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As filed with the Securities and Exchange Commission on September 24, 2010.

Registration No. 333-

 

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



 

FORM F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933



 

BIOLINERX LTD.

(Exact Name of Registrant as Specified in its Charter)

   
State of Israel   2834   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

BioLineRx Ltd.
P.O. Box 45158
19 Hartum Street
Jerusalem 91450, Israel
(972) (2) 548-9100

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)



 

Nir Gamliel
BioLineRx USA, Inc.
15400 Calhoun Drive, Suite 125
Rockville, Maryland 20855
(240) 864-0920

(Name, Address, including zip code, and telephone number,
including area code, of agent for service)



 

Copies of all correspondence to:

     
Anna T. Pinedo, Esq.
James R. Tanenbaum, Esq.
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Tel: (212) 468-8000
  Barry Levenfeld, Adv.
Yigal Arnon & Co.
22 Rivlin Street
Jerusalem 94240,
Israel
Tel: (972) (2) 623-9220
  Michael D. Maline, Esq.
Goodwin Procter LLP
The New York Times Building
620 Eighth Avenue
New York, New York 10018
Tel: (212) 813-8966
  David S. Glatt, Adv.
Meitar Liquornik Geva
& Leshem Brandwein
16 Abba Hillel Silver Rd.
Ramat Gan 52506, Israel
Tel: (972) (3) 610-3100


 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

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

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

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

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

CALCULATION OF REGISTRATION FEE(1)

       
Title of each class of securities to be registered   Amount to be
registered
  Proposed
maximum
offering price
per unit(2)
  Proposed
maximum
aggregate
offering price
  Amount of
registration fee
Ordinary Shares, par value NIS 0.01 per share     U.S.$       U.S.$       U.S.$40,250,000       U.S.$ 2,870  

(1) Unless otherwise indicated, all share amounts and prices assume the consummation of a reverse stock split, at a ratio of    :     to be effected prior to the effectiveness of the registration statement of which this prospectus is a part.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act.


 

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

 

 


 
 

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

SUBJECT TO COMPLETION, DATED September 24, 2010
  

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Ordinary Shares
  
  



 

We are offering       of our ordinary shares. This is our initial public offering in the United States, and no public market currently exists in the United States for our ordinary shares. All of the       ordinary shares to be sold in the offering are being sold by us. We have applied to have our ordinary shares listed on The NASDAQ Global Market under the symbol “BLRX.” We anticipate that the initial offering price for our ordinary shares will be between $       and $       per share.

Our ordinary shares currently trade on the Tel Aviv Stock Exchange under the symbol “BLRX.” On September 21, 2010, the last reported sale price of our ordinary shares was NIS 3.46, or $0.93 per share (based on the exchange rate reported by the Bank of Israel on such date).
  
  



 

Investing in our ordinary shares involves a high degree of risk.
See “Risk Factors” beginning on page 10.

   
  Per Share   Total
Public Offering Price   $       $    
Underwriting Discounts and Commissions   $     $  
Proceeds, Before Expenses, to Us   $     $  

Neither the U.S. Securities and Exchange Commission, the Israel Securities Authority nor any state or other foreign securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have granted the underwriters a 30-day option to purchase up to an additional       ordinary shares to cover over-allotments, if any, at the public offering price per share, less underwriting discounts and commissions.

The underwriters expect to deliver the ordinary shares against payment in New York, New York on or about         , 2010.
  



 

JMP Securities

Oppenheimer & Co.

The date of this prospectus is , 2010


 
 

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You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on our behalf. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, offering to sell or solicit any security other than the ordinary shares offered by this prospectus. In addition, we are not offering, and the underwriters are not offering, to sell or solicit any securities to or from any person in any jurisdiction where it is unlawful to make this offer to or solicit an offer from a person in that jurisdiction. The information contained in this prospectus is accurate as of the date on the front of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of our ordinary shares. Our business, financial condition, results of operations and prospects may have changed since that date.

We have obtained the statistical data, market data and other industry data and forecasts used throughout this prospectus from publicly available information and from reports we commissioned. We have not sought the consent of the sources to refer to the publicly available reports mentioned in this prospectus.



 

BIOLINERX LTD.

TABLE OF CONTENTS

 
  Page
Summary     1  
Risk Factors     10  
Forward-Looking Statements     34  
Exchange Rate Information     35  
Price Range Of Our Ordinary Shares     36  
Use Of Proceeds     37  
Dividend Policy     38  
Capitalization     39  
Dilution     40  
Selected Consolidated Financial Data     41  
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations     42  
Business     57  
Government Regulation And Funding     82  
Management     94  
Certain Relationships And Related Party Transactions     112  
Principal Shareholders     115  
Description Of Share Capital     117  
Taxation     123  
Underwriting     130  
Independent Accountants     133  
Legal Matters     133  
Enforceability Of Civil Liabilities     134  
Available Information     135  
Index To Consolidated Financial Statements     F-1  

Unless the context otherwise requires, all references to “BioLineRx,” “we,” “us,” “our,” the “Company,” the “Group” and similar designations refer to BioLineRx Ltd. and its wholly-owned subsidiaries: BioLine Innovations Jerusalem Ltd., or BIJ Ltd.; BioLine Innovations Jerusalem Limited Partnership, or BIJ L.P.; and BioLineRx USA, Inc., or BioLineRx USA.

Through and including         , 2010 (the 25th day after the date of this prospectus), federal securities laws may require all dealers that effect transactions in these securities, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.

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SUMMARY

This summary highlights selected information contained elsewhere in this prospectus that we consider important. This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this summary together with the entire prospectus, including the risks related to our most advanced therapeutic candidates, BL-1020, BL-1040 and BL-5010, our business, our industry, investing in our ordinary shares and our location in Israel, that we describe under “Risk Factors” and our consolidated financial statements and the related notes included at the end of this prospectus before making an investment in our ordinary shares.

Our Business

We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or that address unmet medical needs. Our current development pipeline consists of three clinical stage therapeutic candidates: BL-1020, a new chemical entity, or NCE, that we believe may be the first antipsychotic therapeutic to improve cognitive function in schizophrenia patients; BL-1040, a novel polymer solution for use in the prevention of cardiac remodeling following an acute myocardial infarction, or AMI, and BL-5010, a novel formulation for the non-surgical removal of skin lesions. In addition, we have seven therapeutic candidates in the preclinical stages of development, including a compound for the treatment of neuropathic pain that we expect will enter clinical trials in the fourth quarter of 2010. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. None of our therapeutic candidates has been approved for marketing and, to date, there have been no commercial sales of any of our therapeutic candidates. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case by case basis, the commercialization of our therapeutic candidates independently.

Our Product Pipeline

The table below summarizes our current pipeline of therapeutic candidates, as well as the target indication and status of each candidate.

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BL-1020

Our most advanced therapeutic candidate, BL-1020, is in development for schizophrenia, a chronic, severe and disabling brain disorder that affects approximately 1% of the U.S. adult population as reported by the National Institute of Mental Health. Schizophrenia patients are typically treated with one of several commercially available antipsychotics, all of which are associated with side effects that reduce patient compliance and do not address the deterioration of cognitive function that affects the daily lives of schizophrenia patients. Despite these drawbacks, the three most commonly used antipsychotics, Risperdal, Zyprexa and Seroquel, reached aggregate sales of approximately $7.1 billion in the United States in 2009,

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based on the annual reports filed with the U.S. Securities and Exchange Commission, or SEC, by each of Johnson & Johnson, Eli Lilly and Company and AstraZeneca Pharmaceuticals LP, the companies that market those drugs.

BL-1020 is a new chemical entity that effectively reduces psychotic symptoms which we believe may also improve cognition. BL-1020 targets the imbalance of two key neurotransmitters implicated in schizophrenia, dopamine and gamma aminobutyric acid, or GABA. We believe that the reduction in psychotic symptoms is attributable to BL-1020’s dopamine antagonism. BL-1020’s GABAergic activity may improve cognition.

In September 2009, we announced positive topline results from our phase 2b EAGLE (Effective Anti-psychosis via GABA Level Enhancement) study, which assessed the efficacy, safety and tolerability of BL-1020 compared to placebo. Before a New Drug Application, or an NDA, can be filed with respect to BL-1020, a phase 3 clinical trial must be performed to confirm its effectiveness, monitor for potential side effects, compare it to commonly used treatments, and collect information that will allow it to be used safely. There can be no assurance that that the results of a phase 3 clinical trial will confirm the positive results obtained in the phase 2b study. In addition, the U.S. Food and Drug Administration, or the FDA, might not find BL-1020 effective or safe enough to be approved for commercial sale.

In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience, Inc., or Cypress Bioscience, for BL-1020, covering the United States, Canada and Mexico. Under the arrangement, Cypress Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, BL-1020 for the prevention, diagnosis and treatment of all human diseases in the United States, Canada and Mexico. We have retained the rights to BL-1020 for the rest of the world. In addition, under the agreement, Cypress Bioscience has licensed to us the right to use any and all regulatory data generated by Cypress Bioscience in connection with its pursuit of regulatory approval for BL-1020 in Cypress Bioscience’s territory, as described in the agreement, for use by us outside of Cypress Bioscience’s territory, subject to our future reimbursement of certain pre-commercialization expenses incurred by Cypress Bioscience in generating such data. We received an upfront fee of $30.0 million from Cypress Bioscience upon our receipt of consent from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, or the OCS, to the agreement in August 2010, and we are entitled to receive up to an additional $250.0 million in connection with the achievement of certain performance-based milestones and an additional up to $85.0 million upon the achievement of certain sales-based milestones. Cypress Bioscience may pay a portion of the first performance-based milestone payment by purchasing our ordinary shares, in its sole discretion. Upon execution of the licensing agreement, Cypress Bioscience deposited $30.0 million in an escrow account pending approval of the agreement by the OCS. We are also entitled to royalties, ranging from 12% to 18%, on annual net sales of BL-1020 in Cypress Bioscience’s territory under the agreement for the applicable royalty term. We are obligated to pay to Bar Ilan Research and Development Company Ltd., or Bar Ilan Research and Development, and Ramot at Tel Aviv University Ltd., or Ramot, collectively, a payment equal to 22.5% of the net consideration we receive from Cypress Bioscience in connection with our in-licensing of BL-1020. In August 2010, we paid Bar Ilan Research and Development and Ramot $6.75 million, in the aggregate, from the $30.0 million upfront fee. We also paid the OCS $3.0 million as partial repayment of grants previously received for the BL-1020 development program.

BL-1040

Our second lead therapeutic candidate, BL-1040, is a novel resorbable polymer solution for use in the prevention of cardiac remodeling that may occur in patients who suffered an AMI. AMIs result from an occlusion in the coronary artery and affect the left ventricle of the heart, or the LV. Patients with severe injury to the LV may be at risk for cardiac remodeling that may lead to congestive heart failure. Cardiac remodeling refers to the changes in size, shape, and function of the heart following injury to the ventricles (typically from an AMI) that results in increased pressure or volume overload on the heart. Following an AMI, there is myocardial necrosis (cell death) and disproportionate thinning of the heart. This thin, weakened area is unable to withstand the pressure and volume load on the heart. As a result there is dilatation of the chamber arising from the infarct region. The initial remodeling phase after a myocardial infarction results in repair of the necrotic area and myocardial scarring that may, to some extent, be considered beneficial since there is an improvement in or maintenance of LV function and cardiac output. Over time, however, as cardiac remodeling

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progresses, the heart becomes less elliptical and more spherical. Ventricular mass and volume increase, which together adversely affect cardiac function. Eventually, diastolic function may become impaired, further causing decline. Based on our review of data regarding the incidence of myocardial infarctions in the United States, we believe that approximately 400,000 people in the United States were at risk of significant cardiac remodeling following an AMI in 2009. Preventing cardiac remodeling following an AMI may prevent transition to congestive heart failure and/or improve patient survival over the long-term.

Following an AMI, BL-1040 is administered via intracoronary injection during standard vessel reopening procedures, such as balloon catheterization and stenting. Upon contact with damaged cardiac tissue, the liquid BL-1040 transitions into a gel within the infarcted cardiac tissue and forms a “scaffold” that supports, retains the shape of, and enhances the mechanical strength of the heart muscle during the recovery and repair phases that follow an AMI. Based on data from our pilot phase 1/2 study and preclinical testing, we believe treatment with BL-1040 preserves the normal functioning of the heart.

In July 2009, we entered into an exclusive, worldwide out-licensing arrangement with a wholly-owned subsidiary of Ikaria Holdings, Inc., or Ikaria, with regard to BL-1040. Under the arrangement, Ikaria is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or a product related thereto. We received $7.0 million from Ikaria in September 2009. On February 24, 2010, we received the final assessment of the Independent Safety Monitoring Board, or ISMB, relating to the pilot phase 1/2 study of BL-1040, which was designed to assess the safety and feasibility of BL-1040. The ISMB’s conclusions, relating to the 27 patients who participated in the study and completed a six-month follow-up period, indicated that the treatment is safe and that it would be appropriate to continue clinical development of the device. The conclusions of the ISMB constituted the successful fulfillment of a milestone under our out-licensing agreement with Ikaria, and, accordingly, Ikaria made a milestone payment of $10.0 million to us in April 2010, which was subject to U.S. withholding tax of approximately $1.5 million. We are entitled to receive up to an additional $265.5 million from Ikaria upon achievement of certain developmental, regulatory, and commercial milestones under the out-licensing agreement. Further, we are entitled to receive royalties from Ikaria on net sales of any product developed under the arrangement. We are obligated to pay 28% of all net consideration received under this arrangement to B.G. Negev Technologies and Applications, Ltd., the technology transfer company of Ben Gurion University, or B.G. Negev Technologies, the third party from which we licensed BL-1040 in 2004.

BL-5010

Our third lead therapeutic candidate, BL 5010, is a novel formulation composed of two acids being developed for the removal of skin lesions in a nonsurgical manner. These two acids have already been approved for use in cosmetics. If approved, BL-5010 would be a convenient alternative to invasive, painful and expensive removal treatments for skin lesions and may allow for histological examination. Because treatment with BL-5010 is non-invasive, we believe BL-5010 poses minimal infection risk, and requires no anesthesia or bandaging. In June 2009, we announced the initiation of a phase 1/2 clinical trial in 60 patients with seborrheic keratosis in Germany and the Netherlands to assess the safety and efficacy of BL-5010. The study is also designed to assess the feasibility of preserving the cellular structure of skin lesions for subsequent histological exams. Interim results from this trial, which were announced in January 2010, indicate that all treated skin lesions were completely removed within 30 days of treatment following a single application.

Our Product Development Approach

As part of our business strategy, we continuously source, evaluate and in-license therapeutic candidates. We establish and maintain close relationships with research institutes, academic institutions and biotechnology companies in Israel and, more recently, in other countries to identify and in-license therapeutic candidates. Before in-licensing, each therapeutic candidate must pass through our thorough screening process that includes our proprietary MedMatrx scoring tool. We evaluate each compound’s potential for success by looking at the candidate’s efficacy, safety profile, total estimated development costs, technological novelty, patent status, market need and approvability, among other information. Our Scientific Advisory Board and disease-specific third-party advisors are active in evaluating each therapeutic candidate. Our approach is consistent with our objective of proceeding only with therapeutic candidates that we believe exhibit a relatively high probability

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of therapeutic and commercial success. To date, we estimate we have evaluated over 1,000 compounds, and we have presented more than 60 candidates to our Scientific Advisory Board for consideration, initiated development of 30 therapeutic candidates and terminated 20 feasibility programs.

When possible, we make use of third-party funding to develop early-stage therapeutic candidates. In January 2005, we entered into an agreement with the OCS to operate a biotechnology incubator. We develop certain of our in-licensed candidates with financial assistance from the OCS and have received approximately $11.4 million as of June 30, 2010 in the form of loans that are forgiven unless a project reaches commercialization. We have also received $5.0 million in grants from the OCS outside of the incubator agreement as of June 30, 2010. We are not required to repay grants for terminated projects. Of our 10 current development projects, five have been funded through the OCS, including BL-1020, BL-1021, BL-1040, BL-2030 and BL-4040. Other than BL-1020, all of these projects were also funded through our incubator. In addition, in January 2007 we entered into an agreement with our shareholder, Pan Atlantic Bank and Trust Limited, or Pan Atlantic, pursuant to which Pan Atlantic committed to provide us with grants of up to $5.0 million to be used in connection with the in-licensing and development of early development stage therapeutic candidates.

Our Strategy

Our objective is to be a leader in developing and commercializing innovative pharmaceutical, medical device and biopharmaceutical products.

The key elements of our strategy include the following:

facilitate the successful development and commercialization of BL-1040 by Ikaria and BL-1020 by Cypress Bioscience.
assess the timing and conditions for the continued development and commercialization of BL-1020 outside of the United States, Canada and Mexico.
commercialize additional therapeutic candidates through out-licensing arrangements or, where appropriate, by ourselves.
design development programs that reach critical decisions quickly.
use our expertise and proprietary screening methodology to evaluate in-licensing opportunities.
leverage and expand our relationships with research institutes, academic institutions and biotechnology companies, including the specific strategic relationships that we have developed with Israeli research and academic institutions, to identify and in-license promising therapeutic candidates.

Risks Related to Our Business

We are subject to certain risks related to our lead therapeutic candidates, BL-1020, BL-1040 and BL-5010, our other therapeutic candidates, our business, our industry and this offering. The section entitled “Risk Factors” beginning on page 10 of this prospectus describes risks and uncertainties that could materially and adversely affect our business, prospects, financial condition, operating and growth strategy. In summary, significant risks related to our business include:

our ability to achieve and sustain profitability;
our ability to source capital to satisfy critical funding needs;
delays in obtaining, or a failure to obtain, regulatory approval for our therapeutic candidates, including our lead candidates, BL-1020, BL-1040 and BL-5010;
our ability to commercialize our lead therapeutic candidates and effectively secure or develop sales, marketing and distribution capabilities or arrangements;
the expense, time and uncertainty involved in developing our therapeutic candidates, some or all of which may never reach the regulatory or approval commercialization stage;
our lack of experience in managing the commercial sales of an approved therapeutic candidate;

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our reliance on third parties to conduct our clinical trials and to manufacture preclinical and clinical drug supplies;
our ability to compete in the pharmaceutical industry;
our ability to maintain our proprietary and licensed intellectually property assets;
our ability to defend against any third party claims of intellectual property infringement; and
risks associated with our operations in Israel.

Risk of Adverse U.S. Tax Consequences Related to Ownership of Our Ordinary Shares

Although we were not a passive foreign investment company, or a PFIC, in 2009, we believe that we were a PFIC during certain prior years and, although we do not anticipate being a PFIC in 2010, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2010, or in any subsequent year, a U.S. shareholder would suffer adverse tax consequences. For additional information, please see “Taxation — U.S. Federal Income Tax Considerations.”

Reverse Stock Split

At a special meeting of our shareholders held on August 17, 2010, our shareholders authorized our Board of Directors to adopt a reverse stock split, which we intend to effect prior to this offering and which is subject to the completion of this offering. The reverse stock split will be effected at a ratio of up to 10:1, at our Board of Director’s discretion. Accordingly, except as otherwise indicated, all share prices, share numbers and per share amounts set forth in this prospectus will be retroactively adjusted for all periods presented to reflect this reverse stock split.

Our Corporate Information

We were incorporated under the laws of the State of Israel in 2003. BioLineRx was founded by leading institutions in the Israeli life sciences industry, including Teva Pharmaceutical Industries Ltd., or Teva. We completed our initial public offering in Israel in February 2007 and our ordinary shares are currently traded on the Tel Aviv Stock Exchange, or TASE, under the symbol “BLRX.” Our principal executive offices are located at 19 Hartum Street, P.O. Box 45152, Jerusalem 91450, Israel, and our telephone number is +972-2-548-9100. Our address on the internet is www.biolinerx.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. We have included our website address in this prospectus solely as an inactive textual reference.

BioLine Innovations Jerusalem Ltd., or BIJ Ltd., and BioLine Innovations Jerusalem Limited Partnership, or BIJ L.P., were formed in January 2005 to operate our biotechnology incubator and share our address and telephone number with us. Our wholly-owned subsidiary, BioLineRx USA Inc., was incorporated in Delaware on January 4, 2008, and is located at 15400 Calhoun Drive, Suite 125, Rockville, Maryland 20855, and its telephone number is (240) 864-0920.

This prospectus contains trademarks and trade names owned by other companies.

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THE OFFERING

Ordinary shares we are offering    
             ordinary shares
Offering price    
    We expect that the initial public offering price for our ordinary shares being sold in this offering will be between $     and $     per share. The offering price will be determined by reference to the closing price of our ordinary shares on the TASE on the pricing date after taking into account prevailing market conditions and through negotiations between us and the underwriters. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. On         , 2010 the last reported sale price of our ordinary shares was NIS     , or $    , per share (based on the exchange rate reported by the Bank of Israel for such date).
Ordinary shares to be outstanding immediately after this offering    
             ordinary shares
Over-allotment option    
             ordinary shares
Use of proceeds    
    We estimate that we will receive net proceeds, after deducting the underwriting discounts and commissions and the estimated offering expenses, of approximately $31.0 million from our sale of ordinary shares in this offering, based on an assumed public offering price of $     per share.
    We expect to use the net proceeds of this offering as follows:
   

•  

approximately $21.0 million of the net proceeds to fund the phase 1 and phase 2 clinical trials of, and commence commercialization efforts for, two clinical stage therapeutic candidates, and to fund pre-clinical studies of the next two therapeutic candidates to advance from the feasibility stage to the pre-clinical and/or initial phase 1 clinical stages;

   

•  

approximately $5.0 million of the net proceeds to fund feasibility studies for up to 12 molecules as they are introduced to our pipeline, if any; and

   

•  

approximately $5.0 million of the net proceeds to fund our operations, for general corporate purposes and to fund business development and marketing efforts.

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    If we elect to commercialize any of our therapeutic candidates internally, a portion of the proceeds will be used to fund the commercialization. We may find it necessary or advisable to use the net proceeds for other purposes. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. See “Use of Proceeds.”
Risk factors    
    See “Risk Factors” beginning on page 10 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
TASE symbol    
    BLRX
Proposed NASDAQ Global Market symbol    
    We have applied to have our ordinary shares listed on The NASDAQ Global Market under the symbol “BLRX.”

The number of ordinary shares to be outstanding after this offering is based on          ordinary shares outstanding as of the date of this prospectus. The number of outstanding ordinary shares excludes the          ordinary shares we have reserved for issuance upon the exercise of outstanding options under our 2003 Share Option Plan as of         , 2010.

Unless otherwise indicated, all information in this prospectus assumes:

an initial public offering price of $     per ordinary share, the mid-point of the range on the cover of this prospectus;
that the underwriters’ over-allotment option to purchase up to an additional          ordinary shares from us is not exercised;
with respect to all amounts represented in dollars that were incurred in New Israeli Shekels, or NIS (other than those included in, or derived from, the financial statements, those as of a transaction date or unless otherwise stated), that the exchange rate is $1.00 = NIS 3.875, based on the exchange rate reported by the Bank of Israel for June 30, 2010;
with respect to all amounts represented in dollars that were incurred in euros (other than those included in, or derived from, the financial statements, those as of a transaction date or unless otherwise stated), that the exchange rate is $1.00 = €0.811 reported by European Central Bank for June 30, 2010; and
a  :   reverse split of our outstanding ordinary shares, and the recapitalization of our authorized share capital so that each share has a par value of NIS     , which is expected to be effected prior to the closing of this offering.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following table is a summary of our historical consolidated financial data, which is derived from our consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards, or IFRS. The summary consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 are derived from our audited consolidated financial statements included elsewhere in this prospectus.

You should read this summary financial data in conjunction with, and it is qualified in its entirety by, reference to our historical financial information and other information provided in this prospectus including, “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. The historical results set forth below are not necessarily indicative of the results to be expected in future periods. We derived the selected consolidated financial data as of and for the six months ended June 30, 2010 and June 30, 2009 from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, our unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows as of and for the periods indicated therein. The results of operations for the six months ended June 30, 2010 and June 30, 2009 are not necessarily indicative of the operating results to be expected for the full fiscal years encompassing those periods.

             
  Year Ended December 31,   Six Months Ended June 30,
Consolidated Statements Of Operations Data:(1)
  2006   2007   2008   2009   2009   2010   2010(2)
     (in thousands, except share and per share data)
     NIS   U.S.$
Revenues                       63,909                    
Cost of revenues                       (22,622 )                   
Operating expenses:
                                                              
Sales and marketing expenses                       (3,085 )      (1,477 )      (2,184 )      (564 ) 
Research and development expenses, net     (42,193 )      (75,863 )      (106,156 )      (90,302 )      (49,850 )      (37,032 )      (9,557 ) 
General and administrative expenses     (6,357 )      (13,611 )      (13,083 )      (11,182 )      (4,307 )      (6,224 )      (1,606 ) 
Gain on adjusting warrants to fair value           27,557       3,658                          
Capital loss, net     (121 )                                     
Operating loss     (48,671 )      (61,917 )      (115,581 )      (63,282 )      (55,634 )      (45,440 )      (11,727 ) 
Financial income     584       7,875       13,001       3,928       3,799       2,878       743  
Financial expenses     (834 )      (5,377 )      (12,269 )      (2,164 )      (1,739 )      (1,062 )      (274 ) 
Net loss     (48,921 )      (59,419 )      (114,849 )      (61,158 )      (53,574 )      (43,624 )      (11,258 ) 
Net loss per ordinary share(3)     (1,772.6 )      (0.88 )      (1.44 )      (0.63 )      (0.68 )      (0.35 )      (0.09 ) 
Number of ordinary shares used in computing loss per ordinary share     38,521       69,302,075       78,131,103       123,497,029       78,131,578       123,512,879       123,512,879  

   
  As of June 30,
Consolidated Balance Sheet Data:
  2010   2010(2)
     (in thousands NIS)   (in thousands U.S.$)
Cash and cash equivalents     88,489       22,836  
Accounts receivable            
Property, plant and equipment, net     4,696       1,212  
Total assets     110,311       28,467  
Total liabilities     32,815       8,468  
Total shareholders’ equity     77,496       19,999  

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(1) Data on diluted loss per share was not presented in the financial statements because the effect of the exercise of the options and warrants is anti-dilutive.
(2) Calculated using the exchange rate reported by the Bank of Israel for June 30, 2010 at the rate of one U.S. dollar per NIS 3.875.
(3) The net loss per share has been adjusted to reflect the benefit component related to the issuance of rights to investors.

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RISK FACTORS

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

Risks Related to Our Financial Condition and Capital Requirements

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

We are a clinical stage biopharmaceutical development company that was incorporated in 2003. Since our incorporation, we have been focused on research and development. Our most advanced therapeutic candidates are in clinical development. We, or our licensees, as applicable, will be required to conduct significant additional clinical trials before we can seek the regulatory approvals necessary to begin commercial sales of our therapeutic candidates. We have incurred losses since inception, principally as a result of research and development and general administrative expenses in support of our operations. We experienced net losses of approximately NIS 43.6 million for the six months ended June 30, 2010, approximately NIS 61.5 million in 2009, approximately NIS 114.8 million in 2008 and approximately NIS 59.4 million in 2007. As of June 30, 2010, we had an accumulated deficit of approximately NIS 368.9 million. We anticipate that we will incur significant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our most promising therapeutic candidates. We may never be profitable and we may never achieve significant sustained revenues.

We cannot ensure that our existing cash and investment balances will be sufficient to meet our future capital requirements.

We believe that our existing cash and investment balances and other sources of liquidity, not including potential milestone payments under our out-licensing agreements with Ikaria and Cypress Bioscience, will be sufficient to meet our requirements through the fourth quarter of 2012. We have funded our operations primarily through public (in Israel) and private offerings of our securities and grants from the OCS. We expect to fund our future operations through out-licensing arrangements with respect to our therapeutic candidates. We have entered into an out-licensing arrangement with Ikaria in connection with our BL-1040 therapeutic candidate and with Cypress Bioscience with respect to our BL-1020 therapeutic candidate in the United States, Canada and Mexico. The adequacy of our available funds to meet our operating and capital requirements will depend on many factors including: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our therapeutic candidates; the terms and conditions of in-licensing and out-licensing therapeutic candidates; and costs incurred in enforcing and defending our patent claims and other intellectual property rights.

While we will continue to explore alternative financing sources, including the possibility of future securities offerings and continued government funding, we cannot be certain that in the future these liquidity sources will be available when needed on commercially reasonable terms or at all, or that our actual cash requirements will not be greater than anticipated. We may seek to finance our operations through other sources, including out-licensing arrangements for the development and commercialization of our therapeutic candidates or other partnerships or joint ventures. If we are unable to obtain future financing through the methods we describe above or through other means, we may be unable to complete our business objectives and may be unable to continue operations, which would have a material adverse effect on our business and financial condition.

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

We have a limited operating history and our operations to date have been limited to organizing and staffing our company, conducting product development activities for our therapeutic candidates and performing research and development with respect to our preclinical programs. We have not yet demonstrated an ability to obtain regulatory approval for or to commercialize a therapeutic candidate. Consequently, any predictions

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about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products or medical devices.

Risks Related to Our Business and Regulatory Matters

If we or our licensees are unable to obtain U.S. and/or foreign regulatory approval for our therapeutic candidates, we will be unable to commercialize our therapeutic candidates.

To date, we have not marketed, distributed or sold an approved product. Our therapeutic candidates are subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization of drugs and devices. We may not obtain marketing approval for any of our therapeutic candidates in a timely manner or at all. In connection with the clinical trials for BL-1020, BL-1040 and BL-5010, and other therapeutic candidates that we may seek to develop in the future, either on our own or through out-licensing arrangements, we face the risk that:

a therapeutic candidate or medical device may not prove safe or efficacious;
the results with respect to any therapeutic candidate may not confirm the positive results from earlier preclinical studies or clinical trials;
the results may not meet the level of statistical significance required by the FDA or other regulatory authorities; and
the results will justify only limited and/or restrictive uses, including the inclusion of warnings and contraindications, which could significantly limit the marketability and profitability of the therapeutic candidate.

Any delay in obtaining, or the failure to obtain, required regulatory approvals will materially and adversely affect our ability to generate future revenues from a particular therapeutic candidate. Any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product or may impose restrictive conditions of use, including cautionary information, thereby limiting the size of the market for the product. We and our licensees, as applicable, also are, and will be, subject to numerous foreign regulatory requirements that govern the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval process that we describe above, as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval by regulatory authorities outside the United States. Foreign jurisdictions may have different approval processes than those required by the FDA and may impose additional testing requirements for our therapeutic candidates.

We have no experience selling, marketing or distributing products and no internal capability to do so.

We currently have no sales, marketing or distribution capabilities and no experience in building a sales force or distribution capabilities. To be able to commercialize any of our therapeutic candidates upon approval, if at all, we must either develop internal sales, marketing and distribution capabilities, which will be expensive and time consuming, or enter into out-licensing arrangements with third parties to perform these services. In July 2009, we entered into an exclusive, royalty-bearing worldwide out-licensing arrangement with Ikaria with respect to BL-1040. Under the arrangement, Ikaria is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or a product related thereto. In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with respect to BL-1020. Under the arrangement, Cypress Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, BL-1020 for the prevention, diagnosis and treatment of all human diseases in the United States, Canada and Mexico. We have retained the rights to develop and commercialize BL-1020 outside the United States, Canada and Mexico.

If we decide to market any of our other therapeutic candidates directly, including BL-1020, outside of the United States, Canada and Mexico, we must commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and with supporting distribution capabilities. Factors that may inhibit our efforts to commercialize our products directly and without strategic partners include:

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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our therapeutic candidates;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.

We may not be successful in recruiting the sales and marketing personnel necessary to sell any of our therapeutic candidates upon approval, if at all, and even if we do build a sales force, it may not be successful in marketing our therapeutic candidates, which would have a material adverse effect on our business, financial condition and results of operations.

We depend on out-licensing arrangements to develop, market and commercialize our therapeutic candidates.

We depend on out-licensing arrangements to develop, market and commercialize our therapeutic candidates. We have limited experience in developing, marketing and commercializing therapeutic candidates. Dependence on out-licensing arrangements will subject us to a number of risks, including the risk that:

we may not be able to control the amount and timing of resources that our licensees devote to our therapeutic candidates;
our licensees may experience financial difficulties;
our licensees may fail to secure adequate commercial supplies of our therapeutic candidates upon marketing approval, if at all;
our future revenues will depend heavily on the efforts of our licensees;
business combinations or significant changes in a licensee’s business strategy may adversely affect the licensee’s willingness or ability to complete its obligations under any arrangement with us;
a licensee could move forward with a competing therapeutic candidate developed either independently or in collaboration with others, including our competitors; and
out-licensing arrangements are often terminated or allowed to expire, which would delay the development and may increase the development costs of our therapeutic candidates.

If we or any of our licensees, including Ikaria or Cypress Bioscience, breach or terminate their agreements with us, or if any of our licensees otherwise fail to conduct their development and commercialization activities in a timely manner or there is a dispute about their obligations, we may need to seek other licensees, or we may have to develop our own internal sales and marketing capability for our therapeutic candidates. Our dependence on our licensees’ experience and the rights of our licensees will limit our flexibility in considering alternative out-licensing arrangements for our therapeutic candidates. Any failure to successfully develop these arrangements or failure by our licensees to successfully develop or commercialize any of our therapeutic candidates in a competitive and timely manner, will have a material adverse effect on the commercialization of our therapeutic candidates.

Cypress Bioscience is the target of a tender offer by certain of its shareholders; if Cypress Bioscience undergoes a change of control, the acquirer may not honor its obligations to us under the out-licensing arrangement.

Cypress Bioscience is the target of a tender offer by certain of its shareholders. In public filings, the potential acquiror indicated that it decided to make the tender offer in part because it does not think that our out-licensing arrangement with Cypress Bioscience is in the best interest of Cypress Bioscience and its shareholders. We worked with the current management team of Cypress Bioscience in entering into our out-licensing arrangement with Cypress Bioscience. If the tender offer results in a change of control of Cypress Bioscience, the new management may elect to terminate or breach the out-licensing agreement. In addition,

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even if the tender offer does not result in a change of control, the attention of Cypress Bioscience’s management to the tender offer and related matters may result in delays in its development efforts with respect to BL-1020. Any termination or breach by Cypress Bioscience of the out-licensing agreement, or delay in the development efforts required thereunder, may have a material adverse effect on our business, financial condition and results of operations.

If we are unable to enter into agreements with third parties to develop, market and commercialize our therapeutic candidates, we may not generate product revenue.

We plan to develop, market and commercialize our therapeutic candidates primarily through out-licensing arrangements or, when appropriate, by ourselves. The preclinical and clinical development of our therapeutic candidates, even if undertaken through licensing arrangements with third parties, will require that we expend significant funds and will be subject to the risks of failure inherent in the development of pharmaceutical products. In order to successfully commercialize any of our therapeutic candidates that may be approved in the future by the FDA or other regulatory authorities, we must enter into out-licensing arrangements with third parties to perform these services for us or build internal sales and marketing capabilities. Our ability to commercialize our therapeutic candidates will depend on our ability to:

attract suitable licensees on reasonable terms;
obtain and maintain necessary intellectual property rights to our therapeutic candidates;
where appropriate, enter into arrangements with third parties to manufacture our products, if any, on our behalf; and
deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these services.

If we are unable to enter into an out-licensing arrangement with respect to BL-5010 or any of our other therapeutic candidates, whether with third parties or independently, our ability to develop a commercially viable product or generate product revenue based on the therapeutic candidate will be adversely affected, and we may not become profitable. We face significant competition in seeking out-licensing arrangements with third parties. We may not be able to negotiate out-licensing arrangements on acceptable terms, if at all. In addition, these out-licensing arrangements may be unsuccessful. If we fail to negotiate and maintain suitable out-licensing arrangements, we may have to limit the size or scope of, or delay, one or more of our development or research programs. If we elect to fund development or research programs independently, we will have to increase our expenditures significantly and will need to obtain additional funding, which may be unavailable or available only on unfavorable terms. We will also need to make significant investments in pharmaceutical product development, marketing, sales and regulatory compliance resources, and we will have to establish or contract for the manufacture of products under applicable regulatory requirements. Any failure to enter into an out-licensing arrangement with respect to the development, marketing and commercialization of any therapeutic candidate, or failure to develop, market and commercialize the therapeutic candidate independently, will have a material adverse effect on our business, financial condition and results of operations.

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

Modifications to our therapeutic candidates, after they have been approved for marketing, if at all, or to any other pharmaceutical product or medical device that we may develop in the future, may require new regulatory clearance, or approvals, and, if necessitated by a problem with a marketed product, may result in the recall or suspension of marketing of the previously approved and marketed product until clearances or approvals of the modified product are obtained. The FDA requires pharmaceutical products and device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine in conformity with applicable regulations and guidelines that a modification may be implemented without pre-clearance by the FDA; however, the FDA

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can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval is required. If the FDA requires new clearances or approvals of any pharmaceutical product or medical device for which we or our licensees receive marketing approval, if any, we or our licensees may be required to recall such product and to stop marketing the product as modified, which could require us or our licensees to redesign the product and will have a material adverse affect on our business, financial condition and results of operations. In these circumstances, we may be subject to significant enforcement actions.

If a manufacturer determines that a modification to an FDA-cleared device could significantly affect the safety or efficacy of the device, would constitute a major change in its intended use, or otherwise requires pre-clearance, the modification may not be implemented without the requisite clearance. We or our licensees may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all. For those products sold in the European Union, or E.U., we, or our licensees, as applicable, must notify the applicable E.U. Notified Body, an organization appointed by a member State of the E.U. either for the approval and monitoring of a manufacturer’s quality assurance system or for direct product inspection, if significant changes are made to the product or if there are substantial changes to the quality assurance systems affecting the product. Delays in obtaining required future clearances or approvals would materially and adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would have a material adverse effect on our business, financial condition and results of operations.

Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including FDA approval. Clinical trials are expensive and complex, can take many years and have uncertain outcomes. We cannot predict whether we or our licensees will encounter problems with any of the completed, ongoing or planned clinical trials that will cause us, our licensees or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from completed or ongoing clinical trials. We estimate that clinical trials of our most advanced therapeutic candidates will continue for several years, but they may take significantly longer to complete. Failure can occur at any stage of the testing and we may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our current or future therapeutic candidates, including but not limited to:

delays in securing clinical investigators or trial sites for the clinical trials;
delays in obtaining institutional review board and other regulatory approvals to commence a clinical trial;
slower than anticipated patient recruitment and enrollment;
negative or inconclusive results from clinical trials;
unforeseen safety issues;
uncertain dosing issues;
an inability to monitor patients adequately during or after treatment; and
problems with investigator or patient compliance with the trial protocols.

A number of companies in the pharmaceutical, medical device and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after seeing promising results in earlier clinical trials. Despite the results reported in earlier clinical trials for our therapeutic candidates, we do not know whether any phase 3 or other clinical trials we or our licensees may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our therapeutic candidates. If later-stage clinical trials of any therapeutic candidate do not produce favorable results, our ability to obtain regulatory approval for the therapeutic candidate may be adversely impacted, which will have a material adverse effect on our business, financial condition and results of operations.

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We rely on third parties to conduct our clinical trials and provide other services, and those third parties may not perform satisfactorily, including by failing to meet established deadlines for the completion of such services.

We do not have the ability to conduct certain preclinical studies and clinical trials independently for our therapeutic candidates, and we rely on third parties, such as contract laboratories, contract research organizations, medical institutions and clinical investigators to conduct these studies and our clinical trials. Our reliance on these third parties limits our control over these activities. The third-party contractors may not assign as great a priority to our clinical development programs or pursue them as diligently as we would if we were undertaking such programs directly. Accordingly, these third-party contractors may not complete activities on schedule, or may not conduct the studies or our clinical trials in accordance with regulatory requirements or with our trial design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if their performance is substandard, we may be required to replace them. Although we believe that there are a number of other third-party contractors that we could engage to continue these activities, replacement of these third parties will result in delays. As a result, our efforts to obtain regulatory approvals for, and to commercialize, our therapeutic candidates may be delayed. The third-party contractors may also have relationships with other commercial entities, some of whom may compete with us. If the third-party contractors assist our competitors, our competitive position may be harmed.

In addition, our ability to bring future products to market depends on the quality and integrity of data that we present to regulatory authorities in order to obtain marketing authorizations. Although we attempt to audit and control the quality of third-party data, we cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. The failure of these third parties to carry out their obligations would materially adversely affect our ability to develop and market new products and implement our strategies.

If our competitors develop and market products that are more effective, safer or less expensive than our current or future therapeutic candidates, our future prospects will be negatively impacted.

The life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications for which we are currently developing therapeutic candidates or for which we may develop therapeutic candidates in the future. Specifically, we are aware of several other companies who currently market and/or are in the process of developing products that address schizophrenia, AMI and skin lesions. There are a number of treatments currently marketed for schizophrenia patients, including atypical anti-psychotics from Johnson & Johnson, Eli Lilly and Company, AstraZeneca, Bristol-Myers Squibb/Otsuka Pharmaceutical Co., Ltd., Pfizer Inc. and others. In addition, there are a number of generic brands of typical and atypical anti-psychotics available for commercial use. We are also aware of a number of potentially competitive compounds under development to treat schizophrenia including: Cariprazine, which is being developed by Forest Laboratories, Inc.; Bifeprunox, which is being developed by Solvay Pharmaceuticals, Inc., and Lurasidone, which is being developed by Dainippon Sumitomo Pharma Co., Ltd. There are a number of therapies currently in development that treat cardiac remodeling, including BioHeart, Inc.’s MyoCell® implantation procedure, Paracor Medical, Inc.’s HeartNetTM and Acorn Cardiovascular, Inc.’s CorCapTM device. Skin lesions are generally removed using either cryotherapy (liquid nitrogen), electro-coagulation (electrical burning), laser treatments or through surgery. Galderma Pharma SA produces a non-destructive, non-surgical, cream-based treatment for skin lesions called Metvix® which has been approved in many countries. Any therapeutic candidates we may develop in the future are also likely to face competition from other drugs and therapies. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research and marketing capabilities than we do. If our competitors market products that are more effective, safer or less expensive than our future therapeutic candidates, if any, or that reach the market sooner than our future therapeutic candidates, if any, we may not achieve commercial success.

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We currently depend on third-party manufacturers to produce our preclinical and clinical therapeutic supplies. We may rely upon third-party manufacturers to produce commercial supplies of any approved therapeutic candidates. If we manufacture any of our therapeutic candidates in the future, we will be required to incur significant costs and devote significant efforts to establish and maintain manufacturing capabilities.

We have relied on third parties to produce material for preclinical and clinical testing purposes and intend to continue to do so in the future. We do not own or operate manufacturing facilities for clinical or commercial production of our therapeutic candidates. We have limited personnel with experience in drug or medical device manufacturing and we lack the resources and capabilities to manufacture any of our therapeutic candidates on a clinical or commercial scale. The manufacture of pharmaceutical products and medical devices requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products and medical devices often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields and quality control, including stability of the therapeutic candidate.

We do not currently have any long-term agreements with third party manufacturers for the supply of any of our therapeutic candidates. We believe that our current supply of therapeutic candidates is sufficient to complete our current clinical trials. However, if we require additional supplies of our therapeutic candidates to complete our clinical trials or if we elect to commercialize our products independently, we may be unable to enter into agreements for clinical or commercial supply, as applicable, with third party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, the manufacturers of each therapeutic candidate will be single source suppliers to us for a significant period of time.

Reliance on third party manufacturers entails risks to which we would not be subject if we manufactured therapeutic candidates ourselves, including:

reliance on the third party for regulatory compliance and quality assurance;
limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
impact on our reputation in the marketplace if manufacturers of our products, once commercialized, fail to meet customer demands;
the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

The failure of any of our contract manufacturers to maintain high manufacturing standards could result in injury or death of clinical trial participants or patients being treated with our products. Such failure could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could seriously harm our business or profitability.

Our contract manufacturers are, and will be, subject to FDA and other comparable agency regulations.

Our contract manufacturers are, and will be, required to adhere to FDA regulations setting forth current Good Manufacturing Practice, or cGMP, for drugs and Quality System Regulations, or QSR, for devices. These regulations cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates. Our manufacturers may not be able to comply with applicable regulations. Our manufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar regulators outside the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our candidates or products,

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operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates, and materially and adversely affect our business.

We depend on our ability to identify and in-license technologies and therapeutic candidates.

In order to identify therapeutic candidates likely to achieve commercial success efficiently and effectively, we employ a proprietary screening system developed by us that includes evaluation through our proprietary MedMatrx scoring tool. Our Scientific Advisory Board and disease-specific third-party advisors evaluate each therapeutic candidate. However, there can be no assurance that our screening system will accurately or consistently select among various therapeutic candidates those that that have the highest likelihood to achieve, and which ultimately achieve, commercial success. As a result, we may spend substantial resources developing therapeutic candidates that will not achieve commercial success and we may not advance those therapeutic candidates with the greatest potential for commercial success.

An important element of our strategy is maintaining relationships with universities, medical institutions and biotechnology companies in order to in-license potential therapeutic candidates. We may not be able to maintain relationships with these entities and they may elect not to enter into in-licensing agreements with us or to terminate existing agreements. We may not be able to acquire licenses on commercially reasonable terms, or at all. Failure to license or otherwise acquire necessary technologies could materially and adversely affect our business, financial condition and results of operations.

If we cannot meet requirements under our in-license agreements, we could lose the rights to our therapeutic candidates, which could have a material adverse effect on our business.

We depend on in-licensing agreements with third parties to maintain the intellectual property rights to certain of our therapeutic candidates. We have in-licensed rights from Bar Ilan Research and Development and Ramot with respect to our BL-1020 therapeutic candidate, and from B.G. Negev Technologies with respect to our BL-1040 therapeutic candidate. See “Business — Our Product Pipeline.” Our in-license agreements require us to make payments and satisfy performance obligations in order to maintain our rights under these agreements. The royalty rates and revenue sharing payments vary from case to case but generally range from 20% to 29% of the consideration we receive from sublicensing the applicable therapeutic candidate. In some instances, we are required to pay a substantially lower percentage (generally less than 5%) if we elect to commercialize the subject therapeutic candidate independently. These in-license agreements last either throughout the life of the patents that are the subject of the agreements, or with respect to other licensed technology, for a number of years after the first commercial sale of the relevant product.

In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not meet our obligations under our in-license agreements in a timely manner, we could lose the rights to our proprietary technology which could have a material adverse effect on our business, financial condition and results of operations.

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

Even if products we or our licensees develop receive regulatory approval or clearance, we or our licensees, as applicable, will be subject to ongoing reporting obligations and the products and the manufacturing operations will be subject to continuing regulatory review, including FDA inspections. The results of this ongoing review may result in the withdrawal of a product from the market, the interruption of the manufacturing operations and/or the imposition of labeling and/or marketing limitations. Since many more patients are exposed to drugs and medical devices following their marketing approval, serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing of the product. In addition, the manufacturer and the manufacturing facilities we or our licensees, as applicable, will use to produce any therapeutic candidate will be subject to periodic review and inspection by the FDA and other, similar foreign regulators. Later discovery of previously unknown problems with any product, manufacturer or manufacturing process, or failure to comply with regulatory requirements, may result in actions such as:

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

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

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

Our success depends upon the continued service and performance of our senior management and other key personnel. The loss of the services of these personnel could delay or prevent the successful completion of our planned clinical trials or the commercialization of our therapeutic candidates or otherwise affect our ability to manage our company effectively and to carry out our business plan. We do not maintain key-man life insurance. Although we have entered into employment agreements with all of the members of our senior management team, members of our senior management team may resign at any time. High demand exists for senior management and other key personnel in the pharmaceutical industry. There can be no assurance that we will be able to continue to retain and attract such personnel.

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

Risks Related to Our Industry

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

Even if our therapeutic candidates are approved for commercialization, they may not become commercially viable products. For example, if we or our licensees receive regulatory approval to market a product, approval may be subject to limitations on the indicated uses or subject to labeling or marketing restrictions which could materially and adversely affect the marketability and profitability of the product. In addition, a new product may appear promising at an early stage of development or after clinical trials but

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never reach the market, or it may reach the market but not result in sufficient product sales, if any. A therapeutic candidate may not result in commercial success for various reasons, including:

difficulty in large-scale manufacturing;
low market acceptance by physicians, healthcare payors, patients and the medical community as a result of lower demonstrated clinical safety or efficacy compared to other products, prevalence and severity of adverse side effects, or other potential disadvantages relative to alternative treatment methods;
insufficient or unfavorable levels of reimbursement from government or third-party payors;
infringement on proprietary rights of others for which we or our licensees have not received licenses;
incompatibility with other therapeutic products;
other potential advantages of alternative treatment methods;
ineffective marketing and distribution support;
lack of cost-effectiveness; or
timing of market introduction of competitive products.

If we are unable to develop commercially viable products, either on our own or through licensees, our business, results of operations and financial condition will be materially and adversely affected.

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

The U.S. Congress recently adopted important legislation regarding health insurance. Under the new legislation, substantial changes are going to be made to the current system for paying for healthcare in the United States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of private payors and government programs (Medicare, Medicaid and State Children’s Health Insurance Program), creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the United States could impact the reimbursement for prescribed drugs and biopharmaceuticals, such as those we and our licensees are currently developing. If reimbursement for our approved products, if any, is substantially reduced in the future, or rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted.

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

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

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved candidates, if any, from governmental or other third-party payors, both in the United States

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and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that the use of an approved product is:

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

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

In the United States, there have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services, which may affect payments for our products in the United States. We believe that legislation that reduces reimbursement for our therapeutic candidates could adversely impact how much or under what circumstances healthcare providers will prescribe or administer our products, if approved. This could materially and adversely impact our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our products, if approved.

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

Our business has a substantial risk of clinical trial and product liability claims. If we are unable to obtain and maintain appropriate levels of insurance, a claim could adversely affect our business.

Our business exposes us to significant potential clinical trial and product liability risks that are inherent in the development, manufacturing and sales and marketing of human therapeutic products. Although we do not currently commercialize any products, claims could be made against us based on the use of our therapeutic candidates in clinical trials. We currently carry life science liability insurance covering bodily and personal injury, general liability and products liability with an annual coverage amount of $5.0 million in the aggregate, and clinical trial insurance with a coverage amount of $10.0 million in the aggregate. In addition to these policies, we carry an excess liability insurance with a coverage amount of $5.0 million which increases the coverage limit provided by our life science insurance package. However, our insurance may not provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain current amounts of insurance coverage or obtain additional or sufficient insurance at a reasonable cost to protect against losses that could have a material adverse effect on us. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as damages awards beyond the coverage of our insurance policies resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any claims, we might be required to direct significant financial and managerial resources to such defense, and adverse publicity is likely to result.

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We deal with hazardous materials and must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.

Our activities and those of our third-party manufacturers on our behalf involve the controlled storage, use and disposal of hazardous materials, including microbial agents, corrosive, explosive and flammable chemicals and other hazardous compounds. We and our manufacturers are subject to U.S. federal, state, local, Israeli and other foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that our safety procedures 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 addition, if we develop a manufacturing capacity, we may incur substantial costs to comply with environmental regulations and would be subject to the risk of accidental contamination or injury from the use of hazardous materials in our manufacturing process.

In the event of an accident, government authorities may curtail our use of these materials and interrupt our business operations. In addition, we could be liable for any civil damages that result, which may exceed our financial resources and may seriously harm our business. Although our Israeli insurance program covers certain unforeseen sudden pollutions, we do not maintain a separate insurance policy for any of the foregoing types of risks. In addition, although the general liability section of our life sciences policy covers certain environmental issues, pollution in the United States and Canada is excluded from the policy. In the event of environmental discharge or contamination or an accident, we may be held liable for any resulting damages, and any liability could exceed our resources. In addition, we may be subject to liability and may be required to comply with new or existing environmental laws regulating pharmaceuticals or other medical products in the environment.

Risks Related to Intellectual Property

Our access to most of the intellectual property associated with our therapeutic candidates results from in-license agreements with universities, research institutions and biotechnology companies, the termination of which would prevent us from commercializing the associated therapeutic candidates.

We do not conduct our own initial research with respect to the identification of our therapeutic candidates. Instead, we rely upon research and development work conducted by third parties as the primary source of our therapeutic candidates. As such, we have obtained our rights to the majority of our therapeutic candidates through in-license agreements entered into with universities, research institutions and biotechnology companies that invent and own the intellectual property underlying our candidates. There is no assurance that such in-licenses or rights will not be terminated or expire due to a material breach of the agreements, such as a failure on our part to achieve certain progress milestones set forth in the terms of the in-licenses or due to the loss of the rights to the underlying intellectual property by any of our licensors. There is no assurance that we will be able to renew or renegotiate an in-licensing agreement on acceptable terms if and when the agreement terminates. We cannot guarantee that any in-license is enforceable or will not be terminated or converted into a non-exclusive license in the future. The termination of any in-license or our inability to enforce our rights under any in-license would materially and adversely affect our ability to commercialize certain of our therapeutic candidates.

We currently have in-licensing agreements relating to our lead therapeutic candidates under clinical development. In April 2004, we in-licensed the rights to BL-1020 under a research and license agreement with Bar Ilan Research and Development and Ramot. Under the BL-1020 research and license agreement, we are obligated to use commercially reasonable efforts to develop, commercialize and market the licensed technology, including meeting certain specified diligence goals. In January 2005, we in-licensed the rights to BL-1040 under a license agreement with B.G. Negev Technologies. Under the BL-1040 license agreement, we are obligated to use commercially reasonable efforts to develop the licensed technology in accordance with a specified development plan, including meeting certain specified diligence goals. In November 2007, we in-licensed the rights to develop and commercialize BL-5010 under a license agreement with Innovative Pharmaceutical Concepts, Inc., or IPC. Under the IPC license agreement, we are obligated to use commercially reasonable efforts to develop the licensed technology in accordance with a specified development plan, including meeting certain specified diligence goals.

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Each of the three in-licensing agreements will remain in effect until the expiration, under the applicable agreement, of all of the licensing, royalty and sublicense revenue obligations to the applicable licensors, determined on a product-by-product and country-by-country basis. We may terminate any in-licensing agreement by providing 60 days’ prior written notice to Ramot, in the case of the BL-1020 in-licensing agreement or to B.G. Negev Technologies, in the case of the BL-1040 in-licensing agreement. We may terminate the BL-5010 in-licensing agreement by providing 30 days’ prior written notice to IPC. However, if we elect to terminate the BL-5010 in-licensing agreement without cause, we may be required to fund the completion of certain clinical trials of the licensed technology in an amount not to exceed $600,000. We may also elect to terminate the BL-5010 in-licensing agreement upon 60 days’ prior written notice to IPC for scientific, regulatory or medical reasons which, as determined by our Scientific Advisory Board, would prevent us from continuing the development of the licensed technology pursuant to the agreed upon development plan.

Any party to any of the three in-licensing agreements may terminate the respective agreement for material breach by the other party if the breaching party is unable to cure the breach within 30 days after receiving written notice of the breach from the non-breaching party. Notwithstanding the foregoing, in the case of the BL-1020 in-licensing agreement, Ramot, but not Bar Ilan Research and Development, has the right to provide us with notice of material breach and to terminate the agreement. In addition, with respect to the BL-1040 in-licensing agreement, the breaching party is entitled to 60 days’ prior written notice of the material breach prior to termination instead of 30 days. Each of the three in-licensing agreements provide that with respect to any termination for material breach, if the breach is not susceptible to cure within the stated period and the breaching party uses diligent, good faith efforts to cure such breach, the stated period will be extended by an additional 30 days. In addition, either party to one of the three in-licensing agreements (except Bar Ilan Research and Development, in the case of the BL-1020 in-licensing agreement) may terminate the agreement upon notice to the other upon the occurrence of certain bankruptcy events.

Patent protection for our products is important and uncertain.

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

We try to protect our proprietary position by, among other things, filing U.S., European, Israeli and other patent applications related to our proprietary products, technologies, inventions and improvements that may be important to the continuing development of our therapeutic candidates. As of September 1, 2010, our portfolio of owned and licensed patents consists of 13 patent families that, collectively, contain over 12 issued patents and over 60 patent applications relating to our clinical candidates. We are also pursuing patent protection for other drug candidates in our pipeline.

Because the patent position of biopharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our issued patents and the issued patents of our licensees or licensors may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties. Thus, any patents that we own or license from others may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we may license from third parties may not result in patents being issued. If these patents are issued, they may not provide us with proprietary protection or competitive advantages against competitors with similar technology. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.

Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the United States and Israel. For example, the patent laws of China and India are relatively new and are not as developed as are older, more established patent laws of other countries. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that

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do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law.

Our technology may infringe the rights of third parties. The nature of claims contained in unpublished patent filings around the world is unknown to us and it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty, or other mechanisms. Any infringement by us of the proprietary rights of third parties may have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third-party patents. A party might file an infringement action against us. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of a patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action. At present, we are not aware of pending or threatened patent infringement actions against us.

In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly. At present, we have not received any written demands from third parties that we take a license under their patents nor have we received any notice form a third party accusing us of patent infringement.

Our license agreement with Ikaria contains, and any contract that we enter into with licensees in the future will likely contain, indemnity provisions that obligate us to indemnify the licensees against any losses

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that arise from third-party claims that are brought alleging that our therapeutic candidates infringe third party intellectual property rights. In addition, our in-license agreements contain provisions that obligate us to indemnify the licensors against any damages arising from the development, manufacture and use of products developed on the basis of the in-licensed intellectual property.

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

In addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings, including interference or re-examination proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our products and technology, as well as other disputes regarding intellectual property rights with licensees, licensors or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we, our licensee or our licensor will be required to defend these opposition procedures as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail.

We may be subject to damages resulting from claims that we or our employees or contractors have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees and contractors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that we or any employ or contractor has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of his or her former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain therapeutic candidates, which could severely harm our business, financial condition and results of operations. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

The intellectual property associated with certain of our therapeutic candidates, including BL-1040, is pledged as security for our obligations associated with the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor’s biotechnology incubator program.

In May 2004, the OCS invited companies to bid to establish and operate OCS-funded biotechnological incubators to provide a physical, organized and professional platform for commercializing biotechnological research and development projects. We submitted a proposal to operate a biotechnological incubator, and our proposal was selected by the OCS. Accordingly, we entered into an incubator agreement with the OCS in January 2005. The funding provided to us under the incubator agreement is in the form of separate loans for each approved project initiated by our incubator. Each loan is subject to repayment solely out of the revenues generated by that project. If revenues are not achieved with respect to a project, the loan for the project will be forgiven, subject to certain terms and conditions. If revenues are achieved with respect to a project, the loans will be repaid from such revenues, with interest. The interest rates for the loans are prescribed by the OCS at the commencement of each loan, and range from 3.11% to 5.34%, but are doubled if the loan is not repaid within five years of our achievement of certain development milestones, or within two years following the completion of the applicable incubator program. All intellectual property held by our incubator for development through the incubator program is pledged as security for our obligations under the incubator agreement. If we are unable to meet our obligations under the incubator agreement, the intellectual property held by the incubator would be subject to seizure and would not be available for sale for the benefit of or distribution to our creditors or shareholders in the event of a reorganization or insolvency. Any loss of the rights to the intellectual property held by our incubator would have a material adverse effect on our business and prospects.

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Risks Related to an Investment in our Ordinary Shares

We may be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in 2010 or in any subsequent year. There may be negative tax consequences for U.S. taxpayers that are holders of our ordinary shares.

We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is “passive income” or (ii) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Although we were not a PFIC in 2009, we believe that we were a PFIC during certain prior years and, although we do not anticipate being a PFIC in 2010, or in any subsequent year, our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2010, or any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of our ordinary shares will be subject to special rules. Under these rules: (i) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the ordinary shares; (ii) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold our ordinary shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election. A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. Upon request, we will annually furnish U.S. shareholders with information needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder) and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC.

The market price of our ordinary shares is subject to fluctuation, which could result in substantial losses by our investors.

The stock market in general and the market price of our ordinary shares on the TASE in particular, is subject to fluctuation, and changes in our share price may be unrelated to our operating performance. The market price of our ordinary shares on the TASE has fluctuated in the past, and we expect it will continue to do so, as a result of a number of factors, including:

announcements of technological innovations or new products by us or others;
public concern as to the safety of drugs we, our licensees or others develop;
general market conditions;
that the market prices for shares of biotechnology companies tends to be volatile;
success of research and development projects;
developments concerning intellectual property rights or regulatory approvals;
variations in our and our competitors’ results of operations;

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changes in earnings estimates or recommendations by securities analysts, if our ordinary shares are covered by analysts;
changes in government regulations or patent decisions;
developments by our licensees; and
general market conditions and other factors, including factors unrelated to our operating performance.

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

Additionally, market prices for securities of biotechnology and pharmaceutical companies historically have been very volatile. The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, following periods of market volatility, shareholders have often instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and attention of management from our business.

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

If we or our shareholders sell substantial amounts of our ordinary shares, either on the TASE or on The NASDAQ Global Market, the market price of our ordinary shares may decline. We and the beneficial owners of   % of our ordinary shares (such shares representing holdings immediately prior to the consummation of this offering) have agreed with the underwriters of this offering not to sell any ordinary shares, other than the shares offered by this prospectus, for a period of at least 180 days following the date of this prospectus. The ordinary shares we are offering for sale in this offering will be freely tradable immediately following this offering. In addition, all of our outstanding ordinary shares are registered and available for sale in Israel. Except for the holders of   % of our ordinary shares that are the subject of lock-up agreements entered into by the holders thereof in connection with this offering, all of our outstanding shares are available for sale without restriction. Sales by us or our shareholders of substantial amounts of our ordinary shares, or the perception that these sales may occur in the future, could cause a reduction in the market price of our ordinary shares.

On May 3, 2009, we filed a shelf prospectus with the TASE and Israeli Securities Authority. The shelf prospectus allows us, for a period of two years, to issue the securities described in the prospectus to the public in Israel by means of shelf offering reports, without being required to publish a full prospectus. Following the issuance of our ordinary shares under the shelf registration statement, such ordinary shares will be registered for trade on the TASE with no lock-up period. As permitted under applicable Israeli law, our shelf prospectus did not contain a NIS or dollar limitation on the aggregate amount of the securities to be offered thereunder. The shelf prospectus registered different classes of securities, including ordinary shares, up to three series of ordinary debentures, up to three series of debentures convertible into ordinary shares, up to three series of warrants exercisable into shares and up to three series of warrants exercisable into debentures. On December 29, 2009, we issued 11,293,419 ordinary shares, and Series 2 Warrants to purchase 7,528,946 ordinary shares, under the shelf prospectus for aggregate gross proceeds of approximately NIS 47.1 million, or $12.4 million (based on the exchange rate reported by the Bank of Israel for that date). The issuance of any additional ordinary shares under the shelf prospectus, or any securities that are exercisable for or convertible into our ordinary shares, may have an adverse effect on the market price of our ordinary shares and will have a dilutive effect on our shareholders.

Raising additional capital by issuing securities may cause dilution to existing shareholders.

We may need to raise substantial future capital to continue to complete clinical development and commercialize our products and therapeutic candidates and to conduct the research and development and clinical and regulatory activities necessary to bring our therapeutic candidates to market. Our future capital requirements will depend on many factors, including:

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the failure to obtain regulatory approval or achieve commercial success of our therapeutic candidates, including BL-1020, BL-1040 and BL-5010;
our success in effecting out-licensing arrangements with third-parties;
our success in establishing other out-licensing arrangements;
the success of our licensees in selling products that utilize our technologies;
the results of our preclinical studies and clinical trials for our earlier stage therapeutic candidates, and any decisions to initiate clinical trials if supported by the preclinical results;
the costs, timing and outcome of regulatory review of our therapeutic candidates that progress to clinical trials;
the costs of establishing or acquiring specialty sales, marketing and distribution capabilities, if any of our therapeutic candidates are approved, and we decide to commercialize them ourselves;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued patents and defending intellectual property-related claims;
the extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and
the costs of financing unanticipated working capital requirements and responding to competitive pressures.

If we raise additional funds through licensing arrangements with third parties, we may have to relinquish valuable rights to our therapeutic candidates, or grant licenses on terms that are not favorable to us. If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing shareholders, and these securities may have rights, preferences or privileges senior to those of our existing shareholders. See also “— Future sales of our ordinary shares could reduce the market price of our ordinary shares.”

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

The initial public offering price of our ordinary shares in this offering is considerably greater than the pro forma net tangible book value per share of our outstanding ordinary shares. Accordingly, investors purchasing ordinary shares in this offering will incur immediate dilution of $     per share, based on an assumed initial public offering price of $     per share, the mid-point of the range shown on the cover of this prospectus. See “Dilution.” In addition, as of June 30, 2010, there were outstanding and exercisable options to purchase 7,084,160 of our ordinary shares, at a weighted average exercise price equal to NIS 3.54 (or approximately $0.91 based on the exchange rate reported by the Bank of Israel for June 30, 2010) per share. Moreover, we expect to issue additional options to purchase our ordinary shares to compensate employees, consultants and directors and may issue additional shares to raise capital, to pay for services, or for other corporate purposes. To the extent these outstanding options are exercised at a price below net tangible book value per share, there will be additional dilution to investors.

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

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the “Use of Proceeds” section of this prospectus on page 37. Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

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Risks Associated with Potential NASDAQ Listing of our Ordinary Shares

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

Our ordinary shares have been traded on the TASE since February 2007 and we have applied to have our ordinary shares listed on The NASDAQ Global Market. Trading in our ordinary shares on these markets will take place in different currencies (dollars on The NASDAQ Global Market and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on one of these markets could cause a decrease in the trading price of our ordinary shares on the other market.

Our ordinary shares have no prior trading history in the United States, and an active market may not develop, which may limit the ability of our shareholders to sell our ordinary shares in the United States following this offering.

There is no public market for our ordinary shares in the United States. Although we have applied to have our ordinary shares listed on The NASDAQ Global Market, an active trading market for our ordinary shares may never develop or may not be sustained following this offering. If an active market for our ordinary shares does not develop, it may be difficult to sell your shares. The price of our ordinary shares in the initial public offering in the United States will be determined through our negotiations with the underwriters and may be higher than the market price of our ordinary shares after the closing of this offering. Consequently, you may not be able to sell our ordinary shares that you purchase in this offering at prices equal to or greater than the purchase price.

We will incur significant additional increased costs as a result of the listing of our ordinary shares for trading on The NASDAQ Global Market, and our management will be required to devote substantial time to new compliance initiatives as well as to compliance with ongoing U.S. and Israeli reporting requirements.

As a public company in the United States, we will incur additional significant accounting, legal and other expenses that we did not incur before the offering. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC and the Marketplace Rules of The NASDAQ Stock Market, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the U.S. and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the Marketplace Rules of The NASDAQ Stock Market, as well as applicable Israeli reporting requirements, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers. Furthermore, until such time as our shareholders may vote to approve our transition from Israeli securities law reporting requirements to U.S. requirements, we will also be required to comply fully with both Israeli and U.S. requirements. The need to comply with both U.S. and Israeli reporting and other securities law requirements will also add to our legal and financial compliance costs and require devotion of additional management resources to reporting and compliance efforts.

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

As a foreign private issuer, we will be permitted to follow certain home country corporate governance practices instead of those otherwise required under the Marketplace Rules of The NASDAQ Stock Market for domestic issuers. For instance, we may follow home country practice in Israel with regard to, among other things, composition of the Board of Directors, director nomination procedure, approval of compensation of officers, and quorum at shareholders’ meetings. In addition, we will follow our home country law, instead of the Marketplace Rules of The NASDAQ Stock Market, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. We will evaluate the extent to which we will avail ourselves of the exemptions available to foreign private issuers in connection with the actual listing of our ordinary shares for trading on The NASDAQ Global Market. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on the NASDAQ Global Market may provide less protection than is accorded to investors under the Marketplace Rules of The NASDAQ Stock Market applicable to domestic issuers.

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

If, after this offering, we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 as they apply to a foreign private issuer that is listing on a U.S. exchange for the first time, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and our stock price may suffer.

After the completion of this offering, we will become subject to the requirements of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires companies subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal controls over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures; our management will be required to assess and issue a report concerning our internal controls over financial reporting. In addition, our independent registered public accounting firm will be required to issue an opinion on management’s assessment of those matters, which will first be tested in connection with the filing of our second annual report on Form 20-F after this offering.

We will need to prepare for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, as our business continues to grow both domestically and internationally, our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During the course of its testing, our management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and our share price may suffer.

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Risks Related to Our Operations in Israel

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

Our headquarters, all of our operations and some of our suppliers and third party contractors are located in central Israel and our key employees, officers and most of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. During the winter of 2008, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, and negatively affected business conditions in Israel. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in the agreements.

Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

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

Many of our male employees in Israel, including members of our senior management, are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists, and recently some of our employees have been called up in connection with armed conflicts. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees or of one or more of our key employees. Such disruption could materially adversely affect our business and operations.

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

Our reporting and functional currency is the NIS, and we pay a substantial portion of our expenses in NIS. The revenues from our licensing agreements with Ikaria and Cypress Bioscience are payable in U.S. dollars and we expect our revenues from future licensing arrangements to be denominated in U.S. dollars or in Euros. As a result, we are exposed to the currency fluctuation risks relating to the recording of our revenues in NIS. For example, if the NIS strengthens against either the U.S. dollar or the Euro, our reported revenues in NIS may be lower than anticipated. The Israeli rate of inflation has not offset or compounded the effects caused by fluctuations between the NIS and the U.S. dollar or the Euro. To date, we have not engaged in

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hedging transactions. Although the Israeli rate of inflation has not had a material adverse effect on our financial condition during 2007, 2008, 2009, or 2010 to date, we may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us from material adverse effects.

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

Our research and development efforts, including the operation of our biotechnology incubator, have been financed, in part, through grants and loans that we have received from the OCS. Of our 10 current development projects, five have been funded by the OCS, either directly or through our incubator, including BL-1020, BL-1021, BL-1040, BL-2030 and BL-4040. Of the five projects funded by the OCS, four have been funded through our incubator. We therefore must comply with the requirements of the Israeli Law for the Encouragement of Industrial Research and Development, 1984, and related regulations, or the Research Law. As of June 30, 2010, we have received approximately $16.4 million in grants and loans from the OCS, including accrued interest, of which approximately $11.4 million was granted in the form of loans to our biotechnology incubator. Such amounts include loans equal to approximately $5.0 million for projects that have been terminated, which we do not expect that we will be required to repay. When know-how, technology or products are developed using OCS grants, the terms of these grants and the Research Law restrict the transfer of that know-how (as well has know-how that is derived from funded know-how) and the development or manufacture of those products out of Israel without the prior approval of the OCS. Therefore, the discretionary approval of an OCS committee will be required for any transfer to third parties of our therapeutic candidates developed with OCS funding, including through out-licensing arrangements pursuant to which we commercialize our product candidates. There is no assurance that we will receive the required approvals should we wish to transfer this technology or development out of Israel in the future. Furthermore, the OCS committee may impose certain conditions on any arrangement under which we transfer technology or development out of Israel. Transfers of know-how from OCS funded programs, including our biotechnology incubator, even if approved by the OCS, may be subject to restrictions set forth in the Research Law, and may include payments to the OCS, as described more fully under “Government Regulation and Funding — Israeli Government Programs — Office of the Chief Scientist.”

The incubator agreement has a six-year term and we are entitled to apply for a three-year extension to the term. The incubator agreement is currently scheduled to terminate on December 31, 2010. We applied for an extension to the agreement in June 2010 and are waiting for notification from the OCS of its approval of the extension. If the incubator agreement terminates, we will no longer be eligible for funding from the OCS through the incubator for new projects in the incubator, but existing projects and the terms of any outstanding loans will not be affected by the termination. There can be no assurance that the OCS will extend the term of the agreement. In addition, if the OCS elects to extend the term of the agreement, there can be no assurance that it will extend the term for the full three-year extension period or require additional terms as a condition for the extension. If the OCS does not extend the term of the agreement for the three-year period, in whole or in part, or if the OCS requires terms and conditions that are not favorable to our company, our business, financial condition and results of operations may be materially and adversely affected.

The transfer abroad of the manufacturing of any OCS-supported product or technology is also subject to various conditions, including the payment of increased royalties equal to, in the aggregate, up to 300% of the total grant amounts received in connection with the product or technology, plus interest, depending on the portion of total manufacturing that is performed outside of Israel. Payment of the increased royalties would constitute the total repayment amount required with respect to the OCS grants received for the development of the products or technology for which the manufacturing is performed outside of Israel. In addition, any decrease in the percentage of manufacture performed in Israel of any product or technology, as originally declared in the application to the OCS with respect to the product or technology, may require us to notify, or to obtain the approval of, the OCS, and may result in increased royalty payments to the OCS of up to 300%

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of the total grant amounts received in connection with the product or technology, plus interest, depending on the portion of total manufacturing that is performed outside of Israel. These restrictions may impair our ability to sell our technology assets or to outsource or transfer development or manufacturing activities with respect to any product or technology. These restrictions continue to apply even after we have repaid any grants, in whole or in part.

We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or at all. Furthermore, if we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with OCS funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to the OCS. If we fail to comply with the conditions imposed by the OCS, including the payment of royalties with respect to grants received, we may be required to refund any payments previously received, together with interest and penalties, and may be subject to criminal penalties. See “Government Regulation and Funding — Israeli Government Programs.”

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

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital, and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within three months following the completion of the tender offer, petition the court to alter the consideration for the acquisition.

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

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders. See “— Description of Share Capital — Acquisitions Under Israeli Law.”

We have received Israeli government grants and loans for the operation of a biotechnology incubator and for certain research and development expenditures. The terms of these grants and loans may require us to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to repayment of the grants and loans. Such grants and loans may be terminated or reduced in the future, which would increase our costs. See “— Government Regulation and Funding — Israeli Government Programs.”

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

We are incorporated in Israel. Most of our executive officers and all of our directors listed in this prospectus reside outside of the United States, and all of our assets and most of the assets of our executive officers and directors are located outside of the United States. Therefore, a judgment obtained against us or most of our executive officers and all of our directors 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

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be enforced by an Israeli court. It also may be difficult for you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.

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

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

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FORWARD-LOOKING STATEMENTS

Some of the statements under the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this prospectus constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. In addition, the sections of this prospectus entitled “Summary” and “Business” contain information obtained from independent industry sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

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

the initiation, timing, progress and results of our preclinical studies, clinical trials, and other therapeutic candidate development efforts;
our ability to advance our therapeutic candidates into clinical trials or to successfully complete our preclinical studies or clinical trials;
our receipt of regulatory approvals for our therapeutic candidates, and the timing of other regulatory filings and approvals;
the clinical development, commercialization, and market acceptance of our therapeutic candidates;
our ability to establish and maintain corporate collaborations;
the interpretation of the properties and characteristics of our therapeutic candidates and of the results obtained with our therapeutic candidates in preclinical studies or clinical trials;
the implementation of our business model, strategic plans for our business and therapeutic candidates;
the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others;
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
competitive companies, technologies and our industry;
statements as to the impact of the political and security situation in Israel on our business; and
our use of the net proceeds from this offering.

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EXCHANGE RATE INFORMATION

We prepare our financial statements in NIS. No representation is made that the NIS amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all.

Fluctuations in the exchange rates between the NIS and the U.S. dollar will affect the dollar amounts received by owners of our ordinary shares on payment of dividends, if any, paid in NIS.

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

       
  NIS per U.S.$
Year Ended December 31,   High   Low   Average   Period End
2009     4.256       3.690       3.923       3.775  
2008     4.022       3.230       3.586       3.802  
2007     4.342       3.830       4.110       3.846  
2006     4.725       4.176       4.453       4.225  
2005     4.741       4.299       4.486       4.603  

The following table sets forth the high and low daily representative rates for the NIS as reported by the Bank of Israel for each of the prior six months.

       
  NIS per U.S.$
Month   High   Low   Average   Period End
September 2010 (up to September 14)     3.798       3.770       3.780       3.772  
August 2010     3.829       3.753       3.791       3.817  
July 2010     3.894       3.779       3.854       3.779  
June 2010     3.888       3.814       3.852       3.875  
May 2010     3.870       3.730       3.785       3.829  
April 2010     3.749       3.682       3.713       3.716  
March 2010     3.787       3.714       3.744       3.750  

On June 30, 2010, the closing representative rate was $1.00 to NIS 3.875, as reported by the Bank of Israel.

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PRICE RANGE OF OUR ORDINARY SHARES

Our ordinary shares have been trading on the TASE under the symbol “BLRX” since February 2007. No trading market currently exists for our ordinary shares in the United States. We have applied to have our ordinary shares listed on The NASDAQ Global Market under the symbol “BLRX.”

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE in NIS and U.S. dollars. U.S. dollar per ordinary share amounts are calculated using the U.S. dollar representative rate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of Israel. The prices set forth in this section do not give effect to the reverse stock split which we expect to complete immediately prior to the date of this prospectus.

       
  NIS   U.S.$
     Price Per
Ordinary Share
  Price Per
Ordinary Share
     High   Low   High   Low
Annual:
                                   
2009     5.68       0.86       1.53       0.23  
2008     4.25       0.69       1.10       0.17  
2007 (from February 8, 2007)     6.65       3.80       1.57       0.89  
Quarterly:
                                   
Second Quarter 2010     4.69       3.00       1.27       0.78  
First Quarter 2010     4.75       3.80       1.26       1.03  
Fourth Quarter 2009     5.68       3.50       1.53       0.93  
Third Quarter 2009     4.60       1.74       1.22       0.44  
Second Quarter 2009     2.79       1.33       0.72       0.32  
First Quarter 2009     1.86       0.86       0.47       0.23  
Fourth Quarter 2008     1.81       0.69       0.52       0.17  
Third Quarter 2008     3.00       1.79       0.86       0.52  
Second Quarter 2008     3.50       2.37       1.02       0.71  
First Quarter 2008     4.25       2.38       1.10       0.70  
Most Recent Six Months:
                                   
September 2010 (up to September 14)     3.51       3.26       0.93       0.86  
August 2010     3.82       3.26       1.01       0.85  
July 2010     3.63       3.22       0.44       0.83  
June 2010     4.45       3.15       1.17       0.81  
May 2010     4.23       3.00       1.13       0.78  
April 2010     4.69       4.30       1.27       1.15  
March 2010     4.75       4.18       1.26       1.10  

On June 30, 2010, the last reported sales price of our ordinary shares on the TASE was NIS 3.34 per share, or $0.86 per share (based on the exchange rate reported by the Bank of Israel for such date). On June 30, 2010, the exchange rate of the NIS to the dollar was $1.00 = NIS 3.875, as reported by the Bank of Israel. As of June 30, 2010 there were three shareholders of record of our ordinary shares. The number of record holders is not representative of the number of beneficial holders of our ordinary shares.

Our Series 2 Warrants are also traded on the TASE. Currently there are 7,528,946 Series 2 Warrants outstanding, all of which are exercisable for one ordinary share at a per share exercise price of NIS 6.08, or $1.57 (based on the exchange rate on June 30, 2010). The Series 2 Warrants expire on December 29, 2011. As of June 30, 2010, there was one shareholder of record of our Series 2 Warrants. The number of record holders of our Series 2 Warrants is not representative of the number of beneficial holders of our Series 2 Warrants. On June 30, 2010, the last reported sales price of our Series 2 Warrants on the TASE was NIS 0.74, or $0.19 per share (based on the exchange rate reported by the Bank of Israel for such date).

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $31.0 million, based on an assumed initial public offering price per ordinary share of $        , the midpoint of the estimated initial public offering price range, after deducting the underwriting discounts and the estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we will receive additional proceeds of approximately $4.5 million, after deducting underwriting discounts and commissions and the estimated expenses payable by us.

We expect to use the net proceeds of this offering as follows:

approximately $21.0 million of the net proceeds to fund the phase 1 and phase 2 clinical trials of, and commence commercialization efforts for our next two therapeutic candidates and to fund pre-clinical studies of the next two therapeutic candidates to advance from the feasibility stage to the pre-clinical and initial phase 1 clinical stages;
approximately $5.0 million of the net proceeds to fund feasibility studies for up to 12 molecules as they are introduced to our pipeline, if any; and
approximately $5.0 million of the net proceeds to fund our operations and for general corporate purposes and business development and marketing efforts.

We do not expect to use any of the proceeds of this offering to develop BL-1020 and BL-1040 further, in light of the fact that they have been out-licensed to Cypress Bioscience and Ikaria, respectively, and we are not responsible for further development costs under the out-licensing agreements. We do not expect to perform further studies on BL-5010, other than the study currently in progress; however, we may elect to do so if we believe there will be a significant advantage in our commercialization efforts in respect of the compound. Any additional study, the cost of which is not expected to exceed $5.0 million, would be funded from our current cash resources.

If we elect to commercialize any of our therapeutic candidates internally, we may use a portion of the net proceeds to fund the commercialization. We may also use a portion of the net proceeds for the potential acquisition of, or investment in, technologies, products or companies that complement our business, although we have no current understandings, commitments or agreements to do so.

The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our research, development and commercialization efforts, the progress of our preclinical and clinical trials, our ability to enter into our licensing arrangements and strategic collaborations and our operating costs and expenditures. We may find it necessary or advisable to use the net proceeds for other purposes. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds in short term, interest-bearing investment-grade securities.

We will require substantial additional funds to complete the research and development and clinical and regulatory activities necessary to bring our therapeutic candidates to market. We believe that the net proceeds from this offering, our existing cash and cash equivalents, and funding we expect to receive under our current license agreements will be sufficient to fund our operations for at least the next 24 months. However, our funding requirements may change and will depend upon numerous factors, many of which are currently unknown to us, and we may need additional funds sooner than planned. Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through payments received under our collaborations, debt or equity financings, or by out-licensing other product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts. We cannot assure you that additional funds will be available when we need them on terms that are acceptable to us, or at all.

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DIVIDEND POLICY

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

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CAPITALIZATION

The following table sets forth our consolidated capitalization as determined in accordance with IFRS as of June 30, 2010:

on an actual basis;
as adjusted to reflect the sale of     ordinary shares at an assumed initial public offering price of $     , the midpoint of the estimated initial public offering price range and the receipt by us of net proceeds equal to $     million, after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us.

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

   
  As of June 30, 2010
     Actual   Pro forma
as adjusted
     (unaudited)
(NIS in thousands)
Liabilities and shareholders’ equity
                         
Current Liabilities:
                         
Accounts payable and accruals:
                         
Trade                          
Other                          
Total current liabilities                          
Long-Term Liabilities:
                         
Long-term loan, less current maturities                  
Total liabilities                          
Shareholders’ equity:
                         
Ordinary shares                          
Warrants  
Share premium                          
Capital reserve                          
Accumulated loss                          
Total stockholder’s equity                          

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DILUTION

Our net tangible book value on June 30, 2010 was approximately $19.4 million, equivalent to $0.16 per ordinary share. We have calculated our net tangible book value per share by:

subtracting our liabilities from our total assets and deducting goodwill, intangible assets and debt issuance costs; and
dividing the difference by the number of ordinary shares outstanding.

After giving effect to adjustments relating to the offering, our pro forma net tangible book value on June 30, 2010 would have been approximately $     million, equivalent to $     per ordinary share. The adjustments made to determine our pro forma book value are as follows:

an increase in total assets to reflect the net proceeds of the offering received by us as described under “Use of Proceeds;” and
the addition of the         ordinary shares offered in this prospectus to the number of ordinary shares outstanding.

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

   
Assumed public offering price per ordinary share              $       
Net tangible book value per share as of June 30, 2010   $ 0.16             
Increase in net tangible book value per share attributable to the offering                      
Pro forma net tangible book value per share as of June 30, 2010 after giving effect to the offering                      
Dilution per ordinary share to new investors              $       

A $1.00 increase (decrease) in the assumed initial public offering price of $   per share (the midpoint of the range on the cover of this prospectus) would increase (decrease) the net tangible book value by $  , the net tangible book value per ordinary share after this offering by $   per ordinary share and the dilution in net tangible book value per ordinary share to investors in this offering by $   per ordinary share, assuming that the number of ordinary shares offered by us remains the same and after deducting the estimated underwriting discount and offering expenses payable by us.

The table below summarizes, as of June 30, 2010, the differences for our existing shareholders and new shareholders in this offering, with respect to the number of ordinary shares purchased from us, the total consideration paid and the average per ordinary share price paid before deducting fees and offering expenses.

         
  Shares issued   Total consideration   Average price
per share
     Number   %   Amount   %
     (in thousands of U.S. dollars, except per share data)
Our existing shareholders                     %    $                 %    $       
New shareholders in this offering                                                       
Total                     %    $               %            

The discussion and table above assume no exercise of the underwriters’ over-allotment option. If the underwriters exercise their over-allotment option, the pro forma number of our ordinary shares held by new shareholders will increase to   , or approximately   %, of the total pro forma number of our ordinary shares outstanding after this offering. The discussion and table above also do not include (i) an aggregate of 7,084,166 ordinary shares we have reserved for issuance upon the exercise of outstanding options as of June 30, 2010 or (ii) an aggregate of 7,528,946 ordinary shares issuable upon exercise of our outstanding Series 2 Warrants, which amounts do not give effect to the proposed reverse stock split. If all of the outstanding options and warrants were exercised, pro forma net tangible book value per ordinary share would be $   and dilution to new investors would be $  .

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data for the periods ended and as of the dates indicated. The following selected historical consolidated financial data for our company should be read in conjunction with the historical financial information, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information provided elsewhere in this prospectus and our consolidated financial statements and related notes. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements and is qualified in its entirety thereby. We derived the selected consolidated financial data as of and for the six months ended June 30, 2010 and June 30, 2009 from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, our unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows as of and for the periods indicated therein. The results of operations for the six months ended June 30, 2010 and June 30, 2009 are not necessarily indicative of the operating results to be expected for the full fiscal years encompassing those periods.

We have derived the selected consolidated financial statements as of and for the periods ended December 31, 2007, 2008, and 2009 from our audited consolidated financial statements included elsewhere in this prospectus.

Our consolidated financial statements included in this prospectus were prepared in NIS in accordance with IFRS.

             
  Year Ended December 31,   Six Months Ended June 30,
Consolidated Statements Of Operations Data:(1)
  2006   2007   2008   2009   2009   2010   2010(2)
     (in thousands, except share and per share data)
     NIS   U.S.$
Revenues                       63,909                    
Cost of revenues                       (22,622 )                   
Operating expenses:
                                                              
Sales and marketing expenses                       (3,085 )      (1,477 )      (2,184 )      (564 ) 
Research and development expenses, net     (42,193 )      (75,863 )      (106,156 )      (90,302 )      (49,850 )      (37,032 )      (9,557 ) 
General and administrative expenses     (6,357 )      (13,611 )      (13,083 )      (11,182 )      (4,307 )      (6,224 )      (1,606 ) 
Gain on adjusting warrants to fair value           27,557       3,658                          
Capital loss, net     (121 )                                     
Operating loss     (48,671 )      (61,917 )      (115,581 )      (63,282 )      (55,634 )      (45,440 )      (11,727 ) 
Financial income     584       7,875       13,001       3,928       3,799       2,878       743  
Financial expenses     (834 )      (5,377 )      (12,269 )      (2,164 )      (1,739 )      (1,062 )      (274 ) 
Net loss     (48,921 )      (59,419 )      (114,849 )      (61,158 )      (53,574 )      (43,624 )      (11,258 ) 
Net loss per ordinary share(3)     (1,772.6 )      (0.88 )      (1.44 )      (0.63 )      (0.68 )      (0.35 )      (0.09 ) 
Number of ordinary shares used in computing loss per ordinary share     38,521       69,302,075       78,131,103       123,497,029       78,131,578       123,512,879       123,512,879  

   
  As of June 30,
Consolidated Balance Sheet Data:
  2010   2010(2)
     (in thousands
NIS)
  (in thousands
U.S.$)
Cash and cash equivalents     88,489       22,836  
Accounts receivable            
Property, plant and equipment, net     4,696       1,212  
Total assets     110,311       28,467  
Total liabilities     32,815       8,468  
Total shareholders’ equity     77,496       19,999  

(1) Data on diluted loss per share was not presented in the financial statements because the effect of the exercise of the options and warrants is anti-dilutive.
(2) Calculated using the exchange rate reported by the Bank of Israel for June 30, 2010 at the rate of one U.S. dollar per NIS 3,875.
(3) The net loss per share has been adjusted to reflect the benefit component related to the issuance of rights to investors.

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

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

We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or address unmet medical needs. Our current development pipeline consists of three clinical therapeutic candidates, BL-1020, BL-1040 and BL-5010. In addition, we have seven therapeutic candidates in the advanced preclinical, early preclinical and discovery stages, including a compound for the treatment of neuropathic pain that we expect will enter clinical trials in 2010. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. We also operate, with the financial participation of the OCS, a biotechnology incubator to evaluate therapeutic candidates. As of June 30, 2010, we have received approximately $11.4 million in grants in the form of loans from the OCS to operate the incubator, which does not include $5.0 million we have received from the OCS outside of the incubator agreement, as of that date. Such amounts include loans equal to approximately $5.0 million for terminated programs. We do not expect to be required to repay loans for terminated programs. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case by case basis, the commercialization of our therapeutic candidates independently.

The following is a description of our three clinical therapeutic candidates:

BL-1020 is a new chemical entity in development for the treatment of schizophrenia. In September 2009, we announced positive topline results from a phase 2b clinical trial of BL-1020. We have entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience with respect to the development of, obtaining regulatory approval for, and the commercialization of BL-1020 in the United States, Canada and Mexico.
BL-1040 is a novel resorbable polymer solution for use in the prevention of cardiac remodeling that may occur in patients who have suffered an AMI. BL-1040, which is being developed as a medical device. In March 2010, we announced positive results from a phase 1/2 clinical trial. We have entered into an exclusive, worldwide, royalty-bearing out-licensing arrangement with Ikaria with respect to the development, manufacture and commercialization of BL-1040.
BL-5010 is a novel therapeutic candidate for the non-surgical removal of skin lesions. BL-5010 is currently the subject of a phase 1/2 clinical trial. We anticipate that the phase 1/2 clinical trial will be completed in the fourth quarter of 2010.

In July 2009, we entered into an exclusive, worldwide, royalty-bearing licensing arrangement with Ikaria which was amended and restated in August 2009. Under the agreement, we granted Ikaria an exclusive, worldwide license to develop, manufacture and commercialize BL-1040 for use in the prevention, mitigation and treatment of injuries to the myocardial tissue of the heart. Under the arrangement, Ikaria is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or products related thereto. We received an upfront payment equal to $7.0 million upon the execution of the license agreement. Upon successful completion of the phase 1/2 clinical trial, Ikaria paid us a milestone payment equal to $10.0 million and we are entitled to receive additional milestone and royalty payments upon the occurrence of certain events.

In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience with regard to BL-1020, covering the United States, Canada and Mexico, which became effective in August 2010. Under the arrangement, Cypress Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, BL-1020 for the prevention, diagnosis

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and treatment of all human diseases in the United States, Canada and Mexico. We have retained the rights to BL-1020 for the rest of the world. In addition, under the agreement Cypress Bioscience has licensed to us the right to use any and all regulatory data generated by Cypress Bioscience in connection with its pursuit of regulatory approval for BL-1020 in Cypress Bioscience’s territory for use by us outside of Cypress Bioscience’s territory, subject to our future reimbursement of certain pre-commercialization expenses incurred by Cypress Bioscience in generating such data. We received an upfront fee of $30.0 million from Cypress Bioscience upon the consent of the OCS to the agreement, and we are entitled to receive up to an additional $250.0 million in connection with the achievement of certain performance-based milestones and up to an additional $85.0 million upon the achievement of certain sales-based milestones. Cypress Bioscience may pay a portion of the first performance-based milestone payment by purchasing our ordinary shares, in its sole discretion.

Since inception in 2003, we have generated significant losses in connection with our research and development, including the clinical development and phase 2b clinical trial of BL-1020. At June 30, 2010, we had an accumulated deficit of NIS 368.9 million. Although we have begun to recognize revenues in connection with our licensing arrangement with Ikaria for BL-1040, and will recognize revenues in the third quarter of 2010 in connection with our licensing arrangement with Cypress Bioscience for BL-1020, we may continue to generate losses in connection with the research and development activities relating to our pipeline of therapeutic candidates. Such research and development activities are budgeted to expand over time and will require further resources if we are to be successful. As a result, we may continue to incur operating losses, which may be substantial over the next several years, and we may need to obtain additional funds to further develop our research and development programs.

We have funded our operations primarily through the sale of equity securities (both in private placements and in three public offerings on the TASE), funding received from the OCS, payments received under the licensing arrangements with Ikaria and Cypress Bioscience, and interest earned on investments. We expect to continue to fund our operations over the next several years through our existing cash resources, the net proceeds of this offering, potential future milestone payments that we expect to receive from Ikaria and Cypress Bioscience, interest earned on our investments and additional capital to be raised through public or private equity offerings or debt financings. As of June 30, 2010, we had approximately $22.8 million of cash and cash equivalents based on the exchange rate reported by the Bank of Israel as of that date. In addition, as of August 31, 2010, we had approximately $41.6 million of cash and cash equivalents, which reflects our receipt of the $30.0 million upfront payment from Cypress Bioscience less payments of $9.75 million, in the aggregate, that we made to the OCS, Bar Ilan Research and Development and Ramot.

Revenues

Our revenues to date have been generated primarily from milestone payments under our licensing arrangement with Ikaria. We entered into a license and collaboration agreement with Ikaria in July 2009, which was amended and restated in August 2009. Ikaria subsequently paid us an up-front payment of $7.0 million. In addition, upon successful completion of the phase 1/2 clinical trial, Ikaria paid us a milestone payment of $10.0 million. In June 2010, we entered into a license agreement with Cypress Bioscience, which closed upon receipt of consent by the OCS in August 2010.

Under the terms of our agreement with Ikaria, in addition to the payments mentioned above, the maximum future development-related payments to which we are entitled is $115.5 million. We are also entitled to maximum commercialization milestone payments of $150.0 million, subject to the terms and conditions of the license agreement. Certain payments we have received from Ikaria have been subject to a 15% withholding tax in the United States, and certain payments we may receive in the future, if at all, may also be subject to a 15% withholding tax in the United States. We received an upfront fee of $30.0 million from Cypress Bioscience upon the consent of the OCS to the agreement in August 2010. In addition, we are entitled to up to an additional $250.0 million in connection with the achievement of certain performance-based milestones and an additional up to $85.0 million upon the achievement of certain sales-based milestones. We believe that the sales-based milestone and royalty payments will be subject to a 15% withholding tax. Receipt of any milestone payment under either of the agreements depends on many factors, some of which are beyond our control. We cannot assure you that we will receive any of these future payments. We may be able to use U.S. taxes withheld from payments to us as credits against Israeli corporate income tax when we have

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income, if at all, but there can be no assurance that we will be able to realize the credits. In addition, we believe that we may be able to get a refund of such withholding taxes from the U.S. government but there can be no assurance that we will be able to get such a refund. Our payments to our in-licensors are to be made from the net consideration received from our out-licensees.

We expect our revenues for the next several years to be derived primarily from payments under our current agreements with Ikaria and Cypress Bioscience, as well as additional collaborations that we may enter into in the future, including with regard to BL-5010 or other therapeutic candidates. Furthermore, we may receive future royalties on product sales, if any, under our agreements with Ikaria and Cypress Bioscience, as well as under any future agreement on BL-5010 or other compounds.

Our remaining therapeutic candidates are currently in development and, therefore, we do not expect to generate any revenues from these products for at least the next several years, if at all.

Research and Development

Our research and development expenses consist primarily of salaries and related personnel expenses, fees paid to external service providers, up-front and milestone payments under our license agreements, patent-related legal fees, costs of preclinical studies and clinical trials, drug and laboratory supplies and costs for facilities and equipment. We primarily use external service providers to manufacture our product candidates for clinical trials and for the majority of our preclinical and clinical development work. We charge all research and development expenses to operations as they are incurred. We expect our research and development expense to remain our primary expense in the near future as we continue to develop our therapeutic candidates.

The following table identifies our current major research and development projects:

   
Project   Status   Expected Near Term Milestone
BL-1020   Completed phase 2b   A clinical trial assessing BL-1020’s effect on cognition and psychosis is expected to commence in 2011
BL-1040   Completed phase 1/2   Ikaria reports that a phase 2 and a pivotal phase 3 are expected to commence in 2011
BL-5010   Phase 1/2   Completion of phase 1/2 study in the fourth quarter of 2010
BL-1021   Preclinical   Phase 1 trial by the end of the fourth quarter of 2010

In addition to the projects set forth above, we have a number of projects that are in the research and discovery phase with relatively immaterial costs.

We record costs for each development project on a “direct cost” basis only. Direct costs, which include contract research organization expenses, consulting expenses, patent expenses, materials, and other, similar expenses, are recorded to the project for which such expenses are incurred. However, salary and overhead costs, including, but not limited to salary expenses (including salaries for research and development personnel), facilities, depreciation, and stock-based compensation, are considered overhead, and are shared among all of our projects and are not recorded on a project-by-project basis. We do not allocate direct salaries to projects due to the fact that our project managers are generally involved in several projects at different stages of development, and the related salary expense is not significant to the overall cost of the applicable projects. In addition, indirect labor costs relating to our departments that support the research and development process, such as chemistry, manufacturing and controls (CMC), pre-clinical analysis, laboratory testing and initial drug sample production, as well as rent and other administrative overhead costs, are shared by many different projects and have never been considered by management to be of significance in its decision-making process with respect to any specific project. Accordingly, such costs have not been specifically allocated to individual projects. Certain of such costs are covered by OCS funding.

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Set forth below is a summary of the gross direct costs allocated to our main projects on an individual basis, as well as the gross direct costs allocated to our less significant projects on an aggregate basis, for the six months ended June 30, 2010 and the years ended December 31, 2007, 2008 and 2009, and on an aggregate basis since project inception:

         
  Year Ended December 31,   Six Months
Ended
June 30,
  Total Costs
Since Project
Inception
     2007   2008   2009   2010
     (U.S. $ in thousands)
BL-1020     8,410       14,090       11,820       285       41,175  
BL-1040     2,940       3,340       2,050       114       10,185  
BL-5010           670       860       208       1,738  
BL-1021     830       3,580       1,010       404       6,064  
Other projects     2,960       7,220       1,240       1,244       18,004  
Total gross direct project costs     15,140       28,900       16,980       2,255       77,166  

A significant portion of our research and development costs have been incurred in connection with our phase 2b clinical trial of BL-1020.

The costs and expenses of our projects are partially funded by grants we have received from the OCS. Each grant is deducted from the related research and development expenses as the costs are incurred. For additional information regarding the grant process, see “Government Regulation and Funding — Israeli Government Programs.” There can be no assurance that we will continue to receive grants from the OCS in amounts sufficient to fund our operations, if at all. In addition, under our licensing agreement with Ikaria, Ikaria is responsible for the costs associated with conducting all development activities for BL-1040, other than the costs associated with the phase 1/2 studies, and under our out-licensing agreement with Cypress Bioscience, Cypress Bioscience is responsible for substantially all of the costs associated with development activities for BL-1020 in the United States, Canada and Mexico. See “Business — Out-Licensing Agreement with Ikaria Holdings” and “Business — Out-Licensing Agreement with Cypress Bioscience.”

From our inception through June 30, 2010, we have incurred research and development expense of $100.4 million. We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development projects. Due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our preclinical product development projects, we are unable to estimate with any certainty the costs we will incur in the continued development of the therapeutic candidates in our pipeline for potential commercialization. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to enter into an out-licensing arrangement with respect to any therapeutic candidate prior to the commencement of later stage clinical trials, we may fund the trials for the therapeutic candidate ourselves.

While we are currently focused on advancing each of our product development projects, our future research and development expenses will depend on the clinical success of each therapeutic candidate, as well as ongoing assessments of each therapeutic candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which therapeutic candidates may be subject to future out-licensing arrangements, when such out-licensing arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. See “Risk Factors — If we or our licensees are unable to obtain U.S. and/or foreign regulatory approval for our therapeutic candidates, we will be unable to commercialize our therapeutic candidates.”

As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain therapeutic candidates or projects in order to focus our resources on more promising therapeutic candidates or projects. Completion of clinical trials by us or our licensees may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a therapeutic candidate.

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The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

the number of sites included in the clinical trials;
the length of time required to enroll suitable patients;
the number of patients that participate in the clinical trials;
the duration of patient follow-up;
the development stage of the therapeutic candidate; and
the efficacy and safety profile of the therapeutic candidate.

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

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and operational functions, including accounting, finance, legal, business development, investor relations, information technology and human resources. Other significant general and administration costs include facilities costs, professional fees for outside accounting and legal services, travel costs, insurance premiums and depreciation.

Financial Expense and Income

Financial expense and income consists of interest earned on our cash and cash equivalents; bank fees and other transactional costs; and expense or income resulting from fluctuations of the dollar and other currencies, in which a portion of our assets and liabilities are denominated, against the NIS (our functional currency).

Critical Accounting Policies and Estimates

We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2009. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepare in accordance with IFRS. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Functional Currency

The currency of the primary economic environment in which our operations are conducted is the NIS. As we have not recorded significant recurring revenues since our inception, we consider the currency of the primary economic environment to be the currency in which we expend cash. A significant portion of our expenses and capital expenditures are incurred in NIS, and almost all of our financing has been provided in NIS.

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Revenue recognition

We recognize revenues in accordance with International Accounting Standard No. 18, or IAS 18. Under IAS 18, revenues incurred in connection with the out-licensing of our patents and other intellectual property are recognized when all of the following criteria have been met as of the applicable balance sheet date:

we have transferred to the licensee the significant risks and rewards of the rights to the patents and intellectual property;
we do not retain either the continuing managerial involvement to the degree usually associated with ownership or the effective control over the patents and intellectual property;
we can reliably measure the amount of revenue to be recognized;
it is probable that the economic benefits associated with the transaction will flow to us; and
we can reliably measure the costs incurred or to be incurred in respect of the out-licensing.

We recognize revenues incurred in connection with the rendering of services by reference to the stage of completion of the transaction at the balance sheet date, if and when the outcome of the transaction can be estimated reliably.

We recognize revenues from royalties on an accrual basis when they become probable in accordance with the substance of the relevant agreement.

Accrued Expenses

We are required to estimate accrued expenses as part of our process of preparing financial statements. This process involves estimating the level of service performed on our behalf and the associated cost incurred in instances where we have not been invoiced or otherwise notified of actual costs. Examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for preclinical development, clinical trials and manufacturing of clinical materials. We account for expenses associated with these external services by determining the total cost of a given study based on the terms of the related contract. We accrue for costs incurred as the services are being provided by monitoring the status of the trials and the invoices received from our external service providers. In the case of clinical trials, the estimated cost normally relates to the projected costs of treating the patients in our trials, which we recognize over the estimated term of the trial according to the number of patients enrolled in the trial on an ongoing basis, beginning with patient enrollment. As actual costs become known to us, we adjust our accruals.

Investments in Financial Assets

The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities of our investments to date, their carrying value has always approximated their fair value.

A financial asset is classified in this category if our management has designated it as a financial asset upon initial recognition, because it is managed and its performance is evaluated on a fair-value basis in accordance with a documented risk management or investment strategy. Our investment policy with regard to excess cash, as adopted by our Board of Directors, is composed of the following objectives: (i) preserving investment principal; (ii) providing liquidity; and (iii) providing optimum yields pursuant to the policy guidelines and market conditions. The policy provides detailed guidelines as to the securities and other financial instruments in which we are allowed to invest. In addition, in order to maintain liquidity, investments are structured to provide flexibility to liquidate at least 50% of all investments within 15 business days. Information about these assets, including details of the portfolio and income earned, is provided internally on a quarterly basis to our key management personnel. Any divergence from this investment policy requires approval from our Board of Directors.

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Government participation in research and development expenses

We receive research and development funding from the State of Israel through the OCS, both in the form of loans extended to our biotechnology incubator, as well as in the form of grants. In accordance with the OCS programs, we are entitled to a specific grant or loan with respect to a development project only after we incur development costs related to the project. Such loans and grants qualify as “forgivable loans” in accordance with IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance,” since they are repayable only if we generate revenues related to the underlying project.

In accordance with IAS 20, we account for each forgivable loan as a liability unless it is more likely than not that we will meet the terms of forgiveness of the loan, in which case the forgivable loan is accounted for as a government grant and carried to income as a reduction of the research and development expenses. Upon the initiation of any project for which we have received a loan, we consider it more likely than not that the project will not reach the revenue-generating stage during the entire development phase of the project when determining the accounting treatment of the related loan. Our determination is based on the high risk nature of pharmaceutical development generally and specifically on our strategy of initializing projects in the earliest stages of development. Therefore, we record a liability in respect of forgivable loans on a project only when it becomes probable that we will repay the loan.

Liabilities to the OCS in respect of out-licensing transactions are generally discussed and negotiated with the OCS, due to the fact that such licensing transactions do not fit into the standard development funding model contemplated by the Israeli Research and Development Law. In June 2010, we received a notification regarding the payment due in connection with the BL-1040 project, which we have paid in full. Accordingly, we have no further liabilities to the OCS with respect to BL-1040. We have accrued a liability of $4.5 million to the OCS in connection with the BL-1020 out-licensing transaction (of which $3.0 million was paid in August 2010), representing the full amount of the grants received from the OCS in respect of the BL-1020 project. This represents our best estimate of the liability to the OCS related to BL-1020. We may incur additional liabilities to the OCS, depending on the portion of total manufacturing that is performed outside of Israel in respect of BL-1020. Such liabilities will only accrue, if at all, with respect to any payment received in connection with BL-1020, when we determine that it is more likely than not that the payment will become payable.

Stock-based Compensation

We account for stock-based compensation arrangements in accordance with the provisions of IFRS 2. IFRS 2 requires companies to recognize stock compensation expense for awards of equity instruments based on grant-date fair value of those awards (with limited exceptions). The cost is recognized as compensation expense over the life of the instruments, based upon the grant-date fair value of the equity or liability instruments issued. The fair value of our option grants is computed as of the grant date based on the Black-Scholes model, using the standard parameters established in that model including estimates relating to volatility of our stock, risk-free interest rates, estimated life of the equity instruments issued and the market price of our stock. As our stock is publicly traded on the TASE, we do not need to estimate the fair market value of our shares. Rather, we use the actual closing market price of our shares on the date of grant, as reported by the TASE.

Warrants

We issued Series 1 Warrants in connection with our Israeli initial public offering in February 2007. In accordance with IFRS, we allocated a portion of the consideration received to the warrants based on their fair value at the time. The consideration allocated to warrants is generally reflected in shareholders’ equity, except in cases in which the exercise price of the warrants is not fixed. Due to the fact that the exercise price of the warrants we issued was linked to the Israeli consumer price index, the warrants were reflected as a financial liability and changes in the market value of the warrants were recorded in our statement of operations. Effective July 2008, the linkage to the Israeli consumer price index was no longer applicable, and such warrants were reclassified to shareholders’ equity at their then current fair value. Subsequent changes in the market value of those warrants have no longer been reflected in our financial statements effective as of such date. In December 2009, we issued Series 2 Warrants exercisable for 7,528,946 ordinary shares. The Series 2 Warrants have a fixed exercise price and are classified as shareholders’ equity.

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Recent Accounting Pronouncements

The recent accounting pronouncements set forth below became effective in 2009. None of the accounting pronouncements had a material adverse effect on our financial statements.

IFRS 7 “Financial instruments — Disclosures” (amendment) (effective January 1, 2009) requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements in accordance with a fair value measurement hierarchy.

IAS 1 (revised) “Presentation of financial statements” (effective January 1, 2009) is a revised standard that establishes overall requirements for presentation of the financial statements, as well as guidelines for their structure and minimal requirements for their content. Among other things, the revised standard prohibits the presentation of items of income and expense (i.e., “non-owner changes in equity”) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity in a statement of comprehensive income. As a result of the revised standard, we present all owner changes in equity in our consolidated statement of changes in equity, and we present all non-owner changes in equity in the consolidated statement of comprehensive loss. We have re-presented comparative information to conform with the revised standard.

IFRS 2 (amendment), “Share-based payment” (effective January 1, 2009) covers vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. Such features would need to be included in the grant date fair value for transactions with employees and others providing similar services; they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment in the financial statements. We adopted IFRS 2 (amendment) effective January 1, 2009. The amendment did not have a material impact on our financial statements for the periods reported herein.

IAS 38 (amendment), “Intangible Assets” (effective January 1, 2009) is part of the IASB’s annual improvements project published in May 2008. The amendment stipulates that a prepayment may only be recognized if that payment has been made in advance of obtaining the right of access to goods or receipt of services.

IAS 20 (amendment), “Accounting for Government Grants and Disclosure of Government Assistance” (effective January 1, 2009) requires that the benefit of a below-market-rate government loan be measured as the difference between the carrying amount of the loan upon initial recognition in accordance with IAS 39, “Financial Instruments: Recognition and Measurement,” and the proceeds received with the benefit accounted for in accordance with IAS 20.

The standards and amendments to existing standards set forth below have been published and are mandatory for accounting periods beginning on or after January 1, 2010 or later periods, and may be adopted early. We have not elected to adopt the standards and amendments to existing standards early.

IFRS 3 (revised), “Business combinations” (effective July 1, 2009) is a revised standard that continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently remeasured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are to be expensed. We intend to apply IFRS 3 (revised) prospectively to all business combinations commencing on January 1, 2010, and we are currently assessing the possible effects of applying the revised standard on our financial statements in future periods.

IAS 27 (revised), “Consolidated and separate financial statements” (effective July 1, 2009) is a revised standard that requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting treatment when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognized in profit or loss. We intend to apply IAS 27 (revised) prospectively to transactions with non-controlling interests commencing on January 1, 2010.

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IAS 32 (amendment), “Classification of rights issues” (effective October 2009) modifies the accounting treatment of rights issues. The current practice with respect to rights issues offered for a fixed amount of foreign currency requires that the issues be accounted for as derivative liabilities. IAS 32 (amendment) provides that if such rights are issued pro rata to all existing shareholders of an entity in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment is effective for annual periods beginning on or after February 1, 2010, with early application permissible. We intend to apply this amendment in our financial statements commencing on January 1, 2011.

International Financial Reporting Interpretations Committee interpretation (IFRIC) 17 (amendment), “Distribution of non-cash assets to owners,” effective July 1, 2009 provides guidance on accounting for arrangements in which an entity distributes non-cash assets to its shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. We intend to apply IFRIC 17 commencing on January 1, 2010.

IFRS 5 (amendment), “Disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations” (effective January 1, 2010) clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty). We intend to apply IFRS 5 (amendment) commencing on January 1, 2010.

Results of Operations

Revenues

In accordance with the out-licensing arrangement we entered into with Ikaria in July 2009, we were entitled to an upfront payment of NIS 26.1 million ($7.0 million based on the exchange rate reported by the Bank of Israel for the date of payment), which we received in October 2009. In addition, upon notification in February 2010 of the successful completion of our phase 1/2 clinical trial (which was substantially complete as of July 2009), we were entitled to a milestone payment of NIS 37.8 million ($10.0 million). This payment was received in April 2010. See “Business — Out-Licensing Agreement with Ikaria Holdings.” These payments were recognized as revenue for the year ended December 31, 2009. We did not record any revenue during the year ended December 31, 2008.

In August 2010, we received a payment of $30.0 million in connection with our out-licensing arrangement with Cypress Bioscience. See “Business — Out-Licensing Agreement with Cypress Bioscience.”

Cost of revenues

Cost of revenues for the year ended December 31, 2009 consists primarily of royalty payments due to the licensor under the in-licensing agreement related to BL-1040 as well as NIS 4.4 million paid to the OCS, which represents a portion of the payments we made to the OCS in connection with the payments we received from Ikaria under our out-licensing agreement covering BL-1040. We did not record any cost of revenues during the year ended December 31, 2008.

Research and development expenses

At December 31, 2009, our drug development pipeline consisted of 12 therapeutic candidates. We discontinued the development of three compounds during the year ended December 31, 2009. Subsequently, we discontinued the development of one compound during the quarter ended March 31, 2010 and one compound in April 2010. We did not add any new compounds to our pipeline during such periods and our pipeline now consists of 10 therapeutic compounds. Our research and development expenses for the year ended December 31, 2009 were NIS 90.3 million, a decrease of NIS 15.9 million, or 15.0%, compared to NIS 106.2 million for the year ended December 31, 2008. Research and development expenses for the year ended December 31, 2009 included payments to the OCS of NIS 8.7 million, relating to funds previously received from the OCS in respect of BL-1040, which had been previously reflected in prior periods as a reduction in research and development expenses.

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Comparison of the Six Months Ended June 30, 2010 to the Six Months Ended June 30, 2009

Sales and marketing expenses

Sales and marketing expenses for the six months ended June 30, 2010 were NIS 2.2 million, an increase of NIS 0.7 million, or 47%, compared to NIS 1.5 million for the six months ended June 30, 2009. The increase resulted primarily from the strategic partnering efforts in connection with BL-1020 that commenced during the fourth quarter of 2009.

Research and development expenses

Research and development expenses for the six months ended June 30, 2010 were NIS 37.0 million, a decrease of NIS 12.9 million, or 26%, compared to NIS 49.9 million for the six months ended June 30, 2009. The decrease resulted primarily from significantly decreased costs relating to the BL-1020 and BL-1040 clinical trials, reduced spending on other projects and the cessation of new project introductions during 2009. The decrease was partly offset by our accrual of a liability to the OCS of NIS 17.0 million during the second quarter of 2010 in connection with our out-licensing of BL-1020.

General and administrative expenses

General and administrative expenses were NIS 6.2 million for the six months ended June 30, 2010, an increase of NIS 1.9 million, or 44%, compared to NIS 4.3 million for the six months ended June 30, 2009. The increase in general and administrative expenses resulted primarily from options granted at the end of the first quarter of 2010 and from certain legal and other professional fees.

Financial income, net

We recognized net financial income of NIS 1.8 million for the six months ended June 30, 2010, a decrease of NIS 0.3 million, or 14%, compared to net financial income of NIS 2.1 million for the six months ended June 30, 2009. The decrease in net financial income resulted primarily from the decrease in the average exchange rate of foreign currencies in relation to the NIS during 2010, which had a negative effect on our net assets denominated in such foreign currencies during the six months ended June 30, 2010.

Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008

Research and development expenses

Research and development expenses for the year ended December 31, 2009 were NIS 90.3 million, a decrease of NIS 15.9 million, or 15.0%, compared to NIS 106.2 million for the year ended December 31, 2008. The decrease resulted primarily from decreased costs relating to the BL-1020 and BL-1040 clinical trials, reduced spending on other projects and the cessation of new project introductions during 2009 in connection with the spending reduction plan we instituted at the beginning of 2009 to conserve our cash resources and focus on the completion of our BL-1020 and BL-1040 clinical trials. In addition, our research and development costs were reduced in connection with the reduction of research and personnel from 45 employees as of December 31, 2008, to 33 employees as of December 31, 2009.

General and administrative expenses

General and administrative expenses were NIS 11.2 million for the year ended December 31, 2009, a decrease of NIS 1.9 million, or 14.5%, compared to NIS 13.1 million for the year ended December 31, 2008. The decrease in general and administrative expenses resulted primarily from cost reductions instituted at the beginning of 2009, as well as a decrease in share-based compensation expense compared with the year ended December 31, 2008.

Gain on adjusting warrants to fair value

In accordance with IFRS, we recognized a gain of NIS 3.7 million for the year ended December 31, 2008 on the fair value adjustment of outstanding warrants which were reflected as a liability on our balance sheet from the date of their issuance in February 2007 through June 2008. The remaining liability in connection with the warrants was reclassified to shareholders’ equity effective July 1, 2008, and the warrants expired in February 2009. Accordingly, the warrants had no effect on our results of operations for the year ended December 31, 2009.

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Financial income, net

We recognized net financial income of NIS 1.8 million for the year ended December 31, 2009, an increase of NIS 1.1 million, or 157.0%, compared to net financial income of NIS 0.7 million for the year ended December 31, 2008. The increase in net financial income resulted primarily from the increase in the average exchange rate of foreign currencies in relation to the NIS during 2009, which had a positive effect on our net assets denominated in such foreign currencies during the year ended December 31, 2009.

Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007

Research and development expenses

Research and development expenses for the year ended December 31, 2008 were NIS 106.2 million, an increase of NIS 30.3 million, or 39.9%, compared to NIS 75.9 million for the year ended December 31, 2007. The increase resulted primarily from the costs incurred in connection with the progress in our phase 2b clinical trial for BL-1020 and increased spending on certain of our other projects in the preclinical stage. In addition, our research and development costs increased in connection as the number of research and personnel increased to 45 employees as of December 31, 2008, from 32 employees as of December 31, 2007. During the year ended December 31, 2008, we added three compounds to our pipeline, discontinued the development of five compounds and suspended the development of one compound.

General and administrative expenses

General and administrative expenses were NIS 13.1 million for the year ended December 31, 2008, a decrease of NIS 500,000, or 3.7%, compared to NIS 13.6 million for the year ended December 31, 2007. The decrease resulted primarily from a decrease in share-based compensation expense, as well as a reduction in professional fees, compared to the same expenses for the year ended December 31, 2007. The decreases were partially offset by an increase in general and administrative employees and related payroll costs for the year ended December 31, 2008.

Gain on adjusting warrants to fair value

In accordance with IFRS, we recognized a gain of NIS 3.7 million on the fair value adjustment of outstanding stock warrants reflected as a liability on our balance sheet from the date of their issuance in February 2007 through June 2008. We recognized a gain of NIS 27.6 million on the fair value adjustment of outstanding stock warrants reflected as a liability on our balance sheet for the year ended December 31, 2007.

Financial income, net

We recognized net financial income of NIS 732,000 for the year ended December 31, 2008, a decrease of NIS 1.8 million, or 71.0%, compared to net financial income of NIS 2.5 million for the year ended December 31, 2007. The decrease in net financial income resulted primarily from a decrease in cash balances and in global interest rates during the year ended December 31, 2008. The decrease was partially offset by expenses related to the issuance of warrants in 2007. Exchange rate changes on our net assets denominated in foreign currencies were not materially different between 2008 and 2007.

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Quarterly Results of Operations

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

                   
                   
Three Months Ended
     March 31   June 30   Sept. 30   Dec. 31   March 31   June 30   Sept. 30   Dec. 31   March 31   June 30
     2008   2009   2010
  (in thousands NIS)
Consolidated statements of Operations
                                                                                         
Revenues                                                           26,138       37,771                    
Cost of revenues                                                           (7,340 )      (15,282 )                   
Sales and marketing expenses                                         (423 )      (1,054 )      (329 )      (3,085 )      (959 )      (1,225 ) 
Research and development expenses, net     (28,271 )      (18,910 )      (28,359 )      (30,616 )      (26,486 )      (23,364 )      (32,636 )      (7,816 )      (10,736 )      (26,296 ) 
General and administrative expenses     (3,705 )      (3,333 )      (2,840 )      (3,205 )      (2,545 )      (1,762 )      (2,932 )      (2,137 )      (2,935 )      (3,289 ) 
Gain on adjusting options to fair value     3,242       416                                                              
Operating profit (loss)     (28,734 )      (21,827 )      (31,199 )      (33,821 )      (29,454 )      (26,180 )      (17,099 )      9,451       (14,630 )      (30,810 ) 
Financial income, net     1,602       2,456       1,707       7,236       3,790       9       63       66       193       2,685  
Financial expenses, net     (4,094 )      (6,942 )      (54 )      (1,179 )      (29 )      (1,710 )      (181 )      (244 )      (1,038 )      (24 ) 
Net profit (loss)     (31,226 )      (26,313 )      (29,546 )      (27,764 )      (25,693 )      (27,881 )      (17,217 )      9,273       (15,475 )      (28,149 ) 

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

Liquidity and Capital Resources

Since inception, we have funded our operations primarily through public (in Israel) and private offerings of our equity securities, grants and loans from the OCS, and payments received under our strategic licensing arrangements. Since inception, we have raised approximately NIS 381.7 million in net proceeds from sales of our equity securities, including NIS 198.0 million from our initial public offering of ordinary shares and warrants on the TASE in February 2007, after deduction of offering expenses, NIS 51.8 million, after deduction of offering expenses, from our rights offering of ordinary shares completed in July 2009 and NIS 45.7 million, after deduction of offering expenses, from our follow-on offering in December 2009. At June 30, 2010, we held approximately NIS 88.5 million in cash and cash equivalents, and at December 31, 2009, we held approximately NIS 105.9 million in cash and cash equivalents, and have invested substantially all of our available cash funds in short-term bank deposits. In October 2009, we received the first payment of $7.0 million in connection with our licensing arrangement with Ikaria. In April 2010, we received a milestone payment of $10.0 million from Ikaria which was subject to U.S. withholding tax of approximately $1.5 million. In August 2010, we received a payment of $30.0 million from Cypress Bioscience and, subsequently, we paid the OCS $3.0 million, and paid Bar Ilan Research and Development and Ramot, the institutions from which we in-licensed the rights to BL-1020, $6.75 million, in the aggregate. We may be able to use U.S. taxes withheld as credits against Israeli corporate income tax when we have income, if at all, but there can be no

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assurance that we will be able to realize the credits. In addition, we believe that we may be able to get a refund of such withholding tax from the U.S. government but there can be no assurance that we will be able to get such a refund.

Net cash used in operating activities was NIS 18.7 million and NIS 67.2 million for the six months ended June 30, 2010 and 2009, respectively, and NIS 84.5 million, NIS 93.8 million and NIS 58.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. The NIS 48.5 million decrease in net cash used in operating activities during the six months ended June 30, 2010, compared to the same period in 2009, was primarily the result of a decrease in the loss for the period and a decrease in trade accounts receivable and other receivables. The NIS 9.3 million decrease in net cash used in operating activities during 2009, compared to 2008, was primarily the result of reduced spending on other projects and the cessation of new project introductions during 2009 in connection with the spending reduction plan we instituted at the beginning of 2009 to conserve our cash resources. The NIS 35.5 million increase in net cash used in operating activities during 2008, compared to 2007, was primarily the result of clinical trial expenses.

Net cash flows related to investing activities was minimal for the six months ended June 30, 2010. Net cash provided from investing activities for the six months ended June 30, 2009 was NIS 31.1 million, relating primarily to proceeds from the sale of financial assets at fair value through profit or loss.

Net cash provided by investing activities for the year ended December 31, 2009 was NIS 30.8 million and net cash used in investing activities was NIS 33.3 million and NIS 0.4 million for the years ended December 31, 2008 and 2007, respectively. The cash provided by investing activities during the year December 31, 2009 primarily resulted from the maturity of all our short-term investments during the year and their reinvestment into cash and cash equivalents.

Net cash flows related to financing activities was minimal for the six months ended June 30, 2010. Net cash provided from financing activities for the six months ended June 30, 2009 was NIS 15.8 million relating primarily to our public offering in Israel in June 2009.

Net cash provided by financing activities amounted to NIS 97.7 million for the year ended December 31, 2009, primarily relating to our two public offerings in Israel completed in July and December 2009. Net cash provided by financing activities for the year ended December 31, 2007 was NIS 246.2. The cash provided in 2007 relates primarily to our initial public offering of ordinary shares and warrants in February 2007.

Developing drugs, conducting clinical trials and commercializing products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe our existing cash resources will be sufficient to fund our projected cash requirements through the fourth quarter of 2012, we will require significant additional financing in the future to fund our operations. Additional financing may not be available on acceptable terms, if at all. Our future capital requirements will depend on many factors, including:

the progress and costs of our preclinical studies, clinical trials and other research and development activities;
the scope, prioritization and number of our clinical trials and other research and development programs;
the amount of revenues we receive under our collaboration or licensing arrangements;
the costs of the development and expansion of our operational infrastructure;
the costs and timing of obtaining regulatory approval of our therapeutic candidates;
the ability of our collaborators to achieve development milestones, marketing approval and other events or developments under our collaboration agreements;
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
the costs and timing of securing manufacturing arrangements for clinical or commercial production;

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the costs of establishing sales and marketing capabilities or contracting with third parties to provide these capabilities for us;
the costs of acquiring or undertaking development and commercialization efforts for any future product candidates;
the magnitude of our general and administrative expenses;
any cost that we may incur under current and future licensing arrangements relating to our therapeutic candidates; and
payments to the OCS.

Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through payments received under our collaborations, debt or equity financings, or by out-licensing other product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, or at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts.

Contractual Obligations

The following table summarizes our significant contractual obligations at June 30, 2010:

         
  Total   Less than
1 year
  1 – 3 years   3 – 5 years   More than
5 years
     (in NIS)
Car leasing obligations     1,569,804       998,631       376,048       195,125           —  
Premises leasing obligations     2,153,719       846,464       873,120       434,135           —  
Purchase commitments     6,147,000       6,147,000             -           —  
Total     9,870,523       7,992,095       1,249,168       629,260           —  

The foregoing table does not include our in-licensing agreements. Under our in-licensing agreements, we are obligated to make certain payments to our licensors upon the achievement of agreed upon milestones. We are unable at this time to estimate the actual amount or timing of the costs we will incur in the future under these agreements; however, we do not expect any of the milestones to be achieved within the next 12 months. If all of the milestones are achieved over the life of each in-licensing agreement, we will be required to pay approximately $16.3 million, in the aggregate, to the applicable licensors. Some of the in-licensing agreements are accompanied by consulting, support and cooperation agreements, pursuant to which we are required to pay the licensors a fixed monthly amount, over a period stipulated in the applicable agreement, for their assistance in the continued research and development under the applicable license. All of our in-licensing agreements are terminable at-will by us upon prior written notice of 30 to 60 days. We are unable at this time to estimate the actual amount or timing of the costs we will incur in the future under these agreements. See “— In-Licensing Agreements.”

Quantitative and Qualitative Disclosure About Market Risk

Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated financial position, results of operations or cash flows.

Risk of Interest Rate Fluctuation

Following this offering, we do not anticipate undertaking any significant long-term borrowings. At present, our investments consist primarily of cash and cash equivalents. Following this offering, we may also invest in investment-grade marketable securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is to preserve principal while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term

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maturities of our investments to date, their carrying value has always approximated their fair value. It will be our policy to hold investments to maturity in order to limit our exposure to interest rate fluctuations.

Foreign Currency Exchange Risk

Our foreign currency exposures give rise to market risk associated with exchange rate movements of the NIS, our functional and reporting currency, mainly against the dollar and the euro. Although the NIS is our functional currency, a significant portion of our expenses are denominated in both dollars and euros and currently all of our revenues are denominated in dollars. Our dollar and euro expenses consist principally of payments made to sub-contractors and consultants for preclinical studies, clinical trials and other research and development activities. We anticipate that a sizable portion of our expenses will continue to be denominated in currencies other than the NIS. If the NIS fluctuates significantly against either the dollar or the euro, it may have a negative impact on our results of operations. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for the periods under review.

To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.

Off-Balance Sheet Arrangements

Since inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

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BUSINESS

Overview

We are a clinical stage biopharmaceutical development company dedicated to identifying, in-licensing and developing therapeutic candidates that have advantages over currently available therapies or that address unmet medical needs. Our current development pipeline consists of three clinical stage therapeutic candidates: BL-1020, a new chemical entity, or NCE, that we believe may be the first antipsychotic therapeutic to improve cognitive function in schizophrenia patients; BL-1040, a novel polymer solution for use in the prevention of cardiac remodeling following an acute myocardial infarction, or AMI, and BL-5010, a novel formulation for the non-surgical removal of skin lesions. In addition, we have seven therapeutic candidates in the preclinical stages of development. We generate our pipeline by systematically identifying, rigorously validating and in-licensing therapeutic candidates that we believe exhibit a relatively high probability of therapeutic and commercial success. None of our therapeutic candidates have been approved for marketing and, to date, there have been no commercial sales of any of our therapeutic candidates. Our strategy includes commercializing our therapeutic candidates through out-licensing arrangements with biotechnology and pharmaceutical companies and evaluating, on a case by case basis, the commercialization of our therapeutic candidates independently.

Our most advanced therapeutic candidate, BL-1020, is in development for schizophrenia, a chronic, severe and disabling brain disorder that affects approximately 1.0% of the U.S. adult population as reported by the National Institute of Mental Health. Schizophrenia patients are typically treated with one of several commercially available antipsychotics, all of which are associated with side effects that reduce patient compliance and do not address the deterioration of cognitive function that affects the daily lives of schizophrenia patients. Despite these drawbacks, the three most commonly used antipsychotics, Risperdal, Zyprexa and Seroquel, reached aggregate sales of approximately $7.1 billion in the United States in 2009, based on the annual reports filed with the SEC by each of Johnson & Johnson, Eli Lilly and Company and AstraZeneca Pharmaceuticals LP, the companies that market those drugs.

BL-1020 is a new chemical entity that effectively reduces psychotic symptoms which we believe may also improve cognition. BL-1020 targets the imbalance of two key neurotransmitters implicated in schizophrenia, dopamine and gamma aminobutyric acid, or GABA. We believe that the reduction in psychotic symptoms is attributed to BL-1020’s dopamine antagonism and that BL-1020 may also improve cognition.

In our recently completed, 363-patient phase 2b EAGLE (Effective Anti-psychosis via GABA Level Enhancement) study, BL-1020 matched the antipsychotic efficacy of Risperdal, one of the leading approved antipsychotics, without evidence of the metabolic side effects associated with the use of atypical antipsychotics. Most significantly, BL-1020 demonstrated a clinically relevant and statistically significant improvement in cognition. Currently, there is no commercially available antipsychotic that improves cognitive function and this remains an important unmet medical need in the treatment of schizophrenia and other psychiatric and neurological diseases.

In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience with regard to BL-1020, covering the United States, Canada and Mexico. The license became effective in August 2010, following receipt of consent by the OCS. Under the arrangement, Cypress Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, BL-1020 for the prevention, diagnosis and treatment of all human diseases in the United States, Canada and Mexico. We have retained the rights to BL-1020 for the rest of the world. In addition, under the agreement, Cypress Bioscience licensed to us the right to use any and all regulatory data generated by Cypress Bioscience in connection with its pursuit of regulatory approval for BL-1020 in Cypress Bioscience’s territory for use by us outside of Cypress Bioscience’s territory, subject to our future reimbursement of certain pre-commercialization expenses incurred by Cypress Bioscience in generating such data. We received an upfront fee of $30.0 million from Cypress Bioscience upon the consent of the OCS to the agreement in August 2010, and we are entitled to receive up to an additional $250.0 million in connection with the achievement of certain performance-based milestones and up to an additional $85.0 million upon the achievement of certain sales-based milestones. We are also entitled to royalties, ranging from 12% to 18%, on annual net sales of BL-1020 in Cypress Bioscience’s territory under the agreement for the applicable royalty

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term. We are obligated to pay to Bar Ilan Research and Development and Ramot, collectively, a royalty payment equal to 22.5% of the net consideration we receive from Cypress Bioscience in connection with our in-licensing of BL-1020. We paid Bar Ilan Research and Development and Ramot $6.75 million, in the aggregate, from the $30.0 million upfront fee. We also paid the OCS $3.0 million as partial repayment of grants previously received for the BL-1020 development program. See “— In-Licensing Agreements — BL-1020.”

Our second lead therapeutic candidate, BL-1040, is a novel resorbable polymer solution for use in the prevention of cardiac remodeling in patients who suffered an AMI. Preventing cardiac remodeling following an AMI may prevent transition to congestive heart failure and/or improve patient survival over the long term. Following an AMI, BL-1040 is administered via intracoronary injection during standard vessel reopening procedures, such as balloon catheterization and stenting. Upon contact with damaged cardiac tissue, the liquid BL-1040 transitions into a gel within the infarcted cardiac tissue and forms a “scaffold” that supports, retains the shape of, and enhances the mechanical strength of the heart muscle during the recovery and repair phases following an AMI. The data from our preclinical trials indicate that, by supporting the damaged heart tissue, BL-1040 preserves the normal functioning of the heart and the data from our clinical trials indicate that BL-1040 should be safe. After consultation with the FDA and other comparable regulatory agencies, BL-1040 is being developed as a class III medical device under the FDA’s pre-marketing approval, or PMA, regulatory pathway.

In July 2009, we entered into an out-licensing arrangement with Ikaria Holdings, Inc., or Ikaria, with regard to BL-1040. The July 2009 agreement was amended and restated in August 2009, and, under the arrangement, Ikaria is obligated to use commercially reasonable efforts to complete clinical development of, and to commercialize, BL-1040 or a product related thereto. To date, we have received $17.0 million from Ikaria, which was subject to U.S. withholding tax of approximately $1.5 million, and we are entitled to receive up to an additional $265.5 million from Ikaria upon achievement of certain development, regulatory, and commercial milestones. In addition, we are entitled to receive from Ikaria royalties from net sales of any product developed under the arrangement. We are obligated to pay 28% of all net consideration received under this arrangement to B.G. Negev Technologies, the party from which we in-licensed BL-1020 in 2004. See “— In-Licensing Agreements — BL-1040.” We have agreed to pay Ramot a portion of the payments we make to B.G. Negev Technologies in connection with the in-license arrangement to satisfy contractual obligations between B.G. Negev Technologies and Ramot with respect to certain intellectual property rights to the licensed technology. We have also agreed to indemnify Ramot and certain of its related parties in connection with our use of the technology we in-licensed from B.G. Negev Technologies.

Our third lead therapeutic candidate, BL 5010, is a novel formulation composed of two acids being developed for the removal of skin lesions in a nonsurgical manner. These two acids have already been approved for use in cosmetics. If approved, BL-5010 would be a convenient alternative to invasive, painful and expensive removal treatments for skin lesions and may allow for histological examination. Because treatment with BL-5010 is non-invasive, we believe BL-5010 poses minimal infection risk, and requires no anesthesia or bandaging. In June 2009, we announced the initiation of a phase 1/2 clinical trial in 60 patients with seborrheic keratosis in Germany and the Netherlands to assess the safety and efficacy of BL-5010. In addition, the study is designed to assess the feasibility of preserving the cellular structure of skin lesions for subsequent histological exams. Interim results from this trial, which were announced in January 2010, indicate that all treated skin lesions were completely removed within 30 days of treatment following a single application. The results also indicate that BL-5010 is safe and is not associated with any adverse events, including irritation and inflammation. In addition, preliminary histological examination of treated lesions indicate BL-5010’s efficacy in preserving the cellular structure of treated lesions.

As part of our business strategy, we continue to actively source, rigorously evaluate and in-license selected therapeutic candidates. We establish and maintain close relationships with research institutes, academic institutions and biotechnology companies in Israel and, more recently, in other countries to identify and in-license therapeutic candidates. Before in-licensing, each therapeutic candidate must pass through our thorough screening process that includes our proprietary MedMatrx scoring tool. Our Scientific Advisory Board and disease-specific third-party advisors are active in evaluating each therapeutic candidate. Our approach is consistent with our objective of proceeding only with therapeutic candidates that we believe

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exhibit a relatively high probability of therapeutic and commercial success. To date, we have screened over 1,000 compounds, presented more than 60 candidates to our Scientific Advisory Board for consideration, initiated development of 30 therapeutic candidates and terminated 20 feasibility programs.

BioLineRx was founded in 2003 by leading institutions in the Israeli life sciences industry, including Teva. We completed our initial public offering in Israel in February 2007 and our ordinary shares are traded on the TASE under the symbol “BLRX.”

Our Strategy

Our objective is to be a leader in developing innovative pharmaceutical and biopharmaceutical products. We continuously identify and in-license therapeutic candidates in order to maximize our potential for commercial success. We repeatedly assess compounds by evaluating their efficacy, safety, technological novelty, patent status, market potential, and development and regulatory pathways. Our approach to evaluating, in-licensing and developing therapeutic candidates allows us to:

continually build our pipeline of therapeutic candidates;
advance those therapeutic candidates with the greatest potential;
quickly identify, and terminate the development of, unattractive therapeutic candidates; and
avoid dependency on a small number of therapeutic candidates.

Using this approach, we have successfully advanced three therapeutic candidates, BL-1020, BL-1040 and BL-5010, into clinical development. Specific elements of our current strategy include the following:

Facilitate the successful development and commercialization of BL-1040 by Ikaria.  We intend to assist our licensee, Ikaria, to develop and commercialize BL-1040. We are currently meeting with Ikaria on a quarterly basis to facilitate the transition of our BL-1040 assets to its organization and intend to lend our assistance and provide our expertise in their development and commercialization efforts as necessary.
Assess the timing and conditions for the development and commercialization of BL-1020 outside of the United States, Canada and Mexico.  We have retained the rights to commercialize BL-1020 worldwide, except for the United States, Canada and Mexico. We intend to monitor Cypress Bioscience’s clinical and regulatory development of BL-1020 and to pursue development and commercialization activities outside the United States, Canada and Mexico when and if we find the timing and conditions to be optimal.
Facilitate the successful development and commercialization of BL-1020 by Cypress Bioscience.  We intend to assist our licensee, Cypress Bioscience, to develop and commercialize BL-1020. We plan to meet with Cypress Bioscience regularly to consider how our experience and expertise may be a resource for Cypress Bioscience’s efforts under the out-licensing arrangement.
Commercialize additional therapeutic candidates through out-licensing arrangements or, where appropriate, by ourselves.  We intend to commercialize many of our products through out-licensing arrangements with third parties who may perform any or all of the following tasks: completing development, securing regulatory approvals, manufacturing and/or marketing. If appropriate, we may commercialize certain therapeutic candidates ourselves.
Design development programs that reach critical decisions quickly.  At each step of our screening process for therapeutic candidates, a candidate is subjected to rigorous feasibility testing and potential advancement or termination. We believe our feasibility approach reduces costs and increases the probability of commercial success by eliminate less promising candidates quickly before advancing them into more costly preclinical and clinical programs.
Use our expertise and proprietary screening methodology to evaluate in-licensing opportunities.  In order to review and select among various candidates efficiently and effectively, we employ a proprietary screening system we developed that includes our proprietary MedMatrx

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scoring tool. Our Scientific Advisory Board and disease-specific third-party advisors evaluate each candidate. We intend to in-license a sufficient number of therapeutic candidates to allow us to move a new therapeutic candidate into clinical development every 12 to 18 months.
Leverage and expand our relationships with research institutes, academic institutions and biotechnology companies, including the specific strategic relationships that we have developed with Israeli research and academic institutions, to identify and in-license promising therapeutic candidates.  To date, we have successfully in-licensed compounds from many major Israeli universities, as well as from many Israeli hospitals, technology incubators and biotechnology companies. We continue to maintain close contacts with university technology transfer offices, research and development authorities, university faculty, and many biotechnology companies to actively seek out early stage compounds. In addition, we actively source and evaluate non-Israeli compounds although we currently do not have any compound in our pipeline that was sourced outside of Israel.

Our Product Pipeline

The table below summarizes our current pipeline of therapeutic candidates, as well as the target indication and status of each candidate.

[GRAPHIC MISSING]

Lead Therapeutic Candidates

BL-1020

BL-1020 is an orally administered antipsychotic for the treatment of schizophrenia. We believe that BL-1020 will deliver antipsychotic effectiveness equal to, or exceeding, currently available treatments. Furthermore, we believe BL-1020 may be the first antipsychotic drug that improves cognitive function in schizophrenia patients. Based on our preclinical and clinical trials, we believe that BL-1020 works by blocking the dopamine receptors in the brain and activating the gamma aminobutyric acid, or GABA receptors. We believe that the dopamine antagonism in BL-1020 is responsible for reducing psychotic symptoms. The activation of GABA, or GABAergic activity, of the BL-1020 molecule may also be involved in improving patient cognition. In July 2009, we successfully completed our 363-patient phase 2b EAGLE (Effective Anti-psychosis via GABA Level Enhancement) study. We in-licensed the worldwide, exclusive rights to research, develop and commercialize BL-1020 from Bar Ilan Research and Development and Ramot.

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Schizophrenia.  Schizophrenia is a chronic, severe, and disabling brain disorder that affects approximately 1% of the U.S. adult population as reported by the National Institute of Mental Health. IMS Health, a leading provider of market intelligence, reports that the market for antipsychotic drugs was less than $500 million in 1991 and increased to $5.0 billion in 2000. According to Datamonitor, a provider of business information to the pharmaceutical and other industries, the market for antipsychotic drugs in 2008 in the United States alone was $13.6 billion, with an additional $4.2 billion in aggregate sales in Japan, France, Germany, Italy, Spain and the United Kingdom. Sales in these seven countries are projected by Datamonitor to stay stable, when aggregated, through 2018.

Schizophrenia is characterized by impairments in the perception or expression of reality, most commonly manifesting as auditory hallucinations, paranoid or bizarre delusions or disorganized speech and thinking. Schizophrenia patients also suffer from significant cognitive dysfunction. This is reflected in difficulty of daily functioning, decreased ability to maintain normal social relationships and impaired job performance. Schizophrenia is a multi-factorial disease that involves an imbalance in two key chemicals that transmit signals between neurons and other cells, known as neurotransmitters: dopamine and GABA.

Currently available treatments for schizophrenia include two broad classes of antipsychotics: “typical” and “atypical.” Both classes of medications are similarly effective at treating schizophrenia but have varying and severe side effects that limit patient compliance. Atypical antipsychotics are the current standard of care for schizophrenia patients. Typical antipsychotics generally cause debilitating movement disorders known as Extra-Pyramidal Side (EPS) effects. Atypical antipsychotics have fewer motor side effects but may cause increased risks of obesity, diabetes and high blood cholesterol. Both classes of antipsychotics do not adequately address cognitive function, and improvement in cognition represents an unmet medical need for patients of schizophrenia and other psychiatric and neurological diseases.

There are a number of different medications available to treat schizophrenia. The most commonly used atypical antipsychotics available on the market are Risperdal, Zyprexa and Seroquel. Risperdal is marketed by Janssen, a division of Ortho-McNeil-Janssen Pharmaceuticals, Inc., a Johnson & Johnson company. Johnson & Johnson reported annuals sales of Risperdal of $1.4 billion for 2009 in its annual report for the year ended December 31, 2009. Zyprexa is marketed by Lilly USA, LLC, a company of Eli Lilly and Company. Eli Lilly reported annual sales of Zyprexa of $2.3 billion for 2009 in its annual report for the year ended December 31, 2009. Seroquel is marketed by AstraZeneca Pharmaceuticals LP. AstraZeneca reported annual sales of Seroquel of $3.4 billion for 2009 in its annual report for the year ended December 31, 2009. Approximately 10% to 30% of schizophrenia patients do not respond to, or do not tolerate, a particular medication and, accordingly, will often be rotated through a series of medications until medical practitioners identify the best treatment for them, as described in an article by Daniel E. Casey et. al. published in 2003 in the journal Pharmacology.

Development and Commercialization Arrangement.

In June 2010, we entered into an exclusive, royalty-bearing out-licensing arrangement with Cypress Bioscience with regard to BL-1020, covering the United States, Canada and Mexico. Under the arrangement, Cypress Bioscience is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize, BL-1020 for the prevention, diagnosis and treatment of all human diseases in the United States, Canada and Mexico. We received an upfront fee of $30.0 million from Cypress Bioscience upon the consent of the OCS to the agreement in August 2010, and we are entitled to receive up to an additional $250.0 million in connection with the achievement of certain performance-based milestones and up to an additional $85.0 million upon the achievement of certain sales-based milestones. We are also entitled to royalties, ranging from 12% to 18%, on annual net sales of BL-1020 under the agreement. See “— In-Licensing Agreements —  BL-1020.”

Under our agreement with Cypress Bioscience, we have retained the rights to develop and commercialize BL-1020 outside of the United States, Canada and Mexico. In addition, under the agreement, Cypress Bioscience has licensed to us the right to use any and all regulatory data generated by Cypress Bioscience in connection with its pursuit of regulatory approval for BL-1020 in Cypress Bioscience’s territory for use by us outside of Cypress Bioscience’s territory. We are required to reimburse Cypress Bioscience for certain pre-commercialization expenses incurred by Cypress Bioscience in connection with the generation of such data

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when and if we elect to use the data. We intend to monitor Cypress Bioscience’s progress in the development and commercialization of BL-1020 and, when we believe the timing and conditions are optimal, may pursue development and commercialization efforts relating to BL-1020 outside the United States, Canada and Mexico. Our obligation to reimburse Cypress Bioscience for the pre-commercialization expenses is based on certain conditions relating to our use of the information and we are allowed to sublicense the rights to the data. We do not have a present intention to out-license BL-1020 outside of the United States, Canada and Mexico, but we intend to continue to consider potential out-licensing opportunities, as well as the potential to develop and commercialize BL-1020 internally.

Clinical and Preclinical Results.  We conducted a phase 2b clinical trial, which we refer to as the EAGLE trial, in order to assess the efficacy, safety and tolerability of BL-1020 compared to placebo. Risperdal, a commonly prescribed antipsychotic, was used in the trial, at a dose of 2 – 8 mg, as a positive control to validate the study’s results. The EAGLE trial was conducted under an FDA Investigational New Drug (IND) application process at 40 sites in the United States, Europe and India and included patients suffering from acute exacerbation of schizophrenia. In this six-week study, 363 patients were randomized for treatment with a low (10 mg/day) or high (20 – 30mg/day) dose of BL-1020, Risperdal (2 – 8mg/day) or placebo. The study was designed to demonstrate statistically significant superiority of BL-1020 to placebo on the Positive and Negative Symptom Scale (PANSS), the primary efficacy measure. The key secondary efficacy measures included the Clinical Global Impression of Severity (CGI-S) and the Clinical Global Impression of Change (CGI-C), which are recognized measures of severity and improvement in schizophrenia. The secondary efficacy measures also included a Readiness to Discharge Questionnaire (RDQ) and a Strauss Carpenter Level of Functioning Scale. A pre-specified exploratory end point of the study was cognition as measured by the “Brief Assessment of Cognition in Schizophrenia” (BACS) test. The study was completed in July 2009 and we announced the results of the study in September 2009.

The results show that the BL-1020 high dose group (20 – 30mg/day) experienced a significant improvement in primary and secondary efficacy measures. For the primary efficacy measure, the high dose group (20 – 30mg/day) showed a reduction in PANSS versus placebo (LS mean -23.6 vs. -14.4; p=0.002). The superiority of BL-1020 (20 – 30mg/day) over placebo was also supported by secondary efficacy measures including CGI-S and CGI-C. Furthermore, statistically significant increases in the number of patients rated as “responders” in the BL-1020 (20 – 30mg/day) group compared to placebo on the PANSS, CGI-S, and CGI-C was in line with all other efficacy measures.

The following table presents a summary of the EAGLE trial results for efficacy:

     
Endpoint   Placebo   BL-1020
(20 – 30mg)
  Risperdal
PANSS   -14.4   -23.6
P=0.002 (vs. placebo)
P=0.39 (vs. Risperdal)
  -26.2
P<0.001 (vs. placebo)
CGI-S   -0.68   -1.27
P<0.001 (vs. placebo)
P=0.607 (vs. Risperdal)
  -1.35
P<0.001 (vs. placebo)
Strauss Carpenter Level of Functioning Scale   0.20   1.93
P=0.017 (vs. placebo)
P=0.563 vs. Risperdal
  2.35
P=0.003 (vs. placebo)
Clinical Responders   47.3%   70.8%
P=0.01 (vs. placebo)
P= 0.796 vs. Risperdal
  72.5%
P<0.001 (vs. placebo)

Cognitive function in the EAGLE trial was assessed by the BACS test. The BACS test comprises the following six components: verbal memory, digit sequencing, token motor task, verbal fluency, symbol coding and the “Tower of London” puzzle. The EAGLE trial results indicate that patients treated for six weeks with the 20 – 30mg dose of BL-1020 exhibited a clinically relevant and statistically significant improvement of 9.27 points in the BACS score as opposed to the placebo control group (6.01 points). In addition, the high

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dose group of BL-1020 was superior to the Risperdal control group (with 6.2 points improvement). BL-1020 exhibited statistical significance to both the placebo and Risperdal control groups (p=0.027 for both).

The following table presents a summary of the EAGLE trial results for cognition:

     
Parameter   Placebo   BL-1020
(20 – 30mg)
  Risperdal
BACS (LS mean, LOCF)   6.01   9.27   6.2
P value vs. placebo        P=0.027   P=0.893
P value vs. Risperdal        P=0.027     

Analysis of safety did not indicate any increased toxicity associated with BL-1020 treatment in comparison with the placebo. There was no incidence of SAEs (Severe Adverse Events) in the BL-1020 (20 – 30mg/day) group but the Risperdal and placebo groups experienced SAE rates of 3.3% and 6.5%, respectively. Discontinuations due to Adverse Events (AEs) were similar in the BL-1020 (20 – 30mg/day) group (4.5%) and in the placebo group (4.3%) but higher in the Risperdal group (8.8%). There were no statistically significant or clinically relevant AEs of body weight gain, glucose increases, and changes in lipids, all indicating that BL-1020 has no metabolic AE propensity. BL-1020 at its high dose level induced a slight increase in the Extra-Pyramidal Symptoms Rating Scale (ESRS) that did not differ significantly from Risperdal. The incidence of cardiovascular, sexual, psychiatric, autonomic and gastrointestinal AEs was low and was not increased compared to placebo. There were no statistically significant or clinically relevant changes in the measurements of the ECG, laboratory or vital signs.

The following table presents a summary of the EAGLE trial results for safety:

     
Parameter   Placebo   BL-1020
(20 – 30mg)
  Risperdal
Severe Adverse Events (SAE, % patients)   6.5   0   3.3
Discontinuation due to Adverse Events (AE, %)   4.3   4.5   8.8
ESRS   1.6   10.8   10.8
Metabolic – weight gain (% notable gain)   3.6   4.9   7.3
Metabolic – cholesterol   No change   No change   No change

In January 2010, we announced the results of a six-week extension trial of BL-1020. In the extension trial, 75 patients that completed the phase 2b EAGLE clinical trial were randomized as follows: patients that were treated with either BL-1020 or Risperdal in the phase 2b EAGLE clinical trial continued their treatment and patients that were treated with placebo in the phase 2b EAGLE clinical trial were re-randomized to one of the BL-1020 groups. Patients in the extension trial maintained the levels of improvement in PANSS and CGI identified in the phase 2b EAGLE clinical trial. In addition, patients showed additional improvement in cognition with the extension trial and there were no clinically relevant changes in the measurements of ECG, laboratory or vital signs (BP, HR, Temp.).

In February 2009, we announced the results of our open label, six-week phase 2a trial of BL-1020 in Romania. The study was designed to determine the safety and maximum tolerated dose of BL-1020 in schizophrenia patients and was conducted on 36 chronically ill hospitalized patients. Only four patients dropped out of the trial, which we believe is a relatively low dropout rate. Patients were initially treated with 20mg of BL-1020 and received increasing dosages over the first seven days in order to meet the maximum dose of 40mg. Patients that were treated with BL-1020 experienced a statistically significant improvement from baseline in the PANSS and Clinical Global Impression of Severity and Improvement (CGI-S; CGI-I). This improvement was seen as early as seven days after the onset of treatment. There was a statistically significant (p<0.001) improvement on the PANSS total (baseline+84.9; day 42=63.8), and the positive (baseline+22.3; day 42=15.1), negative (baseline=20.9; day 42=16.6) and general psychopathology subscales (baseline=42.4; day 42=32.1). More than 80% of the patients showed a statistically significant improvement as reflected by the CGI-S and CGI-I. No severe or unexpected adverse effects occurred in the trial. There was no

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significant increase in extra-pyramidal symptoms at the end of the trial, and no clinically relevant change in weight. There were no notable findings on ECG, laboratory values or vital signs. All adverse events were characterized as minimal and not treatment limiting.

In July 2007, we completed a phase 1b clinical trial which examined the ability of BL-1020 to bind dopamine receptors in the brain. The level of dopamine receptors binding in the brain is directly related to antipsychotic efficacy. This study was conducted pursuant to an FDA IND application process and an application to conduct clinical trials in Sweden that was submitted to the Swedish Ministry of Health. The study investigated the ability of BL-1020 to bind dopamine receptors in the human brain and provided additional safety and tolerability data. The study was a single-center, randomized, open label study performed on three dosage groups, each with four healthy volunteers who received a single dose of either 10mg, 15mg or 20mg of BL-1020. We assessed receptor occupancy using positron emission tomography, or a PET scan, that is able to register the activity of various parts of the brain following the administration of a labeled dopamine binder. The data derived from the study demonstrated a dose dependent increase in dopamine binding with computer modeling showing receptor occupancy of between 80% and 90% at the 20mg dose upon repeated administrations. The antipsychotic efficacy of dopamine blockers is presumed to occur at dopamine binding levels of 65% or more. BL-1020 did not produce any significant changes in the subjects’ electrocardiogram test results, vital signs, clinical chemistry levels or hematology levels.

In October 2006, we completed a phase 1 clinical trial conducted under the supervision of the Israel Ministry of Health. The study was a single dose escalating, double blind, placebo controlled trial. Six dosage groups of BL-1020 were tested, 2.5mg, 5mg, 10mg, 15mg, 20mg and 25mg. Each group consisted of eight volunteers with two receiving a placebo and six receiving BL-1020. The study subjects exhibited no cardiac, neurological or psychological side effects. We believe that the findings are indicative of the safety and tolerability of BL-1020.

Extensive preclinical testing indicated that BL-1020 successfully demonstrated antipsychotic efficacy in animal models of schizophrenia and did not cause Extra-Pyramidal Side Effects at the therapeutic levels. Preclinical studies also demonstrated the potential for BL-1020 to improve cognition and provided support for our belief that the GABAergic effects of the compound resulted in cognitive improvement.

BL-1040