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As filed with the Securities and Exchange Commission on September 3, 2014.

Registration No. 333-198123

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

Amendment No. 1
to
FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

FOAMIX PHARMACEUTICALS LTD.
(Exact Name of Registrant as Specified in its Charter)

State of Israel 2833 Not Applicable
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)

Foamix Pharmaceuticals Ltd.
2 Holzman Street, Weizmann Science Park
Rehovot 76704, Israel
Tel: +972-8-9316233
(Address, including zip code, and telephone number,
including area code, of Registrant’s principal executive offices)

Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Tel: +1 (302) 738-6680
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies of all correspondence to:

Phyllis G. Korff, Esq. Amir Zolty, Adv. Joshua G. Kiernan, Esq. Clifford M. J. Felig, Adv.
Andrea Nicolas, Esq. Yingke Israel - Eyal Khayat, Colin J. Diamond, Esq. Meitar Liquornik Geva
Skadden, Arps, Slate, Zolty, Neiger & Co. White & Case LLP Leshem Tal
Meagher & Flom LLP 9 Hamanofim St., P.O. Box 2136 1155 Avenue of the Americas 16 Abba Hillel Silver Rd.
4 Times Square Herzliya Pituach 46120, Israel New York, NY 10036 Ramat Gan 5250608, Israel
New York, New York 10036 Tel: +972-9-957-7171 Tel: +1 (212) 819-8200 Tel: +972-3-610-3100
Tel: +1 (212) 735-3000 Fax: +972-9-957-7177 Fax: +1 (212) 354-8113 Fax: +972-3-610-3111
Fax: +1 (212) 735-2000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Title of each class of
securities to be registered
Amount to be
registered(1)
Proposed maximum
offering price per share(2)
Proposed maximum
aggregate offering price(1)(2)
Amount of
registration fee
Ordinary shares, par value NIS 0.16 per share
 
6,795,455
 
$
12.00
 
$
81,545,460
 
$
10,503(3
)

(1)Includes ordinary shares that the underwriters may purchase pursuant to their option to purchase additional ordinary shares, if any.
(2)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) of the Securities Act.
(3)$9,627.80 previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any State where the offer or sale is not permitted.

Subject to Completion, dated September 3, 2014

PROSPECTUS

5,909,091 Shares

Foamix Pharmaceuticals Ltd.

Ordinary Shares

This is the initial public offering of the ordinary shares of Foamix Pharmaceuticals Ltd. We are offering 5,909,091 of our ordinary shares. No public market currently exists for our ordinary shares.

We have applied to list our ordinary shares on the NASDAQ Global Market under the symbol “FOMX.”

We anticipate that the initial public offering price will be between $10.00 and $12.00 per share.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and will therefore be subject to reduced reporting requirements.

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 11 of this prospectus.

Per Share
Total
Price to the public
$
 
 
$
 
 
Underwriting discounts and commissions(1)
$
 
 
$
 
 
Proceeds to us (before expenses)
$
 
 
$
 
 

(1)See “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters the option to purchase 886,364 additional ordinary shares on the same terms and conditions set forth above if the underwriters sell more than 5,909,091 ordinary shares in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ordinary shares on or about                , 2014.

Barclays Cowen and Company

Oppenheimer & Co. Maxim Group LLC

Prospectus dated                , 2014

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Table of Contents

PROSPECTUS SUMMARY
 
 
RISK FACTORS
 
 
FORWARD-LOOKING STATEMENTS; CAUTIONARY INFORMATION
 
 
USE OF PROCEEDS
 
 
DIVIDEND POLICY
 
 
CAPITALIZATION
 
 
DILUTION
 
 
SELECTED FINANCIAL DATA
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
BUSINESS
 
 
MANAGEMENT
 
 
PRINCIPAL SHAREHOLDERS
 
 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
 
DESCRIPTION OF SHARE CAPITAL
 
 
SHARES ELIGIBLE FOR FUTURE SALE
 
 
TAXATION
 
 
UNDERWRITING
 
 
EXPERTS
 
 
LEGAL MATTERS
 
 
ENFORCEABILITY OF CIVIL LIABILITIES
 
 
WHERE YOU CAN FIND ADDITIONAL INFORMATION
 
 
INDEX TO FINANCIAL STATEMENTS
 
 

Neither we nor the underwriters have authorized anyone to provide information different from that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. Neither we nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information in this prospectus, any amendment or supplement to this prospectus, and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our ordinary shares in any circumstances under which such offer or solicitation is unlawful.

This prospectus includes statistical data, market data and other industry data and forecasts, which we obtained from market research, publicly available information and independent industry publications and reports that we believe to be reliable sources.

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PROSPECTUS SUMMARY

This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this summary together with the more detailed information appearing in this prospectus, including “Risk Factors,” “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our financial statements and the related notes included at the end of this prospectus, before making an investment in our ordinary shares. Unless the context otherwise requires, all references to “Foamix,” “we,” “us,” “our,” the “Company” and similar designations refer to Foamix Pharmaceuticals Ltd. and its wholly-owned subsidiaries.

Company Overview

We are a clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary minocycline foam for the treatment of acne, impetigo and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and FMX102 for impetigo, are novel topical foam formulations of the antibiotic minocycline. Our clinically and statistically significant Phase II clinical trial results demonstrate that our minocycline foam, FMX101, provides a faster, more effective treatment than the reported results for oral minocycline, the current standard of care for moderate-to-severe acne, and does so with fewer side effects. Based on these results, we believe that FMX101 has the potential to become the new standard of care for the moderate-to-severe acne market. We have also completed a Phase II clinical trial for FMX102, and based on its efficacy and safety profile, we believe it will present an attractive option for the treatment of impetigo, including impetigo caused by methicillin-resistant staphylococcus aureus, or MRSA. We expect to commence pivotal Phase III clinical trials for both product candidates in 2015.

We developed FMX101 and FMX102 using our proprietary technology, which includes our foam-based platforms. This technology enables us to formulate and stabilize a wide variety of drugs and deliver them directly to their target site. Our foam platforms have significant advantages over alternative delivery options and are suitable for multiple application sites, creating a potential pipeline of products across a range of conditions to drive future growth. In addition, we have entered into development and license agreements relating to our technology with various pharmaceutical companies such as Bayer AG (Intendis), Merz Pharmaceuticals, LLC and Actavis plc, which, from our inception to June 30, 2014, have generated approximately $14.7 million in revenues.

FMX101 for moderate-to-severe acne.    FMX101, a 4% minocycline foam formulation for moderate-to-severe acne, is our lead product candidate. According to the American Academy of Dermatology, acne affects approximately 40 to 50 million people in the U.S. alone, approximately 10 million of whom suffer from moderate-to-severe acne according to the Journal of Investigative Dermatology. The U.S. market for branded prescription drugs for acne was estimated to be approximately $2.6 billion for the 12 months ended March 31, 2014, of which $1.0 billion was attributed to oral antibiotics such as Solodyn, the current standard of care for moderate-to-severe acne, and the remaining $1.6 billion was attributed to topical drugs such as Epiduo and Aczone, which are used to treat mild acne. In 2013, we completed a dose-ranging Phase II clinical trial of FMX101 in Israel, involving 150 patients aged 12 to 25 with moderate-to-severe acne. This trial demonstrated both clinically and statistically significant efficacy versus the control placebo group, with FMX101 reducing inflammatory acne lesions by 71% in only six weeks and non-inflammatory lesions by 73% in 12 weeks. In addition, no drug-related systemic side effects were observed.

While we have not conducted head-to-head trials, the results of our Phase II clinical trial of FMX101 contrast with the results reported on the product label for Solodyn, a branded oral minocycline, which states that it achieved only a 44% reduction of inflammatory lesions in 12 weeks and that it did not demonstrate any effect on non-inflammatory lesions. Furthermore, according to its product label, Solodyn’s most common adverse systemic side effects include headaches, fatigue, dizziness and severe itchiness. Additionally, there are several uncommon but severe side effects of Solodyn. We believe the efficacy of FMX101 coupled with the absence of reported systemic drug-related side effects has the potential to position it as the new standard of care for moderate-to-severe acne, provided we are able to obtain regulatory approval. Furthermore, we may pursue an indication for mild acne given the efficacy and safety shown in our Phase II clinical trial of FMX101 as well as its convenience of use. We expect to develop FMX101 through the U.S. Food and Drug Administration’s, or FDA’s, 505(b)(2) regulatory pathway and commence Phase III clinical trials in mid-2015. The FDA's 505(b)(2) regulatory pathway permits the filing of a new drug application, or NDA, where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference. This approach could expedite the development program for FMX101 by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval.

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The following photographs, taken over 12 weeks of treatment, show the effect of FMX101 on a severe acne patient participating in our Phase II clinical trial who responded positively to treatment.

FMX102 for impetigo.    We are also developing FMX102, a 1% minocycline foam product candidate for the treatment of impetigo, including cases of impetigo caused by MRSA. Impetigo is a highly contagious bacterial skin infection that primarily afflicts preschool-aged children, and is typically caused by staphylococcus aureus, including MRSA. It typically results in red sores and lesions on the face, neck, arms and legs. According to Symphony Health Solutions, the U.S. prescription drug market for impetigo was estimated to be approximately $340 million for the 12 months ended March 31, 2014, the vast majority of which was attributed to Bactroban and other mupirocin-based topical products, which are the current standard of care for impetigo. In 2012, we completed a dose-ranging Phase II clinical trial in Israel with 32 pediatric patients with at least two impetigo lesions. Of those patients, 11 had confirmed MRSA infection. In our Phase II clinical trial, patients receiving FMX102 twice daily experienced an 81.3% success rate in only three days and a 100% success rate in 14 days. Moreover, all MRSA-infected patients were bacteriologically cured after seven days of treatment. While we have not conducted head-to-head trials, this contrasts with the results reported on the product label for Bactroban, which states that it achieves a clinical efficacy rate of between 71% and 96% after eight to 12 days of three-times daily application. We expect to develop FMX102 through the FDA’s 505(b)(2) regulatory pathway, and commence Phase III clinical trials in the second half of 2015 after discussions with the FDA to establish an acceptable trial design.

Additional product candidates.    Using our proprietary technology and foam platforms, we are developing several other product candidates, the most notable of which are FMX101 for rosacea, for which we expect to commence Phase II clinical trials in 2015, and FDX104 for chemotherapy-induced rashes, for which we expect to commence Phase I/II clinical trials in Israel in late 2014. Our product candidate pipeline also includes early-stage stable foam formulations of various drugs for the treatment of common dermatological indications, including antibacterial drugs, antifungal drugs, corticosteroids and immunomodulators.

Product candidate pipeline.    The following chart provides a summary of the developmental pipeline for our four lead product candidates:

(1)We anticipate that we will obtain the requisite approvals to commence a Phase II clinical trial for FMX101 for rosacea without first having conducted a Phase I clinical trial, as minocycline, the active ingredient in FMX101, is a well known-drug with an established safety profile and we have successfully completed a Phase II clinical trial of FMX101 for moderate-to-severe acne.

Proprietary, innovative technology comprising different foam platforms.    We have independently developed a series of proprietary foam platforms, each having unique pharmacological features and characteristics, which enable us to formulate, stabilize and deliver a wide variety of drugs directly to their target site. For example, minocycline is known to be very unstable and rapidly degrades in the presence of most commonly-used formulation components. Utilizing our proprietary technology, we successfully stabilized minocycline in a novel topical foam formulation. Our

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choice to develop foams over other platforms stems from foam’s significant advantages over alternative delivery systems, being that it spreads easily and can be applied to large skin areas, is readily absorbed, avoids a messy residue and is highly tolerable due to its use of gentle ingredients. All ingredients used in our minocycline foam are listed in the FDA Inactive Ingredient Database, or IID, and are used in concentrations that do not exceed the maximum concentrations given in the IID. Our foam platforms are generally designed to be suitable for dermal, vaginal, nasal and other applications and to treat a range of diseases and disorders.

Development and license agreements.    In addition to our product candidates, we have entered into development and license agreements with various pharmaceutical companies such as Bayer, Merz and Actavis, combining our foam technology with a drug selected by the licensee to create new products with improved efficacy and ease-of-use. Each license agreement entitles us to service payments, contingent payments and royalties from sales of any new products that are commercialized. Each agreement is exclusive only to the specific drug that is licensed, leaving us the rights to commercialize and develop products with other drugs for the same indications using our proprietary foam technology while also allowing the licensee to apply the new products to any indication with its specific drug. The prospective products under these various agreements are currently in pre-clinical Phase II, Phase III and pre-approval stages. To date, none of these prospective products have been effectively commercialized.

Patents.    In relation to FMX101, FMX102 and FDX104, we currently have one granted patent in the U.S. which is expected to remain in effect until 2030. We also have several pending patent applications relating to FMX101, FMX102 and FDX104 in the U.S., as well as one in each of Australia, Brazil, Canada, China, the European Union, India, Israel and Mexico. As of August 31, 2014, we had 70 granted patents and 114 pending patent applications worldwide. In the U.S., we have established, as of August 31, 2014, a patent portfolio of 31 granted patents and 60 pending patent applications describing and claiming our multiple foam-based platforms and other technology. Additionally, outside of the U.S., we had 39 granted patents and 54 pending patent applications as of August 31, 2014.

Our Competitive Strengths

We believe that our expertise in foam technology, as demonstrated by our development of a novel topical foam formulation of minocycline, enables us to develop global product candidates which address shortcomings of currently available treatment options and positions us to compete effectively in the markets for the treatment of acne, impetigo and other skin infections.

FMX101 and FMX102 represent improved treatment alternatives for moderate-to-severe acne and impetigo. Our lead product candidate, FMX101, is a novel topical foam formulation of minocycline, offering an easy-to-use and convenient alternative to existing treatment options for moderate-to-severe acne. While we have not conducted head-to-head trials, based on our current clinical data compared to the label claims of the current standard of care Solodyn, FMX101 offers a faster and more effective treatment for moderate-to-severe acne with no reported systemic side effects. We believe that FMX101, if approved, will capture a significant share of the acne treatment market, and may even expand the overall acne market by attracting new patients who avoid current treatment options due to their limited effectiveness and potentially severe systemic side effects.

We are developing our second lead product candidate, FMX102, for the treatment of impetigo, including cases of impetigo caused by MRSA. FMX102 possesses the same benefits as FMX101 in terms of ease of use and convenience, and in our clinical trial it achieved a success rate of 81.3% in only three days of treatment and 100% in 14 days with twice-daily applications. While we have not conducted head-to-head trials, this contrasts with a clinical efficacy rate of between 71% and 96% after eight to 12 days of three-times daily applications achieved by Bactroban, one of the topical drugs comprising the current standard of care, as reported in its product label.

Lower risk and expedited development pathway.    We are focused on reformulating established drugs using our proprietary foam platforms. As a result, we expect the approval process for our product candidates to be conducted according to the FDA’s 505(b)(2) regulatory pathway, which allows some of the information required for approval to come from studies and trials that we did not conduct, leading to a relatively less expensive and faster approval process. Furthermore, FDX104, our product candidate for the treatment of chemotherapy-induced rashes, may be eligible for orphan drug designation, which would entitle us to marketing exclusivity of up to seven years if approved by the FDA.

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Large opportunity to expand use of our proprietary technology and foam platforms.    Our proprietary technology enables us to formulate and stabilize a wide variety of drugs, including extremely sensitive drugs that readily disintegrate when combined with most commonly-used topical compounds, enabling us to produce topical formulations of existing therapies that were previously unavailable. By making these drugs available for topical application, our foam platforms can enhance their potency, clinical effectiveness and ease-of-use while minimizing side effects. Our foam platforms are generally designed to be suitable for dermal, vaginal, nasal and other applications and can be tailored to treat a range of diseases and disorders. We believe that the diversity of our foam platforms and their numerous possible combinations with other drugs will allow us to select the best candidates for further development based on market need and the available regulatory pathway.

Cooperation with other pharmaceutical companies.    We have entered into development and license agreements with various pharmaceutical companies, including Bayer, Merz and Actavis, where we combine our foam technology with their proprietary drugs to create improved products. Under the terms of these agreements we receive service payments and contingent payments, which generated approximately $14.7 million in revenues from our inception to June 30, 2014, as well as royalties if the licensed products are eventually approved and marketed. Furthermore, each agreement is exclusive only to the specific drug that is licensed, leaving us the rights to commercialize and develop products with other drugs for the same indications using our proprietary foam technology while also allowing the licensee to apply the new products to any indication with its specific drug. Our licensed products are currently in pre-clinical Phase II, III and pre-approval stages and, if successfully commercialized, may demonstrate the value of our technology, support our development efforts and result in substantial income from royalties.

Proprietary intellectual property protection and barriers to entry.    In relation to FMX101, FMX102 and FDX104, we currently have one granted patent in the U.S. which is expected to remain in effect until 2030, and we also have several pending patent applications in the U.S. as well as one in each of Australia, Brazil, Canada, China, the European Union, India, Israel and Mexico. As of August 31, 2014, we had 70 granted patents and 114 pending patent applications worldwide describing and claiming our foam-based platforms and other technology. We believe these patents and patent applications offer protection for a range of our product candidates and act as a deterrent against certain competing designs by competitors. Our intellectual property position further relies on our proprietary know-how, presenting an additional barrier to entry by competitors.

Our Strategy

We intend to become a leading specialty pharmaceutical company in the dermatology space. The key elements of our strategy to achieve this goal include:

Complete development and obtain regulatory approval for FMX101 and FMX102.    We are in late-stage clinical development of FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo, respectively. We have completed Phase II clinical trials of these product candidates and expect to initiate Phase III pivotal clinical trials for FMX101 in mid-2015 and for FMX102 in the second half of 2015. We expect to file for regulatory approvals for FMX101 and FMX102 in the U.S. in 2016 in order to enter the moderate-to-severe acne market, as well as the market for impetigo and other skin infections. To support these efforts, we have enlisted U.S.-based clinical and regulatory executives, who have extensive experience in conducting clinical development programs and obtaining FDA approval for dermatological products.

Build our own sales and marketing capabilities to commercialize FMX101 and FMX102 in the U.S.    We intend to build an internal sales force and commercial organization to launch FMX101 and FMX102 in the U.S., subject to obtaining FDA approval. We plan to build a specialized, focused and scalable sales force to target those key dermatologists and pediatricians in the U.S. who prescribe the majority of the medications for acne and impetigo. To support these efforts, we have enlisted U.S.-based marketing executives with extensive experience in commercializing products in the dermatology market.

Develop and commercialize our other proprietary product candidates.    In addition to FMX101 and FMX102, we are in the early stages of clinical development for other product candidates developed on our proprietary foam platforms. We are developing FMX101 for the treatment of rosacea, and expect to enter a Phase II clinical trial in this indication in 2015. We are also developing FDX104, a topical formulation of doxycycline for the treatment of acne-like rashes associated with chemotherapy, and we intend to apply for an orphan drug designation for this product

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candidate. We intend to initiate Phase I/II clinical trials in Israel in late 2014 with FDX104. Our research and development team has an established track record of advancing early stage product candidates through all phases of clinical development and subsequent regulatory approval.

Assess and prioritize future therapeutic indications for our foam platforms.    Beyond our currently identified product candidates, we have developed a series of stable foam formulations with drugs that are known to effectively treat common dermatological indications including atopic dermatitis, psoriasis, genital warts and actinic keratoses, herpes and fungal infections. We intend to begin selective development of these products based on the outlook of these markets and the available regulatory pathway. We plan to develop our product candidates under the FDA’s 505(b)(2) regulatory pathway, which leads to a relatively less expensive and faster process for approval and eventual product launch. These efforts will be led by our research and development team, which has successfully cultivated several product candidates from early feasibility studies to advanced clinical trials, in both in-house and collaborative projects.

Risk Factors

Investing in our ordinary shares involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 11 before making a decision to invest in our ordinary shares. If any of these risks actually occur, our business, financial condition or results of operations would likely be materially adversely affected. In such case, the trading price of our ordinary shares would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

Our success depends primarily on our ability to complete the development and clinical testing of FMX101, FMX102 and our other product candidates. Such development and testing processes are long and costly and their outcome is uncertain.
Even if we successfully complete the development and clinical testing of FMX101, FMX102 and our other product candidates, we will need to obtain approval from the FDA to offer such products in the U.S., which process may suffer delays or fail.
Even if we successfully obtain the necessary regulatory approvals from the FDA for FMX101, FMX102 and our other product candidates, they may fail to achieve the broad degree of adoption by dermatologists and pediatricians and market acceptance necessary for commercial success.
We may be unsuccessful in commercializing FMX101, FMX102 and our other product candidates due to, among other things, unfavorable pricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives.
Even if we commercialize FMX101, FMX102 or other product candidates we will face competition from existing products and we may face competition from new products that may currently be under development or may be developed in the future.
We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. We have only two product candidates in clinical trials and no sales, which, together with our limited operating history, makes it difficult to assess our future commercial viability, and we may never achieve or maintain profitability.
If our efforts to obtain, protect or enforce our intellectual property rights related to FMX101, FMX102 or any of our other product candidates are not adequate, our intellectual property rights are successfully challenged, or we are restricted by other intellectual property for which licenses are not available, we may not be able to compete effectively.
If our research and development facility in Rehovot, Israel were to suffer a serious accident, or if a force majeure event materially affected our ability to develop and test FMX101, FMX102 and our other product candidates, all of our research and development capacity could be shut down for an extended period.

Our Principal Shareholders

Following the closing of this offering, entities affiliated with Dr. Dov Tamarkin and Mr. Meir Eini will beneficially own 14.8% and 15.1% of our outstanding shares, respectively (or 14.2% and 14.4% if the underwriters exercise in full their option to purchase additional shares), and 29.9% in the aggregate (or 28.6% if the underwriters

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exercise in full their option to purchase additional shares). Following the closing of this offering, we will not be a party to and are not otherwise aware of any voting agreement among our shareholders. For further information about the ownership of our ordinary shares following this offering, see “Principal Shareholders.”

Our Corporate Information

We were incorporated under the laws of the State of Israel on January 19, 2003. Our principal executive offices are located at 2 Holzman St., Weizmann Science Park, Rehovot 76704, Israel, and our telephone number is +972-8-9316233. Our website is www.foamix.co.il. The information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. Our agent for service of process in the U.S. is Puglisi & Associates, located at 850 Library Ave. Suite 204, Newark, Delaware 19711, and its telephone number is +1 (302) 738-6680.

Throughout this prospectus, we refer to various trademarks, service marks and trade names that we use in our business. The “Foamix” word mark, the “Foamix” design logo and other trademarks or service marks of Foamix Pharmaceuticals Ltd. appearing in this prospectus are the property of Foamix Pharmaceuticals Ltd. We have several other registered trademarks, service marks and pending applications relating to our products. Although we have omitted the ® and “TM” trademark designations for such marks in this prospectus, all rights to such trademarks are nevertheless reserved. Other trademarks and service marks appearing in this prospectus are the property of their respective holders.

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The Offering

Ordinary shares we are offering
5,909,091 ordinary shares (or 6,795,455 if the underwriters exercise in full their option to purchase additional ordinary shares)
Ordinary shares to be outstanding immediately after this offering
19,889,899 ordinary shares (or 20,776,263 if the underwriters exercise in full their option to purchase additional ordinary shares)
Use of proceeds
We estimate that we will receive net proceeds from this offering of approximately $58.7 million, or $67.8 million if the underwriters exercise in full their option to purchase additional ordinary shares, based on an assumed initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

We currently intend to use the net proceeds we receive from this offering as follows:

approximately $20–$25 million to conduct Phase III clinical trials and other pre-launch studies, including any animal and human toxicology studies, for FMX101 for the treatment of moderate-to-severe acne;
approximately $10–$15 million to conduct Phase III clinical trials and other pre-launch studies, including any animal and human toxicology studies, for FMX102 for the treatment of impetigo;
up to $5 million to conduct a Phase I/II clinical trial for FDX104 for the treatment of chemotherapy-induced rashes; and
the balance, if any, to conduct a Phase II clinical trial for FMX101 for the treatment of rosacea, for research and development of other pipeline products and for other general corporate purposes.

See “Use of Proceeds” on page 45 for additional information.

Risk factors
Investing in our ordinary shares involves a high degree of risk and purchasers of our ordinary shares may lose part or all of their investment. See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
Proposed NASDAQ Global Market symbol:
We have applied to have our ordinary shares listed on the NASDAQ Global Market under the symbol “FOMX.”

Unless otherwise stated, the number of ordinary shares to be outstanding after this offering is based on 13,980,808 ordinary shares outstanding as of August 31, 2014, and excludes (i) warrants to purchase 1,968,894 ordinary shares as of August 31, 2014 at an exercise price of $7.62 per share, (ii) 1,635,694 ordinary shares reserved as of August 31, 2014 for issuance to employees, directors, consultants and other service providers, of which options to purchase 907,500 ordinary shares had been granted at a weighted average exercise price of $1.92 per share. Such number includes options to purchase up to 31,250 ordinary shares, which grant is contingent upon the closing of this offering and the amount of proceeds we receive from it.

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The 13,980,808 outstanding shares referred to above include 2,572,322 series A preferred shares, or preferred shares, that will automatically convert into ordinary shares immediately prior to the consummation of this offering. We therefore consider such preferred shares to be ordinary shares for the purpose of this prospectus. The warrants referred to above are also for the purchase of preferred shares which will likewise automatically convert into warrants to purchase ordinary shares immediately prior to the consummation of this offering, and we therefore consider such warrants to be for the purchase of ordinary shares for purpose of this prospectus.

Unless otherwise indicated, all information in this prospectus:

assumes an initial public offering price of $11.00 per ordinary share, the midpoint of the range set forth on the cover page of this prospectus;
assumes no exercise by the underwriters of their option to purchase up to an additional 886,364 ordinary shares from us;
reflects a 16-for-1 reverse share split effected on August 22, 2014 by means of consolidating each 16 ordinary shares par value NIS 0.01 then outstanding into one ordinary share par value NIS 0.16; and
gives effect to the adoption of our amended and restated articles of association prior to the closing of this offering, which will replace our articles of association currently in effect.

The terms “shekels,” “Israeli shekels” and “NIS” refer to New Israeli Shekels, the lawful currency of the State of Israel, and the terms “dollar,” “US$” or “$” refer to U.S. dollars, the lawful currency of the U.S.

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SUMMARY FINANCIAL DATA

The following tables set forth our summary financial data. You should read the following summary financial data in conjunction with, and it is qualified in its entirety by reference to, our historical financial information and other information provided in this prospectus, including “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

The summary statements of operations data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2013 are derived from our audited financial statements appearing elsewhere in this prospectus. The summary statements of operations data for the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 are derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus. The unaudited condensed interim consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the financial information set forth in those statements. The historical results set forth below are not necessarily indicative of the results to be expected in future periods. Our financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., or U.S. GAAP, as issued by the Financial Accounting Standards Board, or FASB. See Note 2s to our audited financial statements for a discussion of the restatement that we made to such financial statements.

Year ended December 31,
Six months ended June 30,
2013
2012
2014
2013
(restated)
(in thousands, except per share data)
Statements of operations data:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,404
 
$
1,086
 
$
2,006
 
$
290
 
Cost of revenues(1)
 
453
 
 
491
 
 
293
 
 
257
 
Gross profit
 
951
 
 
595
 
 
1,713
 
 
33
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Research and development(1)
 
1,086
 
 
1,202
 
 
702
 
 
463
 
Selling, general and administrative(1)
 
1,221
 
 
953
 
 
867
 
 
993
 
Total operating expenses
 
2,307
 
 
2,155
 
 
1,569
 
 
1,456
 
Operating loss (income)
 
1,356
 
 
1,560
 
 
(144
)
 
1,423
 
Finance expenses, net
 
1,075
 
 
609
 
 
3,617
 
 
350
 
Loss for the period
 
2,431
 
 
2,169
 
 
3,473
 
 
1,773
 
Loss per share basic and diluted(2)
$
0.22
 
$
0.20
 
$
0.30
 
$
0.16
 
Weighted average number of ordinary shares used in computing basic and diluted loss per ordinary share
 
11,285
 
 
11,003
 
 
11,408
 
 
11,215
 
Actual
As adjusted(3)
As of December 31,
2013
As of June 30,
2014
As of June 30,
2014
(restated)
(in thousands)
Balance sheet data:
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and investment in marketable securities
$
2,308
 
$
10,494
 
$
68,704
 
Working capital(4)
 
1,144
 
 
9,597
 
 
67,807
 
Total assets
 
3,086
 
 
11,378
 
 
69,588
 
Total long-term liabilities
 
4,917
 
 
2,654
 
 
459
 
Total shareholders’ equity (capital deficiency)
 
(3,582
)
 
(6,195
)
 
67,648
 

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

Year ended December 31,
Six months ended June 30,
2013
2012
2014
2013
(restated)
(in thousands)
Cost of revenues
$
16
 
$
23
 
$
16
 
$
12
 
Research and development
 
59
 
 
83
 
 
64
 
 
26
 
Selling, general and administrative
 
430
 
 
249
 
 
64
 
 
369
 
Total share-based compensation
$
505
 
$
355
 
$
144
 
$
407
 
(2)Basic and diluted loss per ordinary share is computed based on the basic and diluted weighted average number of ordinary shares outstanding during each period.
(3)As adjusted gives effect to (i) the issuance and sale of 5,909,091 ordinary shares by us in this offering at an assumed initial public offering price of $11.00 per ordinary share, the midpoint of the range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the payment by us of bonuses of $500,000 in the aggregate to certain of our employees upon completion of this offering, which is the maximum aggregate amount of bonuses we have agreed to pay.
(4)Working capital is defined as total current assets minus total current liabilities.

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RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, in addition to the other information set forth in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before purchasing our ordinary shares. If any of the following risks actually occurs, our business, financial condition, cash flows, and results of operations could be materially adversely affected. In that case, the trading price of our ordinary shares would likely decline and you might lose all or part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business operations.

Risks Related to Our Business and Industry

We are largely dependent on the success of our lead product candidates, FMX101 and FMX102 for the treatment of acne and impetigo, respectively.

We have invested almost all of our efforts and financial resources in the research and development of FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo, respectively. These are currently our only product candidates that have completed Phase II clinical trials. As a result, the success of our business depends on our ability to complete the development of, obtain regulatory approval for and successfully commercialize FMX101 or FMX102 in a timely manner. If we fail to do so, we may not be able to obtain adequate funding to continue to operate our business.

We have not conducted Phase III clinical trials for FMX101, FMX102 or any of our other product candidates, nor have we applied for regulatory approvals to market FMX101, FMX102 or any of our other product candidates, and we may be delayed in obtaining or fail to obtain such regulatory approvals and to commercialize our product candidates.

The process of developing, obtaining regulatory approval for and commercializing FMX101, FMX102 and any of our other product candidates is long, complex, costly and uncertain, and delays or failure can occur at any stage.

The research, testing, manufacturing, labeling, marketing, sale and distribution of drugs are subject to extensive and rigorous regulation by the FDA and foreign regulatory agencies. These regulations are agency-specific and differ by jurisdiction. We are not permitted to market FMX101, FMX102 or any other product candidate in the U.S. until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from the respective regulatory agencies in such countries. To gain approval of an NDA or other equivalent regulatory approval, we must provide the FDA or relevant foreign regulatory authority with clinical data that demonstrates the safety, purity and potency of the product for the intended indication.

Before we can submit an NDA to the FDA or similar applications to foreign regulatory authorities, as applicable, for FMX101 and FMX102, we must conduct Phase III clinical trials for each product candidate. These clinical trials will be substantially broader than our Phase II clinical trials and will require us to enlist a considerably larger number of patients in multiple clinics and medical centers across a number of different countries. Before commencing Phase III clinical trials in the U.S. we will also need to agree on a protocol with the FDA. We have not received regulatory clearance to conduct the clinical trials that are necessary to file an NDA with the FDA or comparable applications to foreign regulatory authorities. Our other product candidates are at earlier stages of development and therefore subject to even greater uncertainty and risk than FMX101 and FMX102, and may never progress to the clinical trial stage or beyond.

Phase III clinical trials often produce unsatisfactory results even though prior clinical trials were successful. Moreover, the results of clinical trials may be unsatisfactory to the FDA or foreign regulatory authorities even if we believe those clinical trials to be successful. The FDA or applicable foreign regulatory agencies may suspend one or all of our clinical trials or require that we conduct additional clinical, nonclinical, manufacturing, validation or drug product quality studies and submit that data before considering or reconsidering any NDA or similar foreign regulatory application we may submit. Depending on the extent of these additional studies, approval of any applications that we submit may be significantly delayed, or may require us to expend more resources than we have available. It is also possible that additional studies we conduct may not be considered sufficient by the FDA or applicable foreign regulatory agencies to provide regulatory approval.

If any of these outcomes occur, we would not receive approval for FMX101 or FMX102 and may be forced to cease operations.

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We have conducted only one Phase II clinical trial relating to each of FMX101 and FMX102, in each case outside the U.S., the results of which may not be predictive of future trial results.

Positive results in preclinical testing and early clinical trials do not ensure that later clinical trials will be successful. A number of pharmaceutical companies have suffered significant setbacks in clinical trials, including in Phase III, after promising results in preclinical testing and early clinical trials. These setbacks have included negative safety and efficacy observations in later clinical trials, including previously unreported adverse events.

To date, we have conducted only one Phase II clinical trial of each of FMX101 and FMX102 which met their respective primary efficacy and all secondary endpoints. Our Phase III clinical trials of FMX101 and FMX102 may not be successful, and even if they are, the FDA may not approve our NDA for FMX101 or FMX102, should we be in a position to file one, and may not agree that the benefits of FMX101 or FMX102 outweigh its risks, or may raise new concerns regarding our clinical trial designs.

If the FDA does not conclude that FMX101 or FMX102 satisfy the requirements under Section 505(b)(2) of the Federal Food Drug and Cosmetics Act, or Section 505(b)(2), or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for these product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

We expect to commence pivotal Phase III trials for FMX101 and FMX102 under the FDA’s 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant, and for which the applicant has not received a right of reference, which could expedite the development program for FMX101 and FMX102 by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely increase significantly. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product candidates, which would likely harm our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, our product candidates may not receive the requisite approvals for commercialization.

In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway for FMX101 and FMX102, there is no guarantee this would ultimately lead to faster product development or earlier approval.

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

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Our Phase II clinical trials for FMX101 and FMX102 were not conducted head-to-head with the current standard of care for moderate-to-severe acne and impetigo, and the comparison of our results to those of existing drugs, and the conclusions we have drawn from such comparisons, may be inaccurate.

Our Phase II clinical trials for FMX101 and FMX102 were not conducted head-to-head with the drugs considered the current standard of care for the relevant indications, namely Solodyn for moderate-to-severe acne and Bactroban for impetigo. This means that none of the patient groups participating in these trials were treated with the standard of care drugs alongside the groups treated with our product candidates. Instead, we have compared the results of our clinical trials with historical data from prior clinical trials conducted for the standard of care drugs, as presented in their respective product labels.

Direct comparison generally provides more reliable information about how two or more drugs compare, and reliance on indirect comparison for evaluating their relative efficacy or other qualities is problematic due to lack of objective or validated methods to assess trial similarity. For example, the various trials were likely conducted in different countries with different demographic features and in patients with different baseline conditions and different hygiene standards, among other relevant asymmetries. Therefore, the conclusions we have drawn from comparing the results of our trials with those published in the product labels for these standard of care drugs, including conclusions regarding the relative efficacy and expediency of FMX101 and FMX102, may be distorted by the inaccurate methodology of the comparison.

The FDA may require our Phase III clinical trials of FMX101 and/or FMX102 to be controlled against the current standard of care for moderate-to-severe acne and impetigo, respectively, or we may decide to conduct such studies to support claims comparing FMX101, FMX102 or any of our other product candidates to the relevant standard of care.

The FDA may require our Phase III clinical trials of FMX101 for moderate-to-severe acne and/or FMX102 for impetigo to be controlled against the drugs that are currently considered the standards of care for the treatment of moderate-to-severe acne and impetigo, respectively, instead of being controlled against a placebo or against a different dosage of our minocycline foam, as was the case in our Phase II clinical trials. Furthermore, even if the FDA does not impose such a requirement in connection with our Phase III clinical trials, the FDA generally requires adequate, well-controlled head-to-head clinical trials to support comparative claims regarding marketed products. As a result, we may decide to conduct comparative studies of FMX101, FMX102 or any of our other product candidates that are commercialized to support comparative claims used in the marketing of those product candidates. Significant additional time and expense will be required to design and conduct any head-to-head trials. For example, in the case of FMX101 for moderate-to-severe acne, the standard of care is an oral drug, Solodyn, whereas FMX101 is a topical drug. To conduct a double blind study comparing the two treatments, all patients would need to receive both modalities, with either the oral or topical treatment consisting of a placebo, increasing the complexity and cost. If we are unable to conduct head-to-head trials for one or more of our product candidates, even if such product candidates are approved for marketing in the U.S., we will not be able to make claims comparing such product candidates to the current standard of care or other competitor products which may negatively impact sales of these products.

Our ability to finance our company and generate revenues depends on the clinical and commercial success of FMX101, FMX102 and our other product candidates. Many of the factors that will determine whether we gain such success are beyond our control, and our failure to do so will negatively impact our business.

Our near-term prospects, including our ability to finance our company and generate revenues, depends on the successful development, regulatory approval and commercialization of FMX101 and FMX102, as well as our future product candidates. The clinical and commercial success of FMX101, FMX102 and our other product candidates depends on a number of factors, many of which are beyond our control, including:

the FDA’s and foreign regulatory agencies’ acceptance of our parameters for regulatory approval relating to FMX101, FMX102 and our other product candidates, including our proposed indications, primary endpoint assessments, primary endpoint measurements and regulatory pathways;
the FDA’s and foreign regulatory agencies’ acceptance of the number, design, size, conduct and implementation of our clinical trials, our trial protocols and the interpretation of data from preclinical studies or clinical trials;
the FDA’s and foreign regulatory agencies’ acceptance of the sufficiency of the data we collected from our preclinical studies and early clinical trials of FMX101 or FMX102 to support the submission of an NDA or similar foreign regulatory application without requiring additional preclinical or clinical studies;

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the FDA’s and foreign regulatory agencies’ willingness to schedule an advisory committee meeting in a timely manner to evaluate and decide on the approval of our NDA or similar foreign regulatory application;
the recommendation of the FDA and foreign regulatory agencies’ advisory committee to approve our application without limiting the approved labeling, specifications, distribution or use of the products, or imposing other restrictions;
the FDA’s and foreign regulatory agencies’ willingness to grant separate approvals for adults and children, where we may have successful clinical trial results for children but not for adults, or vice versa;
the FDA’s and foreign regulatory agencies’ satisfaction with the safety and efficacy of FMX101, FMX102 or our other product candidates;
the prevalence and severity of adverse events associated with FMX101, FMX102 and our other product candidates;
the timely and satisfactory performance by third party contractors of their obligations in relation to our clinical trials, including any future Phase III clinical trials for FMX101 and FMX102;
our success in educating dermatologists, pediatricians and patients about the benefits, administration and use of FMX101, FMX102 and our other product candidates, if approved;
our ability to raise additional capital on acceptable terms in order to achieve our goals;
the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing treatments;
the effectiveness of our marketing, sales and distribution strategy and operations, as well as that of our current and future licensees;
our ability to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or cGMP;
our ability to obtain, protect and enforce our intellectual property rights with respect to FMX101, FMX102 or our other product candidates; and
our ability to avoid third party claims of patent infringement or intellectual property violations.

If we fail to achieve these objectives or overcome the challenges presented above, many of which are beyond our control, in a timely manner, we could experience significant delays or an inability to successfully commercialize our product candidates. Accordingly, we may not be able to generate sufficient revenues through the sale of FMX101, FMX102 or our other product candidates to enable us to continue our business.

We may encounter delays in completing clinical trials for FMX101, FMX102 and our other product candidates and may even be prevented from commencing such trials due to factors that are largely beyond our control.

We have in the past and may in the future experience delays in completing our ongoing clinical trials and in commencing future clinical trials. We have already experienced delays in our Phase II clinical trial with FMX102 for impetigo that took place in Israel, due to our difficulty in enlisting a sufficient number of pediatric patients with the necessary severity of the disease to participate in the trial. This difficulty may arise again in future trials for impetigo, which has a low incidence in the developed countries in which we expect to conduct our trials, due to their higher sanitary conditions relative to developing countries. This difficulty may also arise in future trials for other indications and for our other product candidates.

We rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements governing the committed activities of our CROs, we have limited influence over their actual performance. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. Clinical trials can be delayed or aborted for a variety of other reasons, including delay or failure to:

obtain regulatory approval to commence a trial;
reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which may be subject to extensive negotiation and vary significantly among different CROs and trial sites;

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obtain institutional review board, or IRB, approval at each site;
enlist suitable patients to participate in a trial;
have patients complete a trial or return for post-treatment follow-up;
ensure clinical sites observe trial protocol or continue to participate in a trial;
address any patient safety concerns that arise during the course of a trial;
address any conflicts with new or existing laws or regulations;
add a sufficient number of clinical trial sites; or
manufacture sufficient quantities of the product candidate for use in clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to available alternatives, including any new drugs or treatments that may be approved for the indications we are investigating.

We may also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the trial’s data safety monitoring board, by the FDA or by the applicable foreign regulatory authorities. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA or foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

If we experience delays in carrying out or completing any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

FMX101 and FMX102 may produce undesirable side effects that we may not have detected in our Phase II clinical trials. This could prevent us from gaining marketing approval or market acceptance for these product candidates, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations.

Although FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo have so far been shown to have no reported systemic side effects and only a few cases of mild and temporary skin reactions have been reported, all of which disappeared on their own within 12 weeks from the beginning of the treatment, the acne condition of several of the patients who participated in the FMX101 4% trial worsened rather than improved. Furthermore, the Phase III clinical trials will involve a much larger patient base than the Phase II clinical trials, and the commercial marketing of FMX101 and FMX102, if approved, will further expand the clinical exposure of the drug to a wider and more diverse group of patients than those participating in the clinical trials, which may identify undesirable side effects caused by these products that were not previously observed or reported in the Phase II clinical trials.

The FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if our products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date on which we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties or seizure of our products.

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Additionally, in the event we discover the existence of adverse medical events or side effects caused by one of our product candidates, a number of other potentially significant negative consequences could result, including:

the FDA or foreign regulatory authorities may suspend or withdraw their approval of the product;
the FDA or foreign regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions;
the FDA or foreign regulatory authorities may require us to issue specific communications to healthcare professionals, such as letters alerting them to new safety information about our product, changes in dosage or other important information;
the FDA or foreign regulatory authorities may issue negative publicity regarding the affected product, including safety communications;
we may be limited with respect to the safety-related claims that we can make in our marketing or promotional materials;
we may be required to change the way the product is administered, conduct additional preclinical studies or clinical trials or restrict or cease the distribution or use of the product; and
we could be sued and held liable for harm caused to patients.

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

Even if FMX101, FMX102 or our other product candidates receive marketing approval, we may continue to face future developmental and regulatory difficulties. In addition, we are subject to government regulations and we may experience delays in obtaining required regulatory approvals to market our proposed product candidates.

Even if we complete clinical testing and receive approval of any regulatory filing for FMX101, FMX102 or any of our other product candidates, the FDA or applicable foreign regulatory agency may grant approval contingent on the performance of additional costly post-approval clinical trials, risk mitigation requirements and surveillance requirements to monitor the safety or efficacy of the product, which could negatively impact us by reducing revenues or increasing expenses, and cause the approved product candidate not to be commercially viable. Absence of long-term safety data may further limit the approved uses of our products, if any.

The FDA or applicable foreign regulatory agency also may approve FMX101, FMX102 or any of our other product candidates for a more limited indication or a narrower patient population than we originally requested, or may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates. Furthermore, any such approved product will remain subject to extensive regulatory requirements, including requirements relating to manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution and recordkeeping.

If we fail to comply with the regulatory requirements of the FDA or other applicable foreign regulatory authorities, or previously unknown problems with any approved commercial products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions or other setbacks, including the following:

suspend or impose restrictions on operations, including costly new manufacturing requirements;
refuse to approve pending applications or supplements to applications;
suspend any ongoing clinical trials;
suspend or withdraw marketing approval;
seek an injunction or impose civil or criminal penalties or monetary fines;
seize or detain products;
ban or restrict imports and exports;
issue warning letters or untitled letters;
suspend or impose restrictions on operations, including costly new manufacturing requirements; or

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refuse to approve pending applications or supplements to applications.

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

Even if FMX101, FMX102 or our other product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use and market acceptance necessary for commercial success.

Even if we obtain FDA or foreign regulatory approvals for FMX101, FMX102 or any of our other product candidates, the commercial success of such products will depend significantly on their broad adoption and use by dermatologists, pediatricians and other physicians for approved indications, including, in the case of FMX101 and FMX102, for the treatment of moderate-to-severe acne, impetigo and other therapeutic or aesthetic indications that we may seek to pursue.

Moreover, if the treatment of acne and impetigo with FMX101 and FMX102 is deemed to be an elective procedure, the cost of which is borne by the patient, it will not be reimbursable through government or private health insurance.

The degree and rate of physician and patient adoption of FMX101, FMX102 and any of our other product candidates, if approved, will depend on a number of factors, including:

the clinical indications for which the product is approved;
the safety and efficacy of our product as compared to existing therapies for those indications;
the prevalence and severity of adverse side effects;
patient satisfaction with the results and administration of our product and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects;
patient demand for the treatment of moderate-to-severe acne and impetigo or other indications;
overcoming biases of physicians and patients towards topical treatments for moderate-to-severe acne, impetigo or other indications and their willingness to adopt new therapies for these indications;
the cost of treatment in relation to alternative treatments, the extent to which these costs are reimbursed by third party payors, and patients’ willingness to pay for our products;
proper training and administration of our products by dermatologists, pediatricians and medical staff;
the revenues and profitability that our products will offer physicians as compared to alternative therapies; and
the effectiveness of our sales and marketing efforts, especially the success of any targeted marketing efforts directed toward dermatologists, pediatricians, other physicians, clinics and any direct-to-consumer marketing efforts we may initiate.

If FMX101, FMX102 or any of our other product candidates are approved for use but fail to achieve the broad degree of physician adoption and market acceptance necessary for commercial success, our operating results and financial condition will be adversely affected.

Our ability to market FMX101 and FMX102, if approved, will be limited to use for the treatment of moderate-to-severe acne and impetigo in the U.S., and if we want to expand the indications for which we may market FMX101 or FMX102 or the territories in which we may market these products, we will need to obtain additional regulatory approvals, which may not be granted.

We plan to seek regulatory approval for FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo in the U.S. If FMX101 or FMX102 is approved, the FDA will restrict our ability to market or advertise FMX101 or FMX102 for other indications and other territories, which could limit physician and patient adoption. We may seek to promote and commercialize FMX101 and FMX102 for the treatment of acne and impetigo in Europe by applying for marketing approval from the European Medicines Agency, or EMA, or we may develop new or additional uses or protocols for FMX101 or FMX102 in the future, but we may not receive the clearances required

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to do so. In addition, we would be required to conduct additional clinical trials or studies to support approvals for such additional jurisdictions or indications, which would be time consuming and expensive, and may produce results that do not support regulatory approvals.

Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks. In particular, in many countries outside the U.S., it is required that a product receives pricing and reimbursement approval before the product can be commercialized. This can result in substantial delays in such countries. In other countries, product approval depends on showing superiority to an approved alternative therapy. This can result in significant expense for conducting complex clinical trials.

None of our products are currently approved for sale in any jurisdiction, including the U.S. or any international markets. If we fail to comply with regulatory requirements in the U.S. or any international market we decide to enter, or to obtain and maintain required approvals, or if regulatory approvals in the U.S. or the relevant international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Marketing approval in one jurisdiction does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for FMX101 and FMX102. This would reduce our target market and limit the full commercial potential of FMX101 and FMX102.

If FMX101, FMX102 or any of our other product candidates are approved for marketing, and we are found to have improperly promoted off-label uses, or if dermatologists, pediatricians or other physicians misuse our products or use our products off-label, we may suffer severe repercussions.

The FDA and foreign regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products, such as FMX101 or FMX102, if approved. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such foreign regulatory agencies as reflected in the product’s approved labeling. For example, if we receive marketing approval for FMX101 for the treatment of moderate-to-severe acne, the first indication we are pursuing, we cannot prevent physicians from using FMX101 on their patients in a manner that is inconsistent with the approved label, potentially including for the treatment of other therapeutic or aesthetic indications. If we are found to have promoted such off-label uses, we may receive warning letters and become subject to significant liability, which would materially harm our business.

The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred, and our reputation could be damaged. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA prohibitions on the sale or marketing of our products or significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the industry.

Dermatologists, pediatricians and other physicians may also misuse our products, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our products are misused, we may become subject to costly litigation by our customers or their patients. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance. Furthermore, the use of our products for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients. Any of these events could harm our business and results of operations and cause our stock price to decline.

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If we are not successful in developing, acquiring regulatory approval for and commercializing additional product candidates beyond FMX101 and FMX102, our ability to expand our business and achieve our strategic objectives would be impaired.

Although we will devote a substantial portion of our resources on the continued clinical testing and potential approval of FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo, respectively, another key element of our strategy is to discover, develop and commercialize a portfolio of products based on our proprietary foam platforms to serve additional therapeutic markets. We are seeking to do so through our internal research programs, but our resources are limited, and those that we have are geared towards clinical testing and seeking regulatory approval of FMX101 and FMX102. We may also explore strategic collaborations for the development or acquisition of new products, but we may not be successful in entering into such relationships. While we expect our lead product candidates, FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo, respectively, to commence Phase III clinical trials, all of our other potential product candidates remain in the early stages of development. Research programs to identify product candidates require substantial technical, financial and human resources, regardless of whether any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including:

the research methodology used may not be successful in identifying potential product candidates;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
product candidates we develop may nevertheless be covered by third parties’ patents or other proprietary rights;
a product candidate may in a subsequent trial be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;
a product candidate may not be accepted as safe and effective by patients, the medical community or third party payors, if applicable; and
intellectual property rights of third parties may potentially block our entry into certain markets, or make such entry economically impracticable.

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing FMX101 and FMX102.

Our product candidates, if approved, will face significant competition and our failure to compete effectively may prevent us from achieving significant market penetration and expansion.

If we receive marketing approval, the first expected use of our products will be for the treatment of moderate-to-severe acne. The facial aesthetic market in general, and the market for acne treatments in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. This market is also characterized by competitors obtaining patents to protect what they consider to be their intellectual property. We are seeking regulatory approval of FMX101 for the treatment of moderate-to-severe acne. We anticipate that FMX101, if approved, will face significant competition from other acne products, including oral drugs such as Solodyn, Doryx, Dynacin and Minocin, and topical anti-acne drugs such as Acanya, Ziana, Epiduo, Benzaclin and Differin, all of which have been approved for marketing and are available to consumers. If approved, FMX101 may also compete with non-prescription anti-acne products and unapproved and off-label treatments. To compete successfully in the acne treatment market, we will have to demonstrate that FMX101 is safe and effective for the treatment of moderate-to-severe acne, has advantages over existing therapies, and that it does not infringe the intellectual property rights of any third parties. Competing in the acne market could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.

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Due to less stringent regulatory requirements, there are many more acne products and procedures available for use in international markets than are approved for use in the U.S. There are also fewer limitations on the claims that our competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, we face more competition in these markets than in the U.S.

We are seeking regulatory approval of FMX102 for the treatment of impetigo. We anticipate that FMX102, if approved, will face significant competition from other impetigo products, including Bactroban and Altabax, as well as oral antibiotics. If approved, FMX102 may also compete with non-prescription antimicrobial products and unapproved and off-label treatments. To compete successfully in the impetigo treatment market, we will have to demonstrate that FMX102 is safe and effective in reducing infected lesions, has advantages over existing therapies, and that it does not infringe the intellectual property rights of any third parties. Competing in the impetigo market could result in price-cutting, reduced profit margins and limited market share, any of which would harm our business, financial condition and results of operations.

Other pharmaceutical companies may develop competing products for acne, impetigo and other indications we are pursuing and enter the market ahead of us.

Other pharmaceutical companies are engaged in developing, patenting, manufacturing and marketing healthcare products that compete with those that we are developing. These potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in obtaining marketing approvals from the FDA and foreign regulatory authorities.

Several of these potential competitors are privately-owned companies that are not bound by public disclosure requirements and closely guard their development plans, marketing strategies and other trade secrets. Publicly-traded pharmaceutical companies are also able to maintain a certain degree of confidentiality over their pipeline developments and other sensitive information. As a result, we do not know whether these potential competitors are already developing, or plan to develop, foam-based or other topical treatments for acne, impetigo or other indications we are pursuing, and we will likely be unable to ascertain whether such activities are underway in the future. These potential competitors may therefore introduce competing products without our prior knowledge and without our ability to take preemptive measures in anticipation of their commercial launch.

For example, we were recently approached by a pharmaceutical company inquiring as to whether we would be interested in working with it to develop a foam-based acne product using an antibiotic from the tetracycline family, which is the same family of compounds as minocycline and doxycycline. Although we declined the offer, this pharmaceutical company may pursue such development, whether independently or in collaboration with others, and other companies may have similar intentions.

Furthermore, such potential competitors may enter the market before us, and their products may be designed to circumvent our granted patents and pending patent applications. They may also challenge, narrow or invalidate our granted patents or our patent applications, and such patents and patent applications may fail to provide adequate protection for our product candidates.

We have agreements with third party licensees to develop new product candidates for them utilizing our foam technology, and our ability to benefit from such product candidates could be impaired or delayed if our licensees’ efforts to develop and commercialize these product candidates are unsuccessful.

In parallel to our core business focused on the development of FMX101, FMX102 and our other product candidates, we have also entered into and are pursuing development and license agreements with various pharmaceutical companies for the development and commercialization of product candidates that combine our proprietary technology with the licensees’ drugs for the treatment of various indications. These license agreements generally provide rights to the licensees for a single active pharmaceutical ingredient, and grant the licensee exclusivity in the development and commercialization of the specific licensed product candidates incorporating such active pharmaceutical ingredient. Our entitlement to contingent payments and royalties from such potential product candidates is therefore dependent upon the licensees’ performance of their responsibilities and their continued cooperation in developing and commercializing the potential product candidates.

Our licensees may not cooperate with us or perform their obligations under our agreements with them. Furthermore, the obligations of the licensees under such agreements are, for the most part, limited to ‘commercially

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reasonable efforts,’ and they do not face penalties or other repercussions for failing to develop or commercialize the relevant product candidates within the designated timetable other than potentially forfeiting their rights to the relevant product candidate and assigning such rights to us. However, there is no guarantee that we will be able to successfully develop, manufacture or commercialize any such product candidate assigned to us. We cannot control the scope or timing of the resources that will be devoted by our licensees to performing their responsibilities under our agreements with them. Our licensees may choose to pursue alternative technologies in preference to those being developed with us. Several of these agreements may also be terminated for convenience by the licensee. The development and commercialization of these licensed product candidates as well as the anticipated contingent payments and royalties we hope to generate from them will be delayed or never obtained if the licensees fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements, or if they breach their agreements with us. Disputes with our licensees could also impair our reputation or result in development delays, decreased revenues and litigation expenses.

We have granted several of our licensees the right to commercialize the licensed products for any indication, including acne and rosacea, which may allow them to compete against us using our own technology.

The license we granted to several of our licensees, with whom we are developing certain topical products based on our technology and the licensees’ proprietary drugs, allows them to commercialize the developed products for any topical application, not just for the specific indication for which each product was originally intended. If any such licensed product proves to be effective for moderate-to-severe acne, rosacea or any other indication that we are pursuing with FMX101, FMX102 or our other product candidates, we may face competition from these licensed products, as the licensees are not bound by any non-compete restrictions. Such competition may be especially challenging for us, as these licensees will have the benefit of our own foam technology along with their greater resources, experience and brand recognition, extensive marketing channels and other capabilities, and possibly the advantage of entering the market before us.

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

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

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

Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement that results from federal legislation or regulation may also result in a similar reduction in payments from private payors, as private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, or the Affordable Care Act, a law intended, among other things, to broaden access to health insurance and reduce or constrain the growth of healthcare spending. The Affordable Care Act increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% of AMP. The Affordable Care Act and subsequent legislation also narrowed the definition of AMP.

Furthermore, the Affordable Care Act imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective. Although it is too early to determine the effect of the Affordable Care Act, it appears likely to continue to put pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. More recently, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, creates the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which started in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

If we ever obtain regulatory approval and commercialization of FMX101, FMX102 or any of our other product candidates, these new laws may result in additional reductions in healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of FMX101, FMX102 or our other product candidates may be.

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

It will be difficult for us to profitably sell FMX101, FMX102 or our other product candidates if reimbursement for these products is limited by government authorities and third-party payor policies.

In addition to any healthcare reform measures which may affect reimbursement, market acceptance and sales of FMX101, FMX102 and our other product candidates, if approved, will depend on the reimbursement policies of government authorities and third-party payors. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for FMX101 or FMX102 or, if reimbursement is available, the level of reimbursement.

Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. In addition, third-party payors are likely to impose strict requirements for reimbursement in order to limit off-label use of a higher priced drug. Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product is:

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 coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for FMX101, FMX102 or any of our other product candidates, if approved. Also, we cannot be sure

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that reimbursement amounts will not reduce the demand for, or the price of, our future products. If reimbursement is not available, or is available only to limited levels, we may not be able to commercialize FMX101, FMX102 or our other product candidates, profitably or at all, even if approved.

Legislative or regulatory healthcare reforms in the U.S. may make it more difficult and costly for us to obtain regulatory clearance or approval of FMX101, FMX102 or any of our other product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of FMX101, FMX102 or any of our other product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

changes to manufacturing methods;
recall, replacement, or discontinuance of one or more of our products; and
additional recordkeeping.

Each of these would likely entail substantial time and cost and could materially harm our business and our financial results.

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

In the future, we may acquire and in-license additional product candidates and technologies. Any product candidate or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA and applicable foreign regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate, or product developed based on in-licensed technology, will not be shown to be sufficiently safe and effective for approval by regulatory authorities. If intellectual property related to product candidates or technologies we in-license is not adequate, we may not be able to commercialize the affected products even after expending resources on their development. In addition, we may not be able to manufacture economically or successfully commercialize any product candidate that we develop based on acquired or in-licensed technology that is granted regulatory approval, and such products may not gain wide acceptance or be competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may not succeed.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our lead product candidates FMX101 and FMX102. As of June 30, 2014, we had capital resources consisting of cash, cash equivalents and investments in marketable securities of $10.5 million. In the second quarter of 2014, we raised approximately $8.3 million from a group of investors and existing shareholders in an equity financing round that closed in two phases, the first on May 13, 2014 and the second on June 3, 2014, comprising $6.6 million and $1.7 million, respectively.

We believe that we will continue to expend substantial resources for the foreseeable future for the clinical development of FMX101, FMX102, FDX104 and the development of other indications and product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of FMX101, FMX102, FDX104 and any of our other product candidates.

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We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will allow us to fund our operating expenses and capital expenditure requirements throughout the Phase III clinical trials for our lead product candidates, FMX101 and FMX102, which we expect to complete by 2017. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to shareholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

the results of our Phase III clinical trials for FMX101 and FMX102;
the timing of, and the costs involved in, obtaining regulatory approvals for FMX101, FMX102 or any of our other product candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the scope, progress, results and costs of researching and developing FMX101, FMX102, FDX104 or any of our other product candidates, and conducting preclinical and clinical trials;
the cost of commercialization activities if FMX101, FMX102, FDX104 or any of our other product candidates are approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing FMX101, FMX102, FDX104 or any of our other product candidates and any products we successfully commercialize and maintaining our related facilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements;
the degree and rate of market acceptance of any future approved products;
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments;
any product liability or other lawsuits related to our products;
the expenses needed to attract and retain skilled personnel;
the costs associated with being a public company;
the costs associated with evaluation of our product candidates;
the costs associated with evaluation of third party intellectual property;
the costs associated with obtaining and maintaining licenses;
the costs associated with obtaining, protecting and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, litigation costs and the outcome of such litigation; and
the timing, receipt and amount of sales of, or royalties on, future approved products, if any.

Additional capital may not be available when we need them, on terms that are acceptable to us or at all. If adequate funds are not available to us on a timely basis, we may be required to:

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for FMX101, FMX102, FDX104 or any of our other product candidates;
delay, limit, reduce or terminate our research and development activities; or
delay, limit, reduce or terminate our establishment of manufacturing, sales and marketing or distribution capabilities or other activities that may be necessary to commercialize FMX101, FMX102, FDX104 or any of our other product candidates.

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If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing shareholders will be diluted and the terms of any new equity securities may have a preference over our ordinary shares. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures or specified financial ratios, any of which could restrict our ability to commercialize our product candidates or operate as a business.

We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. We have only two product candidates that have completed any clinical trials and have no sales, which, together with our limited operating history, make it difficult to assess our future commercial viability.

We are a small clinical-stage specialty pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are not profitable and have incurred losses in each year since we commenced operations in 2003. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry.

To date, we have not obtained any regulatory approvals for any of our product candidates or generated any revenues from product sales relating to FMX101, FMX102 or any of our other product candidates. We have generated revenues only from service payments and contingent payments paid toward or in the course of projects carried out under several of our development and license agreements with various pharmaceutical companies.

We continue to incur significant research and development and other expenses related to our ongoing clinical trials and operations. We have recorded a net loss of $3.5 million for the six months ended June 30, 2014 and $2.4 million and $2.2 million for the years ended December 31, 2013 and 2012, respectively, had an accumulated deficit through June 30, 2014 of $21.7 million and had a working capital surplus of $9.6 million as of June 30, 2014. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, and seek regulatory approvals for, FMX101, FMX102 and several of our other product candidates, and begin to commercialize FMX101 and FMX102.

Our ability to achieve revenues and profitability is dependent on our ability to complete the development of our product candidates, obtain necessary regulatory approvals and successfully manufacture, market and commercialize our products. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, may adversely affect the market price of our ordinary shares and our ability to raise capital and continue operations.

We currently contract with third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101 and FMX102 for clinical trials and expect to continue to do so to support commercial scale production if FMX101 or FMX102 is approved. This increases the risk that we will not have sufficient quantities of FMX101 or FMX102 or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We currently rely on third party subcontractors and suppliers for certain compounds and components necessary to produce FMX101 and FMX102 for our clinical trials, including minocycline, doxycycline and other active ingredients, excipients used in the formulation of the foam, delivery apparatus comprising canisters, valves and propellants. We expect to continue to rely on these or other subcontractors and suppliers to support our commercial requirements if FMX101, FMX102 or any our other product candidates is approved for marketing by the FDA or foreign regulatory authorities.

Reliance on third party subcontractors and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing or supply agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third party subcontractors and suppliers may not be able to comply with cGMP or quality system regulation, or QSR, or similar regulatory requirements outside the U.S. If any of these risks

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transpire, we may be unable to timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disrupt and delay our clinical trials or the manufacture and commercial sale of our product candidates, if approved.

Our failure or the failure of our third party subcontractors and suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of FMX101, FMX102 or any of our other product candidates that we may develop. Any failure or refusal to supply or any interruption in supply of the components for FMX101, FMX102 or any other product candidates or products that we may develop could delay, prevent or impair our clinical development or commercialization efforts.

We will rely on third parties and consultants to assist us in conducting our Phase III clinical trials for FMX101 and FMX102 and studies and clinical trials for our other product candidates. If these third parties or consultants will not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize FMX101, FMX102 or any of our other product candidates.

We do not have the ability to independently perform all aspects of our preclinical studies and clinical trials. We will rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to assist us in conducting our Phase III clinical trials for FMX101 and FMX102 and studies and clinical trials for our other product candidates. The third parties with whom we intend to contract for execution of our clinical trials will play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties will not be our employees, and except for contractual duties and obligations, we will have limited ability to control the amount or timing of resources that they devote to our programs.

Although we will rely on these third parties to conduct certain aspects of our Phase III clinical trials and other studies and clinical trials, we will remain responsible for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities will require us to comply with regulations and standards, commonly referred to as current good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. We will also rely on our consultants to assist us in the execution, including data collection and analysis of our clinical trials.

In addition, the execution of clinical trials and preclinical studies, and the subsequent compilation and analysis of the data produced, will require coordination among these various third parties. In order for these functions to be carried out effectively and efficiently, it will be imperative that these parties communicate and coordinate with one another, which may prove difficult to achieve. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. Our agreement with these third parties may inevitably enable them to terminate such agreements upon reasonable prior written notice under certain circumstances.

If the third parties or consultants that will assist us in conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain, or may be delayed in obtaining, regulatory approval for the product candidates being tested in such trials, and will not be able to, or may be delayed in our efforts to, successfully commercialize these product candidates.

We have no experience manufacturing our product candidates at full commercial scale. If our product candidates are approved, we intend to outsource our manufacturing to third parties, and will face certain risks associated with such outsourcing.

We have developed a small-scale integrated research, development and testing facility located at our corporate headquarters in Rehovot, Israel. However, we have not equipped our facility with manufacturing capabilities, and do not currently plan to do so. We do not have experience in manufacturing our product candidates at commercial scale, and if our product candidates are approved, we intend to outsource all or a significant portion of the manufacturing

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of our products to third parties, including our drug substances and finished dose forms. Reliance on third parties to manufacture our products entails various risks, including the possibility of increased costs associated with the large- scale production of our products. These risks are similar to those involved in our current use of subcontractors and suppliers for certain compounds and components necessary to produce FMX101 and FMX102 for their clinical trials, as explained above.

If we are unsuccessful in outsourcing our manufacturing to third parties who are compliant with regulatory requirements, we may encounter delays or additional costs in achieving our commercialization objectives, which could materially damage our business and financial position.

We currently have limited marketing capabilities and no sales organization. If we are unable to establish sales and marketing capabilities on our own or through third parties, we will be unable to successfully commercialize FMX101, FMX102 or any other of our other product candidates, if approved, or generate product revenues.

We currently have limited marketing capabilities and no sales organization. To commercialize FMX101, FMX102 or any other of our other product candidates, if approved, in the U.S. and other jurisdictions we may seek to enter, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If FMX101 or FMX102 receive regulatory approval, we expect to market FMX101 or FMX102 in the U.S. through a specialized internal sales force or a combination of our internal sales force and distributors, which will be expensive and time consuming.

There are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our product candidates.

We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize FMX101, FMX102 or any of our other product candidates.

If we are not successful in commercializing FMX101, FMX102 or any of our other product candidates, either on our own or through collaborations with one or more third parties, our revenues will suffer and we would incur significant additional losses.

To establish our sales and marketing infrastructure and manufacturing capabilities, we will need to increase the size of our organization, and we may experience difficulties in managing this expansion.

As of June 30, 2014, we had 24 full-time employees. We will need to continue to expand our managerial, operational, finance and other resources to manage our operations and clinical trials, continue our development activities and commercialize FMX101, FMX102 or any other product candidates, if approved. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our expansion strategy requires that we:

manage our clinical trials effectively;
identify, recruit, retain, incentivize and integrate additional employees;
manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and
continue to improve our operational, financial and management controls, reporting systems and procedures.

Due to our limited financial resources and our limited experience in managing a company with such anticipated expansion, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage expansion could delay the execution of our development and strategic objectives, or disrupt our operations.

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We currently develop our clinical drug products exclusively in one research and development facility and may utilize this facility in the future to support commercial production if our product candidates are approved. If this or any future facility or our equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any other reason, our ability to continue to operate our business would be materially harmed.

We currently research and develop both FMX101, FMX102 and our other product candidates exclusively in a single laboratory located in Rehovot, Israel.

If this or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due to war, acts of hostility, earthquakes, fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages or otherwise, or if performance of our research and development facility is disrupted for any other reason, such an event could delay our clinical trials or, if our product candidates are approved and we choose to manufacture all or any part of them internally, jeopardize our ability to manufacture our products as promptly as our prospective customers will likely expect, or possibly at all. If we experience delays in achieving our development objectives, or if we are unable to manufacture an approved product within a timeframe that meets our prospective customers’ expectations, our business, prospects, financial results and reputation could be materially harmed.

Currently, we maintain insurance coverage totaling $0.3 million against damage to our property and equipment and $5.8 million in workers compensation coverage, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any of our other products we develop.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for FMX101, FMX102 or any of our other product candidates or products we develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants or cancellation of clinical trials;
costs to defend the related litigation, which may be only partially recoverable even in the event of successful defense;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenues; and
the inability to commercialize any products we develop.

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of FMX101, FMX102 or any other product we may develop. We currently carry general third party liability insurance up to an amount of $0.3 million per annum. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations

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or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing FMX101 and FMX102, we intend to expand our insurance coverage to include the sale of FMX101 and FMX102; however, we may be unable to obtain this liability insurance on commercially reasonable terms.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop FMX101, FMX102 or any of our other product candidates, conduct our clinical trials and commercialize FMX101, FMX102 or any of our other products we develop.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of our senior management, particularly our Chief Executive Officer, as well as our senior scientists. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of FMX101, FMX102 or any of our other product candidates.

Although we have not historically experienced unique difficulties in attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the pharmaceutical field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

We will incur significant increased costs as a result of operating as a public company in the U.S., and our management will be required to devote substantial time to new compliance initiatives.

As a public company in the U.S., we will be subject to an extensive regulatory regime, requiring us to maintain various internal controls and facilities and to prepare and file periodic and current reports and statements, including reports on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. Complying with these requirements will be costly and time consuming. We will need to retain additional employees to supplement our current finance staff, and we may not be able to do so in a timely manner, or at all. In the event that we are unable to demonstrate compliance with our obligations as a public company in the U.S. in a timely manner, or are unable to produce timely or accurate financial statements, we may be subject to sanctions or investigations by regulatory authorities, such as the U.S. Securities and Exchange Commission, or the SEC, or the NASDAQ Global Market, and investors may lose confidence in our operating results and the price of our ordinary shares could decline.

Our independent registered public accounting firm was not engaged to perform an audit of our internal control over financial reporting, and as long as we remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we will be exempt from the requirement to have an independent registered public accounting firm perform such audit. Accordingly, no such opinion was expressed. Once we cease to qualify as an “emerging growth company,” our independent registered public accounting firm will need to attest to our management’s annual assessment of the effectiveness of our internal controls over financial reporting, which will entail additional costs and expenses.

We have identified a material weakness in our internal control over financial reporting, which resulted in the restatement of our financial statements. We may also fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002. This may result in a further deficiency in our internal controls over financial reporting, as well as sanctions or other penalties that would harm our business.

We have identified a material weakness over our financial reporting as of December 31, 2013. As defined in Regulation 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected on a timely basis. Specifically, we determined that we do not have sufficient qualified staff to provide for effective control over a number of aspects of our accounting and financial reporting process under U.S. GAAP, as described below.

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This material weakness led to several errors in the presentation of our financial results for the years 2013 and 2012 under U.S. GAAP. More specifically, we detected errors in the accounting of our convertible loans and in the classification of patent registration expenses, as further described in Note 2s to our audited financial statements included elsewhere in this prospectus. These errors resulted in us restating our financial statements for the twelve months ended December 31, 2013 and 2012 with respect to long term liabilities, total shareholders’ capital deficiency, research and development expenses, selling, general and administrative expenses, finance expenses and loss for the period.

We have taken action toward remediating this material weakness by retaining as additional advisors an international public accounting firm with specific expertise in U.S. GAAP and SEC rules and regulations, to assist us in the preparation and review of our financial statements. We are further seeking to hire additional qualified personnel with U.S. GAAP accounting and reporting experience, and intend to provide enhanced training to existing financial and accounting employees on related U.S. GAAP issues. However, the implementation of these initiatives may not fully address any material weakness or other deficiencies that we may have in our internal control over financial reporting.

Furthermore, we are only in the early stages of determining formally whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any other material weaknesses or significant deficiencies in our existing internal controls. These controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Even if we develop effective controls over financial reporting, these controls may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures may deteriorate, and material weaknesses and deficiencies may be discovered in them. In any event, the process of determining whether our existing internal controls are compliant with Section 404 and sufficiently effective will require the investment of substantial time and resources, including by our chief financial officer and other members of our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this process and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination of whether or not our internal controls are sufficient and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. We may also fail to complete our evaluation, testing and any required remediation needed to comply with Section 404 in a timely fashion.

Irrespective of compliance with Section 404, any additional failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting or results of operations and could result in an adverse opinion on internal controls from our independent auditors.

Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or stock exchanges, and we could lose investor confidence in the accuracy and completeness of our financial reports, which could hurt our business, the price of our ordinary shares and our ability to access the capital markets.

Our business involves the use of hazardous materials and we and our third party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third party subcontractors’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including minocycline and doxycycline, key components of our product candidates, and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. We are licensed by the Israeli Ministry of Health to manufacture small batches of product in topical dose form for Phase I and II clinical trials. In some cases, these hazardous materials are stored at our and our subcontractors’ facilities pending their use and disposal.

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Despite our efforts, we cannot eliminate the risk of contamination. This could cause an interruption of our commercialization efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our subcontractors and suppliers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and interrupt our business operations.

Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance.

We may in the future be subject to various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.

While we do not expect that FMX101 and FMX102, if approved for the treatment of moderate-to-severe acne and impetigo, will subject us to the various U.S. federal and state laws intended to prevent health care fraud and abuse, we may in the future become subject to such laws. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.

The federal False Claims Act, or FCA, imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate anti-kickback or related laws, including the FCA, then our revenues could be adversely affected, which would likely harm our business, financial condition, and results of operations.

State and federal authorities have aggressively targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Although we believe the market for acne and impetigo therapies is less vulnerable to unfavorable economic conditions due to the significant discomfort and distress they inflict, our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. We currently have very limited visibility regarding the prospects of FMX101, FMX102 or our other product candidates becoming eligible for

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reimbursement by any government or third party payor and the possible scope of such reimbursement, and we must assume that demand for these product candidates may be tied to discretionary spending levels of our targeted patient population.

The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for FMX101, FMX102 or any of our other product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services.

Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Exchange rate fluctuations between the U.S. dollar and the Israeli shekel may negatively affect our earnings.

The dollar is our functional and reporting currency. However, a significant portion of our operating expenses are incurred in Israeli shekels. As a result, we are exposed to the risks that the shekel may appreciate relative to the dollar, or, if the shekel instead devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in Israel would increase and our dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the shekel against the dollar. For example, although the dollar appreciated against the shekel in 2011, the rate of devaluation of the dollar against the shekel was 2.7% and 6.5% in 2012 and 2013, respectively, which was compounded by inflation in Israel at a rate of 1.6% and 1.8%, respectively. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future.

Risks Related to Our Intellectual Property

If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to FMX101, FMX102 or any of our other product candidates are not adequate, we may not be able to compete effectively and we otherwise may be harmed.

Our commercial success depends in part on our ability to obtain and maintain patent protection and utilize trade secret protection for our intellectual property and proprietary technologies, our products and their uses, as well as our ability to operate without infringing upon the proprietary rights of others. We rely upon a combination of patents, trade secret protection and confidentiality agreements, assignment of invention agreements and other contractual arrangements to protect the intellectual property related to FMX101, FMX102 and our other development programs. Limitations on the scope of our intellectual property rights may limit our ability to prevent third parties from designing around such rights and competing against us. For example, our patents do not claim a new compound. Rather, the active pharmaceutical ingredients of our products are existing compounds and our granted patents and pending patent applications are directed to, among other things, novel formulations of these existing compounds that are dispensed as a foam. Accordingly, other parties may compete with us, for example, by independently developing or obtaining competing topical formulations that design around our patent claims, but which may contain the same active ingredients, or by seeking to invalidate our patents. Moreover any disclosure to or misappropriation by third parties of our confidential proprietary information, unless we have sufficient patent and/or trade secret protection and we are able to enforce such rights successfully, could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in our market.

We currently have only one granted patent related to FMX101, FMX102 and FDX104 in the U.S., which is expected to remain in effect until 2030. This patent relates to a composition of matter comprising a claim to a formulation of a tetracycline antibiotic which can include minocycline or doxycycline, and therefore may be less protective than patents which claim a new drug. We also have patent applications claiming compositions of matter which relate to FMX101, FMX102 and FDX104 pending in various global markets including the U.S., Australia, Brazil, Canada, China, the European Union, India, Israel and Mexico. As of August 31, 2014, we had 70 granted patents and 114 patent applications worldwide covering our foam-based platforms and other technology.

However, the patent applications that we own or license may fail to result in granted patents in the U.S. or foreign jurisdictions, or if granted may fail to prevent a potential infringer from marketing its product or be deemed

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invalid and unenforceable by a court. Competitors in the field of topically-administered therapies comprising an active ingredient in foam presentation have created a substantial amount of scientific publications, patents and patent applications and other materials relating to their technologies. Our ability to obtain and maintain valid and enforceable patents depends on various factors, including interpretation of our technology and the prior art and whether the differences between them allow our technology to be patentable. Patent applications and patents granted from them are complex, lengthy and highly technical documents that are often prepared under very limited time constraints and may not be free from errors that make their interpretation uncertain. The existence of errors in a patent may have a materially adverse effect on the patent, its scope and its enforceability. Our pending patent applications may not issue, and the scope of the claims of patent applications that do issue may be too narrow to adequately protect our competitive advantage. Also, our granted patents may be subject to challenges or narrowly construed and may not provide adequate protection.

Even if these patents do successfully issue, third parties may challenge the validity, enforceability or scope of such granted patents or any other granted patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within 9 months from the publication of their grant. Also, patents granted by the U.S. Patent and Trademark Office, or USPTO, may be subject to reexamination and other challenges. In addition, recent changes to the patent laws of the U.S. provide additional procedures for third parties to challenge the validity of patents issuing from patent applications filed after March 15, 2013. Furthermore, efforts to enforce our patents could give rise to challenges to their validity or unenforceability in court proceedings. If the patents and patent applications we hold or pursue with respect to FMX101, FMX102 or any of our other product candidates are challenged, it could threaten our competitive advantage for FMX101, FMX102 or any of our other product candidates. Furthermore, even if they are not challenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. To meet such challenges, which are part of the risks and uncertainties of developing and marketing product candidates, we may need to evaluate third party intellectual property rights and, if appropriate, to seek licenses for such third party intellectual property or to challenge such third party intellectual property, which may be costly and may or may not be successful, which could also have a material adverse effect on the commercial potential for FMX101, FMX102 and any of our other product candidates.

Further, if we encounter delays in our clinical trials, the period of time during which we could market FMX101, FMX102 or any of our other product candidates under patent protection could be reduced. Since patent applications in the U.S. and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to FMX101, FMX102 or any of our other product candidates or (ii) conceive and invent any of the inventions claimed in our patents or patent applications.

Furthermore, for applications filed before March 16, 2013, or patents issuing from such applications, an interference proceeding can be invoked by a third party, or instituted by USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications and patents. As of March 16, 2013, the U.S. transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO under the new first-to-file system before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party.

The change to “first-to-file” from “first-to-invent” is one of the changes to the patent laws of the U.S. resulting from the Leahy-Smith America Invents Act signed into law on September 16, 2011. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. Because of a lower evidentiary standard in certain USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Even where patent, trade secret and other intellectual property laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against

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our competitors could provoke them to bring counterclaims against us, and our competitors have intellectual property portfolios of their own, some of which are substantial. An unfavorable outcome could have a material adverse effect on our business and could result in the challenged patent being interpreted narrowly or invalidated, or one or more of our patent applications may be not be granted.

We also rely on trade secret protection and confidentiality agreements to protect our know how, data and information prior to filing patent applications and during the period before they are published. We further rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain or enforce and other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents.

In an effort to protect our trade secrets and other confidential information, we incorporate confidentiality provisions in all our employees’ agreements and require our consultants, contractors and licensees to which we disclose such information to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that confidential information, as defined in the agreement and disclosed to the individual by us during the course of the individual’s relationship with us, be kept confidential and not disclosed to third parties for an agreed term. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could significantly affect our competitive position and we could lose our trade secrets or they could become otherwise known or be independently discovered by our competitors. Also, to the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Additionally, others may independently develop the same or substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and other confidential information. Any of the foregoing could deteriorate our competitive advantages, undermine the trade secret and contractual protections afforded to our confidential information and have material adverse effects on our business.

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

As is the case with other companies in the markets in which we participate, our success is heavily dependent on intellectual property, particularly patents. The strength of patents in the pharmaceutical field involves complex legal and scientific questions and in the U.S. and many foreign jurisdictions patent policy also continues to evolve and the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of granted patents, or both. Particularly in recent years in the U.S., there have been several major legislative developments and court decisions that have affected patent laws in significant ways and there may be more developments in the future that may weaken or undermine our ability to obtain new patents or to enforce our existing and future patents.

We have agreed to share ownership in certain patents that may result from our development and license agreements with certain major pharmaceutical companies, which may detract from our rights to such patents.

We have agreed with several of the pharmaceutical companies with whom we are developing certain topical products, based on our foam technology and the licensees’ active ingredients, to jointly own and have an undivided interest in patents that arise from the relevant projects, where the licensee made its own material contributions to the invention. In certain agreements, we have further agreed that inventions achieved exclusively or primarily by the licensees in the course of the development without significant contribution by us will be owned solely by them, and they will be allowed to file patent applications covering such inventions without our participation.

We have further granted certain licensees the primary right to enforce several of our existing patents, which we have licensed to these licensees to allow them to commercialize our jointly-developed product, in the event that any infringement of the licensed patents adversely affects the licensees’ ability to utilize the licenses for the purpose they were granted. Such rights may detract from our rights and title to such patents. In addition, any negative proceedings against our technology could impact any or all of our licensees, and we may be contractually responsible for the payment of certain claims and losses as a result of such impact.

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We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. The Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Israeli Patent Law, 5727-1967, has previously held that employees may be entitled to remuneration for intellectual property that they develop during their service for a company despite their explicit waiver of such right. In a recent decision, the Committee overturned its position and upheld that an employee’s waiver of his right to remuneration is valid and binding, but the Committee’s inconsistency raises doubt as to the outcome in different sets of circumstances. Furthermore, the plaintiff in this last case recently filed a petition with the Israeli Supreme Court requesting to remand the case to the Committee for a second review. The petition asserts that the Committee acted outside its administrative authority by considering the waiver and its effect, while its purview was limited to determining the compensation due to an employee for inventions shown to have been developed by him. The motion is pending the reply of the Committee and of the respondent (the employer), to be provided within 90 days. While the Committee’s last decision remains valid at this time, and while the scope of judicial review over the Committee’s decisions by the Supreme Court seems limited, the Committee's authority to pass judgment on the enforceability of employees' waivers may be in doubt. Therefore, although we enter into agreements with our employees pursuant to which they waive their right to special remuneration for inventions created in the scope of their employment or engagement and agree that any such inventions are owned exclusively by us, we may face claims by employees demanding remuneration beyond their regular salary and benefits.

If we infringe or are alleged to infringe or otherwise violate intellectual property rights of third parties, our business could be harmed.

Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. Competitors in the field of prescription topical drugs for the treatment of acne, impetigo and other indications have developed large portfolios of patents and patent applications relating to our business. In particular, there are patents held by third parties that relate to the treatment with minocycline-based and doxycycline-based products for indications we are currently pursuing with our product candidates, namely FMX101, FMX102 and FDX104. There may be granted patents that could be asserted against us in relation to such product candidates. There may also be granted patents held by third parties that may be infringed or otherwise violated by our other product candidates and activities, and we do not know whether or to what extent we are infringing or otherwise violating third party patents. There may also be third party patent applications that if approved and granted as patents may be asserted against us in relation to FMX101, FMX102, FDX104 or any of our other product candidates or activities. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages and legal fees. Further, if a patent infringement suit were brought against us, we could be temporarily or permanently enjoined or otherwise forced to stop or delay research, development, manufacturing or sales of the product candidate that is the subject of the suit.

As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future activities. Ultimately, we or a licensee could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

There has been and there currently is substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation, re-examination or other post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or of our other products. The cost to us of any patent litigation or other 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 than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant

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management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings and their outcome could impair our ability to compete in the marketplace and impose a substantial financial burden on us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

Furthermore, several of our employees were previously employed at universities or other pharmaceutical companies, including potential competitors. While we take steps to prevent our employees from using the proprietary information or know-how of others that is not in the public domain or that has not already been independently developed by us earlier, we may be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims successfully, in addition to paying monetary damages and possible ongoing royalties, we may lose valuable intellectual property rights or personnel.

If we are unable to protect our trademarks from infringement, our business prospects may be harmed.

We own trademarks that identify “Foamix,” and have registered these trademarks in the U.S. and Israel. Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks could harm our reputation or commercial interests. In addition, our enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and the outcome may be an inadequate remedy.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time consuming.

Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third party infringement or unauthorized use. This can be expensive and burdensome, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied.

An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference, derivation or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or licensees. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or licensees, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the U.S.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our ordinary shares could be significantly harmed.

We may not obtain intellectual property rights or otherwise be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. We primarily file patent applications in the U.S., and may file in some other selected jurisdictions on a case-by-case basis. As a result, our intellectual property rights in countries outside the U.S. are generally less extensive than those in the U.S. In addition, the laws of some foreign countries, particularly of certain developing countries, do not protect intellectual property rights to the same extent as federal and state laws in the

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U.S., and these countries may limit the scope of what can be claimed, and in some cases may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Moreover, competitors or others may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Further, third parties may prevail in their claims against us, which could potentially result in the award of injunctions or substantial damages against us. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws.

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

We generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us.

For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property.

Risks Related to an Investment in Our Ordinary Shares

An active, liquid and orderly trading market for our ordinary shares may not develop, which may inhibit the ability of our shareholders to sell ordinary shares following this offering.

Prior to this offering there has been no public market for our ordinary shares. An active, liquid or orderly trading market in our ordinary shares may not develop upon completion of this offering, or if it does develop, it may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares as consideration.

The market price of our ordinary shares may be subject to fluctuation and you could lose all or part of your investment.

The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The price of our ordinary shares may decline following this offering. The stock market in general has been, and the market price of our ordinary shares in particular will likely be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. The market price of our ordinary shares on the NASDAQ Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to:

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actual or anticipated variations in our and our competitors’ results of operations and financial condition;
market acceptance of our products;
the mix of products that we sell and related services that we provide;
the success or failure of our licensees to develop, obtain approval for and commercialize our licensed products, for which we are entitled to contingent payments and royalties;
changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts;
development of technological innovations or new competitive products by others;
announcements of technological innovations or new products by us;
publication of the results of preclinical or clinical trials for FMX101, FMX102 or our other product candidates;
failure by us to achieve a publicly announced milestone;
delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products;
developments concerning intellectual property rights, including our involvement in litigation brought by or against us;
regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products;
changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses;
changes in our expenditures to promote our products;
our sale or proposed sale, or the sale by our significant shareholders, of our ordinary shares or other securities in the future;
changes in key personnel;
success or failure of our research and development projects or those of our competitors;
the trading volume of our ordinary shares; and
general economic and 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 being incurred by our investors. In the past, following periods of market volatility, public company shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.

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

The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business, if at all. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our ordinary shares could decline if no research reports are published about us or our business, or if one or more equity research analysts downgrades our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Future sales of our ordinary shares could reduce the market price of our ordinary shares.

If our existing shareholders, particularly our directors, their affiliates, or our executive officers, sell a substantial number of our ordinary shares in the public market, the market price of our ordinary shares could decrease

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significantly. The perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our ordinary shares and could impair our future ability to obtain capital, especially through an offering of equity securities.

Substantially all of our shares outstanding prior to this offering and our shares issuable upon the exercise of warrants and vested options are subject to lock-up agreements with the underwriters that restrict the ability of their holders to transfer such shares for 180 days after the date of this prospectus. Consequently, upon expiration of the lock-up agreements and subject to our compliance with public reporting requirements, approximately 14,155,605 additional ordinary shares, including 1,527,978 ordinary shares issuable upon the exercise of our outstanding options and warrants, will be eligible for sale in the public market. We intend to file one or more registration statements on Form S-8 with the SEC covering all of the ordinary shares issuable under our share option plan and such shares will be available for resale following the expiration of the restrictions on transfer.

After this offering, the holders of approximately 2,572,322 ordinary shares and of warrants to purchase an additional 1,968,894 ordinary shares will be entitled to registration rights. The market price of our ordinary shares may drop significantly when the restrictions on resale by our existing shareholders lapse and these shareholders are able to sell our ordinary shares into the market. In addition, our sale of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the share price of our ordinary shares. A decline in the price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares.

Investors in this offering will experience immediate substantial dilution in net tangible book value.

The initial public offering price of our ordinary shares in this offering is considerably greater than the net tangible book value per share of our outstanding ordinary shares immediately after this offering. Accordingly, investors in this offering will incur immediate dilution of $7.57 per share, based on an assumed initial public offering price of $11.00 per share, the midpoint of the estimated initial public offering price range shown on the cover of this prospectus. In addition, if outstanding options and warrants to purchase our ordinary shares are exercised in the future, you will experience additional dilution. See “Dilution.”

The significant share ownership position of affiliates of our co-founders, Dr. Dov Tamarkin and Meir Eini, may limit your ability to influence corporate matters.

After giving effect to this offering, Tamarkin Medical Innovations Ltd., a company beneficially owned by Dr. Dov Tamarkin, or Tamarkin, our co-founder and chief executive officer, will beneficially own or control, directly or indirectly, 14.8% of our outstanding ordinary shares (or 14.2% if the underwriters fully exercise their option to purchase additional ordinary shares), and Meir Eini Holdings Ltd., a company beneficially owned by Meir Eini, or Eini, our co-founder, chief operations officer and chairman of our board of directors, will beneficially own or control, directly or indirectly, 15.1% of our outstanding ordinary shares (or 14.4% if the underwriters fully exercise their option to purchase additional ordinary shares). Accordingly, Tamarkin and Eini will be able to significantly influence, though not independently determine, the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of our company. Tamarkin’s and Eini’s interests may not be consistent with those of our other shareholders. In addition, Tamarkin’s and Eini’s significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our ordinary shares.

We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively.

We currently intend to use the net proceeds we receive from this offering to conduct Phase III clinical trials and other pre-launch studies for FMX101 and FMX102, to conduct a Phase I/II clinical trial for FDX104, and to use the balance, if any, to conduct a Phase II clinical trial for FMX101 for the treatment of rosacea, for research and development of other pipeline products and for other general corporate purposes. However, our management will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.

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

We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares will be investors’ sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends, and may subject our dividends to Israeli withholding taxes.

As a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ requirements.

As a foreign private issuer, we will be permitted, and intend, to follow certain home country corporate governance practices instead of those otherwise required under the NASDAQ Stock Market for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to the (i) quorum requirement for shareholder meetings, and (ii) independent director oversight of director nominations requirement. See “Management—Corporate Governance Practices.”

We may in the future elect to follow home country practices in Israel (and consequently avoid the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Global Market) with regard to other matters as well, such as (i) the formation of a nominating and governance committee, (ii) separate executive sessions of independent directors and non-management directors and (iii) the requirement to obtain shareholder approval for certain dilutive events such as (a) for the establishment or amendment of certain equity-based compensation plans, (b) issuances that will result in a change of control of the company, (c) certain transactions other than a public offering involving issuances of a 20% or more interest in the company and (d) certain acquisitions of the stock or assets of another company.

Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ Global Market may provide less protection to you than what is accorded to investors under the NASDAQ Stock Market rules applicable to domestic U.S. issuers.

As a foreign private issuer, we will not be subject to U.S. proxy rules and will be exempt from filing certain Exchange Act reports.

As a foreign private issuer, we will be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, we will be permitted to disclose compensation information for our executive officers on an aggregate, rather than an individual, basis and we will generally be exempt from filing quarterly reports with the SEC under the Exchange Act. Moreover, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation to a U.S. domestic issuer.

We would lose our foreign private issuer status if a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with accepted governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various requirements that are applicable to other public companies that are not “emerging growth

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companies.” Most of such requirements relate to disclosures that we would only be required to make if we cease to be a foreign private issuer in the future. Nevertheless, as a foreign private issuer that is an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering.

We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.0 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of this offering; (iv) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (v) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.

When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. We cannot predict if investors will find our ordinary shares less attractive as a result of our reliance on exemptions under the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.

Our U.S. shareholders may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Our status as a PFIC may also depend on how quickly we use the cash proceeds from this offering in our business.

Based on certain estimates of our gross income and gross assets, our intended use of proceeds of this offering, and the nature of our business, we believe that we were not classified as a PFIC for the taxable year ended December 31, 2013, and will not be classified as a PFIC for the taxable year ending December 31, 2014. Because we currently hold, and expect to continue to hold, a substantial amount of cash and cash equivalents and other passive assets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares may result in our becoming a PFIC. Accordingly, we may be considered a PFIC for any taxable year.

If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders (as defined in “Taxation—U.S. Federal Income Tax Consequences”), and having interest charges apply to distributions by us and the proceeds of share sales. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as mark-to-market treatment) of our ordinary shares; however, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC. See “Taxation—U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Considerations.”

Risks Related to our Operations in Israel

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

Our headquarters, and research and development facilities are located in Rehovot, Israel. In addition, the majority of our key employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Since early July 2014, there has been a significant increase in hostilities between Hamas, an Islamist organization governing the Gaza Strip, and Israel, including missiles launched by Hamas from the Gaza Strip into Israel and airstrikes and ground operations conducted by Israel in the Gaza Strip. On July 21, 2014, all U.S. airlines and most major airlines of other nationalities suspended their flights to Israel’s Ben-Gurion International Airport for several days after a missile landed approximately 1.5 km away. Any hostilities involving Israel or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations.

Further, our operations could be disrupted by the obligations of personnel to perform military service. As of June 30, 2014, we had 21 employees based in Israel. Two of these employees are military reservists, and may be

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called upon to perform military reserve duty of up to 54 days in each three year period until they reach the age of 40. Our operations could be disrupted by the absence of these employees due to military service. Such disruption could materially adversely affect our business and operating results.

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

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

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

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

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

There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.

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

The rights and responsibilities of the holders of our ordinary shares are governed by our amended articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions

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requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company with regard to such vote or appointment.

There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. companies.

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FORWARD-LOOKING STATEMENTS; CAUTIONARY INFORMATION

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. These forward-looking 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. The statements we make regarding the following matters are forward-looking by their nature:

the timing and conduct of our trials of FMX101, FMX102 and our other pipeline product candidates, including statements regarding the timing, progress and results of current and future preclinical studies and clinical trials, and our research and development programs;
the clinical utility, potential advantages and timing or likelihood of regulatory filings and approvals of FMX101, FMX102 and our pipeline products;
our expectations regarding future growth, including our ability to develop, and obtain regulatory approvals for, new products;
our commercialization, marketing and manufacturing capabilities and strategy and the ability of our marketing team to effectively cover the relevant dermatological community;
our ability to obtain and maintain adequate intellectual property rights and adequately protect and enforce such rights;
our plans to develop and commercialize our pipeline products;
our estimates regarding expenses, future revenues, capital requirements and the need for additional financing;
our estimates regarding the market opportunity for FMX101, FMX102 and our pipeline products;
the impact of our research and development expenses as we continue developing product candidates;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;
the impact of government laws and regulations; and
our expectations regarding the use of proceeds from this offering.

The preceding list is not intended to be an exhaustive list of all of our 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, including those described in “Risk factors.”

You should not unduly rely on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results or to changes in our expectations.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $58.7 million, or $67.8 million if the underwriters exercise in full their option to purchase additional ordinary shares, based on an assumed initial public offering price of $11.00, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 would increase (decrease) the net proceeds that we receive from the offering by approximately $5.5 million, assuming that the number of ordinary shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses. Similarly, each increase (decrease) of 100,000 shares in the number of ordinary shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $1.0 million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses.

We currently intend to use the net proceeds we receive from this offering as follows:

approximately $20–$25 million to conduct Phase III clinical trials and other pre-launch studies, including any animal and human toxicology studies, for FMX101 for the treatment of moderate-to-severe acne;
approximately $10–$15 million to conduct Phase III clinical trials and other pre-launch studies, including any animal and human toxicology studies, for FMX102 for the treatment of impetigo;
up to $5 million to conduct a Phase I/II clinical trial for FDX104 for the treatment of chemotherapy-induced rashes; and
the balance, if any, to conduct a Phase II clinical trial for FMX101 for the treatment of rosacea, for research and development of other pipeline products and for other general corporate purposes.

While we cannot predict with certainty the cost of conducting our clinical trials, we anticipate that the application of the net proceeds of this offering in the manner described above will allow us to complete two Phase III clinical trials for FMX101 for moderate-to-severe acne, two Phase III clinical trials for FMX102 for impetigo and a Phase I/II clinical trial for FDX104 for the treatment of chemotherapy-induced rashes. In the event that the proceeds of this offering are insufficient to permit us to achieve these objectives, we intend to prioritize completing our Phase III clinical trials for FMX101 for the treatment of moderate-to-severe acne. See “Risk Factors—We may encounter delays in completing clinical trials for FMX101, FMX102 and our other product candidates and may even be prevented from commencing such trials due to factors that are largely beyond our control.”

Our management will have significant flexibility in applying the net proceeds. Pending the uses described above, we intend to invest the net proceeds in interest-bearing investment-grade securities or deposits.

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DIVIDEND POLICY

We have never declared or paid cash dividends to our shareholders and we do not intend to pay cash dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.

See “Risk Factors—Risks Related to an Investment in Our Ordinary Shares—We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future” and “Description of Share Capital—Dividend and Liquidation Rights” for an explanation concerning the payment of dividends under Israeli law.

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CAPITALIZATION

The following table presents our cash, cash equivalents and investments in marketable securities and capitalization as of June 30, 2014:

on an actual basis; and

on an as adjusted basis, to give further effect to (i) the issuance and sale of ordinary shares in this offering, at an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, and (ii) the payment by us of bonuses of $500,000 in the aggregate to certain of our employees upon completion of this offering, which is the maximum aggregate amount of bonuses we have agreed to pay.

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

Actual
As adjusted
As of June 30, 2014
Cash, cash equivalents and investments in marketable securities
$
10,494
 
$
68,704
 
Warrant liability
$
2,195
 
$
 
Shareholders’ equity (capital deficiency):
 
 
 
 
 
 
Preferred shares, NIS 0.16 par value: 6,250,000 shares authorized (actual) and zero shares authorized (as adjusted); 2,572,322 shares issued and outstanding (actual) and zero shares issued and outstanding (as adjusted)
 
13,438
 
 
 
Ordinary shares, NIS 0.16 par value: 18,750,000 shares authorized (actual) and 50,000,000 shares authorized (as adjusted); 11,408,486 shares issued and outstanding (actual) and 19,889,899 shares issued and outstanding (as adjusted)(1)
 
471
 
 
854
 
Additional paid in capital
 
15,006
 
 
88,466
 
Accumulated deficit
 
(21,702
)
 
(21,702
)
Accumulated other comprehensive income
 
30
 
 
30
 
Total shareholders’ equity (capital deficiency)
 
(6,195
)
 
67,648
 
Total capitalization
$
11,378
 
$
69,588
 

(1)On August 22, 2014, we effected a 1-for-16 reverse share split by means of consolidation of 16 ordinary shares then outstanding for 1 ordinary share. The number of outstanding shares has been adjusted to reflect this reverse share split.

The preceding table excludes (i) warrants to purchase 1,968,894 ordinary shares as of August 31, 2014 at an exercise price of $7.62 per share, and (ii) 1,635,694 ordinary shares reserved as of June 30, 2014 for issuance to employees, directors, consultants and other service providers, of which options to purchase 907,500 ordinary shares had been granted at a weighted average exercise price of $1.92 per share. Such number includes options to purchase up to 31,250 ordinary shares, which grant is contingent upon the closing of this offering and the amount of proceeds we receive from it. The number of outstanding shares presented in the table above includes 2,572,322 ordinary shares into which the 2,046,781 outstanding preferred shares will automatically convert immediately prior to our listing in connection with this offering. The warrants referred to above are currently for the purchase of preferred shares, but will automatically convert into ordinary shares immediately prior to our listing in connection with this offering, and we therefore consider such warrants to be for the purchase of ordinary shares for purpose of this prospectus. For purposes of calculating (i) the number of ordinary shares into which each preferred share will convert and (ii) the number of ordinary shares for which each warrant will be exercisable immediately prior to the consummation of this offering, we have assumed an initial public offering price of $11.00 per ordinary share, the midpoint of the range set forth on the cover page of this prospectus.

A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 would increase (decrease) the as adjusted amount of each of share premium, total shareholders’ equity and total capitalization by $5.5 million, assuming that the number of ordinary shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.

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DILUTION

If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per ordinary share after this offering. On an as adjusted basis, after giving effect to adjustments relating to this offering, our net tangible book value as of June 30, 2014 was $68.1 million, or $3.43 per ordinary share. As adjusted net tangible book value per ordinary share was calculated by:

subtracting our liabilities from our tangible assets;

increasing the tangible assets to reflect the net proceeds of this offering received by us as described under “Use of Proceeds”;

dividing the difference by the number of ordinary shares outstanding on an as adjusted basis.

The following table illustrates the immediate increase in our as adjusted net tangible book value of $2.75 per ordinary share and the immediate as adjusted dilution to new investors:

Assumed initial public offering price per ordinary share
 
 
 
$
11.00
 
Actual net tangible book value per ordinary share as of June 30, 2014*
$
0.68
 
 
 
 
Increase in net tangible book value per ordinary share attributable to the offering
 
2.75
 
 
 
 
As adjusted net tangible book value per ordinary share as of June 30, 2014 after giving effect to the offering
 
 
 
 
3.43
 
Dilution per ordinary share to new investors
 
 
 
$
7.57
 

*After giving effect to the conversion of preferred shares into ordinary shares and warrants to purchase preferred shares into warrants to purchase ordinary shares.

A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per ordinary share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the as adjusted net tangible book value after giving effect to this offering by $0.28 per ordinary share and the dilution per ordinary share to new investors in this offering by $0.72, assuming that the number of ordinary shares offered remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.

The table below summarizes, as of August 31, 2014, on the as adjusted basis described above, the differences between the number of ordinary shares purchased from us, the total consideration paid and the weighted average price per share paid by existing shareholders and by investors purchasing our ordinary shares in this offering at an assumed initial public offering price of $11.00 per ordinary share (the midpoint of the price range set forth on the cover page of this prospectus) before deducting underwriting discounts and commissions and estimated offering expenses.

Shares Purchased
Total Consideration
Average
Price per
Share
Number
%
Amount
%
Existing shareholders
 
13,980,808
 
 
70.3
%
 
24,200,000(1
)
 
27.1
%
$
1.70
 
New investors
 
5,909,091
 
 
29.7
 
 
65,000,000
 
 
72.9
 
 
11.00
 
Total
 
19,889,899
 
 
100.0
%
 
89,200,000
 
 
100.0
%
 
 
 

(1)Including amounts considered to have been paid on account of the warrants that were issued together with the preferred shares in the private placement that closed on May 13, 2014 and June 3, 2014.

The above discussion and tables are based on 13,980,808 ordinary shares issued and outstanding as of August 31, 2014, on an as adjusted basis as described above.

The discussion and table above assume no exercise of the underwriters’ option to purchase additional ordinary shares. If the underwriters exercise their option to purchase additional ordinary shares in full, the as adjusted number of our ordinary shares held by new investors will increase to 6,795,455, or approximately 32.7%, of the total as adjusted number of our ordinary shares outstanding after this offering.

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The preceding table excludes (i) warrants to purchase 1,968,894 ordinary shares as of August 31, 2014 at an exercise price of $7.62 per share, (ii) 1,635,694 ordinary shares reserved as of August 31, 2014 for issuance to employees, directors, consultants and other service providers, of which options to purchase 907,500 ordinary shares had been granted at a weighted average exercise price of $1.92 per share. Such number includes options to purchase up to 31,250 ordinary shares, which grant is contingent upon the closing of this offering and the amount of proceeds we receive from it. The warrants referred to above are currently for the purchase of preferred shares, but will automatically convert into warrants to purchase ordinary shares immediately prior to our listing in connection with this offering, and we therefore consider such warrants to be for the purchase of ordinary shares for purpose of this prospectus.

If all of such outstanding options and warrants were exercised, as adjusted net tangible book value per share would be $3.73, and dilution per ordinary share to new investors would be $7.27, the number of shares held by our existing shareholders would increase to 16,857,202, constituting 74.0% of our total issued shares (while new shareholders in this offering would only hold 26.0% of our issued shares), the total consideration amount paid by existing shareholders would increase to $41.0 million, or 38.7% of total consideration received by us for our shares (while the percentage of consideration paid by new shareholders in this offering would decrease to 61.3%) and the average price per share paid by our existing shareholders would instead be $2.40.

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SELECTED FINANCIAL DATA

The following tables set forth our selected financial data. You should read the following selected financial data in conjunction with, and it is qualified in its entirety by reference to our historical financial information and other information provided in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

The selected statements of operations data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2013 and 2012 are derived from our audited financial statements appearing elsewhere in this prospectus. The selected statements of operations data for the six months ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2014 are derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus. The unaudited condensed interim consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the financial information set forth in those statements. See Note 2s to our audited financial statements for a discussion of the restatement that we made to such financial statements. The historical results set forth below are not necessarily indicative of the results to be expected in future periods. Our financial statements have been prepared in accordance with U.S. GAAP, as issued by the FASB.

Year ended December 31,
Six months ended June 30,
2013
2012
2014
2013
(restated)
(in thousands, except per share data)
Statements of operations data:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,404
 
$
1,086
 
$
2,006
 
$
290
 
Cost of revenues(1)
 
453
 
 
491
 
 
293
 
 
257
 
Gross profit
 
951
 
 
595
 
 
1,713
 
 
33
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Research and development(1)
 
1,086
 
 
1,202
 
 
702
 
 
463
 
Selling, general and administrative(1)
 
1,221
 
 
953
 
 
867
 
 
993
 
Total operating expenses
 
2,307
 
 
2,155
 
 
1,569
 
 
1,456
 
Operating loss (income)
 
1,356
 
 
1,560
 
 
(144
)
 
1,423
 
Finance expenses, net
 
1,075
 
 
690
 
 
3,617
 
 
350
 
Loss for the period(1)
 
2,431
 
 
2,169
 
 
3,473
 
 
1,773
 
Loss per share basic and diluted(2)
$
0.22
 
$
0.20
 
$
0.30
 
$
0.16
 
Weighted average number of shares outstanding used in computation of basic and diluted loss per share
 
11,285
 
 
11,003
 
 
11,408
 
 
11,215
 
As of December 31,
As of June 30,
2013
2012
2014
(restated)
(in thousands)
Balance sheet data:
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and investment in marketable securities
$
2,308
 
$
950
 
$
10,494
 
Working capital(3)
 
1,144
 
 
836
 
 
9,597
 
Total assets
 
3,086
 
 
1,389
 
 
11,378
 
Total long-term liabilities
 
4,917
 
 
3,967
 
 
2,654
 
Total shareholders’ capital deficiency
 
(3,582
)
 
(2,941
)
 
(6,195
)

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

Year ended December 31,
Six months ended June 30,
2013
2012
2014
2013
(restated)
(in thousands)
Cost of revenues
$
16
 
$
23
 
$
16
 
$
12
 
Research and development expenses
 
59
 
 
83
 
 
64
 
 
26
 
Selling, general and administrative
 
430
 
 
249
 
 
64
 
 
369
 
Total share-based compensation expenses
$
505
 
$
355
 
$
144
 
$
407
 
(2)Basic and diluted earnings (loss) per ordinary share is computed based on the basic and diluted weighted average number of ordinary shares outstanding during each period.
(3)Working capital is defined as total current assets minus total current liabilities.

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

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 prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly those in the “Risk Factors.”

Overview

We are a clinical-stage specialty pharmaceutical company focused on developing and commercializing our proprietary minocycline foam for the treatment of acne, impetigo and other skin conditions. Our lead product candidates, FMX101 for moderate-to-severe acne and FMX102 for impetigo, are novel topical foam formulations of the antibiotic minocycline. We developed FMX101 and FMX102 using our proprietary technology, which includes our foam-based platforms. This technology enables us to formulate and stabilize a wide variety of drugs and deliver them directly to their target site. Our foam platforms have significant advantages over alternative delivery options and are suitable for multiple application sites, creating a potential pipeline of products across a range of conditions to drive future growth.

We have devoted extensive resources and efforts in the research and development of our proprietary technology upon which FMX101, FMX102 and our other product candidates are based. We have completed Phase II clinical trials for FMX101 and FMX102 that have shown favorable results in terms of efficacy, expediency, safety and convenience, and plan to commence pivotal Phase III clinical trials for both product candidates in 2015. We expect these trials to support a new drug application, or NDA, submission for each of these applications under the FDA’s 505(b)(2) regulatory pathway. However, we expect that it will be several years, if ever, before we have approval to commercialize FMX101 and FMX102 for the treatment of moderate-to-severe acne and impetigo in the U.S. and other international markets.

We have also entered into development and license agreements relating to our technology with various pharmaceutical companies such as Bayer, Merz and Actavis. These agreements generated approximately $14.7 million in revenues from service payments and contingent payments from our inception to June 30, 2014, and may entitle us to an additional aggregate amount of up to approximately $30 million in contingent payments if certain conditions are met. We are further entitled to royalties from net sales of the licensed products (or, in certain cases, from net profits generated by them) if they are approved for marketing by the relevant regulatory authorities and commercialized by the licensees.

We were founded in January 19, 2003 and have achieved a number of significant milestones since then:

From 2003 to 2013, we developed multiple foam technology platforms, including our emulsion-based foam, water-free ointment foam, hydrophilic foam, oil foam, hydro-ethanolic foam and nano-emulsion foam.
From 2003 to 2014, we filed many patent applications in the U.S., of which 31 have been granted as of August 31, 2014.
From 2007 to 2010, we developed a novel, stable foam formulation of minocycline, namely FMX101 and FMX102, for the treatment of acne and impetigo.
From 2010 to 2013, we conducted and completed two Phase II clinical trials for FMX101 and FMX102 in Israel.
From 2009 to 2014, we developed a novel, stable foam formulation of doxycycline, known as FDX104, for the treatment of chemotherapy-induced rashes.
From 2003 to 2013, we entered into a series of development and license agreements with various pharmaceutical companies for the development of products combining our proprietary foam technology with a drug selected by the licensee, which products are to be further developed and commercialized by the licensees.
In 2007 we received cGMP certification from the Israel Ministry of Health for our research and development facility in Rehovot, Israel, specifically for the production of small batches of supplies for our Phase I and Phase II clinical trials.

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To date, we have financed our operations primarily with the net proceeds from private placements of our shares and convertible notes, and from service payments and contingent payments received under our development and license agreements.

Since inception, we have incurred significant operating losses. Our operating income was $144,000 for the six months ended June 30, 2014 and we incurred operating losses of $1.4 million and $1.6 million for the years ended December 31, 2013 and 2012, respectively. As of June 30, 2014, we had an accumulated deficit of $21.7 million. We have not generated any revenues to date from sales of FMX101 or FMX102.

We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

initiate pivotal Phase III clinical trials for FMX101 and FMX102 to support NDA submissions to the FDA;
establish and expand our sales, marketing and distribution infrastructure to commercialize FMX101 and FMX102 and any other product candidates for which we may obtain marketing approval;
continue preclinical and clinical research and development of our product candidates, including FMX101 and FMX102;
seek marketing approvals for FMX101 and FMX102 and any other products in new territories;
maintain, expand and protect our intellectual property portfolio;
hire additional operational, marketing, sales, clinical, quality control and scientific personnel;
add operational, financial and management information systems and personnel, including personnel to support our product development, any future commercialization efforts and our transition to a public company;
acquire or in-license other products and technologies;
identify additional product candidates; and
evaluate third party intellectual property, for example to review additional candidates and for commercialization of our products.

Financial Operations Overview

Revenues

To date, we have not generated any revenues from sales of FMX101 or FMX102. We do not expect to commercially launch FMX101 or FMX102 or generate any revenues from sales before 2017, after completing their development and clinical testing, obtaining approvals for their marketing in the U.S. and conducting preliminary onsite training and hands-on demonstrations in selected dermatological clinics throughout the U.S. Our ability to generate revenues from sales will depend on the successful commercialization of FMX101 and FMX102.

As of June 30, 2014, we had generated cumulative revenues of approximately $14.7 million under development and license agreements, of which approximately $14.1 million was development service payments and approximately $0.6 million was contingent payments. We may become entitled to additional contingent payments in an aggregate amount of up to $30 million, subject to achievement of the applicable clinical results by our licencees, of which $16 million are sales-related contingent payments. In light of the current phase of development under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to royalties from net sales or net profits generated by the various products to be developed under these agreements, if they are successfully commercialized. In those development and license agreements in which royalties are based on net sales, their rate ranges from 3% to 8.5%, and in the agreement in which royalties are based on net profits, their rate is 6%.

Cost of Revenues

Cost of revenues includes costs and expenses we incur in supplying services to our licensees under our development and license agreements with them. These services include design and development of product prototypes, performance of in-vitro studies and other lab tests, compiling project reports and recommendations and

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carrying out other tasks related to such efforts. Our services to licensees do not include development work beyond the prototype stage, clinical trials or pursuit of regulatory approval, which are the responsibility and at the expense of each licensee.

Accordingly, our cost of revenues includes payroll and other payments on behalf of the employees and consultants assigned to these projects; laboratory services related to the studies we perform on behalf of the licensees; rent and office maintenance costs related to the use of our facilities and infrastructure, utilities and other overhead services in connection with the projects performed for the licensees.

The expenses that currently make up our cost of revenues are primarily fixed, as is evident from their moderate decrease from $491,000 for the twelve months ended December 31, 2012 to $453,000 for the twelve months ended December 31, 2013 and moderate increase from $257,000 for the six months ended June 30, 2013 to $293,000 for the six months ended June 30, 2014. As a result, our cost of revenues is not expected to vary substantially unless and until such time as we obtain regulatory approval for our lead product candidates and begin serial production of such products, whether internally or through third party manufacturers, at which point we expect our cost of revenues to grow along with the growth of our sales and inventory needs.

Cost of revenues as a percentage of revenues for the twelve months ended December 31, 2012 and December 31, 2013 were 45.2% and 32.2%, respectively. Since our costs of revenues are primarily fixed expenses, the 13.0% decrease in cost of revenues as a percentage of revenues resulted primarily from the increase of $318,000 in our revenues, which was driven primarily by our development service payments in 2013 and 2012.

Operating Expenses

Research and development expenses

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our pipeline products progress into clinical trials. The costs of obtaining and maintaining intellectual property protection and related activities including evaluations are accounted for as part of the research and development expenses and can be a substantial part of these expenses. However, we do not believe that it is possible at this time to accurately project total program-specific expenses to reach commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will affect our clinical development programs and plans.

Our research and development expenses relate primarily to the development of FMX101 and FMX102. From 2007 until June 30, 2014, we cumulatively spent approximately $7.6 million on research and development of FMX101 and FMX102. Our total research and development expenses for the six months ended June 30, 2014 and for the twelve months ended December 31, 2013 were $702,000 and $1.1 million, respectively. We charge all research and development expenses to operations as they are incurred. We expect research and development expenses to increase in absolute terms in the near term.

The successful development of FMX101 and FMX102 and additional product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our technology for additional indications. This uncertainty is due to numerous risks and variables associated with developing products, including the uncertainty of:

the scope, rate of progress and expense of our research and development activities;
preclinical results;
clinical trial results;
the terms and timing of regulatory approvals;
our ability to file, prosecute, obtain, maintain, defend and enforce patents and other intellectual property rights and the expense of filing, prosecuting, obtaining, maintaining, defending and enforcing patents and other intellectual property rights;

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the ability to market, commercialize and achieve market acceptance for FMX101, FMX102 or any other product candidate that we may develop in the future; and
our ability to evaluate, acquire or in-license intellectual property, if needed, to facilitate the commercialization of our products and technologies.

A change in the outcome of any of these variables with respect to the development of FMX101, FMX102 or our other product candidates could result in a significant change in the costs and timing associated with their development. For example, if the FDA or foreign regulatory authority were to require us to conduct preclinical studies and clinical trials beyond those which we currently anticipate for the completion of clinical development of our product candidates, or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.

Research and development expenses consist primarily of:

employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses;
expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials, preclinical studies;
expenses incurred to acquire, develop and manufacture clinical trial materials;
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs; and
costs associated with preclinical and clinical activities and regulatory operations.

We have managed to finance our research and development operations and expenses without the aid of government grants, other than a loan in the amount of approximately $450,000 received from the Israel-U.S. Bi-national Industrial Research and Development Foundation, or BIRD, in 2008. Accordingly, we are not subject to the provisions of the Law for Encouragement of Research and Development in Industry, 5744-1984, nor to any directives issued by the Israeli Office of the Chief Scientist.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist principally of:

employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses;
costs associated with market research and business development activities in preparation for future marketing and sales, including activities intended to select the most promising product candidates for further development and commercialization;
legal and professional fees for auditors and other consulting expenses not related to research and development activities or to market research or business development activities;
cost of offices, communication and office expenses;
information technology expenses;
depreciation of tangible fixed assets related to our general and administrative activities or to our market research and business development activities; and
costs associated with filing, prosecuting, obtaining and maintaining patents and other intellectual property.

As part of our growth strategy, we have begun building up our dedicated U.S. marketing and business development team and infrastructure, and we intend to further increase such U.S. infrastructure, as well as expand our marketing effort to new markets. We therefore expect selling and marketing expenses to increase in absolute terms and as a percentage of our revenues. We expect that our general and administrative expenses will also increase in the future as our business expands and we incur additional general and administrative costs associated with being a public company in the U.S., including compliance under the Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC. These public company-related increases will likely include costs of additional personnel, additional legal fees, accounting and audit fees, directors’ liability insurance premiums and costs related to investor relations. In

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addition, upon the completion of this offering, and subject to certain conditions, we have agreed to pay bonuses of up to $500,000 in the aggregate to certain of our executive officers for their contribution to completing this offering.

Finance Expenses

Finance expenses consist primarily of convertible loans interest, changes in fair value of embedded derivatives and the beneficial conversion feature, or BCF, of the convertible loans net of exchange rate differences. Finance income includes gains from sale of marketable securities.

Taxes on Income

The standard corporate tax rate in Israel for the 2014 tax year and thereafter is 26.5%, and was 25% for each of the 2012 and 2013 tax years.

We have yet to generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward tax losses totaling approximately $16.8 million as of December 31, 2013. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. We provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses.

Under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, and other Israeli legislation, we may be entitled to certain additional tax benefits if we decide to establish a manufacturing facility in Israel and produce our products in-house. Such tax benefits may include reduced tax rates and accelerated depreciation and amortization rates for tax purposes on certain assets.

Results of Operations

Comparison of the six months ended June 30, 2014 and 2013

The following table summarizes our results of operations for the six months ended June 30, 2014 and 2013:

Six months ended June 30,
2014
2013
(in thousands)
Revenues
$
2,006
 
$
290
 
Cost of revenues(1)
 
293
 
 
257
 
Gross profit
 
1,713
 
 
33
 
Operating expenses:
 
 
 
 
 
 
Research and development(1)
 
702
 
 
463
 
Selling, general and administrative(1)
 
867
 
 
993
 
Total operating expenses
 
1,569
 
 
1,456
 
Operating loss (income)
 
(144
)
 
1,423
 
Finance expenses, net
 
3,617
 
 
350
 
Loss
$
3,473
 
$
1,773
 

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

Six months ended June 30,
2014
2013
(in thousands)
Cost of revenues
$
16
 
$
12
 
Research and development
 
64
 
 
26
 
Selling, general and administrative
 
64
 
 
369
 
Total share-based compensation
$
144
 
$
407
 

Revenues

Our total revenues increased by $1.7 million, or 586%, from $290,000 in the six months ended June 30, 2013 to $2.0 million in the six months ended June 30, 2014, due to an increase in fees paid to us by our licensees under our development service payments and a contingent payment of $600,000 from a licensee under a developement and license agreement, upon completion of a Phase II clinical trial by such licensee.

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Cost of revenues

Our cost of revenues for the six months ended June 30, 2014 and June 30, 2013 was $293,000 and $257,000, respectively. The $36,000 increase in cost of revenues resulted primarily from an increase of $27,000 in payroll expenses due to an increase in the number of employees.

Cost of revenues as a percentage of revenues for the six months ended June 30, 2014 and June 30, 2013 was 14.6% and 88.6%, respectively. The 74.0% decrease in cost of revenues as a percentage of revenues resulted primarily from an increase of $1.7 million in revenues, $600,000 of which were contingent revenues that were not accompanied by any cost of revenues.

Operating Expenses

Our operating expenses for the six months ended June 30, 2014 and 2013 were as follows:

Six months ended June 30,
2014
2013
(in thousands)
Research and development
$
702
 
$
463
 
Selling, general and administrative
 
867
 
 
993
 
Total operating expenses
$
1,569
 
$
1,456
 

Research and Development expenses

Research and development expenses increased by $239,000, or 51.6%, from $463,000 in the six months ended June 30, 2013 to $702,000 in the six months ended June 30, 2014. The increase in research and development expenses resulted primarily from an increase of $193,000 in payroll expenses and an increase of $55,000 in professional consulting costs related to development activity, primarily due to the increase in the number of employees and consultants in preparation for our phase III clinical trials for FMX101 and FMX102.

Selling, General and administrative expenses

Selling, general and administrative expenses decreased by $126,000, or 12.7%, from $993,000 in the six months ended June 30, 2013 to $867,000 in the six months ended June 30, 2014. The decrease in selling, general and administrative expenses resulted primarily from a decrease of $305,000 in share-based compensation expenses, mainly to consultants, partially offset by an increase in payroll expenses of $79,000, an increase in travel expenses of $63,000 and an increase in professional accounting services expenses of $65,000 primarily due to an increase in employees and consultants hired by us in anticipation of this offering.

Finance expenses

Finance expenses, net, includes cash and non-cash components. The cash component of finance expenses, net, consists of bank fees and realized gain or loss on marketable securities. The non-cash components of our finance expenses, net, consist of (i) finance expenses on convertible loans, (ii) linkage of the BIRD foundation loan to the U.S. CPI, (iii) gain or loss from foreign currency exchange differentials, and (iv) changes in fair value of warrants. The finance expenses (or income) by cash and non-cash components are as follows:

Six months ended June 30,
2014
2013
(in thousands)
Non-cash—finance expenses on convertible loans
$
3,520
 
$
360
 
Other expenses
 
39
 
 
6
 
Non-cash foreign exchange loss, net
 
3
 
 
0
 
Changes in fair value of warrants
 
66
 
 
0
 
Total expenses
 
3,628
 
 
366
 
Less:
 
 
 
 
 
 
Changes in fair value of marketable securities, net
 
11
 
 
3
 
Non-cash foreign exchange profit, net
 
0
 
 
13
 
Finance expenses, net
$
3,617
 
$
350
 

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Finance expenses, net, increased by $3.3 million, or 933%, from $350,000 in the six months ended June 30, 2013 to $3.6 million in the six months ended June 30, 2014. The increase was primarily due to an increase of $3.2 million in the finance expenses on our convertible loans.

Taxes on income

We had no income tax expenses in either the six months ended June 30, 2013 or the six months ended June 30, 2014, and we do not foresee any tax liabilities in the near future.

Comparison of the years ended December 31, 2013 and 2012

The following table summarizes our results of operations for the years ended December 31, 2013 and 2012:

Year ended December 31,
2013
2012
(in thousands)
Revenues
$
1,404
 
$
1,086
 
Cost of revenues(1)
 
453
 
 
491
 
Gross profit
 
951
 
 
595
 
Operating expenses:
 
 
 
 
 
 
Research and development(1)
 
1,086
 
 
1,202
 
Selling, general and administrative(1)
 
1,221
 
 
953
 
Total operating expenses
 
2,307
 
 
2,155
 
Operating loss
 
1,356
 
 
1,560
 
Finance expenses, net
 
1,075
 
 
609
 
Loss
$
2,431
 
$
2,169
 

(1)Includes share-based compensation expense as follows:

Year ended December 31,
2013
2012
(in thousands)
Cost of revenues
$
16
 
$
23
 
Research and development
 
59
 
 
83
 
Selling, general and administrative
 
430
 
 
249
 
Total share-based compensation
$
505
 
$
355
 

Revenues

Our total revenues increased by $318,000, or 29%, from $1.1 million in the year ended December 31, 2012 to $1.4 million in the year ended December 31, 2013, due to an increase in fees paid to us by our licensees under our development and license agreements.

Cost of Revenues

Our cost of revenues for each of the years ended December 31, 2013 and 2012 consisted of the following items:

Year ended December 31,
2013
2012
Cost of revenues
(In thousands $)
Payroll and related expenses
$
300
 
$
277
 
Testing, professional and laboratory services
 
57
 
 
123
 
Rent and office maintenance
 
43
 
 
52
 
Other
 
53
 
 
39
 
Total
$
453
 
$
491
 

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Cost of revenues decreased $38,000, or 7.7%, from $491,000 in the year ended December 31, 2012 to $453,000 in the year ended December 31, 2013. These expenses were related to the supply of services to our licensees under our development and license agreements with them. The decrease resulted primarily from a decrease in professional consulting services by $64,000 and in rent and office maintenance services by $9,000, which were partially offset by an increase in payroll and other employment related expenses of $23,000 and in other expenses of $14,000. Cost of revenues as a percentage of revenues decreased from 45.2% in the year ended December 31, 2012 to 32.3% in the year ended December 31, 2013. The decrease resulted primarily from the fact that our cost of revenues is relatively fixed while our revenues grew by $318,000.

Operating Expenses

Our operating expenses for the years ended December 31, 2013 and 2012 were as follows:

Year ended December 31,
2013
2012
(in thousands)
Research and development
$
1,086
 
$
1,202
 
Selling, general and administrative
 
1,221
 
 
953
 
Total operating expenses
$
2,307
 
$
2,155
 

Research and development expenses

Research and development expenses decreased $116,000, or 9.7%, from $1.2 million in the year ended December 31, 2012 to $1.1 million in the year ended December 31, 2013. These expenses were primarily related to the development of FMX101 and FMX102, and the decrease resulted primarily from a decrease in consultancy expenses. Professional consulting costs related to non-clinical development activity decreased by $145,000 in the year ended December 31, 2013 due to completion of our Phase II clinical trial for FMX101.

Selling, General and administrative expenses

Selling, general and administrative expenses increased by $268,000, or 28.1%, from $953,000 in the year ended December 31, 2012 to $1.2 million in the year ended December 31, 2013. The increase in selling, general and administrative expenses resulted primarily from an increase of $181,000 in share-based compensation expenses, an increase in patent prosecution-related expenses of $140,000 in the year ended December 31, 2013, primarily due to an increase in success fees paid to our patent attorneys following the grant of U.S. patents in accordance with the terms of our engagement with them, and a decrease of $60,000 in professional consulting expenses.

Finance expenses

Our net finance expenses include cash and non-cash components. The cash component of our finance expenses consists of bank fees and realized gain or loss on marketable securities. The non-cash components of our net finance expenses consist of (i) finance expenses on convertible loans, (ii) linkage of the BIRD foundation loan to the U.S. CPI, (iii) gain or loss from foreign currency exchange differentials, and (iv) changes in fair value of marketable securities. The finance expenses (or income) by cash and non-cash components are as follows:

Year ended December 31,
2013
2012
(in thousands)
Non-cash—finance expenses on convertible loans
$
1,117
 
$
665
 
Other expenses
 
2
 
 
10
 
Non-cash foreign exchange loss, net
 
25
 
 
1
 
Total expenses
 
1,144
 
 
676
 
Less:
 
 
 
 
 
 
Changes in fair value of marketable securities
 
69
 
 
67
 
Finance expenses, net
$
1,075
 
$
609
 

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Finance expenses, net, increased by $466,000, or 76.5%, from $609,000 in the year ended December 31, 2012 to $1.1 million in the year ended December 31, 2013. The increase was primarily due to an increase of $452,000 in finance expenses on our convertible loans and a foreign currency exchange loss of $24,000 resulting from the translation of NIS balances into U.S. dollars.

Taxes on income

We had no income tax expenses in either 2012 or 2013, and we do not foresee any tax liabilities in the near future.

Liquidity and Capital Resources

Liquidity

Since our inception, we have incurred losses from operations and negative cash flows from our operations. For the six months ended June 30, 2014, we incurred a net loss of $3.5 million, which included non-cash financial expenses of $3.5 million on our convertible loans, while we provided $570,000 from our operating activities. For the year ended December 31, 2013 we incurred a net loss of $2.4 million, which included non-cash financial expenses of $1.1 million on our convertible loans, while we provided $228,000 from our operating activities. As of June 30, 2014 and December 31, 2013, we had a working capital surplus of $9.6 million and $1.1 million, respectively, and an accumulated deficit of $21.7 million and $18.2 million, respectively. Our principal source of liquidity as of June 30, 2014 consisted of cash and cash equivalents and marketable securities of $10.5 million. In the second quarter of 2014, we completed a private placement of preferred shares and warrants with a group of new investors and several of our existing shareholders in two phases, on May 13, 2014 and June 3, 2014, raising a total of $8.3 million in consideration of 1,302,550 preferred shares and 1,334,010 warrants to purchase preferred shares. Following our receipt of the proceeds from the May-June 2014 private placement and the net proceeds of this offering, we anticipate that we will be able to fund our operating expenses and capital expenditure requirements throughout the Phase III clinical trials for our lead product candidates, FMX101 and FMX102, which we expect to complete by 2017.

Capital resources

Overview.    To date, we have financed our operations through private placements of equity securities, and convertible loans and through fees and cost reimbursements received from our licensees. From inception through June 30, 2014, we have received net cash proceeds of approximately $24.2 million from the sale of ordinary shares, preferred shares and warrants and from convertible loans. Although our convertible loans have been converted in their entirety into shares and warrants on May 13, 2014 and are no longer outstanding, our liabilities and shareholders’ equity were significantly impacted by these loans in the years 2012 and 2013 presented in the financial statements included in this prospectus. This impact was amplified by the beneficial conversion feature and share issuance feature that were incorporated in such loans. Accordingly, we have included below a short description of the terms of these convertible loans and their accounting treatment.

2011 convertible loans.    In January 2011 we entered into a convertible loan agreement, referred to as the 2011 loan agreement, with several of our existing shareholders and other lenders. Pursuant to the 2011 loan agreement, we initially received loans in an aggregate principal amount of $1.7 million, bearing interest at 8% per annum. The principal and all accrued interest were to be either (i) repaid upon the earlier of three years from the date of closing of the 2011 loan agreement or the occurrence of a default event, or (ii) automatically converted into the most senior class of our shares at a 30% discount on the applicable per share price in the event of a qualified round of equity financing, an initial public offering of our shares or a merger, acquisition, asset sale or similar deemed-liquidation event. The conversion discount rate was adjustable to up to 50% under certain circumstances that did not materialize.

In the fourth quarter of 2011 and the first quarter of 2012 we received an additional amount of $483,000 in convertible loans from shareholders and other lenders who joined the 2011 loan agreement. The convertible loans received under the 2011 loan agreement in 2011 and 2012, collectively, are referred to as the 2011 loans.

2012 convertible loans.    In June 2012 we entered into another convertible loan agreement, referred to as the 2012 loan agreement, with several of our existing shareholders. Pursuant to the 2012 loan agreement, we initially received loans in an aggregate principal amount of $1.5 million, bearing interest at 6% per annum. The principal and all accrued interest were to be either (i) repaid upon the earlier of four years from the date of closing of the 2012 loan agreement or the occurrence of a default event, or (ii) automatically converted into the most senior class of our shares

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at a 25% discount on the applicable per share price in the event of a qualified round of equity financing, an initial public offering of our shares or a merger, acquisition, asset sale or similar deemed-liquidation event. The principal and interest under the 2012 loan agreement were also convertible at the discretion of the lender, at a discount of 25%, upon an equity financing round in excess of $2.5 million, even if not qualified. Furthermore, each lender under the 2012 loan agreement was issued, for no additional consideration, one ordinary share for each $5.84 of principal amount of its loan. As a result, we issued the lenders under the 2012 loan agreement a total of 247,897 ordinary shares, in addition to any shares that may have been issuable to them upon conversion of their loans.

In May and June of 2013 we received an additional amount of $1.5 million in convertible loans from shareholders who joined the 2012 loan agreement. In accordance with the terms of such loan agreement, we issued these joining lenders a total of 256,764 ordinary shares upon receiving their loans. The convertible loans received under the 2012 loan agreement in 2012 and 2013, collectively, are referred to as the 2012 loans.

Total liability pursuant to 2011 and 2012 loans.    The total principal amount of convertible loans outstanding and payable to all lenders under both the 2011 and 2012 loans was $5.1 million and $3.6 million as of December 31, 2013 and December 31, 2012, respectively. Of such amounts, $3.7 million and $2.8 million were recorded as a liability in our balance sheet for each of 2013 and 2012, respectively, with the remainder recorded as additional paid-in capital for each of such years. Additionally, we owed all lenders accrued interest in a total amount of $817,000 and $384,000 as of December 31, 2013 and December 31, 2012, respectively. As a result, the total amount recorded as a liability for convertible loans on our balance sheet was $4.5 million and $3.2 million as of December 31, 2013 and December 31, 2012, respectively.

Events during 2014.    During the first quarter of 2014, we reached an agreement with certain lenders of the 2011 loans that were due to mature during that period, according to which the maturity date of those loans was deferred by one year and the interest rate was increased to 12% for the duration of the deferral period. In the second quarter of 2014, we raised approximately $8.3 million from a group of investors in an equity financing round that closed in two phases, the first on May 13, 2014 and the second on June 3, 2014, comprising $6.6 million and $1.7 million, respectively. The May-June 2014 financing round constituted a ‘qualified round’ under the 2011 and 2012 loan agreements, and consequently triggered the conversion of all loans outstanding under such agreements into equity. Accordingly, all principal amounts and accrued interest owed under the 2011 and 2012 loans, including those deferred as aforesaid, were converted in their entirety at that time into a total of 1,269,768 preferred shares and 634,884 preferred warrants. Such preferred shares and warrants will be converted into ordinary shares and ordinary warrants of the same number immediately prior to the completion of this offering, in accordance with their terms.

Cash flows

The following table summarizes our statement of cash flows for the years ended December 31, 2013 and 2012 and the six months ended June 30, 2014 and 2013:

Year ended December 31,
Six months ended June 30,
2013
2012
2014
2013
(in thousands)
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
 
 
Operating activities
$
228
 
$
(2,389
)
$
570
 
$
104
 
Investing activities
 
(35
)
 
(33
)
 
(9,018
)
 
(23
)
Financing activities
$
1,500
 
$
1,781
 
$
8,212
 
$
1,500
 

Net cash provided by (used in) operating activities

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and measurements and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization finance expenses on convertible loan and share-based compensation.

Net cash provided by operating activities was $570,000 in the six months ended June 30, 2014, compared to $104,000 of net cash used in operating activities in the six months ended June 30, 2013. The increase was attributable primarily to a decrease in trade receivable of $51,000 in the six months ended June 30, 2014 compared to an increase of $211,000 in the six months ended June 30, 2013 and a decrease in accounts payable and other accruals of $339,000 compared to a decrease of $26,000 in the six months ended June 30, 2013.

Net cash provided by operating activities was $228,000 in the year ended December 31, 2013, compared to $2.4 million of net cash used in operating activities in the year ended December 31, 2012. The increase was

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attributable primarily to a $255,000 increase in cash, resulting from net sales of marketable securities during 2013 compared to a net investment of $816,000 in marketable securities in 2012, increase in deferred revenues of $954,000 in 2013 compared to a decrease of $438,000 in deferred revenues in 2012 and offset by an increase in trade receivable of $312,000 in 2013 compared to $58,000 in 2012.

Net cash used in investing activities

The use of cash in investing activities has been primarily related to purchase of marketable securities. Net cash used in investing activities was $9.0 milion in the six months ended June 30, 2014, compared to $23,000 in the six months ended June 30, 2013. Net cash used in investing activities was $35,000 in the year ended December 31, 2013, compared to $33,000 in the year ended December 31, 2012.

Net cash provided by financing activities

Net cash provided by financing activities was $8.2 million in the six months ended June 30, 2014, an increase of $6.7 million from $1.5 million in the six months ended June 30, 2013. The increase was attributable primarily to an equity financing round that closed in two phases, the first on May 13, 2014 and the second on June 3, 2014, comprising $6.6 million and $1.7 million, respectively, net of issuance costs, as compared to the $1.5 million in proceeds received under convertible loans in the six months ended June 30, 2013.

Net cash provided by financing activities was $1.5 million in the year ended December 31, 2013, compared to $1.8 million in the year ended December 31, 2012. The $281,000 decrease was attributable primarily to a decrease in the amount of proceeds received under convertible loans in the year ended December 31, 2013.

See “—Cash and funding sources.”

Cash and funding sources

The table below summarizes our sources of financing for the years ended December 31, 2013 and 2012:

Proceeds from issuance
of convertible loans and
ordinary shares
Payments from
licensees
Total
(in thousands)
Year ended December 31, 2013
$
1,500
 
$
2,100