COMMITMENTS AND CONTINGENT LIABILITIES

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES:

	a.	LTS Process Development Agreement

		In December 2018, the Company entered into a Process Development Agreement for Manufacturing Services with Lohmann Therapie-Systeme AG (“LTS”) for the manufacture of AP-CD/LD (the “Agreement”). Under the Agreement, the Company will bear the costs incurred by LTS to acquire the production equipment for AP-CD/LD (“Equipment”) which amounted to approximately €6.8 million (approximately $7.8 million), and this amount will later be reimbursed to the Company by LTS in the form of a reduction in the purchase price of the AP-CD/LD product. The Company paid in full all the consideration and has recognized the Equipment as non-current other assets.

		Following an impairment assessment that was performed in 2019, the Company recorded an impairment charge of the Equipment in the amount of approximately $4.1 million and the Equipment has been impaired to approximately $3.7 million to reflect its fair value. As of December 31, 2020, the Company performed an impairment assessment on the Equipment which determined that there is no need to record an additional impairment charge of the Equipment.

		The Agreement also contains several termination rights, including, among others, in the cases of bankruptcy, breach by either party, change of control of either of the parties, or the sale or licensing by the Company of the Accordion Pill to a third party. As of March 31, 2021, the Company has a liability in the amount of €2.0 million (approximately $2.3 million) for LTS’s facility upgrading costs. This liability will be paid to LTS only if the Company decides not to continue with the project or commercialization of AP-CD/LD.

	b.	Lawsuit

		In December 2019, two former directors and officers (the “plaintiffs”) filed a statement of claim with the Jerusalem District Labor Court alleging breach of contract related to a purported vesting of certain options issued to the plaintiffs pursuant to the execution of the LTS Agreement and further alleging payments due for unredeemed vacation days.

		The plaintiffs sought pecuniary damages of NIS 2.4 million (as of December 31, 2020 approximately $750 thousand) plus interest and linkage to the Israeli CPI.

		On February 17, 2021, the Company entered into a settlement agreement (the “Settlement Agreement”) with each of the plaintiffs, pursuant to which the Company agreed to pay to each plaintiff NIS 400 thousand (approximately $125 thousand) in cash (the “Settlement Amount”) in return for the complete settlement of all past and future claims by each plaintiff. On February 18, 2021, the Jerusalem District Labor Court agreed to dismiss the case. The Settlement Amount was recorded in the statement of operation as general and administrative expenses for the year ended December 31, 2020 and was paid to each of the plaintiffs in March 2021.

INTEC PHARMA LTD.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):

Cooperation agreements

As part of its operations, the Company entered into feasibility agreements with multinational companies for the development of products that combine the Company’s proprietary Accordion Pill platform technology with certain drugs for the treatment of various indications. These agreements sometimes include a mutual possibility of entering into negotiations for the acquisition of a future license for the commercial use of the products that are being developed by the multinational companies under the feasibility agreements. In addition, the multinational companies agreed to reimburse the Company for its expenses, based on milestones that are detailed in the feasibility agreements.

This funding is recognized in the statements of operations as a deduction from research and development expenses, as they are incurred.

In March 2021, the Company entered into a feasibility agreement with a pharmaceutical company to develop a custom-designed Accordion Pill for a rare disease indication.

In December 2020, the Company entered into cannabinoid research collaboration agreement with GW Research Limited to explore using the Accordion Pill platform for an undisclosed research program.

In May 2019, the Company entered into a research collaboration agreement with Merck Sharp & Dohme (“Merck”) for the development of a custom-designed Accordion Pill for one of Merck’s proprietary compounds. Under the agreement, the Company’s activities will be funded by Merck subject to the achievement of agreed milestones. In October 2020, the Company entered into a new research collaboration agreement with Merck for another compound. In May 2021, based on decisions Merck made for its pipeline and resource allocation, Merck terminated the collaboration with the Company.

	d.	AP-CD/LD non-binding term sheet

		In February 2021, the Company entered into a non-binding term sheet for the sale or license of the AP-CD/LD program to an undisclosed third party and are currently negotiating the terms of a definitive agreement. There is no assurance that this will result in a definitive agreement.

Intec Pharma Ltd. 10-Q