Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

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

---

FORM 10-K

---

Commission File Number: 001-36889

---

SteadyMed Ltd.
(Exact name of registrant as specified in its charter)

---

5 Oppenheimer Street, Rehovot 7670105, Israel
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: 925-272-4999

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

          Securities registered pursuant to section 12(g) of the Act: None.

(Title of class)

---

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    ý No

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes    ý No

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

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

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    ý No

          The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $16.7 million as of June 30, 2016 based on the closing sale price of our ordinary shares as quoted by the NASDAQ Global Market for such date. Ordinary shares held by each executive officer and each director and by each person who is known by the registrant to own 10% or more of our ordinary shares have been excluded from this calculation as such persons may deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purpose.

          Ordinary Shares, nominal value NIS 0.01 per share, outstanding as of March 15, 2017: 20,139,826

DOCUMENTS INCORPORATED BY REFERENCE

None

   

---

Table of Contents

TABLE OF CONTENTS

        "SteadyMed," the SteadyMed logo and other trademarks or service marks of SteadyMed appearing in this Annual Report on Form 10-K are the property of SteadyMed. This Form 10-K also contains trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

---

Table of Contents

PART I

Forward-Looking Statements

        This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater detail under the heading "Risk Factors." Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

ITEM 1.    BUSINESS

Overview

        SteadyMed Ltd. (referred to as "we", "the Company" or "SteadyMed" in this Annual Report on Form 10-K) is a specialty pharmaceutical company focused on the development and commercialization of drug product candidates to treat orphan and high-value diseases with unmet parenteral delivery needs. Our primary focus is to obtain approval for the sale of Trevyent® for the treatment of pulmonary arterial hypertension, or PAH. Our development pipeline also includes two drug product candidates for the treatment of post-surgical and acute pain in the home setting, both of which are in the early stage of development. Our drug product candidates are enabled by our proprietary PatchPump®, which is a discreet, pre-filled, water-resistant and disposable parenteral drug administration technology. Our PatchPump technology is aseptically pre-filled with sterile liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow of drug to a patient, either subcutaneously or intravenously.

        Trevyent is being developed for the treatment of PAH, a progressive orphan disease that may eventually lead to heart failure and premature death. Trevyent is designed to improve the quality of life of PAH patients by providing an effective alternative that overcomes the limitations associated with the administration of the current market-leading prostacyclin PAH therapy, Remodulin® (treprostinil sodium), produced by United Therapeutics Corporation. The annual cost of Remodulin is reported to be between approximately $125,000 and $175,000 per patient and United Therapeutics reported Remodulin revenues of $430.1 million, $458.0 million, $491.2 million, $553.7 million, $572.8 million and $602.3 million in 2011, 2012, 2013, 2014, 2015 and 2016, respectively.

1

---

Table of Contents

        In December 2015, the Office of Orphan Products Development, part of the U.S. Food and Drug Administration, or FDA, granted orphan designation for Trevyent. Orphan drug designation, under the Orphan Drug Act, may provide several pre-approval advantages, including waiver of Prescription Drug User Fee Act, or PDUFA, fees, enhanced access to FDA staff and potential waiver of pediatric research requirements, and potential post-approval advantages, including seven years of market exclusivity, tax credits for certain research and a waiver of the NDA application user fee. Orphan drug designation does not shorten the duration of the regulatory review or approval process.

        We expect to submit a New Drug Application, or NDA, for Trevyent to the FDA in the second quarter of 2017. Through our partner, Cardiome Pharma Corporation, we expect to submit a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in the second half of 2017. In December 2015, the EMA approved Cardiome's request to review Trevyent under its Centralized Authorization Procedure drug review process.

        All of our drug product candidates are being developed for sale in the United States under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, which allows the submission of an NDA where information required for approval comes from scientific literature and publicly available information contained in the labeling of a listed drug, as well as from the FDA's previous findings of safety and efficacy for such listed drug.

        In addition to its debilitating physical symptoms, PAH has a profound social, practical and emotional impact on the lives of patients and their families and caregivers. Although Remodulin is an effective treatment for PAH, we believe its use is limited in part because the day-to-day method of delivery is burdensome and inconvenient for patients and caregivers. Approximately 30,000 individuals in the United States are currently diagnosed with PAH. While approximately 24,000 of these patients are eligible for Remodulin therapy, we believe only approximately 3,000 are receiving Remodulin. We believe its use is limited in part because the day-to-day method of delivery is burdensome, complicated and inconvenient for patients and caregivers. We believe Trevyent will provide a better alternative for PAH patients taking Remodulin and expand the number of patients eligible to receive treprostinil therapy.

        Remodulin is provided to patients in a multi-use liquid vial and delivered subcutaneously or intravenously 24 hours a day, every day, by infusion pumps not designed for this purpose. PAH specific infusion pumps do not currently exist. For subcutaneous administration, the patient or caregiver must transfer the drug from the vial, using a special connector, into a disposable syringe that is then inserted into a non-disposable insulin infusion pump, which is attached to the patient using a long tube and catheter. These pumps require complex manual programming and are often not water-resistant. Because Remodulin needs to be transferred from a vial to the pump, it is formulated with the preservative meta-cresol, which is a known skin irritant. We believe the infusion site pain reported in 85% of patients receiving subcutaneous Remodulin therapy to be potentially associated with or exacerbated by the presence of meta-cresol in the Remodulin formulation.

        For intravenous Remodulin therapy, the delivery systems are larger than those typically used for subcutaneous therapy and require even more complex dose calculations and programming. They also include a larger drug reservoir that requires patients to precisely mix Remodulin with diluent, sometimes multiple times per day, which can take a substantial amount of time and may lead to dosing errors. Patients must also take care to use aseptic techniques when completing the complex preparation of intravenous treprostinil because contaminated filling can result in infection, which can lead to sepsis.

2

---

Table of Contents

        Trevyent is specifically designed for PAH therapy. It is designed to deliver a proprietary, preservative-free formulation of treprostinil using our ready-to-go, compact and disposable PatchPump. Trevyent is aseptically pre-filled with drug and pre-programmed with the required delivery rate at the site of manufacture. It is water-resistant and does not require any filling or programming by the patient or caregiver. To initiate therapy, the patient would simply attach Trevyent to the subcutaneous or intravenous infusion set and after 48 hours of continuous dosing, Trevyent will alert the patient that a replacement needs to be attached.

        If approved, we anticipate commercializing Trevyent for the treatment of PAH in the United States in mid-2018. Because PAH is an orphan indication with fewer than 200 PAH treatment centers in the United States, we believe we can effectively market Trevyent in the United States with a contract commercial organization of approximately 25 people. If approved, we anticipate that Cardiome will begin commercializing Trevyent for the treatment of PAH in Europe in the second half of 2018.

        In addition to Trevyent, we have two drug product candidates for the treatment of post-surgical and acute pain in the home setting: ketorolac PatchPump for short-term management of moderately severe acute pain and bupivacaine PatchPump for local anesthesia post-surgery. We refer to these as at home patient analgesia, or AHPA, product candidates.

        Over 70 million surgeries are performed annually in the United States, with studies showing approximately 80% of patients experiencing post-surgical pain. Despite the introduction of new pain management modalities, both patients and their health care providers continue to face issues with treating post-surgical pain in the home setting. We believe these issues present opportunities for the use of our AHPA product candidates.

        Our ketorolac AHPA product candidate is being developed to provide short-term (up to five days) management of moderately severe acute pain in the home setting. Ketorolac is a potent non-steroidal anti-inflammatory drug, or NSAID, that provides analgesia at the opioid level. Our ketorolac AHPA product candidate may make ketorolac available to more patients, by eliminating the need for in-patient dose initiation, either intravenously or by multiple intramuscular injections, which would also facilitate a more rapid transition from in-patient care to at-home care. It may also offer a preferred alternative to the use of opioids in the home setting.

        In 2015, we conducted a Phase 1 pharmacokinetic tolerability and safety, proof of concept clinical study with ketorolac. The current standard of care for ketorolac therapy must be initiated in the hospital or surgical center with either intravenous infusion or multiple intramuscular injections. The study data demonstrated that a continuous subcutaneous infusion of ketorolac over 24 hours resulted in equivalent bioavailability compared to intramuscular injections administered at six-hour intervals over 24 hours. These results established proof of concept for our ketorolac AHPA drug product candidate and support further and on-going clinical evaluation.

        We are developing our bupivacaine AHPA product candidate to provide patients and physicians with a simple and pre-filled alternative that overcomes the shortcomings of a commonly used analgesia infusion pump, the On-Q® PainBuster, or other post-surgical pain products, such as Exparel®, that provides sustained-release analgesia local to the surgical site post-surgery for up to 24 hours. Elastomeric pumps, like the On-Q PainBuster, are commonly used to deliver bupivacaine for local anesthesia, are approximately the size of a grapefruit and require the drug to be compounded and filled at the hospital pharmacy. SteadyMed will continue to conduct technical feasibility and formulation development work for its bupivacaine APHA drug product candidate.

3

---

Table of Contents

Our Strategy

        Our initial focus is on the development of Trevyent for the treatment of PAH. If and as our capital resources permit, we plan to leverage our proprietary PatchPump technology to develop and commercialize additional differentiated pharmaceutical products that offer significant benefits over existing commercially successful yet often inadequate treatment options in select specialty markets that we can commercialize on our own in the United States.

        The focus of our current strategy is:

•

Obtain approval for the sale of Trevyent in the United States and establish a contract commercial organization of approximately 25 people to promote Trevyent as a preferred alternative to Remodulin to healthcare providers in the fewer than 200 PAH treatment centers in the United States;



•

Conduct post-approval studies designed to demonstrate that, as compared to existing treatments, Trevyent results in better patient outcomes and improved pharmaco-economics and to drive the rate of market adoption, including increasing the number of PAH patients receiving treprostinil therapy; and



•

Obtain approval for the sale of Trevyent in Europe, Canada and the Middle East through our licensing collaboration with Cardiome.

Pulmonary Arterial Hypertension (PAH)

Overview

        PAH is an orphan disease with no known cure, which is progressive and life-threatening and severely impacts and restricts the lives of patients on a daily basis. PAH is characterized by high blood pressure in the pulmonary arteries, which are the blood vessels leading from the heart to the lungs. Common symptoms, which worsen as the disease progresses, include breathlessness, fatigue, angina, fainting or light headedness and abdominal distension. In addition to these physical symptoms, PAH has a profound social, practical and emotional impact on the lives of patients and their families and caregivers.

        Oral therapies are commonly prescribed as first-line treatments for the least severely ill patients. As patients progress in their disease severity, inhaled therapies are added to oral therapy. When the disease progresses even further, infused prostacyclin therapies are frequently added to oral therapy. PAH patients have reduced levels of prostacyclin, a naturally occurring substance that has the effect of relaxing pulmonary blood vessels. Prostacyclin analogues, such as treprostinil, mimic the effects of prostacyclin and have become an established treatment for PAH. Treprostinil is formulated as a liquid drug that is stable at room temperature and is the only prostacyclin drug available for both subcutaneous and intravenous treatment of PAH. Other prostacyclins, such as epoprostenol, are available but are not widely used as they only offer intravenous therapy, have a very short half-life, are inherently unstable and must be reconstituted from a dry powder into liquid form and then used within 24 hours.

        Remodulin, the market-leading prostacyclin, is administered continuously 24 hours per day, every day and is sold by United Therapeutics Corporation. United Therapeutics reported Remodulin revenues of $430.1 million, $458.0 million, $491.2 million, $553.7 million, $572.8 million, and $602.3 million in 2011, 2012, 2013, 2014, 2015, and 2016, respectively. The annual cost of Remodulin is reported to be between approximately $125,000 and $175,000 per patient. This reported cost only includes Remodulin and does not include the cost of the required pumps and the ancillary supplies needed to administer Remodulin.

4

---

Table of Contents

        Approximately 30,000 patients in the United States are currently diagnosed with PAH and the market for the treatment of PAH is expanding. GlobalData estimates that the global market will grow to $3.0 billion by 2020. Diagnosis is difficult, but as awareness of PAH grows and diagnosis improves, the number of patients requiring PAH therapy will continue to increase. While approximately 24,000 of the PAH patients in the United States are eligible for the market-leading prostacyclin therapy, Remodulin, we believe only approximately 3,000 are receiving Remodulin therapy. We believe more patients would receive treprostinil treatments if a more convenient and simple alternative to existing prostacyclin therapies were available.

        On May 13, 2014, the FDA held a public meeting to hear perspectives from patients living with PAH. Patients discussed their disease, its impact on their daily lives, and currently available therapies. Approximately 60 PAH patients or patient representatives attended the meeting in-person, and approximately 25 patients or patient representatives provided input through the live webcast and polling questions.

        We believe that input from the meeting underscores the chronic and debilitating effect that PAH has on patients' lives and the challenges patients face in finding effective and tolerable therapies to help manage their condition. Several key themes emerged from this meeting:

•

PAH is a progressive, devastating disease. Participants described living with daily shortness of breath, persistent fatigue, and chest pain, in addition to a range of other debilitating symptoms. Many shared their fears of symptoms continuing to worsen over time.



•

PAH affects all aspects of patients' lives. Participants described the dramatic change from their active and vibrant lives before diagnosis. Many participants noted that the significant decline in health caused them or their loved ones to limit or completely stop participating in activities and tasks that they once enjoyed or were able to do.



•

Nearly all participants described using a combination therapy in addition to non-drug therapies in their treatment approach. Many participants were able to identify whether a treatment was or was not effective, and described making difficult decisions on benefits versus adverse effects of treatments and switching to alternate treatments, if necessary.



•

Participants emphasized the continued need for medications that are effective, have convenient dosing schedules, and are easy and safe to administer.

Limitations of Current Remodulin Treatment for PAH

        Remodulin is provided to patients in a multi-use liquid vial and delivered subcutaneously or intravenously 24 hours a day, every day, using pumps that are not specifically designed for Remodulin or PAH therapy.

        Subcutaneous delivery is indicated as the first route of administration for Remodulin therapy. The patient or caregiver must transfer the drug from a vial, using a special connector, into a disposable reservoir which is then inserted into a non-disposable and complicated-to-use insulin infusion pump. The pump is attached to the patient via a long tube and catheter. These pumps require detailed manual programming and typically are not water-resistant. Because Remodulin needs to be transferred from a vial to the reservoir multiple times, it is formulated with the preservative meta-cresol, which is a known skin irritant. We believe the infusion site pain reported in 85% of patients receiving subcutaneous Remodulin therapy to be potentially associated with or exacerbated by the presence of meta-cresol in the Remodulin formulation.

5

---

Table of Contents

        If subcutaneous delivery of Remodulin is not tolerated, patients can be switched to intravenous delivery. For intravenous Remodulin therapy, the delivery systems are larger than the insulin pumps typically used for subcutaneous therapy and require even more complex dose calculations and programming. They also include a larger drug reservoir that requires patients to precisely mix Remodulin with diluent, sometimes multiple times per day or night, which may lead to dosing errors and the associated side effects or return of PAH symptoms. Patients must also take care to use aseptic techniques when completing the preparation of intravenous treprostinil as contaminated filling can result in infection which can result in sepsis and hospitalization.

        More specifically, the delivery systems currently used for administration of subcutaneous Remodulin have the following limitations:

•

Complex Programming.  Algebraic calculations must be made by the patient or caregiver to define the delivery rate of the infusion pump based on the patient's weight, concentration of Remodulin and required dose. The patient or caregiver must navigate through multiple instruction screens by pressing multiple buttons in order to program the delivery rate of the pump. Incorrect calculations or programming can lead to dosing errors and related side effects or return of symptoms associated with PAH.



•

Multiple Precise Steps to Prepare Refills.  The patient or caregiver must follow a strict, time-consuming regimen to refill an empty pump with Remodulin. Typically, the drug must be transferred from a vial into a separate reservoir using a special connector, making sure no air bubbles are present. The pump is rewound by navigating through prompts on the pump's screen. The reservoir is then loaded into the pump and the infusion line is attached, primed by the pump, and finally attached to the cannula, all of which must typically be done once or multiple times per day.



•

Unpredictable Length of Time Between Refills.  The length of time between refills depends on the delivery rate programmed into the pump and can be impacted by the inaccuracies of priming the infusion line with drug. Therefore, many patients find it hard to schedule daily activities because it is difficult to predict when they will need to refill their pump. Patients must be ready with all of the ancillary filling disposables and drug vial at all times regardless of where they are.



•

Restricts Activities and Lifestyle Choices.  These pumps are not typically water-resistant and are tethered to the patient by a long tube, between 18 and 43 inches, which is inconvenient and can limit lifestyle choices, such as bathing and swimming. Also, because of the requirement for continuous infusion of treprostinil to treat PAH, patients are required to carry a backup pump with them at all times.

        In controlled studies of Remodulin administered subcutaneously, there were infusion system complications reported in 28% of patients, of which 93% were pump-related and 7% were related to the infusion set. In addition, Remodulin has been reported to cause infusion site pain in 85% of patients and infusion site reaction in 83% of patients when infused subcutaneously.

        Almost half of Remodulin patients are on intravenous therapy, which introduces challenges incremental to those for subcutaneous therapy. Specifically:

•

Central Line.  Remodulin is administered intravenously by continuous infusion, using a surgically placed central venous catheter, which usually goes through the patient's chest cavity.

6

---

Table of Contents

•

Additional Complexity.  The steps required to prepare Remodulin for intravenous delivery are even more onerous than for subcutaneous therapy. First, an intravenous infusion rate must be calculated and programmed. Then, with this rate and the patient's dose and weight, the diluted intravenous Remodulin concentration must be calculated using an algebraic formula. Next, the amount of Remodulin needed to make the diluted Remodulin concentration for the reservoir must be calculated using an additional algebraic formula. Using a needle and syringe, Remodulin is then transferred from a vial into the reservoir along with the sufficient volume of diluent to achieve the desired total volume in the reservoir. Given the additional complexity, the potential for incorrect calculations or programming and the risk of dosing errors is increased.



•

Aseptic Technique Is Essential.  Failure to use aseptic techniques when completing the complex preparation and filling steps can result in infection, which can lead to sepsis, and require drug therapy and surgical intervention to replace the central venous catheter. A survey by the United States Centers for Disease Control, or CDC, of seven sites that administered intravenous Remodulin for the treatment of PAH, found approximately one blood stream infection event for every three years of administration.

        In addition to its debilitating physical symptoms, PAH has a profound social, practical and emotional impact on the lives of patients and their families and caregivers. This is why we are developing Trevyent.

Our Solution: Trevyent

        We believe Trevyent will improve the daily lives of these patients because it offers a simple, effective and more convenient administration of treprostinil for subcutaneous or intravenous treatment of PAH patients. We believe Trevyent, if approved, will be the only product that is a combination of a drug and device specifically designed for subcutaneous and intravenous treatment of PAH patients. In the United States, we intend to price Trevyent competitively between $125,000 and $175,000 per patient per year.

        Trevyent is an all-in-one product that combines our proprietary preservative-free formulation of treprostinil with our proprietary PatchPump technology. PatchPump is a discreet, water-resistant and disposable drug administration technology that is aseptically pre-filled with sterile liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow of drug to a patient for 48 hours. We believe Trevyent will reduce pump-related user errors and the related side effects or return of symptoms associated with PAH. In addition, we believe that our preservative-free treprostinil formulation may also provide an additional benefit to patients by potentially reducing the infusion site pain or reaction that is currently associated with subcutaneous administration of Remodulin.

        The key benefits of Trevyent are:

•

Convenient and Ready-to-Go.  Trevyent will be delivered to the patient as a sterile, preservative-free, ready-to-go product pre-filled with treprostinil. Simply attaching the infusion cannula automatically activates Trevyent. There is no need for the patient to prepare the drug, add diluents, or program and load the pump. This is all done, aseptically, during manufacture.



•

Simple Dosing.  Trevyent will be available for prescription in a broad-range of concentrations to meet patient dosing requirements. The delivery rate of Trevyent will be programmed during manufacture, without the need for any patient or healthcare provider calculations or programming. There is no need for programming buttons on the product, which eliminates a primary source of dosing errors and the related side effects or return of symptoms associated with PAH.

7

---

Table of Contents

•

Predictable, 48-Hour Dosing Period.  Trevyent is designed to provide a predictable, 48-hour continuous infusion of treprostinil so that patients can better plan their daily lives. At the end of the 48-hour dosing period, the patient simply disposes of the unit and attaches a new Trevyent.



•

Compact and Water-Resistant.  Trevyent is lightweight, compact, discreet and water-resistant. Patients have the option to wear Trevyent inconspicuously on the body or clip it on their clothing. The compact size and water resistant features enables more freedom to conduct normal activities such as bathing, without interruption of dosing. The compact size of Trevyent and all-in-one design make carrying a backup easy.



•

Offers Patient Reassurance.  Trevyent provides patients with audible and visual feedback. This includes simple LEDs and sounds that provide notifications on activation and when Trevyent is nearly empty and needs replacement, as well as alerts in the event of occlusions or no delivery. There is also a status-check button that provides feedback on demand.

        Trevyent also directly addresses challenges stated by healthcare providers, patients and payers regarding limitations of current treatment options. In market research studies commissioned by SteadyMed and conducted with 126 healthcare professionals associated with PAH accredited institutions or major PAH academic treatment centers, both physicians and nurses recognized as highly valuable the following Trevyent attributes: convenience (ease of use, no programming or dose manipulation) and size (the smaller, more discreet device). In addition, nurses felt the waterproof attribute of Trevyent would be very important to their patients as well.

        In a separate quantitative study of 70 physicians, participants were asked to rate Trevyent on a scale of "one" (not at all likely to prescribe), to "seven" (extremely likely to prescribe). 57% of participants rated Trevyent a six or higher, and 43% rated Trevyent from three to five, with ease of use cited as a top advantage. Not a single respondent rated Trevyent as two or less.

        In a separate study, 20 physicians, 20 payers and ten patients were asked to assess willingness to buy Trevyent. Patient convenience, innovative delivery mechanism, fixed dosing schemes, limited patient manipulation, and self-administration were among the advantages mentioned by both healthcare professionals and payers. All the payers in the study agreed on a positive coverage for Trevyent, with utilization management being a standard prior authorization, similar to any other drug in this category. In the same study, there was an overwhelmingly positive response to Trevyent by patients due to Trevyent's discreet size, no drug handling, ease of use and waterproof attributes. Patients were asked to assess Trevyent on a scale of "one" (not excited) to "seven" (very excited). All but one of the participants rated Trevyent as seven, with the outlier rating Trevyent at six.

        Currently, healthcare payors cover the cost of Remodulin, as well as costs for the pump and back up pump that deliver it, the diluent used for intravenous therapy as well as the ancillary equipment such as infusion lines and cannulas. Since Trevyent does not require diluents and will be provided as a pre-filled disposable pump with the required cannula, we believe that Trevyent will be economically favorable to payors by offering a reduction in overall cost of therapy.

Trevyent Development Plan

        We have spent approximately ten years developing our enabling proprietary PatchPump system and, in 2011, we commenced the development of a treprostinil and PAH specific PatchPump that we now refer to as Trevyent. We received orphan designation for Trevyent in December 2015 and expect to submit the Trevyent NDA in the second quarter of 2017 under Section 505(b)(2) of the FFDCA. Through our partner Cardiome, we expect to submit an MAA to the EMA in the last half of 2017.

8

---

Table of Contents

        We have conducted two human clinical trials using the PatchPump. The first trial, in 2012, was a "First in Man Study to Assess the Safety and Performance of PatchPump for Subcutaneous Infusion in Ten Healthy Volunteers". All primary endpoints were successfully met. In particular, device application, use and removal, including needle insertion into the skin and retraction were painless in most subjects and if pain occurred, it was mild and transient. The device adhered well to the subjects' skin for the duration of infusion. The most common adverse events likely related to the device were erythema and edema. These events were local and transient. The study concluded that use of the PatchPump was well-tolerated.

        The second clinical study, in 2013, was an "Assessment of Treprostinil Blood Concentrations Following Subcutaneous Administration by the SteadyMed PatchPump to Seven Healthy Volunteers". This study was designed to assess whether our PatchPump could achieve measurable levels of treprostinil in plasma when a low, clinically relevant dose of drug was administered to healthy subjects via continuous subcutaneous infusion. Plasma treprostinil was detected within 30 minutes of starting the infusions, increased rapidly during the first two hours, and then remained relatively constant until the PatchPumps were removed after 18 hours of infusion. The mean treprostinil steady state concentration achieved in this study compares favorably to that previously reported in the literature for Remodulin when administered via insulin pump at similar doses and rates of infusion. This study in healthy subjects demonstrated that our PatchPump can deliver treprostinil via continuous infusion at a relatively constant rate for extended periods of time. No serious or unexpected adverse events were observed.

        We have secured a source of the active pharmaceutical ingredient, or API, for treprostinil from a third-party manufacturer and commenced the development of our proprietary treprostinil formulation for Trevyent. Quantitative chemical composition, related impurities and physicochemical properties were experimentally determined for Trevyent prototype formulations and compared to results obtained from samples of the reference Remodulin product. Based on these studies, we expect Trevyent to provide equivalent product quality and performance as the reference-listed drug, Remodulin, which is necessary for approval under Section 505(b)(2).

        The Trevyent dose strengths will range from 1 mg/mL to 10 mg/mL of treprostinil, in an aseptically pre-filled single-use product. Our proprietary drug container has been tested to ensure drug compatibility and long-term stability with our Trevyent treprostinil formulation with no effect observed on drug stability or contamination from the container.

        Trevyent is being developed in accordance with ISO 62366 and the FDA 2011 draft Guidance for Industry and Food and Drug Administration Staff—Applying Human Factors and Usability Engineering to Optimize Medical Device Design, including a use error risk analysis and several formative usability studies, to identify, evaluate and mitigate use-related risks. Eight human factors studies have been conducted with 148 volunteers in the U.S. and Europe, with 33 healthcare practitioners, 92 PAH patients and 23 additional participants. The first formative study was an ethnographic study designed to explore the users and their use settings in order to support the preliminary design of the pump and the user interface. The second and third formative studies were focused specifically on evaluating the user's ability to use and understand aspects of the product user interface. The online questionnaire comprising the fourth study was focused on patient preferences for product wearability. The fifth study focused on simulated usage of the product over the full delivery cycle, along with the user's ability to understand the various alerts and alarms that could arise during usage. The sixth and seventh studies again evaluated the user interface and the full simulated usage of the product, respectively. An additional, and final, formative study conducted in mid-2015 confirmed that Trevyent satisfies all applicable requirements for ISO 62366 and the FDA human factors guidance.

9

---

Table of Contents

        Because we are seeking approval for Trevyent under the Section 505(b)(2) pathway, the Trevyent NDA will rely on the FDA's previous findings of safety and effectiveness for Remodulin (treprostinil) Injection NDA 21-272 as the reference listed drug. We met with the FDA in July 2013 to discuss our development plan for Trevyent. The FDA agreed with our proposal for a bio-waiver request for the FDA to waive the requirement of in vivo bioavailability or bioequivalence studies for the Trevyent NDA, subject to our demonstration of the pharmaceutically equivalent nature of Trevyent and the reference-listed drug Remodulin. Based on this meeting, we believe that no clinical studies are required for the Trevyent NDA. As a precedent example for this approach, a bio-waiver was relied on by Actelion Ltd. in connection with their approved NDA for Veletri (intravenous epoprostenol to treat PAH), which relied on Flolan as the reference-listed drug and was approved for sale without the need for any clinical trials or post-approval requirements. Further, based on a survey of 40 NDAs approved by the FDA under the Section 505(b)(2) pathway, we believe over twenty-five percent received and relied on a bio-waiver.

        The key Orange Book-listed U.S. patent for the use of treprostinil to treat PAH expired in October 2014 and our NDA will include a certification stating that Trevyent does not infringe any unexpired Orange Book-listed U.S. patents related to Remodulin. The Orange Book-listed U.S. patents related to Remodulin are: (i) patent 5,153,222, related to the use of treprostinil to treat PAH, expired as of October 6, 2014; (ii) patent 6,765,117, related to treprostinil made by a certain method, which expires on October 24, 2117; (iii) patents 7,999,007, 8,653,137 and 8,658,694, related to the use of high pH diluents containing glycine; (iv) patent 9,199,908, related to methods for administering treprostinil with a diluent; and (v) patents 8,497,393 and 9,593,066, related to treprostinil or its salts using a recrystallization process to purify the treprostinil. Our drug substance supplier has developed a method of manufacturing treprostinil sodium which we do not believe infringes patents 6,765,117 and 8,497,393 because we do not perform the claimed method steps. The Trevyent formulation also does not require and therefore does not use high pH diluents or glycine.

        We believe, and have been advised, that we can use a similar pathway to obtain marketing authorization of Trevyent in Europe. We met with regulatory agencies in Sweden, Germany and the United Kingdom in October 2014 to discuss our development plans for Trevyent and these agencies agreed that we may submit an abridged MAA for Trevyent, with Remodulin listed as the reference drug. These agencies also agreed that waiver of bioequivalence study requirements for Trevyent would be appropriate in connection with such an abridged MAA for Trevyent. Based on these meetings, we believe that no clinical studies are required for the Trevyent MAA in these jurisdictions.

        After approval and launch of Trevyent, we intend to focus on market expansion opportunities and conduct several studies designed to demonstrate that, as compared to existing treatments, Trevyent results in better patient outcomes and improved pharmaco-economics.

Trevyent Sales and Marketing

        If approved by the FDA, we anticipate commercializing Trevyent for the treatment of PAH in the United States in mid-2018. PAH is a rare disease and there are fewer than 200 PAH treatment centers in the United States. We believe we could successfully market Trevyent in the United States with a contract commercial organization of approximately 25 people. We anticipate that Cardiome will begin commercializing Trevyent for the treatment of PAH in Europe in the second half of 2018.

        We plan to enter into distribution agreements with the leading specialty pharmacies in the United States, which currently distribute PAH treatments directly to patients. These specialty pharmacies will also be responsible for assisting patients with obtaining reimbursement for Trevyent and providing other support services.

10

---

Table of Contents

        In the United States, we plan to price Trevyent comparably to Remodulin, which is currently reported to be priced between approximately $125,000 and $175,000 per patient per year. There are currently no approved generic forms of treprostinil and, if such a generic became available, we do not expect that availability to impact our plan to price Trevyent comparably to Remodulin. We believe that the current limitations of Remodulin would apply equally to any approved generic form of treprostinil and that the benefits of Trevyent will minimize any price impact from generics in the market. Further, Trevyent will be reviewed as a new drug and, if approved, will not be regulated as a generic. Trevyent will not be substitutable by a Remodulin generic and will not be priced as a generic.

Technology Licensing

        We have ongoing efforts to license our PatchPump technology to pharmaceutical and biopharmaceutical companies for their large volume (greater than 2 mL), high value small molecule or biologic drugs. Pharmaceutical companies are seeking infusion systems that are effective, safe and patient friendly. One of the biggest challenges facing pharmaceutical companies developing biologics is to find the right formulation with the lowest injectable volume without creating viscosities that prevent administration by injection. We believe this is resulting in a significant number of large volume injectable biologics currently in development that are not amenable to injection by needles and syringes or auto-injectors.

        As a result of the convenience, compact size and pre-filled nature of our PatchPump for the delivery of highly viscous and large volume molecules, we believe it could become a preferred choice of drug administration for a number of biologics. A recent report on the bolus injector market reviewed a sample of 900 biologics which are either currently marketed or under various phases of clinical development. Nearly one third of these biologics were identified as targets for delivery via large volume bolus injectors such as our PatchPump.

        Our proprietary drug container has been tested to ensure drug compatibility and long-term stability. We and third party bio-pharmaceutical companies have conducted studies confirming compatibility with, and stability of, representative biologic compounds stored within the drug container under real-time and accelerated conditions.

Our Technology

        We designed our proprietary PatchPump to enable easier, more convenient and less error-prone drug administration. The PatchPump is water-resistant, compact, has an external status-check button, provides visual and audible patient feedback and has a clear window to view and inspect the pre-filled liquid drug. The core technology inside our proprietary PatchPump is our expanding battery, the ECell, which is comparable to an alkaline battery but with a flexible housing. As the ECell discharges in a controlled fashion, it expands and pushes against the flexible drug container, forcing the pre-filled drug out of the device. The other major components of the PatchPump include: a circuit board, containing the hardware and software that control the expansion rate of the ECell and other device functions, various sensors to assist in flow control and occlusion detection, feedback LEDs to tell the patient the status of the product and an external status-check button.

        The PatchPump, included in Trevyent and our AHPA product candidates, uses existing commercially available drug infusion sets, with minor modifications, to provide either subcutaneous or intravenous drug administration. We are also developing a PatchPump with an integrated cannula, which will allow subcutaneous drug administration without an external infusion set.

        The PatchPump can be configured to deliver a range of volumes of drug and delivery rates, depending on the targeted disease. The figure below shows the PatchPump configured for use with an external subcutaneous infusion set and the design with the integrated cannula.

11

---

Table of Contents

        During continuous delivery, the PatchPump is silent unless the status-check button is pressed, which causes a buzzer to sound and the feedback LEDs to flash green, to notify the patient of normal operation. Near the end of the dosing period the buzzer will sound and the LEDs will flash red to instruct the patient to remove the PatchPump and replace it with a new PatchPump, if required.

        We expect that the PatchPump will be positioned on the patient's abdomen or, alternatively, on the upper arm, hip, thigh, or upper buttocks. The PatchPump is intended to be self-administered and can be worn throughout the course of normal daily activities, including working, exercising, sleeping and bathing.

Manufacturing

        Trevyent will be manufactured by contract manufacturing organizations, or CMOs. Custom manufacturing equipment, including process equipment, injection molds and test equipment, is specific to the production of critical PatchPump components; and manufacturing processes are being developed under our direction and ownership, but will be located at the various CMOs. All CMOs have been selected for their specific competencies in the manufacturing processes and materials included in our product candidates and comply with current Good Manufacturing Practices, or cGMPs, and Quality System Regulations, or QSRs, as required by the FDA and other regulatory authorities.

PatchPump

        Development and supply agreements for our proprietary PatchPump are in place with our critical contract manufacturers. We currently have agreements with Bespak Europe Ltd., EaglePicher Medical Power, LLC and Nova Laboratories Limited. Bespak is our development and manufacturing partner for the injection molded components, drug container manufacturing and assembly and packaging of the PatchPump. Bespak is a leading global supplier of delivery devices for inhaled and injectable drugs. EaglePicher, a global supplier of custom battery technologies for the medical device industry, is our development and manufacturing partner for the ECell. Nova Laboratories Limited specializes in novel, complex aseptic processing of pharmaceutical, biopharmaceutical and medical device products and will aseptically fill our drug container.

Drug Product

        We currently have a long-term contract with a third party supplier for the API for Trevyent. Our supplier is a FDA-inspected, global supplier of bulk API and has a Drug Master File (DMF) for treprostinil filed in the United States. The treprostinil API for Trevyent is manufactured using a unique, proprietary method of synthesis. Our NDA will include a certification stating that Trevyent does not infringe any unexpired Orange Book-listed patents related to Remodulin.

        Standard quality assurance testing and controls that are typical for GMP-manufactured sterile solutions have been established to ensure the product will meet FDA guidelines and requirements. The chemistry, manufacturing and controls, or CMC documentation for the Trevyent drug product will be submitted to the FDA as part of our Trevyent NDA.

Competition

        The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our competitors include organizations such as major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and generic drug companies. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large established companies.

12

---

Table of Contents

        Many of our competitors have greater financial and other resources than we have, such as more commercial resources, larger research and development staffs and more extensive marketing and manufacturing organizations. As a result, these companies may obtain marketing approval more rapidly than we are able and may be more effective in selling and marketing their products. We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price and the availability of reimbursement from government and other third-party payers.

        For Trevyent, we expect to compete with certain existing infusion treatments for PAH patients with Class II-IV symptoms as well as known products under development:

•

Infused Prostacyclins.  This includes the market leader, Remodulin (treprostinil) sold by United Therapeutics Corporation, and other prostacyclins, such as Veletri (epoprostenol) sold by Actelion Ltd., Flolan (epoprostenol) sold by GlaxoSmithKline PLC, and generic epoprostenol sold by Teva Pharmaceutical Industries Ltd.



•

Generic Treprostinil.  Sandoz and Teva have filed an abbreviated NDA, or ANDA, for a generic form of treprostinil. As a result of litigation settlements with United Therapeutics, Sandoz and Teva each have a license to a launch generic treprostinil product in June 2018 and December 2018, respectively.



•

Semi-Disposable Remodulin Pump.  United Therapeutics has a research and development collaboration with DEKA Research and Development to develop a pre-filled semi-disposable pump system for the subcutaneous delivery of Remodulin.



•

Implantable Pump.  Medtronic, Inc. currently sells the SynchroMed II implantable pump to deliver baclofen to treat severe spasticity; however, in April 2015, the FDA filed a consent decree requiring Medtronic to stop manufacturing, designing and distributing the SynchroMed II implantable pump, except in limited circumstances, citing violations of the quality system regulation for medical devices. On March 14, 2017, Medtronic announced a Class I recal of the Synchromed pump. Under a collaboration between United Therapeutics and Medtronic, Inc., a specially designed delivery catheter is being developed to enable use of the SynchroMed II Pump for the delivery of treprostinil, which will be subject to the SynchroMed consent decree as well as subject to regulatory approval. The FDA informed Medtronic in March 2016 that its premarket approval application for this use of the SynchroMed II Pump LSAS was not approvable as submitted. United Therapeutics has disclosed that it continues to advance this collaboration.

        In addition, there may be companies unknown to us that are engaged in the development of products that are potentially competitive with those that we are developing.

Intellectual Property

        Our success depends in large part on our ability to obtain and maintain intellectual property protection for the proprietary technologies that are core to our business, including our PatchPump technology. We seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. The material jurisdictions in which we have patents and/or patent applications include the United States, Europe, Canada, China and Japan. We also rely on know-how, copyright, trademarks and trade secret laws, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position. Such protection is also maintained using confidential disclosure agreements. Protection of our technologies is important for us to offer our customers proprietary products unavailable from our competitors, and to exclude our competitors from practicing technology that we have developed. If competitors in our industry have access to the same technology, our competitive position may be adversely affected.

13

---

Table of Contents

        It is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents from our pending patent applications or other inventions we seek to protect. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications may be rejected and we may abandon them. It is also possible that we may develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or altogether preclude our ability to do business. In addition, any patent issued to us may provide us with little or no competitive advantage, in which case we may abandon such patent or license it to another entity. For more information, please see "Risk Factors—Risks Related to Intellectual Property."

        As of February 28, 2017, we held four issued U.S. patents and 15 issued foreign patents, as well as seven U.S. pending applications and 13 foreign pending applications, related to our PatchPump technology and our Trevyent drug formulation.

        There are multiple distinct patent or patent application families important to our intellectual property protection. They include:

•

Preservative Free Treprostinil Formulation.  This family provides for coverage of an aseptically filled, single-use container containing a parenteral formulation of treprostinil sodium without an antimicrobial preservative for subcutaneous or intravenous delivery, which provides, among other things, for reduced pain at an injection site. The earliest expected expiration dates for this family will occur in year 2035.



•

Novel Use of Expanding Battery Cells.  This family provides coverage for the use of volume changes generated by battery cells to drive drug-delivery devices in order to administer drugs to patients via various routes of administration. The earliest expected expiration dates for this family occur in 2028 in both the United States and Europe.



•

Novel Control System for Displacement-Generating Batteries.  This family relates to the use of control systems and displacement sensors to facilitate highly accurate drug delivery together with indications of device malfunctions and additional safety features. The earliest expected expiration dates for this family occur in 2026 in both the United States and Europe.



•

Novel Design for a Drug Delivery Device.  This family relates to a specific design for our PatchPump drug container and the means by which it is compressed by an actuator to provide expulsion of drug from the device. The earliest expected expiration dates for this family occur in 2031 in both the United States and Europe.



•

Novel Drug Delivery Device.  This family relates to a drug delivery device that is based on pressure changes resulting from electrolysis. The earliest expected expiration dates for this family occur in 2025 in the United States and in 2024 in Europe.



•

Novel Use of a Drug Delivery Device.  This family relates to a device that is particularly suitable for delivery of an anesthetic or pain relieving medication along with an active ingredient in order to reduce pain at the drug administration site. The earliest expected expiration dates for this family occur in 2033 in both the United States and Europe.



•

Assembly of PatchPump.  This family relates to the assembly of the PatchPump, and a unique arrangement of parts to promote controlled drug release. The earliest expected expiration dates for this family occur in 2033 in both the United States and Europe.

14

---

Table of Contents

Government Regulation

        Government authorities in the United States, at the federal, state and local level and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, pricing and import and export, of pharmaceutical and medical device products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and resources and the successful outcome of those processes cannot be guaranteed.

Review and Approval of Drugs Products in the United States

        In the United States, the FDA regulates drugs under the FFDCA and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

        An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

•

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, or GLP, regulations;



•

submission to the FDA of an IND, which must take effect before human clinical trials may begin;



•

approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;



•

performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication;



•

preparation and submission to the FDA of a new drug application, or NDA;



•

review of the product by an FDA advisory committee, where appropriate or if applicable;



•

satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product's identity, strength, quality and purity;



•

payment of user fees and securing FDA approval of the NDA; and



•

compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies required by the FDA.

15

---

Table of Contents

        To facilitate the drug development process, applicants may conduct formal meetings with FDA to discuss proposed development plans and study designs, with the goal to obtain FDA input and concurrence on the overall development plan. Meetings with FDA may be held at any time, but are generally conducted at certain drug development milestones, such Pre-IND, End-of-Phase 2 and Pre-NDA meetings.

Preclinical Studies

        Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

Human Clinical Studies in Support of an NDA

        Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA can also place the IND on clinical hold at any time during development, which would require the resolution of outstanding safety concerns before development can continue.

        In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

        Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

•

Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease (e.g. cancer) or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.



•

Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

16

---

Table of Contents

•

Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

        Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpected serious harm to patients.

Submission of an NDA to the FDA

        Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies, together with detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, and the sponsor of an approved NDA is also subject to annual product and establishment user fees. These fees are typically increased annually.

        The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74^th day after the FDA's receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. In accordance with PDUFA legislation, specified performance goals have been established for FDA's review of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

        Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections usually cover all facilities associated with an NDA submission, including drug component manufacturing (such as Active Pharmaceutical Ingredients), finished drug product manufacturing and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

17

---

Table of Contents

        In addition, as a condition of approval, the FDA may require an applicant to develop a risk evaluation and mitigation strategy or REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

        The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

The FDA's Decision on an NDA

        On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

        If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug's safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

18

---

Table of Contents

Orphan Drug Act

        Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. In December 2015, the Office of Orphan Products Development, part of the FDA, granted orphan designation for Trevyent. After the FDA grants orphan drug designation, the name of the sponsor, identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not shorten the duration of the regulatory review or approval process, but does provide certain advantages, such as a waiver of Prescription Drug User Fee Act, or PDUFA, fees, enhanced access to FDA staff and potential waiver of pediatric research requirements.

        If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Because treprostinil for the treatment of PAH has previously been awarded orphan drug exclusivity, we will need to demonstrate clinical superiority to Remodulin in order to be awarded orphan drug exclusivity for Trevyent, either through improved efficacy, safety or a major contribution to patient care. We believe Trevyent represents a substantial improvement in patient safety. By significantly streamlining the process for preparing and administering continuous treprostinil infusion therapy, use of Trevyent may lead to a lower incidence in serious systemic infections as compared to the number associated with intravenous Remodulin. We also believe the pre-filled, pre-programmed nature of Trevyent may reduce dosing errors compared to the number reported with Remodulin. We intend to demonstrate this through detailed verification and validation testing of our device design and features, which will be supported by existing, published data.

        Orphan drug exclusivity does not prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

        A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

        Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

19

---

Table of Contents

        The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-approval testing, including Phase 4 clinical trials, or surveillance to further assess and monitor the product's safety or effectiveness upon commercialization.

        In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

        Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

•

restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;



•

fines, warning letters or holds on post-approval clinical trials;



•

refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;



•

product seizure or detention, or refusal to permit the import or export of products; or



•

injunctions or the imposition of civil or criminal penalties.

        The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

        In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

20

---

Table of Contents

Section 505(b)(2) NDAs

        NDAs for most new drug products generally are based on two full clinical studies which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FFDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FFDCA. This type of application allows the applicant to rely, in part, on the FDA's previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.

        Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the Section 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, the applicant may eliminate the need to conduct some, most, or even all preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

Hatch-Waxman Patent Certification and the 30 Month Stay

        Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant's product or an approved method of using the product. Each of the U.S. patents listed by the NDA sponsor is published in the Orange Book. When an ANDA or Section 505(b)(2) NDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the applicant is not seeking approval.

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

•

the required patent information has not been filed;



•

the listed patent has expired;



•

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



•

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

        The applicant may also submit a "viii" statement carving out from the proposed labeling any patent indications for use for which the applicant is not seeking approval. A certification that the new product will not infringe the already approved product's listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA or Section 505(b)(2) NDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the applicant is not seeking approval).

21

---

Table of Contents

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

Review and Approval of Drug-Device Combination Products in the United States

        Combination products are therapeutic and diagnostic products that combine drugs, devices, and/or biological products. Technological advances continue to combine product types regulated by FDA's human medical product centers, which are made up of the Center for Drug Evaluation and Research (CDER), the Center for Biologics Evaluation and Research (CBER), and the Center for Devices and Radiological Health (CDRH). Because combination products involve components that are regulated under different types of regulatory requirements, and by different FDA Centers, they raise regulatory, policy and review management challenges. Differences in regulatory pathways for each component can impact the regulatory processes for all aspects of product development and management, including preclinical testing, clinical investigation, marketing applications, manufacturing and quality control, adverse event reporting, promotion and advertising, user fees and post-approval modifications.

        The FDA's Office of Combination Products, or OCP, was established in 2003 to provide prompt determination of the FDA center with primary jurisdiction for the review and regulation of a combination product; ensure timely and effective premarket review by overseeing the timeliness of and coordinating reviews involving more than one center; ensure consistent and appropriate post-market regulation; resolve disputes regarding review timeliness; and review/revise agreements, guidance and practices specific to the assignment of combination products.

        FDA OCP assigns the lead center (CDER, CBER, or CDRH) for a combination product to a lead center based upon its primary mode of action, or PMOA, which is defined as "the single mode of action of a combination product that provides the most important therapeutic action of the combination product."

        FDA's assigned lead center has primary responsibility for the review and regulation of a combination product; however a second center is often involved in the review process, especially to provide input regarding the "secondary" component. In most instances, the lead center applies its usual regulatory pathway. For example, a drug-device combination product assigned to CDER will typically be reviewed under a New Drug Application (NDA), while a drug-device combination product assigned to CDRH is typically reviewed under the 510(k) or Premarket Approval Application (PMA) process.

        Combination products are subject to application User Fees based on the type of application submitted for the product's premarket approval or clearance. For example, a combination product for which an NDA is submitted is subject to the NDA fee under the Prescription Drug User Fee Act. Likewise, a combination product for which a PMA is submitted is subject to the PMA fee under the Medical Device User Fee and Modernization Act.

        We believe that our products will be reviewed as NDAs by CDER with consulting review on the device component provided by CDRH. The Quality Systems Regulation will apply to all manufacturing of our device components and we may be subject to additional QSR requirements applicable to medical devices, such as design controls, purchasing controls, and corrective and preventive action.

22

---

Table of Contents

Review and Approval of Drug Products in the European Union

        In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

        Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents.

        To facilitate the drug development process, sponsors may conduct scientific advice meetings with European regulatory agencies on an individual (national) level, or centrally, with the European Medicines Agency Scientific Advice Working Party (SAWP). These meetings may be conducted at any time, but are generally intended to provide advice on the unique aspects of a product's overall development plan.

        To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a marketing authorization application, or MAA, under the centralized, decentralized or mutual recognition procedure.

        The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.

        Under the centralized procedure, the Committee for Medicinal Products for Human Use, or CHMP, established at the European Medicines Agency, or EMA, is responsible for conducting the initial assessment of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.

23

---

Table of Contents

        The decentralized procedure is available to applicants who wish to market a product in various European Union member states where such product has not received marketing authorization in any European Union member states before. The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the reference member state. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receipt of a valid application. Within 90 days of receiving the reference member state's assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

        The mutual recognition procedure must be used if the product has already been authorized in at least one European Union member state. Within 90 days of the submission of the application to the other, or concerned, member states, the member state in which the product has already been authorized, or the reference member state, must provide a copy of its assessment report to the concerned member states. Within 90 days of receiving the reference member state's assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

        Under the decentralized and mutual recognition procedures, if a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.

Pharmaceutical Coverage, Pricing and Reimbursement

        Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and similar foreign government authorities. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Therefore, sales of products will depend, in part, on the extent to which the costs of the products will be covered and reimbursed by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

        In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

        Coverage and reimbursement for therapeutic products can differ significantly from payor to payor. One third-party payor's decision to cover a particular medical product or service does not assure that other payors will also provide coverage for the medical product or service, or to provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that adequate coverage and reimbursement will be obtained.

24

---

Table of Contents

        In the United States, the European Union and other potentially significant markets for our products, third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. For example, third-party payors are attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. The cost containment measures that third-party payors are instituting and the effect of any healthcare reform could significantly reduce our revenues from the sale of any products or approved product candidates. Even if favorable coverage and reimbursement status is attained for our products for which we receive regulatory approval, less favorable coverage and reimbursement policies and reimbursement rates may be implemented in the future.

        In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or they may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Healthcare Law and Regulation

        Healthcare providers, including physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Our activities, including our arrangements with third-party payors and customers, are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such potentially applicable U.S. federal and state healthcare laws include the following:

•

the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, overtly or covertly, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;



•

the federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, prohibit persons and entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;



•

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;



•

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, and their implementing regulations, also impose obligations, including mandatory contractual terms, on certain types of entities and individuals, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

25

---

Table of Contents

•

the federal transparency requirements under the Physician Payments Sunshine Act, requires certain manufacturers of drugs, devices, biologics and medical supplies for which reimbursement is available under Medicare, Medicaid, or the Children's Health Insurance Program, to report to the U.S. Department of Health and Human Services' Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interests held by physicians and their immediate families; and



•

analogous state and foreign laws in Europe and elsewhere, such as state anti-kickback and false claims laws, which may be broader in scope and may apply regardless of payor, including private insurers. Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments provided to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

        Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our current or future business activities, including certain sales and marketing practices and the provision of certain items and services to our customers, could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us and our operations in the United States, we may be subject to penalties, including potentially significant criminal and civil and/or administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Health Reform

        The United States and some foreign jurisdictions are considering enacting or have enacted a number of additional legislative and regulatory proposals designed to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical and medical device industries have been a particular focus of these efforts and have been significantly affected by major legislative initiatives, including the ACA, which has substantially changed healthcare delivery and financing by both governmental and private insurers. Since its enactment, there have been judicial and Congressional challenges to numerous provisions of the ACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is not a law, but it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed.

26

---

Table of Contents

        In addition, the Budget Control Act of 2011, among other things, created 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 at least $1.2 trillion for the years 2013 through 2021, triggering the legislation's automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, following passage of the Bipartisan Budget Act of 2015, will stay in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Further, in January 2016, CMS issued a final rule regarding the Medicaid drug rebate program. The final rule, effective April 1, 2016, among other things, revises the manner in which the "average manufacturer price" is to be calculated by manufacturers participating in the program. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

Regulations in Israel

        Our clinical operations in Israel also are subject to approval of the ethics committee (established, inter alia, in accordance with the World Medical Association (WMA) Declaration of Helsinki—Ethical Principles for Medical Research Involving Human Subjects and is commonly referred to as a Helsinki Committee), as well as the director of each medical institution in which a clinical study is conducted. All phases of clinical studies conducted in Israel must be conducted in accordance with the Israel Public Health Regulations (Medical Studies Involving Human Subjects) 5741-1980, the Guidelines for Clinical Trials in Human Subjects issued by the Israel Ministry of Health and the International Conference for Harmonized Tripartite Guideline for Good Clinical Practice. In addition, certain clinical studies require the approval of the Israeli Ministry of Health, while genetic special fertility studies and other similar studies also require the opinion of the national ethics committee. The institutional ethics committee is required, among other things, to consider that the anticipated benefits that are likely to be derived from the project justify the risks and inconvenience to the participants, that adequate protection exists for the rights and safety of the participants and that the study is adequately monitored. The director of the medical institution in which a clinical study is conducted, and the Israeli Ministry of Health, if applicable, also must be satisfied that the study is not contrary to the Declaration of Helsinki and other applicable regulations.

27

---

Table of Contents

        During the years 2005- 2010, we received grants under the royalty-bearing programs administered by the Israeli Innovation Authority (formerly the Office of the Chief Scientist) ("OCS"), and from the Incubator, RAD BioMed Ltd. ("Incubator") in Israel. In May 2015, the OCS approved the Company's request to transfer manufacturing rights outside of Israel, noting that the Company would be required to pay an increased royalty rate without providing any specifics. Therefore, if income will be generated from the funded research program, we will be obligated to pay royalties on such revenue at a rate between 3% to 4% for the first three years and between 3.5% to 4.5% commencing the fourth year (based on the portion of manufacturing out of Israel while non-product related revenues are subject to the lower end of the ranges) and up to 150% to 300% of the amount received, linked to the LIBOR. The revenues under the Agreement with Cardiome are subject to royalties under the above programs. As of December 31, 2016, the total amount of grants received from the OCS and the Incubator, including interest, was $765 and royalties paid and accrued was amounted to $35 and $23 during the years ended December 31, 2015 and 2016, respectively.

Employees

        As of December 31, 2016, we had 27 full-time employees. Of these employees, 13 are located in our Rehovot, Israel research and development facility and the remaining 14 employees, including our executive officers, are located in our San Ramon, California facility. None of our employees is represented by a collective bargaining agreement and we have never experienced any work stoppage. We believe that we maintain good relations with our employees.

        With respect to our employees and operations in Israel, Israeli labor laws govern the length of the workday and workweek, minimum wages for employees, procedures for hiring and dismissing employees, determination of severance pay, annual leave, sick days, advance notice of termination of employment, payments to the National Insurance Institute (which is similar to the U.S. Social Security Administration) and other conditions of employment and include equal opportunity and anti-discrimination laws. While none of our employees is party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists' Associations) are applicable to our employees in Israel by order of the Israeli Ministry of Economy. These provisions primarily concern cost of living adjustments to salaries, insurance for work-related accidents, recuperation pay, travel expenses and pension fund benefits.

Corporate Information

        SteadyMed Ltd. was founded in Israel in 2005. We have two subsidiaries. SteadyMed Therapeutics, Inc., a wholly-owned subsidiary of SteadyMed Ltd. was incorporated in Delaware in 2011 and SteadyMed U.S. Holdings Inc., a wholly-owned subsidiary of SteadyMed Therapeutics, Inc. was incorporated in Delaware in 2014. Our principal executive offices are located at 2603 Camino Ramon, Suite 350, San Ramon, CA 94583, and our telephone number is 925-272-4999. Our website address is http://www.steadymed.com. The information contained in, or that can be accessed through, our website is not part of this Annual Report on Form 10-K.

        We file electronically with the SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make available on our website at www.revance.com (under "Investors-Financials & Filings"), free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC.

28

---

Table of Contents

ITEM 1A.    RISK FACTORS

        Investing in our ordinary shares involves a high degree of risk, including those described below. You should consider carefully the following risks, together with all the other information in this report, including our financial statements and related notes. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose part or all of your investment.

Risks Related to the Development and Commercialization of our Product Candidates

Our success depends heavily on the successful development, regulatory approval and commercialization of our lead product candidate, Trevyent.

        We do not have any products that have been granted regulatory approval. We cannot commercialize Trevyent or any other or future product candidates in the United States without first obtaining regulatory approval for the product from the FDA, nor can we or existing or future partners commercialize Trevyent or any other or future product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. The FDA review process typically takes years to complete and approval is never guaranteed. As a result, our near-term prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain regulatory approval for and, if approved, to successfully commercialize Trevyent in a timely manner.

        Obtaining regulatory approval for marketing of any product candidate in one country does not ensure we will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.

        Further, because Trevyent combines a drug product and a delivery device, the approval of Trevyent by a regulatory authority would require the review of components that are regulated under different types of regulatory requirements. The need for oversight and review by different bureaus/centers within the regulatory authority could result in time delays with respect to the anticipated marketing approval for Trevyent and additional costs in development and preparation of responses to the regulatory authority while our product submissions are under review.

        Even if we were to successfully obtain approval for one or more of our product candidates from the FDA and comparable regulatory authorities outside the United States, any approval might contain significant limitations related to use restrictions or may be subject to burdensome and costly post-approval study or risk management requirements. If we are unable to obtain regulatory approval for our product candidates in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue our operations. Also, any regulatory approval of our product candidates, once obtained, may be withdrawn by the regulatory authority.

        Furthermore, even if we obtain regulatory approval, commercial success will depend on how successfully we are able to address a number of challenges, including the following:

•

Development and ongoing management of our commercial organization in the United States, including management and oversight of third-parties under contract with us to build and manage that organization;



•

Establishment of commercial collaborations with partners, including Cardiome Pharma Corporation, our Trevyent partner in Europe;



•

Establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;

29

---

Table of Contents

•

The ability of our third-party manufacturers to manufacture quantities of Trevyent or any other or future product candidates using commercially viable processes at a scale sufficient to meet anticipated demand and that are compliant with applicable regulations;



•

Our success in educating physicians, other health care professionals and patients about the benefits, administration and use of Trevyent or any other or future product candidates;



•

The availability, actual advantages, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and



•

The effectiveness of Cardiome's marketing, sales and distribution strategy and operations, and those of other potential commercial collaborators.

Many of these factors are beyond our control. If we or any commercialization partners are unable to successfully commercialize Trevyent, or any future product candidates, we may not be able to earn sufficient revenues to continue our business.

If the FDA does not conclude that Trevyent or our other product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for Trevyent or our other product candidates under Section 505(b)(2) are not as we expect, the approval pathway would 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 intend to seek FDA approval through the Section 505(b)(2) regulatory pathway for Trevyent and any other product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act or Section 505(b)(2). Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.

        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, and complications and risks associated with FDA approval, would substantially increase. We may need to obtain additional funding, which could result in significant dilution to the ownership interests of our then existing shareholders to the extent we issue equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all.

        Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that Trevyent or our other product candidates will 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, some pharmaceutical companies and others have objected to the FDA's interpretation of Section 505(b)(2). For example, several companies have previously petitioned the FDA regarding the constitutionality of allowing others to rely upon FDA findings that are based on their proprietary data. 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 require that we generate full data regarding safety and effectiveness for previously approved active ingredients and delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).

30

---

Table of Contents

        We also intend to seek approval of any other drug product candidates through the Section 505(b)(2) regulatory pathway. These product candidates, such as our AHPA programs, are at an earlier stage of development than Trevyent and are subject to even greater uncertainty, over what we must do on our development program in order to secure approval under Section 505(b)(2).

We are required to make certifications with respect to certain patents listed in the FDA Orange Book. If the owner of those patents initiates a lawsuit against us, the approval pathway would likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated.

        Because we plan to submit a Section 505(b)(2) NDA to the FDA for each of our product candidates, we are required to make certifications concerning any patents listed for the reference drug product in the FDA list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. The reference drug product for Trevyent is Remodulin, and there are currently six patents published in the Orange Book in connection with Remodulin. As such, we will be required to make certifications with respect to the listed patents, including in some instances that Trevyent will not infringe the listed patents and/or that the listed patents are invalid and/or unenforceable. The owner of the listed patents may initiate a patent infringement lawsuit in response to the certifications, which would automatically prevent the FDA from providing final approval of the NDA for Trevyent until the earlier of 30 months after the patent holder's receipt of the certifications, expiration of the listed patents, or a decision in the infringement lawsuit favorable to us. If the patent owner initiates an infringement lawsuit, the marketing approval of Trevyent in the United States could be significantly delayed and we may face significant costs in defense of the lawsuit.

        There is no guarantee that we would be successful in defending a patent infringement case, and if we are not successful, the FDA cannot grant approval for Trevyent under Section 505(b)(2) until all listed patents have expired. Accordingly, the proposed time frame for marketing approval of Trevyent may be delayed by as long as 30 months, pursuant to an automatic stay. This delay could have a significant material adverse effect on our business, prospects and financial condition. Moreover, if there is an adverse outcome in a patent infringement lawsuit, it could result in substantial damages and an inability to market Trevyent until 2029, the latest expiration date of all listed patents.

        United Therapeutics Corporation, the owner of the patents published in the Orange Book in connection with Remodulin, filed a lawsuit against Sandoz, Inc. based on Sandoz's earlier submission of its abbreviated NDA, or ANDA, to the FDA and its certification with respect to the Remodulin patents. On August 29, 2014, the court found that Sandoz infringed one of the patents, patent U.S. Patent No. 6,765,117, and that the effective date of any FDA approval for Sandoz to sell its generic version of Remodulin should be no earlier than the expiration of that patent, which is scheduled to expire on October 24, 2017. The court also found that Sandoz did not infringe other asserted patents. In September 2014, United Therapeutics filed a separate lawsuit filed against Sandoz in the same U.S. District Court, alleging infringement of U.S. Patent No. 8,497,393.

        On September 30, 2015, United Therapeutics announced that it had entered into a Settlement Agreement with Sandoz in both cases. Under the Settlement Agreement, United Therapeutics granted to Sandoz a non-exclusive license to manufacture and commercialize the generic version of Remodulin, as described in Sandoz's ANDA filing, in the United States beginning on June 26, 2018, although Sandoz may be permitted to enter the market earlier under certain circumstances. The Settlement Agreement does not grant Sandoz any rights other than those required to launch Sandoz's generic version of Remodulin. In accordance with the Settlement Agreement, the parties will submit the Settlement Agreement to the U.S. Federal Trade Commission and the U.S. Department of Justice for review.

31

---

Table of Contents

        United Therapeutics also filed a lawsuit against Teva Pharmaceuticals USA, Inc. on September 2, 2014, alleging infringement of five United Therapeutics patents based on Teva's submission of its ANDA to the FDA seeking approval of a generic form of Remodulin. On January 15, 2016, United Therapeutics announced that it had entered into a Settlement Agreement with Teva. Under the Settlement Agreement, United Therapeutics granted Teva a non-exclusive license beginning on December 23, 2018 to manufacture and commercialize in the United States, the generic version of Remodulin described in Teva's ANDA, although Teva may be permitted to enter the market earlier under certain circumstances.

        Teva and Sandoz relied on ANDAs, which were required to have the same labeling to the referenced listed drug, Remodulin. A 505(b)(2) NDA applicant, such as for our NDA application for Trevyent, does not have these same requirements. We are not seeking approval as a generic to be automatically substituted for Remodulin, as would be the case for ANDAs. The likelihood of United Therapeutics filing suit against us is therefore not determined by their actions with respect to Sandoz and Teva; however, there can be no assurances that a lawsuit will not be filed against us.

        In October 2015, we filed an Inter Partes Review with the Patent Trial and Appeal Board, or PTAB, of the United States Patent and Trademark Office to invalidate the U.S. Patent No. 8,497,393 granted to United Therapeutics. This patent relates to a process to prepare prostacyclin derivatives such as treprostinil. Treprostinil is used in Trevyent. The PTAB initiated the Inter Parties Review in April 2016 and a ruling is expected in April 2017. If this review remains unresolved when we submit our NDA for Trevyent to the FDA, we will be required to make certifications with respect to this patent. There can be no assurances that we will be successful in invalidating this United Therapeutics patent and the outcome of the PTAB's review cannot be determined at this time.

        Further in January 2017, United Therapeutics received a Notice of Allowance on a continuation for the 8,497,393 patent, to allow a possible new patent having similar claims. This patent issued on March 14, 2017 under number 9,593,066. We will be required to make a certification with respect to this new patent.

The regulatory approval processes of the FDA and comparable authorities outside the United States are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

        The time required to obtain approval by the FDA and comparable authorities outside the United States is unpredictable and typically takes many years. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Our product candidates could fail to receive regulatory approval for many reasons, including the following:

•

The FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of any clinical trials that we propose to conduct or require us to conduct additional clinical trials;



•

We may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;



•

We may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;



•

The FDA or comparable regulatory authorities outside the United States may disagree with our interpretation of data from preclinical studies or clinical trials;

32

---

Table of Contents

•

The data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;



•

The FDA or comparable regulatory authorities outside the United States may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and



•

The approval policies or regulations of the FDA or comparable regulatory authorities outside the United States may change significantly in a manner rendering our clinical data insufficient for approval.

        Failing to obtain regulatory approval to market any of our product candidates would harm our business, results of operations and prospects significantly.

        In addition, even if we were to obtain approval, such regulatory approval may be for more limited indications than we request, may impact the price we intend to charge for our products, may be contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates.

        We have not previously submitted an NDA or any similar drug approval filing to the FDA or any comparable authority outside the United States for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates in one or more jurisdictions, our revenue will be dependent, to a significant extent, upon the size of the markets in the jurisdictions for which we gain regulatory approval.

Even if Trevyent and our other or future product candidates receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, healthcare payors and others in the medical community necessary for commercial success.

        Some of the existing therapies for PAH have well-established market positions and familiarity with physicians, healthcare payors and patients. If we are unable to achieve significant differentiation for Trevyent from existing and widely accepted therapies for PAH, our opportunity for Trevyent to be commercialized successfully, if approved, would be adversely affected.

        If Trevyent or any future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, healthcare payors and others in the medical community. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including the following:

•

convenience and ease of administration of the product candidates compared to alternative treatments;



•

the prevalence and severity of any side effects;



•

their efficacy and potential advantages compared to alternative treatments;



•

the willingness of physicians, nurses, pharmacies and other health care providers to change their current treatment practices;

33

---

Table of Contents

•

the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;



•

the strength of marketing and distribution support; and



•

the price we charge for our product candidates.

Trevyent has never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale.

        We have never manufactured Trevyent on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for Trevyent there is no assurance that our manufacturer will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand.

        If our suppliers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Trevyent may fail to offer material commercial advantages over other injectable prostacyclin therapies.

        The convenience and possible safety advantages that we believe Trevyent would offer, if approved by regulatory authorities, may fail to materialize, or may not be recognized by patient, caregivers or physicians. For example, patients may have invested significantly in pumps and equipment and be comfortable with their preparation of other injectable prostacyclin therapies, such as Remodulin, making it more difficult to convince a prescribing physician that these patients should switch to Trevyent. We do not have clinical evidence that removal of meta-cresol from our formulation of treprostinil will reduce or eliminate the experience of injection site reaction seen with Remodulin when administered subcutaneously. The convenience advantages of Trevyent may not be sufficient to either move market share to us or expand the population of PAH patients being prescribed treprostinil.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

        The development and commercialization of new specialty pharmaceutical products is highly competitive. We face competition with respect to Trevyent, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that currently market and sell PAH and pain management products to our target patient groups. These companies typically have a greater ability to reduce prices for their competing drugs in an effort to gain or retain market share and undermine the value proposition that we might otherwise be able to offer to payors. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

34

---

Table of Contents

        For Trevyent, we expect to compete with existing infusion treatments for PAH patients with Class II-IV symptoms as well as known products under development, including Remodulin (treprostinil) sold by United Therapeutics and other prostacyclins such as Veletri (epoprostenol) sold by Actelion Ltd., Flolan (epoprostenol) sold by GlaxoSmithKline PLC, and generic epoprostenol sold by Teva Pharmaceutical Industries Ltd. In addition, Sandoz and Teva have filed an ANDA for a generic form of treprostinil, which we expect will be launched in the second half of 2018.

        United Therapeutics announced in January 2015 that it had entered into an early stage research and development collaboration agreement to develop a pre-filled, semi-disposable pump system for the subcutaneous delivery of Remodulin with DEKA Research and Development Corp. Such a device would be in direct competition with Trevyent.

        Under a separate collaboration between United Therapeutics and Medtronic, Inc., a specially designed delivery catheter is being developed to enable use of an implantable pump, the SynchroMed pump, for the delivery of treprostinil. This collaboration is subject to settlement of a consent decree between Medtronic and the FDA regarding the SynchroMed pump. Further, on March 14, 2017, Medtronic announced a Class I recall of the Syncromed pump. In addition, use of the SynchroMed pump for the delivery of treprostinil is subject to regulatory approval and the FDA informed Medtronic in March 2016 that its premarket approval application was not approvable as submitted. United Therapeutics has disclosed that it continues to advance this collaboration.

        Many of our competitors, including United Therapeutics and other large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. There may also be companies unknown to us that are engaged in the development of products that are potentially competitive with those that we are developing. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of any investment in our ordinary shares.

        Our operations to date have been limited to developing Trevyent, our enabling PatchPump technology, and, to a much lesser extent, our AHPA product candidates. In addition, as an early stage company, 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 area. Nor have we demonstrated an ability to obtain regulatory approval for or to commercialize a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing a significant number of pharmaceutical products.

35

---

Table of Contents

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

        Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates and are currently focused principally on Trevyent. As a result, we may forego or delay pursuit of opportunities with other product candidates, including our AHPA products, or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

We rely, or intend to rely, on third parties to manufacture Trevyent. The development and commercialization of our product candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of product or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

        We lack the resources and the capability to manufacture Trevyent. Instead, we rely on our third-party contract manufacturers, component fabricators and secondary service providers. The facilities used by our third-party contract manufacturers, component fabricators and secondary service providers must successfully pass inspections by the applicable regulatory authorities, including the FDA, after we submit our NDA to the FDA. We are currently completely dependent on our third-party contract manufacturers, component fabricators and secondary service providers for the production of Trevyent in accordance with applicable guidelines and regulations, which include, among other things, quality control, quality assurance and the maintenance of records and documentation.

        Although we have entered into an agreement for the development and manufacture of certain Trevyent components and for registration lot production our third-party manufacturers may not perform as agreed, may be unable to comply with these applicable guidelines and regulations and with FDA, state and foreign regulatory requirements or may terminate their agreements with us. If any of our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities' strict regulatory requirements, or pass regulatory inspection, our NDA and MAA will not be approved. In addition, although we are ultimately responsible for ensuring product quality, we have no direct day-to-day control over our third-party manufacturers' ability to maintain adequate quality control, quality assurance and qualified personnel. If our third-party manufacturers are unable to satisfy the regulatory requirements for the manufacture of our products, or if our suppliers or third-party manufacturers decide they no longer want to manufacture our products, we may need to find alternative manufacturing facilities. The number of third-party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. We might be unable to identify manufacturers for long-term commercial supply on acceptable terms or at all. Manufacturers are subject to ongoing periodic announced and unannounced inspections by the FDA and other governmental authorities to ensure compliance with government regulations. If the FDA or other regulatory authority has any concerns following an inspection of these manufacturing facilities, the facility may be ordered to cease operations until such issues are resolved, which could have a material adverse effect on our business.

36

---

Table of Contents

        The active pharmaceutical ingredient, or API, for Trevyent will be manufactured for us by a third-party manufacturer using a unique, patented method of synthesis. We do not have an exclusive relationship with this manufacturer, which means this manufacturer could sell the treprostinil API to our competitors, which may have their own delivery systems and could compete against Trevyent. We do not have a back-up supplier of API for Trevyent. If our API manufacturer became unwilling or unable to supply us with API, we may not be able to immediately find an alternate source of supply, if at all, which would make it impossible for us to manufacture and, if approved, to sell Trevyent until another source is identified and validated. Identification and validation of any back-up supplier of API for Trevyent may be time-consuming and any delays would also impair our ability to timely manufacture, and if approved, sell Trevyent. If we were to experience an unexpected loss of Trevyent supply for development or commercialization, we could experience delays in progressing our development activities and achieving regulatory approval for our products, which could materially harm our business.

        The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers, component fabricators and secondary service providers must comply with applicable guidelines and regulations.

        Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced U.S. federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of any of our products will not occur in the future. Additionally, our contract manufacturers, component fabricators or secondary service providers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our contract manufacturers, component fabricators or secondary service providers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.

        Any adverse developments affecting commercial manufacturing of our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products or product candidates. We may also have to take inventory write-offs and incur other charges and expenses for products or product candidates that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our products or product candidates and could have a material adverse effect on our business, prospects, financial condition and results of operations.

37

---

Table of Contents

We will need to rely on third-party specialty channels to distribute Trevyent to patients. If we are unable to effectively establish and manage this distribution process, the commercial launch and sales of Trevyent may be delayed or compromised.

        We plan to contract with and rely on third-party specialty pharmacies to distribute Trevyent. A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions, which require a high level of patient education and ongoing management. If we are unable to effectively establish and manage this distribution process, the commercial launch and sales of Trevyent will be delayed or compromised and our results of operations may be harmed.

        In addition, the use of specialty pharmacies involves certain risks, including, but not limited to, risks that these organizations will:

•

not provide us with accurate or timely information regarding their inventories, the number of patients who are using our product candidates, or complaints regarding our product candidates;



•

not effectively sell or support our product candidates;



•

reduce or discontinue their efforts to sell or support our product candidates;



•

not devote the resources necessary to sell our product candidates in the volumes and within the time frames that we expect; or



•

cease operations.

        Any such events may result in decreased sales and lower revenue, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

Coverage and reimbursement may not be available, or may be available at only limited levels, for our product candidates, which could make it difficult for us to sell our product candidates profitably, if approved.

        Market acceptance and sales of our product candidates will depend in large part on global reimbursement policies and may be affected by future healthcare reform measures. Successful commercialization of Trevyent, our AHPA product candidates or other product candidates will depend in part on the availability of governmental and third-party payor reimbursement for the cost of our product candidates. Government authorities, private health insurers and other organizations establish coverage and reimbursement policies for new products. In particular, in the United States, the Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and other medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Further, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing, coverage, reimbursement and utilization, which may adversely affect our product sales and results of operations. These pressures can arise from policies and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, coverage and reimbursement policies and pricing in general.

38

---

Table of Contents

        In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, ACA, became law in the United States. ACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is not a law, however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed.

        In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2024 unless additional Congressional action is taken. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

        We expect to experience pricing pressures in connection with the sale of Trevyent and our other product candidates, if approved, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. If we fail to successfully secure and maintain adequate coverage and reimbursement for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on our business, prospects, financial condition and results of operations.

We currently have no sales representatives or distribution personnel and limited marketing capabilities. If we are unable to develop directly or indirectly a sales and marketing and distribution capability, we will not be successful in commercializing Trevyent or other or future product candidates.

        We have not yet built out an infrastructure to sell, market or distribute therapeutic products. If Trevyent is approved, we intend to commercialize Trevyent with contractual support from a third-party in the United States and through Cardiome in Europe, the Middle East and Canada. If any other or future product candidates are approved we may commercialize them directly and/or through commercial partners in the United States and with commercial partners outside of the United States. There are risks involved with both establishing our own sales and marketing and distribution capabilities and entering into third-party arrangements to perform these services. For example, we or our partners may not be successful in recruiting and training a sales force, which is expensive and time-consuming. In such case, the Trevyent product launch could be delayed.

        We may be unable to identify appropriate commercial partners to distribute our products outside the United States or to negotiate terms with such commercial partners that are favorable or acceptable to us. Also, we may be unable to maintain those relationships. The inability to identify, successfully negotiate with, and maintain relationships with, commercial partners for distribution outside the United States could limit and/or delay our ability to commercialize our products outside the United States.

39

---

Table of Contents

If we obtain approval to commercialize any of our product candidates outside the United States, we will be subject to additional risks.

        If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business, including:

•

different regulatory requirements for drug approvals in countries outside the United States;



•

reduced protection for intellectual property rights;



•

unexpected changes in tariffs, trade barriers and regulatory requirements;



•

economic weakness, including inflation or political instability in particular foreign economies and markets;



•

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;



•

non-U.S. taxes, including withholding of payroll taxes;



•

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country;



•

workforce uncertainty in countries where labor unrest is more common than in the United States;



•

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and



•

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

        We are highly dependent on our chief executive officer and the other principal members of our executive team. Under the terms of their employment, our executives may terminate their employment with us at any time. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives. Recruiting and retaining qualified and experienced scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers or engaged by entities other than us and may have commitments under employment, consulting or advisory contracts with other entities that may limit their availability to us.

40

---

Table of Contents

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

        As of December 31, 2016, we had 27 full-time employees. Over the next several years, we expect to experience significant growth in the number of our employees and the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, 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. Future growth would impose significant added responsibilities on members of management, including:

•

managing our clinical trials effectively, which we anticipate being conducted at numerous clinical sites;



•

identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require;



•

managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;



•

managing additional relationships with various strategic partners, suppliers and other third parties;



•

improving our managerial development, operational and finance reporting systems and procedures; and



•

expanding our facilities.

        Our failure to accomplish any of these tasks could prevent us from successfully growing our company. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We are an "emerging growth company" and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means, among other things, that the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

41

---

Table of Contents

        Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company" which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

        Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these reduced requirements. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.

Guidelines and recommendations published by various organizations can reduce the use of our product candidates.

        Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidates. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of therapies. Recommendations or guidelines suggesting the reduced use of our product candidates or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidates.

Even if we receive regulatory approval for Trevyent and our other or future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements.

        Any regulatory approvals that we may receive for our product candidates will contain approved indicated uses, and we will be required to market any approved products in accordance with the indicated uses and our approved labeling. In addition, any regulatory approvals may contain conditions for approval or requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable regulatory authority outside the United States approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, Quality System Regulation, or QSR, requirements and current good clinical practices, or cGCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

•

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;



•

fines, warning or untitled letters or holds on clinical trials;

42

---

Table of Contents

•

refusal by the FDA to approve pending applications or supplements to approved applications filed, or suspension or revocation of product approvals;



•

product seizure or detention, or refusal to permit the import or export of products; and



•

injunctions, the imposition of civil penalties or criminal prosecution.

        We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. If we are not able to maintain regulatory compliance or if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, regulatory sanctions may be applied or we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

If we fail to comply with healthcare and other regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

        Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include, without limitation:

•

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



•

indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;



•

the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like us which provide coding and billing advice to customers;



•

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



•

the federal transparency requirements require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;



•

the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and

43

---

Table of Contents

•

foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or FCPA, anti-kickback and false claims laws that may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

        If our operations are found to be in violation of any of the laws or regulations described above, comparable laws and regulations of non-U.S. jurisdictions or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Our product candidates may cause serious adverse side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.

        It is impossible to predict when or if any of our product candidates will prove safe enough to receive regulatory approval. Undesirable side effects could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable regulatory authority outside the United States for the affected product candidate. Additionally, if any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:

•

we may be forced to suspend the marketing of such product;



•

regulatory authorities may withdraw their approvals of such product;



•

regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products;



•

the FDA or other regulatory bodies may issue safety alerts, "Dear Healthcare Provider" letters, press releases or other communications containing warnings about such product;



•

the FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies, or REMS, or a comparable regulatory authority outside the United States may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome and costly implementation requirements on us;



•

we may be required to change the way the product is administered or conduct additional clinical trials;



•

we could be sued and held liable for harm caused to subjects or patients;



•

we may be subject to litigation or product liability claims; and



•

our reputation may suffer.

44

---

Table of Contents

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved.

        Further, changes in regulatory requirements and guidance may occur and we may need to amend clinical study protocols to reflect these changes. Amendments may require us to resubmit our clinical study protocols to Institutional Review Boards for reexamination, which may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the recall and withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products or require safety surveillance and/or patient education. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical studies and the drug approval process. Data from clinical studies may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate or suspend clinical studies before completion, or require longer or additional clinical studies that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

        Given the serious public health risks of high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk evaluation and mitigation strategies, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising.

If we are able to commercialize any of our product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.

        The regulations that govern marketing approvals, pricing and reimbursement for specialty pharmaceutical products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some markets outside the United States, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain regulatory approval.

        Our ability to commercialize Trevyent or any other or future product candidates successfully also will depend in part on the extent to which reimbursement for these products and related treatments becomes available from government health administration authorities, private health insurers and other organizations. 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. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with products administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.

45

---

Table of Contents

        There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for new products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In some foreign countries, including major markets in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take nine to twelve months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. Our business could be materially harmed if reimbursement of our approved products, if any, is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and establishing requirements for promotion.

        If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products or otherwise to have improperly promoted our products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product's approved labeling. It is also required to provide pertinent safety information about a product. If we are found to have promoted such off-label uses, or not to have provided adequate safety information, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and other forms of improper promotion. The United States government has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

46

---

Table of Contents

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could result in significant liability for us and harm our reputation.

        We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable regulatory authorities outside the United States, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, comply with the FCPA and other anti-bribery laws, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions, delays in clinical trials, or serious harm to our reputation. We will adopt a code of conduct for our directors, officers and employees, or the Code of Business Conduct and Ethics, which will be effective as of consummation of this offering, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could harm our business, results of operations, financial condition and cash flows, including through the imposition of significant fines or other sanctions.

We may form strategic alliances in the future, and we may not realize the benefits of such alliances.

        We may form strategic alliances, create joint ventures, co-promotion agreements or marketing collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our existing business. These relationships or those like them may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing shareholders or disrupt our management and business. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new strategic partnership or marketing agreements related to our product candidates could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

        We face an inherent risk of product liability exposure related to any of our future product candidates. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

•

decreased demand for any product candidates or products that we may develop;



•

injury to our reputation and significant negative media attention;



•

significant costs to defend the related litigation;



•

substantial monetary awards to patients;



•

loss of revenue; and

47

---

Table of Contents

•

the inability to commercialize any products that we may develop.

        While we hold product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

We are subject to laws and regulations governing corruption, which will require us to develop and implement costly compliance programs.

        We must comply with a wide range of laws and regulations to prevent corruption, bribery and other unethical business practices, including the FCPA and anti-bribery and anti-corruption laws in other countries. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

        Anti-bribery laws prohibit us, our employees and some of our agents or representatives from offering or providing any personal benefit to covered government officials to influence their performance of their duties or induce them to serve interests other than the missions of the public organizations in which they serve. Certain commercial bribery rules also prohibit offering or providing any personal benefit to employees and representatives of commercial companies to influence their performance of their duties or induce them to serve interests other than their employers. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, or DOJ. The Securities and Exchange Commission, or the SEC, is involved with enforcement of the books and records provisions of the FCPA.

        Compliance with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the anti-bribery laws present particular challenges in the pharmaceutical industry, because, in many countries, hospitals are state-owned or operated by the government, and doctors and other hospital employees are considered foreign government officials; furthermore, in certain countries, hospitals and clinics are permitted to sell pharmaceuticals to their patients and are primary or significant distributors of pharmaceuticals. Certain payments to hospitals in connection with clinical studies, procurement of pharmaceuticals and other work have been deemed to be improper payments to government officials and have led to vigorous anti-bribery law enforcement actions imposing heavy fines in multiple jurisdictions.

        It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

        In the pharmaceutical industry, corrupt practices include, among others, acceptance of kickbacks, bribes or other illegal gains or benefits by the hospitals and medical practitioners from pharmaceutical manufacturers, distributors or their third party agents in connection with the prescription of certain pharmaceuticals. If our employees, affiliates, distributors or third party marketing firms violate these laws or otherwise engage in illegal practices with respect to their sales or marketing of our products or other activities involving our products, we could be required to pay damages or heavy fines by multiple jurisdictions where we operate, which could materially and adversely affect our financial condition and results of operations.

48

---

Table of Contents

        If we expand our operations, we may need to increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws. Our compliance programs will need to include policies addressing not only the FCPA, but also the provisions of a variety of anti-bribery and anti-corruption laws in multiple foreign jurisdictions, encompass provisions relating to books and records that will apply to us as we become a public company and include effective training for our personnel throughout our organization. The creation and implementation of anti-corruption compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. Violation of the FCPA and other anti-corruption laws can result in significant administrative and criminal penalties for us and our employees, including substantial fines, suspension or debarment from government contracting, prison sentences, or even the death penalty in extremely serious cases in certain countries. The SEC also may suspend or bar us from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions. Even if we are not ultimately punished by government authorities, the costs of investigation and review, the distraction of company personnel, legal defense costs and harm to our reputation could be substantial and could limit our profitability or our ability to develop or commercialize our product candidates. In addition, if any of our competitors are not subject to the FCPA, they may engage in practices that will lead to their receipt of preferential treatment from foreign hospitals and enable them to secure business from foreign hospitals in ways that are unavailable to us.

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

        We and our third-party manufacturers' activities involve the controlled storage, use and disposal of hazardous materials. We and our manufacturers are subject to United States federal, state and local as well as foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state, federal or foreign authorities may curtail the use of hazardous materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. If we are subject to any liability as a result of our third-party manufacturers' activities involving hazardous materials, our business and financial condition may be adversely affected. In the future we may seek to establish longer term third-party manufacturing arrangements, pursuant to which we would seek to obtain contractual indemnification protection from such third-party manufacturers potentially limiting this liability exposure.

Business interruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

        Our operations could be subject to earthquakes, power shortages, telecommunications failures, systems failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business interruptions could seriously harm our business and financial condition and increase our costs and expenses. Our management operates in our principal executive offices located in San Ramon, California. If our offices were affected by a natural or man-made disaster, particularly those that are characteristic of the region, such as wildfires and earthquakes, or other business interruption, our ability to manage our domestic and foreign operations could be impaired, which could materially and adversely affect our results of operations and financial condition. We currently rely, and intend to rely in the future, on our third-party manufacturers, to produce our supply of Trevyent or our AHPA product candidates. Our ability to obtain supplies could be disrupted, and our results of operations and financial condition could be materially and adversely affected if the operations of our third-party manufacturers were affected by a man-made or natural disaster or other business interruption. The ultimate impact of such events on us, our significant suppliers and our general infrastructure is unknown.

49

---

Table of Contents

Under applicable employment laws, we may not be able to enforce covenants not to compete, and may, therefore, be unable to prevent competitors from benefiting from the expertise of some of our former employees involved in research and development activities.

        We generally enter into non-competition agreements with our employees in Israel. These agreements 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 following termination of employment. 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 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. If we cannot demonstrate that harm would be caused to us, an Israeli court may refuse to enforce our non-compete restrictions or reduce the contemplated period of non-competition such that we may be unable to prevent our competitors from benefiting from the expertise of our former employees.

Risks Related to Our Financial Condition and Need for Additional Capital

Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern and our auditors issued a "going concern" audit opinion in their report on our financial statements.

        Our independent auditors have indicated in their report on our audited consolidated financial statements as of December 31, 2016, which are included in this report, that there is substantial doubt about our ability to continue as a going concern. A "going concern" opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. As of this Annual Report on Form 10-K, the circumstances have not been changed and therefore the aforementioned going concern situation remains current. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation.

        We are a development stage company with limited operating history. To date, we have focused primarily on developing our lead product candidate, Trevyent, our enabling PatchPump technology and, to a much lesser extent, our AHPA product candidates. All of our product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. Developing pharmaceutical products is expensive. As of December 31, 2016, we had cash and cash equivalents (excluding restricted cash of $0.015 million) of $23.2 million and working capital of $17.0 million. This capital is sufficient to fund our operations into the fourth quarter of 2017. As a result, our ability to continue as a going concern is dependent on our ability to obtain additional capital in the near term.

50

---

Table of Contents

We need to raise additional capital in the near-term to execute our current operating plan. If we fail to obtain additional financing, we would be forced to delay, reduce or eliminate our product development programs, including for our lead product candidate, Trevyent, or liquidate the company.

        In August 2016, we raised approximately $19.6 million of net proceeds from the sale of our Ordinary Shares and warrants to purchase our Ordinary Shares in the first tranche of a private placement. Based on our current operating plan, we expect that our existing cash and cash equivalents as of December 31, 2016, will fund our operating expenses into the fourth quarter of 2017. If we sell additional Ordinary Shares in a second tranche of this private placement, based on our current operating plan, we expect that such additional net proceeds, together with our existing cash and cash equivalents as of December 31, 2016, will enable us to fund our operating expenses into the first quarter of 2018. For a description of the terms of this private placement, see "Management's Discussion and Analysis—Liquidity and Capital Resources—Sources of Liquidity—Recent Private Placement Financing ".

        We will need to raise additional capital by mid-2017 to execute our current operating plan. We cannot guarantee that we will be able to secure additional financing and securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

If we fail to obtain additional financing, fail to obtain additional financing on acceptable terms, we would be forced to delay, reduce or eliminate our product development programs, including for our lead product candidate, Trevyent, or liquidate the Company.

        We cannot guarantee that additional capital will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital, when required in 2017 or thereafter in the future, or on acceptable terms, we may be required to:

•

significantly delay, scale back or discontinue the development or commercialization of our product candidates;



•

seek corporate partners for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;



•

relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or



•

significantly curtail, or cease, operations.

        If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects, including possible liquidation of the company.

        In addition, we have secured, and may continue to secure, additional capital using credit facilities and other debt, and may substantially increase our reliance on such debt in the future. Such debt may be secured by a portion or substantially all of our assets. If we do not repay such indebtedness in a timely fashion, secured lenders could declare a default and foreclose upon our assets, which would result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. Such credit facilities also typically include several operational and financial covenants. If we fail to comply with the covenants and our other obligations under any credit facility, the secured lenders would be able to accelerate the required repayment of amounts due and, if they are not repaid, could foreclose upon our assets, which would result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. In addition, future credit facilities may limit our ability to incur incremental debt without our lenders' permission.

51

---

Table of Contents

Future sales and issuances of our ordinary shares or rights to purchase ordinary shares by us will result in additional dilution of the percentage ownership of our shareholders and may cause our share price to decline.

        Until such time, if ever, as we can generate substantial product revenues, we expect that significant additional capital will be needed to continue our planned operations, including conducting clinical trials, commercialization efforts, expanding research and development activities and costs associated with operating as a public company. We may sell ordinary shares, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary shares, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing shareholders and new investors. In addition, new shareholders could gain rights superior to our existing shareholders.

        For example, in August 2016, we issued and sold in a private placement an aggregate of 6,554,016 ordinary shares, plus warrants to purchase up to an additional 6,554,016 ordinary shares. These share issuances resulted in dilution to our existing shareholders and any exercise of these warrants will result in additional dilution of our existing shareholders. In addition, if we complete the second tranche of this private placement, this will result in further dilution to our existing shareholders. For a description of the terms of this private placement, see "Management's Discussion and Analysis—Liquidity and Capital Resources—Sources of Liquidity—Recent Private Placement Financing".

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

        We have incurred significant net losses in each year since our inception, including net losses of $7.9 million, $19.0 million, $25.0 million and $25.87 million for fiscal years 2013, 2014, 2015 and 2016, respectively. As of December 31 2016, we had an accumulated deficit of $89.17 million.

        We have devoted most of our financial resources to product and technology development. To date, we have financed our operations primarily through the sale of equity securities. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, none of our product candidates have been commercialized, and if our product candidates are not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market our product candidates in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success inside and outside the United States.

        We expect to continue to incur substantial and increased expenses as we expand our development activities and expect an increase in our expenses as we launch and commercialize our product candidates, if approved. We also expect a further increase in our expenses associated with creating additional infrastructure to support operations as a public company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.

We have never generated any revenue from sales of our product candidates and may never be profitable.

        Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidates. We do not anticipate generating revenue from sales of our product candidates for the foreseeable future, if ever.

52

---

Table of Contents

Our ability to generate future revenue from product sales depends heavily on our success in:

•

completing development of Trevyent, as well as advancing development of our other product candidates;



•

obtaining regulatory approval for Trevyent as well as our other product candidates; and



•

launching and commercializing any product candidates for which we receive regulatory approval, either by building our own targeted sales force or by collaborating with third parties.

        Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses, when, or if, we will begin to generate revenue from product sales, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by the FDA or other regulatory authority to perform studies in addition to those that we currently anticipate.

        Even if one or more of our product candidates is approved for commercial sale, to the extent we do not engage a third party collaborator, we anticipate incurring significant costs associated with commercializing any approved product candidate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.

        As widely reported, global credit and financial markets have experienced extreme disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment and continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our current service providers or our manufacturers may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

The termination or reduction of tax and other incentives that the Israeli government provides to us may increase the costs involved in operating a company in Israel.

        We may be eligible for certain tax benefits provided to "Beneficiary Enterprises" under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, referred to as the Investment Law. In order to be eligible for the tax benefits for "Beneficiary Enterprises," we must meet certain conditions stipulated in the Investment Law and its regulations, as amended. If we do not satisfy these conditions, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies was 26.5% for 2014 and 2015, and reduced to 25% for 2016 and thereafter. Even if we were to become eligible for these tax benefits, they may be reduced, cancelled or discontinued. See "Israeli Tax Considerations and Government Programs—Tax Benefits under the Law for the Encouragement of Capital Investments, 5719-1959."

53

---

Table of Contents

Risks Related to Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our market.

        As of February 28, 2017, our intellectual property portfolio included four issued U.S. patents and 15 issued foreign patents, as well as eight U.S. pending applications and 12 foreign pending applications relating to our PatchPump technology. The strength of patents in the life sciences field involves complex legal and scientific questions and can be uncertain. The patent applications that we own may fail to result in issued patents with claims that cover the products in the United States or in other countries. If this were to occur, early generic competition could be expected against product candidates in development. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications, which can invalidate a patent or prevent a patent from issuing based on a pending patent application, has been found. Our patents and patent applications all relate to our PatchPump technology. The drug molecules that we will deliver using the PatchPump are generics. We cannot prevent our competitors from developing products that make use of the same drugs, so long as they do not infringe our PatchPump technology patents or the patents of our API suppliers. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated, which could adversely affect our ability to establish market share or successfully execute our business strategy to increase sales of our products and would negatively impact our financial condition and results of operations, including causing a significant decrease in our revenues and cash flows.

        Furthermore, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our patent claims. If the patent applications we hold with respect to our PatchPump technology fail to issue or if the breadth or strength of protection of our patents or patent applications is threatened, competitors could directly compete against our products and we would have no recourse.

        We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found valid and enforceable or will be unthreatened by third parties or will offer adequate coverage of our products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market Trevyent, or our other product candidates under patent protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file or invent any patent application related to our PatchPump technology. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be provoked by a third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In the United States, the natural expiration of a maintained patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Once the patent life has expired for our PatchPump technology, we may be open to competition from competitors that will be able to freely use our technology described in our expired patent(s).

54

---

Table of Contents

        In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or which we elect not to patent, processes for which patents are difficult to enforce and any other elements of our development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, our competitors may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA's disclosure policies may change in the future, if at all.

        Changes in either the patent laws or interpretations of the patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, which was signed into law in September 2011, includes a number of significant changes to U.S. patent law. These include changes in the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent and Trademark Office, or U.S. PTO, has developed new and generally untested regulations and procedures to govern the full implementation of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective in March 2013. The Leahy-Smith Act has also introduced procedures making it easier for third parties to challenge issued patents, as well as to intervene in the prosecution of patent applications. Finally, the Leahy-Smith Act contains new statutory provisions that require the U.S. PTO to issue new regulations for their implementation and it may take the courts years to interpret the provisions of the new statute. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the cost of prosecuting our patent applications, our ability to obtain patents based on our patent applications and our ability to enforce or defend our issued patents. An inability to obtain, enforce and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.

55

---

Table of Contents

We may not 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, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Further, the laws of some foreign countries do not tend to protect proprietary rights to the same extent or in the same manner as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement may not be as strong as that in the United States. 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. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance to us, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. We may be unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, and therefore we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

        Further, 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 tend to favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.

        Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to pursue infringement litigation, which can be expensive 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 patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

56

---

Table of Contents

        Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

        Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the initiation of claims, or of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.

        Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our PatchPump technology, our competitors might be able to enter the market using technology previously covered by such patents or patent applications, which would have a material adverse effect on our business.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

        Because we rely on third parties to manufacture Trevyent and intend to rely on third parties for the manufacture of our other or future product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor's discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

57

---

Table of Contents

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

        We employ individuals who were previously employed at other biotechnology, pharmaceutical and medical device companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees' former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

        We may also be subject to claims that former employees or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our PatchPump technology. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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.

        We have invested and expect to continue to invest a significant amount of resources in the development of intellectual property by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the term and as part of the scope of his or her employment with a company are regarded as "service inventions," which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions.

        Recent decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this remuneration nor the criteria or circumstances under which an employee's waiver of his or her right to remuneration will be disregarded. We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.

58

---

Table of Contents

We may be subject to other intellectual property litigation.

        We may be subject to other intellectual property litigation. For example, a competitor or another intellectual property rights owner may assert that our products, or the operation of our business, infringe their intellectual property. Our involvement in intellectual property litigation could result in substantial costs and be a distraction to management and other employees and could adversely affect the sale of any products involved or the use or licensing of related intellectual property, even if we are successful in the litigation. In the event of an adverse result, we may, among other things, be subject to payment of substantial damage payments; cease the development, manufacture, use, sale or importation of products that infringe on another party's intellectual property rights; discontinue processes incorporating the infringing technology; expend significant resources to develop or acquire non-infringing intellectual property; or obtain licenses to the relevant intellectual property. We cannot offer any assurance that we will be successful in any intellectual property litigation or, if we were not successful in such litigation, that licenses to the intellectual property we are found to be infringing would be available on commercially reasonable terms, if at all. The cost of intellectual property litigation as well as the damages, licensing fees or royalties that we might be required to pay, could have a material adverse effect on our business.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

•

others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;



•

we might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;



•

we might not have been the first to file patent applications covering certain of our inventions;



•

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;



•

it is possible that our pending patent applications will not lead to issued patents;



•

issued patents that we own may be held invalid or unenforceable, as a result of legal challenges by our competitors;



•

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;



•

we may not develop additional proprietary technologies that are patentable; and



•

the patents of others may have an adverse effect on our business.

Should any of these events occur, or other limitations of intellectual property rights result in inadequate protection for our business, they could significantly harm our business, results of operations and prospects.

59

---

Table of Contents

Risks Related Our Ordinary Shares

Our share price is and may continue to be volatile, and purchasers of our ordinary shares can incur substantial losses.

        Our share price is and is likely to remain volatile. The stock market in general and the market for specialty pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our ordinary shares may be influenced by many factors, including the following:

•

trading volume of our ordinary shares;



•

sales of our ordinary shares by us or our shareholders;



•

actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;



•

developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners;



•

the success of competitive products or technologies;



•

the outcomes of any clinical or non-clinical studies regarding our current and future product candidates;



•

regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products;



•

introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these introductions or announcements;



•

variations in our financial results or those of companies that are perceived to be similar to us;



•

the success of our efforts to acquire or in-license additional products or product candidates;



•

developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner;



•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;



•

developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products;



•

our ability or inability to raise additional capital and the terms on which we raise it;



•

the recruitment or departure of key personnel;



•

changes in the structure of healthcare payment systems;



•

market conditions in the pharmaceutical and biotechnology sectors;



•

actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our ordinary shares, other comparable companies or our industry generally;



•

general economic, industry and market conditions; and



•

the other risks described in this "Risk Factors" section.

60

---

Table of Contents

We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.

        As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities and Exchange Commission, or SEC, and the rules and regulations of The NASDAQ Stock Market, or NASDAQ, and provisions of the Companies Law that apply to public companies such as us. Compliance with the various reporting and other requirements applicable to public companies require considerable time and attention of management and significantly increase our legal, accounting and other expenses. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits on coverage or incur substantial costs to maintain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees, or as executive officers.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, beginning as early as this Annual Report on Form 10-K for the fiscal year ended December 31, 2016. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with this Annual Report on Form 10-K following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our shares could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

        Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act.

61

---

Table of Contents

        This, in turn, could have an adverse impact on trading prices for our ordinary shares and could adversely affect our ability to access the capital markets.

An active trading market for our ordinary shares may not develop.

        Our ordinary shares are currently traded on NASDAQ Global Market, but we can provide no assurance that we will be able to maintain an active trading market for our shares on NASDAQ or any other exchange in the future. If an active market for our ordinary shares does not develop, it may be difficult for our shareholders to sell shares without depressing the market price for the shares or at all.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline.

        The trading market for our ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause our share price and trading volume to decline.

Because we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future, capital appreciation, if any, will be our shareholders' sole source of gain.

        We have never declared or paid cash dividends on our share capital. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our ordinary shares will be our shareholders' 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.

Our principal shareholders and management own a significant percentage of our shares and will be able to exert significant control over matters subject to shareholder approval.

        As of December 31, 2016, our executive officers, directors and 5% shareholders beneficially owned an aggregate of approximately 87.85% of our outstanding voting shares (including vested stock options and those vesting within 60 days of December 31, 2016). These shareholders may have the ability to influence us through this ownership position. These shareholders may be able to determine all matters requiring shareholder approval. For example, they may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our ordinary shares that you may feel are in your best interest as one of our shareholders.

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

        Sales of a substantial number of our ordinary shares in the public market or the perception that these sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our ordinary shares.

62

---

Table of Contents

We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for U.S. Holders of our ordinary shares.

        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 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 the nature of our current and expected income and the current and expected value and composition of our assets, we do not expect that we will be classified as a PFIC for the taxable year ending December 31, 2016. However, because PFIC status is determined on an annual basis and generally cannot be determined until the end of the taxable year, there can be no assurance that we will not be a PFIC for the current or future taxable years. If we are characterized as a PFIC, our shareholders who are U.S. Holders (as defined in "Material U.S. Federal Income Tax Considerations") may suffer adverse tax consequences, including the treatment of gains realized on the sale of our ordinary shares 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, and the addition of interest charges to the tax on such gains and certain distributions. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a "qualified electing fund" election, or, to a lesser extent, a "mark to market" election. 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.

Future sales and issuances of our ordinary shares or rights to purchase ordinary shares by us pursuant to our equity incentive plans could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to decline.

        Pursuant to our Amended and Restated 2009 Stock Incentive Plan, our management is authorized to grant options to purchase our ordinary shares to our employees, directors and consultants. The number of shares available for future grant under our stock option plans will automatically increase on January 1st of each year, from January 1, 2017 through January 1, 2024, by an amount equal to four percent of all shares of our share capital outstanding as of December 31st of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number of shares underlying our stock option plans each year, our shareholders may experience additional dilution, which could cause our share price to decline.

We are at risk of securities class action litigation.

        In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

We may become obligated to pay liquidated damages if we fail to file, obtain effectiveness and maintain effectiveness of a registration statement pursuant to the requirements of the registration rights granted to the investor in our August 2016 private placement.

        Under the subscription agreement we entered into in connection with our August 2016 private placement, we registered an additional 13,108,032 ordinary shares (including 6,554,016 ordinary shares underlying the warrants). If we are unable to maintain the effectiveness of the registration statement, we must pay liquidated damages in an amount equal to 1.0% of the aggregate purchase price of the securities for each 30-day period until we are able to comply with such obligations, subject to a maximum limit of 5% of the aggregate purchase price of the securities. Under certain circumstances, the registration statement can be suspended for up to two, 30-day periods without the payment of damages.

63

---

Table of Contents

Risks Related to Our Operations in Israel

A significant portion of our R&D operations are located in Israel and, therefore, our business and operations may be adversely affected by political, economic and military conditions in Israel.

        Our business and operations may be directly influenced by the political, economic and military conditions affecting Israel at any given time. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza strip, both of which resulted in rockets being fired into Israel causing casualties and disruption of economic activities. Most recently, in July and August 2014, an armed conflict took place between Israel and Hamas, and since September 2015, there has been an increase in sporadic terror incidents conducted by individuals not necessarily associated with terror organizations. In addition, Israel faces threats from more distant neighbors, in particular, Iran and ISIS. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflict involving Israel could adversely affect our operations and results of operations.

        Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.

        Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us.

Our operations could be disrupted as a result of the obligation of our personnel to perform military service.

        As of December 31, 2016, we had 13 full-time employees based in Israel, certain of whom may be called upon to perform up to 54 days in each three year period (and in the case of non-officer commanders or officers, up to 70 or 84 days, respectively, in each three year period) of military reserve duty until they reach the age of 40 (and in some cases, depending on their specific military profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. Our operations could be disrupted by the absence of one or more of these employees related to military service. Any such disruption could adversely affect our business, results of operations and financial condition.

We received Israeli government grants for certain research and development activities. The terms of the grants require us to satisfy specified conditions and to pay penalties in addition to repayment of the grants upon certain events.

        Our research and development efforts were financed in part through grants from the OCS and RAD, in Israel. During 2005 and 2006, we received grants from the OCS and RAD with an aggregate total of approximately $0.765 million, including accrued LIBOR interest. As of December 31, 2016, we accrued and paid an amount of $0.040 million with regard to royalties to the OCS.

64

---

Table of Contents

        Even following full repayment of any OCS grants, we must nevertheless continue to comply with the requirements of the Israeli Law for the Encouragement of Industrial Research and Development, 5744-1984, and related regulations, or collectively, the R&D Law. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the R&D Law restrict the transfer outside of Israel of such know-how, and the manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the OCS. Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We have applied for and received an approval from the OCS to transfer manufacturing of products developed under the programs financed by the OCS outside of Israel to our subcontractors, subject to payment of an increased royalty rate and increased payment cap, in accordance with the royalties regulations described below. The actual rate of the increased royalty payments and cap were not determined by the OCS. The approval is also subject to maintaining all ownership rights regarding all of our intellectual property and know-how under SteadyMed Ltd. In Israel. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development outside of Israel, which conditions may not be acceptable to us.

        The transfer of OCS-supported technology or know-how or manufacturing or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of significant penalties and other amounts, depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors. We may be required to pay an increased total amount of royalties, which may be up to 300% of the grant amounts (depending on the manufacturing percentage that is performed outside of Israel) plus interest, in case of manufacturing the developed products outside of Israel and up to 600% in case of transferring intellectual property rights in technologies developed using these grants. In the event that intellectual property rights are deemed to be transferred out of Israel, the grants amount from the OCS and the Incubator may become a loan to be repaid immediately up to 600% of the grants amounts. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.

Exchange rate fluctuations between the U.S. dollar and other currencies may negatively affect our results of operations

        We incur expenses in U.S. dollars, New Israeli Shekels, Euro and Pounds sterling, but our financial statements are denominated in U.S. dollars. As a result, we are exposed to the risks that the New Israeli Shekel or these other currencies may appreciate relative to the U.S. dollar. For example, should the New Israeli Shekel appreciate relative to the U.S. dollar, our U.S. dollar cost of operations in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. We cannot predict any future trends or the rate of devaluation (if any) of the New Israeli Shekel or other currencies against the U.S. dollar.

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

        We are incorporated in Israel. A judgment obtained against us in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It may also be difficult to effect service of process or to assert U.S. securities law claims in original actions instituted in Israel.

65

---

Table of Contents

        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. Even if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such a claim, the content of applicable U.S. law must be proved as a fact by expert witness, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli law. There is little binding case law in Israel addressing these matters. 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" in our prospectus dated March 19, 2015, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the "Prospectus"), for additional information on your ability to enforce a civil claim against us and our executive officers and directors.

Provisions of our restated articles of association and Israeli law and tax considerations may delay, prevent or make difficult 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 certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, acquisition of our shares, in a way that the purchaser shall hold more than 90% of our issued and outstanding shares following that acquisition, is subject to a tender offer for all of our issued and outstanding shares. Such acquisition can only be completed if the acquirer receives positive responses from the holders of more than 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. In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies; and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party. These provisions of Israeli law may delay, prevent or make difficult an acquisition of us, which could prevent a change of control, even if doing so would be beneficial to our shareholders, and therefore depress the price of our ordinary shares. See "Description of Share Capital—Acquisitions under Israeli Law" in the Prospectus for additional information.

        Our restated articles of association provide that our directors (other than external directors) are elected on a staggered basis, such that a potential acquiror cannot readily replace our entire board of directors at a single annual general shareholder meeting. This could prevent a potential acquiror from receiving board approval for an acquisition proposal that our board of directors opposes.

        Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders whose country of residence does not have a tax treaty with Israel which exempts 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.

66

---

Table of Contents

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 restated 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. 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 or class 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 requiring shareholder approval. A shareholder also has to refrain from deprivation of other shareholders. 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.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None

ITEM 2.    PROPERTIES

        Our headquarters is located in San Ramon, California, where we occupy approximately 7, 890 square foot of office space. The current term of our San Ramon lease expires in May 2019. We believe that our current San Ramon facilities are adequate for our needs and for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.

        Our research and development activities are located in Rehovot, Israel. The current term of our Rehovot lease expires in December 2017. We believe that our current Rehovot facilities are adequate for our needs and for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.

ITEM 3.    LEGAL PROCEEDINGS

        From time to time, we are involved in various legal proceedings arising in the ordinary course of our business. We are not currently a party to any material litigation or other material legal proceeding.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

67

---

Table of Contents

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

        Our ordinary shares have been traded on the Nasdaq Global Market since March 20, 2015 under the symbol "STDY." Prior to such time, there was no public market for our ordinary shares. The following table sets forth the high and low sales price of our ordinary shares, as reported by the Nasdaq Global Market for the period indicated:

Holders of Ordinary Shares

        As of March 27, 2017, there were 40 holders of record of our ordinary shares. Certain shares are held in "street name" and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

Dividend Policy

        We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. We expect to retain available cash to finance ongoing operations and the potential growth of our business. Any future determination to pay dividends on our ordinary shares will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.

Equity Compensation Plans

        The information regarding equity compensation plans is incorporated by reference into Item 12 of this Annual Report on Form 10-K.

Recent Sales of Unregistered Securities

        Prior to our IPO in March 2015, we signed an addendum to the Series E Preferred Share purchase agreement on January 24, 2015 to raise additional funds of $11.4 million, net of fees and expenses. Under the addendum, we issued 1,445,966 Series E Convertible Preferred Shares to existing and new in investors for a price of $8.49 per share.

        Also prior to our IPO in March 2015, as a result of stock option exercises, on January 13, 2015, we issued 29,830 ordinary shares at $3.6 per share and on March 19, 2015, we issued 21,886 ordinary shares at average price of $1.69 per share.

        In August 2016 we raised approximately $19.6 million of net proceeds from the sale of our Ordinary Shares and warrants to purchase our Ordinary Shares in the first tranche of a private placement, as further described on our Current Report Form 8-K filed with the SEC on August 1, 2016.

68

---

Table of Contents

Use of Proceeds

        On March 25, 2015, we completed our IPO and issued 4,700,000 ordinary shares at an initial offering price to the public of $8.50. Our registration statement on Form S-1 (Registration No. 333-201949) for our IPO was declared effective by the SEC on March 19, 2015.

        As of September 30, 2016, we have used all of the proceeds from our IPO for working capital and general corporate purposes.

ITEM 6.    SELECTED FINANCIAL DATA

        The consolidated balance sheet data as of December 31, 2016 and 2015, and the consolidated statements of comprehensive loss data for the fiscal years ended December 31, 2016 and 2015, are derived from the audited consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. You should read the following Selected Consolidated Financial Data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.

 

69

---

Table of Contents

Long-Lived Assets

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under "Item 1A—Risk Factors" and elsewhere in this Annual Report on Form 10-K. See also "Forward-Looking Statements" in this Annual Report on Form 10-K.

Overview

        We are a specialty pharmaceutical company focused on the development and commercialization of therapeutic product candidates that address the limitations of market-leading products in certain orphan and other well-defined, high-margin specialty markets. Our primary focus is to obtain approval for the sale of Trevyent® for the treatment of pulmonary arterial hypertension, or PAH, in the United States. We are also developing two product candidates for the treatment of post-surgical and acute pain in the home setting, which we call our At Home Patient Analgesia products, or AHPA. Our product candidates are enabled by our proprietary PatchPump, which is a discreet, water-resistant and disposable drug administration technology that is aseptically pre-filled with liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow of drug to a patient, either subcutaneously or intravenously.

        On June 28, 2015, we entered into an Exclusive License and Supply Agreement with Cardiome Pharma Corp. and Correvio International Sarl (collectively, "Cardiome"), pursuant to which we granted to Cardiome an exclusive license to develop and commercialize Trevyent in Europe, Canada, and the Middle East. In consideration for the exclusive license, we received a non-refundable up-front payment of $3 million. Additionally, we are eligible to receive (i) future regulatory, third-party payor reimbursement and commercialization milestone payments of up to $9.25 million that do not require performance by us, (ii) scaling royalties ranging from the low teens to the mid-twenty percent on future Trevyent sales by Cardiome and (iii) a fixed price (based on a cost-plus margin) on our supply of Trevyent finished product to Cardiome. See also Notes 1d and 2k to the consolidated financial statements enclosed in this Annual Report on Form 10-K for details on the Exclusive License and Supply Agreement with Cardiome.

        Other than our arrangement with Cardiome, we own global development and commercialization rights to Trevyent. If approved by the United States Food and Drug Administration ("FDA"), we expect to commercialize Trevyent for PAH in the United States with a contract commercial organization of approximately 25 individuals targeting the approximately 200 PAH treatment centers in the United States.

70

---

Table of Contents

        We have not received regulatory approvals to sell Trevyent or any of our other product candidates, and we have not generated any sales through December 31, 2016. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue to develop and seek regulatory approval for our product candidates.

        Trevyent continues to be our development priority. We expect to submit a New Drug Application ("NDA") for Trevyent to the FDA in the second quarter of 2017. Through our partner, Cardiome, we expect to submit a Marketing Authorization Application ("MAA") for Trevyent to the European Medicines Agency ("EMA") in the third quarter of 2017. In December 2015, the EMA approved Cardiome's request to review Trevyent under its Centralized Authorization Procedure drug review process. If approved, we anticipate commercializing Trevyent for the treatment of PAH in the United States late in mid-2018 and for the treatment of PAH in Europe in the fourth quarter of 2018.

Financial Overview

Summary

        The financial data is based on the consolidated financial statements of SteadyMed Ltd. ("Ltd."), its wholly-owned subsidiary, SteadyMed Therapeutics, Inc. ("Inc."), and Inc.'s wholly owned subsidiary, SteadyMed U.S. Holdings, Inc. ("Holdings"). Ltd. is an Israeli incorporated company with offices in Rehovot, Israel. Inc. and Holdings are Delaware corporations with offices in San Ramon, California, USA. Ltd. is predominantly engaged in research and development activities and Inc. and Holdings provide the executive management, treasury, marketing and business development and administrative support functions.

        We have generated net losses from operations, and, as of December 31, 2016, we had an accumulated deficit of $89.2 million, primarily as a result of research and development and general and administrative expenses. In the future we may generate revenue from a variety of sources, including license fees, milestone payments and research and development payments in connection with existing and potential future strategic partnerships. See also Note 1d and Note 2k to the consolidated financial statements enclosed in this Annual Report on Form 10-K for details on the Exclusive License and Supply Agreement with Cardiome.

        While Trevyent is a late-stage development candidate, it has not been approved by the FDA. Our two AHPA programs are at an earlier stage of development and may never be successfully developed or commercialized. Accordingly, we expect to incur significant and increasing losses from operations for the foreseeable future as we seek to obtain FDA approval of Trevyent, complete our pre-commercialization plan and commercialize Trevyent. There can be no assurance that we will ever generate significant revenue or profits.

Revenue recognition

        Trevyent, our lead product candidate, has not been approved for commercialization. During 2015, we received a nonrefundable up-front payment in the amount of $3 million from Cardiome associated with the Trevyent license granted to Cardiome. We are recognizing the payment as revenue on a straight-line basis over the period during which we are obligated to provide certain services, which is estimated to be through the fourth quarter of 2017. During the year ended December 31, 2016, we recognized revenue of $1.1 million. See also Note 2k to the consolidated financial statements enclosed in this Annual Report on Form 10-K for details on the Exclusive License and Supply Agreement with Cardiome.

71

---

Table of Contents

Components of operating expenses

        Our current operating expenses consist of three components: research and development expenses, sales and marketing expenses, and general and administrative expenses.

Research and development expenses

        Our research and development expenses consist of costs incurred in connection with the development of our product candidates and the PatchPump technology platform, including:

•

Fees incurred to subcontractors, consultants and advisors in connection with research and development of our PatchPump technology, implementing infrastructure for manufacturing, pre-clinical and clinical studies and regulatory compliance;



•

Salaries and other personnel related costs; and



•

Direct and indirect expenses required for operation and maintenance of laboratories and research and development offices, such as supplies and material, rent, utilities, depreciation and other expenses.

        Research and development expenses are charged to the statement of comprehensive loss as incurred. The following table discloses the breakdown of research and development expenses in dollars and as a percentage of our total research and development expenses.

 

        We expect research and development expenses to be our largest category of operating expenses and to remain a significant expense through conduct of post-approval marketing studies on Trevyent.

72

---

Table of Contents

        Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, as well as an ongoing assessment as to each product candidate's commercial potential. We will need to raise additional capital, obtain additional bank or other loans or grants or receive upfront and milestone payments from corporate partners in the future in order to complete the development and commercialization of our product candidates.

Sales and marketing expenses

        Sales and marketing expenses consist primarily of salaries and other personnel related costs, market awareness campaigns, market research, trade shows and advertising, facility costs not otherwise included in research and development and general and administrative expenses, and pre-commercialization and commercialization expenses incurred through InVentiv Healthcare, our commercialization partner. In the future, sales and marketing expenses are expected to significantly increase as we get closer to the launch of Trevyent.

General and administrative expenses

        General and administrative expenses consist principally of salaries and other personnel related costs in executive and administrative positions, legal, accounting and other professional services, compensation to our board of directors members, D&O insurance, and facility costs not otherwise included in research and development and sales and marketing expenses.

        We closed our initial public offering ("IPO") on March 25, 2015 and as a public company we are incurring greater expenses, including increased payroll, legal and compliance, accounting, insurance and investor relations costs, and expect such expenses to continue to increase.

Financial expenses (income), net

        Financial expenses (income), net consist mainly of the following:

•

Revaluation of fair value of warrants to purchase Convertible Preferred Shares granted to investors and others, which are re-measured at each reporting period at fair value until they are exercised or expired. The majority of these warrants were voluntarily converted into Ordinary Shares during the year ended December 31, 2015 and the remaining were automatically converted into warrants to purchase Ordinary Shares simultaneously with the closing of our IPO at March 25, 2015 (See also Note 1c to the consolidated financial statements enclosed in this report).



•

Revaluation of fair value of warrants to purchase Ordinary Shares granted to investors on August 4, 2016 in the first tranche of the private placement, which are re-measured at each reporting period at fair value until they are exercised or expired and the related issuance costs of such warrants. (See also Note 1b and 7 to the consolidated financial statements enclosed in this report in).



•

Interest expense on a $1.5 million loan from a commercial bank received in February 2013 which was repaid in monthly equal installments of principal and fully paid in May 2016.



•

Interest income from U.S. government securities repurchase transactions.



•

Gains and losses from foreign currency translation adjustments.

        For more information refer to Note 11b to the consolidated financial statements enclosed in this Annual Report on Form 10-K.

73

---

Table of Contents

Taxes on income

        We operate in two tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business.

        Ltd. is subject to income tax in Israel. To date, we have incurred accumulated losses of $57,805 in Ltd. and have not recorded any tax provision.

        Because of our history of losses and uncertainty in the ability to utilize the losses in the future, we have established a full valuation allowance against potential future benefits for deferred tax assets including loss carryforwards.

        Inc. and Holdings are profitable due to the implementation of cost plus method as defined in the agreement with Ltd. Our income tax includes tax payments and tax provisions.

        We revaluate uncertain tax positions and make adjustments to our tax provision as we see appropriate.

        Our income tax provision could be impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods.

        We are subject to the continuous examinations of our income tax returns by the tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Results of Operations

Comparison of the Fiscal Years Ended December 31, 2016 and December 31, 2015

Licensing revenues

        During the year ended December 31, 2016 and 2015, we recognized revenues in the amount of $1.1 and $0.9 million respectively from the Cardiome agreement.

Research and development expenses

        Research and development expenses were $20.9 million for the year ended December 31, 2016 compared to $20.0 million for the same period in 2015, which reflects an increase of $0.9 million, or 4.7%. This increase was principally due to an increase of $0.5 million in sub-contractor services and materials for our development programs (primarily Trevyent) from $15.7 million to $16.2 million and an increase of $0.3 million in salaries and other personnel related costs.

74

---

Table of Contents

Sales and marketing expenses

        Sales and marketing expenses were $1.9 million for the year ended December 31, 2016 compared to $0.8 million for the same period in 2015, which reflects an increase of $1.1 million, or 138%, resulting mainly from increase in commercialization, market studies and advertisement related to Trevyent from $0.3 million to $1.6 million offset by $0.2 million decrease in salaries and other personnel related costs.

General and administrative expenses

        General and administrative expenses were $5.6 million for the year ended December 31, 2016, compared to $4.8 million for the same period in 2015, which reflects an increase of $0.8 million, or 17.7%. The increase was principally due to a $0.3 million increase in salary and other personnel related costs, mainly as a result of an increase in stock based compensation, and an increase in general corporate, SEC and intellectual property legal expenses of $0.5 million.

Financial expense (income), net

        Financial income, net in the amount of $1.9 million in 2016 is mainly due to income of $2.5 million from revaluation of fair value of the warrants to purchase Ordinary Shares, income of $0.2 million from foreign currency translation adjustments and interest income of $0.07 million offset by issuance costs allocated to warrants to purchase Ordinary Shares of $0.8 million and interest expense on bank debt and bank fees of $0.1 million.

        Financial income, net in the amount of $0.09 million in 2015 is mainly due to income of $0.08 million from foreign currency translation adjustments, interest income of $0.05 million and income of $0.04 million from revaluation of fair value of the warrants to purchase Convertible Preferred Shares, offset by interest expenses on bank debt and bank fees of $0.08 million.

Taxes on Income

        Taxes on income principally consists of taxes in the US incurred in Inc. and Holdings as a result of the cost plus service agreement with Ltd. There were no material changes in the taxable income and taxes on income in 2016 in comparison to 2015.

Net loss

        Due to the factors described above, our operating expenses increased by $2.9 million. This increase was offset by a $0.2 million increase in revenue from the agreement with Cardiome and a $1.8 million increase in financial income, which resulted in increase in net loss of $0.9 million or 3.6% from $25.0 million in the year ended December 31, 2015 to $25.9 million in the year ended December 31, 2016.

75

---

Table of Contents

Cash Flows

        The tables below set forth our significant sources and uses of cash for the periods set forth below.

Net Cash Used in Operating Activities

        Net cash used in operating activities of $25.9 million during the year ended December 31, 2016 was primarily a result of a net loss of $25.9, revaluation of warrants to purchase Ordinary Shares of $2.5 million and a decrease in deferred revenue of $1.1 million offset by stock-based compensation expenses in the amount of $0.8 million, depreciation in the amount of $0.6 million, allocation of issuance cost related to warrants to purchase Ordinary Shares of $0.8 million and increase in trade payable of $1.1 million. Net cash used in operating activities of $21.6 million during the year ended December 31, 2015 was primarily a result of a net loss of $25.0 million and $0.5 million decrease in trade payables offset by $2.1 million increase in deferred revenue, $0.6 million increase in other accounts payable and accrued expenses, stock-based compensation expenses in the amount of $0.6 million and depreciation and impairment of equipment expenses in the amount of $0.7 million.

Net Cash Used in Investing Activities

        Net cash used in investing activities of approximately $2.1 million during the year ended December 31, 2016 consisted primarily of investment in equipment and machinery used in our development activities in the amount of $2.4 million offset by a decrease in restricted cash of $0.3 million related to a loan from a commercial bank. Net cash used in investing activities of approximately $1.2 million during the year ended December 31, 2015 consisted primarily of investment in equipment and machinery used in our development activities in the amount of $1.9 million offset by a decrease in restricted cash of $0.7 million related to a loan from a commercial bank.

Net Cash Provided by Financing Activities

        Net cash provided by financing activities of approximately $19.4 million during the year ended December 31, 2016 consisted of $19.6 million net proceeds from issuance of Ordinary Shares and warrants, offset by a repayment of a loan from a commercial bank of $0.2 million. Net cash provided by financing activities of approximately $48.5 million during the year ended December 31, 2015 consisted of approximately $36.2 million net proceeds from our IPO, $1.3 million net proceeds from exercise of the overallotment option by the underwriters, $11.4 million net proceeds from issuance of Series E Convertible Preferred Shares and $0.1 million in proceeds from exercise of options into ordinary shares offset by a repayment of a loan from a commercial bank of $0.6 million.

Liquidity and Capital Resources

Sources of Liquidity

        At December 31, 2016, we had approximately $23.2 million in cash and cash equivalents.

76

---

Table of Contents

        We have incurred losses and negative cash flows from operations since our inception in June 2005 through December 31, 2016 and we had an accumulated deficit of approximately $89.2 million as of December 31, 2016. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of Trevyent and incur additional costs associated with being a public company.

        Through 2015, we received a $3.0 million up-front payment from Cardiome out of which $1.1 million has been recognized as revenue during the year ended December 31, 2016.

Private Placement Rounds

        From inception until our IPO in 2015, we financed our operations primarily through private placements of Convertible Preferred Shares (including issuance of warrants to purchase Convertible Preferred Shares), receiving aggregate net proceeds totaling $55 million.

Initial Public Offering (IPO)

        On March 25, 2015, we completed our IPO and issued 4,700,000 ordinary shares at an initial offering price to the public of $8.50. We received net proceeds from the IPO of approximately $34.7 million, after deducting underwriting discounts and commissions of approximately $2.8 million and expenses of approximately $2.4 million. On April 22, 2015, the underwriters exercised their overallotment option pursuant to which they purchased 165,452 ordinary shares for $1.3 million, net of underwriters' fees and commissions of $0.1 million.

Recent Private Placement Financing

        In August 2016, we raised approximately $19.6 million of net proceeds from the sale of our Ordinary Shares and warrants to purchase our Ordinary Shares in the first tranche of a private placement. We filed a registration statement for the resale of the shares and warrant shares issued in the Private Placement on September 2, 2016, which was declared effective on September 21, 2016.

Going Concern

        Our current cash and cash equivalents will not be enough to support our future operations for the next 12 months. The future success of the Company depends upon its ability to obtain additional capital in order to obtain FDA approval of Trevyent and to commercialize Trevyent in the U.S.

Future Funding Requirements

        Through December 31, 2015, we received a $3.0 million up-front payment from Cardiome out of which $0.9 million has been recognized as revenue during the year ended December 31, 2015 and $1.1 million during the year ended December 31, 2016.

        We do not know when, or if, we will generate any revenue from sales of our products and we do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of Trevyent.

        At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we proceed with preparations to launch Trevyent. We also expect to continue incurring additional costs associated with operating as a public company, including related to compliance. Further, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution costs. We therefore anticipate that we will need substantial additional funding to support our continuing operations.

77

---

Table of Contents

        Based on our forecasted expenses, our ability to continue as a going concern is dependent upon our ability to obtain additional funding in 2017. If we are unable to do so, then absent a material alteration in our business plans, our business might fail.

        Our future capital requirements will depend on many factors, including:

•

The outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals for Trevyent;



•

The clinical outcomes, cost and timelines for developing our other and future product candidates beyond Trevyent;



•

The costs associated with securing and establishing contract commercialization and manufacturing capabilities;



•

Market acceptance of our product candidates;



•

The costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;



•

Our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;



•

Our need and ability to hire additional management and scientific and medical personnel;



•

The effect of competing technological and market developments;



•

Our need to implement and enhance internal systems and infrastructure, ;and



•

The economic and other terms, timing and success of any collaboration, licensing, distribution or other arrangements into which we may enter in the future.

        Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued.

Government Grants from the Israeli Innovation Authority (formerly the Office of the Chief Scientist) and the Incubator RAD BioMed Ltd.

        During the years 2005 to 2010 we received grants under the royalty-bearing programs administered by the Israeli Innovation Authority (formerly the Office of the Chief Scientist) ("OCS"), and from the Incubator, RAD BioMed Ltd. ("Incubator") in Israel. The requirements and restrictions for such grants are found in the Encouragement of Research and Development Law, 5744-1984 and related regulations or, collectively, the R&D Law.

78

---

Table of Contents

        In May 2015, the OCS approved our request to transfer manufacturing rights outside of Israel, noting that the Company would be requested to pay an increased royalty rate without providing any specifics. When revenues are generated from the funded research program, we will be committed to pay royalties on such revenue at a rate of 3% to 4% for the first three years and between 3.5% to 4.5% commencing the fourth year (based on the portion of manufacturing out of Israel while non-product related revenues are subject to the lower end of the ranges) and up to between 150% to 300% of the amount received, linked to the LIBOR. The revenues under the Agreement with Cardiome are subject to royalties under the above programs. As revenue being recognized from the upfront payment received in the amount of $3 million, royalties at a rate of 3% of such revenue become payable. For the year ended December 31, 2016 , we recorded royalty expenses in the amount of $0.023 million with respect to such revenues. The total amount of grants received from the OCS and the Incubator as of December 31, 2016, is $0.76 million including interest and royalties paid and accrued, amounted to $0.06 million.

        In the event that intellectual property rights are deemed to be transferred out of Israel, the grants from the OCS and the Incubator may become loans to be repaid immediately at up to 600% of the grant amounts. Currently, the Company's management believes no intellectual property has been transferred out of Israel and disclosure of the Company's know how is made solely in connection with the transfer of manufacturing rights of the Company's products to subcontractors. Accordingly, no provision has been recorded.

        In addition, we must abide by other restrictions associated with receiving grants under the R&D Law that continue to apply following full repayment of the grants to the OCS. These restrictions may impair our ability to outsource manufacturing, engage in change of control transactions or otherwise transfer our know-how outside of Israel by requiring us to obtain the approval of the OCS for certain actions and transactions and pay additional royalties and other amounts to the OCS. In addition, any change of control and any change of ownership of our Ordinary Shares that would make a non-Israeli citizen or resident an "interested party" as defined in the R&D Law requires prior written notice to the OCS. If we fail to comply with the R&D Law, we may be subject to criminal charges.

Contractual Obligations and Commitments

        The following table summarizes our monetary contractual obligations and commitments including payables and accrued expenses as of December 31, 2016 (in thousands) and the effects such obligations are expected to have on our liquidity and cash flows in future periods:

79

---

Table of Contents

Off-Balance Sheet Arrangements

        We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under Securities and Exchange Commission rules.

Critical Accounting Policies and Estimates

        We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.

Revenue Recognition

        Revenue under our Exclusive License and Supply Agreement with Cardiome (the "Agreement") is recognized based on the requirements of the contract pursuant to which the following performance obligations exist at the inception of the Agreement: (i) an exclusive royalty bearing license ("License") to certain of our patents related to Trevyent®, which was transferred immediately upon signing of the Agreement, (ii) certain services related to the FDA application for Trevyent and stability data ("Services") expected to be performed over the period ending late in the fourth quarter of 2017 and (iii) supply services of Trevyent product upon commercialization.

        We recognize revenue related to the Agreement in accordance with ASC 605-25, "Revenue Recognition—Multiple-Element Arrangements", ("605-25") which provides guidance on how deliverables in an arrangement should be separated and how the arrangement consideration should be allocated to the separate units of accounting: requiring an entity to determine the selling price of a separate deliverable using a hierarchy of (i) vendor-specific objective evidence, or VSOE, (ii) third-party evidence, or TPE, or (iii) best estimated selling price, or BESP; and requiring the allocation of the arrangement consideration, at the inception of the arrangement, to the separate units of accounting based on relative fair value. VSOE is based on the price charged when the element is sold separately and is the price actually charged for that deliverable. TPE is determined based on third-party evidence for a similar deliverable when sold separately and BESP is the price at which we would transact a sale if the elements of the arrangement were sold on a stand-alone basis.

80

---

Table of Contents

        We evaluate all deliverables within the Agreement to determine whether or not they provide value on a stand-alone basis. Based on this evaluation, the License and Services are deemed one unit of accounting as the License has no value on a standalone basis. The supply services are also deemed a unit of accounting. The arrangement consideration at the inception of the Agreement is allocated to the separate units of accounting based on their relative selling prices based on BESP.

        For each unit of accounting identified within the Agreement, we determine the period over which the performance obligation occurs. Revenue is recognized immediately if the performance obligation has been met. We will recognize the revenue allocated to the License and Services by using the straight-line method over the performance period that the Services will be provided.

        Contingent payments related to commercial milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related to royalties will be recognized in the period when the related sales occurred.

        Revenues from product sales will be recognized when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no future obligation exists and collectability is probable.

Stock Based Compensation

        We account for stock-based compensation in accordance with ASC 718 "Compensation Stock Compensation" ("ASC 718"), which requires companies to estimate the fair value of equity based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite or derived service periods in our consolidated statement of comprehensive loss.

        The fair value of each option award is estimated on the grant date using the Black-Scholes-Merton Option-Pricing Model ("B&S Model"). The stock-based compensation expense, net of forfeitures, is recognized using the straight-line method over the requisite or derived service period of the award.

Key Assumptions

        The B&S Model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary shares, the expected volatility of the price of our ordinary shares, the expected term of the option, risk-free interest rates and the expected dividend yield of our ordinary shares. These estimates involve inherent uncertainties and the application of management's judgment. These assumptions are estimated as follows:

•

Fair Value of our ordinary shares.  Prior to our IPO, the fair value of ordinary shares underlying the options was determined by our board of directors with the assistance of an independent valuation firm. For all reported periods and until June 30, 2014, the valuations were performed using the Option Pricing Method ("OPM"). Commencing June 30, 2014 and until our ordinary shares began trading, the valuation was performed by using the Hybrid Method by combining the OPM and an IPO scenario to determine the fair value of our ordinary shares.



•

Expected Volatility.  As we do not have a sufficient trading history for our ordinary shares, the expected price volatility for our ordinary shares was estimated by taking the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the ordinary share option grants. Industry peers consist of several public companies that are similar in size, stage of life cycle and financial leverage.



•

Expected Term.  The expected term represents the period that our stock-based awards are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions (unless the exercise price of the options is significantly higher than the underlying fair value of the ordinary shares and then the expected option term is determined based on the contractual term of the options.)

81

---

Table of Contents

•

Risk-Free Rate.  The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.



•

Dividend Yield.  We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

        Stock-based compensation was $833 thousand and $583 thousand for the years ended December 31, 2016 and 2015, respectively. See Note 2(q) and Note 10(g) to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for information concerning specific assumptions used in applying the B&S Model to determine the estimated fair value of employee shares options granted. In addition to the assumptions used in the B&S Model, we must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation expense calculations on a prospective basis.

Liability Related to Certain Warrants

        The fair value of the liability for certain warrants issued to investors in connection with our recent private placement financing was calculated using the Monte Carlo option pricing model. We accounted for these warrants according to the provisions of ASC 815, "Derivatives and Hedging—Contracts in Entity's Own Equity" and, based on the anti-dilution protections contained in these warrants, we classified them as non-current liabilities, measured at fair value each reporting period until they will be exercised or expired, with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense. Since the number of warrants outstanding and the exercise price would be adjusted in case of any dilutive future offerings we measured the fair value using the Monte Carlo option pricing model. The Monte Carlo approach simulates expected future offerings, based on management expectations and simulated stock prices, and captures any anti-dilution adjustments to the warrants. The total warrant value would then be calculated as the average warrant payoff across all simulated paths discounted to our valuation date.

        Fair value for each reporting period was calculated based on the following key assumptions:

(1)

Risk-free interest rate—based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.



(2)

Expected volatility—was calculated based on actual historical stock price movements of the Company together with companies in the same industry over a term that is equivalent to the expected term of the warrants.



(3)

Expected life—the expected life was based on the expiration date of the warrants.



(4)

Expected dividend yield—was based on the fact that the Company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future.

JOBS Act Accounting Election

        Section 107 of the Jumpstart Our Business Startups ("JOBS") Act permits emerging growth companies, such as us, to take advantage of the extended transition period in Section 13(a) of the Exchange Act, for adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

82

---

Table of Contents

Recently Issued Accounting Pronouncements

        We have reviewed recent accounting pronouncements and concluded that some of them may be applicable to our business in the future and some of them have no material effect on the consolidated financial statements as a result of their future adoption.

1.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The new revenue recognition standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the cumulative effect method. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.



2.

In February 2016, the FASB issued ASU 2016-02—Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact our consolidated financial statements as we have certain operating lease arrangements. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.



3.

In March 2016, the FASB issued ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting". This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 will become effective for the Company in the annual period ending August 31, 2018. Early adoption is permitted in any interim or annual period. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.

83

---

Table of Contents

4.

In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 covers two specific topics: performance obligations and licensing. This amendment includes guidance on immaterial promised goods or services, shipping or handling activities, separately identifiable performance obligations, functional or symbolic intellectual property licenses, sales-based and usage-based royalties, license restrictions (time, use, geographical) and licensing renewals. In addition, in May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. We are currently evaluating the impact of the adoption of both revenue standards on our consolidated financial statements.



5.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective on January 1, 2019. We are currently assessing the impact of the adoption of this standard on our consolidated financial statements and footnote disclosures.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We have little exposure to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our functional currency is the U.S. dollar, and the majority of our cash is held in U.S. dollars. Part of our expenses is denominated in other currencies mainly New Israeli Shekels, (NIS), Euro, and Pounds Sterling, and we make currency conversions as needed to settle such liabilities. We do not carry any securities for trading purposes or for investment purposes, so we have no interest rate risk.

Foreign Currency Exchange Risk

        Approximately 44% and 47% of our operating expenses in the year ended December 31, 2016 and 2015, respectively, were in non-U.S. Dollar denominated currencies, mainly Israeli Shekel (NIS) and Pounds Sterling (GBP). NIS-denominated expenses consist primarily of Ltd.'s personnel and overhead costs and GBP-denominated expenses consist of R&D subcontractors. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Based on 2016 and 2015 segmentation, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have approximately 5% impact on our historical operating expenses.

84

---

Table of Contents

Inflation Risk

        We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations.

Segment Information

        We have one primary business activity and operate in one reportable segment.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements required by this item are set forth beginning on page F-3 of this Annual Report on Form 10-K and are incorporated herein by reference.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        There have been no changes in our independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, or disagreements with our accountants on matters of accounting and financial disclosure.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

        We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

        Based on our management's evaluation (with the participation of our principal executive officer and our principal financial officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective to achieve their stated purpose as of December 31, 2016, the end of the period covered by this Annual Report on Form 10-K.

Management's Report on Internal Control over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

85

---

Table of Contents

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our evaluation under the criteria set forth in Internal Control—Integrated Framework issued by the COSO, our management concluded our internal control over financial reporting was effective as of December 31, 2016.

Changes in Internal Control over Financial Reporting

        There were no changes in our internal control over financial reporting during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        None.

86

---

Table of Contents

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

Board of Directors

        Under our restated articles of association, our board of directors must consist of at least five and not more than nine directors, including at least two external directors required to be appointed under the Israeli Companies Law, or Companies Law. Our board of directors currently consists of seven directors, including two external directors.

        Other than external directors, for whom special election and removal requirements apply under the Companies Law, our directors are divided into three classes that are each elected at a general meeting of our shareholders every three years, in a staggered fashion (such that one class is elected each year), and serve on the board of directors for three years or until they are removed by our shareholders at a general meeting of our shareholders or upon the occurrence of certain events, in accordance with the Companies Law and our restated articles of association.

        The term of Class III directors will expire at the annual meeting of shareholders to be held this year in 2017; the term of Class I directors will expire at the annual meeting of shareholders to be held in 2018; and the term of Class II directors will expire at the annual meeting of shareholders to be held in 2019.

        The following table sets forth certain information with respect to our directors as of March 15, 2017 and the following biographies include information regarding the experiences, qualifications, attributes or skills that caused our board of directors to determine that each member of our board of directors should serve as a director as of the date of this Annual Report on Form 10-K:

87

---

Table of Contents

Class I Directors

        Brian J. Stark has served on our Board of Directors since February 2012. Mr. Stark was a Founding Partner of Stark Investments in 1993, a multi-strategy global hedge fund, which managed in excess of $14 billion of assets during its peak years. Mr. Stark served as the firm's Chief Executive Officer and Chief Investment Officer from 1993 through 2013, and was responsible for global portfolio construction and capital allocation. In 2012, Stark Investments elected to close its funds; Mr. Stark continues to serve as the firm's Chief Executive Officer and Chief Investment Officer overseeing the wind-down of the funds' assets. Mr. Stark managed predecessor hedge funds between 1987 and 1992. Mr. Stark is the author of Special Situation Investing: Hedging, Arbitrage and Liquidation published by Dow Jones Irwin in 1983. Prior to entering professional fund management, he was a partner at the commercial litigation firm of Coghill & Goodspeed, P.C. He currently serves on the board of directors of Marcus Corporation (NYSE: MCS), in addition to the Wisconsin Advisory Board for US Bank. Mr. Stark obtained his J.D. (cum laude) from Harvard Law School in 1980 and his B.A. (Magna Cum Laude) from Brown University in 1977. We believe Mr. Stark's extensive legal, investment and management experience qualify him to serve on our board of directors.

        Donald D. Huffman has served as a member of our board of directors since March 2015. Since July 2013, Mr. Huffman has served on the board of directors of Dance Biopharm Inc., a company developing inhaled insulin, after consulting to the company from April 2012 to July 2013. In July 2014, Mr. Huffman joined the board of directors of Amarantus BioScience Holdings, Inc., a publicly-held company developing treatments and diagnostics for neurological diseases and regenerative medicine. From September 2010 to March 2012, Mr. Huffman served as the Chief Financial Officer and later, Co-President of Wafergen Biosystems Inc., a publicly-held company. From October 2008 to September 2010, Mr. Huffman served as the Chief Financial Officer of Asante Solutions, Inc., a medical device company with an approved wearable insulin pump. Previously, Mr. Huffman served as Chief Financial Officer of Guava Technologies, Inc. (now Merck) and was Chief Financial Officer and principal of Sanderling Ventures, a biomedical venture capital firm. Also, Mr. Huffman was Chief Financial Officer of three other public companies: Volcano Corporation (acquired by Royal Philips); Microcide Pharmaceuticals, Inc.; and Celtrix Pharmaceuticals, Inc. (now Insmed). Mr. Huffman earned a B.S. in Mineral Economics from Pennsylvania State University, an M.B.A. from the State University of New York at Buffalo and completed the Financial Management Program at the Stanford University Graduate School of Business. We believe that Mr. Huffman possesses specific attributes that qualify him to serve on our board of directors, including his experience as a board member and as a chief financial officer of several public biopharmaceutical and medical device companies and his understanding of the operations and issues that affect similarly situated companies. Based on Mr. Huffman's extensive senior management experience in the biopharmaceutical and medical device industries, particularly in previous key corporate finance and accounting positions as chief financial officer of four public companies, we have determined that he qualifies as an audit committee financial expert.

88

---

Table of Contents

        Elizabeth Cermak has served on our Board of Directors since July 2015. Since July 2014 Ms. Cermak has served on the Board of Clarus Therapeutics Inc. and also serves on the Board of the non-profit charity organization, Ocean Ridge Charities Association, Inc. Since February 2016, Ms. Cermak also serves as Vice President and Secretary of Cermak Suds, LTD., a Colorado corporation. Previously Mrs. Cermak served as Executive Vice President, Chief Commercial Officer for POZEN, Inc. (NASDAQ: POZN) from 2009 to 2013. As a member of the Executive Committee, she led all Commercial, Business Development and Alliance Management functions and worked closely with the Board of Directors on corporate strategy execution. Prior to that Ms. Cermak. spent 25 years at Johnson & Johnson serving in notable senior management roles including VP, Global Marketing for a Personal Products portfolio in the Consumer Health Care business (NYSE: JNJ), VP of the Women's Healthcare RX Franchise for Ortho-McNeil Pharmaceuticals and General Manager for the Johnson & Johnson Health & Fitness Services Business. Ms. Cermak holds an MBA in Finance from Drexel University in Philadelphia, PA, and a BA Cum Laude in Accounting and Spanish from Franklin and Marshall College in Lancaster, PA. We believe that Ms. Cermak possesses specific attributes that qualify her to serve on our board of directors, including her experience in the biopharmaceutical and medical device industries, particularly in previous key commercial and business development positions at large public companies, and her understanding of the operations and issues that affect similarly situated companies.

Class II Directors

        Keith Bank has served as a member of our board of directors since February 2009, and has served as Chairman of the Board since May 2012. Mr. Bank was the founder, and has served as Managing Director of KB Partners, an early stage venture capital firm, since its inception in 1996. Mr. Bank was a founding board member of the Illinois Venture Capital Association and has been an active early stage investor and board member across many industries and companies over his eighteen year venture capital career. Prior to starting KB Partners, Mr. Bank was a commercial real estate developer and entrepreneur. He is a Magna Cum Laude graduate of the Wharton School of Business at the University of Pennsylvania and received an MBA with honors from the J.L. Kellogg School of Management at Northwestern University. We believe Mr. Bank's extensive investment and management experience qualify him to serve on our board of directors.

        Stephen J. Farr, Ph.D., has served as a member of our board of directors since May 2012. Dr. Farr has served as President and a member of the board of directors of Zogenix Inc since May 2006. From 1995 to August 2006, Dr. Farr held positions of increasing responsibility within pharmaceutical sciences and research and development at Aradigm Corporation, and he served most recently as Senior Vice President and Chief Scientific Officer. From 1986 to 1994, Dr. Farr was a tenured professor at the Welsh School of Pharmacy, Cardiff University, United Kingdom, concentrating in the area of biopharmaceutics. He is a fellow of the American Association of Pharmaceutical Scientists and Adjunct Professor in the Department of Pharmaceutics, School of Pharmacy, Virginia Commonwealth University. Dr. Farr is a registered pharmacist in the United Kingdom and obtained his Ph.D. degree in Pharmaceutics from the University of Wales. As a member of our board of directors since 2012, Dr. Farr has extensive knowledge of our business, history and culture, including his in-depth involvement with the development and regulatory approval of drug-device technologies as well as his significant experience in research and development and thorough knowledge of the pharmaceutical product development process, which we believe qualifies him to serve as a director of our company.

89

---

Table of Contents

Class III Directors

        Jonathan M.N. Rigby has served as our President and CEO and a member of our board of directors since August 2011. In 2006 Mr. Rigby cofounded Zogenix, Inc. a specialty pharmaceutical company focused on the development and commercialization of CNS and pain products where he served as the company's Vice President of Business Development until December 2010. As a member of the senior management team he played an important role in the development, approval and U.S. launch of the world's first needle free drug device combination product to treat migraine. Between 2002 and 2006 Mr. Rigby held positions of increasing responsibility at Aradigm Corporation, including Vice President of Business Development where he was involved in M&A activities as well as inhalation delivery technology licensing in various therapeutic fields including Pulmonary Arterial Hypertension, or PAH. Between 1995 and 2002 Mr. Rigby held various commercial and business development positions at Profile Therapeutics, UK, where he played a key role in the licensing of inhalation technology that resulted in the approval and launch of an inhalation product to treat PAH. Between 1990 and 1995 he held various sales and marketing positions at large pharmaceutical companies including Merck Sharpe and Dohme, or MSD, and Bristol Myers Squibb, or BMS. Mr. Rigby has a Bachelor of Science Degree, with Honors, in Biological Sciences from Sheffield University, UK, and an MBA from Portsmouth University, UK. Given that Mr. Rigby has extensive and broad experience in the pharmaceutical, drug delivery and medical device industry as well as a proven record in contributing to the development, approval, launch and commercialization of pharmaceutical products qualifies him to serve as our President, CEO and member of our board of directors.

        Ron Ginor, M.D., has served as a member of our board of directors since January 2009. Since September 2015, Dr. Ginor has served as Venture Partner of OrbiMed Advisors. Since June 2013, Dr. Ginor has served as Chief Executive of Unit 82, a strategic intelligence company. Dr. Ginor served as CEO at Becker & Associates Consulting, Inc., a highly specialized regulatory consulting firm, from 2011 to 2012. Dr. Ginor also served as President from January 2007 to August 2011, as Medical Director from September 2008 to July 2012, and as President of Becker Venture Services Group from 2007 to 2012. At Becker, Dr. Ginor specialized in guiding medical device companies through initial research and development, clinical study development and management and, ultimately, FDA approval and third party reimbursement. Since October 2007, Dr. Ginor has served as the Managing Director for Samson Venture Partners, LLC, a life science investment fund. Dr. Ginor is a graduate of the Elliot School of International Affairs with a degree in International Economics, and the George Washington University School of Medicine. Prior to leaving academic medicine in 1997, Dr. Ginor worked on the development of conformal 3D radiation therapy modalities for prostate cancer treatment at The Memorial Sloan Kettering Cancer Center and on radio sensitizing drugs at Stanford University. Dr. Ginor holds several U.S. and International patents, and has published extensively in peer reviewed literature. We believe Dr. Ginor's relevant experience qualifies him to serve as a director of our company.

Executive Officers

        The following table sets forth certain information with respect to our executive officers as of March 15, 2017:

        Jonathan M.N. Rigby.    Mr. Rigby's biography is included above under the section titled "Board of Directors—Class III Directors."

90

---

Table of Contents

        David W. Nassif has served as our Executive Vice President and Chief Financial Officer since March 2013 (first as a financial consultant and commencing March 2015 on a full-time basis) He served as the President and Chief Financial Officer a of Histogen, Inc., a privately-held, regenerative medicine company, from May 2011 through September 2014 after consulting for Histogen since December 2010. Mr. Nassif served as the Executive Vice President and Chief Financial Officer of Zogenix, Inc., a publicly-held, specialty pharmaceutical company from May 2007 (after consulting for SteadyMed from October 2006 to May 2007) to February 2010. From May 2006 to October 2006, as well as from 2001 to 2002, he served as a principal at Strategic Consulting Services providing capital raising, mergers and acquisitions, licensing, SEC advisory and investor relations services to various public and private life science and technology companies, including Amphastar Pharmaceuticals, Inc. From 2002 to May 2006, Mr. Nassif was the Senior Vice President of Global Licensing and Chief Financial Officer at Amphastar, a publicly-held, specialty pharmaceutical company. From 2000 to 2001, he was the Senior Vice President and Chief Financial Officer of RealAge, Inc., a privately-held healthcare database information marketing company. From 1993 through 1999, Mr. Nassif held various positions with Cypros Pharmaceutical Corporation, a publicly-held, specialty pharmaceutical company, culminating in the position of Senior Vice President and Chief Financial Officer, and leading them through a merger with Ribogene (now Mallinckrodt Pharmaceuticals) in 1999. Mr. Nassif received a B.Sc. in Finance and Management Information Systems from the University of Virginia with honors and a J.D. from the University of Virginia School of Law.

        Peter D. Noymer, Ph.D., has served as our Executive Vice President and Chief Operating Officer since December 2016. Dr. Noymer served as our Executive Vice President of Research & Development and Chief Technical Officer from February 2013 to December 2016. From August 2006 to February 2013, he held positions of increasing responsibility at Alexza Pharmaceuticals, including Vice President of Product R&D from January 2009 to February 2013. At Alexza, Dr. Noymer worked on several development programs involving combination products for novel therapies, including Adasuve®, the first U.S. and EU approved inhalable treatment for acute agitation. From 1999 to 2006, Dr. Noymer held various management positions at Aradigm Corporation, developing drug-device combination products for both inhalation and injection. Prior to Aradigm, he held an appointment as Visiting Assistant Professor at Carnegie Mellon University, as well as various engineering positions at GE. Dr. Noymer received M.S. and Ph.D. degrees in mechanical engineering from M.I.T., and a B.S. degree in mechanical & aerospace engineering from Princeton University.

Board Composition and Governance

Board Committees

        Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business. We are required to comply with both The NASDAQ Stock Market, or NASDAQ, rules and the Companies Law regarding the composition of our board committees. Each committee of the board of directors that exercises the power of the board of directors must include only members of the board of directors and include at least one external director, except that the audit committee and the compensation committee must include all external directors then serving on our board of directors.

        The composition and functions of our established committees are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

91

---

Table of Contents

        Audit Committee.    In order to comply with both NASDAQ rules and the Companies Law, we maintain an audit committee consisting of at least three independent directors, including all of the external directors, all of whom are financially literate and at least one of whom has accounting or related financial management expertise. One of the external directors must serve as the chairman of the audit committee. Our audit committee consists of Elizabeth Cermak, Stephen Farr, and Donald Huffman, and is chaired by Donald Huffman. Donald Huffman is an audit committee financial expert as defined by the U.S. Securities and Exchange Commission, or SEC, rules. Each of the members of our audit committee is "independent" as such term is defined in Rule 10A 3(b)(1) under the Exchange Act and under NASDAQ rules.

        Under the Companies Law, the audit committee may not include the chairman of the board of directors, a controlling shareholder of the company, a relative of a controlling shareholder, a director employed by the company or who provides services on a regular basis to the company, to a controlling shareholder or to an entity controlled by a controlling shareholder, or a director who derives most of his or her income from a controlling shareholder.

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

•

the audit committee has determined that he or she meets the applicable qualifications for being appointed as an external director, except for (i) the requirement that the director be an Israeli resident (which does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel) and (ii) the requirement for possessing accounting and financial expertise or professional qualifications; and



•

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

        Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the Companies Law and the applicable rules and regulations of the SEC and NASDAQ. A copy of the audit committee charter is available on our website at www.steadymed.com

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

•

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



•

determining whether to approve certain related party/controlling shareholders transactions (including transactions in which an office holder has a personal interest/conflict of interest) and whether such transaction is extraordinary or material under the Companies Law;



•

determining the process for the approval of certain transactions with controlling shareholders or in which a controlling shareholder has a personal interest;



•

where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to the board of directors and proposing amendments thereto;



•

examining our internal audit controls and internal auditor's performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities;

92

---

Table of Contents

•

examining the scope of our auditor's work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the compensation of our auditor; and



•

establishing procedures for the handling of employees' complaints as to the management of our business and the protection to be provided to such employees.

        Our audit committee may not approve any actions requiring its approval, unless, at the time of the approval, a majority of the committee's members are present, which majority consists of unaffiliated directors including at least one external director.

        —Internal Auditor.    Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor, as nominated by the audit committee. The role of the internal auditor under the Companies Law includes examining whether a company's actions comply with applicable law and orderly business procedure. Our internal auditor cannot be an interested party, office holder, affiliate or a relative of an interested party or an office holder, and cannot be our independent accountant or its representative or serve in any other position in the company except for the charge of public complaints or complaints from employees and provided that this would not impair his capacity as the internal auditor. The Companies Law defines an "interested party" as the holder of 5% or more of a company's outstanding shares, any person or entity who has the right to appoint one or more of a company's directors, the chief executive officer or any person who serves as a director or chief executive officer. We have appointed a third-party to fulfil the internal audit function.

        Compensation Committee.    In order to comply with both NASDAQ rules and the Companies Law, we maintain a compensation committee consisting of at least three directors, including all of the external directors, each of whom is an independent director within the meaning of NASDAQ rules. Our compensation committee consists of Elizabeth Cermak, Brian J. Stark, and Donald Huffman, and is chaired by Elizabeth Cermak. Each of the members of our compensation committee is independent under the applicable rules and regulations of the SEC, NASDAQ and the U.S. Internal Revenue Service.

        Under the Companies Law, our board of directors must appoint a compensation committee comprised of at least three directors, including all of the external directors, who must constitute a majority of the members of the compensation committee. However, subject to certain exceptions, Israeli companies whose securities are traded on certain U.S. stock exchanges, such as NASDAQ, that do not have a controlling shareholder, do not have to meet such majority requirement, provided that the compensation committee meets other Companies Law composition requirements and the requirements of the jurisdiction where the company's securities are traded. Each compensation committee member who is not an external director must be a director whose compensation does not exceed an amount that may be paid to an external director under regulations promulgated under the Companies Law. The compensation committee is subject to the same Companies Law restrictions as the audit committee regarding who may not be a member of the committee.

        Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the compensation committee consistent with the Companies Law and the applicable rules and regulations of the SEC and NASDAQ, including the following:

•

recommending to the board of directors for its approval (i) a compensation policy, (ii) whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years); and (iii) periodic updates to the compensation policy. In addition, the compensation committee is required to periodically examine the implementation of the compensation policy;

93

---

Table of Contents

•

the approval of the terms of employment and service of office holders (including determining whether the compensation terms of a candidate for chief executive officer of the company need not be brought to approval of the shareholders); and



•

reviewing and approving grants of options and other incentive awards to persons other than office holders to the extent such authority is delegated by our board of directors, subject to the limitations on such delegation as provided in the Companies Law.

        A copy of the compensation committee charter is available on our website at www.steadymed.com.

        Nominating and Corporate Governance Committee.    Our nominating and corporate governance committee consists of Keith Bank, Ron Ginor and Stephen Farr, and is chaired by Keith Bank. Each of the members of our nominating and corporate governance committee is independent under the NASDAQ rules.

        Our nominating and corporate governance committee is responsible for making recommendations to the board of directors regarding candidates for directorships and the composition and organization of our board. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning governance matters. Our board of directors has adopted a nominating and corporate governance committee charter, which is available on our website at www.steadymed.com.

        To date, our nominating and corporate governance committee has not adopted a formal policy with respect to a fixed set of specific minimum qualifications for its candidates for membership on the board of directors. Instead, when considering candidates for director, the nominating and corporate governance committee will generally consider all of the relevant qualifications of board of directors candidates, including such factors as the candidate's relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the company, demonstrated excellence in his or her field, having relevant financial or accounting expertise, having the ability to exercise sound business judgment, having the commitment to rigorously represent the long-term interests of our shareholders and whether the board candidates will be independent for purposes of the NASDAQ listing standards, as well as the current needs of the board of directors and the company.

        In addition, while it does not have a formal policy on the board of directors' diversity, our nominating and corporate governance committee takes into account a broad range of diversity considerations when assessing director candidates, including individual backgrounds and skill sets, professional experiences and other factors that contribute to the board of directors having an appropriate range of expertise, talents, experiences and viewpoints. Our nominating and corporate governance committee considers diversity criteria in view of the needs of the board of directors as a whole when making decisions on director nominations. In the case of incumbent directors whose terms of office are set to expire, our nominating and corporate governance committee will also review, prior to nominating such directors for another term, such directors' overall service to the company during their term. Our nominating and corporate governance committee will conduct any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the board of directors. We have, from time to time, engaged an executive search firm to assist our nominating and corporate governance committee in identifying and recruiting potential candidates for membership on the board of directors.

        We expect that any additional directorships resulting from an increase in the number of directors, other than directorships held by external directors, will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors other than our external directors. The division of our directors, other than our external directors, into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.

94

---

Table of Contents

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

        In accordance with the Companies Law and our restated articles of association, our board of directors is required to appoint one of its members to serve as chairman of the board of directors. Our board of directors has appointed Keith Bank to serve as chairman of the board of directors.

        Risk Oversight.    The board of directors oversees our risk exposures and risk management of various parts of the business, including appropriate guidelines and policies to minimize business risks and major financial risks and the steps management has undertaken to control them. In its risk oversight role, the board of directors reviews annually our strategic plan, which includes an assessment of potential risks we are facing. While the board of directors has the ultimate oversight responsibility for the risk management process, various committees of the board also have responsibility for risk management. In particular, the audit committee focuses on financial risk, including internal controls. In addition, in setting compensation, the compensation committee strives to create incentives that do not encourage risk-taking behavior that is inconsistent with our business strategy. Each committee regularly reports to the full board of directors.

Governance

        Independent Directors.    Under the NASDAQ listing requirements and rules, independent directors must comprise a majority of our board of directors. Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that, with the exception of Jonathan Rigby, who is our chief executive officer, each of our directors is "independent" under NASDAQ rules. In making this determination, our board of directors considered the current and prior relationships that each director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares by each director.

        Compensation Committee Interlocks.    None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

        Code of Business Conduct and Ethics.    Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions and agents and representatives, including directors and consultants. The full text of our Code of Business Conduct and Ethics is available on our website at www.steadymed.com. We will post any amendment to the code, as well as any waivers that are required to be disclosed by the rules of the SEC or The NASDAQ Stock Market, on our website.

        Involvement in Certain Legal Proceedings.    As of the date of this Annual Report on Form 10-K, there are no material proceedings to which any of our directors or executive officers, or any associate thereof, is a party which is adverse to or has a material interest adverse to us or any of our subsidiaries. There are no family relationships among any of our executive officers, directors or persons nominated to become one of our directors.

95

---

Table of Contents

        Communications with the Board of Directors.    We provide a process for shareholders to send communications to our board of directors, any committee of our board of directors or any individual director, including non-employee directors. Shareholders may communicate with our board of directors by writing to: Board of Directors, c/o Corporate Secretary, SteadyMed Ltd., c/o SteadyMed Therapeutics, Inc., 2603 Camino Ramon, Suite 350, San Ramon, California 94583. The secretary will forward correspondence to our board of directors, one of the committees of our board of directors or an individual director, as the case may be, or, if the secretary determines in accordance with his best judgment that the matter can be addressed by management, then to the appropriate executive officer.

ITEM 11.    EXECUTIVE COMPENSATION

Executive Compensation

        Our named executive officers, or NEOs, for 2016, which consist of our principal executive officer and the next two most highly compensated executive officers, are:

•

Jonathan M.N. Rigby, President, Chief Executive Officer;



•

David W. Nassif, Executive Vice President and Chief Financial Officer; and



•

Peter D. Noymer, Executive Vice President and Chief Operating Officer.

Summary Compensation Table

        The following table sets forth all of the compensation awarded to, earned by or paid to our NEOs during 2015 and 2016.

96

---

Table of Contents

Outstanding Equity Awards at December 31, 2016

        The following table provides information regarding outstanding equity awards held by each of our NEOs as of December 31, 2016.

97

---

Table of Contents

Executive Employment Arrangements; Potential Payments and Acceleration of Equity upon Termination and/or in Connection with a Change in Control

        We have entered into employment agreements with each of our named executive officers. The employment agreements have no specific term of employment and the relationships created thereby constitute at-will employment. A summary of our current employment arrangements with each of these officers is set forth below. The summary below is qualified in its entirety by reference to the text of the actual employment agreements, which have been previously filed with the SCE and are incorporated herein by reference.

Jonathan M.N. Rigby

        Under his employment agreement, Mr. Rigby will be eligible to receive an annual bonus, with the target level determined as 50% of his annual base salary. His eligibility for such annual bonus and the amount of such annual bonus will be determined by our board of directors and, as required under the Companies Law, our shareholders and based upon both the company and Mr. Rigby's achievement of objectives and milestones to be determined on an annual basis by our board of directors in consultation with Mr. Rigby.

        In the event of upon certain change in control events, the vesting of 50% of the then-unvested shares subject to Mr. Rigby's outstanding equity awards will be accelerated and will become fully vested and exercisable, regardless of whether his employment is terminated. If Mr. Rigby is terminated in connection with such a change in control event, then the vesting of 100% of then-unvested shares subject to Mr. Rigby's outstanding equity awards will be accelerated and will become fully vested and exercisable.

        Mr. Rigby's employment agreement also provides for certain severance benefits if his employment is terminated without cause or if he resigns for good reason, the cash amount of which consists of his annual base salary payable over the six month period following his termination date. In addition, if Mr. Rigby is terminated upon certain change in control events, then Mr. Rigby will be entitled to severance benefits in addition to the equity acceleration described above, including a one-time cash payment equal to 1.5 times his annual base salary.

98

---

Table of Contents

David W. Nassif

        Under his employment agreement, Mr. Nassif will be eligible to receive an annual bonus, with the target level determined as 40% of his annual base salary. His eligibility for such annual bonus and the amount of such annual bonus will be determined by our board of directors in its sole discretion and based upon both the company and Mr. Nassif's achievement of objectives and milestones to be determined on an annual basis by our board of directors in consultation with Mr. Nassif.

        In the event of upon certain change in control events, the vesting of 50% of the then-unvested shares subject to Mr. Nassif's outstanding equity awards will be accelerated and will become fully vested and exercisable, regardless of whether his employment is terminated. If Mr. Nassif is terminated in connection with such a change in control event, then the vesting of 100% of then-unvested shares subject to Mr. Nassif's outstanding equity awards will be accelerated and will become fully vested and exercisable.

        Mr. Nassif's employment agreement also provides for certain severance benefits if his employment is terminated without cause or if he resigns for good reason, the cash amount of which consists of his annual base salary payable over the six month period following his termination date. In addition, if Mr. Nassif is terminated upon certain change in control events, then Mr. Nassif will be entitled to severance benefits in addition to the equity acceleration described above, including a one-time cash payment equal to 1.25 times his annual base salary.

Peter D. Noymer

        Under his employment agreement, Mr. Noymer will be eligible to receive an annual bonus, with the target level determined as 35% of his annual base salary. His eligibility for such annual bonus and the amount of such annual bonus will be determined by our board of directors in its sole discretion and based upon both the company and Mr. Noymer's achievement of objectives and milestones to be determined on an annual basis by our board of directors in consultation with Mr. Noymer.

        In the event of upon certain change in control events, the vesting of 50% of the then-unvested shares subject to Mr. Noymer's outstanding equity awards will be accelerated and will become fully vested and exercisable, regardless of whether his employment is terminated. If Mr. Noymer is terminated in connection with such a change in control event, then the vesting of 100% of then-unvested shares subject to Mr. Noymer's outstanding equity awards will be accelerated and will become fully vested and exercisable.

        Mr. Noymer's employment agreement also provides for certain severance benefits if his employment is terminated without cause or if he resigns for good reason, the cash amount of which consists of 75% of his annual base salary payable over the six month period following his termination date. In addition, if Mr. Noymer is terminated upon certain change in control events, then Mr. Noymer will be entitled to severance benefits in addition to the equity acceleration described above, including a one-time cash payment equal to his annual base salary.

Compensation Policy

        We have adopted a compensation policy in accordance with the Companies Law. The compensation policy serves as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy relates to certain factors, including advancement of the company's objectives, the company's business plan and its long-term strategy, and creation of appropriate incentives for office holders, and must consider (among other things) the company's risk management, size and the nature of its operations. The compensation policy also considers the following additional factors:

•

the education, skills, expertise and accomplishments of the relevant office holder;            

99

---

Table of Contents

•

the office holder's roles and responsibilities and prior compensation agreements with him or her;             



•

the relationship between the terms offered and the average compensation of the other employees of the company (including any employees employed through manpower companies);



•

the impact of disparities in salary upon work relationships in the company;



•

the possibility of reducing variable compensation at the discretion of the board of directors, and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and



•

as to severance compensation, the period of employment or service of the office holder, the terms of his or her compensation during such period, the company's performance during such period, the person's contribution towards the company's achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.

        The compensation policy also includes the following principles:

•

the link between variable compensation and long-term performance and measurable criteria;             



•

the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;             



•

the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company's financial statements;



•

the minimum holding or vesting period for variable, equity-based compensation; and



•

maximum limits for severance compensation.

Director Compensation

        Our compensation policy for our external directors and our non-employee directors consists of cash and equity components.

Cash Compensations

        We provide retainer fees and reimburse our non-employee directors for expenses incurred in connection with attending board and committee meetings. The approved retainer fees are as follows:

100

---

Table of Contents

        The actual cash compensation paid to our non-employee directors in 2015 and 2016 was:

Equity Compensation

        Non-employee directors are eligible to receive share options under our 2009 Stock Option Plan. Each of our external directors and our non-employee directors received an initial stock option for 33,350 ordinary shares at the 2015 annual meeting. These initial option grants vest over three years, with one-third vesting on the anniversary of the grant date and the remainder vesting in equal consecutive quarterly installments thereafter. The exercise price for these initial option grants is $5.60, the closing price of our ordinary shares on the day before the 2015 annual meeting.

        In addition, on the date of each subsequent annual meeting of our shareholders, each of our external directors and our non-employee directors will receive a stock option for 3,875 ordinary shares on the date of such annual meeting.

        These annual option grants will also vest over three years, with one-third vesting on the anniversary of the grant date and the remainder vesting in equal consecutive quarterly installments thereafter. The exercise price for these annual option grants will be the closing price of our ordinary shares on the day before each annual meeting.

        As of December 31, 2016, the aggregate number of shares subject to outstanding equity awards held by our non-employee directors was:

101

---

Table of Contents

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Equity Compensation Plan Information

        The following table summarizes, as of December 31, 2016, (i) the number of shares of our ordinary shares that are issuable under our equity compensation plans upon the exercise of outstanding options, warrants and other rights, (ii) the weighted-average exercise price of such options, warrants and rights, and (iii) the number of securities remaining available for future issuance under our equity compensation plans.

Amended and Restated 2009 Stock Incentive Plan and 2013 Stock Incentive Subplan

        On June 18, 2009, we adopted our 2009 Stock Option Plan, or the 2009 Plan. Our board of directors and shareholders approved an amendment and restatement of the 2009 Plan, or the Restated 2009 Plan, in February 2015 and March 2015, respectively and an amendment in October 2016. The Restated 2009 Plan permits the grant of stock awards to our directors, employees, officers, consultants and service providers.

        In 2013, we adopted our 2013 Stock Incentive Subplan, or the 2013 Plan as an annex to the 2009 Plan under which options were granted to individuals performing services on behalf of our United States subsidiary. We have discontinued making awards under the 2013 Plan annex.

        As of December 31, 2016, options to purchase an aggregate of 1,689,555 ordinary shares were outstanding and 305,218 ordinary shares were available for future grant, under our 2009 Stock Option Plan.

        Under the Restated 2009 Plan, as amended, there will be annual increases to the reserved pool, starting January 1, 2017 through (and including) January 1, 2024 equal to (a) 4% of the total ordinary shares outstanding on December 31 of the preceding year, or (b) such lesser number of ordinary shares as determined by our board of directors prior to January 1 of such year.

        Any shares underlying an award that expires, is cancelled or terminated or forfeited for any reason (and without having been exercised, in the case of an option) shall be returned to the reserved pool of shares and shall again be available for grant under the Restated 2009 Plan, unless the committee or the board determines otherwise.

102

---

Table of Contents

        The Restated 2009 Plan is administered by our board of directors or a committee designated by our board of directors, which determines, subject to Israeli or other applicable law, the grantees of stock awards, the terms of such awards, including exercise prices in the case of options and stock appreciation rights, vesting schedules, acceleration of vesting, the type of option or other award, and the other matters necessary or desirable for, or incidental to the administration of the Restated 2009 Plan. The Restated 2009 Plan provides for the issuance of stock awards under various country regimes including Israeli and U.S. tax regimes. Permissible awards under the Restated 2009 Plan include options, restricted share awards, restricted share unit awards, and other share-based awards.

        The Restated 2009 Plan provides that options granted to our employees, directors and officers who are not controlling shareholders and who are considered Israeli residents are intended to qualify for special tax treatment under the "capital gains track" provisions of Section 102(b)(2) of the Israeli Tax Ordinance, or the Ordinance. Under the Restated 2009 Plan, our Israeli non-employee service providers and controlling shareholders may only be granted options under Section 3(i) of the Ordinance, which does not provide for similar tax benefits.

        Section 102 of the Ordinance allows employees, directors and officers, who are not controlling shareholders and who are Israeli residents, to receive favorable tax treatment for compensation in the form of shares or options. Section 102 of the Ordinance includes two alternatives for tax treatment involving the issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee. Section 102(b)(2) of the Ordinance, which provides the most favorable tax treatment for grantees, permits the issuance to a trustee under the "capital gains track." In order to comply with the terms of the capital gains track, all options granted under a specific plan and subject to the provisions of Section 102 of the Ordinance, as well as the shares issued upon exercise of such options and other shares received following any realization of rights with respect to such options, such as share dividends and share splits, must be registered in the name of a trustee selected by the board of directors and held in trust for the benefit of the relevant employee, director or officer. The trustee may not release these options or shares to the relevant grantee before the second anniversary of the registration of the options in the name of the trustee. However, under this track, we are not allowed to deduct an expense with respect to the issuance of the options or shares.

        Under the Restated 2009 Plan, the exercise price of options granted to individuals resident in Israel shall be determined by the administrator. Options granted under the Restated 2009 Plan to U.S. residents may qualify as "incentive stock options" ("ISOs"), or may be "nonstatutory stock options". The exercise price of options granted to U.S. residents will be the closing price our ordinary shares on the applicable stock exchange on the date of grant, except that the exercise price for ISOs granted to an optionee holding more than 10% of the voting power of our share capital must not be less than 110% of the fair market value of our ordinary shares on the date of grant.

        Under the Restated 2009 Plan, a maximum of 2,647,803 ordinary shares may be issued pursuant to the exercise of incentive stock options.

        Under the Restated 2009 Plan, for purposes of awards to "covered employees" intended to qualify as performance-based awards under Section 162(m) of the United States Internal Revenue Code, a maximum of 100,000 shares subject to options may be granted to any one individual in any one calendar year; and a maximum of 100,000 shares considered "full value awards" (such as restricted share or restricted share units) may be granted to any one individual in any one calendar year.

        Options granted under the Restated 2009 Plan are subject to vesting schedules as determined by the committee or the board, and generally expire no later than ten years from the date of grant, unless a different term is provided in the option agreement.

103

---

Table of Contents

        Under the Restated 2009 Plan, in the event of termination of employment or services for reasons of disability or death, the grantee, or in the case of death, his or her legal successor, may exercise options that have vested prior to termination within a period of twelve months after the date of termination. If a grantee's employment or service is terminated for cause, all of the grantee's vested and unvested options expire on the date of termination. If a grantee's employment or service is terminated without cause or due to retirement, the grantee may exercise his or her vested options within three months after the date of termination, except as otherwise provided by the committee or in an award agreement. Any expired or unvested options are returned to the pool for reissuance.

        The exercise price and the number and/or type of shares issuable upon exercise of options under the Restated 2009 Plan shall be adjusted due to a share split (forward or reverse), share dividend, recapitalization or similar adjustment affecting our outstanding share capital.

        The Restated 2009 Plan provides that in the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect on us, then without the consent of any grantee, our board of directors or its designated committee, as applicable, may but is not required to (i) cause any outstanding award to be assumed or an equivalent award to be substituted by such successor corporation, or (ii) in case the successor corporation refuses to assume or substitute the award (a) provide the grantee with the option to exercise the award as to all or part of the shares (even a portion not then otherwise vested) or (b) cancel the options against payment in cash in an amount determined by the board of directors or the committee as fair in the circumstances. Notwithstanding the foregoing, our board of directors or its designated committee may upon such event amend or terminate the terms of any award, including conferring the right to purchase any other security or asset that the board of directors shall deem, in good faith, appropriate. Pursuant to the foregoing provisions of the Restated 2009 Plan, our board of directors has determined that upon the occurrence of any such merger or similar event, the vesting of options granted to certain of our executive officers will accelerate, thereby enabling such officers to exercise those options (even to the extent not otherwise exercisable).

Security Ownership of Certain Beneficial Owners and Management

        The following table sets forth certain information with respect to the beneficial ownership of our ordinary shares as of January 31, 2017, for (i) each of our named executive officers, (ii) each of our directors; (iii) all of our directors and executive officers as a group; and (iv) each person, or group of affiliated persons, known by us to beneficially own more than 5% of our ordinary shares.

        Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Ordinary shares issuable under options or warrants that are exercisable within 60 days after January 31, 2017 are deemed beneficially owned and such shares are used in computing the percentage ownership of the person holding the options or warrants, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. The information contained in the following table is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any shares in the table does not constitute an admission of beneficial ownership of those shares.

104

---

Table of Contents

        Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and dispositive power with respect to their ordinary shares, except to the extent authority is shared by spouses under community property laws. Unless otherwise indicated below, the address of each beneficial owner listed in the table below is c/o SteadyMed Therapeutics, Inc., 2410 Camino Ramon, Suite 285, San Ramon, CA 94583.

105

---

Table of Contents

106

---

Table of Contents

107

---

Table of Contents

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of our stock, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of such forms furnished to us, we believe that during our preceding fiscal year, all Section 16(a) report required to be filed by our officers, directors, and greater than 10% beneficial owners were filed and that such filings were timely except the following: Mr. Rigby, an officer, filed one late Form 4 dated July 22, 2016; Mr. Noymer, an officer, filed two late Form 4s dated July 22, 2016 and November 30, 2016; and Mr. Nassif, an officer, filed one late Form 4 dated July 22, 2016.

Change in Control

        We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our Company.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        The following is a summary of transactions since January 1, 2015 to which we have been a participant in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or holders of more than five percent of our share capital, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

108

---

Table of Contents

Private Placement

        In July 2016, the Company entered into a subscription agreement with investors for a private placement (the "Private Placement") of the Company's ordinary shares, pursuant to which the Company agreed to issue and sell to the investors for an aggregate price of up to approximately $32,000,000 the following securities: (i) in the initial tranche, an aggregate of 6,554,016 Ordinary Shares of the Company, for $3.13 per share, and warrants to purchase up to 6,554,016 additional Ordinary Shares of the Company, for $0.125 per share, and (ii) in the second tranche, an aggregate of up to approximately $10,700,000 of Ordinary Shares of the Company at a purchase price equal to the higher of (i) $3.13 or (ii) the average closing price of Ordinary Shares of the Company on NASDAQ over the 30 trading days immediately preceding the closing date of the second tranche with no warrants. The first tranche of the Private Placement closed on August 4, 2016, pursuant to which the Company received approximately $19,800,000 in net proceeds. The warrants issued are exercisable immediately upon issuance and may be exercised at any time prior to August 2021 at an exercise price of $3.5995 per share. The Company filed a registration statement for the resale of the shares and warrant shares issued in the Private Placement which was declared effective on September 21, 2016.

        The following table summarizes the purchases of ordinary shares and warrant shares in the Private Placement by our executive officers, directors, and holders of more than 5% of our share capital:

Sales of Preferred Shares

        Prior to our IPO in March 2015, we signed an addendum to the Series E Preferred Share purchase agreement on January 24, 2015 to raise additional funds of $11.4 million, net of fees and expenses. Under the addendum, we issued 1,445,966 Series E Convertible Preferred Shares to existing and new in investors for a price of $8.49 per share.

109

---

Table of Contents

        The following table summarizes purchases of preferred shares by our executive officers, directors, and holders of more than 5% of our share capital:

Other Transactions with our Executive Officers, Directors and Significant Stockholders

        Investor Rights Agreement.    We and the holders of our preferred shares have entered into an agreement, pursuant to which these shareholders and warrant holders will have registration rights with respect to their ordinary shares.

        Option Grant.    We have made option grants to certain of our directors and executive officers.

        Employment Agreements and Change of Control Arrangements.    All of our named executive officers are at-will employees. They hold share options with accelerated vesting provisions that apply in certain circumstances in connection with a change of control.

        Indemnification Agreements.    Our restated articles of association provide that we may indemnify each of our directors and officers to the fullest extent permitted by Israeli law. Furthermore, we have entered into indemnification agreements with each of our directors and officers.

        Policy on Related Party Transactions.    All transactions between us and our officers, directors, principal shareholders and their affiliates are approved by the audit committee, or a similar committee consisting of entirely independent directors and, as required under any applicable law, our shareholders.

        Some of the related party transactions described in this section occurred prior to the adoption of this policy and as such, these transactions were not subject to the approval and review procedures set forth in this policy. However, these transactions were reviewed and approved by our board of directors.

Independence of Directors

        Please see "Director, Executive Officers and Corporate Governance—Board Composition—Independent Directors" for information about the director independence standards and the composition of the board committees.

110

---

Table of Contents

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The aggregate fees billed for the most recently completed fiscal year ended December 31, 2016 and the year ended December 31, 2015 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

        The audit committee has not approved any formal policy concerning pre-approval of the auditors to perform both audit and non-audit services (services other than audit, review and attest services). Instead, on a case by case basis, any audit or non-audit services proposed to be performed are considered by and, if deemed appropriate, approved by the audit committee in advance of the performance of such services. All of the fees earned by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, described above were attributable to services pre-approved by the board of directors. The audit committee has determined that the rendering of the foregoing services separate from the audit services by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, is compatible with maintaining the independent auditor's independence.

111

---

Table of Contents

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

        (1)   Financial Statements.    The financial statements required by this item are set forth beginning at F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

        (2)   Financial Statement Schedules.    See index to Consolidated Financial Statements on page F-1. All other schedules have been omitted because they are not required or are not applicable.

        (3)   Exhibits.    The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by reference or are filed with this report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

ITEM 16.    FORM 10-K SUMMARY

        None.

112

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016

IN U.S. DOLLARS

INDEX

---

F-1

---

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
STEADYMED LTD.

        We have audited the accompanying consolidated balance sheets of SteadyMed Ltd. (the "Company") and its subsidiaries as of December 31, 2016 and 2015 and the related consolidated statements of comprehensive loss, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2016 and 2015 and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

        The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1b to the financial statements, the Company has recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1b. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-2

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

   

The accompanying notes are an integral part of the consolidated financial statements.

F-3

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

U.S. dollars in thousands (except share data)

   

The accompanying notes are an integral part of the consolidated financial statements.

F-4

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share data)

   

The accompanying notes are an integral part of the consolidated financial statements.

F-5

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

   

The accompanying notes are an integral part of the consolidated financial statements.

F-6

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:—GENERAL

a.

Nature of business:

SteadyMed Ltd. (the "Company") was incorporated and is located in Israel, commenced its operations on June 15, 2005 and, together with its wholly-owned subsidiary, SteadyMed Therapeutics, Inc. ("Inc."), and Inc.'s wholly-owned subsidiary, SteadyMed U.S. Holdings, Inc. ("Holdings"), is a specialty pharmaceutical company focused on the development and commercialization of therapeutic product candidates that address the limitations of market-leading products in certain orphan and other well-defined high-margin specialty markets. The Company's primary focus is to obtain approval in the United States for the sale of Trevyent® for the treatment of pulmonary arterial hypertension ("PAH"). The Company is also at an earlier stage of development with two products for the treatment of post-surgical and acute pain in the home setting. Its product candidates are enabled by its proprietary PatchPump®, which is a discreet, water resistant and disposable drug administration technology that is aseptically prefilled with liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow of drug to a patient, either subcutaneously or intravenously.

Inc. and Holdings are located in the United States, and commenced operations on January 1, 2012 and March 25, 2015, respectively. The principal executive officers of the Company are located in the offices of Inc. and Holdings, and Inc.'s and Holdings' principal business activities are to provide executive management, treasury and administrative support functions to the Company.

b.

Liquidity:

The Company's shareholders' equity is $14,311 and $28,547 as of December 31, 2016 and December 31, 2015, respectively.

For the year ended December 31, 2016, the Company incurred operating losses of $27,398 and negative cash flows from operating activities of $25,850. The Company's current cash and cash equivalents will not be enough to support the Company's future operations for the next 12 months. The future success of the Company depends upon its ability to obtain additional capital in order to obtain FDA approval of Trevyent and to commercialize Trevyent in the U.S.

These factors raise substantial doubt about the Company's ability to continue as a going concern. In 2017, management intends to raise significant additional capital by way of a private placement of debt and/or equity and/or a secondary public offering to allow the Company to continue as a going concern. While the Company believes in its ability to raise additional capital, there can be no assurance that it will be able to do so.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

c.

Initial Public Offering:

On March 19, 2015, a registration statement covering the public sale of 4,700,000 Ordinary Shares was declared effective by the U.S. Securities and Exchange Commission ("SEC"). Commencing on March 20, 2015, the Company's Ordinary Shares began trading on the NASDAQ Stock Market under the ticker symbol "STDY".

F-7

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 1:—GENERAL (Continued)

On March 25, 2015, the Company closed its IPO at a price of $8.50 per share and the aggregate net proceeds received by the Company from the offering were $34,696, net of underwriting discounts and commissions and offering expenses.

On April 22, 2015, the Company's underwriters exercised a portion of their overallotment option pursuant to which they purchased 165,452 Ordinary Shares of the Company for $1,308, net of underwriters' fees and commissions.

Upon the closing of the IPO, all shares of the Company's outstanding Convertible Preferred Shares were automatically converted into 7,464,320 Ordinary Shares.

As of December 31, 2014, there were 711,120 outstanding warrants exercisable into Convertible Preferred Shares. Prior to the IPO, all but 10,191 warrants were exercised into Ordinary Shares. Of the exercised warrants, 295,697 were exercised for cash, and 405,232 were exercised on a cashless basis, resulting in the net exercise of 401,746 warrants (and 3,486 warrants were cancelled). Upon the closing of the IPO, the 10,191 warrants outstanding were automatically converted into warrants to purchase Ordinary Shares.

d.

On June 28, 2015, the Company entered into an Exclusive License and Supply Agreement (the "Agreement") with Cardiome Pharma Corp. and Correvio International Sárl ("hereinafter collectively referred to as "Cardiome") pursuant to which an exclusive royalty bearing license to certain of the Company's patents relating to Trevyent® ("License") was granted to Cardiome in order to develop and commercialize Trevyent, if approved for the treatment of PAH in certain regions outside the US; specifically, Europe, Canada and the Middle East (the "Regions"). The Company is obligated to perform services ("Services") estimated to be through the fourth quarter of 2017. Cardiome is responsible for the regulatory submissions and approvals and commercialization of Trevyent in the Regions. In addition, the Company has agreed to supply Trevyent as finished goods to Cardiome upon commercialization of Trevyent® in the Regions ("Supply Services").

Cardiome made a $3 million upfront payment to the Company and the Agreement provides for future regulatory, third-party payor reimbursement approval and commercialization milestone payments to be achieved by Cardiome of up to $9.25 million and a scaling royalty ranging from the low teens to mid-teens percent on future Trevyent sales by Cardiome in the Regions. In addition, there is a fixed price on finished goods to be supplied by the Company as part of the Supply Services.

F-8

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 1:—GENERAL (Continued)

e.

On July 29, 2016, the Company entered into a subscription agreement with investors for a private placement of the Company's Ordinary Shares, pursuant to which the Company agreed to issue and sell to the investors for an aggregate price of up to approximately $32,000 the following securities: (i) in the initial tranche, an aggregate of 6,554,016 Ordinary Shares of the Company, and warrants to purchase up to 6,554,016 Ordinary Shares of the Company, for $3.255 per unit, and (ii) in the second tranche, an aggregate of up to approximately $10,700 of Ordinary Shares of the Company at a purchase price equal to the higher of (i) $3.13 or (ii) the average closing price of Ordinary Shares of the Company on NASDAQ over the 30 trading days immediately preceding the closing date of the second tranche (the "Private Placement") with no warrants. The Second tranche will occur at the election of the Company following achievement by the Company of certain milestones related to its lead drug product candidate Trevyent. The first tranche of the Private Placement closed on August 4, 2016, pursuant to which the Company received gross proceeds of approximately $21,333. Two of the Company's board members, which are also shareholders in the Company, invested a total amount of $5,133. The related issuance costs for the private placement were $1,748.

The warrants issued are exercisable immediately upon issuance and may be exercised at any time prior to August 2021 at an exercise price of $3.5995 per share (see also note 7).

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES

        The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S. GAAP").

a.

Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, share-based compensation cost, revenue recognition, as well as liability in respect of warrants to purchase Convertible Preferred Shares. The Company's management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

b.

Principles of consolidation:

The consolidated financial statements include the accounts of the Company, Inc. and Holdings. All intercompany balances and transactions have been eliminated upon consolidation.

c.

Financial statements in U.S. dollars:

The accompanying financial statements have been prepared in U.S. dollars.

F-9

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company's financing activities are conducted in U.S. dollars. Although a portion of the Company's expenses are denominated in New Israeli Shekels ("NIS") (mostly salaries and rent), and Pounds Sterling (consultant costs), a substantial portion of its expenses are denominated in U.S. dollars. The Company's management believes that the currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar ("dollar"); thus, the dollar is the functional currency of the Company.

Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with ASC No. 830, "Foreign Currency Matters". All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of comprehensive loss as financial income or expense, as appropriate.

d.

Cash and cash equivalents:

The Company considers all highly liquid investments, which are readily convertible to cash with a maturity of three months or less at the date of acquisition, to be cash equivalents. Cash equivalents are comprised of money market funds and reverse repurchase agreements ("RRAs") which are fully collateralized and are generally outstanding for a short period of time with maturities significantly less than three months from the date of purchase. The required collateral for the RRAs is either U.S. Treasury or Federal Agency securities at a minimum rate of 102% of the RRAs' principal balance.

e.

Restricted cash:

Restricted cash represents cash which is used as collateral for a Company's credit card issued by a commercial bank and also as security in respect of the Loan's covenants (see also Note 6).

f.

Research and development costs:

Research and development expenses are charged to the statement of comprehensive loss as incurred. Research and development expenses include costs incurred in performing research and development activities, including salaries and benefits, facilities cost, overhead costs, contract services, supplies and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

F-10

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

g.

Property and equipment:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

Property and equipment are reviewed for impairment in accordance with ASC No. 360, "Property, Plant and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2016 and 2015, the Company recorded an impairment loss in the amount of $0 and $380 respectively.

h.

Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and restricted cash.

The vast majority of cash and cash equivalents of the Company, Inc. and Holdings is invested in short-term RRAs fully-collateralized by U.S. Treasury and Federal Agency securities. Such cash and cash equivalents in U.S. banks may be in excess of insured limits and are not insured in other jurisdictions. Generally, cash and cash equivalents may be redeemed and therefore a minimal credit risk exists with respect to these investments.

i.

Advertising costs:

Advertising costs related to ongoing activities are expenses as incurred. For the years ended December 31, 2015 and 2016, advertising costs totaled $153 and $126, respectively.

j.

Revenue recognition:

The Company generates revenue from the Agreement described in Note 1d. Pursuant to the Agreement, the Company identified the following performance deliverables at the inception of the Agreement: (i) an exclusive royalty bearing license to certain of the Company's patents related to Trevyent, which was transferred immediately upon signing of the Agreement, (ii) certain Services expected to be performed over a period until the fourth quarter of 2017 and (iii) Supply Services.

F-11

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company recognizes revenue in accordance with ASC 605-25, "Multiple-Element Arrangements" pursuant to which each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has "stand-alone value" to the customer. The arrangement's consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable which is based on the Estimated Selling Price ("ESP").

The License and Services are determined to be one unit of accounting since the License has no value to Cardiome on a stand-alone basis. The Supply Services are also determined to be a unit of accounting. The consideration allocated to the License and Services of $3,000 is recognized on a straight-line basis over the performance period of the Services.

Contingent payments related to milestones will be recognized immediately upon satisfaction of the milestone and contingent payments related to royalties will be recognized in the period that the related sales have occurred.

Revenues from product sales will be recognized when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no future obligation exists and collectability is reasonably assumed.

k.

Income taxes:

The Company accounts for income taxes in accordance with ASC No. 740, "Income Taxes," ("ASC 740"), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely than not to be realized.

ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Interest and penalties, if any, are included as components of taxes on income.

l.

Severance pay:

The liability for severance pay is calculated pursuant to Israel's Severance Pay Law (the "ISPL") based on the most recent salary of the employees located in Israel multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The liability for all of its employees in Israel is fully provided by monthly deposits with insurance policies and by an accrual.

F-12

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

The deposited funds include interest accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to ISPL or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial interest on the investments underlying the insurance policies.

Since inception, some of the Company's employees are included under Section 14 of the ISPL. Under this section, the employees are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. Deposits under Section 14 are not recorded as an asset in the Company's balance sheet.

Total expense related to severance pay is $71 and $49, for the years ended December 31, 2016 and 2015, respectively.

m.

Fair value of financial instruments:

The Company applies ASC 820, "Fair Value Measurements and Disclosures", ("ASC 820"), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels based on the inputs as follows:

F-13

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.

The carrying amounts of cash and cash equivalents, restricted cash, other accounts receivable, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Money Market Funds ("MMF") were classified as Level 1, Reverse Repurchase Agreements ("RRAs") were classified as Level 2 as the fair value is determined using a discounted cash flow model with all significant inputs derived from or corroborated with observable market data. Warrants to purchase Ordinary Shares were classified as Level 3 as the fair value is determined using a Monte Carlo option pricing model, which takes into account the anti-dilution features of the warrants and certain subjective assumptions made by management.

The Company's financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of the following dates:

 

n.

Convertible Preferred Shares:

Prior to the Company's IPO, the Company classified its Convertible Preferred Shares outside of shareholders' equity because certain features of the Company's Articles of Association (the "AOA") would require redemption of some or all classes of Convertible Preferred Shares upon events not solely within the control of the Company.

F-14

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

o.

Warrants to purchase Convertible Preferred Shares:

Until the Company's IPO in March 2015, the Company accounted for warrants to purchase shares of its Convertible Preferred Shares held by investors and others which include down round protection provisions as a liability according to the provisions of ASC 815-40, "Derivatives and Hedging Contracts in Entity's Own Equity" ("ASC 815"), which provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own share and thus able to qualify to be a derivative financial instrument. The Company measures the warrants at fair value by using the Monte Carlo Cliquent Option Pricing Model ("Monte Carlo Cliquent Model") in each reporting period until they are exercised or expired, with changes in the fair values being recognized in the Company's statement of comprehensive loss as financial expense (income), net.

During the year ended December 31, 2015, subsequent to the Company's completion of its IPO, the Convertible Preferred Shares and majority of the warrants to purchase Convertible Preferred Shares were converted into Ordinary Shares of the Company, par value NIS 0.01 per share and therefore classified as shareholders' equity.

p.

Accounting for stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation Stock Compensation", ("ASC 718"), which requires companies to estimate the fair value of equity based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite or derived service periods in the Company's consolidated statement of comprehensive loss.

The Company recognizes compensation expense for the value of its awards granted based on the straight-line method over the requisite or derived service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model which requires a number of assumptions, of which the most significant are the fair market value of the underlying Ordinary Shares until the company's IPO, expected stock price volatility and the expected option term. Expected volatility was calculated based upon historical volatilities of similar entities in the related sector index. The expected option term represents the period that the Company's stock options are expected to be outstanding and is determined based on the simplified method until sufficient historical exercise data will support using expected life assumptions. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.

F-15

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prior to the Company's IPO, the fair value of Ordinary Shares underlying the options was determined by the Company's Board of Directors with the assistance of an independent valuation firm. Because there has been no public market for the Ordinary Shares, the Board of Directors has determined fair value of the Ordinary Shares at the time of grant of by considering a number of objective and subjective factors including data from other comparable companies, sales of convertible Preferred Shares to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. For all reported periods and until June 30, 2014, the valuations were performed using the Option Pricing Method ("OPM"). Commencing June 30, 2014 and until the Company's Ordinary Shares began trading, the valuation was performed by using the Hybrid Method by combining the OPM and an IPO scenario to determine the fair value of the Company's Ordinary Shares.

q.

Basic and diluted net loss per share:

The Company applies the two class method as required by ASC 260-10, "Earnings Per Share" ("ASC 260-10") which requires the income or loss per share for each class of shares (ordinary and preferred shares) to be calculated assuming 100% of the Company's earnings are distributed as dividends to each class of shares based on their contractual rights. No dividends were declared or paid during the reported periods.

According to the provisions of ASC 260-10, the Company's Convertible Preferred Shares are not participating securities in losses and, therefore, were not included in the computation of net loss per share.

Basic and diluted net loss per share is computed based on the weighted-average number of Ordinary Shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary Shares outstanding during the year, plus dilutive potential shares considered outstanding during the year, in accordance with ASC 260-10. Basic and diluted net loss per share of Ordinary Shares was the same for each period presented as the inclusion of all potential Ordinary Shares outstanding was anti-dilutive.

For the years ended December 31, 2016 and 2015, all outstanding Convertible Preferred Shares, options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive and the total number of Convertible Preferred Shares, options and warrants that have been excluded from the calculation was 8,253,762 and 1,260,089, respectively.

r.

Legal and other contingencies:

The Company accounts for its contingent liabilities in accordance with ASC 450. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2016 and 2015, the Company is not a party to any litigation that could have a material adverse effect on the Company's business, financial position, results of operations or cash flows (see also note 8c).

F-16

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

s.

Impact of recently issued accounting standards:

1.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The new revenue recognition standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the cumulative effect method. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

2.

In February 2016, the FASB issued ASU 2016-02—Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact the consolidated financial statements as the company has certain operating lease arrangements. ASC 842 supersedes the previous leases standard, ASC 840 Leases. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

3.

In March 2016, the FASB issued ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting". This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cashflows and forfeiture rate calculations. ASU 2016-09 will become effective for the Company in the annual period ending August 31, 2018. Early adoption is permitted in any interim or annual period. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

F-17

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 2:—SIGNIFICANT ACCOUNTING POLICIES (Continued)

4.

In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 covers two specific topics: performance obligations and licensing. This amendment includes guidance on immaterial promised goods or services, shipping or handling activities, separately identifiable performance obligations, functional or symbolic intellectual property licenses, sales-based and usage-based royalties, license restrictions (time, use, geographical) and licensing renewals. In addition, in May 2016, FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. We currently evaluating the impact of the adoption of both revenue standards on its consolidated financial statements.



5.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective on January 1, 2019. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements and footnote disclosures.

NOTE 3:—OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

        Other accounts receivables and prepaid expense consist of the following:

F-18

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 4:—PROPERTY AND EQUIPMENT, NET

        The composition of property and equipment is as follows:

        Depreciation expense is $620 and $339 for the years ended December 31, 2016 and 2015, respectively.

NOTE 5:—OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

        Other accounts payables and accrued expenses consist of the following:

NOTE 6:—LOAN

        In February 20, 2013 (the "Closing Date"), Inc. signed a Loan and Security Agreement ("Agreement") with a commercial bank ("Bank") pursuant to which three-year $1,500 ("Loan") was provided at the Closing Date. The final payment of the Loan was repaid during May 2016.

        As part of the Agreement, the Company issued the Bank warrants to purchase 7,332 shares of Series D Preferred Shares at an exercise price of $6.14 per Preferred D Share. The warrant has an exercise period which is the earliest of ten years after the Closing Date, consummation of a qualified IPO as determined for such warrants or the automatic conversion of Convertible Preferred Shares into Ordinary Shares as defined in the Articles of Association. Such warrants were exercised on a cashless basis during the year ended December 31, 2015.

F-19

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 7:—WARRANTS TO PURCHASE ORDINARY SHARES

        As discussed in Note 1e, the Warrants to purchase Ordinary Shares issued in the Private Placement are eligible also for "cashless exercise" in case the underlying Ordinary Shares are not registered for resale. In addition, the Warrants contain non-standard "full ratchet" anti-dilution protections upon issuance of securities at a price below the then-existing exercise price and are subject to certain net settlement cash features in case of failure to timely deliver registered Ordinary Shares upon exercise. Therefore, these warrants are accounted for and recorded as a liability according to the provisions of ASC 815-40, "Derivatives and Hedging—Contracts in Entity's Own Equity" and measured using the following assumptions of the Monte Carlo option pricing model:

        The Company re-measured these warrants at fair value of $7,078 as of December 31, 2016, and recorded $2,491 of financial income as a result of the change in the warrants' fair value.

NOTE 8:—COMMITMENTS AND CONTINGENT LIABILITIES

a.

The Company's lease agreement for its Israeli offices had a three year term ending June 30, 2015. The lease was amended to extend the term by an additional six months, and on July 22, 2015. The Company exercised an option to extend the lease term for an additional 24 months ending December 31, 2017. Inc.'s lease agreement for its U.S. offices had a 17-month term ending February 28, 2015 continued on a month-to -month basis through July 31, 2015. In May 2015, Inc. signed a lease agreement for a period of four years.

F-20

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 8:—COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

As of December 31, 2016, the future minimum aggregate lease commitments under non-cancelable operating lease agreements are as follows:

b.

During the years 2005- 2010, the Company received grants under the royalty-bearing programs administered by the Office of the Chief Scientist ("OCS"), and from the Incubator, RAD BioMed Ltd. In May 2015, the OCS approved the Company's request to transfer manufacturing rights outside of Israel, noting that the Company would be required to pay an increased royalty rate without providing any specifics. Therefore, if income will be generated from the funded research program, the Company will be obligated to pay royalties on such revenue at a rate between 3% to 4% for the first three years and between 3.5% to 4.5% commencing the fourth year (based on the portion of manufacturing out of Israel while non-product related revenues are subject to the lower end of the ranges) and up to 150% to 300% of the amount received, linked to the LIBOR. The revenues under the Agreement with Cardiome are subject to royalties under the above programs. As of December 31, 2016, the total amount of grants received from the OCS and the Incubator, including interest, was $765 and royalties paid and accrued amounted to $23 and $35 during the years ended December 31, 2016 and 2015, respectively.

In the event that intellectual property rights are deemed to be transferred out of Israel, the grants received from the OCS and the Incubator may become a loan to be repaid immediately at up to 600% of the grants amounts. Currently, the Company's management believes no intellectual property has been transferred out of Israel and disclosure of the Company's know how is made solely in connection with the transfer of manufacturing rights of the Company's products to subcontractors. Accordingly, no provision has been recorded in such respect.

c.

In October 2015, the Company filed a petition with the Patent Trial and Appeal Board ("PTAB") of the United States Patent and Trademark Office for an inter partes review of U.S. Patent No. 8,497,393 (the "'393 Patent") granted to United Therapeutics Corporation ("UTC"), seeking to invalidate this patent. The '393 Patent relates to a process for preparing prostacyclin derivatives such as treprostinil. Treprostinil is used in Trevyent. UTC filed a response to the Company's petition in January 2016, defending the '393 Patent. In April 2016, the PTAB decided to institute the review of the '393 Patent. A final decision by the PTAB is expected in April 2017.

d.

Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had no cancellable commitments to suppliers for purchases totaling $567 as of December 31, 2016.

F-21

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 9:—TAXES ON INCOME

a.

Tax rates applicable to the Company:

1.

Taxable income of the Company is subject to the Israeli corporate tax of 25% for 2016.

2.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018

b.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):

On April 1, 2005, an amendment to the Law came into effect ("the Amendment") and has significantly changed the provisions of the Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

During 2013, the Company elected 2012 as a "Year of Election" to receive "Beneficiary Enterprise" status.

Under the Law and its Amendment, the Company is entitled to various tax benefits, defined by this law, under the "Alternative Benefits" track as a Beneficiary Enterprise.

Pursuant to the beneficiary program, the Company is entitled to a tax benefit period of seven to ten years on income derived from this program as follows: the Company is fully tax exempt for a period of the first two years and for the remaining five to eight subsequent years is subject to tax at a rate of 10% -25% (based on the percentage of foreign ownership of the Company).

The benefit period begins in the year in which taxable income is first earned, limited to 12 years from the Year of Election.

If dividends are distributed out of tax exempt profits, the Company will then become liable for tax at the rate applicable to its profits from the Beneficiary Enterprise in the year in which the income was earned, as if it had not chosen the alternative track of benefits.

The dividend recipient is subject to withholding tax at the rate of 15% applicable to dividends from Beneficiary enterprises, if the dividend is distributed during the tax benefits period or within twelve years thereafter. This limitation does not apply to a foreign investors' company. The Company currently has no plans to distribute dividends and intends to retain future earnings to finance the development of its business.

The above benefits are conditioned upon the fulfillment of the conditions stipulated by the Law and regulations published thereunder, including certain restrictions on manufacturing outside of Israel. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest and linked to changes in the Israeli CPI.

F-22

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 9:—TAXES ON INCOME (Continued)

As a result of the amendment, tax-exempt income generated under the provisions of the Law will subject the Company to taxes upon distribution or liquidation and the Company may be required to record a deferred tax liability with respect to such tax-exempt income.

Through December 31, 2016 and 2015, the Company had not generated income under the provision of the Law.

Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendments 68 and 71):

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments in the Law. The Amendment became effective as of January 1, 2011. According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire privileged income under its status as a privileged company with a privileged enterprise. Commencing from the 2011 tax year, the Company can elect (without possibility of reversal) to apply the Amendment in a certain tax year and from that year and thereafter, it will be subject to the amended tax rates. According to the Amendment, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 16% (in development area A—9%). The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as above will be subject to tax at a rate of 20%. The Company estimates that the effect of the change in tax rates will not have a material impact on the consolidated financial statements.

c.

Losses for tax purposes:

The Company has accumulated net operating losses for Israeli income tax purposes as of December 31, 2016 of approximately $57,805. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.

b.

Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows:

F-23

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 9:—TAXES ON INCOME (Continued)

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a full valuation allowance at December 31, 2016 and 2015.

d.

Loss (income) before taxes on income consists of the following:

e.

The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.

f.

Uncertain tax positions:

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:

As of December 31, 2016, the Company is subject to Israeli income tax audits for the tax years 2013 through 2016 and Inc. and Holdings are subject to U.S. federal income tax audits for the tax years of 2013 through 2016.

g.

Taxes on income for the year ended December 31, 2016 are comprised mainly of taxes incurred as a result of the implementation of the cost plus services agreement with Inc. and Holdings.

F-24

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 10:—SHAREHOLDERS' EQUITY

a.

Share capital is composed as follows:

The Ordinary Shares entitle their holders to one vote per share on all matters to be voted on by the shareholders of the Company, to receive dividends according to Board of Directors' decision, to participate in the balance of the Company's assets remaining after liquidation, dissolution or winding up, ratably in proportion to the number of shares of Ordinary Shares held by them, to increase or decrease Ordinary Shares, any other preferences, voting powers, relative, participating, optional or other special rights and privileges right compulsorily granted by the law to the holders of Ordinary Shares.

b.

On February 17, 2014 and April 9, 2014, the Company executed the first and second closings in total gross amount of $13,608 and $5,625 at a price per share of $8.49 for the issuance of 1,603,297 and 662,725 Series E Preferred Shares, respectively, and 240,491 warrants to Preferred E Shares with an exercise price of $0.001 per Preferred E Share, exercisable until the earliest of seven years after February 17, 2014, the consummation of an initial public offering or a merger and acquisition event. The issuance costs related to the above investment round amounted to $26.

The exercise price and the number of shares to be issued upon exercise of the warrants were subject to weighted average adjustments for dilution in accordance with ASC 815 and therefore classified as a liability and re-measured using the Monte Carlo Cliquent Model.

c.

On January 24, 2015, the Company signed an addendum to the Series E Convertible Preferred Share purchase agreement to raise additional funds of $11,406, net of fees and expenses. Under the addendum, the Company issued 1,445,966 Series E Convertible Preferred Shares to its existing and new investors for a price of $8.49 per share.

d.

On March 1, 2015, the Company effected a 7.75 for 1 forward split of its Ordinary Shares, by way of issuance and distribution of bonus shares without a change in nominal value of the Company's outstanding Ordinary Shares.

For accounting purposes, this transaction was recorded as a share split and accordingly, all Shares, warrants to purchase Convertible Preferred Shares, options to purchase Ordinary Shares and loss per share amounts have been adjusted to give retroactive effect to this Share Split for all periods presented in these consolidated financial statements. Any fractional shares resulting from the Share Split will be rounded up to the nearest whole share.

In addition, the Company's Board of Directors approved an increase the Company's authorized Shares from 5,000,000 to 50,000,000.

F-25

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 10:—SHAREHOLDERS' EQUITY (Continued)

e.

As described in Note 1c, on March 19, 2015, the Company completed its IPO by raising gross consideration of $40 million for issuance of 4,700,000 Ordinary Shares at a price of $8.50 per share. The issuance costs in respect of the IPO transaction amounted to $5.2 million.

f.

On April 22, 2015, the Company's underwriters exercised their overallotment option pursuant to which they purchased 165,452 Ordinary Shares of the Company for $1,308 net of underwriters' fees and commissions.

g.

On July 29, 2016, the Company entered into a subscription agreement with investors for a private placement of the Company's Ordinary Shares, pursuant to which the Company agreed to issue and sell the following securities to the investors for an aggregate price of up to approximately $32,000: (i) in the initial tranche, an aggregate of 6,554,016 Ordinary Shares of the Company, nominal value NIS 0.01 per share (the "Shares"), and warrants to purchase up to 6,554,016 additional Ordinary Shares of the Company, for $3.255 per unit (the "Warrants"), and (ii) in the second tranche, an aggregate of up to approximately $10,700 of Ordinary Shares of the Company at a purchase price equal to the higher of (x) $3.13 or (y) the average closing price of Ordinary Shares of the Company on NASDAQ over the 30 trading days immediately preceding the closing date of the second tranche (the "Private Placement") with no warrants. The second tranche will occur at the election of the Company following achievement by the Company of certain milestones related to its lead drug product candidate Trevyent. The first tranche of the Private Placement closed on August 4, 2016, pursuant to which the Company received gross proceeds of approximately $21,333. Two of the Company's board members, who are also shareholders in the Company, invested a total amount of $5,133. The related issuance costs in respect of the private placement were $1,748.

The warrants issued are exercisable immediately upon issuance and may be exercised at any time prior to August 2021 at an exercise price of $3.5995 per share (see also note 7).

The Company granted to the participants certain registration rights related to the Shares and Warrants issued in this Private Placement. In connection therewith, the Company filed a registration statement for the resale of the Shares and Ordinary Shares underlying the Warrants, which was declared effective by the U.S. Securities and Exchange Commission on September 21, 2016. If the Company fails to maintain the effectiveness of the registration statement, it may incur liquidated damages for each participant of up to 5% of the pro-rata purchase price of the Shares.

F-26

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 10:—SHAREHOLDERS' EQUITY (Continued)

h.

Stock-based compensation:

On June 18, 2009, a Stock Option Plan (the "2009 Plan") was adopted by the Board of Directors of the Company, under which options to purchase up to 55,971 Ordinary Shares have been reserved. Such pool was increased over the years and as of December 31, 2014, options to purchase up to 978,655 Ordinary Shares were authorized. The 2009 Plan was adopted in accordance with the amended sections 102 and 3(i) of Israel's Income Tax Ordinance. Under the 2009 Plan, options to purchase Ordinary Shares of the Company may be granted to employees, advisors, directors, consultants and service providers of the Company or any subsidiary or affiliate. The default vesting schedule is up to three years, subject to the continuation of employment or service. Each option may be exercised into Ordinary Shares during a period of seven years from the date of grant, unless a different term is provided in the option agreement. On April 30, 2013, the 2013 Stock Incentive Sub Plan (the "2013 Sub Plan") was adopted by the Board of Directors of the Company, which set forth the terms for the grant of stock awards to Inc.'s employees or US non- employees. On January 25, 2015, the Board of Directors reserved an additional 1,072,879 Ordinary Shares out of its authorized and unissued share capital for future option grants under the 2009 Plan.

On February 20, 2015, the Company's Board of Directors approved the replacement of the 2009 Plan and 2013 Sub Plan by adopting the Amended and Restated 2009 Stock Incentive Plan. This action was approved by the shareholders on March 1, 2015.

On July 7, 2014, the Company's Board of Directors approved to reduce the exercise price of all outstanding options which were previously granted to certain employees at an exercise price which exceeded $3.61 per share down to $3.61 per share, representing the underlying fair value of the Ordinary Share at that date. The Company accounted for the reduction of the options' exercise price pursuant to ASC 718 as a modification. Accordingly, additional compensation of $49 was calculated as the fair value of the modified award in excess of the fair value of the original award measured immediately before its terms have been modified based on current circumstances and recorded incremental fair value as an immediate or future expense based on the vesting schedule of the relevant options. As result of the above modification, during the years ended December 31, 2015 and 2014, the Company recorded compensation cost of $5 and $44, respectively.

During year ended December 31, 2016, the Company's Board of Directors approved grant of 433,620 options to certain employees to purchase the Company's Ordinary Shares at an exercise price of $2.74 to $3.80.

On October 5, 2016, the Company's annual general meeting of shareholders approved among others, a grant of 23,250 options to its directors to purchase the Company's Ordinary Shares at an exercise price of $3.85.

On October 5, the Company held its 2016 Annual General Meeting of Shareholders. Among other things, the shareholders approved an amendment to the Stock Option Plan providing for the four percent (4%) automatic annual increase in the authorized number of Ordinary Shares available for future grant under the 2009 Plan to begin on January 1, 2017 instead of January 1, 2019.

F-27

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 10:—SHAREHOLDERS' EQUITY (Continued)

        Transactions related to the grant of options to employees and directors under the Amended and Restated            2009 Stock Incentive Plan during the year ended December 31, 2016, were as follows:

        The options outstanding as of December 31, 2016 have been presented by exercise prices, as follows:

F-28

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 10:—SHAREHOLDERS' EQUITY (Continued)

        The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the deemed fair value of the Company's Ordinary Shares on the last day of fiscal 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2016. This amount is impacted by the changes in the fair market value of the Company's shares. The weighted average grant date fair value of options granted during the years ended December 31, 2016 and 2015 was $2.94 and $3.02, respectively. The following table presents the assumptions used to estimate the fair values of the options granted in the period presented:

        As of December 31, 2016, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $1,409 which is expected to be recognized over a weighted average period of approximately 1.91 years.

        The total compensation cost related to all of the Company's equity-based awards, recognized during the years ended December 31, 2016 and 2015 was comprised as follows:

NOTE 11:—SELECTED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

        The Company's business is currently comprised of one operating segment. The nature of the products and services provided by the Company and the type of customers for these products and services are similar. Operations in Israel and the United States include research and development, sales and marketing and business development. The Company follows ASC 280, "Segment Reporting". Total revenues are attributed to geographic areas based on the location of the end customer.

F-29

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 11:—SELECTED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Continued)

a.

The following represents the total revenue and long-lived assets for the years ended December 31, 2016 and 2015:

 

 

F-30

---

Table of Contents

STEADYMED LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

U.S. dollars in thousands (except share and per share data)

NOTE 11:—SELECTED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Continued)

b.

Financial expense (income), net:

c.

The net loss and the weighted average number of shares used in computing basic and diluted net loss per share for the years ended December 31, 2016 and 2015, is as follows:

Convertible securities such as warrants to purchase Series Preferred A2, D, E1 Shares, Series Preferred A1, A2, B, C, D, E Shares and options, have not been taken into account due to their anti-dilutive effect.

F-31

---

Table of Contents

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jonathan M.N. Rigby and David Nassif, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

---

Table of Contents

---

Table of Contents

EXHIBIT INDEX

---

Table of Contents

---

Table of Contents

---