who is an Israeli
resident individual will be generally 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 month
period. If the recipient of the dividend is an Israeli resident corporation, such dividend will be generally exempt from Israeli
income tax provided that the income from which such dividend is distributed, derived or accrued within Israel.



Dividends distributed by an Israeli resident company to a non-Israeli resident (either an individual or a corporation)
are generally subject to Israeli withholding tax on the receipt of such dividends at the rate of 25% (30% if the dividend recipient
is a Controlling Shareholder at the time of distribution or at any time during the preceding 12 month period). These rates may
be reduced under the provisions of an applicable double tax treaty. For example, under the U.S.-Israel Double Tax Treaty, the following
tax rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) 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 types of interest or dividends the tax rate is 12.5%; (ii) if both the conditions mentioned in
clause (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced
tax rate under The Law for the Encouragement of Capital Investments, 1959, the tax rate is 15%; and (iii) in all other cases, the
tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income is attributed
to a permanent establishment of the U.S. resident in Israel.





89




Excess Tax



Individual shareholders who are subject to tax in Israel (whether
any such individual is an Israeli resident or non-Israeli resident) and who have taxable income that exceeds NIS 800,000 in a tax
year (linked to the Israeli Consumer Price Index each year (NIS 810,720 for 2015, which is approximately $203,000)), will be subject
to an additional tax at the rate of 2% on his or her taxable income for such tax year that is in excess of such amount. For this
purpose, taxable income includes taxable capital gains from the sale of securities and taxable income from interest and dividends,
subject to the provisions of an applicable double tax treaty.



Foreign Exchange Regulations



Non-residents of Israel who hold our 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.



U.S Federal Income Tax Considerations



The following is a summary of the material U.S. federal income
tax consequences relating to the ownership and disposition of our Ordinary Shares and ADSs by U.S. Holders, as defined below.
This summary addresses solely U.S. Holders who acquire ADSs pursuant to this offering and who hold Ordinary Shares or ADSs, as
applicable, as capital assets for tax purposes. This summary is based on current provisions of the Internal Revenue Code of 1986,
as amended (Code), current and proposed Treasury regulations promulgated thereunder, and administrative and judicial decisions
as of the date hereof, all of which are subject to change, possibly on a retroactive basis. In addition, this section is based
in part upon representations of the depositary and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. This summary does not address all U.S. federal income tax matters that
may be relevant to a particular holder or all tax considerations that may be relevant with respect to an investment in our Ordinary
Shares or ADSs.







This summary does not address tax considerations applicable to a
holder of our Ordinary Shares or ADSs that may be subject to special tax rules including, without limitation, the following:



|• | dealers or traders in securities, currencies or notional principal contracts;                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | financial institutions;                                                                                                                                                                          
|• | insurance companies;                                                                                                                                                                             
|• | real estate investment trusts;                                                                                                                                                                   
|• | banks;                                                                                                                                                                                           
|• | persons subject to the alternative minimum tax;                                                                                                                                                  
|• | tax-exempt organizations;                                                                                                                                                                        
|• | traders that have elected mark-to-market accounting;                                                                                                                                             
|• | investors that hold Ordinary Shares or ADSs as part of a “straddle”, “hedge”, or “conversion transaction” with other investments;                                                                
|• | regulated investment companies;                                                                                                                                                                  
|• | persons that actually or constructively own 10 percent or more of our voting shares;                                                                                                             
|• | persons that are treated as partnerships or other pass through entities for U.S. federal income purposes and persons who hold the Shares through partnerships or other pass through entities; and
|• | persons whose functional currency is not the U.S. dollars.                                                                                                                                       



This summary does not address the effect of any U.S. federal taxation
other than U.S. federal income taxation. In addition, this summary does not include any discussion of state, local, or foreign
tax consequences to a holder of our Ordinary Shares or ADSs.



You are urged to consult your own tax advisor regarding the foreign
and U.S. federal, state, and local and other tax consequences of an investment in Ordinary Shares or ADSs.



90






For purposes of this summary, a “U.S. Holder”
means a beneficial owner of an Ordinary Share or ADS that is for U.S. federal income tax purposes:



| | · | an individual who is a citizen or resident of the U.S..;                                                                                                                                                                                                                                                                                                    
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or
organized in the United States or under the laws of the U.S. or any political subdivision thereof;                                                                                                                                                 
| | · | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or                                                                                                                                                                                                                                                           
| | · | a trust (1) if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and (b) one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.



If an entity that is classified as a partnership for U.S. federal
tax purposes holds Ordinary Shares or ADSs, the United States federal tax treatment of its partners will generally depend upon
the status of the partners and the activities of the partnership. Entities that are classified as partnerships for U.S. federal
tax purposes and persons holding Ordinary Shares or ADSs through such entities should consult their own tax advisors.



In general, if you hold ADSs, you will be treated as the holder
of the underlying Ordinary Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, gain or loss generally
will not be recognized if you exchange ADSs for the underlying Ordinary Shares represented by those ADSs.



Distributions



Subject to the discussion under “Passive Foreign Investment
Companies” below, the gross amount of any distribution, including the amount of any Israeli taxes withheld from such distribution
(see “Israeli Tax Considerations”), actually or constructively received by a U.S. Holder with respect to our Ordinary
Shares (or, in the case of ADSs, received by the depositary) will be taxable to the U.S. Holder as foreign source dividend income
to the extent of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. The U.S.
Holder will not be eligible for any dividends received deduction in respect of the dividends paid by us. Distributions in excess
of earnings and profits will be non-taxable to the U.S. Holder to the extent of the U.S. Holder’s adjusted tax basis in its
Ordinary Shares or ADSs. Distributions in excess of such adjusted tax basis will generally be taxable to the U.S. Holder as capital
gain from the sale or exchange of property as described below under “Sale or Other Disposition of Ordinary Shares or ADSs.”
If we do not report to a U.S. Holder the portion of a distribution that exceeds earnings and profits, the distribution will generally
be taxable as a dividend. The amount of any distribution of property other than cash will be the fair market value of that property
on the date of distribution.



Under the Code, certain dividends received by non-corporate U.S.
Holders will be subject to a maximum federal income tax rate of 20%. This reduced income tax rate is only applicable to dividends
paid by a “qualified foreign corporation” that is not a PFIC for the year in which the dividend is paid or for the
preceding taxable year, and only with respect to Ordinary Shares or ADSs held by a qualified U.S. Holder (i.e., a non-corporate
holder) for a minimum holding period (generally 61 days during the 121-day period beginning 60 days before the ex-dividend date).
As discussed below, however, we believe we may be a “passive foreign investment company” (see “Passive Foreign
Investment Companies” below) for our current taxable year and future taxable years. Accordingly, dividends paid by us to
individual U.S. Holders may not be eligible for the reduced income tax rate applicable to qualified dividends. You should consult
your own tax advisor regarding the availability of this preferential tax rate under your particular circumstances.



The amount of any distribution paid in a currency other than U.S.
dollars (a “foreign currency”), including the amount of any withholding tax thereon, will be included in the gross
income of a U.S. Holder in an amount equal to the U.S. dollar value of the foreign currency calculated by reference to the exchange
rate in effect on the date of the U.S. Holder’s (or, in the case of ADSs, the depositary’s) receipt of the dividend,
regardless of whether the foreign currency is converted into U.S. dollars. If the foreign currency is converted into U.S. dollars
on the date of receipt, a U.S. Holder generally should not be required to recognize a foreign currency gain or loss in respect
of the dividend. If the foreign currency received in the distribution is not converted into U.S. dollars on the date of receipt,
a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss
on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss.



Subject to certain conditions and limitations, any Israeli taxes
withheld on dividends may be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to generally applicable
limitations. The rules relating to foreign tax credits and the timing thereof are complex. U.S. Holders should consult their own
tax advisors regarding the availability of a foreign tax credit in their particular situation.





91




Sale or Other Disposition of Ordinary Shares or ADSs



Subject to the discussion under “Passive Foreign Investment
Companies” below, if a U.S. Holder sells or otherwise disposes of its Ordinary Shares or ADSs, gain or loss will be recognized
for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition
and such holder’s adjusted basis in the Ordinary Shares or ADSs. Such gain or loss generally will be a capital gain or loss,
and will be a long-term capital gain or loss if the holder had held the Ordinary Shares or ADSs for more than one year at the time
of the sale or other disposition. Long-term capital gains realized by non-corporate U.S. Holders are generally subject to a preferential
U.S. federal income tax rate. In general, gain or loss recognized by a U.S. Holder on the sale or other disposition or our Ordinary
Shares or ADSs will be U.S. source gain or loss for purposes of the foreign tax credit limitation. As discussed below in “Passive
Foreign Investment Companies,” however, we may be a PFIC for our current taxable year and future taxable years. If we are
a PFIC, any such gain will be subject to the PFIC rules, as discussed below, rather than being taxed as a capital gain.



If a U.S. Holder receives foreign currency upon a sale or exchange
of Ordinary Shares or ADSs, gain or loss will be recognized in the manner described above under “Distributions.” However,
if such foreign currency is converted into U.S. dollars on the date received by the U.S. Holder, the U.S. Holder generally should
not be required to recognize any foreign currency gain or loss on such conversion.



As discussed above under the heading
“Israeli Tax Considerations-Taxation of Shareholders,” a U.S. Holder who holds Ordinary Shares or ADSs through an Israeli
broker or other Israeli intermediary may be subject to Israeli withholding tax on any capital gains recognized on a sale or other
disposition of the Ordinary Shares or ADSs if the U.S. Holder does not obtain approval of an exemption from the Israeli Tax Authorities
or claim any allowable refunds or reductions. U.S. Holders are advised that any Israeli tax paid under circumstances in which an
exemption from (or a refund of or a reduction in) such tax was available will not be creditable for U.S. federal income tax purposes.
U.S. Holders are advised to consult their Israeli broker or intermediary regarding the procedures for obtaining an exemption or
reduction.



Medicare Tax on Unearned Income



Certain U.S. Holders that are individuals, estates or trusts are
required to pay an additional 3.8% tax on their net investment income, which would include dividends paid on the Ordinary Shares
or ADSs and capital gains from the sale or other disposition of the Ordinary Shares or ADSs.



Passive Foreign Investment Companies



Based on the value and composition of our assets, we may be a PFIC
for U.S. federal income tax purposes for our current taxable year and future taxable years. A non-U.S. corporation is considered
a PFIC for any taxable year if either:



|· | at least 75% of its gross income for such taxable year is passive income, or
|- | ----------------------------------------------------------------------------

|· | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For purposes of the above calculations, if a non-U.S. corporation
owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, it will be treated
as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate
share of the income of such other corporation. Passive income generally includes dividends, interest, rents, royalties and capital
gains, but generally excludes rents and royalties which are derived in the active conduct of a trade or business and which are
received from a person other than a related person.



A separate determination must be made each taxable year as to whether
we are a PFIC (after the close of each such taxable year). Because the value of our assets for purposes of the asset test will
generally be determined by reference to the market price of the ADSs, our PFIC status will depend in large part on the market price
of the ADSs, which may fluctuate significantly. Based on our retention of a significant amount of cash and cash equivalents, and
depending on the market price of the ADSs, we may be a PFIC for the current taxable year and future taxable years.



If we are a PFIC for any year during which you hold the ADSs, we
generally will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold the ADSs, unless
we cease to be a PFIC and you make a “deemed sale” election with respect to the ADSs you hold. If such election is
made, you will be deemed to have sold the ADSs you hold at their fair market value on the last day of the last taxable year in
which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described below. After the
deemed sale election, the ADSs with respect to which the deemed sale election was made will not be treated as shares in a PFIC
unless we subsequently become a PFIC.



For each taxable year we are treated as a PFIC with respect to you,
you will be subject to special tax rules with respect to any “excess distribution” you receive and any gain you realize
from a sale or other disposition (including a pledge) of the ADSs, unless you make a “mark-to-market” election as discussed
below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received
during the shorter of the three preceding taxable years or your holding period for the ADSs will be treated as an excess distribution.
Under these special tax rules, if you receive any excess distribution or realize any gain from a sale or other disposition of the
ADSs:



92






|· | the excess distribution or gain will be allocated ratably over your holding period for the ADSs
|- | -----------------------------------------------------------------------------------------------

|· | the amount of excess distribution or gain allocated to the current taxable year, and any taxable year before the first taxable year in which we were a PFIC, shall be included in gross income (as ordinary income) for the current tax year, and
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tax liability for amounts allocated to years before the year
of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but
not losses) realized on the sale of the ADSs cannot be treated as capital, even if you hold the ADSs as capital assets.



If we are treated as a PFIC with respect to you for any taxable
year, to the extent any of our subsidiaries are also PFICs, you will be deemed to own your proportionate share of any such lower-tier
PFIC, and you may be subject to the rules described in the preceding two paragraphs with respect to the shares of such lower-tier
PFICs you would be deemed to own. As a result, you may incur liability for any “excess distribution” described above
if we receive a distribution from such lower-tier PFICs or if any shares in such lower-tier PFICs are disposed of (or deemed disposed
of). You should consult your own tax advisor regarding the application of the PFIC rules to any of our subsidiaries.



Alternatively, a U.S. Holder of “marketable stock” (as
defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the general tax treatment for PFICs
discussed above. If you make a mark-to-market election for the ADSs, you will include in income for each year we are a PFIC an
amount equal to the excess, if any, of the fair market value of the ADSs as of the close of your taxable year over your adjusted
basis in such Ordinary Shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ADSs over their
fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market
gains on the ADSs included in your income for prior taxable years. Amounts included in your income under a mark-to-market election,
as well as gain on the actual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also
applies to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or
disposition of the ADSs to the extent the amount of such loss does not exceed the net mark-to-market gains previously included
for the ADSs. Your basis in the ADSs will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market
election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except
the lower applicable tax rate for qualified dividend income would not apply. If we cease to be a PFIC when you have a mark-to-market
election in effect, gain or loss realized by you on the sale of the ADSs will be a capital gain or loss and taxed in the manner
described above under “Sale or Other Disposition of Ordinary Shares or ADSs.”



The mark-to-market election is available only for “marketable
stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter,
or regularly traded, on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Any trades that
have as their principal purpose meeting this requirement will be disregarded. The ADSs are listed on The NASDAQ and, accordingly,
provided the ADSs are regularly traded, if you are a holder of ADSs, the mark-to-market election would be available to you if we
are a PFIC. Once made, the election cannot be revoked without the consent of the IRS unless the ADSs cease to be marketable stock.
If we are a PFIC for any year in which the U.S. Holder owns ADSs but before a mark-to-market election is made, the interest charge
rules described above will apply to any mark-to-market gain recognized in the year the election is made. If any of our subsidiaries
are or become PFICs, the mark-to-market election will not be available with respect to the shares of such subsidiaries that are
treated as owned by you. Consequently, you could be subject to the PFIC rules with respect to income of the lower-tier PFICs the
value of which already had been taken into account indirectly via mark-to-market adjustments. A U.S. Holder should consult its
own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on
interests in any lower-tier PFICs.



In certain circumstances, a U.S. Holder of stock in a PFIC can make
a “qualified electing fund election” to mitigate some of the adverse tax consequences of holding stock in a PFIC by
including in income its share of the corporation’s income on a current basis. However, we do not currently intend to prepare
or provide the information that would enable you to make a qualified electing fund election.



Unless otherwise provided by the United States Treasury, each U.S.
shareholder of a PFIC is required to file an annual report containing such information as the United States Treasury may require.
A U.S. Holder’s failure to file the annual report will cause the statute of limitations for such U.S. Holder’s U.S.
federal income tax return to remain open with regard to the items required to be included in such report until three years after
the U.S. Holder files the annual report, and, unless such failure is due to reasonable cause and not willful neglect, the statute
of limitations for the U.S. Holder’s entire U.S. federal income tax return will remain open during such period. U.S. Holders
should consult their own tax advisors regarding the requirements of filing such information returns under these rules, taking into
account the uncertainty as to whether we are currently treated as or may become a PFIC.





93




YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING
THE IMPACT OF OUR POTENTIAL PFIC STATUS ON YOUR INVESTMENT IN THE ADSs AS WELL AS THE APPLICATION OF THE PFIC RULES TO YOUR INVESTMENT
IN THE ADSs.



Backup Withholding and Information Reporting



Payments of dividends with respect to Ordinary Shares or ADSs and
the proceeds from the sale, retirement, or other disposition of Ordinary Shares or ADSs made by a U.S. paying agent or other U.S.
intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable U.S. Treasury regulations.
We, or an agent, a broker, or any paying agent, as the case may be, may be required to withhold tax (backup withholding), currently
at the rate of 28%, if a non-corporate U.S. Holder that is not otherwise exempt fails to provide an accurate taxpayer identification
number and comply with other IRS requirements concerning information reporting. Certain U.S. Holders (including, among others,
corporations and tax-exempt organizations) are not subject to backup withholding. Any amount of backup withholding withheld may
be used as a credit against your U.S. federal income tax liability provided that the required information is furnished to the IRS.
U.S. Holders should consult their own tax advisors as to their qualification for exemption from backup withholding and the procedure
for obtaining an exemption.



U.S. Holders may be required to file certain U.S. information reporting
returns with the IRS with respect to an investment in our Ordinary Shares or ADSs, including, among others, IRS Form 8938 (Statement
of Specified Foreign Financial Assets). As described above under ‘‘Passive Foreign Investment Companies,” each
U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying more
than $100,000 for our Ordinary Shares or ADSs may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to
a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with
the required information reporting.



U.S. Holders should consult their own tax advisors regarding the
backup withholding tax and information reporting rules.



EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs IN LIGHT OF SUCH INVESTOR’S PARTICULAR CIRCUMSTANCES.



|F. | Dividends and Paying Agents
|-- | ---------------------------



Not
applicable.



|G. | Statement by Experts
|-- | --------------------



Not applicable.



|H. | Documents on Display
|-- | --------------------



We are subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended, applicable to foreign private issuers, and under those requirements we file reports
with the Securities and Exchange Commission. Those other reports or other information may be inspected without charge at the Securities
and Exchange Commission’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of the material
may be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at such address, at prescribed
rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room.
Our filings with the Securities and Exchange Commission are also available to the public through the Securities and Exchange Commission’s
website at http://www.sec.gov .



As a foreign private issuer, we are exempt from the rules under
the Securities Exchange Act of 1934, as amended, related to the furnishing and content of proxy statements, and our officers, directors
and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of
the Securities Exchange Act of 1934, as amended. In addition, we are not required under the Securities Exchange Act of 1934, as
amended, to file annual, quarterly and current reports and financial statements with the Securities and Exchange Commission as
frequently or as promptly as U.S. companies whose securities are registered under the Securities Exchange Act of 1934, as amended.
However, we are required to comply with the informational requirements of the Securities Exchange Act of 1934, as amended, and,
accordingly, file current reports on Form 6-K, annual reports on Form 20-F and other information with the Securities and Exchange
Commission.



In addition, since our ordinary shares are traded on the Tel Aviv
Stock Exchange, we have filed Hebrew language periodic and immediate reports with, and furnish information to, the Tel Aviv Stock
Exchange and the Israeli Securities Authority, as required under Chapter Six of the Israel Securities Law, 1968. Copies of our
filings with the Israeli Securities Authority can be retrieved electronically through the MAGNA distribution site of the Israeli
Securities Authority ( www.magna.isa.gov.il ) and the Tel Aviv Stock Exchange website ( www.maya.tase.co.il
). We maintain a corporate website at www.redhillbio.com . Information contained on, or that can be accessed
through, our website does not constitute a part of this Annual Report.



94






|I. | Subsidiary Information
|-- | ----------------------



Not applicable.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



Market risk is the risk of loss related to changes in market prices,
including interest rates and foreign exchange rates, of financial instruments that may adversely impact our financial position,
results of operations or cash flows. Our overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on our financial performance.



Risk of Interest Rate Fluctuation and Credit Exposure
Risk



In the near future, we do not anticipate undertaking any significant
long-term borrowings. At present, our credit and interest risk arises from cash and cash equivalents, deposits with banks as well
as accounts receivable. A substantial portion of our liquid instruments is invested in short-term deposits in highly-rated institutions.



We estimate that because the liquid instruments are invested mainly
for the short-term and with highly-rated institutions, the credit and interest risk associated with these balances is immaterial.
The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments
without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuations in interest rates,
which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing
evaluations of our investments.



Market Price Risk



We may be exposed to market price risk because of investments in
tradable securities held by us and classified in our financial statements on as financial assets at fair value through profit or
loss. To manage the price risk arising from investments in tradable securities, we invest in marketable securities with high ratings
and diversify our investment portfolio.



Foreign Currency Exchange Risk



Our foreign currency exposures give rise to market risk associated
with exchange rate movements of the U.S. dollar, our functional and reporting currency, mainly against the NIS and other currencies.
Although the U.S. dollar is our functional currency and reporting currency, a portion of our expenses are denominated in NIS. Our
NIS expenses consist principally of payments to employees or service providers and short term investments in currencies other than
the U.S. dollar. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than
the U.S. dollar. If the U.S. dollar fluctuates significantly against the NIS it may have a negative impact on our results of operations.
We manage our foreign exchange risk by aligning the currencies for holding short term investments with the currencies of expected
expenses, based on our expected cash flows.



Portfolio diversification is performed based on risk level limits
that we set. 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.



|(A) | Set forth below is a sensitivity test to possible changes in U.S. dollars/ NIS exchange rate as of December 31, 2015:
|--- | ---------------------------------------------------------------------------------------------------------------------



95






|Sensitive instrument                            |  | Income (loss) from
        change in exchange
        rate (U.S. dollars
        in thousands) |     |  | Value
        (U.S. dollars
        in thousands) |  |    | Income (loss) from
        change in exchange
        rate (U.S. dollars
        in thousands) | 
|----------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | --- |  | ------------------------------------------------- |  | -- | ---------------------------------------------------------------------------------------------- | 
|                                                |  | Down
        2%                                                                                |     |  | Down
        5%                                   |  |    |                                                                                                | 
|Cash and cash equivalents                       |  |                                                                                                | 2   |  |                                                   |  | 6  |                                                                                                | 
|Bank deposits                                   |  |                                                                                                | 3   |  |                                                   |  | 7  |                                                                                                | 
|Accounts receivable (except prepaid expenses)   |  |                                                                                                | -   |  |                                                   |  | 1  |                                                                                                | 
|Accounts payable and accrued expenses           |  |                                                                                                | (1) |  |                                                   |  | (2 | )                                                                                              | 
|Payable in respect of intangible asset purchase |  |                                                                                                | -   |  |                                                   |  | -  |                                                                                                | 
|Total loss                                      |  |                                                                                                | 4   |  |                                                   |  | 12 |                                                                                                | 



(B) As of the date of this Annual Report, our interest rate risk
exposure is in respect to bank deposits, which expose us to risk due to change in fair value interest rates. As of December 31,
2015, these deposits carry annual interest of 0.25%-1.10%. Under these low interest rates, reasonable changes in interest rates
are expected have negligible impact on the fair value of these assets.



|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
|-- | --------------------------



Each of our American Depositary Shares, or ADSs, represents 10 of
our ordinary shares. Our ADSs trade on The Nasdaq Capital Market.



The form of the deposit agreement for the ADSs and the form of American
Depositary Receipt (ADR) that represents an ADS have been incorporated by reference as exhibits to this Annual Report on Form 20-F.
Copies of the deposit agreement are available for inspection at the principal office of The Bank of New York Mellon, located at
101 Barclay Street, New York, New York 10286, and at the principal office of our custodians, Bank Leumi Le-Israel, 34 Yehuda Halevi
St., Tel-Aviv 65546, Israel and Bank Hapoalim B.M., 104 Hayarkon Street, Tel Aviv 63432, Israel.



Fees and Expenses



|Persons depositing or withdrawing shares
or American Depositary Share holders must pay :                                                                                                                                               |   | For :                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
|$5.00 (or less) per 100 American Depositary Shares (or portion of 100 American Depositary Shares)                                                                                                                                      | ● | Issuance of American Depositary Shares, including issuances resulting from a distribution of shares or rights or other property                       
|                                                                                                                                                                                                                                       | ● | Cancellation of American Depositary Shares for the purpose of withdrawal, including if the deposit agreement terminates                               
|$0.05 (or less) per American Depositary Share                                                                                                                                                                                          | ● | Any cash distribution to American Depositary Share holders                                                                                            
|A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of American Depositary Shares                                                        | ● | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to American Depositary Share holders
|$0.05 (or less) per American Depositary Shares per calendar year                                                                                                                                                                       | ● | Depositary services                                                                                                                                   
|Registration or transfer fees                                                                                                                                                                                                          | ● | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares      
|Expenses of the depositary                                                                                                                                                                                                             | ● | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)                                                           
|                                                                                                                                                                                                                                       | ● | converting foreign currency to U.S. dollars                                                                                                           
|Taxes and other governmental charges the depositary or the custodian have to pay on any American Depositary Share or share underlying an American Depositary Share, for example, stock transfer taxes, stamp duty or withholding taxes | ● | As necessary                                                                                                                                          
|Any charges incurred by the depositary or its agents for servicing the deposited securities                                                                                                                                            | ● | As necessary                                                                                                                                          





96




The depositary collects its fees for delivery and surrender of American
Depositary Shares directly from investors depositing shares or surrendering American Depositary Shares for the purpose of withdrawal
or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees
from the amounts distributed or by selling a portion of distributable property to pay the fees.  The depositary may collect
its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the
book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services
until its fees for those services are paid.



From time to time, the depositary may make payments to us to reimburse
and/or share revenue from the fees collected from American Depositary Share holders, or waive fees and expenses for services provided,
generally relating to costs and expenses arising out of establishment and maintenance of the American Depositary Share program.  In
performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are
affiliates of the depositary and that may earn or share fees or commissions.



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------



Not applicable



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------



Not applicable



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------



(a)           
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 on Form 20-F and filed with the Securities
and Exchange Commission 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 Securities Exchange Act of
1934, as amended, 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.
There can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within the
company to disclose information otherwise required to be set forth in our reports. Nevertheless, 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 Deputy CEO Finance and Operations, have concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report are effective at such reasonable assurance level.



(b)           
Management’s Annual Report on Internal Control over Financial Reporting



Our management, under the supervision of our Chief Executive Officer
and Deputy CEO Finance and Operations, is responsible for establishing and maintaining adequate internal control over our financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934, as amended. The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes policies and procedures that:



|o | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;                                                            
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                   
|o | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;       
|  |                                                                                                                                                                                                   
|o | provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and                        
|  |                                                                                                                                                                                                   
|o | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.



97






Due to its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



Under the supervision and with the participation of our management,
including our chief executive officer and Deputy CEO Finance and Operations, we assessed the effectiveness of our internal control
over financial reporting as of December 31, 2015 based on the framework for Internal Control-Integrated Framework set forth by
The Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2013).



Based on our assessment and this framework, our management concluded
that the Company's internal control over financial reporting were effective as of December 31, 2015.



(c)           
Attestation Report of Registered Public Accounting Firm



Not applicable.



(d)           
Changes in Internal Controls over Financial Reporting



There were no changes in our internal control over financial reporting
that occurred during the year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.



|ITEM16. | [RESERVED]
|------- | ----------



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------



Our board of directors has determined that Ofer Tsimchi, Dan Suesskind
and Nurit Benjamini are audit committee financial experts. Mr. Tsimchi, Mr. Suesskind and Ms. Benjamini are independent directors
for the purposes of the Nasdaq rules.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------



As of the date of this Annual Report, we have adopted a code of
ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions.  This code of ethics is posted on our website, http://ir.redhillbio.com/coporate-governance.cfm



|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------



Fees Paid to Independent Registered Public Accounting Firm



The following table sets forth, for each of the years indicated,
the aggregate fees billed by our independent registered public accounting firm for professional services.



|                           |  | Year Ended December 31,    
|-------------------------- |  | ---------------------------
|                           |  | 2015                       
|Services Rendered          |  | (U.S. dollars in thousands)
|Audit (1)                  |  |                            
|Audit related services (2) |  |                            
|Tax (3)                    |  |                            
|Total                      |  |                            



98






|(1) | Audit fees consist 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Audit related services relate to work regarding prospectus supplements and ongoing consultation.                                                                                                                            
|(3) | Tax fees relate to tax compliance, planning and advice.                                                                                                                                                                     



Audit Committee Pre-Approval Policies and Procedures



Our audit committee’s specific responsibilities in carrying
out its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company include the approval
of audit and non-audit services to be provided by the external auditor. The audit committee approves in advance the particular
services or categories of services to be provided to the Company during the following yearly period and also sets forth a specific
budget for such audit and non-audit services. Additional non-audit services may be pre-approved by the audit committee.



|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



|ITEM 16G. | CORPORATE GOVERNANCE
|--------- | --------------------



Nasdaq Stock Market Listing Rules and Home Country Practices



As a foreign private issuer, we are permitted to follow Israeli
corporate governance practices instead of Nasdaq Marketplace Rules, provided that we disclose which requirements we are not following
and the equivalent Israeli requirement. We rely on this “foreign private issuer exemption” with respect to the following
items:



| | • | Independent Directors - Our board of directors includes two external directors in accordance with the Israeli Companies Law, but does not require that a majority of our board members be independent as required by the Nasdaq Listing Rules.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | Shareholder Approval - We seek shareholder
        approval for all corporate actions requiring such approval in accordance with the requirements of the Israeli Companies Law, which
        are different from the shareholder approval requirements under the Nasdaq Listing Rules. The NASDAQ Listing Rules require that
        we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based
        compensation plans and arrangements, issuances that will result in a change of control of a company, certain transactions other
        than a public offering involving issuances of 20% or more of the shares or voting power in a company, and certain acquisitions
        of the stock or assets of another company involving issuances of 20% or more of the shares or voting power in a company or if any
        director, officer or holder of 5% or more of the shares or voting power of the company has a 5% or greater interest in the company
        or assets to be acquired or consideration to be paid and the transaction could result in an increase in the outstanding common
        shares or voting power by 5% or more.
        
        Under the Israeli Companies Law, shareholder approval
        is required for any transaction, including any grant of equity-based compensation, to a director or a controlling shareholder,
        but is not generally required to establish or amend an equity based compensation plan. Similarly, shareholder approval is required
        for a private placement that is deemed an “extraordinary private placement” or that involves a director or controlling
        shareholder. A “extraordinary private placement” is a private placement in which a company issues securities representing
        20% or more of its voting rights prior to the issuance and the consideration received pursuant to such issuance is not comprised,
        in whole or in part, solely of cash or securities registered for trade on an exchange or which is not made pursuant to market conditions,
        and as a result of which the shareholdings of a 5% holder of the shares or voting rights of the company  increases or
        as a result of which a person will become a holder of 5% of the shares or voting rights of the company or a controlling shareholder
        after the issuance.
|

99




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Quorum - As permitted under the Israeli Companies Law, pursuant to our articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent at least 25% of the voting rights 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 Listing Rules.                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | • | Nominations Committee - As permitted under the Israeli Companies Law, our board of directors selects director nominees subject to the terms of our articles of association which provide that incumbent directors are re-nominated for additional terms. Directors are not selected, or recommended for board of director selection, by independent directors constituting a majority of the board's independent directors or by a nominations committee comprised solely of independent directors as required by the Nasdaq Listing Rules.



Otherwise, we comply with the rules generally applicable to U.S.
domestic companies listed on the Nasdaq Stock Market. We may in the future decide to use the foreign private issuer exemption with
respect to some or all of the other Nasdaq Marketplace Rules related to corporate governance. We also comply with Israeli corporate
governance requirements under the Israeli Companies Law applicable to public companies.



|ITEM 16H. | MINE SAFETY DISCLOSURE
|--------- | ----------------------



Not applicable



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------



Not applicable



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------



The financial statements required by this item are found at the end of this Annual Report,
beginning on page F-1.



|ITEM 19. | EXHIBITS
|-------- | --------



See Exhibit Index on page 103.







100






Glossary of Industry Terms



Certain standards and other terms specific to our industry that
are used in this Annual Report are defined below:



5-HT3 seretonin receptor inhibitors - play a role in mediating
nausea and vomiting, and as such, demonstrate anti-emetic efficacy.

Bioequivalence - the absence of a significant difference in the rate and extent to which the active ingredient or active
moiety in pharmaceutical equivalents or pharmaceutical alternatives becomes available at the site of drug action when administered
at the same molar dose under similar conditions in an appropriately designed study. To be considered “bioequivalent”,
certain standards specified by the US Food and Drug Administration must be met.



cGMP - Current Good Manufacturing Practice -   Standards,
procedures and guidelines designed for production quality control.



Clinical trial material (CTM) manufacturing - manufacturing
of study supplies provided by the study sponsor to the clinical investigator.



CRO - a Contract Research Organization, also called a clinical
research organization (CRO) is a service organization that provides outsourced pharmaceutical research services.



Diffuse large B-cell lymphoma
(DLBCL- DLBCL is a B-cell type of lymphoma. With DLBCL, the cancer cells appear very large and scattered throughout (diffuse)
all of the lymph node. Lymphoma is the most common blood cancer. Lymphoma occurs when cells of the immune system called lymphocytes,
a type of white blood cell, grow and multiply uncontrollably. Cancerous lymphocytes can travel to many parts of the body, including
the lymph nodes, spleen, bone marrow, blood, or other organs, and form a mass called a tumor.



H. pylori ( Helicobacter pylori )
- a Gram-negative bacterium found in the stomach. It was identified in 1982 by Dr. Barry Marshall and Dr. Robin Warren and is associated
with peptic ulcer disease and development of gastric cancer.



IND - Investigational New Drug - a status assigned by the
Food and Drug Administration to a drug before allowing its use in humans, so that experimental clinical trials may be conducted.





101




MAP bacterium ( Mycobacterium avium subspecies paratuberculosis
(MAP)) - an obligate pathogenic bacterium in the genus Mycobacterium.



Mycobacterium avium subspecies paratuberculosis (MAP)
- MAP is the causative agent of Johne disease, a chronic granulomatous ileitis occurring mainly in ruminants. MAP has been incriminated
as the cause of Crohn disease in humans.



MAA - Marketing Authorization Application – An MAA
is the equivalent European Union (EU) process to the U.S. new drug application (NDA – see below) process. It is an application
submitted by a drug sponsor seeking permission to bring a newly developed medicinal product to the market. An MAA may be filed
with the European Medicines Agency (EMA) or one or more Member States, depending on the applicable and selected procedure: centralised,
mutual recognition or decentralised.



NDA - New Drug Application - an application by drug sponsors
to the Food and Drug Administration for approval of a new pharmaceutical for sale and marketing in the U.S.



Ondansetron - Ondansetron is a drug in class of medications
called serotonin 5-HT 3 receptor antagonists. Ondansetron works by blocking the action of serotonin, a natural substance
that may cause nausea and vomiting.



Orphan Drug Status - the designation of Orphan Drug status to drugs that are in the process of development for the treatment
of rare diseases. This status provides tax reductions and the exclusive rights to the cure for a specific condition for a period
of seven years post-approval.



Bioequivalence (BE) Clinical Trial - a study the data
from which is submitted to the Food and Drug Administration in support of a marketing application of a test drug that is being
compared to a referenced existing (already approved) drug. Sufficient similarity between the test and the reference drug is required,
according to certain standards specified by the Food and Drug Administration, which must be met.



Rizatriptan TM - a serotonin 5-HT 1B/1D receptor agonist
of the triptan class of drugs.



Stability Testing - as part of the cGMP regulations, the
Food and Drug Administration requires that drug products bear an expiration date determined by appropriate stability testing. The
stability of drug products needs to be evaluated over time in the same container-closure system in which the drug product is marketed.



TNFα- Tumor necrosis factor alpha is a cell signaling
protein (cytokine) involved in systemic inflammation.



Triptans - serotonin 5-hydroxytryptamine (5-HT) receptor
agonists   drugs used for the treatment of migraine.



Sphingosine kinase-2 (SK2) - Sphigosine kinase is an enzyme
catalyzes the phosphorylation of sphingosine to generate sphingosine 1-phosphate. There are two isotypes of sphingosine enzyme,
SK1 and SK2. Both isotypes have a key role in variety of disease, including the development of a range of solid tumors and are
promising anti-cancer therapeutic targets.



102
















REDHILL BIOPHARMA LTD.

2015 FINANCIAL STATEMENTS











































































REDHILL BIOPHARMA LTD.

2015 FINANCIAL STATEMENTS







TABLE OF CONTENTS



|                                                        | Page
|------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm | F-2 
|Statements of Comprehensive Loss                        | F-3 
|Statements of Financial Position                        | F-4 
|Statements of Changes in Equity                         | F-5 
|Statements of Cash Flows                                | F-7 
|Notes to the Financial Statements                       | F-8 
















































REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of

REDHILL BIOPHARMA LTD.





We have audited the accompanying statements of financial position
of RedHill Biopharma Ltd.
(the "Company") as of December 31, 2015 and 2014 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, 2015. 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 accompanying financial statements referred to
above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014 and the
results of its operations, changes in equity and cash flows for each of the three years in the period ended December 31, 2015,
in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards
Board ("IASB").







|Tel-Aviv, Israel   | /s/ Kesselman & Kesselman                                    
|------------------ | -------------------------------------------------------------
|February 24,, 2016 | 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





F - 2
















REDHILL BIOPHARMA LTD.

STATEMENTS OF COMPREHENSIVE LOSS







|                                           |  |      |    | Year ended December 31   
|------------------------------------------ |  | ---- | -- | -------------------------
|                                           |  | Note |    | 2015                     
|                                           |  |      |    | U.S. dollars in thousands
|                                           |  |      |    |                          
|REVENUES:                                  |  |      |    |                          
|Licensing revenue                          |  |      | 16 |                          
|Other revenue                              |  |      |    |                          
|TOTAL REVENUES                             |  |      |    |                          
|COST OF REVENUE                            |  |      |    |                          
|RESEARCH AND DEVELOPMENT EXPENSES,
    net |  |      | 17 |                          
|GENERAL AND ADMINISTRATIVE EXPENSES        |  |      | 18 |                          
|OTHER EXPENSES (INCOME)                    |  |      | 8  |                          
|OPERATING LOSS                             |  |      |    |                          
|FINANCIAL INCOME                           |  |      |    |                          
|FINANCIAL EXPENSES                         |  |      |    |                          
|FINANCIAL
    EXPENSES (INCOME ), net      |  |      | 19 |                          
|                                           |  |      |    |                          
|LOSS AND COMPREHENSIVE LOSS FOR THE YEAR   |  |      |    |                          
|LOSS PER ORDINARY SHARE (U.S. dollars):    |  |      | 20 |                          
|Basic                                      |  |      |    |                          
|Diluted                                    |  |      |    |                          









The accompanying notes are an integral part of these
financial statements.



F - 3






REDHILL BIOPHARMA LTD.

STATEMENTS OF FINANCIAL POSITION







|                                                |  |      |        | December 31              
|----------------------------------------------- |  | ---- | ------ | -------------------------
|                                                |  | Note |        | 2015                     
|                                                |  |      |        | U.S. dollars in thousands
|CURRENT ASSETS:                                 |  |      |        |                          
|Cash and cash equivalents                       |  |      | 5      |                          
|Bank deposits                                   |  |      | 5      |                          
|Prepaid expenses and receivables                |  |      | 6      |                          
|                                                |  |      |        |                          
|NON-CURRENT ASSETS:                             |  |      |        |                          
|Bank deposits                                   |  |      |        |                          
|Fixed assets                                    |  |      | 7      |                          
|Intangible assets                               |  |      | 8      |                          
|                                                |  |      |        |                          
|T O T A L  ASSETS                               |  |      |        |                          
|                                                |  |      |        |                          
|CURRENT LIABILITIES:                            |  |      |        |                          
|Accounts payable and accrued expenses           |  |      | 10     |                          
|Payable in respect of intangible asset purchase |  |      | 11a(6) |                          
|                                                |  |      |        |                          
|                                                |  |      |        |                          
|NON-CURRENT LIABILITIES:                        |  |      |        |                          
|Derivative financial instruments                |  |      | 14     |                          
|T O T A L  LIABILITIES                          |  |      |        |                          
|                                                |  |      |        |                          
|COMMITMENTS                                     |  |      | 11     |                          
|                                                |  |      |        |                          
|EQUITY:                                         |  |      | 13     |                          
|Ordinary shares                                 |  |      |        |                          
|Additional paid-in capital                      |  |      |        |                          
|Warrants                                        |  |      |        |                          
|Accumulated deficit                             |  |      |        |                          
|T O T A L  EQUITY                               |  |      |        |                          
|                                                |  |      |        |                          
|T O T A L  LIABILITIES AND EQUITY               |  |      |        |                          

















The accompanying notes are an integral part of these financial
statements.



F - 4




(Continued) - 1



REDHILL BIOPHARMA LTD.

STATEMENTS OF CHANGES IN EQUITY







|                                                            |  | Ordinary 
shares          |     | Ordinary 
shares to 
be issued |  | Additional 
paid-in 
capital |        | Warrants |  | Accumulated 
deficit |        | Total 
equity
|----------------------------------------------------------- |  | ------------------------- | --- | ------------------------------ |  | ---------------------------- | ------ | -------- |  | -------------------- | ------ | -------------
|                                                            |  | U.S. dollars in thousands
|BALANCE AT JANUARY 1, 2013                                  |  |                           | 143 |                                |  |                              | 8,020  |          |  |                      | 31,469 |              
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2013:            |  |                           |     |                                |  |                              |        |          |  |                      |        |              
|Comprehensive loss                                          |  |                           | -   |                                |  |                              | -      |          |  |                      | -      |              
|Exercise of warrants and options into ordinary shares, net  |  |                           | 7   |                                |  |                              | -      |          |  |                      | 3,311  |              
|Issuance of ordinary shares and warrants                    |  |                           | 24  |                                |  |                              | (8,020 | )        |  |                      | 8,087  |              
|Warrants expiration                                         |  |                           | -   |                                |  |                              | -      |          |  |                      | 277    |              
|Share-based compensation to employees and service providers |  |                           | -   |                                |  |                              | -      |          |  |                      | -      |              
|BALANCE AT DECEMBER 31, 2013                                |  |                           | 174 |                                |  |                              | -      |          |  |                      | 43,144 |              
|BALANCE AT JANUARY 1, 2014                                  |  |                           | 174 |                                |  |                              |        |          |  |                      | 43,144 |              
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2014:            |  |                           |     |                                |  |                              |        |          |  |                      |        |              
|Comprehensive loss                                          |  |                           | -   |                                |  |                              | -      |          |  |                      | -      |              
|Exercise of warrants and options into ordinary shares, net  |  |                           | 11  |                                |  |                              | -      |          |  |                      | 5,696  |              
|Issuance of ordinary shares and warrants                    |  |                           | 55  |                                |  |                              | -      |          |  |                      | 15,927 |              
|Warrants expiration                                         |  |                           | -   |                                |  |                              | -      |          |  |                      | 694    |              
|Share-based compensation to employees and service providers |  |                           | -   |                                |  |                              | -      |          |  |                      | -      |              
|BALANCE AT DECEMBER 31, 2014                                |  |                           | 240 |                                |  |                              | -      |          |  |                      | 65,461 |              









F - 5








(Concluded) - 2



REDHILL BIOPHARMA LTD.

STATEMENTS OF CHANGES IN EQUITY





|                                                            |  | Ordinary shares           |     | Additional paid-in capital |  | Warrants |         | Accumulated deficit |  | Total equity
|----------------------------------------------------------- |  | ------------------------- | --- | -------------------------- |  | -------- | ------- | ------------------- |  | ------------
|                                                            |  | U.S. dollars in thousands
|BALANCE AT JANUARY 1, 2015                                  |  |                           | 240 |                            |  |          | 65,461  |                     |  |             
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2015:            |  |                           |     |                            |  |          |         |                     |  |             
|Comprehensive loss                                          |  |                           | -   |                            |  |          | -       |                     |  |             
|Exercise of options into ordinary shares                    |  |                           | *   |                            |  |          | 108     |                     |  |             
|Issuance of ordinary shares, see note 13a(6)                |  |                           | 103 |                            |  |          | 54,581  |                     |  |             
|Warrants expiration                                         |  |                           | -   |                            |  |          | 471     |                     |  |             
|Share-based compensation to employees and service providers |  |                           | -   |                            |  |          | -       |                     |  |             
|BALANCE AT DECEMBER 31, 2015                                |  |                           | 343 |                            |  |          | 120,621 |                     |  |             





* Represents amount less than $1 thousand.



The accompanying notes are an integral part of these financial
statements.





F - 6






REDHILL BIOPHARMA LTD.

STATEMENTS OF CASH FLOWS



|                                                                                              |  | Year ended December 31   
|--------------------------------------------------------------------------------------------- |  | -------------------------
|                                                                                              |  | 2015                     
|                                                                                              |  | U.S. dollars in thousands
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                         |  |                          
|                                                                                              |  |                          
|Comprehensive loss                                                                            |  |                          
|Adjustments in respect of income and expenses not involving cash flow:                        |  |                          
|Share-based compensation to employees and service providers                                   |  |                          
|Unrealized gain on derivative financial instruments                                           |  |                          
|Depreciation                                                                                  |  |                          
|Cost of out-licensing of intangible assets                                                    |  |                          
|Write off of intangible assets                                                                |  |                          
|Fair value gains on financial assets at fair value through profit or loss                     |  |                          
|Revaluation of bank deposits                                                                  |  |                          
|Exchange differences in respect of cash and cash equivalents                                  |  |                          
|Changes in assets and liability items:                                                        |  |                          
|Decrease (increase) in prepaid expenses and receivables                                       |  |                          
|Increase (decrease) in accounts payable and accrued expenses                                  |  |                          
|Net cash used in operating activities                                                         |  |                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                         |  |                          
|Purchase of fixed assets                                                                      |  |                          
|Purchase of intangible assets                                                                 |  |                          
|Change in investment in current bank deposits                                                 |  |                          
|Purchase of non-current bank deposits                                                         |  |                          
|Maturity of non-current bank deposits                                                         |  |                          
|Proceeds from sale of financial assets at fair value through profit or loss                   |  |                          
|Net cash provided by (used in) investing activities                                           |  |                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                         |  |                          
|Proceeds from issuance of ordinary shares, warrants and derivative financial instruments, net |  |                          
|Exercise of warrants and options into shares, net of expenses                                 |  |                          
|Net cash provided by financing activities                                                     |  |                          
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              |  |                          
|EXCHANGE DIFFERENCES ON CASH AND CASH	EQUIVALENTS                                             |  |                          
|BALANCE OF CASH AND CASH EQUIVALENTS AT 	BEGINNING OF YEAR                                    |  |                          
|BALANCE OF CASH AND CASH EQUIVALENTS AT END	OF YEAR                                           |  |                          
|SUPPLEMENTARY INFORMATION ON INTEREST RECEIVED IN CASH                                        |  |                          
|SUPPLEMENTARY INFORMATION ON INVESTING ACTIVITIES NOT INVOLVING CASH FLOWS:                   |  |                          
|Purchase of intangible assets                                                                 |  |                          
|                                                                                              |  |                          



The accompanying notes are an integral part of these financial
statements.





F - 7




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS



NOTE 1 - GENERAL:



a.	     General



RedHill Biopharma Ltd.
(the "Company") was incorporated in Israel on August 3, 2009. The Company is focused primarily on the development and
commercialization of late clinical-stage, proprietary, orally-administered, small molecule drug candidatesfor inflammatory and gastrointestinal diseases, including cancer (the "Drug Candidates").



In February 2011, the Company listed its securities on
the Tel-Aviv Stock Exchange (“TASE”). Since December 2012, the Company's American Depositary Shares (“ADSs”)
have been listed on the NASDAQ Capital Market (“NASDAQ”).



The Company's registered address is at 21 Ha'arba'a St,
Tel-Aviv, Israel.



The Company is engaged in the research and development
of most of its Drug Candidates and to date has out-licensed only one of its Drug Candidates. Accordingly, there is no assurance
that the Company’s business will generate positive cash flow. Through December 31, 2015, the Company has an accumulated deficit
and its activities have been funded through public and private offerings of the Company's securities.



The Company plans to further fund its future operations
through commercialization of its Drug Candidates, out-licensing certain programs and raising additional capital. The Company's
current cash resources are not sufficient to complete the research and development of all of the Company's Drug Candidates. Management
expects that the Company will incur more losses as it continues to focus its resources on advancing its Drug Candidates based on
a prioritized plan that will result in negative cash flows from operating activities. The Company believes its existing capital
resources should be sufficient to fund its current and planned operations for at least the next 12 months.



If the Company is unable to commercialize or further
out-license its remaining Drug Candidates or obtain future financing, the Company may be forced to delay, reduce the scope of,
or eliminate one or more of its research, development programs or commercialization related to the Drug Candidates, any of which
may have a material adverse effect on the Company's business, financial condition and results of operations.



| | b. | Approval of financial statements
| | -- | --------------------------------



These financial statements were approved by the Board
of Directors on February 24, 2016.





F - 8




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



| | a. | Basis for presentation of the financial statements
| | -- | --------------------------------------------------



The financial statements of the Company as of December
31, 2015 and 2014 and for each of the three years in the period ended on December 31, 2015 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 consistently in relation to all the periods presented, unless otherwise stated.



The financial statements have been prepared under the historical
cost convention, 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. The 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 could differ
significantly from those estimates and assumptions.



| | b. | Translation of foreign currency balances and transactions:
| | -- | ----------------------------------------------------------



| | 1) | Functional and presentation currency
| | -- | ------------------------------------



Items included in the financial statements are measured
using the currency of the primary economic environment in which the Company operates (the “Functional Currency”). The
financial statements are presented in U.S. dollars ("$"), which is the Company’s functional and presentation currency.



| | 2) | Transactions and balances
| | -- | -------------------------



Foreign currency transactions in currencies different from
the Functional Currency (hereafter foreign currency, mostly New Israeli Shekels ("NIS")) are translated into the Functional
Currency using the exchange rates at the dates of the transactions. Foreign exchange differences resulting from the settlement
of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recorded to the statement of comprehensive loss among financing income or expenses.



| | c. | Cash and cash equivalents
| | -- | -------------------------



Cash and cash equivalents include cash on hand and unrestricted
short-term bank deposits with maturities of three months or less.





F - 9




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | d. | Fixed assets
| | -- | ------------



Fixed assets items are initially recognized at acquisition
cost. Fixed assets items are stated at cost less accumulated depreciation.

Depreciation is computed by the straight- line method,
to reduce the cost of fixed assets to their residual value over their estimated useful lives as follows:



|                               | %   
|------------------------------ | ----
|Computers                      | 33  
|Office furniture and equipment | 8-15



Leasehold improvements are depreciated by the straight-line
method over the shorter of the term of the lease or the estimated useful life of the improvements.



| | e. | Research and development:
| | -- | -------------------------



| | 1) | Research and development assets acquired by the Company, the development of which has not been
completed yet, are stated at cost and are not amortized; these assets are tested for impairment once a year. At the time these
assets will be available for use, they will be amortized by the straight line method over their useful lives.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 2) | Research expenses are charged to profit or loss as incurred. An intangible asset arising from development of the Company's Drug Candidates is recognized if all of the following conditions 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 asset and use it or sell it;

·    
There is an ability to use or sell the intangible asset;

·    
 It can be demonstrated how the intangible asset will generate probable future economic benefits;

·    Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset 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, 2015, the Company
has not yet capitalized development costs.



F - 10






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | 3) | Amounts paid to purchase intellectual property of Drug Candidates are capitalized and recorded
as intangible assets. Amounts due for future payment based on contractual agreements will be accrued upon reaching the relevant
milestones.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 4) | Research and development costs for the performance of clinical trials and manufacturing by subcontractors are recognized as expenses when incurred.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Impairment of non-financial assets
| | -- | ----------------------------------



Depreciable assets are tested for impairment if any events
have occurred or changes in circumstances have taken place which might indicate that their carrying amounts may not be recoverable.
Research and development assets, the development of which has not been completed yet, are not amortized and are tested for impairment
on an annual basis.



An impairment loss is recognized for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash-generating units). Nonfinancial assets that were subject to impairment
are reviewed for possible reversal of the impairment recognized in respect thereof at each date of statement of financial position.





| | g. | Financial assets:
| | -- | -----------------



| | 1) | Classification
| | -- | --------------



The financial assets of the Company are classified into
the following categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends
on the purpose for which the financial assets were acquired. The Company's management determines the classification of its financial
assets at initial recognition.



| | a) | 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 expected to be settled
within 12 months, otherwise, they are classified as noncurrent.



F - 11






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | b) | Loans and receivables
| | -- | ---------------------



Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except
for those with maturities greater than 12 months after the statement of financial position date (for which they are classified
as noncurrent assets). The loans and receivables of the Company are comprised of prepaid expenses and receivables, cash and cash
equivalents and bank deposits in the statement of financial position.



| | 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 recorded at fair value through profit
or loss.



Financial assets measured 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 recorded
at fair value. Loans and receivables are measured in subsequent periods at amortized cost using the effective interest method.



Gains or losses arising from changes in the fair value
of financial assets at fair value through profit or loss are presented in the statement of comprehensive loss under "financial
expenses (income), net".



| | h. | Trade payables
| | -- | --------------



Trade payables are obligations to pay for goods or services
that have been acquired from suppliers in the ordinary course of business. Accounts payable are classified as current liabilities
if payment is due within one year or less, otherwise they are presented as noncurrent liabilities.



Trade payables are recognized initially at fair value
and subsequently measured at amortized cost using the effective interest method.



| | i. | Warrants
| | -- | --------



Receipts in respect of warrants are classified as equity
to the extent that they confer the right to purchase a fixed number of shares for a fixed exercise price. Warrants that confer
the right to net share settlement do not qualify for equity classification and are classified as liabilities (see j below).



F - 12






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | j. | Derivative financial instruments
| | -- | --------------------------------



The derivative financial instruments of the Company represent
warrants and Price Protection Rights issued to investors (see also i above and 13a(4)).



These derivative financial instruments are carried at
fair value, with changes in their fair value recognized in profit or loss. The issuance costs of such instruments were directly
charged to profit or loss.



| | k. | Share capital
| | -- | -------------



The Company's ordinary shares are classified as the Company's
share capital. Incremental costs directly attributed to issuance of new shares or warrants are presented under equity as a deduction
from the proceeds of issuance.





| | l. | Employee benefits:
| | -- | ------------------





| | 1) | Pension and retirement benefit obligations
| | -- | ------------------------------------------



In any matter related to
payment of pension and severance pay to employees in Israel to be dismissed or to retire from
the Company, the Company operates in accordance with labor laws.



Labor laws and agreements in Israel and the Company's
practice require the Company to pay severance pay and/or pensions to employees in Israel dismissed or retiring from their employer
in certain circumstances.



The Company has a severance pay plan in accordance with
Section 14 of the Israeli Severance Pay Law with the plan treated as a defined contribution plan. According to the plan, the Company
regularly makes payments to severance pay or pension funds without having a legal or constructive obligation to pay further contributions
if the fund does not hold sufficient assets to pay all employees in Israel the benefits relating to employee service in the current
and prior periods. Contributions for severance pay or pension are recognized as employee benefit expenses when they are due commensurate
with receipt of work services from the employee and no further provision is required in the financial statements.



| | 2) | Vacation and recreation pay
| | -- | ---------------------------



Under Israeli law, each employee in Israel is entitled
to vacation days and recreation pay, both computed on an annual basis. The entitlement is based on the period of employment. The
Company records a liability and an expense for vacation and recreation pay based on the benefit accumulated by each employee.



F - 13




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | m. | Share-based payments
| | -- | --------------------



The Company operates a number of equity-settled, share-based
compensation plans to employees (as defined in IFRS 2 "Share-Based Payments") and service providers. As part of the plans,
the Company grants employees and service providers, from time to time and at its discretion, options to purchase Company shares.
The fair value of the employee and service provider services received in exchange for the grant of the options is recognized as
an expense in profit or loss and is recorded as accumulated deficit within equity. The total amount recognized as an expense over
the vesting period of the options (the period during which all vesting conditions are expected to be met) is determined by reference
to the fair value of the options granted at date of grant.



Vesting conditions are included in assumptions about
the number of options that are expected to vest. The total 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 nonmarket vesting conditions. The Company recognizes
the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to accumulated deficit.



When exercising options, the Company issues new shares.
The proceeds, less directly-attributable transaction costs, recognized as share capital (par value) and share premium.





| | n. | Revenue recognition
| | -- | -------------------



Revenue incurred in connection with the out-licensing
of the Company’s intellectual property is recognized when all of the following criteria have been met as of the statement
of financial position:



|• | The Company has transferred to the buyer the significant risks and rewards of ownership of the intellectual property.                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | The Company does not retain either the continuing managerial involvement to the degree usually associated with ownership or the effective control over the intellectual property.
|• | The amount of revenue can be measured reliably.                                                                                                                                  
|• | It is probable that the economic benefits associated with the transaction will flow to the Company.                                                                              
|• | The costs incurred or to be incurred in respect
of the sale can be measured reliably.                                                                                            





F - 14




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



Revenue from reaching additional milestones is recognized
upon achievement of the specific milestone, in accordance with the relevant agreement.



Revenue from royalties is recognized on an accrual basis
in accordance with the substance of the relevant agreement.





| | o. | 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.





| | p. | Loss per ordinary 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 exercised into shares.



| | q. | Deferred taxes
| | -- | --------------



Deferred income tax is recognized, using the liability
method, for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements.



Deferred income tax is determined using tax rates (and
laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when
the related deferred income tax asset will be realized or the deferred income tax liability will be settled. Deferred income tax
assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilized.



Since the Company is unable to assess whether it will
have taxable income in the foreseeable future, no deferred tax assets were recorded in these financial statements.



F - 15






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):



| | r. | Standards and interpretations to existing standards that are not yet
in effect and have not been early adopted by the Company:
| | -- | ------------------------------------------------------------------------------------------------------------------------------



International Financial Reporting
Standard No. 9 "Financial Instruments" (hereafter -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 1 January, 2018. Early adoption is permitted. The Company is currently assessing the impact of IFRS 9.



International Financial Reporting
Standard No. 15 “Revenue from Contracts with Customers" (hereafter - IFRS 15)



IFRS 15 amends revenue recognition requirements and establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. The standard
is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact of adopting
IFRS 15.



International
Financial Reporting Standard No. 16 “Leases" (hereafter - 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 is currently assessing the impact
of adopting IFRS 16.





F - 16






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)





NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS:



Estimates and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.



The Company makes judgments and estimates and assumptions
concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The material
judgments, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the following financial year are in respect of impairment of intangible assets.



The Company reviews once a year or when indications
of impairment are present, whether research and development assets are impaired, see also note 2f.



The Company makes judgments to determine whether indications
are present that require reviewing impairment of these intangible assets.



An impairment loss is recognized for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The recoverable amounts of cash generating units are based on
the Company's estimates as to the development of the Drug Candidates, changes in market scope, market competition and timetables
for regulatory approvals.



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 price risk), credit and interest risks, 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.



Risk management is performed by the Deputy Chief Executive
Officer, Finance and Operations of the Company, who identifies and evaluates financial risks in close cooperation with the Company's
Chief Executive Officer.



The Company’s finance department is responsible
for carrying out risk management activities in accordance with policies approved by its Board of Directors. The Board of Directors
provides guidelines for overall risk management, as well as policies dealing with specific areas, such as exchange rate risk, interest
rate risk, credit risk, use of financial instruments, and investment of excess cash. In order to minimize the risk exposure to
market risk and credit risk, the Company invested the majority of its cash balances in highly-rated bank deposits with maturities
of less than one year.



F - 17






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS
AND FINANCIAL RISK MANAGEMENT (continued):



| | (a) | Market risks
| | --- | ------------



Foreign exchange risk: the Company might be exposed
to foreign exchange risk as a result of making payments to employees or service providers and investment of some liquidity in currencies
other than the U.S. dollar (i.e. the Functional Currency). The Company manages the foreign exchange risk by aligning the currencies
for holding liquidity with the currencies of expected expenses, based on the expected cash flows of the Company. Had the Functional
Currency of the Company been stronger by 5% against the NIS, assuming all other variables remained constant, the Company would
have recognized an additional expense of $12,000, $125,000 and $96,000 in profit or loss for the years ended, December 31, 2015,
2014 and 2013, respectively.



| | (b) | Credit and interest risks
| | --- | -------------------------



Credit and interest risks arise from cash and cash equivalents,
deposits with banks, as well as receivables. A substantial portion of liquid instruments of the Company are invested in short-term
deposits in highly-rated banks. The Company estimates that since the liquid instruments are mainly invested for the short term
and with highly-rated institutions, the credit and interest risks associated with these balances are immaterial.



| | (c) | Liquidity risk
| | --- | --------------



Prudent liquidity risk management requires 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 of cash and cash equivalents, 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 significant revenue
from the sale of its Drug Candidates or royalties; it is therefore exposed to liquidity risk, taking into consideration the forecasts
of cash flows required to finance its investments and other activities.



As of December 31, 2015 and 2014, the Company's non-derivative
financial liabilities include accounts payable, accrued expenses and payable in respect of intangible asset purchase for a period
of less than 1 year.



F - 18






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS
AND FINANCIAL RISK MANAGEMENT (continued):



| | 2) | Capital risk management
| | -- | -----------------------



The Company’s objectives when managing capital
are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to
maintain an optimal capital structure to reduce the cost of capital. It should be indicated that the Company has not yet generated
significant revenue from the sale of its Drug Candidates or from royalties.



| | 3) | Fair value estimation
| | -- | ---------------------



The following is an analysis of financial instruments
measured at fair value 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 inputs) (level 3)                                                                            



The fair value of financial instruments traded in active
markets is based on quoted market prices at dates of statements of financial position. A market is regarded as active if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency,
and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments
are included in level 1.



The fair value of financial instruments that are not
traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable
market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required
to fair value an instrument are observable, the instrument is included in level 2.



If one or more of the significant inputs is not based
on observable market data, the instrument is included in level 3.





F - 19






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS
AND FINANCIAL RISK MANAGEMENT(continued):



As of December 31, 2015 and 2014, the financial instruments
of the Company presented at fair value are derivative financial liabilities in the amounts of $1.2 million and $2.1 million, respectively.
These instruments are classified as level 3.



The following table represents the change in derivative
liabilities measured at level 3 for the years ended December 31, 2014 and 2015:





|                                     |  | Derivative financial instruments
|------------------------------------ |  | --------------------------------
|                                     |  | Year ended December 31          
|                                     |  | 2015                            
|                                     |  | U.S. dollars in thousands       
|Balance at the beginning of the year |  |                                 
|Proceeds received during the year    |  |                                 
|Amount recognized in profit or loss  |  |                                 
|Balance at the end of the year       |  |                                 





The fair value of the above-mentioned derivative financial
liabilities that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment
to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting
period.



For more information regarding the derivatives, see note
14.









F - 20






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 4 - FINANCIAL INSTRUMENTS
AND FINANCIAL RISK MANAGEMENT(continued):



| | b. | Classification of financial instruments by groups:
| | -- | --------------------------------------------------



|                                      |  | Loans and 
receivables    
|------------------------------------- |  | --------------------------
|                                      |  | U.S. dollars 
in thousands
|As of December 31, 2015:              |  |                           
|Cash and cash equivalents             |  |                           
|Bank deposits                         |  |                           
|Receivables (except prepaid expenses) |  |                           
|                                      |  |                           
|As of December 31, 2014:              |  |                           
|Cash and cash equivalents             |  |                           
|Bank deposits                         |  |                           
|Receivables (except prepaid expenses) |  |                           
|                                      |  |                           





|                                                |  | Financial 
liabilities at 
fair value 
through 
profit or loss |       | Financial 
liabilities at 
amortized 
cost |  | Total
|----------------------------------------------- |  | -------------------------------------------------------------- | ----- | ------------------------------------------ |  | -----
|                                                |  | U.S. dollars in thousands                                     
|                                                |  |                                                                |       |                                            |  |      
|As of December 31, 2015:                        |  |                                                                |       |                                            |  |      
|Accounts payable and accrued expenses           |  |                                                                | -     |                                            |  |      
|Derivative financial instruments                |  |                                                                | 1,237 |                                            |  |      
|Payable in respect of intangible asset purchase |  |                                                                | -     |                                            |  |      
|                                                |  |                                                                | 1,237 |                                            |  |      
|As of December 31, 2014:                        |  |                                                                |       |                                            |  |      
|Accounts payable and accrued expenses           |  |                                                                | -     |                                            |  |      
|Derivative financial instruments                |  |                                                                | 2,125 |                                            |  |      
|                                                |  |                                                                | 2,125 |                                            |  |      





F - 21






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)





NOTE 4 - FINANCIAL INSTRUMENTS
AND FINANCIAL RISK MANAGEMENT(continued):





| | c. | Composition of financial instruments by currency:
| | -- | -------------------------------------------------







|                                                |  | U.S. Dollar               |        | Other currencies |  | Total
|----------------------------------------------- |  | ------------------------- | ------ | ---------------- |  | -----
|                                                |  | U.S. dollars in thousands
|As of December 31, 2015:                        |  |                           |        |                  |  |      
|Assets:                                         |  |                           |        |                  |  |      
|Cash and cash equivalents                       |  |                           | 20,282 |                  |  |      
|Bank deposits                                   |  |                           | 36,605 |                  |  |      
|Receivables (except prepaid expenses)           |  |                           | 2,064  |                  |  |      
|                                                |  |                           | 58,951 |                  |  |      
|Liabilities:                                    |  |                           |        |                  |  |      
|Accounts payable and accrued expenses           |  |                           | 3,465  |                  |  |      
|Payable in respect of intangible asset purchase |  |                           | 2,000  |                  |  |      
|Derivative financial instruments                |  |                           | 1,237  |                  |  |      
|                                                |  |                           | 6,702  |                  |  |      
|                                                |  |                           | 52,249 |                  |  |      
|                                                |  |                           |        |                  |  |      
|As of December 31, 2014:                        |  |                           |        |                  |  |      
|Assets:                                         |  |                           |        |                  |  |      
|Cash and cash equivalents                       |  |                           | 2,165  |                  |  |      
|Bank deposits                                   |  |                           | 17,036 |                  |  |      
|Receivables (except prepaid expenses)           |  |                           | 2,827  |                  |  |      
|                                                |  |                           | 22,028 |                  |  |      
|Liabilities:                                    |  |                           |        |                  |  |      
|Accounts payable and accrued expenses           |  |                           | 1,385  |                  |  |      
|Derivative financial instruments                |  |                           | 2,125  |                  |  |      
|                                                |  |                           | 3,510  |                  |  |      
|                                                |  |                           | 18,518 |                  |  |      







F - 22






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)





NOTE 5 - CASH AND CASH EQUIVALENTS
AND BANK DEPOSITS:





| | a. | Cash and Cash Equivalents:
| | -- | --------------------------





|                         |  | December 31              
|------------------------ |  | -------------------------
|                         |  | 2015                     
|                         |  | U.S. dollars in thousands
|Cash in bank             |  |                          
|Short-term bank deposits |  |                          
|                         |  |                          



The carrying amounts of the cash
and cash equivalents approximate their fair values.



| | b. | Short-term Bank Deposits
| | -- | ------------------------



As of December 31, 2015, the bank
deposits include deposits invested for terms of three months to one year and bear interest at annual rates of between 0.25% - 1.1%.





NOTE 6 - PREPAID EXPENSES AND RECEIVABLES:



|                                             |  | December 31              
|-------------------------------------------- |  | -------------------------
|                                             |  | 2015                     
|                                             |  | U.S. dollars in thousands
|Advances to suppliers                        |  |                          
|Discount from Service Provider - see note 17 |  |                          
|Prepaid expenses                             |  |                          
|Government institutions                      |  |                          
|                                             |  |                          



The fair value of receivables, which constitute financial
assets, approximates their carrying amount.



F - 23






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 7 - FIXED ASSETS:



The composition of assets and accumulated
depreciation, grouped by major classifications:



|                                                     |  | Cost                      |     | Accumulated depreciation |  | Depreciated balance
|---------------------------------------------------- |  | ------------------------- | --- | ------------------------ |  | -------------------
|                                                     |  | December 31               |     | December 31              |  | December 31        
|                                                     |  | 2015                      |     | 2014                     |  | 2015               
|                                                     |  | U.S. dollars in thousands
|Office furniture and equipment (including computers) |  |                           | 151 |                          |  |                    
|Leasehold improvements                               |  |                           | 99  |                          |  |                    
|                                                     |  |                           | 250 |                          |  |                    





NOTE 8 - INTANGIBLE ASSETS:



The intangible assets represent R&D assets with
respect to intellectual property rights of the Drug Candidates purchased by the Company under licensing agreements or under asset
acquisition agreements. The changes in those assets are as follows:



|                             |  | Year ended December 31   
|---------------------------- |  | -------------------------
|                             |  | 2015                     
|                             |  | U.S. dollars in thousands
|Cost:                        |  |                          
|Balance at beginning of year |  |                          
|Additions during the year    |  |                          
|Cost of out-licensing        |  |                          
|Balance at end of year       |  |                          
|Write off charge             |  |                          
|                             |  |                          



As of December 31, 2015, the Company recognized loss
from writing off the initial $100,000 paid to a Danish company for the exclusive rights to a Drug Candidate intended to treat congestive
heart failure, left atrium dysfunction and high blood pressure. As the Company put on hold additional investments in the Drug Candidate
development, the above-mentioned amount exceeds the forecasted recoverable amount. Consequently, the Company decided to write off
the entire amount and recorded a loss in the Statement of Comprehensive Loss under Other Expenses.



For further details regarding the intangible assets,
see note 11.



F - 24






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 9 - LIABILITY FOR EMPLOYEE
RIGHTS UPON RETIREMENT:



| | a. | Labor laws and agreements in Israel require the Company to pay severance pay and/or pensions to
an employee dismissed or retiring from their employment in certain circumstances.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | The Company's pension liability and the Company's liability for payment of severance pay for employees
in Israel for whom the liability is within the scope of Section 14 of the Severance Pay Law is covered by ongoing deposits with
defined contribution plans. The amounts deposited are not included in the statements of financial position.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The amounts charged as an expense in respect of defined
contribution plans in 2015, 2014 and 2013 were $95,000, $88,000 and $62,000, respectively. Of those amounts, approximately 60%
were charged to general and administrative expenses and 40% to research and development expenses.



NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:



|                                     |  | December 31              
|------------------------------------ |  | -------------------------
|                                     |  | 2015                     
|                                     |  | U.S. dollars in thousands
|Trade payables                       |  |                          
|Accrued expenses                     |  |                          
|Employees and employees institutions |  |                          
|Government institutions              |  |                          
|                                     |  |                          



The fair value of the accounts payable and accrued expense
balances approximates their carrying amounts.



NOTE 11 - COMMITMENTS:



| | a. | Agreements to purchase intellectual property:
| | -- | ---------------------------------------------



| | 1) | On May 2, 2010, the Company entered into an agreement with a U.S. publically-traded company that
grants the Company an exclusive license to use rights relating to a drug candidate intended to treat chemotherapy and radiotherapy-induced
nausea and vomiting. Under the agreement, the Company paid the U.S. company an initial amount of $100,000, and undertook to pay
the U.S. company an amount of up to $500,000, based on regulatory milestones set between the parties. Under the agreement, the
Company agreed to pay the U.S. company royalties equal to 8% of Company revenues generated from the drug candidate, less certain
deductible amounts as detailed in the agreement, during a period which is the shorter of: (1) expiry of the last patent granted
under the license; (2) ten years from the beginning of marketing the drug candidate by the Company or any third party; and (3)
the date in which the amount of all payments to the U.S. company reach $30 million. Through December 31, 2015, the Company paid
the U.S. company the initial amount of $100,000.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 25




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS(continued):



In 2013, the U.S. company announced that it had ceased
business operations. Under the terms of the license agreement, the Company has the protection afforded to the licensee under the
United States Bankruptcy Code.



On March 7, 2014, the Company entered into a licensing
agreement with a U.S. university to secure certain patent rights related to the drug candidate. The Company therefore terminated
the agreement with the U.S. company and licensed the patents directly from the U.S. university, the original owner of the patents.
Under the agreement, the Company agreed to pay the U.S. university certain future payments.



| | 2) | On August 26, 2010, the Company entered into an agreement with a Canadian-based company which is
traded in the U.S. and Canada, to co-develop a drug candidate for the treatment of migraines. Under the agreement, the Company
paid the Canadian company up-front and milestone payments in the aggregate amount of $800,000, and undertook under the agreement
to transfer additional amounts of up to $500,000 based on achieving milestones as agreed between the parties. In addition, the
Company undertook to participate in additional drug candidate research and development costs.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the agreement, the Company
will pay a 60% royalty on revenues, less certain deductible amounts as detailed in the agreement, to the Canadian company for the
first $2 million in revenue. For revenues beyond the $2 million, the Company will pay royalties at 20% - 40% of the Company's revenue
from the drug candidate, less certain deductible amounts as detailed in the agreement. The agreement is for an indefinite period
and is subject to certain termination conditions.



Through December 31, 2015, the
Company paid the Canadian company for the license of the drug candidate under the agreement a total of approximately $800,000.
In addition, through December 31, 2015, the Company participated in the drug candidate research and development costs in the amount
of approximately $1.3 million that was recorded in the statement of comprehensive loss under research and development expenses.



| | 3) | On August 11, 2010, the Company entered into an agreement with an Australian company in an asset
purchase agreement to acquire intellectual property of the Australian company relating to three therapeutic candidates for the
treatment of gastrointestinal conditions. Pursuant to the purchase agreement, the Company paid the Australian company an initial
amount of $500,000 and undertook to pay future payments in the range of 7% - 20% of the Company revenues generated from the drug
candidates, less certain deductible amounts as detailed in the agreement. Through December 31, 2015, the Company paid the Australian
company a total of $1.5 million. See also note 16 in connection with the license agreement for one of the Drug Candidates.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F - 26






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS(continued):



| | 4) | On June 30, 2014, the Company entered into an agreement with a German publicly-traded company that
grants the Company the exclusive worldwide (excluding China, Hong Kong, Taiwan and Macao) development and commercialization rights
for all indications to an oncology drug candidate. Under the terms of the agreement, the Company paid to the German company an
upfront payment in the amount of $1 million and agreed to pay the German company potential tiered royalties on revenues, less certain
deductible amounts as detailed in the agreement, ranging from mid-teens up to 30%. Such potential royalties are due until the later
of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country; and (ii) the expiration
of regulatory exclusivity in the relevant country. Through December 31, 2015, the Company paid the German company total amount
of approximately $1 million.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5) | On August 13, 2014, the Company entered into a binding exclusive option agreement with a
                                                                 private German company. Under the terms of the agreement, the Company has an option to acquire the worldwide exclusive rights
                                                                 of an oncology drug candidate for all indications (excluding pancreatic cancer indication in South Korea). The option was for
                                                                 a one year period and was extended in July 2015 by the Company for an additional year. During the option period, the Company
                                                                 may, at its discretion, conduct development activities with the drug candidate. The total payment, for both the option and
                                                                 the acquisition of the rights, should the Company elect to exercise the option, will be $100,000, as well as potential
                                                                 milestone payments and tiered royalties on revenues, less certain deductible amounts as detailed in the agreement, ranging
                                                                 from single-digit to mid-teens. Through December 31, 2015, the Company paid a total amount of $45,000 in consideration of
                                                                 both option periods. If the Company will exercise the option, such amount will be fully deducted from the up-front payment of
                                                                 $100,000, as described above.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6) | On March 30, 2015, the Company entered into an agreement with a U.S.-based private company that
granted the Company the exclusive worldwide development and commercialization rights for all indications to an oncology drug candidate,
and additional intellectual property rights, targeting multiple inflammatory-GI and oncology disease indications. Under the terms
of the agreement, the Company undertook to pay the U.S. Company an upfront payment in the amount of $1.5 million and an additional
amount of $2 million which will be paid on the earlier of (i) a specific date or (ii) reaching a specific development milestone.
In addition, the Company undertook to pay up to $2 million in potential development milestone payments, and potential tiered royalties
on revenues, less certain deductible amounts as detailed in the agreement, starting in the low double-digits. Such potential royalties
are due until the later of (i) the expiration of the last to expire licensed patent that covers the product in the relevant country;
and (ii) the expiration of regulatory exclusivity in the relevant country. Through December 31, 2015, the Company paid the U.S.
Company the initial amount of $ 1.5 million and recognized an amount of $2 million as a current liability.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







F - 27






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 11 - COMMITMENTS(continued):



| | b. | Operating lease agreement
| | -- | -------------------------



The Company entered into an operating
lease agreement for the offices it uses. The agreement will expire on January 31, 2020. The projected yearly rental expenses are
approximately $357,000 per year.

As of December 31, 2015, an amount of $134,000 was deposited with a bank to secure the lease payments.



NOTE 12 - INCOME TAX:



| | a. | 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 is calculated in U.S. dollars.



The results of the Company are measured for tax purposes
in accordance with Accounting Principles Generally Accepted 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.



| | b. | Tax rates
| | -- | ---------



The income of the Company is subject to corporate tax
rate. Israeli corporate tax rate for 2013 was 25%.



On August 5, 2013, the Law of Change in National Priorities
(Legislative Achieve Budget for the Years 2013 and 2014), 2013, was published, which provided, inter alia, raising the corporate
tax rate to a rate of 26.5% for 2014 and 2015.

In January 2016 the corporate tax rate from 2016 and thereafter was reduced to 25% (instead of 26.5%) according to a law that was
approved in January 2016.





| | c. | Carryforward losses
| | -- | -------------------







The balance of carryforward losses as of December 31,
2015 is $42 million. These tax carry- forward losses have no expiration date.

Deferred tax assets on losses for tax purposes carried
forward to subsequent years are recognized if utilization of the related tax benefit against a future taxable income is expected.
The Company has not created deferred taxes on its carryforward losses since their utilization is not expected in the foreseeable
future.



F - 28




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 12 - INCOME TAX(continued):







| | d. | Deductible temporary differences
| | -- | --------------------------------



The amount of cumulative deductible temporary differences,
other than carryforward losses (as mentioned in c. above), for which deferred tax assets have not been recognized in the statement
of financial position as of December 31, 2015 and 2014, were $21 million and $13 million, respectively. These temporary differences
have no expiration dates.





| | e. | Tax assessments
| | -- | ---------------



The Company has not been assessed for tax purposes since
its incorporation. The Company's tax assessments for the 2010 tax year are considered to be final.



NOTE 13 - EQUITY:



| | a. | Share Capital
| | -- | -------------





| | 1) | Composition
| | -- | -----------



Company share capital is composed of ordinary shares
of NIS 0.01 par value, as follows:





|                |  | Number of shares
|--------------- |  | ----------------
|                |  | December 31     
|                |  | 2015            
|                |  | In thousands    
|Authorized      |  |                 
|Issued and paid |  |                 







The Company’s ordinary shares are traded on the
TASE and the Company’s ADSs are traded on the NASDAQ under the symbols “RDHL.” Each ADS represents 10 ordinary
shares. The last reported market price for the Company’s securities on December 31, 2015 was $12.88 per ADS on the NASDAQ
and $1.28 per share on the TASE (based on the exchange rate reported by the Bank of Israel for such date).



On February 16, 2016, a Special general meeting of shareholders
approved the increase of the authorized share capital of the Company to 300,000,000 ordinary shares.



| | 2) | Exercise of warrants
| | -- | --------------------



Through February 2014 the Company received notifications
with respect to the exercise of the warrants (Series 1) that had been issued as part of a public offering on the TASE, for an exercise
price per ordinary share of $1.25. Accordingly, in February 2014, the Company issued 3,246,082 ordinary shares for $4.1 million,
net of issuance costs. The remaining 3,905,068 unexercised warrants (Series 1) expired in February 2014 along with any right or
claim whatsoever of the holders.



F - 29






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY (continued):



During 2014, the Company received notifications of exercise
with respect to the warrants that had been granted to investors under investment agreement from December 2012. Accordingly, the
Company issued 682,200 ordinary shares for $964,000, net of issuance costs. On January 10, 2015, the remaining 2,558,440 unexercised
warrants expired along with any right or claim whatsoever of the holders.





| | 3) | Exercise of options
| | -- | -------------------





During 2014, the Company received notifications of exercise
with respect to options that had been issued to an employee and a consultant of the company. Accordingly, the Company issued 150,000
ordinary shares for $55,000.



During 2015, the Company received notifications of exercise
with respect to options that had been issued to employees and a consultant of the Company. Accordingly, the Company issued 338,750
ordinary shares for $108,000.





| | 4) | In January 2014, the Company raised an aggregate gross amount of $8.5 million from two new investors in the form of private placements of ADSs and warrants.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company issued a total of 894,740 ADSs and warrants
to purchase 357,896 ADSs at a purchase price of $9.5 per unit of one ADS and 0.4 warrants (the “Unit”). In addition,
the agreements with the investors provided that if the Company issues new securities at a price per unit which is less than $9.5
(such lower price, the "Subsequent Offering Price"), the Company was to issue to the investors a number of additional
ADSs as necessary to reduce the effective price per Unit to equal the Subsequent Offering Price (“Price Protection Right”).
If ordinary shares and/or ADSs were offered with any other rights, the Subsequent Offering Price was to be calculated for each
unit in such offering, consisting of one ordinary share (or ADS) plus the number of other rights per share in such offering.



The Price Protection Right applied until the Company
raises a certain threshold of capital. The threshold of capital was $28 million in the agreement with the first investor and $25.5
million in the agreement with the second investor, who invested $2.5 million and signed one day later. Following additional capital
raisings by the Company of $11.7 million in January 2014 and $14.4 million in February 2015, the Price Protection Rights expired.
See also (6) below.



The warrants were classified as a financial liability
due to a net settlement provision. In addition, the Price Protection Right represents a derivative financial instrument. These
derivatives were recognized and subsequently measured at fair value through profit or loss. The gross consideration in respect
of this investment amounted to $8.5 million. The issuance expenses amounted to approximately $372,000. The consideration, net of
issue expenses, in the amount of approximately $8.1 million, was allocated to the various issued instruments. Out of the gross
consideration, amounts of $279,000 and $2.05 million were allocated to the Price Protection Right and warrants, respectively.



F - 30






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 13 - EQUITY (continued):



The remainder of approximately $6.2 million was
allocated to ADSs. Issuance expenses in amount of $372,000 were allocated both to the liability instruments and to the equity
component. Expenses allocated to the liability instruments, in amount of $102,000, were

recorded directly to the statement of comprehensive
loss, and expenses in the amount of $270,000 allocated to the equity component were carried against share premium.



For information regarding the terms of the warrants,
see note 14a below.



| | 5) | In January 2014, the Company raised an aggregate gross amount of $11.7 million from Israeli investors
in the form of a private placement. The Company issued a total of 10,458,740 ordinary shares and warrants to purchase an additional
4,183,496 ordinary shares. The net proceeds were allocated to the issued shares and warrants, based on the fair value of each of
these instruments that were recognized as equity. Issuance expenses in amount of $526,000 were allocated to equity components.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For information regarding the term of the warrants see
b. below.



| | 6) | In 2015 the Company completed two underwritten public offerings:
| | -- | ----------------------------------------------------------------



| | (a) | The Company completed an underwritten public offering in the U.S. of an aggregate of 1,150,000
ADSs at a price of $12.50 per ADS for gross proceeds to the Company of $14.4 million. Net proceeds to the Company from the offering,
following discounts, commissions and expenses amounting to $1.2 million, were approximately $13.2 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the offering,
the Price Protection Right, as described in (4) above, provided by the Company to investors who participated in the January 2014
private placement, is no longer valid. The change in the fair value of the Price Protection Right of $542,000 was recognized as
financial income in the statement of comprehensive loss in 2015.



| | (b) | The Company completed an underwritten public offering in the U.S. of an aggregate of 2,739,143
ADSs at a price of $16.25 per ADS generating gross proceeds to the Company of approximately 44.5$ million. Net proceeds to the
Company from the offering, following underwriting discounts and other offering expenses of approximately $3 million, were approximately
$41.5 million.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Warrants
| | -- | --------



The warrants issued under the investment agreement, as
described in a(5) above, are exercisable into 4,183,496 ordinary shares, which have a three-year term and are exercisable at an
exercise price of $1.4 per ordinary share.





F - 31






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 14 - DERIVATIVE FINANCIAL INSTRUMENTS:





| | a. | Warrants
| | -- | --------



The warrants issued under the investment agreement, as
described in note 13a(4) above, were classified as a financial liability due to a net settlement provision. These warrants are
exercisable into 357,896 ADSs. The warrants have a three-year term and may be exercised either for cash or on a cashless basis
at an exercise price of $11 per ADS.



| | b. | Price Protection Right
| | -- | ----------------------



For information regarding the Price Protection Right,
see note 13a(4) above.



| | c. | Fair value
| | -- | ----------



The fair value of the warrants is computed using the
Black and Scholes option pricing model. The fair value of the Price Protection Right is computed using a common valuation model,
which takes into account specific scenarios. The fair value of the warrants and the Price Protection Right upon issuance was computed
based on the price of an ordinary share and based on the following key parameters: risk-free interest rate of 0.13% - 0.87% and
an average standard deviation of 33.38% - 53.33%. The values of the warrants and Price Protection Right as of December 31, 2014,
are based on the price of an ordinary share on December 31, 2014 and based on the following key parameters: risk-free interest
rate of 0.12% - 0.7% and an average standard deviation of 44.92% - 61.70%. The fair value of the warrants as of December 31, 2015,
is based on the price of an ordinary share on December 31, 2015 and based on the following key parameters: risk-free interest rate
of 0.66% and an average standard deviation of 49.55%.





F - 32






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 15 – SHARE-BASED PAYMENTS:



On May 30, 2010, a general meeting of shareholders approved
the option plan of the Company for 2010 (the "Option Plan"), after being approved by the Board of Directors. It was resolved
in 2015 to increase the Option Plan to allow the Company to allocate 30,000,000 options to employees and directors. The terms and
conditions of the grants were determined by the Board of Directors and are according to the Option Plan.



| | a. | Following is information on options granted in 2015:
| | -- | ----------------------------------------------------







|               |  | Number of options granted               
|-------------- |  | ----------------------------------------
|               |  | According to option plan 
of the company
|Date of grant  |  | Other than 
directors (1)               
|May 2015       |  |                                         
|September 2015 |  |                                         
|               |  |                                         





| | 1) | The options will vest as follows: for employees and consultants of the Company who had provided
services exceeding one year to the Company as of the grant date, the options will vest in 16 equal quarterly installments over
a four-year period. For employees and consultants of the Company who had not provided services to the Company exceeding one year
as of the grant date, the options will vest as follows: 1/4 of the options will vest one year following the grant date and the
rest over the following three years in 12 equal quarterly installments. The options will be exercisable, either in full or in part,
from the vesting date until the end of 7 years from the date of grant.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 2) | The fair value of the options was computed using the binomial model and the underlying data
                          used was mainly the following: price of the Company's ordinary share: $1.30 – $1.56, expected volatility: 51.75%
                          – 53.30%,                           risk-free interest rate: 1.87% – 1.92% and expected useful life to exercise:
                          seven                           years.                                                                                                                                                                                                                                                       







F - 33




REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 15 – SHARE-BASED PAYMENTS(continued):



| | b. | Following is information on options granted in 2014:
| | -- | ----------------------------------------------------





|              |  | Number of options granted               |  |                                          
|------------- |  | --------------------------------------- |  | -----------------------------------------
|              |  | According to option plan of the company |  | Exercise 
price to 1 
ordinary 
share ($)
|Date of grant |  | Other than 
directors (1)               |  | To directors 
(1)                        
|March 2014    |  |                                         |  | 1,830,016                                
|April 2014    |  |                                         |  | -                                        
|May 2014      |  |                                         |  | 150,000                                  
|              |  |                                         |  |                                          





* The options were allocated to
officers who also serve as directors.



| | 1) | The options will vest as follows: for employees and consultants of the Company who had provided
services to the Company for a period exceeding one year as of the date of grant, the options will vest in 16 equal quarterly installments
over a four-year period. For employees and consultants of the Company who provided services to the Company for a period of less
than one year as of the date of grant, the options will vest as follows: 1/4 of the options will vest one year following the grant
date, and the rest over the following three years in 12 equal quarterly installments.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | The fair value of the options was computed using the binomial model and the underlying data used
was mainly the following: price of the Company's ordinary share: $1.43- $1.44, expected volatility: 51.6%-52.3%, risk-free interest
rate: 2.25%-2.31% and expected useful life to exercise: seven years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F - 34






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 15 – SHARE-BASED PAYMENTS(continued):



| | c. | Changes in the number of shares and weighted averages of exercise prices are as follows:
| | -- | ----------------------------------------------------------------------------------------





|                                 |  | Year ended December 31
|-------------------------------- |  | ----------------------
|                                 |  | 2015                  
|                                 |  | Number of 
options    
|Outstanding at beginning of year |  |                       
|Exercised                        |  |                       
|Expired                          |  |                       
|Granted                          |  |                       
|Outstanding at end of year       |  |                       
|Exercisable at end of year       |  |                       





| | d. | The following is information about exercise price and remaining useful life of outstanding options
at year-end:
| | -- | ---------------------------------------------------------------------------------------------------------------



|December 31, 2015                                |            | December 31, 2014     
|------------------------------------------------ | ---------- | ----------------------
|Number of 
options 
outstanding 
at end of 
year |            | Exercise 
price 
range
|                                                 | 20,511,338 |                       



| | e. | Expenses recognized in profit or loss for the options are as follows:
| | -- | ---------------------------------------------------------------------



|Year ended December 31   
|-------------------------
|2015                     
|U.S. dollars in thousands
|                         



The remaining compensation expenses as of December 31,
2015 are $1.9 million and will be expensed in full by September 2019.



The options granted to Company employees in Israel are
governed by relevant rules in Section 102 to the Israel Income Tax Ordinance (hereinafter the “Ordinance”). According
to the treatment elected by the Company and these rules, the Company is not entitled to claim as tax deductions the amounts charged
to employees as a benefit, including amounts recognized as payroll benefits in Company accounts for the options the employees received
within the Option Plan. Options granted to option holders who are related parties of the Company are governed by Section 3(i)
to the Ordinance.



F - 35






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)





NOTE 16 - REVENUES



On February 27, 2014, the Company entered into an exclusive
agreement by which Salix Pharmaceuticals, Inc. ("Salix"), which was later acquired by Valeant Pharmaceuticals International,
Inc., or Valeant, licensed the worldwide exclusive rights to one of the Company's therapeutic candidates, an encapsulated formulation
for bowel preparation, and rights to other purgative developments. Under the license agreement, Salix paid an upfront payment of
$7 million with subsequent potential milestone payments up to a total of $5 million. Salix has also agreed to pay the Company tiered
royalties on net sales, ranging from low single-digit up to low double-digits. As there was no continuing managerial involvement
of the Company under the agreement with Salix to develop any product based on the license and related intellectual property granted
to Salix, the upfront payment of $7 million was recognized in 2014 as revenue in the statement of comprehensive loss.



Following the agreement with Salix, and pursuant to the
purchase agreement from August 11, 2010, between the Company and an Australian company from which it purchased the rights sold
to Salix, the Company paid to the Australian company $1 million in 2014. The amount paid was recognized as cost of revenue in the
statement of comprehensive loss.



NOTE 17 - RESEARCH AND DEVELOPMENT EXPENSES,net:



|                                  |  | Year ended December 31   
|--------------------------------- |  | -------------------------
|                                  |  | 2015                     
|                                  |  | U.S. dollars in thousands
|Payroll and related expenses      |  |                          
|Professional services             |  |                          
|Share-based payments              |  |                          
|Clinical trials                   |  |                          
|Intellectual property development |  |                          
|Other                             |  |                          
|Discount from Service Provider*   |  |                          
|                                  |  |                          



* Discount provided to the Company by its Canadian service
provider due to certain Canadian authorities incentives programs.





F - 36






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)





NOTE 18 - GENERAL AND ADMINISTRATIVE EXPENSES:



|                             |  | Year ended December 31   
|---------------------------- |  | -------------------------
|                             |  | 2015                     
|                             |  | U.S. dollars in thousands
|Payroll and related expenses |  |                          
|Share-based payments         |  |                          
|Professional services        |  |                          
|Office related expenses      |  |                          
|Other                        |  |                          
|                             |  |                          



NOTE 19 - FINANCIAL EXPENSES (INCOME),net:



|                                                                         |  | Year ended December 31  
|------------------------------------------------------------------------ |  | ------------------------
|                                                                         |  | 2015                    
|                                                                         |  | U.S dollars in thousands
|Financial income:                                                        |  |                         
|Fair value gain on derivative financial instruments                      |  |                         
|Fair value gain on financial assets at fair value through profit or loss |  |                         
|Income from changes in exchange rates                                    |  |                         
|Interest from bank deposits                                              |  |                         
|                                                                         |  |                         
|Financial expenses:                                                      |  |                         
|Loss from changes in exchange rates                                      |  |                         
|Other                                                                    |  |                         
|                                                                         |  |                         
|Financial expenses (income) - net                                        |  |                         





F - 37






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 20 - LOSS PER ORDINARY SHARE:







| | a. | Basic
| | -- | -----



The basic loss per share is calculated by dividing the
loss by the weighted average number of ordinary shares in issue during the period.



Set forth below is data taken into account in the computation
of loss per share:



|                                                                                        |  | Year ended December 31
|--------------------------------------------------------------------------------------- |  | ----------------------
|                                                                                        |  | 2015                  
|Loss (U.S. dollars in thousands)                                                        |  |                       
|Weighted average number of ordinary shares outstanding during the period (in thousands) |  |                       
|Basic loss per share (U.S. dollars)                                                     |  |                       





| | b. | Diluted
| | -- | -------





The diluted loss per share for the year ended December
31, 2013 is identical to the basic loss per share since the effect of potential dilutive shares is anti-dilutive.



Diluted loss per share is calculated by adjusting the
weighted average number of ordinary shares outstanding assuming conversion of all dilutive potential ordinary shares, which is
calculated using the Treasury Method. The Company has two categories of dilutive potential ordinary shares: warrants issued to
investors and options issued to employees and service providers. The effect of options issued to employees and service providers
is anti-dilutive.



|                                                                                        |  | Year ended December 31
|--------------------------------------------------------------------------------------- |  | ----------------------
|                                                                                        |  | 2015                  
|Loss (U.S. dollars in thousands)                                                        |  |                       
|Adjustment for financial income of warrants                                             |  |                       
|Loss used to determine diluted loss per share                                           |  |                       
|Weighted average number of ordinary shares outstanding during the period (in thousands) |  |                       
|Adjustment for warrants                                                                 |  |                       
|Weighted average number of ordinary shares for diluted loss per share (in thousands)    |  |                       
|Diluted loss per share (U.S. dollars)                                                   |  |                       



F - 38






REDHILL BIOPHARMA LTD.

NOTES TO THE FINANCIAL STATEMENTS (continued)



NOTE 21 - RELATED PARTIES:



| | a. | Key management includes members of the Board of Directors, the Chief Executive Officer and Deputy
Chief Executive Officer Finance and Operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------





|                                                |  | Year ended December 31   
|----------------------------------------------- |  | -------------------------
|                                                |  | 2015                     
|                                                |  | U.S. dollars in thousands
|Key management compensation:                    |  |                          
|Salaries and other short-term employee benefits |  |                          
|Post-employment benefits                        |  |                          
|Share-based payments                            |  |                          
|Other long-term benefits                        |  |                          







| | b. | Balances with related
                                         parties:
| | -- | -----------------------------------------------------------------------









|                                     |  | December 31             
|------------------------------------ |  | ------------------------
|                                     |  | 2015                    
|                                     |  | U.S. dollars in thousand
|Current liabilities -                |  |                         
|Credit balance in "accounts payable" |  |                         





F - 39




EXHIBIT INDEX



The exhibits filed with or incorporated
into this Registration Statement are listed in the index of exhibits below.



|Exhibit
        Number | Exhibit Description                                                                                                                                                                                                                                                                                                                                                             
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|1.1                    | Articles of Association of the Registrant, as amended (unofficial English translation).                                                                                                                                                                                                                                                                                         
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|2.1                    | Form of Deposit Agreement among the Registrant, the Bank of New York Mellon, as Depositary, and all Owners and Holders from time to time of American Depositary Shares issued hereunder (incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6 filed by The Bank of New York Mellon with the Securities and Exchange Commission on December 6, 2012).
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|2.2                    | Form of American Depositary Receipt (incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6 filed by The Bank of New York Mellon with the Securities and Exchange Commission on December 6, 2012).                                                                                                                                                    
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.1*                   | Co- Development and Commercialization Agreement, dated August 26, 2010, by and between the Registrant and IntelGenx Corp. (incorporated by reference to Exhibit 4.3 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated December 3, 2012).                                                                              
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.2*                   | Side Letter Agreement, dated January 31, 2013, by and between the Registrant and IntelGenx Corp (incorporated by reference to Exhibit 4.4 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2014).                                                                                                                            
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.3*                   | Asset Purchase Agreement, dated August 11, 2010, by and between the Registrant and Giaconda Limited (RHB-104, 105, 106) (incorporated by reference to Exhibit 4.4 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated December 3, 2012).                                                                                
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.4*                   | Amendment to Asset Purchase Agreement by and between the Registrant and Giaconda Limited (RHB-104, 105, 106) dated February 27, 2014 (incorporated by reference to Exhibit 4.4 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                                                       
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.5*                   | License Agreement, dated September 15, 2011, by and between the Registrant and University of Central Florida Research Foundation (incorporated by reference to Exhibit 4.5 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated October 26, 2012).                                                                       
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.6*                   | License Agreement, dated February 27, 2014, by and between the Registrant and Salix Pharmaceuticals, Inc. (later acquired by Valeant Pharmaceuticals International, Inc.) (incorporated by reference to Exhibit 4.6 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                  
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.7†                   | Exclusive License Agreement, dated March 30, 2015, by and between the Registrant and Apogee Biotechnology Corp.                                                                                                                                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.8*                   | Master Service Agreement, dated April 28, 2011, by and between the Registrant and 7810962 Canada Inc. and amendment (incorporated by reference to Exhibit 4.12 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated October 26, 2012).                                                                                   
|                       |                                                                                                                                                                                                                                                                                                                                                                                 
|4.9†                   | Third Amendment dated May 21, 2015 to the Master Service Agreement, dated April 28, 2011 by and between the Registrant and 7810962 Canada Inc.                                                                                                                                                                                                                                  
|                      

103




|      |                                                                                                                                                                                                                                                                                                                                                               
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.10* | Second Amendment to Master Services Agreement, dated May 29, 2013 by and between the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.9 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2014).                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.11* | Clinical Services Agreement, dated June 15, 2011, by and between the Registrant and 7810962 Canada Inc. and amendment (regarding RHB-104) (incorporated by reference to Exhibit 4.15 to Draft Registration Statement on Form DRS disseminated with the Securities and Exchange Commission, dated December 3, 2012).                                           
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.12  | Change Order #4.1 dated August 9, 2015 to the
Clinical Services Agreement, dated June 15, 2011 by and between the Registrant and 7810962 Canada Inc.                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.13† | Change Order #5 dated May 21, 2015 to the Clinical
Services Agreement, dated June 15, 2011 by and between the Registrant and 7810962 Canada Inc.                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.14* | Second Amendment to Clinical Services Agreement, dated January 19, 2014, by and between the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.13 of the Annual Report on Form 20-F/A filed with the Securities and Exchange Commission on July 7, 2014).                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.15* | Third Amendment to Clinical Services Agreement, dated December 7, 2014, by and between the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.14 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.16* | Fourth Amendment to Clinical Services Agreement, dated December 17, 2014, by and between the Registrant and 7810962 Canada Inc. (incorporated by reference to Exhibit 4.15 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                               
|4.17* | Clinical Trials Global Master Service Agreement, dated
        December 27, 2012 by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated
        by reference to Exhibit 4.22 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26,
        2015).
|4.18  | Global Master Service Agreement amendment, dated June 20, 2014 by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated by reference to Exhibit 4.23 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                  
|      |                                                                                                                                                                                                                                                                                                                                                               
|     

104




|4.19  | Amendment No. 2 dated May 13, 2015 to the Clinical Trials Global Master Service Agreement, dated December 27, 2012 by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104).                                                                                                                                               
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.20* | Master Agreement Work Order, dated May 13, 2014, by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) (incorporated by reference to Exhibit 4.24 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.21† | Amendment No. 1 dated December 30, 2015 to the Master Agreement Work Order, dated May 13, 2014, by and between the Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104).                                                                                                                                                                  
|4.22† | Change Specification Form by and between Registrant and Q Squared Solutions LLC (f/k/a Quest Diagnostics) (regarding RHB-104) dated June 6, 2015.                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.23  | Form of Letter of Exemption and Indemnity adopted on July 2013 (unofficial English translation) (incorporated by reference to Exhibit B to Exhibit 99.1 to Form 6-K disseminated with the Securities and Exchange Commission, dated June 26, 2013).                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.24  | 2010 Stock Option Plan, as amended (incorporated by reference to Exhibit 4.27 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 26, 2015).                                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.25  | Securities Purchase Agreement, dated December 30, 2013 by and between the Registrant and OrbiMed Israel Partners Limited Partnership (together with Form of Warrant attached as Exhibit A) (incorporated by reference to Exhibit 4.17 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2014).                          
|      |                                                                                                                                                                                                                                                                                                                                                                           
|4.26  | Securities Purchase Agreement, dated December 31, 2013 by and between the Registrant and Broadfin Healthcare Master Fund, LTD (together with Form of Warrant attached as Exhibit A) (unofficial English translation) (incorporated by reference to Exhibit 4.18 of the Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2014).
|      |                                                                                                                                                                                                                                                                                                                                                                           

|4.27 | Underwriting Agreement, dated February 10, 2015, between the registrant and Wells Fargo Securities, LLC as representative of the several Underwriters (incorporated by reference to Exhibit 1.1 to the Form 6-K submitted to the Securities and Exchange Commission on February 13, 2015).  
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                             
|4.28 | Underwriting Agreement, dated July 16, 2015, between the Registrant and Nomura Securities International, Inc. as representative of the several Underwriters (incorporated by reference to Exhibit 1.1 to the Form 6-K submitted to the Securities and Exchange Commission on July 21, 2015).
|     |                                                                                                                                                                                                                                                                                             
|12.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                             
|12.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                             
|13   | Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                             
|15.1 | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                   



|* | Confidential treatment granted with respect to certain portions of this Exhibit.
|- | --------------------------------------------------------------------------------

|† | Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------





105




SIGNATURE



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.



| | REDHILL BIOPHARMA LTD |                   
| | --------------------- | ------------------
| | By:                   | /s/ Dror Ben-Asher
| |                       | Name:             
| |                       | Title:            
| |                       |                   
| |                       |                   
| |                       |                   
| | By:                   | /s/ Ori Shilo     
| |                       | Name:             
| |                       | Title:            
| |                       |                   

Date: February 25, 2016















106